Samnic Forest Management Limited v Samnic Forest Waingaromia (no.1) Limited
[2025] NZHC 253
•21 February 2025
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA
TĀMAKI MAKAURAU ROHE
CIV-2024-404-002301 [2025] NZHC 253
UNDERthe Trusts Act 2019, the Receiverships Act 2993, the High Court Rules 2016 and the Court’s inherent jurisdiction
IN THE MATTER of an application for an order that a receiver
and manager of the Samnic Waingaromia Forest Joint Venture be appointed
BETWEENSAMNIC FOREST MANAGEMENT LIMITED
Applicant
ANDSAMNIC FOREST WAINGAROMIA (NO.1) LIMITED, SAMNIC FOREST WAINGAROMIA (NO.2) LIMITED, SAMNIC FOREST WAINGAROMIA (NO.3) LIMITED, SAMNIC FOREST WAINGAROMIA (NO.4) LIMITED,
…/2 cont’d
Hearing: 17 February 2025
Appearances: P J K Spring and W M van Roosmalen for Applicants J E McLennan for First Respondents
W M Patterson for Second Respondent A G Needham for Interested Party
Judgment: 21 February 2025
JUDGMENT OF VENNING J
This judgment was delivered by me on 21 February 2025 at 3.30 pm, pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar Date……………
SAMNIC FOREST MANAGEMENT LIMITED v SAMNIC FOREST WAINGAROMIA (NO.1) LTD & Ors [2025] NZHC 253 [21 February 2025]
SAMNIC FOREST WAINGAROMIA (NO.5) LIMITED, SAMNIC FOREST WAINGAROMIA (NO.6) LIMITED SAMNIC FOREST WAINGAROMIA (NO.7) LIMITED, SAMNIC FOREST WAINGAROMIA (NO.8) LIMITED, SAMNIC FOREST WAINGAROMIA (NO.9) LIMITED, SAMNIC FOREST WAINGAROMIA (NO.11) LIMITED, SAMNIC FOREST WAINGAROMIA (NO.12) LIMITED, SAMNIC FOREST WAINGAROMIA (NO.13) LIMITED, SAMNIC FOREST WAINGAROMIA (NO.14) LIMITED, SAMNIC FOREST WAINGAROMIA (NO.15) LIMITED, SAMNIC FOREST WAINGAROMIA (NO.16) LIMITED, SAMNIC FOREST WAINGAROMIA (NO.17) LIMITED, SAMNIC FOREST WAINGAROMIA (NO.18 LIMITED, SAMNIC FOREST WAINGAROMIA (NO.19) LIMITED, SAMNIC FOREST WAINGAROMIA (NO.20) LIMITED, SAMNIC FOREST WAINGAROMIA (NO.10) LIMITED
First Respondents
ANDDINU HARRY CHARTERED ACCOUNTANTS
Second Respondent
Solicitors: Glaister Keegan, Auckland for Applicant
Holmden Horrocks, Auckland for First Respondent Paterson Hopkins, Auckland for Second Respondent Tompkins Wake, Tauranga for Interested Party
[1] Samnic Forest Management Limited (SFML) applies for an order appointing Simon Dalton as receiver and manager of the Samnic Waingaromia Forest Joint Venture (the JV).
[2] The application is opposed by nine of the JV shareholders, namely those numbered 1, 4, 7, 9, 11, 14, 15, 16, and 18 (although number 1 is currently a company removed from the register). The other 11 JV shareholders either support the application or have taken no steps.
[3] The second respondent, Dinu Harry Chartered Accountants Limited, is the current custodial trustee of the JV (the CT). It is controlled by Dilkhush (Dinu) Harry. The CT holds the shares in SFML on trust for the JV shareholders. In Mr Harry’s opinion the appointment of a receiver is likely to result in an outstanding audit being completed which will enable the joint venture to be wound up. For that reason, he does not oppose the appointment of a receiver as sought.
