PRINCE & PARTNERS TRUSTEE COMPANY LIMITED AS TRUSTEE OF THE SAMNIC WAINGAROMIA FOREST JOINT VENTURE v SAMNIC FOREST MANAGEMENT LTD [2018] NZHC 2979

PRINCE & PARTNERS TRUSTEE COMPANY LIMITED AS TRUSTEE OF THE SAMNIC WAINGAROMIAFOREST JOINT VENTURE v SAMNIC FOREST MANAGEMENT LTD [2018] NZHC 2979 [9 November2018]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYI TE KŌTI MATUA O AOTEAROATĀMAKI MAKAURAU ROHECIV 2018-404-2485[2018] NZHC 2979UNDER The Arbitration Act 1996BETWEEN PRINCE & PARTNERS TRUSTEECOMPANY LIMITED AS TRUSTEE OFTHE SAMNIC WAINGAROMIA FORESTJOINT VENTUREApplicantAND SAMNIC FOREST MANAGEMENT LTDRespondentHearing: 9 November 2018Counsel: M Heard & E Armstrong for PlaintiffP Spring & A Hyde for DefendantJudgment: 9 November 2018Reasons: 16 November 2018REASONS JUDGMENT OF DUFFY JSolicitors/Counsel:Keegan Alexander, Aucklandpspring@keegan.co.nzLee Salmon Long, Aucklandmichael.heard@lsl.co.nz[1] On Friday 9 November 2018 the applicant, Prince & Partners TrusteeCompany Ltd (the custodial trustee), brought a without notice originating applicationfor urgent interim relief against the respondent Samnic Forest Management Ltd(Samnic), on a Pickwick basis.1[2] After hearing from counsel for the custodial trustee and counsel for Samnic Irefused to grant interim relief. My reasons for doing so now follow.Background[3] The custodial trustee is a professional trustee company.[4] An unincorporated joint venture was agreed in 1994 to engage in a forestrybusiness situated at Waingaromia Station, Gisborne.2 The joint venture comprises 20incorporated companies that are collectively known as the "participants". Theparticipants appointed the custodial trustee to supervise the conduct of the jointventure on their behalf.[5] Samnic is appointed to act as manager of the joint venture.[6] It is common ground that under the joint venture agreement the custodialtrustee and Samnic each owes fiduciary obligations to the participants.[7] A dispute has arisen between the custodial trustee and Samnic. The custodialtrustee believes that Samnic is in breach of its fiduciary obligations because it has notperformed properly in its role as manager of the joint venture. The custodial trusteealso believes that if it does nothing to address this perceived failure it will be in breachof its own fiduciary obligations to the participants. Accordingly, the custodial trusteehas attempted to remove Samnic from the role of manager.[8] Samnic disputes it has performed poorly, and contends that the custodialtrustee's attempted removal of Samnic is unlawful under the joint venture agreement.1 Pickwick International Inc (GB) Ltd v Multiple Sound Distributors Ltd [1972] 1 WLR 1213 (Ch).2 The copies of the joint venture agreement before me were undated. However, a copy of a noticeterminating Samnic's appointment as manager, which was also before me, refers to the jointventure agreement as being dated 7 March 1994.[9] A meeting of the participants was scheduled to take place at 10 am on Saturday10 November 2018 at which the concerns the custodial trustee has about Samnic'sperformance and Samnic's rebuttal were to be aired. The custodial trustee sought toadjourn this meeting. Samnic considered the custodial trustee had no authority toadjourn a scheduled meeting; it contended that the meeting should proceed.[10] Because the parties were unable to agree on an outcome, the custodial trusteeapplied to this Court for interim relief to stop the meeting taking place. Samnicappeared and opposed the grant of interim relief.Jurisdiction[11] The joint venture agreement provides for disputes to be resolved by arbitration.Nonetheless, the parties were agreed that in the present circumstances this Court hasjurisdiction under the Arbitration Act 1996 (the Act) to grant interim relief which hadthe effect of delaying the meeting of 10 November 2018.[12] Indeed, sch 1 of the Act provides:9 Arbitration agreement and interim measures by court(1) It is not incompatible with an arbitration agreement for a party torequest, before or during arbitral proceedings, from a court an interim measureand for a court to grant such measure.(2) For the purposes of paragraph (1), the High Court has the samepowers as an arbitral tribunal to grant an interim measure under article 17Afor the purposes of proceedings before that court, and that article and article17B apply accordingly subject to all necessary modifications.[13] One situation often requiring the Court to grant interim measures rather thanan arbitral tribunal is under urgency. Thus Wild J said:3[74] I require no persuasion that the Court's jurisdiction under art 9 islimited to "interim measures of protection" which the arbitral tribunal cannottake soon enough ie cannot order in time to give necessary protection[14] Schedule 1 of the Act goes on to provide:3 Marnell Corrao Associates Inc v Sensation Yachts Ltd (2000) 15 PRNZ 608 (HC).17A Power of arbitral tribunal to grant interim measureUnless otherwise agreed by the parties, the arbitral tribunal may, at the requestof a party, grant an interim measure.And:17B Conditions for granting interim measure(1) If an interim measure of any kind described in subparagraph (a), (b),or (c) of the definition of that term in article 17 is requested, the applicant mustsatisfy the arbitral tribunal that−(a) harm not adequately reparable by an award of damages islikely to result if the measure is not granted; and(b) the harm substantially outweighs the harm that is likely toresult to the respondent if the measure is granted; and(c) there is a reasonable possibility that the applicant will succeedon the merits of the claim.