Order 3 made in the High Court on 19 June 2006 is set aside.
An injunction is granted restraining the second respondent from resolving to effect the removal of the second respondent as operator of the Maui field and doing any act or thing to carry such a resolution into effect.
Liberty to apply is reserved if any party considers further orders are required to formalise or perfect this court’s reasoning.
The appellants must pay to the first respondent costs of $20,000 plus usual disbursements. We certify for second counsel.

REASONS OF THE COURT

(Given by Chambers J)

Table of Contents

Para No
The future operation of the Maui gas field [1]
Issues on the appeal [7]
Do the contractual arrangements between Todd, Shell and STOS
mean that Shell is not entitled to encourage its directors
on the STOS board to vote in favour of a resolution to
remove STOS as operator of the Maui field?
The contractual background to the current dispute [10]
The pleadings [20]
What Wild J found [24]
Shell’s argument on this appeal [34]
Our interpretation of the contractual position [40]
Why we reject Shell’s argument as to the interpretation of core term 3 [59]
Why we reject Shell’s argument on clause 9.1

of the HoA [74]
Why we reject Shell’s implied term argument [77]
Why we reject Shell’s “repudiation/acceptance” argument on the
second cause of action [81]
Why we reject the judge’s view that Todd could not sue on the
STOS employment contract [90]
The consequences of our contractual interpretation [98]
Was the judge right to grant Todd injunctive relief?
The form of the proposed injunctions [101]
Proper approach on an appeal against the grant of an injunction [109]
Effectively an order of specific performance to carry on a business? [118]
Relevant factors: group A [122]
Relevant factors: group B [139]
Conclusion [151]
Declaratory relief [152]
Costs [160]

The future operation of the Maui gas field

[1] Maui is New Zealand’s largest gas field, worth today, according to Shell, some $1.5 billion. Its commercial development began in the 1970s. The current owners of the field are Shell (83.75%), OMV New Zealand Limited, the fourth respondent (10%), and Todd Petroleum Mining Company Limited, the first respondent (6.25%). The Shell holding is vested in the first to fifth appellants. The parties have described their business relationship as an unincorporated joint venture.
[2] Day to day operation of the Maui field has always been the responsibility of Shell Todd Oil Services Limited (STOS), the second respondent. Shell and Todd each hold 50% of its shares. Each appoints three of its six directors, but the chair is always a Shell appointee and has a casting vote.
[3] Shell, supported by OMV, has for some time been keen to remove STOS as operator of Maui and to replace it with a Shell subsidiary. To this end, on 19 April 2005, Shell sent to Todd and OMV a resolution that the joint venturers had no confidence in STOS’s operatorship and directing the appointment of a new operator in STOS’s place. Shell and OMV supported the resolution, but Todd did not. Todd further claimed that the proposed resolution was ultra vires the joint venture agreement and other agreements constituting the contractual framework under which Maui is owned and operated.
[4] Shell disagreed. A Shell-appointed STOS director then called a meeting of the STOS board to consider a set of resolutions, under which, if passed, STOS would give notice of its resignation from its various operatorships, to be replaced by a Shell subsidiary. The meeting was scheduled for 29 April 2005, but late on the evening of 28 April, Goddard J granted an interim injunction preventing the meeting taking place, an injunction later upheld by this court.
[5] The substantive dispute between Shell and Todd then proceeded to hearing in the High Court at Wellington. Wild J heard the case and delivered his decision on 19 June last year: Todd Petroleum Mining Company Limited v Shell (Petroleum Mining) Company Limited HC WN CIV 2005-485-819. His Honour held that Shell’s attempt to procure the resolutions was in breach of clause 9.1 of an agreement, called the Heads of Agreement (the HoA), entered into by Shell and Todd on 1 March 2002. He held STOS could not be removed as operator at Shell’s behest. He went on to grant injunctive relief to prevent the resolutions being put. He also granted declaratory relief as to how Shell could withdraw from the joint venture. Essentially this involved one party giving to the other 12 months’ notice.
[6] Shell appealed against this decision. Todd cross-appealed on the cause of action on which it failed before Wild J. It also sought to uphold the judgment in its favour on additional grounds.

Issues on the appeal

[7] There are two main issues on this appeal and cross-appeal.
[8] The first is whether the contractual arrangements between Todd, Shell and STOS mean that Shell is not entitled to encourage its directors on the STOS board to vote in favour of a resolution to remove STOS as operator of the Maui field. Allied to that is whether STOS would be repudiating its contractual obligations were it so to resolve and to implement such a resolution.
[9] The second issue is whether the judge was right to grant Todd injunctive relief.

Do the contractual arrangements between Todd, Shell and STOS mean that Shell is not entitled to encourage its directors on the STOS board to vote in favour of a resolution to remove STOS as operator of the Maui field?

The contractual background to the current dispute

[10] The earliest relevant agreement was the Shell-Todd joint venture agreement entered into on 13 September 1955 (the JV55). Under that agreement, Shell and Todd agreed to pool their respective petroleum licences and to carry out, as a joint venture, prospecting and mining for petroleum in those licence areas. Shell and Todd agreed to set up STOS as the day to day operator of the joint venture’s business.
[11] The next relevant agreement is the Maui joint venture agreement of 1973, signed by Shell, Todd and the other then joint venturers (the Maui agreement). That established a joint venture in accordance with its terms “for the purposes of developing the Maui Field for the production of Petroleum”, its processing, transmitting and marketing: clause 2.1. The joint venturers established a services company “for the purpose of carrying out the Joint Venture on behalf of” the [Maui joint venturers]”: clause 3.1. That services company was and is Maui Development Limited, the third respondent.
[12] Clause 4.3 of the Maui agreement provided for Maui Development, as agent for and on behalf of the joint venturers, to enter into a contract for the employment of STOS as operator. The form of the contract to be entered into was set out as the sixth schedule to the Maui agreement (the STOS employment contract). Maui Development and STOS did enter into that contract.
[13] A crucial feature of the Maui agreement was that the STOS employment contract could not be varied without the unanimous consent of the joint venturers for the time being: the Maui agreement, clause 4.4. The Maui agreement, of which the STOS employment contract formed a part, provided for four circumstances under which the STOS employment contract could be terminated. Three of these were set out in clause 14.2 of the STOS employment contract. That clause provided for termination:

(a) if there was a breach of the contract of a nature permitting the injured party to terminate; or

(b) when the Maui joint venture terminated; or

(c) if clause 4.6 of the Maui agreement applied.

[14] The fourth circumstance under which the STOS employment contract could be terminated (or varied) would arise if all joint venturers agreed to terminate (or vary) it under clause 4.4 of the Maui agreement. Termination in this case would require the consent of Maui Development and STOS, as they were and are parties to the STOS employment contract. Their consent would, of course, be easily forthcoming given the contractual and other controls on their respective boards.
[15] By 2002, the number of joint venturers had dwindled to two, just Shell and Todd. On 1 March that year, Shell and Todd entered into a suite of documents, including the Heads of Agreement. The JV55 was terminated and superseded by the HoA (clause 2.1), except in relation to the Kapuni field (clause 2.3). The HoA envisaged that Shell and Todd would enter into a new agreement governing the relationship of Shell and Todd concerning, and the role and operations of, STOS: clause 5.1. That clause reads as follows:

On or before 31 July 2002, the parties will enter into an agreement governing the relationship of Shell and Todd concerning, and the role and operations of, STOS. The agreement will contain and expand on the core terms set out in, or agreed under, schedule 3. Until such agreement is entered into, those core terms will govern that relationship, that role and those operations.

[16] As it turns out, Shell and Todd never did enter into the envisaged new agreement. The consequence was that the HoA and, in particular, its core terms, continues to govern, though not exclusively, the parties’ relationship and the structure and governance of STOS.
[17] An intriguing feature of the HoA and its schedule 3 is that, while they dealt specifically with the fate of the JV55, they did not deal specifically with the modifications required to the Maui agreement or with the future role, if any, of the STOS employment contract. Indeed, two of the parties to the STOS employment contract, Maui Development and STOS, were not parties to the HoA. Notwithstanding their absence, Shell and Todd appear to have proceeded on an assumption that they could nonetheless between them vary the STOS employment contract, as clause 9.3 of the HoA purported to “supersede” the STOS employment contract (and other agreements as well) in so far as there was overlap. Clause 9.3 provided:

This Agreement (including any and all agreements, to be entered into on or about the date of, and referred to in, this Agreement) constitutes the entire agreement, understanding and arrangements (express and implied) between the parties concerning the subject matter of this Agreement, and supersedes and cancels any previous agreement, understanding and arrangement (written or oral) in this regard.

