Greymouth Holdings Limited v Jet Trustees Limited [2014] NZHC 2844 (14 November 2014)

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BETWEEN	GREYMOUTH HOLDINGS LIMITED First Plaintiff R M P DUNPHY Second plaintiff P H AND J A MASFEN Third Plaintiff
AND	JET TRUSTEES LIMITED First Defendant J G STURGESS Second Defendant cont .../2

Hearing:	13 November 2014
Appearances:	M D O'Brien and P B Hinton for Greymouth Petroleum Holdings Limited and Groups 1 and 3 Shareholders J F Anderson for Group 1 Minorities P G Skelton QC and A Borchardt for Jet Trustees Limited J G Sturgess in person
_Judgment:	_{14 November 2014}

This judgment is delivered by me on 14 November 2014 at 1 pm pursuant to r 11.5 of the High Court Rules.

..................................................... Registrar / Deputy Registrar

[1] This is the third judgment concerning the sale notices that the Group 2 shareholders are obliged to give in accordance with the orders that have been sealed in this proceeding. In the first judgment, given on 12 September 2014, I determined that sale notices that had been issued by Jet Trustees Ltd and Mr Sturgess did not conform to the terms of the order because the fair market value of the shares (FMV)

had not been finally determined by the arbitrator.¹The second judgment, delivered

on 30 October 2014, determined issues that arose out of draft notices that the Group 2 shareholders proposed to issue after FMV was finally determined.²FMV has now been finally determined. The time within which sale notices must be served expires today. Mr Sturgess has issued a sale notice for his shares but there is a challenge to its validity. Jet Trustees has yet to issue its notice.

[2] The Groups 1 and 3 shareholders and Greymouth Petroleum Holdings Ltd (GPHL) now apply for an order declaring that the sale notice purportedly issued by Mr Sturgess on 3 November 2014 does not comply with the judgment and is not valid. They also seek an order requiring Mr Sturgess to issue a sale notice in the form attached to their application. They seek a similar declaration in relation to Jet Trustees.

[3] Mr Sturgess maintains that his 3 November 2014 sale notice is valid. He and Jet Trustees object to the form of the sale notice proposed by GPHL and the Groups 1 and 3 shareholders.

(b) Are the offerees entitled to stipulate the particular shares each will purchase?

¹_{Greymouth Holdings Limited & Ors v Jet Trustees
Limited & Ors [2014] NZHC 2283.}

²Greymouth Holdings Limited & Ors v Jet Trustees Limited & Ors [2014] NZHC 2679.

[5] Mr Sturgess’ sale notice dated 3 November 2014 does not comply with the order in a number of critical respects and is therefore not valid. First, it is addressed to GPHL, not GPHL for itself and as agent for all Greymouth Group companies and related entities as required by the order. Second, it does not specify the price. Third, it does not clearly identify the interests offered for sale in accordance with the order. Fourth, although an offer for sale is implicit, it is not expressed. Fifth, it purports to require settlement 10 working days after acceptance whereas settlement may not be due until 10 working days after any necessary consent to the sale is given. Sixth, in an attached “summary” of the terms of sale, it requires payment of FMV in cleared funds on the settlement date. This may be an attempt to prevent the deduction of any applicable resident withholding tax, contrary to the terms of my judgment delivered on 30 October 2014.

Are the offerees entitled to stipulate the particular shares each will purchase?

[6] The sale notice drafted by GPHL provides that GPHL, for itself and each other accepting transferee, may give notice of its wish to purchase by completing a form setting out which shares each transferee wishes to acquire. The intention is that each company will acquire the shares that it issued with the result that these shares will be cancelled on acquisition. That will give rise to a deemed dividend and require payment of resident withholding tax of some $23 million. GPHL proposes to allocate the total consideration in accordance with its assessment of the arbitrator’s award relating to FMV and in accordance with advice it has received from Deloitte. The resident withholding tax payable for each purchase will be assessed and paid accordingly.