Background
[4] In around 1993 a number of documents were executed to establish a forest investment on land at Waingaromia in Gisborne. An original JV shareholder, Samnic Forest Development Services Limited and Prince & Partners Trustee Company Limited (the then CT) executed a trust deed relating to an offer of shares in the forestry venture. Next, the JV shareholders, SFML and Prince & Partners executed the JV to exploit the forestry right granted by SB Developments Limited, the then landowner. Finally, the same parties also entered a Deed of Trust relating to the JV.
[5] Unfortunately, the forestry investment has not been the success the parties to the JV anticipated it would be. There have been a number of disputes between the various shareholders mainly arising from, but not limited to, issues relating to the management of the JV. From about 2014 a dissentient group led by John Cliffe, Roy Dykes and Edward Borrie began complaining about the actions of the directors of SFML, Richard Hayes, Scott Funnell and Gavin Fortune.
[6] The forest was mature by 2015 and in early 2016 harvesting of the logs started. That involved the building of infrastructure such as road construction to enable the harvesting to be completed.
[7] However, by 2018 the internal dispute had reached the stage where the then CT, Prince & Partners took action against the manager SFML. Ultimately a decision of this Court and meetings of the JV partners led to confirmation of the position of SFML as manager and the resignation of Prince & Partners as CT to be replaced by the second respondent.1 The second respondent was subsequently appointed the new CT.
[8] Further proceedings then followed as SFML sought to recover losses to the JV allegedly caused by the actions of Prince & Partners. After sustained negotiations and a two-day mediation a settlement was ultimately concluded subject to ratification at a meeting of the JV shareholders. The key elements of the settlement were:
(a)payment of a lump sum of $250,000 by Prince & Partners to the JV shareholders;
(b)waiver of fees due to Prince & Partners of $306,178 (GST inclusive); and
(c)waiver of fees otherwise payable to the directors of SFML in the sum of $306,178.
[9] A Special General Meeting (SGM) of the JV shareholders was held on 7 March 2023 for the purpose of ratifying the settlement agreement negotiated at the mediation. The option was to otherwise proceed to arbitration. Ultimately, and after some strident opposition by Mr Cliffe, the investors present, including Mr Cliffe, unanimously resolved to accept the proposed terms of settlement and to direct the independent counsel who had been appointed to represent the JV shareholders to execute the agreement on their behalf. The settlement was concluded on that basis.
1 Mr Cliffe and Mr Borrie voted against the confirmation of SFML as manager. Mr Cliffe and his proxies also opposed the appointment of the second respondent as CT.
[10] Logging operations were completed in February 2022, and the landowner was given formal notice of hand back in May 2022.
[11] The outcome of the forest venture that was completed following harvest was that a sum of approximately $600,000 (less the cost of winding up) was available for distribution to the JV shareholders.
[12] However, it has not been possible to make the final distribution to the JV shareholders as the accounts have not been completed. The JV requires accounts to be presented annually and audited. BDO was the auditor. Solicitors engaged by the Cliffe faction alleged negligence against BDO. A complaint was also made to the Chartered Accountants Association of New Zealand (CAANZ). In response, BDO suspended the audit process for the years 2021 and 2022. While the complaint to the CAANZ about BDO was apparently resolved in BDO’s favour, and BDO recommenced the audit, in May 2024, a law firm wrote on behalf of Messrs Cliffe, Borrie and Dykes (as directors of a number of the JV companies) making further allegations about the conduct of SFML and also criticising BDO. As a result, on 9 September BDO advised in writing that until the issues in relation to them are resolved they cannot finalise the audit although it is largely completed. The email advised:
Further to our conversation last Friday, you have asked me to explain why BDO cannot for the present time finalise the audit for the 2022 and 2023 financial year ends.
Audit partners and the firm of BDO must conduct themselves according to a code of ethics. The code references a situation where a threat is identified, and the evaluation and impact of that threat is considered fundamental to the performance of our role and duties as an auditor. In this case there is a threat of litigation, which arose with the professional complaint made against Wayne Monteith, audit partner of the joint venture entity. This matter has not been satisfactorily resolved given the most recent correspondence from Hesketh Henry [sic] which further indicates a threat of legal action against BDO. Accordingly, we have been unable to complete the audits while this matter remains outstanding. As an aside most of our audit work has been performed however, until resolved we cannot complete the audit.
