Todd Petroleum Mining Company Limited v Shell (Petroleum Mining Company) Limited HC Wellington

[2005] NZHC 1736

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

CIV-2005-485-819

BETWEENTODD PETROLEUM MINING COMPANY LIMITED

Plaintiff

ANDSHELL (PETROLEUM MINING COMPANY) LIMITED

First Defendant

ANDENERGY PETROLEUM INVESTMENTS LIMITED

Second Defendant

AND  OMV NEW ZEALAND LIMITED

Third Defendant

AND  SHELL EXPLORATION LIMITED

Fourth Defendant

ANDTARANAKI OFFSHORE PETROLEUM COMPANY OF NEW ZEALAND

Fifth Defendant

AND  ENERGY INFRASTRUCTURE LIMITED

Sixth Defendant

AND  SHELL TODD OIL SERVICES LIMITED

Seventh Defendant

ANDSHELL NEW ZEALAND HOLDING COMPANY LIMITED

Eighth Defendant

ANDAJIT BANSAL, PHILIP THOMAS EDWARD SANDERSON AND TIMOTHY NORCOT WARREN

Ninth Defendant

AND  MAUI DEVELOPMENT LIMTED

Tenth Defendant

TODD v SHELL & ORS HC WN CIV-2005-485-819 [28 April 2005]

Hearing:         28 April 2005

Appearances: J B M Smith and J A Kean for Plaintiff

P R Jagose and B A Davies for Defendants T C Stephens for Third Defendant

Judgment:      28 April 2005

JUDGMENT OF GODDARD J

Introduction

[1]    Todd seeks urgent interim relief to restrain Shell or its Shell Todd Oil Services (“STOS”) directors and others from acting to pass proposed resolutions at a Board meeting of STOS, to be held in New Plymouth at 8.00am tomorrow. The application has proceeded on an essentially Pickwick basis due to the urgent timing of the matter.

[2]    Notwithstanding the urgency with which the matter has been brought before the Court, I did not apprehend that Shell has been prejudiced in its ability to meet and oppose the application, as there has been a considerable background to the matter.

[3]    The necessity for me to deal with the application on such an exigent basis precludes any detailed traverse of the background facts. The brief facts are that STOS (or its equivalent) is an unincorporated joint venture between Shell and Todd for the exploration and production of petroleum. It has existed since 1955.  Todd  and Shell each hold 50% of the shares in the share capital of STOS. The governance of STOS is set out in its Constitution dated 23 June 1997 and its operation is provided for in a Heads of Agreement dated 1 March 2002. The current share capital of STOS is $2,000 and its most recent Annual Report discloses that it undertakes no trading activities. It was described to by Mr Jagose as an unorthodox corporate body of the nominee type whose role is concerned solely with governance. It is in the nature of a trustee. It is employed as a technical operator for the Pohokura Gasfield by the Pohokura Joint Venture Parties and also provides services as operator for the

2

Western Platform Gasfield. These operator services are pursuant to Joint Venture Agreements between the parties concerned with those fields. STOS is also  employed as operator of the Omata Tank Farm, a storage facility owned by the sixth defendant. It is also employed as technical operator or equivalent under agreements to operate other fields not connected with this proceeding (Pakuni, McKee and Mangahewa fields).

[4]    The essence of the plaintiff’s case is that the above described contract of employment, the technical services agreement and the agreement to operate the Omata Tank Farm constitute valuable assets of STOS which represent in value more than half the value of all STOS’s assets.

Background facts

[5]    The immediate background to the application is a dispute between Todd and Shell as to certain aspects of the operation and management of STOS. Put  succinctly, Todd says the dispute in respect of which negotiations or disputes have arisen includes, but is not limited to charges which another entity, Shell International Exploration and Production (“SIEP”), renders to STOS for technical support, advice and other services in respect of the Maui Joint Venture Agreement and the other joint ventures concerned. In response Shell says that SIEP’s services must remain available to it, whilst acknowledging that there is a deadlock between Shell and Todd over the best commercial resolution to this dispute.

[6]    On 23 March 2005 Shell wrote to Todd on the issue of SIEP’s fees, recording that discussions on the matter had been continuing for “some considerable time, dating back over 12 months”. The letter continued:

[Todd] has made its position clear that it will not support the continued SIEP Services under the terms offered by SIEP. Shell has stated its position that the use of the services of SIEP is integral to Shell’s continued support of STOS providing operating services.