[7] Mr Skelton QC submits that the sale interest is not divisible and any party accepting the offer contained in the sale notice must acquire the entire sale interest. He accepts that the offer must be made to GPHL for itself and as agent for all Greymouth Group companies and related entities and that one or more of these

parties may elect to purchase. However, he submits that if more than one party accepts the offer, these parties must acquire the entire sale interest jointly. This is because the shares are to be offered in a single lot and any purchaser must accept them on that basis. He submits that the potential purchasers cannot accept the offer to sell all of the shares by providing multiple acceptances, each relating to only some of the shares.

If no sale of the shares has been effected prior to the commencement of the FMV arbitration hearing, the Sturgess interests must, within 10 working days following the determination of FMV, give a sale notice offering to transfer the shares to GPHL (for itself and as agent for all Greymouth Group companies and related entities) at FMV and clauses 8.5 to 8.10 and 8.12 of the Shareholder Agreement shall apply as appropriate with the necessary modifications.

8.7 Terms of Sale: An Other Shareholder which gives notice to the Seller in accordance with clause 8.6 that it wishes to acquire the Sale Interest (“Buyer”) shall be entitled and bound (subject to clause 8.8) to acquire the Sale Interest. If more than one Other Shareholder gives notice to the Seller that it wishes to acquire the Sale Interest, those Shareholders shall be entitled and bound to acquire the Sale Interest in proportion to their respective holdings of Shares. The purchase price of the Sale Interest shall be effected at the price, and on the terms and conditions, specified in the Sale Notice, and subject to anything to the contrary in the Sale Notice, on the following terms:

8.8 applies, 10 Working Days after the last of the consents referred to in clause 8.8 is obtained;

(d) on settlement of the purchase of the Sale Interest each Buyer shall pay the purchase price to the Seller in cleared funds, the Seller shall deliver to each Buyer a transfer of the Sale Interest in a form reasonably acceptable to that Buyer, and the Seller, and the Buyers, and all other Shareholders shall enter into and deliver to each other an Accession Deed in accordance with clause 8.12. If any Shareholder fails to enter into that Accession Deed, it shall nevertheless be

conclusively deemed to have done so. If the Sale Interest consists of legal title to Shares, all Shareholders shall take all necessary steps to cause the Buyer to be registered as holders of those Shares.

[10] The second sentence of cl 8.7 deals with the situation where more than one of the shareholders wishes to purchase and provides that the shares shall be purchased on a proportionate basis depending on their respective shareholdings. This allocation mechanism is not applicable in the present context because none of the offerees are shareholders. It is also not applicable because this case does not involve separate shareholding groups competing for the same shares. Therefore, while clause 8.7 contemplates separate sale and purchase agreements where there is more than one purchaser, this is only in the circumstances provided. I consider that this mechanism for allocation does not apply; it is not “appropriate” in terms of the order.

[11] Jet Trustees and Mr Sturgess have each been ordered to offer their shares for sale by issuing a sale notice to GPHL (for itself and as agent for all Greymouth Group companies and related entities). The parties agree that, in terms of the order, any of these offerees, or any combination of them, is free to accept the offer. However, the offer is to sell all of the shares held by the relevant Group 2 shareholder. Such an offer cannot be accepted by separate acceptances, each for part only of the shares offered, on the basis that each purchaser will be severally liable for only the part it is purchasing.

Should the Court direct the Group 2 shareholders to serve sale notices in the form proposed by GPHL?

[12] It follows that the draft sale and acceptance notices prepared by GPHL do not comply with the order.

[13] I expect that the parties will be able to agree on an appropriate form of sale notice now that these issues have been determined. However, I reserve leave for any party to apply on short notice should any further directions be required concerning

High Court of New Zealand Decisions

Greymouth Holdings Limited v Jet Trustees Limited [2014] NZHC 2844 (14 November 2014)