Haylock v Southern Petroleum No Liability HC Auckland CL.50/99 [2001] NZHC 580 (29 June 2001)

Last Updated: 5 November 2013

IN THE HIGH COURT OF NEW ZEALAND
AUCKLAND REGISTRY CL.50/99

UNDER the Securities amendment Act 1988
AND
IN THE MATTER of an application pursuant to s.18(1) of the Securities Amendment Act 1988 granting leave to the Applicant to bring proceedings in the name of the Respondent for breaches of the Securities Amendment Act 1988 relating to the take-over of the Respondent

BETWEEN: ROSEMAY PHYLLIS FILLBRIDGE HAYLOCK of Auckland, Businesswoman
and
STUART HAMILTON CAIRNS of Auckland,
merchant banker
and
GREEN & McCAHILL PROPERTIES LTD a duly incorporated company having its registered offices at Auckland
and
JOHN HAYWARD OAKLEY of Wellington,
Solicitor
Plaintiffs/Applicants

AND: SOUTHERN PETROLEUM NO LIABILITY
Respondent

AND: JAMES WARREN PATEK
of Auckland, company director
AND
FLETCHER CHALLENGE ENERGY TARANAKI LTD
Intending Defendants

Hearing: 29 June 2001

Oral Judgment: 29 June 2001

Counsel: Colin Carruthers QC and Patricia Mills for plaintiffs/applicants
James A Farmer QC for Southern Petroleum
Sarah Katz for intending defendants

[ORAL] JUDGMENT OF WILLIAMS J

Solicitors:
Fraser Powrie, DX CP28512 Auckland (for plaintiff)
Buddle Findlay, DX CP24024 Auckland (for intending defendants)

[1] This judgment deals with an application by the plaintiffs for an order under R 509 seeking a declaration that a Mr O’Connor make an affidavit as to the matters within his knowledge relevant to this proceeding. The defendants do not object to the making of an order strictly in terms of R 509, but oppose the Court making an order requiring Mr O’Connor to make an affidavit.

[2] The claim is brought by the plaintiffs on behalf of the minority shareholders in Southern Petroleum, pursuant to the Securities Amendment Act 1988, s 18. All the plaintiffs were formerly shareholders in Southern Shareholders, but they sold their holdings between 20 October and 22 November 1995.

[3] The claim asserts that between 1987 and 1996, Southern Petroleum was involved in oil and gas exploration in Taranaki. In particular, the claim says that in October 1994, Petrocorp and Southern Petroleum agreed to carry out a review of the Deep Gas prospects in on-shore Taranaki. That exercise became known as the ‘Deep Gas study’ and is one of the matters central to the claim. A Deep Gas team was set up. Mr O’Connor was one of the members of the Deep Gas team. Most, if not all, of the others have made affidavits in this proceeding on behalf of the defendants.

[4] The claim says that between June 1995 and early November that year, the Deep Gas team completed the evaluation of the Mangahewa structure. Information relating to that matter is described in the claim as ‘the Mangahewa Information’ and is again one of the pivotal aspects of the claim.

[5] On 2 November 1995, the Deep Gas team and officers of Petrocorp and Southern Petroleum agreed to drill an appraisal well into the Mangahewa structure, but it is asserted that aspect was kept away from other directors and from the shareholders, notwithstanding that, according to the claim, the evaluation of the Mangahewa structure suggested it might potentially be larger than the Maui gas field. It is asserted that the Mangahewa Information became available to the Fletcher Challenge group but was not publicly available. Had such been the case, it is claimed it would have affected the share price for Southern Petroleum during its take-over by Petrocorp and the report commissioned by the independent directors of Southern Petroleum for the minority shareholders as to the fair value of the Southern Petroleum shares was under-valued.

[6] The take-over notice to Southern Petroleum shareholders was apparently given on 31 July 1995 at 63 cents for each ordinary share paid to 45 cents and a cash offer of 19 cents for each ordinary share paid to 1 cent and 68 cents for each ordinary share paid to 50 cents and was conditional on 90% acceptance.

[7] The independent directors of Southern Petroleum recommended to minority shareholders on about 16 August 1995 that they accept the offer on the basis of expert advice, but the plaintiffs resisted the take-over. On 29 September, it is asserted that the offer was made unconditional. On 14 November, the independent directors advised the Stock Exchange of an increase in the offer to 75 cents for each ordinary share based on revised valuation, and on 16 November, Mr Oakley, who was a substantial shareholder in his own right and held a number of proxies, advised those for whom he acted that he intended to accept the increased offer. It is asserted that the same day, at Southern Petroleum’s AGM, although some of those with knowledge of the Deep Gas study and the Mangahewa Information attended, the Deep Gas study or its contents were not disclosed.

[8] Following the take-over and the announcement of Petrocorp’s intention to drill in Mangahewa, it is claimed that the Fletcher Energy stock increased in price. All the defendants are sued as insiders, pursuant to the Securities Amendment Act.