[18] Before us, as before Wild J, counsel focused on four of the core terms set out in schedule 3 of the HoA. Because of their importance on this appeal, we set out those clauses in full:

1 Services

1.1 Shell and Todd will continue to provide prospecting, exploration, development, mining, production and similar services concerning Petroleum (Services).
1.2 Subject to the remainder of this schedule Services will be available not only to Shell and/or Todd and/or persons in which Shell and/or Todd have a direct or indirect beneficial ownership interest or with whom Shell and/or Todd are directly or indirectly associated, but also to other persons.

2 Structure

2.1 On or before the date referred to in clause 5.1 of this Agreement, Shell and Todd will determine to carry on the business of providing Services either (as now) through an unincorporated joint venture between Shell and Todd (with STOS acting as nominee and/or bare trustee for Shell and Todd as joint venturers), or (indirectly only) through STOS as a full operating company acting in its own right (in either case, the Venture).
2.2 Shell and Todd will each have a 50% share in the Venture, unless they agree different shares.
2.3 The provisions of this schedule will be construed, and/or modified to the extent necessary, to give effect to the ongoing business structure for the venture determined under clause 2.1.
2.4 The capital structure of the Venture will not change unless Shell and Todd agree otherwise.

3 Governance

3.1 Each of Shell and Todd will be entitled to appoint up to three persons as members of the principal body (for example, the board of directors of STOS and/or an operating committee) responsible for governance of the Venture (the Governance Body). Proportional adjustment to these appointment rights will be made if Shell and Todd agree different shares under clause 2.2.

3.2 Shell will be entitled to designate one of its appointees under clause 3.1 the principal member of the Governance Body (for example, chairperson or managing director), and that person or his or her alternate will have a second or casting vote, in the case of an equality of votes cast at a meeting of, and for the purpose of written resolutions by, the Governance Body.

3.3 The Governance Body will determine whether and the extent to which the Venture provides Services and/or Scoping Studies and Evaluations (as those terms are defined in the AMIA) for any project or venture. In determining the allocation of the Venture’s resources and the provision of Services, the Governance Body will give priority to projects or ventures in which Shell and/or Todd participate. However, if Shell or Todd is not participating in a project or venture, priority in this regard will only be given to that project or venture if the other has at least a 25% interest in that project or venture.

Withdrawal

17.1 Either party will be entitled to withdraw from the Venture by giving the other party 12 months’ notice to that effect.

17.2 Within 30 days after receipt of a notice under clause 17.1, the other party will be entitled to give notice to the first party that it too wishes to withdraw from the Venture.

17.3 Where both parties give notice of withdrawal under this clause 17, they will co-operate fully and take all steps necessary to dissolve the Venture as soon as practicable.

17.4 Where only one party gives notice of withdrawal under this clause 17, the parties will co-operate fully and take all steps necessary (at the cost in all respects of the withdrawing party) to effect the withdrawal as soon as practicable (including the execution and delivery of all relevant documents to ensure the transfer to the other party of that party’s shares in the Venture (clause 13.3 (but not clause 13.4) will apply in this regard) and assignment to the other party of its interest under the agreement referred to under clause 5.1 of this Agreement or, if that agreement has not been entered into, its residual interest in JV55 referred to in clause 2.3 of this Agreement to the extent that it concerns the operations of the Venture). The party will receive no compensation whatever on its withdrawal.
[19] Shell’s case, stripped to its bare essentials, was that core term 3.2 conferred on Shell’s STOS directors control of STOS, with the consequence that they could vote for STOS’s resignation from its various operatorships if requested by Shell to do so.

The pleadings

[20] The case in the High Court had proceeded on Todd’s fourth amended statement of claim. It contained three causes of action.
[21] The first cause of action was solely against Shell. It was based exclusively on the HoA. Todd pleaded that Shell and Todd’s joint operatorship of the Maui field could be terminated only in accordance with core term 17. Shell’s attempt to procure STOS to resign from the STOS employment contract amounted to a breach of core term 1.1. Todd sought an injunction restraining the Shell-appointed STOS directors from voting in favour of the proposed resolutions and other declaratory relief.
[22] The second cause of action was primarily against STOS. This cause of action was based on the STOS employment contract. Todd claimed against STOS that, if it approved the proposed resolutions, it would be acting in breach of the STOS employment contract as none of the permitted grounds of termination had arisen. Todd sought under this cause of action an injunction prohibiting STOS from giving notice of resignation as envisaged by the proposed resolutions. It also sought consequential relief against its co-venturers, prohibiting them from accepting or otherwise acting on any notices given. That injunction appears to be superfluous, as if the injunction against STOS were granted, no notice could be given. In any event, there was no specific pleading justifying the proposed injunction against the coventurers.
[23] The third cause of action was against Shell New Zealand Holding Company Limited, the sixth appellant. Shell Holding had given a performance guarantee under the HoA. Todd alleged that in the circumstances Shell Holding was in breach of that guarantee “on the same grounds as is [Shell] in breach of the HoA under the first cause of action”. Todd sought an order requiring Shell Holding to perform its performance guarantee on appropriate terms.

What Wild J found

[24] Wild J found in favour of Todd on the first cause of action under the HoA. His conclusion was that core term 3 gave the Governance Body (the STOS board of directors) full powers in respect of STOS’s business, which was the business described in core term 1.1: at [63]. Core term 3 was confined by core term 1.1. His Honour went on to hold:

[64] ... The specific [namely, core term 3] is to operate within the general ambit. Were it otherwise, and the interpretation Shell seeks to put on 3.3 correct, it could altogether defeat core term 1.1, and with it the intent of clauses 5.1 and 9.1 of the HoA. It could produce the result that

Shell and Todd will not continue to provide ... “Services”.

That is the converse of core term 1.1. By clause 9.1 of the HoA, Shell agreed to take all steps (or omit to take all steps), reasonably required by Todd to allow the parties to obtain the full benefit of the HoA. Shell’s interpretation would not allow Todd to obtain the full benefit of the HoA.

[65] Accordingly, I hold that Shell’s procurement of the [resolutions], setting in train events aimed at having STOS resign as Operator of Maui, is a breach by Shell of clause 9.1 of the HoA. [Emphasis in original.]

[25] Todd had not actually pleaded a breach of clause 9.1 of the HoA. That clause read as follows:

Miscellaneous

Further assurance

9.1 Each party will enter into and carry out all further assurances, and take all steps (or omit to take all steps), reasonably required by the other party to allow the parties to obtain the full benefit of this Agreement.
[26] Wild J then went on to consider what he said was “Todd’s second argument” under the first cause of action. This was that the proposed resolutions were “in breach of clause 9.1 of the HoA [in] that the [resolutions] attempted to circumvent clause 17.1 of the STOS core terms”: at [68]. As we have said, the pleadings did not specifically plead a breach of clause 9.1: we can only assume that, by the time of final submissions, that was the basis upon which Todd’s counsel were pitching this argument. Further, we remark that it is not clear from the pleadings that there were in fact these two (allegedly) separate breaches of the HoA, namely breaches of core terms 1.1 and 17.1.
[27] Be that as it may, Wild J held against Todd on this so-called “second argument”. He said he was “not prepared to hold that the [resolutions] also breach clause 9.1 of the HoA, in that they attempt to circumvent core term 17.1”: at [78].
[28] He concluded with respect to the first cause of action (and the third) as follows:

[85] To summarise, the first ground on which Todd advanced its first cause of action succeeds, but the second fails. The result is that I hold that Shell’s procurement of the [resolutions] is a breach of clause 9.1 of the HoA. Todd accordingly succeeds on its first cause of action.

[86] It follows that Todd’s third cause of action, which stood or fell with its first, also succeeds.

[29] We turn to the judge’s findings on the second cause of action. His Honour first considered an argument advanced by Shell that a term was to be implied into the STOS employment contract “providing for termination upon reasonable notice”: at [96]. (We note in passing that no such implied term had been pleaded in Shell’s statement of defence.) The thrust of this argument was that, if there were such an implied term, then what the Shell-appointed directors proposed would not amount to a breach of the STOS employment contract. That is because STOS would not have resigned as operator in respect of Maui until 1 November 2005. That was more than six months away and was said to be “reasonable notice” in the circumstances. This argument failed. The judge held there was no such implied term: at [99], [105], and [110]. He held the STOS employment contract terminated or was terminable only in the circumstances set out at [13] and [14] above.
[30] The judge then went on to consider an alternative argument. This argument proceeded on the basis that STOS’s resignation as operator would be a “formal breach” of the STOS employment contract, which Shell accepted if its implied term argument failed. The judge held it would be open to Maui Development, as STOS’s employer, to accept STOS’s resignation as operator of Maui and to take no further action. In other words, Maui Development could “waive or condone” STOS’s breach of the STOS employment contract: at [134]. Further, Maui Development, in deciding what to do about STOS’s breach, could act upon “direction from the Maui [joint venturers] following a majority decision”: at [134].
[31] His Honour further held that Todd had no standing to sue in respect of STOS’s breach. That was because Todd, along with its co-venturers, had constituted Maui Development its exclusive agent to enforce the STOS employment contract: at [135].
[32] The judge held that Shell’s alternative argument had to succeed, with the consequence that Todd’s second cause of action failed: at [136].
[33] The judge then went on to consider the relief Todd was entitled to on the first cause of action. He granted an injunction against Shell. He also made two declarations as to rights under the HoA. We shall return to the precise terms of relief granted later in these reasons.

