Todd Petroleum Mining Company Limited v Shell (Petroleum Mining) Company Limited CA155/05
[2005] NZCA 373
•23 September 2005
IN THE COURT OF APPEAL OF NEW ZEALAND
CA155/05
BETWEEN TODD PETROLEUM MINING COMPANY LIMITED
First Appellant
ANDTODD POHOKURA LIMITED Second Appellant
AND SHELL (PETROLEUM MINING) COMPANY LIMITED
First Respondent
ANDENERGY PETROLEUM INVESTMENTS LIMITED
Second Respondent
ANDOMV NEW ZEALAND LIMITED Third Respondent
ANDSHELL EXPLORATION NZ LIMITED Fourth Respondent
AND TARANAKI OFFSHORE PETROLEUM COMPANY OF NEW ZEALAND
Fifth Respondent
ANDENERGY INFRASTRUCTURE LIMITED Sixth Respondent
ANDSHELL TODD OIL SERVICES LIMITED Seventh Respondent
AND SHELL NEW ZEALAND HOLDING COMPANY LIMITED
Eighth Respondent
ANDAJIT BANSAL, PHILIP THOMAS EDWARD SANDERSON AND TIMOTHY NORCOT WARREN Ninth Respondents
ANDMAUI DEVELOPMENT LIMITED Tenth Respondent
TODD PETROLEUM MINING COMPANY V SHELL (PETROLEUM MINING) COMPANY CA CA155/05 23 September 2005
Hearing: 6 and 7 September 2005
Court: Chambers, Robertson and Baragwanath JJ Counsel: J B M Smith and D K Croft for Appellants
J E Hodder and B A Davies for First, Second, Fourth, Sixth, Eighth and Ninth Respondents
T C Stephens and P C Hunt for Third Respondent
Judgment: 23 September 2005 at 10am
JUDGMENT OF THE COURT
A The appeal is dismissed.
B The appellants must pay:
(a)in respect of the first, second, fourth, sixth, eighth and ninth respondents, costs in the sum of $10,000, plus usual disbursements; and
(b) in respect of the third respondent, costs in the sum of $10,000, plus usual disbursements.
C We certify for second counsel.
REASONS
Chambers J [1] Robertson J [11] Baragwanath J [31]
]
CHAMBERS J
Refusal to grant interlocutory injunction
[1] Although my reasons for judgment appear first, readers should turn initially to Baragwanath J’s reasons, beginning at [31]. There they will find a detailed description of what this appeal is about. These reasons are drafted on an assumption that the reader will read Baragwanath J’s reasons first; my brief reasons will not be intelligible unless that course is taken.
[2] We are all agreed that the appeal from Fogarty J’s dismissal of Todd’s application for an interim injunction must be dismissed. (The reference for Fogarty J’s decision is Todd Petroleum Mining Co Limited v Shell (Petroleum Mining) Co Limited HC WN CIV2005-485-819 26 July 2005.) But our reasons for dismissing the appeal vary to some extent.
Serious question to be tried
[3] Fogarty J dismissed Todd’s application for interim injunction “for want of a serious question to be tried on the evidence before the Court”: at [99]. Baragwanath J, on the other hand, considers Fogarty J to be wrong on that point.
[4] Like Robertson J, I find it unnecessary to express a view on this point. Even if Todd’s case is seriously arguable, Todd has not established any present need for injunctive relief, for reasons which I shall give later in this judgment.
Mootness
[5] Mr Hodder, for the Shell interests, submitted that the appeal was moot because the act which Todd sought to restrain in the High Court had, since the High Court judgment, occurred. Mr Smith, for the Todd interests, responded to that by seeking to amend the form of the injunction to reflect the changed circumstances. If Todd had persuaded me that there was a serious question to be tried, and that the
circumstances justified Court-ordered preservation of the status quo, I would not have been deflected from granting appropriate injunctive relief. Clearly this Court has power to amend pleadings and to make any order which ought to be made: Court of Appeal (Civil) Rules 2005, r 48. In no way has the underlying dispute between these parties been resolved or rendered moot. So, like Baragwanath J, I am not with Mr Hodder on this submission.
Risk of infringement of Todd’s rights
[6] Shell and OMV have done nothing wrong in signifying their assent to the
17 August resolution. Whether that resolution has any legal effect will be determined by Wild J at the substantive hearing next month. The 17 August resolution, even if valid as a notice to remove STOS, will not take effect for 180 days, i.e. until February next year. Further, both Shell and OMV undertook to the High Court that they would not remove STOS before that notice period. So nothing can happen based on that resolution pending next month’s trial. Shell and OMV both recognise that, while the notice period is running (if it is), they continue to have obligations to ensure that STOS is supported as operator.
[7] What Todd is seeking is an interlocutory quia timet injunction. In order to succeed, Todd must show that there is a strong probability that the respondents’ conduct will cause Todd harm prior to the substantive hearing next month. Todd has come nowhere near establishing that. On the contrary, the undertaking given by Shell and OMV makes it clear that no steps will be taken on the strength of the resolution pending trial. This is a short and simple answer to Todd’s application and appeal.
[8] It is unlikely that Wild J will be able to give an oral judgment at the end of the hearing next month. This is, after all, a very complex case. But he will have a good feel for whether Todd is likely to succeed and, if so, whether some form of interim relief pending judgment is required. He will at that time be much better placed to make that assessment than we are today.
Result
[9] The appeal is dismissed.
[10] The effect of this decision is that the trial will now proceed as if the application for an interim injunction and this appeal had not taken place. The majority of this Court has declined to express any view as to whether Todd has established a serious question to be tried. No doubt Wild J, as the trial Judge, will be assisted by the views of Fogarty and Baragwanath JJ, but he should not regard himself as in any way bound by either of them. He should approach the matter afresh.
ROBERTSON J
Introduction
[11] This is an appeal from a reserved decision delivered by Fogarty J in the High Court at Wellington on 26 July 2005 following a hearing on 12th to 14th of that month. It was a further round in a battle by the appellants to maintain the continued provision of operator services by Shell Todd Oil Services Limited (STOS) to various petroleum ventures, in this instance, the Pohokura venture.
[12] The aspect of the matter which was then before Fogarty J arose from what is an eighth cause of action in the appellants first amended statement of claim dated
18 May 2005 which in essence seeks rectification in one of the contractual documents in existence between the parties. The specific relief which had been sought was:
1. An interim injunction prohibiting any of the first, third and fourth defendants either by themselves, or any servant, agent, director or other appointee from voting or purporting to vote on or voting in favour of the “Proposed Pohokura JV Vote” referred to in the First Amended Statement of Claim in the 7th and 8th causes of action.
2.An interim injunction prohibiting either of the third or fourth defendants, either by themselves, or any servant, agent, director or other appointee from voting or purporting to vote on or voting in
favour of the “Proposed Western Platform JV votes” referred to in the First Amended Statement of Claim in the 7th and 8th causes of action.
