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High Court of New Zealand Decisions |
IN THE HIGH COURT OF NEW ZEALAND
WELLINGTON REGISTRY
CIV 2008-485-1776
BETWEEN GXL ROYALTIES LIMITED
Plaintiff
AND SWIFT ENERGY NEW ZEALAND
LIMITED
First Defendant
AND GREYMOUTH GAS KAIMIRO
LIMITED, GREYMOUTH GAS
PARAHAKI LIMITED, GREYMOUTH
GAS TURANGI LIMITED AND
GREYMOUTH PETROLEUM TURANGI
LIMITED
Second Defendants
Hearing: 29 June 2009
Counsel: M R Heron and
M A Corlett for Plaintiff
G Joe for First Defendant
M D O'Brien and B Clarke for Second Defendant
Judgment: 3 July 2009
RESERVED JUDGMENT OF RONALD YOUNG J
Introduction
[1] These are applications
by the second defendant for further and better
discovery against the plaintiff and non-party discovery against a group of companies
collectively called the Todd Companies. A useful summary of the backgrounds facts
is contained in a Judgment of Dobson J of 30 January
2009 dealing with a pleadings
point.
GXL ROYALTIES LIMITED V SWIFT ENERGY NEW ZEALAND LIMITED AND ANOR HC WN CIV
2008-485-1776
3 July 2009
[2] He said:
[1] These proceedings relate to a dispute over the circumstances in
which ownership
interests in a petroleum exploration permit ("the permit"),
issued under the Crown Minerals Act 1991, have purportedly been
sold and
assigned by the first defendant ("Swift") to the second defendant companies
("Greymouth"). The permit had originally
been owned by the plaintiff
("GXL") which retained a contingent royalty interest, and GXL's consent
was required to the
sale or assignment. The present application is brought
by Greymouth seeking a more explicit pleading from GXL in response to
allegations in Greymouth's Statement of Defence and Counterclaim that
GXL has refused consent for collateral purposes.
[2] Under the terms of a 2004 royalty deed between GXL and an
unrelated entity that then held an interest in the
permit, GXL sold subject to
retention of a five percent royalty entitlement on any petroleum products
extracted pursuant
to the permit. That deed provided for subsequent
dealings with the interests in the permit to occur in most circumstances only
after the transferor had obtained GXL's written consent to the transfer.
GXL's pleading is to the effect that in or about
May 2008 Swift sold,
assigned or transferred an 80 percent interest in the permit to Greymouth. A
further entity not
involved in the present proceedings, but connected with
Greymouth, had also acquired the remaining 20 percent interest from
its
previous owner. I was informed from the Bar that GXL's royalty interest in
that 20 percent interest had been bought
out by the latest acquirer of that
stake, so that GXL's current interest is in a five percent royalty on
Greymouth's
80 percent stake in the permit.
[3] The consent of the Minister of Energy is required for the transfer or
creation
of any interest in such a permit. In circumstances not presently
relevant, that consent was at first held up by GXL's protest
that its consent to
the transfer was required and had not been granted, but then the Minister did
purport to consent
to the transfer to Greymouth after receiving a second
application, notwithstanding GXL's protest and lack of consent. The
Minister's conduct has been the subject of separate judicial review
proceedings brought by GXL, with a decision from this Court pending.
[4] The relevant provision in the
royalty deed ("clause 7.2") provided
that the grantor (Swift) could sell, assign or transfer its interest if, inter alia:
the Grantor (Swift) obtains the prior consent of the Grantee (GXL),
which consent shall not be unreasonably
withheld, where it is
established that the purchaser, assignee or transferee (Greymouth)
has sufficient
financial capability to meet the obligations under the
Permit and this Deed;
[5] Accordingly, the reason
for requiring GXL's consent is to afford it
the opportunity of satisfying itself that the transferee of the permit interest
has sufficient financial capability to meet the obligations under the permit
and the 2004 royalty deed.