Shell’s argument on this appeal

[34] Shell appealed against the judge’s finding on the first cause of action that it had breached clause 9.1 of the HoA by its attempt to contravene core term 1.1. Mr Hodder, for Shell, summarised Shell’s argument on this issue as follows:

[Shell] submits that the High Court’s interpretation is wrong. That interpretation involves misconstruing the limited role of the “Services” definition; reading down the broad governance powers of the STOS Governance Body/Board; negating the agreed casting vote for Shell in the STOS governance regime; and creating an unwritten veto power for Todd in relation to STOS.

[35] In amplification, Mr Hodder submitted that the role of core term 1.1 was simply to define in general terms the “Services” that the joint venture was to remain in the business of providing: “prospecting, exploration ... and similar services concerning Petroleum (Services)”. Mr Hodder submitted it was “analogous to an objects clause”. That was to be contrasted with core terms 3.1-3.3, which were “the fundamental provisions in the core terms”. Mr Hodder submitted the “agreed casting vote for Shell” was reflective of “Shell’s greater role under the core terms”.
[36] Mr Hodder submitted the judge’s reasoning involved incorrectly reading down the governance provisions of core term 3. Mr Hodder in his written submissions set out nine reasons as to why that interpretation was wrong. We deal with those reasons below.
[37] He dismissed clause 9.1 of the HoA, on which the judge heavily relied, as having only “a limited role”.
[38] Mr Hodder supported the judge’s findings on the second cause of action, although he submitted the judge had been wrong not to find an implied term permitting termination of the STOS employment contract upon reasonable notice.
[39] At this point, it is not necessary to detail Mr Smith’s argument on behalf of Todd. It will emerge from the following discussion.

Our interpretation of the contractual position

[40] In our view, the parties’ respective rights and obligations can be stated quite shortly. We consider first the position under the pre-2002 contracts. We shall then turn to how the position changed after the new agreements were entered into in 2002.
[41] Up to 2002, STOS’s role with respect to the Maui joint venture was defined by the Maui agreement, of which the STOS employment contract formed a part. Under that agreement STOS was to be the operator of the Maui field. Its board had governance powers, but these were constrained. In particular, STOS was required to execute faithfully and obediently all lawful orders, instructions and directions given to it by Maui Development: clause 2.1.2. It was also required to seek approval for much it planned to do: clause 3. The joint venturers were also entitled to give instructions to STOS under clause 4.7 of the Maui agreement, provided that those decisions had been made in accordance with clause 5 of the Maui agreement.
[42] Most importantly the terms of the STOS employment contract could not be varied unless all the joint venturers for the time being agreed: Maui agreement, clause 4.4.
[43] Prior to 2002, the STOS employment contract could be terminated only in the four circumstances described in [13] and [14] above.
[44] Let us now suppose that, in late 2001, one of the joint venturers had purported to direct or had encouraged STOS to resign as operator of the Maui field. Had the STOS board so resolved, it would have breached the STOS employment contract as its prime obligation under that contract was to act as operator. None of the circumstances in which that operatorship could terminate would have come to pass. The joint venturer who purported to direct or to encourage STOS to resign would also have breached the STOS employment contract, as it is an implied term in most multi-party contracts that one party will not induce another party to breach that contract to the third party’s detriment. The implied term is analogous to the general duty in tort not to encourage a party to a contract to breach that contract. It is also consistent with the general proposition that no party to a contract can take advantage of his or her own breach: Beale (gen ed) Chitty on Contracts (29ed 2004) at [12082]. Where necessary, a term may be implied to give effect to this principle: see Chitty at [13012].
[45] STOS could have been restrained from breaching the STOS employment contract if its board seemed likely to comply with the purported demand or to succumb to the encouragement for STOS to resign. Likewise, the guilty joint venturer could have been restrained from purporting to give such directions or from providing encouragement to the STOS board to cause STOS to resign.
[46] We now turn to consider the position after the new contracts were entered into in 2002. The key document was the HoA. It varied a number of earlier agreements between Shell and Todd. For instance, clause 2 of the HoA terminated the JV55 except in relation to the Kapuni field. For current purposes, the crucial clause of the HoA was clause 5.1. That clause signalled that Shell and Todd intended to revamp their existing relationship with respect to the role and operations of STOS. By the time the HoA was signed, not everything concerning that new relationship had been fixed and agreed, but certain core terms had been. These are the core terms set out in schedule 3. They were not to be negotiable in the discussions which were due to take place in the months after the signing of the HoA.
[47] Clause 5.1 went on to provide that, until the new agreement was entered into, the core terms would “govern that relationship, that role and those operations”. That phrase cannot be taken literally, as the parties accept. The various STOS operatorship agreements after all contain many detailed provisions, nearly all of which were intended to continue unaffected by the HoA until the new agreement was entered into. Clearly, what the final sentence of clause 5.1 meant was that the core terms, where inconsistent with an existing operatorship agreement, would prevail. In short, the core terms modified existing operatorship agreements so far as necessary. So far as STOS’s operatorship of the Maui field was concerned, the HoA modified the STOS employment contract, but did not discharge it. Shell and Todd both accept that, although they do not agree as to exactly how the STOS employment contract was varied.
[48] We now describe how in our view the core terms modified the STOS employment contract. It is important to remember the HoA was also amending other STOS operatorship agreements, but in the discussion that follows we are concentrating exclusively on the HoA’s effect on STOS’s operatorship of Maui under the STOS employment contract.
[49] Core term 1.1 confirmed the parties’ commitment to continuing to provide services, as had been agreed under the Maui agreement and effected through the STOS employment contract. Core term 1.1 is to be read in conjunction with core term 2.1, which specified how Shell and Todd were “to carry on the business of providing Services”. They were to do that either, “as now”, through an unincorporated joint venture between Shell and Todd with STOS acting as nominee and/or trustee for Shell and Todd as joint venturers, or, if this were agreed, through STOS as a full operating company acting in its own right. That latter potential change in STOS’s role was never agreed. The operative “as now” scenario obviously included the provisions of the Maui agreement and the STOS employment contract, except in so far as they were superseded by the HoA.
[50] The principal purpose of including core terms 1.1 and 2.1 was to make clear that there would be a continuing role for STOS under the new agreement, although allowing for the possibility that STOS’s status might change, in that it might become “a full operating company acting in its own right”. With respect to the interregnum (as we shall call the period between 1 March 2002 and the date of the foreshadowed new agreement), core terms 1.1 and 2.1 were merely confirmatory of the existing position under the STOS employment contract.
[51] Core term 3 then provided for future governance of STOS. Each of Shell and Todd was entitled to appoint up to three directors, with a Shell-appointed member having a casting vote in the case of an equality of votes at a board meeting. Again, this clause appears to have been included principally with an eye to the future. So far as we can ascertain, the governance position under core term 3 was essentially, if not exactly, the position pertaining immediately prior to the HoA being entered into. Each of Shell and Todd at that time had three directors, with the managing director having a casting vote: see the STOS constitution, clause 17.4.1. Although we cannot be certain, we presume the managing director had been a Shell appointee. If that is right, then core term 3 did not change the status quo for the interregnum. If that is wrong, then core term 3 did effect a change in that regard.
[52] Core term 14 provided that the constitution of STOS was to be amended to the extent necessary to give effect to the agreement.
[53] Core term 17 permitted either party to withdraw from STOS by giving the other 12 months’ notice to that effect. In the event the other decided it too wished to withdraw from STOS, STOS was to be dissolved. If only one party wished to withdraw, however, then the withdrawing party’s shares in STOS were to be transferred to the other. The withdrawing party was to receive no compensation on its withdrawal.
[54] Let us again postulate the various parties’ rights and obligations under the scenario postulated above at [44], but this time in the post-2002 contractual environment. The STOS board would still be bound to ignore the purported direction or blandishment for STOS to resign as operator of the Maui field. That is because its prime obligation to act as operator under the STOS employment contract remained. Indeed, that obligation was confirmed by core terms 1.1 and 2.1. For like reasons, the joint venturer who gave the purported direction or encouraged STOS to resign would be breaching the implied term previously referred to. In short, the 2002 contracts do not alter the position at all.
[55] Core term 3 does not entitle the STOS board to breach STOS’s contractual obligations, the most important of which was to act as operator of the Maui field.
[56] The circumstances in which the STOS employment contract terminated or could be terminated remained unchanged.
[57] That in summary is our view of the contractual position (so far as relevant to this dispute) post-2002. It follows that our answer to the first issue is that the overall contractual arrangements between Todd, Shell and STOS mean that Shell is not entitled to encourage its directors on the STOS board to vote in favour of a resolution to remove STOS as operator of the Maui field. In addition, it is our view that STOS would be repudiating its contractual obligations were it so to resolve and to implement such a resolution.
[58] We now turn to explain why we have rejected some (but not all) of the arguments advanced on Shell’s behalf and why we disagree with some of Wild J’s reasoning, even though our end result is not much different from his.