[13] Fogarty J, after detailed and careful analysis of the legal position, found there was no serious question to be tried on the evidence then before the Court on the issue of rectification. Such a finding was determinative of the matter. He did, however, consider the subsidiary issue of whether rectification was available against OMV and concluded that there was not any absolute legal impediment to that being granted. He finally indicated that had he found on the first issue that there was a serious question to be tried, the balance of convenience and the overall justice of the matter, although finely balanced, came down on the basis of non-intervention by the Court.
[14] Substantially the same issues were ventilated in the appeal hearing. I have had the advantage of seeing in draft the extensive rehearsal of them by Baragwanath J which encapsulates all the circumstances and the applicable law.
Balance of convenience
[15] In my judgment, it is not necessary for this Court to express a view on the issue of rectification at this point. In determining the question of the balance of convenience, I need go no further than the clear and accepted principles set out by this Court in Klissers Farmhouse Bakeries Ltd v Harvest Bakeries Ltd [1985] 2
NZLR 129 (HC and CA). At 142, Cooke J said:
Marshalling considerations under [the heads of serious question to be tried and the balance of convenience] is an aid to determining, as regards the grant or refusal of an interim injunction, where the overall justice lies. In every case the Judge has to stand back and ask himself that question … an interlocutory decision of this kind is essentially discretionary and its solution cannot be governed and is not much simplified by generalities.
[16] In NWL Ltd v Woods [1979] 3 All ER 614 (HL) at 625 Lord Diplock commenced his comments on the decision in American Cyanamid Co v Ethicon Ltd [1975] AC 396 (HL), as follows:
My Lords, when properly understood, there is in my view nothing in the decision of this House in American Cyanamid Co v Ethicon Ltd to suggest that in considering whether or not to grant an interlocutory injunction the
judge ought not to give full weight to all the practical realities of the situation to which the injunction will apply.
[17] “Standing back”, and asking myself where the overall justice lies, in my judgment the practical realities of this case demonstrate no requirement for the Court to intervene by granting an injunction.
[18] There has not been demonstrated that there is need or justification for intervention by the Courts at this point in a serious dispute between two well- advised, well-equipped and equally resourced commercial entities.
The crux issues
[19] From my perspective there are two critical issues in this matter. First, in the absence of injunctive restraint by Fogarty J, a vote was taken on 17 August on the issue of STOS’s involvement as operator being terminated. This was on the basis that the resolution will take effect after 180 days, that is in the latter part of February 2006.
[20] Mr Hodder suggested that the injunctive relief in the form sought is now redundant as a vote has been taken. If the need for intervention had been demonstrated, I would have had no difficulty in accepting an application for leave to amend the relief to capture the position which now exists. Courts need to be mindful of and sensitive to commercial reality.
[21] However, there is a fixture in the High Court at Wellington on
3 October 2005 to deal with the substantive dispute between these parties.
[22] Nothing has been pointed to which could realistically occur in the intervening days, which could adversely impact on the appellants so that if they are successful on their equitable relief application, vindication will be compromised or their legal position thwarted.
[23] The Judge presiding at the High Court hearing in October may well need time to consider the matter and deliver a reserved decision. At the conclusion of the
hearing that Judge will be fully appraised of the total argument and will be in the best position to assess whether the interests of justice require intervention in the period until judgment.
[24] I reject the suggestion that the absence of a comprehensive undertaking by the respondents is a matter of any force or relevance in this case. Any party which seeks injunctive relief must demonstrate a need for it. There is not an onus on a person against whom such action is directed to show cause why it should not be granted.
[25] There is a second fundamental problem about injunctive relief at this stage and in these circumstances. There is not now, and never has been, any precision as to the form of the relief sought.
[26] There can be no question that, subject to the obligations of good faith and adherence to contractual obligations, any party to an agreement such as that between these parties, at any time can enter into preliminary discussions about the future. Mr Smith did not suggest that such a general situation did not exist nor that it should be altered now.
[27] If there was any basis for the Court intervening, it would have to be within a carefully circumscribed, detailed and prescriptive framework. The Court’s injunctive power is an extraordinarily potent weapon. It should only be used with circumspection and in a way in which there can be no possibility for misunderstanding as to what the Court is restraining and what it will demand adherence to.
General conclusion
[28] The activities between these parties indicate that each of them is prepared to use whatever lawful position they can to advance their own interests. The determination of the respondents is well demonstrated by the fact that they chose this current approach to dislodge STOS when thwarted by the decision of this Court in
Shell (Petroleum Mining) Co Ltd & Ors v Todd Petroleum Mining Co Ltd & Ors
CA70/05 3 August 2005.
[29] Courts must be vigilant to ensure that they do not get lined up on one side or another of a tussle of this sort unless it is truly necessary to preserve rights or maintain the integrity of the system. Nothing advanced in the comprehensive argument before us has satisfied me that anything is likely occur in the next few weeks which justifies the Court becoming involved.
[30] If the position is different after the hearing in the High Court, then a Judge can take steps to protect the position until a final judgment is available. If, as is almost inevitable, there is an appeal from that decision, then a further assessment (if appropriate or necessary) can occur at that stage. By each of these points, the matter will have progressed so that much more informed decision making can take place. Blanket intervention now would be premature and inappropriate.
BARAGWANATH J
Table of Contents
Para No Introduction [31] The issues [37] Rectification [38]
Background [38] The documents relevant to rectification [38] Todd’s rectification argument [58] The decision of the High Court and the appeal [59] Submissions on appeal [60] Discussion [62] The context of the Amending Agreement [62] The effect of the Amending Agreement [65]
Novation[78] The documents [79] Submissions: OMV and Shell [86] Todd [90] Discussion [95]
Discretion[114] Mootness [115] Imprecision of injunction [116] The risk to Todd [117]
Introduction
[31] Central to this interlocutory appeal is the question which of two inconsistent contractual terms governs the termination of the engagement of the operator of the Pohokura oil field, which is in the course of coming on stream. The appellants (Todd) applied to the High Court for an interim injunction to restrain the first and second respondents (Shell) and the third respondent (OMV) from voting to terminate the engagement as operator of the seventh respondent (STOS) which is jointly owned and controlled by Shell and Todd. In his judgment delivered on 26 July 2005
Fogarty J accepted the argument of Shell and OMV that article 4.11(D) of a Joint Venture Operating Agreement (JVOA) entered into by previous owners of the field had not been modified by a subsequent agreement (the Amending Agreement). Since Shell and OMV now have a 74% share in the field their vote to remove the operator has been effective under the article which provides:
(D) … the Operator may be removed on ninety (90) days’ notice without cause by the affirmative vote of two or more non Affiliated Parties having in aggregate a Participating Interest of not less than seventy percent (70%).
[32] Following the High Court’s refusal on 5 August 2005 of interim relief pending appeal Shell and OMV on 17 August 2005 purported to exercise authority under article 4.11(D) to resolve that the operator be removed on 180 days’ notice. Shell consequently adds to its submissions in the High Court that the vote which Todd sought to restrain has now taken place and accordingly the appeal should be dismissed as moot.
[33] OMV supports Shell’s argument. In addition it relies on a submission, rejected by the Judge, that as bona fide purchaser of the value of its interest without notice of any equity of rectification in Todd there can in any event be no arguable case that it is liable to such remedy. Moreover, since rectification is unavailable against Todd it cannot be ordered against Shell. Shell supports that argument.