[15] The tests for interim relief under that Act are therefore similar to the tests forgranting interim injunctions.4 The Court considers whether there is a "reasonablepossibility" the applicant will succeed on the merits of its claim, which is similar tothe "serious question to be tried" test applied to interim injunctions;5 and where thebalance of convenience lies.6 Regarding the latter, the Court considers whether theharm in question is adequately reparable by an award of damages and whether thatharm will substantially outweigh the harm the opposing party is likely to suffer if reliefis granted and the opposing party ultimately succeeds. However, the broader concernsrelevant to interim injunctions such as public interest, third party considerations andoverall justice do not usually form part of the Court's consideration.7Reasons for meeting 10 November 2018[16] The forest that was planted on Waingaromia Station is now approximately halfway through being harvested.4 See Sir David A R Williams and Amokura Kawharau Williams and Kawharau on Arbitration (2nded, LexisNexis, Wellington, 2017) at 9.3.4 and the authorities cited therein.5 Safe Kids in Daily Supervision Ltd v McNeill [2012] 1 NZLR 714 (HC) at [30].6 At [55].7 At [36] and [37].[17] The custodial trustee alleges that for the last twelve months, if not longer,Samnic has failed to conduct the business of the joint venture properly, which hasadversely impacted on the financial performance of the joint venture.[18] Samnic denies it has underperformed in its role as manager of the joint venture.[19] On 6 September 2018, the custodial trustee commissioned an independentreport on Samnic's performance (the Wisniewski report).[20] An annual general meeting (AGM) of the joint venture participants wasscheduled to take place on 8 September 2018. The custodial trustee wanted to adjournthat meeting until the Wisniewski report became available. However, Samnic hadcontended that once an AGM was scheduled it could only be adjourned by theparticipants agreeing at the meeting to adjourn it.[21] The AGM went ahead on 8 September 2018. At this meeting, the participantsresolved to defer consideration of Samnic's performance until some later date bywhich time the Wisniewski report would have become available and the participantswould have had sufficient opportunity to consider it. The participants also resolved toempower Grant Hally, a director of the custodial trustee, to call and conduct a furthermeeting "in the interests of the shareholders". The reference to "shareholders" is areference to the shareholders of the participants. They are the persons who seeminglyrepresent the participants at the meetings of the joint venture.[22] The Wisniewski report, which is unfavourable to Samnic, became available on20 September 2018. On 24 September 2018 Mr Hally sent notice to the participantsof a meeting of the joint venture to occur on 10 November 2018 along with a copy ofthe Wisniewski report. In doing so he acted in accordance with the authority delegatedto him at the AGM on 8 September 2018.[23] On dates subsequent to 24 September 2018 other persons acting on behalf ofsome of the participants gave separate written notice calling for the meeting scheduledfor 10 November 2018. Those persons were acting in reliance on clause 14 of the jointventure agreement, which provides for the convening and conducting of meetings.Clause 14 states:14. MEETINGS14.1 The meetings of the Joint Venture shall be convened and conducted inaccordance with the Rules set out in the First Schedule as amended from timeto time.14.2 Subject to the Rules the Manager shall from time to time:(a) Call meetings of the Participants for the purposes of discussing thegeneral policy aspects of the Joint Venture business;(b) Summon a meeting of the Participants for the purpose of consideringthe account and balance sheet of the Joint Venture for its last precedingFinancial Year and the performance of the Joint Venture in relation to theAnnual Work Schedule and Budget of the then current Financial Year to date,which meeting shall be held not later than six (6) months after the end of thatFinancial Year;(c) At the request of the Custodial Trustee or of Participants holding notless than Twenty (20) per cent of the capital of the Joint Venture summon ameeting of the Participants for the purpose of giving to the Manager or theCustodial Trustee their opinions and directions in relation to the exercise oftheir powers, PROVIDED THAT the Manger or the Custodial Trustee:(i) may of their own volition; and(ii) shall at the request of the Participants holding not less thanTwenty (20) percent of the capital of the Joint Venture; or(iii) the members thereof holding not less than Twenty (20)percent of the aggregate of the shares in the capital of the Companies,summon a meeting of the Participants for the purpose of giving to theManager or the Custodial Trustee their opinions or directions inrelation to the exercise of their powers.