It is clear we have reached an impasse with no prospect of finding a  mutually acceptable position within the framework of the existing STOS operating model.

[7]    Shell then went on to express in the letter its loss of confidence in the current STOS operation model as being able to deliver services in an effective and timely manner. Shell then elaborated on the basis for its loss of confidence. Of particular concern, it said, were the ongoing disputes and the unacceptable level of dysfunctionality between Shell and Todd as “owners of STOS”, giving rise to an immediate concern that the 2005 work programme would not be delivered. Shell proposed, as a first next step that the Maui partners be immediately informed of the “current impasse”, so that each could decide the best course of action according to its differing needs. Discussions on alternative arrangements with Todd were stated to  be “welcome”.

[8]    Shell wrote again to Todd on 31 March 2005 proposing, as a way forward, a transfer of operatorship from STOS to Shell or to another 100% owned Shell entity. Shell reiterated its view that the current STOS operating model was failing, while the STOS Board continued to be “beset with governance issues including agreement to the standard SIEP Service Agreement”. That agreement had been due to expire  on 31 March 2005. (In the event it was rolled over until 1 May 2005.) A meeting was proposed for 1 April 2005 to discuss and agree the way forward. Tthe third defendant attended but Todd apparently did not.

[9]    On 12 April 2005 Shell wrote to OMV and Todd in response to a concern raised by OMV that a change of operatorship might be disruptive. The response was in the following terms:

·     Shell has a coherent plan in place to avoid any disruption;

·     This is not a conventional change of operatorship scenario;

·     Many of the STOS staff already consider they work for a Shell company;

·     There will be no physical relocation or reorganisation;

[10]   The letter concluded by  proposing  a  meeting  with  OMV  and  Todd  on  14 April 2005 to discuss the above proposal.

[11]   Todd replied on 18 April 2005 setting out its view of the matter. It is clear from that letter that the parties were not ad idem over the issues raised by Shell. In

the letter Todd did not concede that the problems suggested by Shell were real or that the solutions proposed by Shell were targeted at the real issues. As Todd saw it, the real problem was the proposed increases to SIEP’s fees and other charges which Todd viewed as “inappropriate”. Inter alia, Todd stated:

Those problems are not, as you suggest, that the current operating modelling is failing, or problems with governance. Rather, the problem is  that proposed increased to SIEP fees and proposed imposition by Shell of EPA, pension and other charges are appropriate. Unfortunately, Shell has shown a consistent disinclination to address those issues and seek to generate revision of charges to appropriate categories and levels. Instead, Shell seems intent on treating the proposed charges as non-negotiable. We cannot see how that approach could possibly be consistent with the obligation of Shell appointed directors to act in the best interest of STOS, or with the obligation of Shell companies to act in the interest of the various joint ventures of which they are a part.

Because of Shell’s approach … it has been left to Todd to seek further information about the proposed changes, enquire into the purported basis of them, raise challenges arising from the inadequacy of information both as to extent and content and generally to seek to secure appropriate value outcomes for Shell Todd Oil Services Limited and for the various ventures.

That has been a difficult exercise. In addition to the lack of willingness of Shell New Zealand to assist/facilitate the exercise, there has been an  endemic unwillingness by the relevant parts of the Shell organisation to provide transparency or genuine debate. …

It should be evident to you from the above that the problem here is not with Shell Todd Oil Services Limited. Rather, it is with the costs sought to be imposed by the wider Shell regional group. Accordingly, your suggested solution, of replacing STOS with Shell as operator is misconceived and does not address the fundamental problem. We invite you to revert with something that does.

[12]The letter concludes:

In summary we do not think that your letter addresses our key concerns and we invite you to revert with one that does.

[13]   On 19 April 2005 Shell sent Todd and OMV a proposed Decision of the Petroleum Mining Companies (“PMCs”) under the Maui Joint Venture Agreement, to be voted on at a Maui Joint Venture meeting to be convened at Shell’s offices on 21 April 2005. The material part of the proposed decision provided as follows:

The Maui PMCs (PMCs) hereby record in writing the following decision:

1.The PMCs no longer have confidence in STOS’s ability to perform its duties under its Maui Contract of Employment in an efficient and timely manner.