[34] Todd contends for an arguable case that article 4.11(D) does not apply. It relies upon clause 9.1 of a Technical Services Agreement (TSA) appended to the Amending Agreement, providing:
9 Termination of Appointment
9.1 Operator may be removed without cause at any time on 12 months prior written notice by unanimous decision of the Operating Committee so resolving to remove Operator.
Todd argues that article 4.11(D) should be rectified to subordinate it to clause 9.1. If that is done, because with its 26% share in the field it opposed removal of the operator, there is no unanimity and the majority vote was ineffectual. And it supports the Judge’s decision that OMV was arguably bound by Todd’s equity for rectification if one existed.
[35] In response to the submission that the proceeding is moot Todd asks this Court for leave to amend. It now seeks an order that Shell and OMV be restrained pending trial to the extent of making enforceable arrangements to effect the resolutions where they are not expressed to be conditional on the discharge of this injunction.
[36] Shell and OMV, having undertaken to the High Court not to remove the operator until expiration of the 180 days, submit that there is no purpose in ordering an injunction pending the trial, which is due to begin in the High Court on
3 October 2005. Todd contend that without injunctive protection there is risk that their interests will be irreparably injured in the meantime.
The issues
[37] There are three broad issues. The first is whether Todd has an arguable case for rectification of article 4.11(D). The second is whether such claim is arguably not barred by the circumstances of the acquisition by OMH of the interest of an Austrian company Preussag Energie GnbH (“Preussag”) which had been party to the Amending Agreement. The third concerns the exercise of the Court’s discretion and embraces Shell’s argument that the proceeding is moot. I deal with each in turn.
Rectification
Background
The documents relevant to rectification
[38] The JVOA was executed on 15 July 1999 by Fletcher Challenge Energy Taranaki Limited (“FCET”) and Preussag who held respectively two-thirds and one-third interests under a ministerial permit for the exploration of petroleum in the Pohokura area and for the appraisal, development and protection of any discoveries.
[39] A recital to the deed recorded its purpose:
(E) The Parties now wish to enter into this Agreement for the purpose of forming a joint venture, appointing an Operator, carrying out exploration, appraisal, development and production work and defining the respective rights, interests and obligations in respect of the exploration for Petroleum and the appraisal, development and production of any Discoveries in a Permit area.
[40] The term “Operator” was defined as meaning a party to the agreement so designated in accordance with the agreement and acting in that capacity and not as the owner of a participating interest.
[41] Article 4 provided for the designation of FCET as operator and as to its rights, obligations and duties which included the conduct of all joint operations.
[42] Article 4.10 provided for resignation of the operator and article 4.11 for its removal. There were four sub-articles (A) to (D), the first three providing for removal of the operator: (A) upon receipt from a non-operator of notice if the operator were wound up, placed into receivership, threatened to cease business, reduced its participating interest to less than 15% or lost its governmental approval as operator; (B) following thirty days notice of material breach of the agreement or gross negligence; and (C) if there was direct or indirect change in control of the operator.
[43] The final, and on Shell’s argument vital, sub-article provided:
(D) Subject to article 4.12, the Operator may be removed on ninety (90) days’ notice without cause by the affirmative vote of two or more non-Affiliated Parties having in aggregate a Participating Interest of not less than seventy percent (70%).
Article 4.12 is not of present relevance.
[44] The interests of FCET were later acquired by Shell and Todd and those of
Preussag by OMV. Shell now holds 48.0030%, OMV 25.99985% and Todd
25.99985% of the licence.
[45] Todd relies on clause 9.1 of a Technical Services Agreement which was appended to an agreement (the Amending Agreement) dated 6 September 2002 among Shell, Preussag and Todd. Clause 4.1 of the Amending Agreement provided for the engagement as operator of STOS. Its nature and role are described in a judgment of this Court Shell (Petroleum Mining Co Limited v Todd Petroleum Mining Limited CA70/05 3 August 2005). Clause 9 provided:
9 Termination of Appointment
9.1 Operator may be removed without cause at any time on 12 months prior written notice by unanimous decision of the Operating Committee so resolving to remove Operator.
[46] The clause provided also for resignation of the operator on six months written notice. It concluded:
9.3 In addition, this Contract shall terminate if the Joint Venture is abandoned or terminated by agreement of the joint venturers or the JVOA comes to an end or if STOS’ appointment as operator is terminated in accordance with the provisions of the JVOA or this contract.
[47] The Amending Agreement recorded that the parties were the current parties to the JVOA; that a Shell subsidiary, Shell Exploration NZ Limited (“SENZL”) was the current operator under the JVOA; that following the acquisition of the Energy Division of Fletcher Challenge Limited by Shell Overseas Holding Limited the parties had agreed to engage STOS as operator on a contract basis. The parties agreed that article 4.1 of the JVOA would be amended by s 2 of the agreement. It was agreed:
a) that the amendments made to the JVOA by the agreement would be deemed to commence on 1 June 2001 and would remain in force for as long as STOS was the Operator under the technical services agreement;
b)upon termination of the TSA the amendments made to the JVOA by the agreement would cease to be of any force and effect and the provisions of the JVOA would apply in the original form;
c) on expiry or earlier termination of STOS’ appointment SENZL (or Shell if Shell so elected in writing) would succeed STOS as the operator.
[48] The parties further agreed:
a) that immediately upon execution of the agreement they and STOS
would enter into the TSA;
b) that article 4.1 of the JVOA would be substantially amended. [49] Article 4.1 of the JVOA was amended to read:
“Article 4.1 Designation of Operator
(A) STOS is appointed as Operator pursuant to a Technical Services
Agreement.
(B) No variation to the terms of the Technical Services Agreement shall be made without the unanimous consent of all of the Parties.
...
[50] Article 4.2(A) was amended to read:
“Subject to the terms and conditions of this Agreement, the Technical Services Agreement, the Permit and the Act, Operator shall have the right and is obliged to conduct Joint Operations. Operator may, in accordance with the provisions of this Agreement and the Technical Services Agreement, employ independent contractors and agents (which may include Affiliates of Operator) in such Joint Operations.”
[51] Article 4.3(A) of the JVOA was amended to record that in the conduct of joint operations the duty of the operator should include the duty to:
(1)Perform Joint Operations in accordance with the provisions of local laws, rules and regulations, the Permit, the Act, this Agreement and the Technical Services Agreement and the instructions of the Operating Committee not in conflict with this Agreement.
...
[52] Article 4.4 “Employees of Operator” was amended to read:
Subject to this Agreement, and the Technical Services Agreement (if applicable) the hours of work and the compensation to be paid to all such employees in connection with Joint Operations...
[53] Importantly to this appeal, paragraph 4.7 of the Amending Agreement provided:
4.7 Articles 4.10 to 4.13 are amended as follows:
4.7.1Articles 4.10 and 4.11(A) [emphasis added] are amended by inserting the words “and the Technical Services Agreement (if applicable)” after the words “Subject to Article 4.12”.
As will later appear, Todd claims that 4.11(A) is an error and should read 4.11(D).