[24] There is no dispute that those written notices were issued in compliance witheither cl 14.2(c)(ii) or (iii) of the joint venture.Further developments[25] On 2 November 2018, the custodial trustee purported to terminate Samnic'srole as manager of the joint venture. Samnic disputes the legality of the terminationprocess.[26] Mr Hally deposes that the purpose of the meeting on 10 November 2018 wasto discuss the Wisniewski report and vote on resolutions regarding replacement ofSamnic as manager of the joint venture. He contends that the termination of Samnicas manager has removed the need for the 10 November 2018 meeting and accordinglyhe acted to adjourn the meeting.[27] On the other hand, Samnic disputes it has been validly removed as manager. Italso disputed Mr Hally's authority to adjourn the 10 November 2018 meeting. Itinsisted that meeting should proceed.[28] On 7 November 2018 Mr Hally gave the participants written notice the 10November 2018 meeting was adjourned.[29] Samnic proposed to proceed with the 10 November 2018 meeting. RichardHayes, a director of Samnic, deposed that Samnic had been in discussions withshareholders of the participants, which led him to believe there would be between 80-90% attendance at the 10 November 2018 meeting, either in person or by proxy. Thisincluded those shareholders who had received advice from the custodial trustee thatthe meeting had been adjourned, but who intended to attend at the appointed time andplace in any event.Arguments[30] The custodial trustee argued that it was implicit in the authority the AGMdelegated to Mr Hally to call another meeting in the interests of the shareholders thathe also had the authority to adjourn such a meeting after he had called for it.[31] Neither the terms of the joint venture agreement nor the first schedule of theagreement, which sets out the rules for the conduct of meetings, provides expresspower to the custodial trustee to adjourn a scheduled meeting of participants. It was,therefore, difficult to see how the participants could delegate to Mr Hally the power toboth call for and then adjourn a meeting when they themselves were not expresslygiven such power under the joint venture agreement. Nonetheless, the custodialtrustee invited me to read the joint venture agreement as implicitly providing suchpower to the participants; both for them to exercise in their own right and to delegateto Mr Hally, particularly in situations like the present where prompt action wasrequired.[32] The need to read the existence of those implicit powers into the joint ventureagreement was related to an argument that sought to justify the removal of Samnic asmanager. The essential thrust of the argument was that, in circumstances where therewas materially poor performance by the manager, the custodial trustee should be ableto take urgent action to protect the joint venture's business. Indeed, if it did not itwould be in breach of its fiduciary obligations to the participants. The custodial trusteeconsidered that in the light of the Wisniewski report such urgent action was warranted.[33] However, part way through the hearing before me both parties acknowledgedthat for the purpose of giving a decision on the interim relief application I should focussolely on whether the decision to adjourn the meeting was properly and lawfully made.The question of the purported termination of Samnic as manager of the joint venturewas to be put to the side.8Analysis[34] I approached the custodial trustee's application by considering whether: (a) itsclaim to have authority to adjourn the meeting of 10 November 2018 had a realpossibility of success; and (b) where the balance of convenience lay. I did not take thebroader concerns relevant to the granting of interim injunctions into account.Real possibility of success[35] I was satisfied the custodial trustee had no real possibility of success with itsclaim to have the authority to adjourn the meeting of 10 November 2018 after thismeeting was properly called for and scheduled.8 If the parties remain in dispute over the custodial trustee's attempt to remove Samnic as managerthere may need to be a separate hearing in this Court regarding whether the custodial trustee hasauthority to remove Samnic in the way that was done. Accordingly, any findings I might make inthis regard may create an issue estoppel. Given the urgent nature of the hearing before me theparties did not want to embark on arguments that may have left them with decisions that were anobstacle to subsequent judicial determination in this Court.[36] I considered that the meeting on 10 November 2018 was called for andscheduled in two discrete ways: first, by Mr Hally acting on 24 September 2018 togive written notice of the meeting pursuant to the delegated authority given to him bythe AGM on 8 September 2018; and secondly, by other persons who, on datessubsequent to Mr Hally, gave their own separate written notice in compliance with cl14.2(c)(ii) or (iii) of the joint venture agreement both calling for a meeting on 10November 2018 and expressing their support for Mr Hally calling such a meeting.