2.In the event that STOS resigns as Operator:

2.1Maui Development Ltd (MDL) be directed, on behalf of the PMCs, to accept STOS’s resignation with effect from the date specified in its resignation notice, subject to the condition that STOS in instructed to do all things necessary to facilitate a smooth transition to the new operator. MDL is also hereby authorised to waive, condone, release or forgive any action STOS may take in effecting any such resignation;

2.2The PMCs agree to Shell (Petroleum Mining) Company Limited (SPM) assuming the role of Operator in place of STOS from the effective date of STOS’s resignation;

2.3The terms of SPM’s appointment will be substantially the same as for STOS (under the existing STOS Maui Contract of Employment) and MDL is directed to negotiate such contract of employment with SPM to be submitted to the PMCs in terms of clause 3 of MDL’s Contract of Employment prior to MDL entering into the contract of employment with SPM on the PMC’s behalf; and

2.4MDL be directed to liaise with STOS and SPM and manage the process in the co-ordination of staff, contract and any asset transfers from STOS to SPM and any other issues with a view to ensuring that the handover is smooth with minimal impact on the Maui Joint Venture.

3.This decision has been directed to secure the maximum commercial advantage for the Maui Joint Venture.

[14]   Todd responded by letter dated 20 April 2005 setting out its view as to why the proposed decision could not be passed as a resolution of the PMCs under the Maui Joint Venture Agreement. Notwithstanding this, on 21 April 2005 the PMCs (excluding Todd) under the Maui Joint Venture voted in favour of the above proposed decision. The vote of Mr Tweedie (the Managing Director of Todd and a member of the Board of STOS) against the resolution records as an addendum to his vote, “As this is not a unanimous vote, it is not valid resolution and is ultra vires the MJVA and related agreements”.

[15]   Later that same day Shell and OMV wrote to STOS referring to the decision taken that day and seeking the resignation of the STOS Board as the provider of

operator services, and confirming Shell’s willingness and ability to provide such services. The letter concluded:

In the event that such a decision is not taken by the STOS Board, Shell and OMV advise that they will move promptly to take the necessary steps within the Joint Venture to terminate the employment of STOS and commence the process of SPM to succeed STOS as Operator.

[16]   That same evening Shell sent a Notice of Meeting and attached papers for a meeting of the Board of Directors of STOS, to take place in New Plymouth tomorrow 29 April (tomorrow) at 8.00am. The attached papers contained Proposed Resolutions which include the following:

1.The Company is to give the requisite notices (to the extent that notices have not already been received by the Company removing the Company as operator/provider of operator services and expertise), on or as soon as possible after 29 April 2005, that it will cease to be operator or otherwise provide operator services and expertise in respect of Maui, Pohokura, Omata, PEP 38481 and PEP 384282. The notices are to take effect as follows:

(a)on 1 November 2005, in the case of the notice for or to the participants in the joint venture concerning petroleum exploration permit 38459 and petroleum mining permit 38154 (Pohokura);

(b)on 1 November 2005, in the case of the notice for or to the participants in the joint venture concerning petroleum mining licence 381012 (Maui);

(c)on 1 May 2006, in the case of the notice for or to the participants in the joint venture concerning petroleum exploration permits 38481 and 38482 (Western Platform);

(d)on 1 November 2005, in the case of the notice for or to Energy Infrastructure Limited, under the technical services agreement concerning the Omata Tank Farm dated 15 April 2002.

The Company is to seek from the participants or Operating Committees in the Maui, Pohokura and Western Platform joint ventures, and from Energy Infrastructure Limited for the Omata Tank Farm technical services agreement, consent to a reduction in the resignation notice period if it considers that it is able to transfer operatorship/provision of operator services and expertise in a shorter timeframe.

[17]   On 22 April 2005 Mr Tweedie wrote to his fellow STOS Board members, advising that the resolutions as proposed had contractual and governance issues that

were fundamental to STOS’s business and its continued viability and suggesting that the meeting be deferred until 12 May 2005. That request was declined and Mr Warren, the Chairman of the STOS Board (and the ninth defendant) confirmed that he would use his casting vote to ensure that the proposed resolutions were passed. It is in respect of the passage of those proposed resolutions that Todd now seeks an interim injunction; to prevent their passage or, if passed, to prevent their implementation. In support of the application Todd says that:

If and when the Proposed Resolutions are passed they will be accepted by the various JV’s affected. Once accepted the Proposed Resolutions  will  have an immediate effect in the disruption of STOS’s business whereby a substantial part of its day to day business activities and management will be diverted to preparations for ceasing to act as operator of the various JV’s thereby causing irreparable loss to STOS.