[54] Article 4.10 read as amended:
Subject to Article 4.12, and the Technical Services Agreement (if applicable Operator may resign as Operator at any time by so notifying the other Parties at least three (3) months prior to the effective date of such resignation or such shorter period of notice as the Operating Committee may decide.
[55] As amended article 4.11 read:
Article 4.11 Removal of Operator
(A)Subject to Article 4.12, and the Technical Services Agreement (if applicable) Operator shall be removed forthwith upon receipt of notice from any Non-Operator if:
(1)An order is made by a court or an effective resolution is passed for the reorganization under any bankruptcy law involving the dissolution, liquidation, or winding up of Operator;
(2)Operator dissolves, liquidates, is wound up, or otherwise terminates its existence (other than for the purposes of amalgamation or reconstruction);
(3)Operator becomes insolvent, bankrupt or makes an assignment for the benefit of creditors or enters into any composition or arrangement with creditors generally;
(4)A receiver is appointed for, or an encumbrancer takes possession of, the whole or a material part of the assets or undertaking of Operator;
(5)Operator ceases or threatens to cease to carry on its business or a major part thereof or a distress, execution or other process is levied or enforced or issued upon or against any significant part of the chattels or property of Operator and is not either defended or discharged within fourteen (14) Days;
(6) The Participating Interest(s) of Shell and its Affiliates of
Operator is reduced to less than 15%; or
(7)The Government gives formal written notice withdrawing its approval of Operator as Operator of the Permit; or
(8) Shell’s (and or its Affiliate’s) shareholding and Operator is reduced to less than 50%.
(B)Subject to Article 4.12(B) Operator may be removed by the affirmative vote of all Non-Operators (excluding any Affiliate of Operator) by giving not less than 30 Days joint notice to Operator if:
(1) Operator has committed a material breach of, or has failed to observe and perform any substantive obligation on its part contained in this Agreement and has either not used reasonable endeavours to commence to cure such breach or failure within thirty (30) Days of receipt of a notice from Non-Operators detailing the alleged breach or failure or fails to diligently pursue the cure to completion; or
(2)Operator is adjudged, in the reasonable opinion of such Non-Operators, to be guilty of Gross Negligence in the conduct of Joint Operations or with respect to Joint Property, and the Operator has not taken reasonable steps to remedy such Gross Negligence within thirty (30) Days of receipt of a notice from Non-Operators detailing the alleged Gross Negligence.
...
(D)Subject to Article 4.12, the Operator may be removed on ninety (90) days’ notice without cause by the affirmative vote of two or more non Affiliated Parties having in aggregate a Participating Interest of not less than seventy percent (70%).
[56] Article 4.11(A) as amended at 4.7 of the Amending Agreement (at [53])
read:
Subject to article 4.12 and the Technical Services Agreement (if applicable) Operator shall be removed forthwith upon receipt of notice from any Non-Operator [in the circumstances stipulated].
Todd argues that there was no reason for such amendment.
[57] In s 8 the parties included four clauses as to choice of law, execution of counterparts, further assurances and agreeing:
8.4 The terms of the JVOA are confirmed to be in full force and effect, amended only to the extent set out in this agreement.
Todd’s rectification argument
[58] Todd contended before Fogarty J that article 4.7.1 of the Amending Agreement contained an obvious error: it should have referred not to article 4.11(A) but to 4.11(D) as being, together with article 4.10, amended as subordinating the JVOA clause (4.11) providing for removal of operator to provisions of the TSA. In accordance with the principles stated in Dundee Farm Limited v Bambury Holdings Limited [1978] 1 NZLR 647 (CA) there should be an order at trial for rectification of the Amending Agreement and thus of the JVOA so as to give priority to Clause 9.1 of the TSA.
The decision of the High Court and the appeal
[59] Fogarty J considered that Todd had not made out an arguable case for rectification. Todd appeals against that decision.
Submissions on appeal
[60] Mr Smith for Todd renewed its submission that it has an arguable case for rectification and that the balance of convenience favours retention of the status quo
by restraining Shell and OMV from acting on the purported vote to terminate
STOS’s engagement.
[61] In addition to his threshold submission that the proceeding is moot, Mr Hodder for Shell supported the Judge’s conclusion that rectification is not arguable, submitting also that balance of convenience is against the issue of injunction. Mr Stephens for OMV adopted Mr Hodder’s argument on this part of the case.
Discussion
The context of the Amending Agreement
[62] The context in which on 6 September 2002 Shell and Todd executed the Amending Agreement was of the Shell-Todd Heads of Agreement (discussed in this Court’s judgment of 3 August 2005 at [28] effective from 31 July 2002. In it they appointed STOS as operator of their joint venture which had been running since
1955.
[63] Preussag did not share that common position. Lacking both that relationship with STOS and local experience it preferred as far as practicable to retain the common form provisions of the JVOA. But Shell’s and Todd’s were the dominant interests; the residual appointee in the event of STOS’s ceasing to be operator was a Shell nominee, something accepted by Preussag.
[64] It is reasonable to infer that the Amending Agreement was required by Shell, Todd and Preussag to adapt the JVOA to accommodate their respective and common needs following acquisition of Pohokura from Fletcher and that the need for a stable operator was central.
The effect of the Amending Agreement
[65] By the Amending Agreement the parties agreed:
• it would remain in force so long as STOS was the operator;
• on termination of the TSA the amendments to the JVOA would cease to apply and SENSL (or Shell if it so elected) would succeed STOS as operator;
• that the parties would enter the TSA and that it would not be varied without unanimous consent.
[66] To achieve that purpose s 4 relating to the operator was substantially altered:
• by the designation of STOS (4.1(A);
• by the “no variation” term (4.1(B));
• by the subjection to the TSA of the operator’s right and obligation
(4.2(A): “subject to… TSA”);
• by similar subjection of the duties of the operator (4.3(A)) (“subject to
TSA”);
• by the similar subjection of the resignation of the operator (4.10) (added
“subject to TSA”);
[67] The ostensible result in relation to removal of the operator (4.11) was:
• in the event of notice of bankruptcy it was subjected to the TSA (A);
• in the case of material breach it was not subjected to the TSA (B);
• in the case of change in operator it was not subjected to the TSA (C);
• in the case of termination without cause but on notice it was not subjected to the
TSA (D).
[68] There is a problem with the logic of this result. There is no reason to doubt the importance to Todd and Shell of stable arrangements in relation to the role assumed by STOS, or their confidence in its performance. While I have noted that Preussag did not share that common position, preferring as far as practicable to retain the common form provisions of the JVOA, Shell’s and Todd’s were the dominant interests. Moreover the residual appointee in the event of STOS’s ceasing to be operator was a Shell nominee, something accepted by Preussag. Although Preussag was disposed in favour of the JVOA, it accepted major amendments to it especially in the context of Section IV dealing with STOS’s role. There is therefore no a priori reason to place heavy weight on a presumption against its acceptance of a substantial and durable role for STOS which is evidenced by undisputed terms of both the Amending Agreement and the TSA. Those terms included:
• the six year duration of the term (TSA);
• throughout that term the TSA would remain both in force and (in the absence of unanimous consent) unamended so long as STOS was the operator (Amending Agreement);
• STOS’s rights and obligations which were subject to the TSA (Amending Agreement article 4.2A);
• its duties which were likewise subject to the TSA (Amending Agreement article 4.3A)
They also included two of the STOS termination provisions:
• the JVOA resignation of operator clause was subject to the TSA (Amending Agreement article 4.10);
• the JVOA dismissal for bankruptcy clause was subject to the TSA (Amending Agreement article 4.11A)
[69] What were not made subject to the TSA were:
• the material breach clause (JVOA (B));
• the change in operator clause (JVOA(C)); and
• the ninety day notice by 70% clause (JVOA (D)).