We will cooperate in every way possible according to our code as soon as the threat of legal action is eliminated.
[13] There have been other issues. In September 2024 Mr Cliffe purported to call an SGM. The CT considered that the proposed meeting was not validly convened and advised the JV shareholders to await advice from SFML about a meeting. Mr Cliffe then subsequently advised he had decided to postpone the meeting.
[14] Further, following a complaint by, I infer, one of the Cliffe faction, BNZ froze the bank account of the JV on 10 September 2024.
[15] SFML considers it is not in a position to conclude and wind up the JV because of the ongoing issues raised by the Cliffe interests and the fact that unless the matter is resolved by the intervention of some independent party BDO will not complete the audit.
[16] The parties are at an impasse. Until finalisation of the accounts confirmed by audit SFML cannot wind up the JV and distribute the limited, remaining, funds to the JV shareholders, despite the fact that the forest has been logged so that the purpose and intent of the initial JV is at an end.
Opposition to the application
[17]The first respondents oppose the application.
[18] A number of affidavits have been filed in opposition from directors of the opposing JV shareholding companies: John Cliffe, Royden Dykes, Arran Boote, Duncan Woodhouse (the landowner), David Cotter, Edward Borrie, Barry Cotter and Simon Hayes. The opposition can be summarised as:
(a)SFML has no standing to make the application. It is not a creditor;
(b)the JV is not insolvent;
(c)matters concerning the JV should be dealt with under the JV, including but not limited to, by way of shareholding voting and resolutions. The intervention of the Court is not required or necessary;
(d)any alleged deadlock in the operation of the JV arises from acts and/or omissions of SFML itself and/or it does not come to the Court with clean hands;
(e)the appointment of a receiver is traditionally seen as a last resort. The operation of the JV is not at the stage of a last resort and the inherent jurisdiction of the Court to appoint a receiver should not be exercised at this stage.
The landowner’s position
[19] At the outset of the hearing Ms Needham entered an appearance for Woodlett Investments Limited seeking leave to appear and be heard. Woodlett is the current landowner of the forestry block upon which the forest had been planted.
[20] There are three sets of proceedings involving abatement notices issued by the Gisborne District Council. The notices have been issued to Woodlett, SFML and its directors and, in addition, the Council has issued an application for enforcement orders against SFML, its directors and Woodlett and its director, Duncan Woodhouse. Those proceedings are to be heard in the week commencing 24 March 2025. In the meantime, the abatement notices are stayed. Woodlett’s concern is that if the receiver is appointed before the Environment Court hearing, the hearing will not proceed. Also, if the JV is placed into receivership immediately there is a further risk it will prejudice Woodlett’s interest and ability to enforce its rights against the applicant and remaining JV partners.
[21] While Woodlett says it has a neutral position regarding the application to appoint a receiver to the JV it considers the JV should remain on foot and the status quo should be preserved until the Environment Court proceedings are determined. In the memorandum, Ms Needham suggested that a form of administration or a change in directors of SFML might be a better option.
[22] The application for leave to intervene was opposed by the applicant SFML but was supported by the parties represented by Mr McLennan.
[23] Having heard from Ms Needham and noting her client’s position, I do not consider leave should be granted to Woodlett to intervene and be heard. The purpose of the JV has been achieved for the reasons given in this judgment. The focus of the application for receivership is on the internal management of the JV rather than its relationship with Woodlett. The issue of the abatement notices relate to past actions and are a matter to be dealt with separately by the Environment Court.
Jurisdiction
[24] The application is said to be pursued in the alternative. First, in the exercise of the Court’s inherent jurisdiction, and second under s 138 of the Trusts Act 2019.
