Prince & Partners Trustee Company Limited as Trustee of the Samnic Waingaromia Forest Joint Venture v Samnic Forest Management Ltd
[2018] NZHC 2979
•9 November 2018
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV 2018-404-2485
[2018] NZHC 2979
UNDER The Arbitration Act 1996 BETWEEN
PRINCE & PARTNERS TRUSTEE
COMPANY LIMITED AS TRUSTEE OF THE SAMNIC WAINGAROMIA FOREST JOINT VENTURE
Applicant
AND
SAMNIC FOREST MANAGEMENT LTD
Respondent
Hearing: 9 November 2018 Counsel:
M Heard & E Armstrong for Plaintiff P Spring & A Hyde for Defendant
Judgment:
9 November 2018
Reasons:
16 November 2018
REASONS JUDGMENT OF DUFFY J
Solicitors/Counsel:
Keegan Alexander, Auckland
Lee Salmon Long, Auckland
PRINCE & PARTNERS TRUSTEE COMPANY LIMITED AS TRUSTEE OF THE SAMNIC WAINGAROMIA FOREST JOINT VENTURE v SAMNIC FOREST MANAGEMENT LTD [2018] NZHC 2979 [9 November 2018]
[1] On Friday 9 November 2018 the applicant, Prince & Partners Trustee Company Ltd (the custodial trustee), brought a without notice originating application for urgent interim relief against the respondent Samnic Forest Management Ltd (Samnic), on a Pickwick basis.1
[2] After hearing from counsel for the custodial trustee and counsel for Samnic I refused to grant interim relief. My reasons for doing so now follow.
Background
[3]The custodial trustee is a professional trustee company.
[4] An unincorporated joint venture was agreed in 1994 to engage in a forestry business situated at Waingaromia Station, Gisborne.2 The joint venture comprises 20 incorporated companies that are collectively known as the “participants”. The participants appointed the custodial trustee to supervise the conduct of the joint venture on their behalf.
[5]Samnic is appointed to act as manager of the joint venture.
[6] It is common ground that under the joint venture agreement the custodial trustee and Samnic each owes fiduciary obligations to the participants.
[7] A dispute has arisen between the custodial trustee and Samnic. The custodial trustee believes that Samnic is in breach of its fiduciary obligations because it has not performed properly in its role as manager of the joint venture. The custodial trustee also believes that if it does nothing to address this perceived failure it will be in breach of its own fiduciary obligations to the participants. Accordingly, the custodial trustee has attempted to remove Samnic from the role of manager.
[8] Samnic disputes it has performed poorly, and contends that the custodial trustee’s attempted removal of Samnic is unlawful under the joint venture agreement.
1 Pickwick International Inc (GB) Ltd v Multiple Sound Distributors Ltd [1972] 1 WLR 1213 (Ch).
2 The copies of the joint venture agreement before me were undated. However, a copy of a notice terminating Samnic’s appointment as manager, which was also before me, refers to the joint venture agreement as being dated 7 March 1994.
[9] A meeting of the participants was scheduled to take place at 10 am on Saturday 10 November 2018 at which the concerns the custodial trustee has about Samnic’s performance and Samnic’s rebuttal were to be aired. The custodial trustee sought to adjourn this meeting. Samnic considered the custodial trustee had no authority to adjourn a scheduled meeting; it contended that the meeting should proceed.
[10] Because the parties were unable to agree on an outcome, the custodial trustee applied to this Court for interim relief to stop the meeting taking place. Samnic appeared and opposed the grant of interim relief.
Jurisdiction
[11] The joint venture agreement provides for disputes to be resolved by arbitration. Nonetheless, the parties were agreed that in the present circumstances this Court has jurisdiction under the Arbitration Act 1996 (the Act) to grant interim relief which had the effect of delaying the meeting of 10 November 2018.
[12]Indeed, sch 1 of the Act provides:
9 Arbitration agreement and interim measures by court
(1) It is not incompatible with an arbitration agreement for a party to request, before or during arbitral proceedings, from a court an interim measure and for a court to grant such measure.
(2) For the purposes of paragraph (1), the High Court… has the same powers as an arbitral tribunal to grant an interim measure under article 17A for the purposes of proceedings before that court, and that article and article 17B apply accordingly subject to all necessary modifications.