IF and when the Proposed Resolutions are passed, and their implementation commences irreparable damage to the business of STOS and therefore Todd will ensue in that:

(a)STOS will cease to derive revenue under the contracts to provide operator services to the Joint Ventures referred to in the proposed resolutions for STOS;

(b)STOS will continue to incur overheads which shall not be recovered by such revenue as it may continue to derive under contracts for services in respect of the McKee and Mangahewa fields and to the Kapuni Joint Venture;

(c)Todd shall no longer have any role in the operation of the field in the Maui, Pohokura and Western Platform JV”s or the Omata Tank Farm.

The application

[18]   Five causes of action are pleaded. The first (against the first to seventh and ninth defendants) is pursuant to ss 128 and 164 of the Companies Act 1993 (“the Act”) and allege invalid director appointment. The grounds on which this allegation is based are that the Shell Directors were appointed after the Joint Venture Agreement was terminated and thus were never directors under clause 14.2.1 of STOS’s Constitution and thus were not appointed pursuant to clause 14.3.1 of the Constitution. Clause 14.3.1 provides:

Subject to clause 14.2, the Directors are the persons appointed from time to time as Directors by a notice in writing signed by a Shareholder or

Shareholders exercising the rights of appointment given to the Shareholders pursuant to the Joint Venture Agreement and who have not resigned or been removed or disqualified from office under this Constitution.

[19]   The second cause of action (against the first to seventh and ninth defendants) pleads a major transaction and actual or deemed prejudice pursuant to ss 129, 164, 174 and 175 of the Act. The basis on which this is pleaded is that the Contract, the Technical Services Agreement and the Agreement to Operate the Omata Tank Farm constitute assets of STOS which represent in value more than half the value of STOS’s assets. The proposed resolutions and/or their carrying into effect by STOS will amount to disposition of those assets. Therefore, the resolutions or their  carrying into effect is a major transaction in terms of s 129 of the Act and requires a special resolution approved by a 75% majority of shareholders.

[20]   The third cause of action (against the ninth defendant) pleads failure to act in STOS’s best interests pursuant to s 131 of the Act if the directors vote in favour of the proposed resolution.

[21]   The fourth cause of action (against the first and eighth defendants) pleads breach of the Heads of Agreement by Shell in three respects, as follows:

(a)has breached or will breach clause 9.1 of the HOA which requires [Shell] to take all steps or omit to take all steps reasonably required by Todd to allow Todd to obtain the full benefit of the HOA in that its intended course through its directors (if directors) would have the effect of rendering STOS’s business uneconomic and infeasible;

(b)a dispute has arisen between [Shell] and Todd as to the nature and make up of SIEP’s charges and whether they are “charges” as described in HOA schedule 3 clause 5.2. In breach of clause  7 of  the HOA which requires such disputes to be resolved pursuant to the clause [Shell] proposes instead to terminate the provision of services by STOS under schedule 3 clause 1 of the HOA as per the terms of the Proposed Resolutions;

(c)such matters as are cited in support of the Proposed Resolutions as examples of “dysfunctionalities” are in fat (and are admitted to be) disputes which [Shell] has agreed to resolve by dispute resolution under clause 7 of the HOA. In breach of clause 7 of the HOA which requires such disputes to be resolved pursuant to that clause [Shell] proposes instead to terminate the provision of services by STOS under schedule 3 clause 1 of the HOA as per the terms of the Proposed Resolutions.

[22]   The fifth cause of action (against the first to fifth and seventh defendants) pleads unlawful termination of contract by passage and acceptance of the proposed resolutions, contrary to clause 14.3 of the contract which provides for termination on the dissolution of the Maui Joint Venture, an event which has not yet occurred. It is further pleaded that STOS may not unilaterally terminate the contract, and that termination without unanimous approval of the PMCs would amount to an amendment.