[6]
GXL has not provided its consent, pleading as the reason for doing
so that it had not been provided with information to establish
that the
Greymouth companies have sufficient financial capability to meet the
relevant obligations. GXL's proceedings
seek:
(a) a declaration that the purported transfer to Greymouth is
unlawful;
(b) a direction that the permit be transferred back to Swift from
Greymouth;
(c)
an order prohibiting Swift from selling its interest in the
permit without first complying with clause
7.2; and
(d) as against Greymouth, a declaration that the Greymouth
companies have induced
Swift to breach the contract with
GXL that is reflected in the royalty deed and an order
requiring Greymouth to transfer the permit back to Swift.
[3] The discovery sought from both GXL and Todd relates to Greymouth's
pleading that GXL's refusal to consent to the transfer from Swift to Greymouth was
"made for or motivated by collateral purposes
unrelated with the financial capability
of the Greymouth companies". These applications are an attempt, therefore, by
Greymouth to
have GXL and Todd discover documents it says are relevant to this
particular pleading.
[4] The applicant no longer seeks orders
of further and better discovery relating
to the plaintiff, GXL. The reasons need not be identified in this judgment.
Non-party
discovery
[5] Rule 8.26 of the High Court Rules provides:
8.26 Order for particular discovery against
non-party after
proceeding commenced
(1) This rule applies if it appears to a Judge that a person who is not
a
party to a proceeding may be or may have been in the control of 1 or
more documents or a group of
documents that the person would have
had to discover if the person were a party to the proceeding.
(2)
The Judge may, on application, order the person--
(a) to file an affidavit stating--
(i) whether the documents are or have been in the
person's control; and
(ii) if they have been but are no longer in the person's
control, the person's best knowledge
and belief as to
when the documents ceased to be in the person's
control and who now has control of them; and
(b) to serve the affidavit on a party or parties specified in
the
order; and
(c) if the documents are in the control of the person, to make
those documents available for inspection, in accordance with
rule 8.33, to the party
or parties specified in the order.
...
(4) The Judge may not make an order under this rule unless satisfied
that the order is necessary at the time
when the order is made.
[6] Thus, as the parties agree, to obtain non-party discovery the applicant must
show:
a) grounds for belief that a non-party is or has been in possession of a
document or class of documents;
b) the document or class of documents would have been discoverable if
the non-party was a party;
and
c) the order is necessary when it is made.
[7] The Todd documents sought by the appellant are all categories,
which the
applicant says, are relevant to the collateral purpose argument.
[8] The applicant identifies such documents in
seven categories. I consider each
in turn.
Categories (a) and (b)
(a) The reasons for the decision by the Todd
Companies to purchase the
shares in GXL and the timing of that decision, including documents
evidencing the timing of discussions and negotiations between the
Todd Companies and GXL for the purchase of the
shares in GXL.
(b) GXL's or the Todd Companies' views of the likely future Permit
obligations, the likely
value of GXL's royalty interest in the Permit
and the price paid by Todd Exploration Limited for the shares.
[9]
The applicant's rationale for discovery of the documents in (b) is that the
price paid by Todd for the shares in GXL will indicate
what value it placed on the
future capacity of GXL to earn Todd royalties. The capacity of GXL to earn
royalties is in turn related
to what exploration is undertaken by the licensee in the
licence area covered by GXL's royalties.
[10] Greymouth's liabilities
will in turn be affected by what exploration it
undertakes with respect to the licence area. The extent of the work programme and
thus the exploration therefore may be relevant to GXL's assessment of Greymouth's
financial capability and therefore to the question
of whether it could properly
withhold its consent to the transfer from Swift to Greymouth.
[11] Greymouth's point is, therefore,
if the price paid by Todd for GXL bears no
obvious relationship to Greymouth's financial obligations relating to the licence and
then such a disconnect may support its claim that the refusal of GXL to grant
Greymouth's consent under the contract was for a collateral
motive and did not
relate to any lack of financial information or financial capability relating to
Greymouth.
[12] The applicant
submits, therefore, that if the documents in category (b) are
relevant then those documents in category (a) must also be relevant.
They cover the
negotiations leading up to the sale of the shares in GXL and the discussions and
negotiations between Todd and GXL
for the purchase of the shares in GXL.
[13] The plaintiff says this material is irrelevant to Greymouth's case and that the
price
paid for the shares is not connected at all to the reasons why GXL refused
consent to the transfer from Swift to Greymouth.