…
[13] One situation often requiring the Court to grant interim measures rather than an arbitral tribunal is under urgency. Thus Wild J said:3
[74] I require no persuasion that the Court’s jurisdiction under art 9 is limited to “interim measures of protection” which the arbitral tribunal cannot take soon enough ie cannot order in time to give necessary protection…
[14]Schedule 1 of the Act goes on to provide:
3 Marnell Corrao Associates Inc v Sensation Yachts Ltd (2000) 15 PRNZ 608 (HC).
17A Power of arbitral tribunal to grant interim measure
Unless otherwise agreed by the parties, the arbitral tribunal may, at the request of a party, grant an interim measure.
And:
17B Conditions for granting interim measure
(1) If an interim measure of any kind described in subparagraph (a), (b), or (c) of the definition of that term in article 17 is requested, the applicant must satisfy the arbitral tribunal that−
(a) harm not adequately reparable by an award of damages is likely to result if the measure is not granted; and
(b) the harm substantially outweighs the harm that is likely to result to the respondent if the measure is granted; and
(c) there is a reasonable possibility that the applicant will succeed on the merits of the claim.
[15] The tests for interim relief under that Act are therefore similar to the tests for granting interim injunctions.4 The Court considers whether there is a “reasonable possibility” the applicant will succeed on the merits of its claim, which is similar to the “serious question to be tried” test applied to interim injunctions;5 and where the balance of convenience lies.6 Regarding the latter, the Court considers whether the harm in question is adequately reparable by an award of damages and whether that harm will substantially outweigh the harm the opposing party is likely to suffer if relief is granted and the opposing party ultimately succeeds. However, the broader concerns relevant to interim injunctions such as public interest, third party considerations and overall justice do not usually form part of the Court’s consideration.7
Reasons for meeting 10 November 2018
[16] The forest that was planted on Waingaromia Station is now approximately half way through being harvested.
4 See Sir David A R Williams and Amokura Kawharau Williams and Kawharau on Arbitration (2nd ed, LexisNexis, Wellington, 2017) at 9.3.4 and the authorities cited therein.
5 Safe Kids in Daily Supervision Ltd v McNeill [2012] 1 NZLR 714 (HC) at [30].
6 At [55].
7 At [36] and [37].
[17] The custodial trustee alleges that for the last twelve months, if not longer, Samnic has failed to conduct the business of the joint venture properly, which has adversely impacted on the financial performance of the joint venture.
[18]Samnic denies it has underperformed in its role as manager of the joint venture.
[19] On 6 September 2018, the custodial trustee commissioned an independent report on Samnic’s performance (the Wisniewski report).
[20] An annual general meeting (AGM) of the joint venture participants was scheduled to take place on 8 September 2018. The custodial trustee wanted to adjourn that meeting until the Wisniewski report became available. However, Samnic had contended that once an AGM was scheduled it could only be adjourned by the participants agreeing at the meeting to adjourn it.
[21] The AGM went ahead on 8 September 2018. At this meeting, the participants resolved to defer consideration of Samnic’s performance until some later date by which time the Wisniewski report would have become available and the participants would have had sufficient opportunity to consider it. The participants also resolved to empower Grant Hally, a director of the custodial trustee, to call and conduct a further meeting “in the interests of the shareholders”. The reference to “shareholders” is a reference to the shareholders of the participants. They are the persons who seemingly represent the participants at the meetings of the joint venture.
[22] The Wisniewski report, which is unfavourable to Samnic, became available on 20 September 2018. On 24 September 2018 Mr Hally sent notice to the participants of a meeting of the joint venture to occur on 10 November 2018 along with a copy of the Wisniewski report. In doing so he acted in accordance with the authority delegated to him at the AGM on 8 September 2018.
[23] On dates subsequent to 24 September 2018 other persons acting on behalf of some of the participants gave separate written notice calling for the meeting scheduled for 10 November 2018. Those persons were acting in reliance on clause 14 of the joint
venture agreement, which provides for the convening and conducting of meetings. Clause 14 states:
14.MEETINGS
14.1 The meetings of the Joint Venture shall be convened and conducted in accordance with the Rules set out in the First Schedule as amended from time to time.