[37] Whether the authority given to Mr Hally to call a meeting "in the interests ofthe joint venture" extended to a power to adjourn any such meeting once scheduledwas something that ultimately did not require my decision, though I very muchdoubted it did extend so far. This was because his actions were later overtaken by thenotices of meeting for 10 November 2018 which the other persons subsequentlyissued. Unlike Mr Hally's notice, which depended upon me finding he had delegatedauthority to call for and then adjourn a meeting of the participants, the notices of theother persons were fully within the purview of and compliant with cl 14.2(c)(ii) and/or(iii) of the joint venture agreement. No-one had suggested anything to the contrary atthe hearing before me.[38] None of the persons who gave notice in terms of cl 14.2(c)(ii) and/or (iii) hadformally attempted to revoke their notices calling for the 10 November 2018 meeting.Nor was it apparent to me that they could lawfully take that step under the terms ofthe joint venture agreement. There is no express authority to this effect in the jointventure agreement. I was aware that some of those persons had informally agreed tothe meeting being adjourned, but this information was not properly before me inevidence and in any event no formal steps had been taken by those persons to expresstheir decision for adjournment. I considered I could not act on informally conveyedinformation. The short point was that those persons had properly given notice callingfor a meeting on 10 November 2018, and in the face of those actions I considered therewas no proper basis on which I could act to prevent the meeting going ahead.[39] Accordingly, I was satisfied the custodial trustee had no reasonable possibilityof succeeding in its claim that Mr Hally could lawfully adjourn the meeting of 10November 2018.Balance of convenience[40] I was also satisfied that the balance of convenience did not favour grantinginterim relief. First, despite the custodial trustee giving notice the meeting wasadjourned, some of the participants wanted the meeting to proceed. It seemed to methat if the meeting did proceed and a quorum of participants or their representativeswere present those persons could decide for themselves whether to adjourn themeeting or not. Those present would then have an opportunity to decide whether toconfront any questions around Samnic's performance as manager or to defer thatmatter to a future date. In this regard I note that the Wisniewski report was sent tothem on 24 September 2018 so by 10 November 2018 they would have had ampleopportunity to consider the contents of the report and to evaluate any rebuttal Samnicmay have offered against it. If the meeting proceeded the question of whether Samnicshould continue to have a role in the joint venture as well as the custodial trustee'spurported termination of Samnic as manager would then either be determined orpostponed for further consideration by the very persons most affected by those issues.In such circumstances, the chosen outcome would be determined by them. They werecommercial investors capable of making decisions affecting their investments forthemselves. As their opportunity to exercise those choices was to come the very dayafter the Court hearing it seemed to me that nothing would be lost by allowing themeeting to proceed.[41] Secondly, the custodial trustee had placed no plan before me setting out how itproposed the management of the joint venture's business would proceed in the futurewithout Samnic's involvement.9 It is the middle of the logging season. Logs for thisjoint venture are presently on skids and trees are being felled. Something would needto be done to maintain the present harvesting momentum if Samnic was effectivelyremoved as manager. How matters would proceed in the future was not addressed bythe custodial trustee. I was aware the custodial trustee wanted to move to appoint anew manager but when this was to be done and how harvesting would be managed inthe interim was not disclosed to me. Thus I had no assurance that any harm that might9 If the meeting of 10 November 2018 was stopped by order of the Court the custodial trusteeintended to proceed on the basis its termination of Samnic as manager was lawful. Unless Samnicchallenged that decision in Court there was the prospect that it would be shut out of managementdecisions and the custodial trustee would then need to impose a replacement in Samnic's place.be caused by granting interim relief would not outweigh any harm that might resultfrom refusing such relief. For these reasons, also I considered that any possibledisruption to the management of the harvesting process was something that was bestaddressed by the participants of the joint venture rather than have the Court bring abouta potential disruption by precluding them from taking the opportunity the meeting of10 November presented to determine for themselves what steps to take in relation tothe management of the joint venture.[42] Accordingly I declined to grant the application for interim relief.[43] Leave is reserved to the parties to file memoranda as to costs.Duffy J