Why we reject Shell’s argument as to the interpretation of core term 3

[59] In essence, Mr Hodder’s argument boiled down to this: the STOS board now had, thanks to core term 3, complete power to do what they liked with STOS. Because of Shell’s casting vote, that untrammelled power was now Shell’s.
[60] We do not accept that argument. Core term 3 did not alter STOS’s existing contractual obligations. It did not alter STOS’s obligations to comply with lawful directions of the joint venturers or Maui Development. The STOS board had no new powers. Indeed, core term 3 appears to have been confirmatory of the status quo for the interregnum. It is possible it effected a change as to who held the casting vote, but that would be the case only if the managing director was not at the time a Shell appointee.
[61] Our interpretation of core term 3 is very similar to Wild J’s view. We said earlier that Mr Hodder had set out nine reasons as to why the judge’s interpretation of core term 3 and its relationship to core term 1.1 was wrong. To those we now turn. Many of the reasons overlap; while we shall deal with each of them, the answers to many can be brief to avoid unnecessary repetition.
[62] First, Mr Hodder submitted the core terms created “new, clear, and self-contained governance provisions for the [joint venture] and STOS” which were binding and replaced previous arrangements. There were, he submitted, “no legacy or savings provisions”. But the answer to that submission is the one Mr Smith gave. No legacy or savings provisions were necessary because the whole purpose of the 2002 suite of documents was to continue the existing service provision arrangement, as core term 1.1 made clear. The core terms confirm the board’s powers, which would continue to be derived from the STOS constitution, with any necessary amendments.
[63] Mr Hodder’s second argument was that core term 3 necessarily empowered the governance body to make decisions about the ongoing operations of the joint venture. The suggestion was made that core term 3 overrides all other provisions of schedule 3 and has “primacy”. We do not agree. Again, we consider Mr Smith’s rejoinder to be correct. He submitted that the governance provisions give the STOS board powers within the framework dictated by the remainder of the core terms, and specifically core term 1.1, and with what remained of the STOS employment contract.
[64] Mr Hodder’s third argument was that, as a matter of commercial context, as well as the plain language of core term 3.1, it was “sensible and efficient that the Governance Body “govern” the [joint venture] business as a whole”. In this context, he submitted, there was “but one constraint on the Governance Body’s powers”. That was that, under core term 3.3, STOS, in determining the allocation of resources and the provision of services, must give priority to projects in which Shell and/or Todd participate. He added boldly: “There is no other fetter.”
[65] Mr Smith disputed that submission, and again we accept his argument. Mr Smith submitted that the STOS board’s decisions were not as unfettered as Shell suggested. He submitted: “The STOS Board does not have the power to make decisions which undermine the fundamental bases of the STOS arrangement, as recorded in clause 1.1 and the AMIA [Area of Mutual Interest Agreement], including operatorship of the Maui field.” We agree.
[66] Mr Hodder’s fourth reason was that the term “Services” is plainly descriptive. He submitted that, in the context of an ongoing joint venture, the scope of the particular services to be provided was “a matter of [joint venture] governance and must depend on the contractual and other circumstances at the relevant time”.
[67] We accept that the scope of services provided by STOS could vary over time, though always subject to the wishes of Maui Development and the joint venturers. But core term 3 does not permit STOS to deliver no services at all with respect to the Maui field, unless all the joint venturers were so to resolve.
[68] Mr Hodder’s fifth argument was that the core terms provided for the continuity of the joint venture itself, but not for the continuity of any specific joint venture/STOS operatorship. We cannot comment on whether that submission is correct for STOS’s non-Maui operatorships, as we do not know the terms on which STOS had been engaged with respect to them. But the submission is not correct for the joint venture’s Maui operatorship. Under the Maui agreement, STOS was the operator and by virtue of core term 2.1 remained the operator, unless and until a different arrangement was agreed under clause 5.1 of the HoA.
[69] Mr Hodder’s sixth argument was that, if the STOS operatorship of Maui was intended to be entrenched or inviolable, one would expect to find that expressly embedded in the relevant contractual documents. But, he submitted, there was no such entrenchment in the core terms or elsewhere in the HoA or in any JV55 documents. He said the Maui agreement and the STOS employment contract both contemplated circumstances in which the operatorship might cease. The silence on this point, he submitted, undermined Wild J’s construction.
[70] We do not agree. The HoA did not alter STOS’s substantial, though not total, “entrenchment” as operator of the Maui field. The circumstances in which it might cease to be operator were not changed. It is clear from clause 5.1 of the HoA that Shell and Todd envisaged there would be a new agreement concerning the future role and operations of STOS, which agreement would necessarily have to include as parties Maui Development and STOS. But that agreement has not been entered into as yet.
[71] Mr Hodder’s seventh point referred to a model “joint venture operating agreement” annexed as schedule 2 of the HoA. By clause 4.1 of the HoA, Shell and Todd agreed that, if they obtained in the future an Exploration Interest or a Production Interest (as those terms are defined in the AMIA), they would enter into a joint venture operating agreement in schedule 2 form for the relevant project or venture. Mr Hodder noted that clauses 4.10 and 4.11 of the model operating agreement (as we shall call a schedule 2 agreement) provided for resignation or removal of the operator. This indicated, he said, that “the HoA was entered into in a contractual context ... which recognised that operator contracts were not sacrosanct”. We cannot accept this argument. While the model operating agreement may provide for resignation by STOS, the Maui agreement does not. The model operating agreement did not apply to Maui; it was to be utilised only in respect of future projects.
[72] Mr Hodder’s eighth point was that “the non-entrenchment of operatorship arrangements [was] entirely consistent with the principal-agent relationship at the heart of such arrangements”. We think this is a neutral factor. Principal-agent relationships take many forms and are dependent upon their terms.
[73] Finally, Mr Hodder submitted that Wild J’s decision had the effect of removing “the necessary decision-making on STOS’s Maui operatorship from the expressly agreed decision-making body” and of neutering “Shell’s casting vote”. With respect, the High Court’s interpretation of core term 3 did nothing of the sort. All it did was confine the STOS board to its proper range of operation. Within that range, Shell’s chairperson would, and does, continue to have a casting vote.

Why we reject Shell’s argument on clause 9.1 of the HoA

[74] Wild J found that Shell, by procuring the resolutions, breached clause 9.1 of the HoA. Mr Hodder was sharply critical of that finding. He submitted that clause 9.1, far from being “a fundamental and driving provision”, as he said Wild J found it to be, had only “a limited role” and indeed was “irrelevant”.
[75] We do not agree. As we have indicated by the example given at [44] above, we consider Shell’s actions would have been wrongful both in terms of the pre-2002 contracts and under the post-2002 contracts, even without considering clause 9.1. That may be a reason why Todd had not expressly pleaded a breach of clause 9.1. But we also consider Wild J was justified in finding Shell’s actions not only a breach of the suggested implied term but also a breach of clause 9.1. Effectively, clause 9.1 was a promise by each party to do everything reasonably necessary to allow the other party “to obtain the full benefit of this Agreement” or, alternatively, a promise not to do anything which would prevent the other party obtaining “the full benefit”. One of the benefits conferred by the HoA was Todd’s continued entitlement to participate during the interregnum in the operation of the joint venture through STOS. Under clause 9, therefore, Todd was entitled “reasonably” to require Shell to “omit to take ... steps” which would take away from Todd that particular benefit.
[76] Wild J’s finding that Shell had breached the HoA must be upheld. To some extent, that renders it unnecessary for us to consider Todd’s cross-appeal on the second cause of action, on which it lost. Because, however, we think Todd wrongly lost on that cause of action, we go on to consider Shell’s arguments with respect to that cause of action.