[14]
As is so often the case in such litigation it is difficult to be certain about
relevance at this stage of the proceedings.
[15]
However, I consider the documents in question may be relevant and therefore
may allow the second defendant to advance its case
(see Compagnie Financiere et
Commerciale du Pasifique v Peruvien Guano Company [1882] 11 QBD 55 (CA)).
[16] It is a reasonable proposition that there is a relationship between the sale
price of the shares, the expectation
with respect to investment and exploration and in
turn to an assessment of the financial capacity of the second defendant. Thus all
documents leading up to the sale of the shares (relating to the sale), the sale price and
any conditions of sale including assessment
of the value of the permit obligations
may be relevant to the reasons why the transfer was refused and therefore the motive
for doing
so.
[17] I accept the documents in question are unlikely to directly address "collateral
motive". However, (depending upon their
actual content) inferences as to collateral
motive could be available from pre-purchase negotiations and price.
[18] These documents
would therefore have been discoverable if the non-party
was a party. It seems a reasonable assumption that there are documents which
will
evidence pre-sale negotiations and sale documentation. This is a commercial sale of
a royalty interest in an oil and gas exploration
area. It is difficult to speculate on the
extent of such documentation.
[19] The final consideration is necessity. In this case
I do not consider this further
"test" adds anything. The documents are relevant, there are grounds for belief some
documents may
exist and there are no reasons not to make an order for discovery in
categories (a) and (b). I, therefore, make such an order.
Category (c)
(c) The Todd Companies' knowledge of, and/or interpretations in
relation to the potential
impact on the Todd Companies and/or
PMP 38150 (including in relation to the Kowhai A-1 well) of work
within, PEP 38742, including the relationship and/or status of the
Kowhai A-1 well to wells within PMP 38150.
[20] Category (c) was abandoned.
Category (d)
(d) The Todd Companies' reaction to the Greymouth Companies'
successful bid for and purchase of Swift's Permit interests, and the
date on which it learned of that.
[21] The second defendants say any such documents are likely to be relevant to
the assertion of collateral motive.
[22] The
second defendant's argument is that a particular reaction by Todd to
Greymouth's purchase of Swift's interest in the licence could
reasonably support a
collateral motive argument.
[23] Greymouth says it and Todd are competitors and if Todd decided to impede
Greymouth's purported transfer of the permit from Swift that would be relevant to
motive as far as GXL is concerned given GXL is
wholly owned by Todd.
[24] The plaintiff's case is that there is nothing which supports the second
defendant's claims, these
documents do not relate to matters in issue in the
proceedings and are remote from and irrelevant to the litigation.
[25] The
plaintiff submits this is essentially a fishing expedition hoping that
something may turn up. In one sense most discovery is in this
category. Those
seeking discovery do not know whether documents exist but believe they may.
[26] There is a speculative element
in Greymouth's position as to the existence of
the documents in (d). However, if there are any such documents they could be
relevant
to collateral motive. Much will depend upon the date of such documents
and the relationship to the events in this case.
[27]
I am satisfied that the documents sought may be relevant and therefore would
ordinarily be discoverable. Whether there are any such
documents is of course
impossible to know or to accurately assess at this stage.
[28] Given any such documents are likely to
be relevant and some might
reasonably exist it is proper to make an order for discovery in category (d).
Category (e)
(e) The Todd Companies' intentions in relation to the Greymouth
Companies following their purchase of Swift's
Permit interests,
including documents relating to whether or not GXL should consent
to the transfer.
[29] The application for discovery in this
category is too wide. The application
seeks documents relating to a broad period not directly related to the
Todd/GXL/Greymouth involvement
with this permit. I am prepared, however, to
allow discovery of any documents held by Todd relating to whether or not GXL
should
consent to the transfer of the permit.
[30] This limited categories of documents have self-evident relevance. The
circumstances surrounding the refusal to grant consent to the transfer go to the heart
of this litigation.
[31] I accept again
there is uncertainty about whether any such documents exist.
However, it is possible there are such documents and if they exist they
may be
relevant to the collateral motive issue.