[70] There was good reason not to subject (B) and (C) to the TSA which contained no equivalent provision that needed to be made dominant. But although that was logically also the case with (A), it was in fact, either out of caution or alternatively quite unnecessarily, subjected to the TSA. Yet the result of not subjecting (D) to the TSA was inconsistency between (D) and clause 9.1 of the TSA.
[71] The result is illogical. While verbally not identical, in functional terms (D)
and 9.1 serve the same purpose – of dismissal of STOS by proprietors without cause.
[72] In his affidavit Mr Selvadurai for Todd asserted that the result was contrary to the parties’ common intention. He asserts that the key issue was security of tenure for the operator as provided in Shell’s draft of the TSA (at 14) and “it was always our intention that removal of the operator without cause would be by unanimous decision... 9.1”. While expressed in rather general terms the combination of that evidence and the logical analysis just mentioned provides more of a case for Todd’s proposition than would justify summary judgment for Shell and OMV: Jones v Attorney-General [2004] 1 NZLR 433 (PC). In short the point is arguable.
[73] Shell has sought to refute the claim by marshalling the evidence of the Shell, Preussag and OMV witnesses Mr Bewley, Mr Trueman and Mr Salisbury and their exhibits. They assert a belief that the clauses could sensibly stand together. But it has been noted that while verbally not identical, in functional terms (D) and 9.1 serve the same purpose – of dismissal of STOS by proprietors without cause. There is a conflict between them and Mr Selvadurai as to their common intention. Mr Smith has signalled a desire to challenge their accounts by cross-examination; it is impossible to predict the result. Certainly the contemporary documents, which usually assume great importance as a test of accuracy of recollection, do not present a clear picture.
[74] On any view there was either error or lack of total competence in achieving the documentation. On the view of the respondents there was simply no justification for clause 9.1; on that of the appellants there was none for failure to make (D) subject to 9.1.
[75] Nor does the sequence of events refute Mr Selvadurai’s evidence. The sequence is open to different interpretations. They include that of Mr Smith, arguing that an email from Mr Bewley of 24 June 2002 met the affirmative response from Mr Trueman. Mr Trueman’s notes of the parties’ meeting on 27 June 2002 and Mr Bewley’s email of 28 June 2002 which provide some evidence of contemporary thinking are not inconsistent with that argument.
[76] Mr Hodder’s submission to the contrary emphasised clause 8.4 of the Amending Agreement and 1.3 of the TSA. As is seen from Bay of Plenty Electricity Ltd v Natural Gas Corporation Energy Ltd [2002] 1 NZLR 173, 182 lines 39-47, helpful though those provisions would be to Shell on a simple construction argument, they do not affect the rectification argument, which turns on the evidence of the witnesses as to whether the parties had reached agreement which was not recorded correctly. That there was error or lack of total competence means in the circumstances that there is room for an argument that there was a mistake of the kind that Todd alleges.
[77] I consider that there may be force in Todd’s argument that the TSA represents the true intention of the parties and that it was indeed the parties’ common intention that (D) should be subordinated to Clause 9.1 but there was error in recording (A) instead. It follows that I consider Todd’s case for rectification arguable, differing with respect from the opinion of Fogarty J on this point. I turn to OMV’s argument on the novation issue.
Novation
[78] The Judge did not accept OMV’s argument that the acquisition of its participating interest constituted a novation relieving OMV of any liability to
rectification that might have been available against its predecessor Preussag. OMV, supported by Shell, challenges that view which Todd seeks to support.
The documents
[79] Emphasis is added in the following passages. It will be seen that with a single exception they speak constantly of “assignment” rather than “novation”. The JVOA, executed between FCET and Preussag on 15 July 1999 contains:
ARTICLE 13 – ASSIGNMENT AND ENCUMBRANCE
It begins:
Article 13.1 Restriction
Except as permitted in this Article 13, a Party shall not directly or indirectly sell, assign, transfer... or otherwise dispose of [...] in respect of, the whole or any part of its right, title, interest, obligations or liabilities (including, without limitation, any Participating Interest) in, under and pursuant to this Agreement... (hereinafter in this Article 13 called an “assignment”, and the words “assign”, “assignor” and “assignee” and their derivatives shall have a corresponding meaning).
Other headings are:
Article 13.2 Assignment – Restrictions
...
Article 13.3 Assignment to Affiliate – Right
...
Then comes:
Article 13.4 Assignment to Non-Affiliate – Right
(A) Each Party may, subject to any necessary approval of the Minister and any other government consent, and to the provisions of this Article 13, at any time assign the whole or any part of its Participating Interest to any other Party or person which is not its Affiliate.
[80] There follows a right of pre-emption on the part of other parties. The article continues:
If none of the other Parties... requests the assignment of such whole or part Participating Interest, the relevant party may assign it to the proposed assignee on the proposed terms and conditions provided that:
(a) that Party first obtains the prior written consent of each of the other Parties (which consent can only be withheld if it can be established on reasonable grounds that the proposed assignee lacks the financial capability to meet its prospective obligations and liabilities under this Agreement or that the proposed assignee does not have adequate petroleum industry experience); and
(b) the instrument evidencing the assignment shall be executed by the parties thereto and submitted to the approval of the Minister...
Article 13.5 Effective Date
(A) No assignment... shall be effective or binding as between the Parties unless and until:–
(1) the Minister approves of the instrument...
(2) the assignor and assignee have furnished each Party with a copy of an executed instrument effecting the legal assignment, together with evidence of approval by the Minister...; and
(3) the assignor and assignee have furnished each Party with an executed instrument between each Party and the assignee substantially in the form of Exhibit C duly executed by the assignee accepting and assuming all and any obligations and liabilities by, in or under this Agreement in respect of the Participating Interest the subject of the assignment...
Article 13.6 Continuing obligations
(A) (1) A Party assigning all or part of its Participating Interest to an Affiliate pursuant to Article 13.3 shall, unless each other Party otherwise agrees, remain liable to each other Party for the performance and observance of all and any obligations under this Agreement in respect of such Participating Interest it shall pro tanto be released and discharged from such liability to the extent the same is discharged by the assignee, and such obligations shall in addition become those of the affiliate accepting the assignment.
(2) A Party assigning all or part of its Participating Interest to another Party or person pursuant to Article 13.4 shall, unless each other Party otherwise agrees, remain liable to each other party only for the performance and observance of all and any obligations under this Agreement in respect of such Participating Interest which are incurred before or on the affected date of the assignment, but such obligations shall, to the extent not so observed and performed by
such assignor, also be and be deemed the obligations of the assignee.