Why we reject Shell’s implied term argument

[77] In the High Court, Shell had argued that what it was trying to persuade the STOS board to do was not wrongful because STOS was entitled to terminate the STOS employment contract on reasonable notice. Shell accepted there was no express term to that effect, but submitted a term to that effect was to be implied. Wild J rejected that argument. Mr Hodder submitted he was wrong to do so. We are unpersuaded. On this point, we consider the judge was right, for the reasons he gave. The STOS employment contract terminated or could be terminated only in the four circumstances set out at [13] and [14]. It is common ground that none of those circumstances has come to pass.
[78] Mr Hodder’s submission in favour of the implied term had three strands (as it had had before Wild J). The first was that the STOS employment contract was a “contract of employment” and it is normal for employment contracts to be terminable on reasonable notice. The answer to that proposition is the answer given by the judge: the STOS employment contract is a contract of employment only in name. It is in truth simply part of the overall mechanism by which the joint venturers operate their joint venture. We adopt the judge’s arguments as set out at [102][105] of his judgment.
[79] The second strand was that “the legal incidents of an agency include an ability for the agent to renounce the agency (or for the principal to revoke it unilaterally)”. But, again, the relationship between STOS and Shell or STOS and the joint venturers was quite different from the relationship being discussed in the principal-agent cases to which Mr Hodder referred. STOS is not an independent party, as an agent normally is. STOS is a vehicle utilised by the joint venture entirely for the benefit of the joint venture.
[80] Mr Hodder’s third strand was that, in any event, “the common law recognises a general right for parties to a contract of unspecified or indefinite duration to terminate”. This contract was not of that character. The joint venturers had very carefully considered when the STOS employment contract was to terminate. Again, in this regard, we refer with approval to Wild J’s analysis at [106][110].

Why we reject Shell’s “repudiation/acceptance” argument on the second cause of action

[81] Todd failed on its second cause of action against Shell and STOS because the judge accepted Shell’s argument that STOS could breach the STOS employment contract and Maui Development, as notional employer could accept. Mr Smith, on Todd’s cross-appeal, challenged the judge’s reasoning. We accept Mr Smith’s argument.
[82] The judge summarised Shell’s argument at [112]. Essentially, the argument had five steps:

(a) STOS’s resignation as operator would be a formal breach of the STOS employment contract, (b) which Maui Development can treat as repudiation and accept.

Such acceptance ends STOS’s primary obligation under the STOS employment contract to perform services.

This result is the exercise of Maui Development’s rights arising from STOS’s breach of the STOS employment contract and thus is consistent with clause 14.2 of that contract.

Such acceptance is a matter for the joint venturers. If necessary, it can be decided by a majority of the joint venturers.

A decision to resign in breach of a contract to provide ongoing services is not unlawful as such, and is subject to the settled practice not to grant specific performance or remedies to similar effect.

[83] Wild J did not break step 1 into two parts; we have done that for reasons shortly to be explained.
[84] Having set out the summary, the judge continued:

[113] The last step in that argument goes to relief, and I will deal with it in the final section of this judgment ([137] and following). The first four steps involve contractual analysis, and I deal now with each in more detail.

[114] I accept step 1 in the argument. As STOS is not entitled to resign as operator – to “terminate” the [the STOS employment contract] – its resignation (“termination”) is a breach of the CoE and a repudiation/renunciation of it. That is elementary contract law, here governed by common law because the CoE was made in 1973, well before the Contractual Remedies Act 1979 came into force on 1 April 1980. Section 16 of that provides that it does not apply to any contract made before its commencement.

[85] The judge then went on to accept steps 2, 3, and 4. He therefore never had to consider step 5, as STOS’s breach had been accepted, which meant the end of STOS’s primary obligation to perform services (step 2). In truth, if steps 1 to 4 are right, step 5 would never arise.
[86] With respect, however, the judge’s analysis went wrong at step 1. There is no doubt that, were the STOS board to adopt the proposed resolutions and then to cause STOS to resign as operator, that would be a breach of the STOS employment contract. That step has not yet taken place: it was prevented by Goddard J’s interlocutory injunction, subsequently upheld by this court. Having found STOS’s resignation would be a breach of the STOS employment contract if it occurred, the next question was: should the court step in and prevent that breach? The question of remedies should have been considered immediately after step 1(a), not at step 5. That question was answered on an interlocutory basis by Goddard J: she said the court should step in and prevent the breach. This court, on an interlocutory basis, agreed with her. As it turns out, what was at the interlocutory stage no more than a seriously arguable case that STOS’s resignation would be a breach has now been confirmed by the High Court (and approved by us) as indeed a breach. The question for Wild J – to be answered immediately after step 1(a) – was whether, now he had confirmed resignation would be a breach, the interlocutory injunction should be made permanent.
[87] Given his detailed findings later in his judgment as to why Todd was entitled to injunctive relief, we have no doubt that, had he applied his mind to the question of relief at the right stage, he would have concluded Todd should be granted injunctive relief to prevent the threatened breach of contract. That is certainly the view we reach, for reasons we shall shortly give.
[88] Shell’s argument needs no further analysis. We do not need to consider what Maui Development would or should have done had STOS given notice of its wrongful resignation because we are not going to permit STOS to take that wrongful step.
[89] Subject to the views expressed in the next section of these reasons, the judge’s decision on the second cause of action was wrong.

Why we reject the judge’s view that Todd could not sue on the STOS employment contract

[90] Wild J went on to consider a further argument advanced by Shell with respect to the second cause of action in case he was wrong in accepting Shell’s “repudiation/acceptance” argument. Shell had submitted that, even if STOS was about to breach the STOS employment contract, only Maui Development could sue to restrain it.
[91] His Honour accepted Shell’s argument. He held that it was Maui Development’s role, as STOS’s employer, to enforce the STOS employment contract, “absent instructions to the contrary”: at [129]. He further held that Maui Development’s power of enforcement could not be concurrent with individual joint venturer enforcement, “because of the unacceptable risk of a duplicity or even multiplicity of proceedings”: at [129].
[92] We do not accept this argument. As we have said before, the STOS employment contract is a most unusual contract. It is quite unlike a normal contract of employment. It is also very different from the standard agency agreement.
[93] All the joint venturers are parties to the STOS employment contract. So too are Maui Development and STOS. Maui Development entered into the contract as agent for the joint venturers: STOS employment contract, clause 1.3. In light of that, the prima facie position is that the joint venturers could sue STOS for breach, but Maui Development could not: see Reynolds Bowstead & Reynolds on Agency (18ed 2006) at [8-001] and [9-001]. This is the reverse of what Wild J found!
[94] In fact, we are satisfied that Maui Development could also sue STOS for breach, as there are “indications” within the contract demonstrating that the prima facie non-liability of the agent has been displaced. It is, of course, entirely possible by suitable contractual terms to make both principal and agent both liable and able to sue: Bowstead at [9-002] and [9-004]-[9-008]. Even in cases, however, where the agent has conferred on him or her the right to sue, the better view is, however, that the action should be brought in the name of the principal: Bowstead at [9-010].
[95] Mr Hodder submitted that the joint venturers had constituted Maui Development as their agent to employ STOS, “and to sue or be sued in respect of STOS’s contractual obligations under the STOS [employment contract]”. It is true that Maui Development employs STOS under clause 2.1 of the STOS employment contract, but everything it does under the agreement it does as agent for and on behalf of the joint venturers: see clauses 1.3 and 1.4. So the employers (principals) are the joint venturers. The STOS employment contract says nothing about Maui Development being able “to sue and be sued”, although the contract appointing Maui Development as the services company does authorise Maui Development “to enforce the provisions in every contract entered into on behalf of the [joint venturers]”: clause 2.4. It is silent on the question of whether Maui Development can be sued, however. In any event, in neither contract is there an express provision negating the normal rule that a party to a contract, whether a principal or not, can sue on it.
[96] Much of Mr Hodder’s argument focused on whether the joint venturers could give a direction to Maui Development by majority vote to accept any resignation by STOS. (Todd disputed such a direction could be given by majority decision.) But that is irrelevant to the question we have to determine. What we are determining is whether STOS can resolve to repudiate the contract in the first place. That is an upstream question. The majority decision-making permitted in certain circumstances by clause 5.4 of the Maui agreement is irrelevant to that issue.
[97] Todd as a party to the STOS employment contract is entitled to sue to prevent another party breaching it.

The consequences of our contractual interpretation

[98] We have set out above our interpretation of the parties’ overall contractual relationship. We have explained why we have rejected some (but not all) of the Shell arguments and why we differ from the judge in some respects. Now we need to consider the consequences of our interpretation.
[99] We have confirmed the judge’s finding that Shell breached clause 9.1 of the HoA. So the appeal must be dismissed.
[100] The second cause of action was based on STOS’s threatened breach of the STOS employment contract. Todd should have succeeded on this cause of action as Todd was right when it said none of the circumstances permitting termination had arisen. Shell’s argument as to an implied term permitting termination on reasonable notice was wrong, as the judge found. So it follows Todd’s cross-appeal must succeed. We shall consider what relief it should get in the next section of these reasons.

Was the judge right to grant Todd injunctive relief?