[25] In Rae v Omana Ranch Limited Katz J reviewed the principles relating to the exercise of the Court’s inherent jurisdiction and noted that historically receivers had been appointed in two situations: (a) where there is a need for the interim protection of property (and the income of property) including disputes about partnerships, sales or mortgages of land and administration of estates; and (b) to facilitate execution of judgments where no remedy by execution at law is open to an entitled party or is likely to be ineffective owing to the peculiar nature of the property.2
[26] A receiver will only be appointed where there is no other effective remedy and is regarded as a matter of last resort.3
[27] In the present case there is a need to protect the limited funds currently available for the JV shareholders, particularly given the dispute about the management of the JV.
[28]Section 138 of the Trusts Act provides:
Court may appoint receiver for trust
(1)The court may, on an application by an interested person or on its own motion, appoint a receiver to administer a trust.
2 Rae v Omana Ranch Limited [2012] NZHC 2639, [2013] 1 NZLR 587 at [10].
3 Evans v Orr[1923] NZLR 769; and Lockhart Trustee Services No 56 Ltd v Ryan [2020] NZHC 1823, (2020) 5 NZTR 30-019.
(2)The court must be satisfied that the appointment of a receiver to administer the trust is—
(a)reasonably necessary in the circumstances of the trust; and
(b)just and equitable.
(3)Only a person qualified to be a trustee may be appointed under subsection (1).
(4)When appointing a receiver under this section, the court (having regard to the terms of the trust and the interests of justice) must determine—
(a)the extent of the duties and powers of the receiver; and
(b)the duration of the receivership; and
(c)the principles that the receiver is to apply in determining priorities; and
(d)whether the receiver is to be paid from the trust assets.
(5)If a court determines under subsection (4) that a receiver has a power in relation to a trust, the trustee of the trust cannot exercise that power for the duration of the receivership.
[29] It has been suggested that the test of “reasonably necessary” under s 138 may be a less restrictive test than that applied to the appointment under the Court’s inherent jurisdiction.4
[30]I turn to the issues raised in opposition to the application.
Standing
[31] Mr McLennan submitted that SFML had no standing to bring the application generally.
[32] I am unable to accept that submission. SFML was a party to the original JV agreement and the Deed of Trust relating to the JV. It clearly has standing to bring an application for relief regarding the future management of the JV.
[33] Perhaps the more interesting and difficult question is whether the JV could be said to be a trust so as to engage the jurisdiction on that basis. However, I agree with
4 Toailoa v Eliu [2024] NZHC 1509.
Mr Patterson that to the extent the documents provide for the role of the CT, a trust is created which would engage the Trusts Act. The JV document is closely interrelated and interlinked to the document appointing the CT. The CT holds the shares in SFML. The foundation documents need to be read together so that, taking a purposive approach to the application of the Trusts Act, I am satisfied that s 138 could also apply to the present situation and the Court’s inherent jurisdiction is also available, if otherwise appropriate.
[34] I am satisfied that SFML has standing and may pursue the relief sought of the appointment of a receiver under the Court’s inherent jurisdiction or under s 138 of the Trusts Act. The real issue is whether the Court should do so.
Has the JV run its course?
[35] The next jurisdictional point taken by the opposing shareholders is that the JV is still on foot and should carry on until 28 October 2027 or until the term is reduced by extraordinary resolution. They rely on cl 20 which reads:
20TERMINATION OF JOINT VENTURE
20.1Unless the term of this Joint Venture is extended or reduced by Extraordinary Resolution the Joint Venture shall be dissolved on the 28th day of October 2027.
They also note that there has been no such extraordinary resolution.
[36] The applicant SFML relies on a preliminary provision dealing with the JV at point 2 of the JV agreement:
2.2The parties acknowledge that the aim of the Joint Venture is:
(a)to exploit the Forestry Rights and to develop on the Forestry Land a commercially viable forest;
…
2.4The Joint Venture shall subsist, and this Agreement shall remain in full force and effect until termination of the Forestry Right Agreement unless otherwise agreed.