[81] Exhibit C to the JVOA (2A/270), being the template for an undertaking required by the JVOA to be executed by any assignee, includes the following terms:
1. THAT as from the date hereof the Assignee will well and faithfully keep, perform, observe and comply with all the covenants, conditions, restrictions, agreements and provisions contained or implied in the JVOA appurtenant or relevant to the said interest to be kept performed observed or complied with and undertakes and warrants to the JV Parties the due performance and observance of the obligations arising under the JVOA and the Permit imposed upon it as the assignee of the said interest.
2. THE Assignee acknowledges that it has executed this Deed with full knowledge and notice of all the covenants, conditions, restrictions, agreements and provisions contained or implied in the JVOA and with full knowledge and notice of all relevant obligations arising under the Permit.
3. THIS Deed shall be governed by and construed in accordance with the laws of New Zealand.
...
[82] The TSA provided:
8 Assignment
8.1 The benefit of the appointment of Operator is incapable of
assignment by Operator.
8.2 Nothing in this Contract shall be construed so as to prevent any of the Joint Venturers from assigning its Participating Interest in accordance with the JVOA.
8.3 When an assignee of a Participating Interest enters into a Deed of Assumption as specified in Exhibit C of the JVOA with the other Joint Venturers and the assigning Joint Venturer is released from further performance and observance of the obligations and liabilities attaching to the Participating Interest so assigned, the assignee shall also execute a deed under which it agrees to observe and perform all the obligations and liabilities of the assigning joint venturer in respect of this Contract. The deed of assumption to this Contract and the Deed of Assumption of the JVOA may be combined in one document.
8.4 Operator agrees that upon receipt of notice by it of any deed [which] has the effect of a novation of the JVOA between remaining Joint Venturers and a third party, it will recognise the third party as a Joint Venturer and this Contract shall be construed thereafter in all respects as if such assignee were a party hereto.
The word in parentheses is omitted from the text but is plainly to be added as a matter of construction.
[83] On 1 May 2003 Todd consented pursuant to article 13.4(a)(2)(a) to the proposed assignment from Preussag to OMV. The following day Shell also consented. Both required compliance with article 13.5 of the JVOA. Julia Friebel, chief counsel of OMV which is based in Austria, produced documents evidencing OMV’s acquisition of Preussag’s interest.
[84] The first is a deed of assignment of Preussag’s 35.8616% interest in petroleum export permit 38459 and a like interest in the joint venture.
[85] There is also a deed of assumption on 7 May 2003 by OMV of the one part and the joint venture parties to the other part (6/12 23) in the following terms:
WHEREAS
A. The JV Parties are, either as original Parties or by assignment, holders of Petroleum Exploration Permit No.38459 (hereinafter called “the Permit”) and joint venturers under a Joint Venture Operating Agreement dated the 15th day of July 1999 (as subsequently amended) (hereinafter called “the JVOA”);
B. Preussag Energie GmbH has by Agreement dated the 22nd day of
January 2003 (“Assignment Agreement”) agreed to assign to the Assignee a
35.8618% Participating Interest in the Permit and the JVOA (hereinafter called “the said interest”) on the terms and conditions set out in that
Agreement;
C. Pursuant to Article 13.5(A)(3) of the JVOA the Assignee is required to enter into a Deed with the JV Parties accepting and assuming all of the obligations under the JVOA in so far as the said interest is concerned as from the date that the assignment of the said interest takes effect;
D. The JV Parties are also parties to a Technical Services Agreement dated 21 October 2002 (hereinafter called “the TSA”) with Shell Todd Oil Services Limited (hereinafter called “STOS”) whereby STOS is appointed as operator for the joint venture.
E. Pursuant to clause 8.3 of the TSA the Assignee is required to execute a deed agreeing to observe and perform all of the obligations and liabilities of Preussag Energie GmbH in respect of the TSA.
NOW THEREFORE THIS DEED WITNESSETH that in consideration of the premises the Assignee HEREBY COVENANTS with and for the benefit of the JV Parties as follows:
1. THAT as from the Closing Date the Assignee will well and faithfully keep, perform, observe and comply with all the covenants, conditions, restrictions, agreements and provisions contained or implied in the JVOA appurtenant or relevant to the said interest to be kept performed observed or compiled with and undertakes and warrants to the JV Parties the due performance and observance of the obligations arising under the JVOA and the Permit imposed upon it as the assignee of the said interest. The Closing Date is the date defined as the Closing Date in the Assignment Agreement, and the Assignee and Preussag Energie GmbH will jointly notify the JV Parties of the actual date of the Closing Date as soon as it is determined.
2. THAT as from the Closing Date the Assignee will observe and perform all of the obligations and liabilities of Preussag Energie GmbH in respect of the TSA.
3. THE Assignee acknowledges that it has executed this Deed with full knowledge and notice of all the covenants, conditions, restrictions, agreements and provisions contained or implied in the JVOA and the TSA and with full knowledge and notice of all relevant obligations arising under the Permit.
4. THIS Deed shall be governed by and construed in accordance with the laws of New Zealand and the parties submit to the non-exclusive jurisdiction of the Courts of New Zealand and all courts competent to hear appeals therefrom.
Submissions: OMV and Shell
[86] OMV submitted that its acquisition from Preussag of a participating interest in the joint venture constituted a novation of the JVOA, the Amending Agreement and the TSA. Whether or not the original parties to the Amending Agreement held the common intention pleaded, no such common intention existed at the time of the novation. Mr Stephens submitted that any equities, such as an equity of rectification, could not survive the novation.
[87] He argued in the alternative that if OMV took its participating interest in the joint venture merely as an assignee of Preussag’s rights under the JVOA, the Amending Agreement and the TSA, rectification will nevertheless not be granted against OMV as a bona fide purchaser of Preussag’s participating interest for valuing without notice of the alleged common intention.
[88] He further argued that the second appellant, Todd Pohokura Ltd, was not party to the Amending Agreement at the time of its execution and that if
Todd Petroleum Mining Company Ltd had a claim to rectification it was a personal equity incapable of transfer and has not been transferred.
[89] Shell adopted OMV’s submissions.
Todd
[90] Mr Smith supported the Judge’s view that it was arguable that OMV took subject to equities. He relied on two grounds. First as to precedent, that conclusion is required by the judgment of this Court in Bay of Plenty Electricity Ltd v Natural Gas Corporation Energy Ltd which I have cited in another context (at [76]) and which followed Mangles v Dixon (1852) 3 HLC 702. That authority supports a presumed common intention that later participants are not protected from enforcement of an unknown equity altering the effect of an instrument to which they have become party which would have been enforceable against their assignor.
[91] Secondly as to construction, the language of the JVOA was predicated on a true assignment, which in point of law places the assignee in the same position as the assignor and is to be distinguished from a novation which substitutes a new contract for the old and does not carry equities forward.
[92] Mr Smith argued that the language of the JVOA is predicated on the transaction’s being in law an assignment carrying the whole of the assignor’s obligations to the assignee. Article 13.5 provides for execution of an instrument:
...duly executed by the assignee accepting and assuming all and any obligations by, in or under this agreement in respect of the participating interest the subject of the assignment.