[9] As noted, Mr O’Connor was a member of the Deep Gas study group. He is a person with considerable experience in the oil and gas exploration field, but he has declined to make an affidavit on behalf of the plaintiffs in this proceeding, partly because he is concerned lest giving evidence for the plaintiff might breach his confidentiality agreement with Fletcher Challenge, and secondly, might cut across his current responsibilities in valuing Taranaki Petroleum licences with Fletcher Challenge as a joint venture partner.

[10] Turning to the law, R 509 provides that if a person with relevant information refuses to make an affidavit, any party may apply for an order for that person ‘to appear and be examined on oath before the Court, or such person as the Court appoints as to the matters concerning which he has refused to make an affidavit’. There is no contest to the fact that Mr O’Connor has declined to make an affidavit on behalf of any party to this claim for the reasons earlier noted.

[11] R 509 then gives the Court power to make an order for the attendance of that person before the Court for the purpose of being examined and to produce documents, with that order being imposed on such terms as the Court thinks fit.

[12] As is clear from the terms of R 509, the rule does not entitle the Court to compel a reluctant deponent to make an affidavit. That is confirmed by the learned authors of McGechan on Procedure (para HR 509.04, page 3-908) and by the learned author of Beck, Principles of Civil Procedure (1992 paras 8.2.5 p 136, and 11.7.7, p 206. It is also confirmed by authority on the topic, to which counsel helpfully referred.

[13] In Re Cross, [1981] 2 NZLR 673, Holland J dealt with an application under the then equivalent of R 509 in respect of objection by the solicitor for a testator to his making an affidavit in Family protection proceedings. The solicitor properly took the point that he may be infringing solicitor/client privilege were he to make an affidavit or to give evidence without the protection of an order from the Court. It is clear from reading that case that the decision was substantially influenced by the provisions of the Family Protection Act 1955, ss 11 and 11A, which entitles the Court to receive evidence as to a deceased’s reasons for disposition and oblige an administrator to assist the Court in deciding cases under that statute.

[14] Concerning the application for an order for the solicitor to make an affidavit, the learned judge held (at 675 lines 43-47):

‘Should I decide that the evidence of Mr Coupe should be given, I have no doubt that it will be unnecessary for me to make a formal order and that an affidavit will be provided. I record, however, that there appears to me to be no jurisdiction to make any person make an affidavit. The only jurisdiction is to order him to appear and be examined on oath.’

[15] Then, after considering authority more germane to the statutory jurisdiction with which he was concerned and solicitor/client privilege, the learned judge concluded (at 680 lines 35-41):

‘It appears to me that in the interim the matter can be satisfactorily dealt with by my making a declaration that Mr Coupe should make available by affidavit all relevant information in his possession, if any, concerning the deceased’s reasons for making the dispositions made in his will, or for not making any provision, or any further provision, as the case may be, for the plaintiff, or any other persons entitled to apply for further provision under the provisions of ;the Family Protection Act 1955.’

[16] That decision was relied on by Barker J in Auckland City Council v Auckland Electric Power Board (1993) 7 PRNZ 74, where two persons, both legally qualified, declined to provide affidavits in respect of their knowledge of the matters in issue. An application under R 509 was brought. After summarising the rule, the learned judge referred to Wallace and Fiord Hospital Contributors v Southland Hospital and Charitable Aid Board (No. 2) (1889) 8 NZLR 260. In that case, a proposed witness had declined to provide an affidavit and an order was sought under the equivalent of R 509. The learned judge noted that the procedure was “analogous to a subpoena to compel evidence” and that an order for examination should be made because there should be (at 262) “some means of obtaining his evidence in order that his evidence may be before the Court when the matter comes on for hearing.”

[17] That notwithstanding, in Auckland City Council, Barker J went on to note (at 76):

‘The examination procedure is unsatisfactory in that the party seeking the evidence does not necessarily know what the witness is going to say and is unable to mould the evidence into an appropriate sequence of time and topic. Also, such an examination could require the attendance of counsel for all parties with some cost to them; if an affidavit is prepared it is at the first instance the cost of the party seeking to file it.

‘I consider that on a matter of public interest such as this litigation, involving as it does ratepayers’ and power consumers’ money, the Court should have available to it every piece of evidence which may be of relevance in determining what is an important public issue. Therefore, I have no doubt that the evidence of these two people should be placed before the Court in the most expeditious and efficient method possible.

‘There is no authority in the Rule to make a formal order that a person make an affidavit; the normal jurisdiction is to order appearance and examination. There is precedent for the making of a declaration, that a person do make an affidavit giving the Court all relevant information in his or her possession. Though the distinction seems fairly narrow, there is no Rule against such an order being made.’

[18] Then after referring to Re Cross, the learned judge noted that both the proposed witnesses were lawyers and were likely (ibid) to “respond if I were to make a similar declaration” to those made in Re Cross without the necessity for a formal order under R 509, and noted that at least in one case the proposed witness had said that once the Court had indicated that as the appropriate course, an affidavit was likely to follow. He therefore made declarations that both witnesses should make affidavits as to the matters within their knowledge but specifically reserved liberty to the applicant to apply (at 77) ‘in case either or both of the proposed deponents still persists in their refusal despite this intimation from this Court’.