[37] As noted above, as a matter of fact the Forestry Right Agreement has been terminated. The forest has been harvested. The land has been handed back to the owner.
[38] I do not consider there is necessarily a conflict between the provisions. Given that the purpose of the JV is stated to exploit the forestry right and that it was to subsist until the termination of the Forestry Right Agreement (which has occurred), the purpose of the JV has been spent. Clauses 2.2 and 2.4 recognise that. The JV remains in existence for the sole purposes of finalisation of the audited accounts and distribution of the steadily diminishing proceeds.
[39] I agree with Mr Spring’s submission that the reference to the date of October 2027 in clause 20 is best read as a drop-dead date. The clause recognises that after the purpose of the JV has been achieved (as it has in this case), the JV remains operative but only for the purpose of finalising the accounts and winding up the JV. At that time the JV shareholders can pass the appropriate resolution under cl 20.1. However, there is no point in the JV shareholders otherwise remaining in a relationship until October 2027 when the purpose underlying their relationship, namely the exploitation of a forestry right, is at an end.
The joint venture is not insolvent
[40] Although raised as a ground of opposition, Mr McLennan did not address this point orally in submission. While a receiver may be appointed where there is an issue of insolvency, there is no suggestion in the authorities that the exercise of the Court’s inherent jurisdiction or the application of s 138 of the Trusts Act is limited to situations of insolvency.
[41] The issue is whether the assets of the trust entity are in jeopardy. Clearly they are in the present case. As noted, in this case, the remaining funds of the JV are at risk of being entirely depleted.
Intervention of the Court is not required or necessary
[42] Mr McLennan submitted that the issues between the JV shareholders should be dealt with under the terms of the JVA, including but not limited to shareholder voting and resolutions. He submitted that any deadlock can be resolved by the shareholders at a properly constituted meeting. He also suggested that if indeed the issue was BDO’s refusal to complete the audit SFML could and should have appointed a new firm of auditors.
[43] With respect to that submission, it overlooks the practical circumstances which have led to the present impasse. Having the matters raised at an AGM or SGM is extremely unlikely to lead to any resolution between the parties. The actions taken by the Cliffe faction following the previous SGM at which the settlement agreement was confirmed unanimously and their continued misconstrued attempts to revisit that issue and to complain about the consequences of that settlement, suggests strongly that there is little purpose in convening a further meeting to discuss matters. Regrettably the parties’ positions are well entrenched on the main issues, including the Cliffe faction’s complaints against the directors of SFML.
[44] In addition to Richard Hayes’ evidence, Mr Harry has also confirmed independently why the audited accounts for the financial years were not available. The problem is entirely the result of complaints and threats by some of the first respondents against the auditor. That is confirmed by the email from the BDO partner. That email answers Mr McLennan’s submission that there was a lack of evidence about BDO’s position.
[45] Further, as to the suggestion that another firm of accountants be appointed to conduct the audit, given there would have to be disclosure to any such firm why BDO were not prepared to complete the audit it is extremely unlikely that another firm would accept the brief without an independent person’s control of the JV given the division between the parties and the nature of the continued threats made by the Cliffe faction. It is simply unrealistic to suggest otherwise.
[46] Finally, I note the JVA provides for alternative dispute resolution. However given Mr Cliffe continues to refuse to accept the settlement following the last
mediation involving the CT and SFML dispute the fact he voted in favour of it, I accept that there is no point in SFML pursuing that option.
The SFML does not come to the Court with clean hands
[47] Mr McLennan next suggested that the applicant has failed to facilitate and hold regular AGMs as required, has failed to facilitate the preparation of financial statements for the JVs, and has charged excessive and unauthorised fees. As such, it does not come to the Court with “clean hands” and is not entitled to the relief it seeks.