The evidence

[23]   The application for interim relief is supported by two affidavits sworn by Mr Selvadurai, the Commercial Manager and Company Secretary of Todd and a Director of STOS. Inter alia he explains why it cannot be in the best interests of STOS for the Board to vote in favour of or give effect to the proposed resolutions, when there have been no documents, analysis or advice provided to the Board in relation to the commercial, legal and operational implications of the resolutions, and there has been inadequate time for the Board to consider the issues, there having been only four working days since tomorrow’s meeting was notified. He says that, notwithstanding the limited time available to consider the issues, it is immediately clear that the passing of the resolutions would be detrimental to STOS and its business. Essentially its viability would be put at risk in an irretrievable fashion with irrecoverable costs, significant redundancy and associated fallout. In his opinion, each of the contracts under which STOS render its operator services provides a contribution to STOS for service costs, which in 2005 has been budgeted at $362 million. He estimates the spend per operation for 2005 as:

Maui: $183m Kapuni: $51m Pohokura: $93m McKee: $26m Mangahewa: $4m

Western Platform: $6m

Other: unknown (includes Omata Tank Farm and activities for which Shell is the 100% owner)

[24]   Mr Selvadurai also explains how the $362 million budgeted expenditure will be spent and allocated to joint venture operations. He says it is clear from these figures that the Maui, Pohokura, Western Platform and Omata Tank Farm arrangements constitute approximately 78% of the total STOS funding and contribute to approximately 72% to the STOS’ core service costs. He refutes that the meeting scheduled for 8.00am tomorrow is urgent for the stated reasons of losing SIEP’s services, delay in the Pohokura development project or slippage in the Maui AD Drilling.

[25]   In opposition, the Shell parties (supported by the third defendant, OMV) refute that there is any serious question for trial and say that the balance of convenience and the interests of overall justice militate against interim relief..

[26]   On their behalf, Mr Bansal, the Commercial Manager of Shell and a member of the Board of STOS, has sworn two affidavits in response to those of Mr Selvadurai. In his affidavits he refers to the “markedly different competitive landscape” in which Shell and Todd participate in field joint ventures with third party competitors, either together or separately. He contrasts the present situation with the situation in 1955, when the Joint Venture between Shell and Todd was entered into and under which all field venture assets were pooled. He says that information flows and other confidentiality concerns are becoming increasingly acute in the markedly different competitive landscape, and in terms of international best practice “the provision of services through an unincorporated joint venture (represented by a nominee company) is unheard”. Instead, he says,  “the conventional operator model involves the provision of operator services to field joint venturers by one of those field joint ventures”. He further says that as no agreement has been reached between Shell and Todd concerning STOS and its role and operation, the relationship is therefore governed by the core terms in Schedule 3 to the Heads of Agreement. Clause 2 of the core terms requires that Shell and Todd determine either to continue to carry out various services through an unincorporated joint venture between them (with STOS acting as nominee/or their trustee for Shell and Todd as joint venturers) or indirectly through STOS acting as a full operating

company acting in its own right. He says that Shell sought Todd’s agreement for the latter option but Todd has refused, preferring to maintain the status quo.

[27]   Mr Bansal goes on to state that until this proceeding was instituted he was unaware that Todd had ever challenged the position of he and the other Shell appointees to STOS as members of the Board of that governance body. To prove the contrary, he has exhibited a resolution of STOS passed on 16 September 2003 appointing Mr Warren as the Chair and Managing Director of STOS.

[28]   Mr Bansal further states that he does not believe that the best interests of STOS, as such, are relevant. However, if they are, it is Shell’s considered view that the proposed resolutions are in the best interests of STOS for a number of reasons, encompassing the increasing risks evident in the operatorships, the frustrations caused by an unincorporated joint venture, the inability to operate prudently, and the various liabilities and exposures that might accrue, such as cost overruns and liabilities to third parties in the absence of indemnification.

[29]   Mr Bansal also emphasises that STOS’ status is simply as a nominee or bare trustee for the unincorporated joint venture and that it does not trade and has no assets. In terms of the balance of convenience he says that if Todd is granted interim relief this will have “a substantial and irreversible impact on the Shell parties in a number of ways”. These, he says, comprise continuing and further slippage in the Pohokura and Maui development schedules; and exposure of Shell to claims for damages from third parties who have entered into contracts with the Pohokura joint venturers. He expresses Shell’s “very significant reservations about the adequacy of Todd’s undertaking as to damages” and says that he believes Todd’s primary assets (its McKee and Mangahewa fields) are already charged.