14.2Subject to the Rules the Manager shall from time to time:
(a) Call meetings of the Participants for the purposes of discussing the general policy aspects of the Joint Venture business;
(b) Summon a meeting of the Participants for the purpose of considering the account and balance sheet of the Joint Venture for its last preceding Financial Year and the performance of the Joint Venture in relation to the Annual Work Schedule and Budget of the then current Financial Year to date, which meeting shall be held not later than six (6) months after the end of that Financial Year;
(c) At the request of the Custodial Trustee or of Participants holding not less than Twenty (20) per cent of the capital of the Joint Venture summon a meeting of the Participants for the purpose of giving to the Manager or the Custodial Trustee their opinions and directions in relation to the exercise of their powers, PROVIDED THAT the Manger or the Custodial Trustee:
(i)may of their own volition; and
(ii) shall at the request of the Participants holding not less than Twenty (20) percent of the capital of the Joint Venture; or
(iii) the members thereof holding not less than Twenty (20) percent of the aggregate of the shares in the capital of the Companies, summon a meeting of the Participants for the purpose of giving to the Manager or the Custodial Trustee their opinions or directions in relation to the exercise of their powers.
[24] There is no dispute that those written notices were issued in compliance with either cl 14.2(c)(ii) or (iii) of the joint venture.
Further developments
[25] On 2 November 2018, the custodial trustee purported to terminate Samnic’s role as manager of the joint venture. Samnic disputes the legality of the termination process.
[26] Mr Hally deposes that the purpose of the meeting on 10 November 2018 was to discuss the Wisniewski report and vote on resolutions regarding replacement of Samnic as manager of the joint venture. He contends that the termination of Samnic as manager has removed the need for the 10 November 2018 meeting and accordingly he acted to adjourn the meeting.
[27] On the other hand, Samnic disputes it has been validly removed as manager. It also disputed Mr Hally’s authority to adjourn the 10 November 2018 meeting. It insisted that meeting should proceed.
[28] On 7 November 2018 Mr Hally gave the participants written notice the 10 November 2018 meeting was adjourned.
[29] Samnic proposed to proceed with the 10 November 2018 meeting. Richard Hayes, a director of Samnic, deposed that Samnic had been in discussions with shareholders of the participants, which led him to believe there would be between 80- 90% attendance at the 10 November 2018 meeting, either in person or by proxy. This included those shareholders who had received advice from the custodial trustee that the meeting had been adjourned, but who intended to attend at the appointed time and place in any event.
Arguments
[30] The custodial trustee argued that it was implicit in the authority the AGM delegated to Mr Hally to call another meeting in the interests of the shareholders that he also had the authority to adjourn such a meeting after he had called for it.
[31] Neither the terms of the joint venture agreement nor the first schedule of the agreement, which sets out the rules for the conduct of meetings, provides express power to the custodial trustee to adjourn a scheduled meeting of participants. It was, therefore, difficult to see how the participants could delegate to Mr Hally the power to both call for and then adjourn a meeting when they themselves were not expressly given such power under the joint venture agreement. Nonetheless, the custodial trustee invited me to read the joint venture agreement as implicitly providing such power to the participants; both for them to exercise in their own right and to delegate
to Mr Hally, particularly in situations like the present where prompt action was required.
[32] The need to read the existence of those implicit powers into the joint venture agreement was related to an argument that sought to justify the removal of Samnic as manager. The essential thrust of the argument was that, in circumstances where there was materially poor performance by the manager, the custodial trustee should be able to take urgent action to protect the joint venture’s business. Indeed, if it did not it would be in breach of its fiduciary obligations to the participants. The custodial trustee considered that in the light of the Wisniewski report such urgent action was warranted.
[33] However, part way through the hearing before me both parties acknowledged that for the purpose of giving a decision on the interim relief application I should focus solely on whether the decision to adjourn the meeting was properly and lawfully made. The question of the purported termination of Samnic as manager of the joint venture was to be put to the side.8
Analysis
[34] I approached the custodial trustee’s application by considering whether: (a) its claim to have authority to adjourn the meeting of 10 November 2018 had a real possibility of success; and (b) where the balance of convenience lay. I did not take the broader concerns relevant to the granting of interim injunctions into account.
Real possibility of success
[35] I was satisfied the custodial trustee had no real possibility of success with its claim to have the authority to adjourn the meeting of 10 November 2018 after this meeting was properly called for and scheduled.
8 If the parties remain in dispute over the custodial trustee’s attempt to remove Samnic as manager there may need to be a separate hearing in this Court regarding whether the custodial trustee has authority to remove Samnic in the way that was done. Accordingly, any findings I might make in this regard may create an issue estoppel. Given the urgent nature of the hearing before me the parties did not want to embark on arguments that may have left them with decisions that were an obstacle to subsequent judicial determination in this Court.