[32] In the limited way referred to in [29], therefore, I make an order for
discovery
under category (e).
Category (f)
(f) When and how the Todd Companies first became aware of and
involved in the issue of whether or not GXL should consent to the
transfer of Swift's Permit interests to Greymouth.
[33] As to category (f) I am satisfied documents in this category may be relevant
and should be discovered. They relate directly
to the question of collateral motive.
They relate in part to the timing of knowledge from which Greymouth may wish to
invite an inference
relating to collateral motive. If there are documents which
establish that Todd had been involved in the question of whether
GXL should
consent to the transfer from Swift to Greymouth then this also may have relevant, by
inference, to collateral motive.
[34] Once again it cannot be said with certainty that any documents exist but there
are sufficient grounds to think some might
and given relevance it is proper that an
order be made in category (f).
Category (g)
(g) To the extent not covered
above, GXL's actions under the direction of
the Todd Companies, including documents relating to efforts to:
(i) impede and, if possible, prevent a sale of the Permit interests in
the Greymouth Companies
and thereby prevent or delay drilling
and other operations;
(ii) impede and hinder Greymouth's
operations; and
(iii) obtain financial information from the Greymouth Companies in
connection
with this issue, to which they would not otherwise
have access.
[35] The second defendant agreed that
categories (ii) and (iii) in ground (g) should
have the words "relating to the transfer of this Permit" appropriately inserted.
Ground
(ii) would therefore read:
(ii) impede and hinder Greymouth's operations relating to the transfer of
this Permit;
And (iii) should read:
(iii) obtain financial information from the Greymouth Companies
relating
to the transfer of this Permit, to which they would not
otherwise have access.
[36] These amendments narrowed
appropriately the scope of discovery sought to
matters directly going to the dispute between the parties.
[37] The plaintiffs
accept the potential relevance of such documents. They say,
however, that no such documents exist. The appropriate course is to require
a
discovery affidavit to be completed covering the category of documents as amended
by me. I, therefore, make an order in terms of
the amended category in (g) (i) (ii)
and (iii).
[38] All of the documents sought, save those I have expressly excluded relate
to
the central issue in this litigation, that is to the circumstances (to use a neutral term)
under which GXL refused to consent
to the transfer of the licence from Swift to
Greymouth.
[39] In that sense all are "necessary" rather than merely desirable
documents from
the second defendant's perspective (see Clear Communications v Telecom New
Zealand Limited, HC Wellington, M 119/93, 30 March 1993, McGechan J).
Further
matters
[40] I also make the following further orders. My conclusions in this case are
based on the proposition, decided by
Dobson J in his judgment of 30 January 2009,
that collateral motive is relevant in these proceedings. That proposition is being
challenged
in the Court of Appeal. If the plaintiff successfully argues in the Court of
Appeal collateral motive is irrelevant then the rationale
for the discovery orders
made by me disappears. The appeal is to be heard on 20 August 2009. In those
circumstances it is proper
to stay these orders until seventy-two hours after the
release of the decision of the Court of Appeal. This will give sufficient
time for any
reconsideration of my orders by way of application by the parties.
[41] Given further contested discovery is likely,
I reserve the question of costs on
this application until all discovery is complete.
[42] Ordinarily in non-party discovery
the applicant would be faced with payment
of reasonable expenses of the non-party to comply with the order. The second
defendant's
case is that this assumption should not apply in this case given Todd
wholly owns GXL. Ordinarily, GXL as a party to the proceedings
would not be
entitled to seek expenses for discovery.
[43] Todd remains however a separate entity from GXL not involved directly,
at
least, in this litigation. The second defendants, therefore, should pay Todd's
reasonable expenses of complying with these
discovery orders.
______________________________
Ronald Young J
Solicitors:
M R Heron, Russell McVeagh, PO Box 8, Shortland Street,
Auckland,
email: mike.heron@russelmcveagh.com
G Joe, Simpson Grierson, PO Box 2402, Wellington, email: gerald.joe@simpsongrierson.com
M D O'Brien, Bell Gully, PO Box 1291, Wellington, email: mark.obrien@bellgully.com
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