[30]   In relation to SIEP, Mr Bansal says “it is inconceivable that STOS can continue as an operator for Maui without an advisory agreement with SIEP”. However, SIEP is no longer prepared to extend its services in a piecemeal fashion and Todd’s refusal to agree to a new SIEP agreement for STOS operatorship of Maui leaves Shell with only two options. The first is to exercise its casting vote to engage SIEP for STOS and the second is to exercise its casting vote to have STOS resign

from Maui Development Limited, permitting Shell to become the operator in STOS’s place and to then engage SIEP on its own account.

[31]   Mr Bansal also refutes Todd’s claims to a material interest in STOS, sufficient to justify interim relief. In relation to Todd’s assertion that, by virtue of STOS’s resignation it will no longer have any role in the operation of the fields operated by STOS, Mr Bansal says that in fact what Todd seeks, through its 50% interest in STOS, “is to have a greater influence in the fields than accounted for by its actual field interest”.

[32]   Finally, he says that even if the proposed resolutions are passed tomorrow, STOS will necessarily remain in its role at least until a substitute can be put in place and that “will not happen overnight”. If Todd were to expeditiously prosecute its substantive claim, that could well be determined before STOS’s resignation takes practical effect. If earlier substitution is sought, Shell is prepared to undertake to the Court to give Todd one month’s written notice of that intention, so that Todd can then pursue any interim relief that may remain necessary.

The argument against relief

[33]   Mr Jagose submitted that nothing before the Court disclosed any pressing prejudice to Todd if interim relief were declined and that the passing of the proposed resolutions tomorrow ought to be permitted because they represent a commercial decision taken by Shell over time in the ordinary course of its business dealings. In contrast to any loss of available remedies to Todd (which Mr Jagose refuted) Shell’s decision to propose the resolutions was based on commercial imperatives and inability to now proceed will have a commercial impact on the defendants. Furthermore, Todd’s undertaking is not accepted by Shell as adequate security for the damage that might result from an injunction.

[34]   In terms of the first three causes of action under the Act, Mr Jagose submitted that s 164 does not exclude non-appointed directors, and s 164(4) provides that a restraining order may not be made in relation to conduct or a course of conduct that has been completed.

[35]   Other points made by Mr Jagose were that clause 7 of the Heads of Agreement, providing for a dispute resolution process, do not apply because these disputes are governed by the core terms and not the Heads of Agreement; that Todd’s opposition now to STOS’s resignation from the off-shore fields has commercial overtones and Todd is simply seeking to ensure that Shell is held in an unacceptable position; that all that will eventuate from the passing of the proposed resolutions is simply a train of consequences that are not irretrievable; that Shell has not identified any legal right that will be injured by that train of consequences; that the status quo will be preserved because STOS will continue to exist after the resolution and until 1 November 2005; and that what it is sought to injunct is simply voting on a resolution which will give rise to no prejudice.

Discussion

[36]   I deal first with the three causes of action brought under the Companies Act 1993 pursuant to s 164 of the Act, which provides for the Court to make an order restraining a company that, or a director of a company who, is proposing to engage in conduct that would contravene the constitution of the company or the Act.   As     s 164(4) makes clear, such restraining orders are for the purposes of prevention only. In the present case the action that it is sought to restrain is the passing of the proposed resolutions and/or the implementation of those on the basis that the passing thereof cannot be validly voted on by the Shell members of the Board - that in any case the resolutions require the approval of 75% of the shareholders - and that the three Shell members of the Board would be failing to act in STOS’s best interests and thus in contravention of s 131 of the Act, if they voted in favour of the proposed resolutions.

[37]   In terms of the first cause of action, I am not convinced that the Shell appointed members of the governance Board were not validly appointed but definitive resolution of that contention requires further evidence and substantive argument.

[38]   Turning to the second cause of action, under s 129 of the Act a “major transaction” is defined as including the disposition of, or agreement to dispose of, the

whole or the greater part of the assets of a company. “Assets” are defined as including property of any kind, whether tangible or intangible. The contest on this aspect of the issues before me is as to whether an unincorporated and purely governance body that does not trade is capable of claiming as “assets” the annual value to it of the operator services it provides under each of the contracts to which it is a party. That is essentially a question of fact, to be determined by the Court with the assistance of expert accounting evidence. It is not a matter that, in my view, can be determined in the absence of such evidence, particularly on an urgent interim basis. Prima facie it is a justiciable issue.