[36] I considered that the meeting on 10 November 2018 was called for and scheduled in two discrete ways: first, by Mr Hally acting on 24 September 2018 to give written notice of the meeting pursuant to the delegated authority given to him by the AGM on 8 September 2018; and secondly, by other persons who, on dates subsequent to Mr Hally, gave their own separate written notice in compliance with cl 14.2(c)(ii) or (iii) of the joint venture agreement both calling for a meeting on 10 November 2018 and expressing their support for Mr Hally calling such a meeting.
[37] Whether the authority given to Mr Hally to call a meeting “in the interests of the joint venture” extended to a power to adjourn any such meeting once scheduled was something that ultimately did not require my decision, though I very much doubted it did extend so far. This was because his actions were later overtaken by the notices of meeting for 10 November 2018 which the other persons subsequently issued. Unlike Mr Hally’s notice, which depended upon me finding he had delegated authority to call for and then adjourn a meeting of the participants, the notices of the other persons were fully within the purview of and compliant with cl 14.2(c)(ii) and/or
(iii) of the joint venture agreement. No-one had suggested anything to the contrary at the hearing before me.
[38] None of the persons who gave notice in terms of cl 14.2(c)(ii) and/or (iii) had formally attempted to revoke their notices calling for the 10 November 2018 meeting. Nor was it apparent to me that they could lawfully take that step under the terms of the joint venture agreement. There is no express authority to this effect in the joint venture agreement. I was aware that some of those persons had informally agreed to the meeting being adjourned, but this information was not properly before me in evidence and in any event no formal steps had been taken by those persons to express their decision for adjournment. I considered I could not act on informally conveyed information. The short point was that those persons had properly given notice calling for a meeting on 10 November 2018, and in the face of those actions I considered there was no proper basis on which I could act to prevent the meeting going ahead.
[39] Accordingly, I was satisfied the custodial trustee had no reasonable possibility of succeeding in its claim that Mr Hally could lawfully adjourn the meeting of 10 November 2018.
Balance of convenience
[40] I was also satisfied that the balance of convenience did not favour granting interim relief. First, despite the custodial trustee giving notice the meeting was adjourned, some of the participants wanted the meeting to proceed. It seemed to me that if the meeting did proceed and a quorum of participants or their representatives were present those persons could decide for themselves whether to adjourn the meeting or not. Those present would then have an opportunity to decide whether to confront any questions around Samnic’s performance as manager or to defer that matter to a future date. In this regard I note that the Wisniewski report was sent to them on 24 September 2018 so by 10 November 2018 they would have had ample opportunity to consider the contents of the report and to evaluate any rebuttal Samnic may have offered against it. If the meeting proceeded the question of whether Samnic should continue to have a role in the joint venture as well as the custodial trustee’s purported termination of Samnic as manager would then either be determined or postponed for further consideration by the very persons most affected by those issues. In such circumstances, the chosen outcome would be determined by them. They were commercial investors capable of making decisions affecting their investments for themselves. As their opportunity to exercise those choices was to come the very day after the Court hearing it seemed to me that nothing would be lost by allowing the meeting to proceed.
[41] Secondly, the custodial trustee had placed no plan before me setting out how it proposed the management of the joint venture’s business would proceed in the future without Samnic’s involvement.9 It is the middle of the logging season. Logs for this joint venture are presently on skids and trees are being felled. Something would need to be done to maintain the present harvesting momentum if Samnic was effectively removed as manager. How matters would proceed in the future was not addressed by the custodial trustee. I was aware the custodial trustee wanted to move to appoint a new manager but when this was to be done and how harvesting would be managed in the interim was not disclosed to me. Thus I had no assurance that any harm that might
9 If the meeting of 10 November 2018 was stopped by order of the Court the custodial trustee intended to proceed on the basis its termination of Samnic as manager was lawful. Unless Samnic challenged that decision in Court there was the prospect that it would be shut out of management decisions and the custodial trustee would then need to impose a replacement in Samnic’s place.
be caused by granting interim relief would not outweigh any harm that might result from refusing such relief. For these reasons, also I considered that any possible disruption to the management of the harvesting process was something that was best addressed by the participants of the joint venture rather than have the Court bring about a potential disruption by precluding them from taking the opportunity the meeting of 10 November presented to determine for themselves what steps to take in relation to the management of the joint venture.
[42]Accordingly I declined to grant the application for interim relief.
[43]Leave is reserved to the parties to file memoranda as to costs.
Duffy J
2
0
0