[19] For the plaintiffs, Mr Carruthers QC relied on the unsatisfactory nature of the strict procedure for which R 509 provides, as noted by Barker J, and submitted, in reliance on the two cases discussed, that the Court should make a declaration that Mr O’Connor should make an affidavit. He pointed to the impracticalities of requiring Mr O’Connor simply to attend and be examined without the plaintiff having the opportunity to ascertain his views on the affidavits so far filed before Mr O’Connor was examined. In order to endeavour to meet Mr O’Connor’s and the defendants’ objections as to confidentiality, the plaintiff offered to provide the defendants’ counsel with a copy of Mr O’Connor affidavit once it was sworn but before it was filed, in order to give them an opportunity to take whatever action they might consider appropriate in relation to the confidentiality question.

[20] There are impracticalities in the R 509 procedure, as noted in Auckland City Council and in McGechan on Procedure where the learned authors comment (para HR 509.07 p 3-909):

“The Rule is of particular use in dealing with a person able to give evidence who refuses, for example, for personal reasons or because of employer’s instructions to be briefed on the matter, and who refuses to state what his or her evidence will be if subpoenaed. Orders to attend obtained under the Rule are frequently sufficient to produce the desired briefing and affidavit without necessity for examination. If examination is necessary, and the uncooperative attitude continues, a foundation may be laid for the witness to be ruled hostile so as to permit cross-examination.”

[21] That notwithstanding, the only power the Court has is to make an order under the rule. As a careful analysis of the cases shows, what occurred in Cross and Auckland City Council was that the Court felt able to make a declaration that the reluctant deponent should make an affidavit, confident in the assumption that because all the reluctant deponents in those cases were responsible officers of the Court, they would, once they had the protection of the Court’s declaration, volunteer the required information by affidavit, thus avoiding the necessity for a formal examination under R 509. Potentially, at least, it was a two-stage process.

[22] Mr O’Connor is not a lawyer. Even so, it may be the case that if the Court were to make the declaration sought, he, too, would volunteer an affidavit rather than be submitted to the inconvenience of examination on oath. But the Court can have less confidence in that occurring in this case than in the earlier decisions referred to, partly because Mr O’Connor is not a lawyer, but also because of the strength of the opposition to this application.

[23] In those circumstances, in this case, the Court takes the view that the appropriate course to follow is to make the declaration in the terms in the earlier cases but, as a second stage, also make an order strictly in terms of R 509 in the event that the affidavit sought is not provided within a limited time. In a sense, therefore, it is appropriate for the Court to make an “unless” order against the possibility that the affidavit is not provided.

[24] It is also appropriate to limit either the affidavit or the examination on oath so as to preserve Mr O’Connor’s obligations as to confidentiality and, because the affidavit is sought only in reply to affidavits filed on behalf of the defendants, to ensure that the evidence provided complies with the rules as to evidence in reply.

[25] In view of that, the Court proposes to make an order by way of a declaration that Mr O’Connor should make an affidavit in reply as to the matters within his knowledge on the issues raised by the affidavits filed by the defendants in answer to the plaintiffs’ proceeding. In that regard, the Court notes that the defendants have no objection to their affidavits being submitted to Mr O’Connor to enable him to fulfil his obligations to the Court. Further again, there being no property in a witness, there can be no objection to the plaintiffs’ solicitors and counsel interviewing Mr O’Connor for the purpose of preparing any affidavit which he is prepared to provide in accordance with the Court’s requirements. In that respect, however, the Court also notes that the plaintiffs have offered to ensure that a Mr Gavigan plays no part in the process of obtaining Mr O’Connor’s evidence. If Mr O’Connor provides an affidavit, it is to be strictly in reply, as required by R 510(1)(d)(ii). Further, the Court’s declaration that Mr O’Connor should provide that affidavit is subject to all justified objections which may be taken as to admissibility of the matters contained in that affidavit, whether as to confidentiality, privilege, or relevance generally. If the affidavit is provided, it is to be sworn within 14 days of a sealed copy of this Court’s order being served on Mr O’Connor. Further again, the sworn affidavit is to be furnished to the defendants’ solicitors and counsel prior to its being filed and they are to have 14 days from receiving the affidavit to take any action they consider appropriate in relation to confidentiality or the other issues mentioned.

[26] In the event that Mr O’Connor continues to decline to provide an affidavit on the terms mentioned and in accordance with the declaration made, there will be an order pursuant to R 509 that he appear on a date and time to be fixed by the Court to be examined on oath as to the matters in respect of which he has refused to make an affidavit. Since this is a complex and difficult case and complex and difficult questions may arise on that examination as to admissibility, confidentiality and the like, it would be preferable that any such examination be conducted by a Commercial List judge who has previously had an opportunity to familiarise himself with all the affidavits filed to date in this proceeding. If the examination is to take place, plainly counsel for all parties are entitled to be present so that the examination can be conducted in the normal way. Leave is reserved to Mr O’Connor, if he considers it appropriate, to seek to have counsel represent him at that examination.

[27] There will be orders accordingly.