These he submitted include unknown equities. Clause 8.4 of the TSA is to be read as conditional: if a deed has the effect of a novation of the JVOA between the remaining joint venturers and a third party it will recognise the third party as a joint venturer. The case of its not being a novation but a mere assignment is not referred to. He submitted that the nature of the relationship of the parties requires that all obligations should survive, hence the reference in 8.4 of the TSA to “this contract”
which is to the JVOA. The purpose of the arrangement is for the new party to be subject to all obligations of the old, whatever they may be.
[93] On an assignment equities pass even in the absence of notice: Mangles. The fundamental question concerns what intention is to be imputed to the parties. The test is an objective one conveniently expressed in terms of what an objective bystander with the parties’ knowledge would have made of it.
[94] The JVOA and its Exhibit C described the transaction as an assignment. Where parties use terms of art in a commercial contract and are represented by legal advisers throughout there is a presumption, albeit rebuttable, that they intend the terms of art to bear their legal meaning. It has not been rebutted.
Discussion
[95] The fundamental principle of the law of contract is that the Court will strive to give effect to the expressed intentions of the parties, viewing their conduct objectively as would an informed bystander present at their dealings and familiar with the background common to both (or all). That includes in the present case the legal principles with which their respective expert advisors would be familiar.
[96] Commercial certainty requires that the courts should as far as practicable give effect to legal terms of art selected by the parties. The terms “assignment” and “novation” are often although not invariably used as legal words of art, sometimes in contradistinction.
[97] In the simplest case “assignment” can be used to denote the transfer to B of A’s rights against C. Such assignment may subject B to any undisclosed entitlement in C to reduce A’s apparent rights; such entitlement is called an equity. One example is C’s entitlement to a set off against A: Mangles v Dixon (at [90]). A second is an estoppel: Bay of Plenty Electricity Limited v Natural Gas Corporation Energy Limited (at [76]). A third, of present relevance, is rectification of the contract between A and C.
[98] “Novation” by contrast is generally used to denote a transaction whereby the contract between A and B is discharged by mutual consent and replaced by a new contract between A and C, relieving B of all liability. In such a case the new contract is usually construed as freeing C of any liability for any undisclosed entitlement in C to reduce A’s apparent rights.
[99] But while use of either label for the transaction may be evidence that it is to be construed as having the effect of the simple or paradigm cases just mentioned, with equities presumptively included or excluded, the Court must examine the whole of the dealings to determine what intention to deduce or impute. In National Trust Co v Mead (1990) 71 DLR (4th) 488, 501 Wilson J said for the Supreme Court of Canada:
The courts have established a three-part test for determining if novation has occurred. It is set out in Polson v Wulffsohn (1890), 2 B.C.R. 39, as follows:
1. The new debtor must assume the complete liability;
2.The creditor must accept the new debtor as principal debtor and not merely as an agent or guarantor; and
3.The creditor must accept the new contract in full satisfaction and substitution for the old contract.
There has been some disagreement among courts across the county as to the weight to be attributed to these elements... Indeed,... a review makes it clear that these three factors are not the only ones to be considered. The courts are usually confronted with an amalgam from which they must distil their finding of fact as to whether novation has occurred or not.
[100] At pages 504-5 Wilson J turned to the effect of assumption and renewal agreements. She said:
...it would appear that some courts have come perilously close to holding that the execution of such agreements per se effects a novation...
Other courts have come out strongly that the execution of an assumption agreement in and of itself as not sufficient to establish a novation. For example, in Re Prospect Mortgage Investment Corp v Van-5
Developments Limited (1985) 23 DLR (4th) 349 Esson JA commented at p 362:
Because novation is essentially an issue of fact, it would be wrong in principle to say, as a generalisation, that assumption agreements or extension agreements, or other particular classes of documents, do or do not create a novation. The question must be decided in each case
having regard to all of the circumstance of which the language of the new contract is only one.
In my view, the execution of an assumption agreement does not per se effect a novation. As Esson JA quite rightly noted, because novation is a question of fact, it would be wrong to hold that the execution of a document by itself would satisfy the doctrine. This is not to say, however, that such an agreement may not carry significant weight in determining whether a novation has taken place. Indeed, if the parties have directed their minds to setting out the terms of the debt relationship in writing, it seems to me that the terms of that agreement should conclude what the parties intended their relationship to be. In other words, in the absence of a written agreement or clear contractual language, the conduct of the parties may take on greater significance in elucidating the intent of the parties than when such an agreement has in fact been executed and is clear. Thus, the language of assumption agreements is deserving of careful scrutiny even though the subsequent conduct of the parties may also be factored in the court’s determination.
[101] In this case the use of the term “assignment” is of assistance to Todd’s argument. The use of the term “novation” (TSA at [8.4]; in bold at [82]) tends to assist OMV/Shell. But it is necessary to delve more deeply.
[102] There is much learning on “assignments” and “novations”. Unless the contract with B otherwise provides, or is of a kind that the law will not permit to be assigned, assignment may occur simply as between A and C without the consent of B.
[103] For there to be a novation there must be three contracts: (1) between A and C by which A acquires rights against C (and normally C acquires rights against A); (2) between A and C by which A and C are each relieved of liability vis-à-vis the other; (3) between B and C by which B assumes the liability previously undertaken by A (and C will usually be required to assume vis-à-vis B the liability previously owed to A).
[104] Novation is often expressed as the termination of the A-C contract and its substitution by the B-C contract. But the present case does not fall simply into a simple “assignment” or novation” category. Since the parties’ presumed intention is dominant it is that rather that the affixing of any label that is crucial.
[105] Here there is no paradigm assignment. C (OMV) has executed the assumption document which both A (Preussag) and B (Shell) are parties: that is consistent with classification as novation. But the parties expressed intention was not that the contract between A and C should be terminated but that:
...as from the Closing Date the Assignee will observe and perform all of the obligations and liabilities of Preussag Energie GmbH in respect of the TSA.
(at [85])
That is consistent with assignment.
[106] It is evident from perceptive academic essays (see Julian Bailey Novation (1999) 14 Journal of Contract Law 189 and Justine Kirby Assignments and Transfers of Contractual Duties: Integrating Theory and Practice (2000) VUWLR 317) and the judgments and writings to which they refer that in the sphere of assignment and novation there are potentially limitless means of expressing intention. Indeed there is nothing to prevent parties from agreeing that a transaction called an assignment should not permit equities to pass, or that a novation should occur on terms that they should. The issue is ultimately one of inferring or if, necessary imputing the intention of the parties.
[107] Here the existence of the requirement of Article 13.5 of the JVOA, the head contract, requiring an assumption agreement is arguably an indication of an intention that such contract should continue beyond the assignment. Even if it were characterised as a novation the question remains – on what terms; subject to equities or not?
[108] That a contract between the new parties is on the same terms and conditions of that of the old contract is of course consistent with there being a novation: TC Industrial Plant Pty Ltd v Roberts Queensland Pty Ltd (1963) 180 CLR 130,
137-8; Sheehy v Edmonton World Hockey Enterprise (1979) 105 DLR (3d) 644, 646. But any prima facie inference that equities pass in the case of assignment and do not in the case of novation must be subject to inconsistent expressed intention of the parties. Equities are the creation of the law which the Court will fasten on the conscience of a party. But the terms of a contact may remove or sustain them.