[39]   In relation to the effect of ss 174 and 175 of the Act, Todd as a 50% shareholder in STOS is entitled to apply to the Court for any of a number of orders specified under s 174, if it considers that the affairs of the company in which it is interested are being or are likely to be conducted in a manner that is unfairly prejudicial, and if the Court considers that it is just and equitable to make such orders. The contest on this aspect is as to whether any prejudice to Todd’s interest in STOS will flow if the proposed resolutions are passed at tomorrow’s meeting and implemented. Todd says that prejudice will flow for the reasons outlined by Mr Selvadurai in his affidavits. Prima facie there is creditability in these assertions of prejudice but this cannot be gauged nor determined in any substantive way simply in the context of an urgent interim hearing. I note also that Shell concedes that the consequences that will be set in train by the passing of the resolutions will only be able to be reversed if a Court in the future rules that they should be reversed. I take some notice also of the fact that Todd so urgently seeks interim relief; that of itself indicates that, at least in Todd’s corporate mind, the prospect of prejudice has an air of reality. Taking all matters into account under this head, the appropriate course is for the Court to maintain the present position and preserve the status quo.

[40]   Turning to the third cause of action, s 131 of the Act provides that the directors of a company must act in good faith and in the best interests of the company. In having regard to this I am mindful of and do not disregard Mr Jagose’s submission that the proposed resolutions are no more than a prudent commercial decision taken by Shell in the ordinary course of its business and result from its increasing concerns over a period of time. Against that, the concerns expressed by

Todd through Mr Tweedie’s letter of 22 April 2005 also have cogency. The  apparent equality of the opposing viewpoints under this head must also militate in favour of preserving the status quo.

[41]   In relation to clause 7 (the dispute resolution clause in the Heads of Agreement) Mr Smith submitted that, as the core terms from part of the Heads of Agreement, clause 7 is applicable. In the absence of greater research into the history of the constitution of STOS, I am not in an informed position to judge the correctness of that submission or to be confident that it lacks foundation. What I can say is that the apparent existence of a dispute resolution clause, designed to deal with the efficiency issues in contention, is something further to be weighed in the balance.

[42]   In relation to the fourth and fifth causes of action, the recognised starting point in Klissers Farmhouse Bakeries Ltd v Harvest Bakeries Ltd [1985] 2 NZLR 140 (CA) remains. I am satisfied that serious questions to be tried are implicit in those causes of action also and that the balance of convenience (in terms of prejudicial fallout) favours the plaintiff so that the present position with STOS ought to be preserved. However, the timeframe in which the status quo is to remain should necessarily be a short one.

Conclusion

[43]In terms of the relief sought by the plaintiff the following orders are made:

(1)An interim injunction prohibiting the ninth defendants either by themselves or any servant, agent or alternate from voting or purporting to vote on or voting in favour of the Proposed Resolutions referred to in paragraph 37 of the statement of claim until further order of the Court;

(2)An interim injunction restraining the seventh defendant whether by itself or any servant or agent from acting on the Proposed Resolutions if purported to be passed or from doing or being instrumental in doing any act to carry them out until further order of the Court;

(3)An interim injunction restraining any of the first to sixth and tenth defendants, whether by themselves, or any servant or agent from accepting or purporting to accept or otherwise act on or do or be

instrumental in doing any act to carry the Proposed Resolutions into effect if passed until further order of the Court;

(4)An interim injunction requiring the first defendant to procure that its appointed directors of the seventh defendant do not vote in favour of the Proposed Resolutions or otherwise do or be instrumental  in doing any act or thing to carry the Proposed Resolutions into effect  if passed until further order of the Court.

In addition there will be the following further orders:

(5)The orders are to lie in Court until the plaintiff has procured the standard undertaking from its ultimate parent.

(6)The substantive proceeding is to be placed on the swift track and the plaintiff is to expeditiously prosecute its proceeding, commencing with the issue of a draft timetable for approval by the defendants and the Court.

Costs

[44]Costs are reserved.

Solicitors:

Russell McVeagh, Wellington, for Plaintiff

Chapman Tripp Sheffield Young, Wellington, for Defendants Simpson Grierson, Wellington, for Third Defendant

Delivered at 11.20pm on Thursday 28 April 2005.