[48] This is effectively a restatement of the above propositions and it suffers from the same difficulties. The evidence confirms to the Court that the JV shareholders and SFML will never agree at any future meeting. The Cliffe faction continue to refuse to accept the settlement that was approved unanimously at a previous meeting. There is nothing in the vast amount of documents before the Court to suggest that the parties’ attitudes will change. The documentation filed by the Cliffe interests in response to the application is a clear indication of the likely outcome of any AGM. It rehearses complaints against the CT and the directors of the applicant.
[49] Mr McLennan also noted that SFML and its directors were prosecuted as in the course of clearing the forest, roads were constructed without the appropriate consent. However, the fine and costs were paid by insurance without any loss to the JV.
[50] Mr McLennan also submitted that Mr Cliffe’s attempt to call an SGM was blocked by the second respondent CT, and criticised the second respondent for doing so. However, as Mr Patterson submitted, the CT accepts that he must call such a meeting if participants holding not less than 20 per cent of the capital of the JV request him to do so, but it does not accept Mr Cliffe’s attempt was valid. In any event, Mr Cliffe ultimately agreed not to proceed with the proposed meeting. Next, it is clear from the terms of the JVA and the Trust Deed that it is for the CT to decide in its “absolute and uncontrolled discretion” whether or not to exercise its powers.
[51] On the evidence, there is nothing which would disentitle the applicant from the relief sought.
[52] While the Cliffe faction feels strongly that there has been mismanagement by the applicant, if that is ultimately correct, then an independent and objective receiver would be able to identify that and take whatever steps may be necessary.
Last resort
[53] Mr McLennan noted that the authorities confirm the appointment of a receiver is traditionally seen as a last resort. He submitted that the JV is not at that stage yet and the Court should not exercise its inherent jurisdiction to appoint a receiver.
[54] Mr McLennan referred to a number of authorities in which a similar application had been declined. Each is distinguishable. In Armani v Armani, Walker J considered that the trusts were still capable of being administered, and that mismanagement was not sufficient.5 Lockhart Trustee Services No 56 Ltd v Ryan involved an issue as to who should replace a trustee.6 In Reaney v Reaney Jagose J was again considering the replacement of a trustee.7 In Kaweka Ranch Ltd v Holt there was evidence of deadlock amongst the directors and the bank account had been frozen.8 However, while the deadlock supported the appointment, the Court also had to be satisfied that the assets were at risk.
[55] Despite the general submission this is not yet a last resort situation, the opposing JV shareholders really have no answer to the practical situation which is that, since the termination of the forestry right and the harvesting of the forest, the capital sum available for distribution has been and continues to be reduced by the costs associated with the ongoing existence of the JV.
[56] It is in all parties’ interests to bring an end to the ongoing costs associated with the current impasse caused by the dissent between them. Absent agreement between the parties which, on the evidence before the Court, is simply not realistically achievable there needs to be the appointment of an independent party before all the
5 Armani v Armani [2021] NZHC 3145, [2022] 2 NZLR 547.
6 Lockhart Trustee Services No 56 Ltd v Ryan [2020] NZHC 1823, (2020) 5 NZTR 30-019.
7 Reaney v Reaney [2021] NZHC 784.
8 Kaweka Ranch Ltd v Holt HC Napier CIV-2009-441-278, 4 June 2009.
funds are expended. To that extent the position is very close to, if not at, the last resort stage.
[57] In any event, for the reasons given above, I consider that there is jurisdiction to make an order under s 138 on the basis that it is reasonably necessary to appoint a receiver, and it would be just and equitable to do so.
Result
[58] For the above reasons the Court is satisfied that it is appropriate to grant the application, and it is appropriate for a receiver to be appointed.
[59] The Court accordingly makes orders in accordance with the application dated 11 September 2024 appointing Simon Dalton receiver, and on the terms set out at paras 1(a) to (l) of the originating application dated 11 September 2024.
Costs
[60]Costs should follow the event.
[61] I reserve costs to be dealt with by way of memorandum. The applicants and the second respondent are to file and serve memoranda as to costs within 10 working days. The first respondents represented by Mr McLennan are to file and serve any response within five working days thereafter. I will then deal with the matter on the papers.
Venning J
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