In principle the contract must predominate: equities can arise only where consistent with that intention; equally they may be preserved in accordance with that intention when they would otherwise be taken to have been lost. The language of the deed of assumption (at [85]) is consistent with there being a continuing JVOA, being a contract which it is the parties’ intention to continue albeit Preussag has been replaced by OMV.
[109] It may be powerfully argued for OMV that the resulting contractual arrangements are to be characterised as a substantially different contract, with the entry of the new party. But such contention may be said to beg the essential question of the parties’ intent. Whether after replacement of a blade and three handles the original axe retains its essential character depends upon the purpose for which the characterisation is made. Here the purpose of the question is to decide what intention to infer from the parties’ conduct or to impute to them as something they must have endorsed if asked at the time of the assumption agreement.
[110] I do not propose on this interlocutory appeal to attempt any concluded opinion as to the true construction of the parties’ agreement. The High Court at trial will have the advantage of a fully developed matrix of fact and law on an issue of considerable general importance. It is sufficient to say that among the arguable options is that selection of the expression “assignment”, coupled with the original JVOA’s Article 13.5 requirement that the assignee execute an instrument of assumption “of all and any obligations and liabilities by, in and under this Agreement”, displayed an intention that the assignee should be subject to equities, even if unknown. It is arguable that each original party would answer an officious bystander that it would expect its own equities to be given effect; why should either agree to lose them?
[111] The same argument answers OMV’s final argument that any equity of rectification of the first appellant cannot enure in favour of the second. That must also be a question of the intention of the contracting parties.
[112] Overall I consider that there is an arguable case on the novation issue.
[113] The question of how strong may be the inferences to be drawn from description as assignment or novation is one of general importance on which evidence of standard practices might be forthcoming. Whether a decision on that point should be left for the Judge at trial potentially goes to the next question.
Discretion
[114] Having held that there is an arguable case on both grounds advanced by Todd
I turn to the exercise of the Court’s discretion.
Mootness
[115] I do not accept Shell’s argument that the proceeding is moot. The grounds on which Todd sought to restrain the vote that took place on 17 August related to what Shell and OMV would do in consequence; in particular that they would act upon it by terminating STOS’s appointment. That issue remains live and the case does not therefore fall within the principles of such cases as Sun Life Assurance Co of Canada v Jervis [1944] AC 111 (PC) on which Shell relied.
Imprecision of injunction
[116] An injunction would be simply to the effect that until further order the respondents should not engage in conduct for which the authority of the vote of
17 August 2005 would be required. Once again it is Shell/OMV who know what they have in mind. An injunction in such terms would be clear and unambiguous within the principles summarised in Borrie and Lowe The Law of Contempt (3rd ed)
560-1.
The risk to Todd
[117] STOS’s role has been deemed to be in force since 1 June 2001; for the reasons contained in this Court’s judgment of 3 August 2005 the importance to Todd
and to STOS of the latter’s continuation is considerable. Shell and OMV however say that there is no ground to apprehend loss; the High Court fixture is for 3 October; the dismissal of STOS is not to occur until 17 February 2006, some five months. They submit that the undertaking to the Court I have recorded at [36] coupled with the imminence of the trial means that Todd have failed to establish risk to their interests even if it later appeared that relief had been wrongly declined and so no order should be made.
[118] Shell asserts that there is little risk to Todd but has not spelt out what it plans to do, when and how it will do it and with what effect. Despite Shell’s claims of internal problems within STOS there was no suggestion by Shell or OMV that injunctive relief until trial would entail serious loss to either.
[119] Todd’s response is that it has no means of knowing what Shell and OMV may have in mind and that there is no good reason to allow Shell/OMV to seek any advantage from a change in the status quo in a long-standing and vital arrangement, which they have sought to bring about without first seeking directions of the Court. It is supported by Lord Mansfield’s statement of principle:
It is certainly a maxim that all evidence is to be weighed according to the proof which it was in the power of one side to have produced, and in the power of the other to have contradicted
Blatch v Archer (1774) 1 Cowp 63, 65.
That retains its authority: see Fairchild v Glenhaven Funeral Services Ltd [2003] 1
AC 32, 46 per Lord Bingham; Snell v Farrell [1990] 2 SCR 311, 328.
[120] This is not a case where even a tentative estimate of the merits is feasible; cf Series 5 Software Ltd v Clarke [1996] 1 All ER 853, applied in United Pukekohe Ltd v Grantley [1996] 3 NZLR 762. But the judgment of this Court of 3 August
2005 turns on the importance of STOS and the potential adverse consequences to it and to Todd of interfering with its operations. Pohokura is in the midst of the vital phase of coming on stream to replace Maui as New Zealand’s major operating field. Lacking knowledge of what may be done, when, how and with what consequences it cannot be assumed that Todd will suffer no disadvantage by reason of the arguably
unlawful vote. While the undertaking prevents actual dismissal of STOS employees for 180 days from 17 August 2005, that is until mid-April 2006, refusal of relief may well have intangible effects in terms of how the personnel of STOS act in the period before final determination of this case.
[121] But what Todd seeks is a quia timet injunction: to prevent a threatened infringement of Todd’s rights that has yet to occur. If as Todd asserts the vote was a nullity that does not itself constitute an infringement of rights. Sir Maurice Casey states the principles in his contribution to Laws of New Zealand: Injunctions at 11:
The plaintiff must show that there is a strong probability that the defendant’s conduct will be the cause of injury, and the threat of injury must be immediate and substantial. It is not sufficient for the plaintiff merely to express a fear of threatened harm.
No more than that has been established; with its joint interest in STOS it may be expected that Todd will be in a position to monitor whether and if so when any threat of injury has become immediate and substantial.
[122] The courts’ approach is seen in a final injunction decision Stollmeyer v Trinidad Lake Petroleum Company [1918] AC 485, 497-8 where after holding and declaring that the appellants’ rights had been infringed Lord Sumner delivering the advice of the Privy Council said:
Their Lordships are however of opinion that no injunction should go forthwith. The declarations will safeguard the appellants’ rights and no pecuniary harm worth mentioning is being done at present… It will be sufficient to give to the appellants liberty to apply for injunctions to the Court of first instance [after a stipulated period]
[123] In Sportsworld Society Inc v Shanahan HC WHA CIV-2004-488-720
29 October 2004 I expressed the opinion that the High Court possesses jurisdiction to make interim declarations in private law civil proceedings.
[124] While it might be open to this Court to make such a declaration as a component of Todd’s claim (see Goldsbro v Walker [1993] 1 NZLR 394, 404 per Richardson J), no such declaration could be made without good reason. Given that it is open to Todd to argue its claim in the imminent High Court trial and if need
should arise that Court can consider interim relief, I see no purpose in such interim declaration and would dismiss the appeal.
Solicitors:
Russell McVeagh, Wellington for AppellantsChapman Tripp, Wellington for First, Second, Fourth, Sixth, Eighth and Ninth Respondents
Simpson Grierson, Wellington for Third Respondent
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