The form of the proposed injunctions

[101] The injunction Wild J ordered on the first cause of action was in the following terms:

An injunction restraining [Shell] from procuring its appointed directors of [STOS] to vote in favour of a resolution to effect the removal of [STOS] as operator of the Maui field or otherwise doing or being instrumental in doing any act or thing to carry such a resolution into effect.

[102] Mr Hodder disputed the appropriateness of injunctive relief having been granted, but, if it were to be granted, did not specify any alternative wording. We are satisfied that, if injunctive relief is warranted, then an injunction in the form specified by Wild J is appropriate.
[103] Because we have ruled Todd should also have succeeded on the second cause of action against STOS, we now need to consider what the form of the injunction should be, if warranted.
[104] The injunction Todd sought against STOS was in the following terms:

An injunction prohibiting STOS from giving any notice in respect of the [STOS employment] contract as is envisaged by the Proposed Resolutions.

[105] Presumably the reason why Todd did not seek an injunction to restrain voting on the proposed resolutions was that it anticipated such an injunction would be granted under the first cause of action. The relief sought there was:

An injunction restraining the ninth defendants or any Shell-appointed STOS director for the time being from voting in favour of the Proposed Resolutions.

[106] The reference to “the ninth defendants” is an obvious error, as the ninth defendant was by time of trial Maui Development. (The ninth defendants originally were the Shell-appointed directors of STOS, but they had been removed as parties: we do not know the details.) Presumably, what was meant by time of trial was the seventh defendant, STOS.
[107] We consider the appropriate injunction on the second cause of action, if injunctive relief is to be ordered, should be in a similar form to Wild J’s, with necessary amendment to reflect the fact the injunction is intended to restrain STOS rather than Shell. After all, the wrongs of Shell and the threatened wrongs of STOS are essentially the same. The potential injunction would therefore read as follows:

An injunction restraining STOS from resolving to effect the removal of STOS as operator of the Maui field and doing any act or thing to carry such a resolution into effect.

[108] The effect of the two injunctions would be the same: STOS would not be able to resign from its operatorship of the Maui joint venture.

Proper approach on an appeal against the grant of an injunction

[109] Essentially this part of the case is an appeal against Wild J’s grant of an injunction. It is true we are contemplating a further injunction against STOS which Wild J did not order, but, given the similarity of the two injunctions and the fact that both arise from the same wrongful plan, we think it appropriate to approach this second issue of the appeal on normal appellate principles.
[110] What then are the normal principles on an appeal against the grant of an injunction? Mr Smith submitted that Wild J’s decision to grant Todd injunctive relief should be disturbed only if Shell could demonstrate he had acted on a wrong principle or had failed to take into account some relevant matter or had taken account of some irrelevant matter or was plainly wrong. That submission would clearly be soundly based if this were an appeal against an interlocutory injunction: see, for instance, Spry Equitable Remedies (7ed 2007) at 447, Hadmor Productions Limited v Hamilton [1983] 1 AC 191 at 220 (HL), Novartis New Zealand Limited v Aktiebolaget Hassle [2004] 2 NZLR 721 at [53] (CA), and Porter v Gullivers Travel Group Limited [2007] NZCA 345 at [41].
[111] The textbooks on equitable remedies are strangely silent as to whether the same degree of appellate deference is required following trial and the grant of a permanent injunction. But this court did hold in Neumegen v Neumegen and Co [1998] 3 NZLR 310 that the same principles apply on an appeal against a grant of a permanent injunction: at 320. In light of that, we adopt the standard of review set out in the last paragraph. Mr Hodder did not advocate a different test.
[112] The fact we are dealing with a permanent injunction as opposed to an interlocutory injunction does, however, have some significance. There is, after all, an important contextual difference between the grant of an interlocutory injunction and the grant of a permanent injunction.
[113] The grant of an interlocutory injunction does not determine substantive rights. Determining an application for an interlocutory injunction essentially involves an analysis of the course likely to cause the least harm if, following trial, the decision turns out to have been wrong. Further, any harm caused by the wrongful issue of an interlocutory injunction can be (substantially) cured by calling on the applicant’s undertaking as to damages, an essential feature of any application for interlocutory injunctive relief: High Court Rules, r 238-(3) and (4). In addition, it is usually the aim of the justice system to move any case where an interlocutory injunction has been issued to trial at the earliest possible opportunity. These factors taken together have led to a strong appellate reluctance to interfere with a judge’s discretion whether or not to grant the application for an interlocutory injunction.
[114] These features are absent, however, when it comes to an appeal from the grant of a permanent injunction. That grant does affect substantive rights for all time. So, while the ultimate test is the same, the appellate court will be particularly concerned to ensure that the discretion has been exercised on correct principles.
[115] It is also not to be forgotten, as Professor Andrew Burrows said in his inaugural lecture, that equitable remedies, like common law remedies, now “rest on a system of rules and principles”: “We do this at common law but that in equity” (2002) 22 OJLS 1 at 2. He continued:

It surely cannot seriously be suggested that the law is less certain – that a judge has more discretion – in deciding whether specific performance should be ordered than in deciding, in relation to damages, whether a loss is too remote or whether an intervening cause has broken the chain of causation or whether the claimant has failed in its duty to mitigate its loss. All these decisions involve the application of a weak judicial discretion.

[116] His footnote to that passage referred to Professor Ronald Dworkin’s discussion on “discretion” in Taking Rights Seriously (1977) at 3139.
[117] These differences between interlocutory injunctions and permanent injunctions suggest that an appellate court should give, in the latter case, particular attention to the question of whether the decision to grant or withhold the injunction has been exercised on correct principles.

Effectively an order of specific performance to carry on a business?

[118] Mr Hodder’s principal complaint was that the grant of injunctive relief effectively amounted to an order of specific performance to carry on a business. He submitted this was “not merely incongruous and uncommercial, but ... contrary to settled principles”. In this regard, he relied in particular on the House of Lords’ decision in Cooperative Insurance Society Limited v Argyll Stores (Holdings) Limited [1997] UKHL 17; [1998] AC 1. He further submitted STOS was an “employed agent and trustee” and that “specific performance of an ongoing agency role is not normally available”.
[119] We have no hesitation in rejecting this argument. It is not correct that the injunction Wild J ordered is the equivalent of an order for specific performance to carry on a business. The close business relationship between Shell and Todd arises from their joint venture, which would continue even if an injunction were not granted. The injunction is limited in its scope. All it will prevent if granted is the Shell-appointed directors of STOS voting in favour of a resolution to effect STOS’s removal as operator of the Maui field. In all other respects, the joint venture continues as before. How STOS operates the field is not affected by the injunction. There is no likelihood of the court’s becoming entwined in making business decisions. So far as decisions at joint venture level are concerned, the Maui agreement contains explicit rules as to decision-making. In terms of operational decision-making, Shell will be able to rely on the tie-breaker mechanism in the constitution, confirmed by core term 3.
[120] The principal authority relied on for the proposition that “specific performance of an ongoing agency role is not normally available” was a passage from Bowstead at [7-045]:

A contract of agency is by its nature a personal contract; the relationship between the parties is of a fiduciary character and depends upon mutual confidence. It has long been established that the courts will not normally enforce the continuation of such a contract, whether directly by an order for specific performance or indirectly by injunction. The normal remedy for breach of contract by the principal is therefore an action for damages. But because these specific remedies are equitable they are discretionary and it is therefore not possible to state that the principle has no exceptions.

[121] We do not doubt the accuracy of the general propositions set out. But the present case is far removed from the relationship there being discussed. This is not a simple relationship where Shell is the principal and STOS the agent. Nor it is a relationship between two natural persons. The overall relationship between Shell, Todd, OMV, and STOS is much more complicated than that. This is not a case where the agent is attempting to force an unwilling principal to remain in a relationship with it. On the contrary, this is a dispute between joint venturers and an attempt by one of them to prevent the other from changing in a fundamental way how the joint venture operates. Shell cannot legitimately say it has lost confidence in STOS as it continues, through its nominees in whom it has total confidence, to control STOS. The reality is Shell wants to run the joint venture differently so far as the Maui field is concerned. It is not entitled to effect that change to the overall joint venture structure. The concerns expressed in the passage cited are far removed from what is in issue in this case.

Relevant factors: group A

[122] Mr Hodder’s main argument on the question of relief, namely that the High Court judgment was wrong because it effectively ordered specific performance of an agency or required the carrying on of a business, was advanced as an error of principle on the judge’s part. We have held there was no error in that regard. Mr Hodder’s second line of attack was to criticise the 12 factors upon which Wild J had relied. Mr Hodder divided these factors into two groups. The second group (group B) involved factors where Mr Hodder said he needed to challenge the judge’s underlying factual findings. In particular, this group included findings that STOS was not dysfunctional and findings that Shell’s conduct was open to criticism. The challenge to the remaining factors (group A) did not involve challenges to factual findings. Rather, Mr Hodder submitted the judge’s legal analysis was wrong.
[123] For ease of discussion, we will follow Mr Hodder’s dichotomy and begin with his first group, group A.
[124] Mr Hodder dealt with Wild J’s first two factors together, so we shall too. The first factor was that Shell had contracted in the JV55, and subsequently in the HoA, to operate Maui through the joint venture with Todd, by way of Maui Development employing STOS, for the life of the Maui field, subject only to clause 14.2 of the STOS employment contract and clause 17 of the HoA: at [252]. Secondly, Shell in procuring the resolutions had acted in breach of clause 9.1 of the HoA: at [253]. Mr Hodder submitted these factors “merely restate the necessary premise for a discussion of relief: that Shell is in breach of a contractual provision”. With respect, that misses entirely the point Wild J was making. What His Honour was stressing is that this was an application for an injunction to restrain a breach of contract. Cases to restrain breaches of contract are prime candidates for injunctive relief. As Dr Spry QC observes, it is going too far to say that, “where it is sought to restrain a breach of contract or a breach of covenant, the court has no discretion to refuse an injunction”: Spry at 392. But injunctions to restrain breaches of contract are nonetheless common because “ordinarily ... considerations of hardship on the part of the defendant do not prevent the grant of an injunction, not because they are irrelevant, but because they are of diminished weight in view of the fact that he has by his contract or covenant deliberately undertaken not to perform the acts that are in question”: ibid.
[125] It is also highly significant, in our view, that, if the courts were to permit the Shell-appointed directors to breach STOS’s contractual obligations, they will effectively be sanctioning a fundamental alteration in the parties’ overall venture. Shell wants that venture to continue, but on significantly different terms. It should not be able to have its cake and eat it.
[126] Wild J’s third factor was that damages would not be an adequate remedy: at [254]. This was a matter which the judge had considered at some length at [138][147] of his judgment. In essence, His Honour did not accept Shell’s argument that STOS’s operatorship of Maui had no commercial value to Todd. On the contrary, he considered its value to be substantial, but accepted Todd’s argument that it could not be quantified, even in an approximate way: at [143].
[127] Mr Hodder challenged the assertion damages would not be an adequate remedy. He submitted that STOS was a $2,000 “no profit no loss” entity, undertaking operations with the field joint venturers’ funds and assets. It was untenable to suggest that, if the STOS employment contract were to end, Todd as a joint venturer would suffer any substantial direct loss of capital or income.
[128] This submission, however, underestimates the importance of STOS. An internal Shell planning document of February 2005 outlined the significant advantage to Shell if Todd’s “inappropriate degree of control over the provision by STOS of services to [the joint venturers]” could be removed. The paper opined that “transfer of operatorship from STOS to [Shell would] facilitate any future asset divestment”. The paper went on:

If asset sales [by Shell] are contemplated in the future, potential buyers are likely to discount asset purchase prices to reflect the cost and complications of inheriting the STOS JV as field operator. The amount of such a discount is speculative. However, a notional 10% discount in purchase price would give rise to over $[x] erosion of the value of [Shell’s] New Zealand portfolio.

[Note: The actual figure is given in the original document. We have omitted it for confidentiality reasons. It is a very large sum.]

[129] Of course, that is not to say that the value of STOS to Todd is in that order, but it puts in perspective the apparent suggestion this is just a dispute about a $2,000 “no profit no loss” entity.
[130] Mr Hodder went on that, even if one assumed a contractual breach, the appropriate remedy, if any, was nominal damages. We do not accept this argument, and in any event it proves too much. If STOS is so unimportant, why is Shell trying so hard to assume total control at an operational level?
[131] Mr Hodder’s other points turn on STOS’s alleged fiduciary duties as agent of the joint venturers. It is said that the only way in which Todd could suffer a “substantial” loss is if STOS acted wrongly to benefit Shell over the other field venturers. But this is to misstate what Todd has to prove. It does not have to establish its loss (and its damages) would be “substantial”: all it must demonstrate is that damages would be an inadequate remedy. We have no doubt Wild J was correct in finding that Todd’s loss of involvement at an operational level would have significantly disadvantageous consequences for it. Why else would STOS’s continued role and the carefully devised make-up of its board have been included within the first three core terms? We accept Mr Smith’s submission that the value to Todd of STOS’s operatorship of the Maui field lies in the fact it enables Todd to influence the costs incurred by STOS in that operatorship (most significantly, the internal running costs of STOS, over which the field joint venturers have no direct influence) and to have access to information through its shareholding and directorships.
[132] Wild J’s fourth factor in group A was that enjoining Shell would not be oppressive: at [260]. Wild J said the effect of the injunction would not be to compel Shell to perform an unprofitable contract indefinitely. Mr Hodder’s only response was to argue that Shell and OMV “should not be locked into STOS when 93.7% of the ... ownership interest (including OMV) has declared its loss of trust and confidence in STOS”.
[133] Once again, we reject the criticism of the judge’s reasoning. We agree with him that the injunction sought and ordered is not oppressive of Shell. We do not accept that Shell has lost “trust and confidence in STOS”: how could it, when it at the end of the day controls STOS through the tie-breaker mechanism? We see it as very significant that Shell has not alleged that either STOS or Todd is in breach of any obligations owed to Shell.
[134] The next two factors Wild J relied on were the fact that the scope of the injunction was clear and this would not be a case where there was a risk of the court being repeatedly involved in ruling on compliance with the injunction: at [261] and [262]. In response, Mr Hodder submitted the injunction was ambiguous and that the courts could expect consequential litigation arising from “the seriousness of the philosophical divergence between Shell and Todd which extends into STOS and which is at the root of their dysfunctional relationship at the governance level”.
[135] We reject those criticisms. As to the former, we do not consider Wild J’s injunction was unclear and there is no evidence before us of difficulties in interpretation since it was ordered on 19 June last year. As to the latter criticism, we do not consider the two proposed injunctions will give rise to compliance disputes, as they effectively enjoin the Shell-appointed directors in only one clearly defined respect. Of course, there may well be other litigation between Shell and Todd as a result of their various joint ventures, but none is likely to be directly linked to these injunctions.
[136] Wild J’s final factor, which was marginally a factor in Shell’s favour, was the “disproportion” between Todd’s influence through STOS (50% shareholding and equal board representation, subject to the Shell-appointed chairperson’s casting vote) and Todd’s 6.25% interest in Maui: at [263]. As against that, the judge noted that Shell and Todd had been involved in STOS on a 50/50 basis for decades, even though Todd’s interest in the fields was smaller. Shell had always agreed to that and indeed had reconfirmed that arrangement in the 2002 suite of documents. In addition, Shell had substantially increased its interest in Maui in 2001, knowing exactly what was involved in STOS. Further, the judge noted that when OMV acquired its 10% interest in Maui from Shell in 2003, it must have known of the STOS arrangement. In other words, nothing had changed so far as Todd’s ownership interests were concerned since the STOS arrangement was reconfirmed in 2002.
[137] Mr Hodder submitted that the judge, by noting this factor, had given “at least some recognition [to] the relevance of Todd’s mere 6.25% interest in Maui as against the 93.75% interest of Shell and OMV”. He submitted, however, that this “powerful factor” had been given insufficient weight. We do not accept that criticism. This was a factor the judge was entitled to take into account. Like him, we regard it as largely neutral.
[138] This concludes the judge’s list of relevant factors in group A. We are satisfied that on the basis of these factors alone the judge’s decision to grant an injunction was justified. In our view, damages would have been a most inadequate remedy.

Relevant factors: group B

[139] The final factors which weighed with Wild J were his findings that:

(a) STOS was not dysfunctional;

(b) The proposed injunctive relief would not “yoke together” parties in dispute, as they were yoked together in any event through their continuing joint ventures;

(c) Todd’s conduct was not open to criticism;

(d) Shell’s conduct was open to criticism.

[140] Mr Hodder asserted his challenge to these factors involved “a challenge to certain findings of fact”. He acknowledged “appellate caution in revisiting factual findings”, but submitted we should not be shy in this case as the relevant findings he sought to challenge were “not based on credibility but on the construction of and selection from a chronology of documents, on the drawing of inferences, and, on a critical point, on confusion of terminology in relation to the term “dysfunctionality””.
[141] As it turns out, we do not find it necessary to address these factors and the underlying factual dispute in any detail. This is for the following two reasons.
[142] First, as we have already said, we are satisfied on the basis of the group A factors that Todd was entitled to injunctive relief. The additional group B factors, even if made out, add little to the strength of Todd’s case for an injunction.
[143] Secondly, we do not consider the fourth factor, namely that Shell’s conduct was open to criticism, to be relevant. It was the judge’s findings of fact with respect to this issue which were of most concern to Mr Hodder: see the judge’s findings at [248][250]. These findings then translated to Wild J’s eighth factor. He said, at [259], that “implicit in one or both of the objectives of Shell’s Project Moa/Zinfandel (replacement of STOS with a [100% Shell-controlled entity]) was breach of the HoA”. Wild J was entitled to conclude on the evidence before him that Shell did plan to breach obligations it owed to Todd, but the fact it was part of a carefully thought out strategy did not add weight in favour of injunctive relief. We suspect the judge did not give this factor much weight either. It was the eighth of twelve factors and he said he had set them out as closely as he could in the order of importance he attributed to them: at [251]. What was significant, of course, was not the reasoning behind Shell’s strategy but the fact that it was going to lead to Shell’s appointed directors breaching a contract. We discussed the significance of that when discussing Wild J’s first two factors (in group A): see [124] above.
[144] We turn now to the first of these group B factors. Wild J recorded that Shell had resisted injunctive relief “on the grounds that STOS is dysfunctional”. He said he had found, however, that STOS is not dysfunctional, “so the ground on which Shell resisted injunctive relief is not made out”: at [255][256]. Mr Hodder submitted the judge had misunderstood what he and Shell witnesses had meant by the term “dysfunctional”, with the consequence that the judge had not really grappled with the point Shell was making. As it happens, we are not convinced the judge did misunderstand what Shell meant by “dysfunctional”, but we do not need to resolve that. Instead, let us concentrate on what Mr Hodder said was Shell’s principal complaint, namely “the persistent and corrosive commercial behaviours of Todd which [had] caused ongoing genuine and reasonable concerns at the most senior levels of Shell and STOS management (shared by OMV)”.
[145] We make four points with respect to that allegation. First, it is not asserted this alleged behaviour stopped STOS operating reasonably effectively. Wild J found that “STOS has functioned at all material times, and continues to function, reasonably effectively”: at [245]. He then went on to give the reasons for that finding. That finding is not challenged by Shell: Mr Hodder said Shell accepted that, “notwithstanding the difficulties, STOS did continue to perform its operatorship roles – in the sense that there was no proven failure to deliver work required to complete tasks”. So, despite the difficulties between Shell and Todd, STOS continues to operate reasonably well. Indeed, Wild J went to some length to examine whether project delays (“slippage”) were a result of dysfunctionality in STOS or its governance structure. He concluded they were not: at [246]. The board is not deadlocked: it could not be, as Shell’s team has a casting vote. We therefore do not have a situation where granting an injunction might lead to perpetuation of corporate mayhem or deadlock. We accept the fact STOS is functioning reasonably effectively is not a factor in favour of an injunction, but clearly too it is not a factor against the grant of the injunction sought.
[146] Secondly, we consider it very significant that Todd is not alleged to be in breach of any contractual obligation. Of course, the injunction-seeker’s conduct is generally relevant only if bad and thus potentially disentitling, but at least we can say there is an absence of a negative factor.
[147] Thirdly, and similarly, Shell does not assert Todd should be declined relief on the grounds of unclean hands or other unconscionable conduct: see Spry at 409. Mr Hodder confirmed it was no part of Shell’s case to attribute “ulterior motives to Todd”. Again, that is the absence of a negative factor.
[148] Finally, we come to Shell’s complaint of “the persistent and corrosive commercial behaviours of Todd”. That assertion must be seen in the foregoing context: that is to say, the alleged behaviour has not prevented STOS from functioning reasonably effectively, has not amounted to a breach of any contractual obligation, and is not alleged to arise from improper motives. It is clear that the alleged “corrosive” behaviour is said to have been that of Richard Tweedie, Todd’s managing director. The judge made a candid and careful assessment of Mr Tweedie, which was overall favourable: at [249]. We are not minded to overturn that assessment, especially in circumstances where no breach of contract is alleged against Todd and where Shell accepts that STOS has functioned at all material times, and continues to function, reasonably effectively.
[149] In summary, therefore, we do not find Shell’s assertion made out. Mr Tweedie’s behaviour was not such as to operate as a disentitling factor in the balancing exercise.
[150] The above analysis deals with factors (a) and (c) as set out in [139] above. That leaves factor (b). In that regard, we consider the judge was entitled to take into account that, quite apart from the injunction, these disputing parties would have to continue working together. This was not a case where to grant the injunction would yoke “the parties together in a continuing hostile relationship”. That was a consequence of the joint venture itself, from which neither party sought to withdraw.

Conclusion

[151] We are satisfied Wild J was right to grant injunctive relief to Todd. We confirm the injunction His Honour ordered on the first cause of action. We impose as a remedy on the second cause of action an injunction in the form set out at [107] above: see order D.

Declaratory relief

[152] Wild J, in addition to ordering an injunction, granted two declarations. We set them out in the form in which they were sealed:

A declaration that Shell’s procuring [STOS] to resign from its Contract of Employment at the Maui field would be in breach of clause 9.1 of the Heads of Agreement between Todd and Shell dated 1 March 2002 (“HoA”), and also of STOS core term 1.1 in Schedule 3 to the HoA.

A declaration that, if [Shell] wishes to terminate the unincorporated joint venture between [Shell] and [Todd] as defined in STOS core term 2.1 in Schedule 3 to the HoA, then it must withdraw in accordance with STOS core term 17 in that same Schedule.

[153] We confirm order 2. As the above discussion makes clear, our overall evaluation of Shell’s and Todd’s relationship differs slightly from Wild J’s, but not so significantly as to make the form of this declaration inappropriate. While we might have worded the declaration slightly differently if starting from scratch, we see no reason to interfere. We agree with the sense of it.
[154] We now turn to consider order 3. In our respectful view, this declaration is ambiguous. If the judge meant by the expression “the unincorporated joint venture between [Shell] and [Todd]” their joint venture, then the declaration is wrong, as core term 17 did not provide a mechanism for withdrawing from the joint venture. Core term 17 was concerned solely with the parties’ ability to withdraw from STOS.
[155] Let us explain that a little more. The Maui joint venture was established by the Maui agreement. Dissolution of the joint venture was provided for in clause 17 of that agreement. The HoA did not amend in any way those dissolution provisions. Core term 17 did not permit either joint venturer to withdraw from the joint venture on 12 months’ notice.
[156] Core term 17 was concerned with the ability to withdraw, not from the joint venture, but rather from STOS. That is tolerably clear from core term 2.1, which inferentially defines “the Venture”. That clause is the term which confirms STOS’s continued role, either, as now, “as nominee and/or bare trustee for Shell and Todd as joint venturers” or, if later agreed, “as a full operating company acting in its own right”. The fact that the definitional term “the Venture” refers to STOS is made clear by the words immediately preceding it, namely “in either case”. That is to say, “the Venture” means STOS either in its current form or in some new form.
[157] Any doubt about the meaning of “Venture” is removed when one considers other core terms. For example, core term 2.2 provides that Shell and Todd each have “a 50% share in the Venture”. That is true for STOS; it is certainly not true for the joint venture itself. Core term 3.1 provides for a “board of directors of STOS” as being “responsible for governance of the Venture”. Again, there has never been any suggestion that the STOS board has control of the joint venture itself, rather than simply of STOS. Core term 17 provides for withdrawal from the Venture. Where a party wishes to withdraw from the Venture, it is bound to transfer its “shares in the Venture” to the other party, and to receive no compensation. One can understand Shell or Todd being prepared in certain circumstances to withdraw on those terms, from STOS, a $2,000 company operating on a “no profit no loss” basis. It is a little harder to see that either Shell or Todd ever remotely contemplated withdrawal from their joint venture on such terms!
[158] We could support a declaration that, if Shell wishes to withdraw from STOS, then it must withdraw in accordance with core term 17. It may be this is what the judge meant. We doubt, however, the need for such a declaration, as Shell, at least currently, has no wish to withdraw from STOS. That is the opposite to which it is trying to achieve. That would leave the STOS employment contract in place but STOS under the complete control of Todd. (There is also, of course, now OMV’s position to consider. How core term 17 works in a tripartite situation has not been explored before us.)
[159] Because of its ambiguity, we set aside the second declaration (order 3). We do not consider any declaratory relief is needed in its place: we hope these reasons for judgment speak for themselves. But in case any party does not share our optimism in that regard, we reserve leave to any party to apply if it considers further orders are required to formalise or perfect this court’s reasoning.

Costs

[160] In the High Court, Wild J awarded Todd costs on a 3C basis: at [267]. Shell did not appeal against that costs order: it was order 4 in the sealed judgment. We confirm it.
[161] Todd is also entitled to costs in this court, having been successful in resisting Shell’s appeal and on its cross-appeal.

Solicitors:
Chapman Tripp, Wellington for Appellants
Russell McVeagh, Wellington for First Respondent
Simpson Grierson, Wellington for Fourth Respondent

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