Greymouth Petroleum shareholders in $40mln stoush

Thursday 8th March 2012

The smallest of three shareholders in private oil and gas company Greymouth Petroleum is accused by his fellow owners of multiple breaches of fiduciary duty, with potential for damages claims totalling $40 million.

Among the allegations against Greymouth’s former chief operating officer John Sturgess is committing to capital expenditure without board approval, making investments with company resource for personal gain, and hiring unapproved personnel “who had family or personal connections with him.”

Fellow directors Mark Dunphy and Peter Masfen, who jointly control 86 percent of Greymouth, accuse 14 percent shareholder Sturgess of “repeatedly failing to report appropriately, honestly and accurately to the executive chairman or the board in relation to drilling activities, issues and decisions.”

The allegations are detailed in a recently published judgment delivered by Judge Rodney Hansen in the Auckland High Court on Dec. 19, relating to procedural wrangling by both sides in the dispute.

Greymouth claims to be New Zealand’s second-ranked private petroleum production company, measured by daily oil production, and in the top four amongst New Zealand and foreign-owned oil production companies with New Zealand oil and gas production. The company also has exploration interests in southern Chile.

The judgment details how Dunphy and Sturgess fell out over the course of 2010 due to complaints of “mismanagement and negligence”, and authorising capital expenditure which had led to the company incurring “substantial wasted expenditure and lost significant opportunities”.

Sturgess is also alleged to have hired people with family or personal connections and engaged in “a series of transactions with company property or interest for his personal benefit and without the prior knowledge of the executive chairman or the board.”

Since his suspension in February 2011 – a fact not disclosed on the Greymouth corporate website – Sturgess is alleged to have refused to provide computers and electronic data required to run the company and declining to “support or promptly support” board resolutions.

Sturgess remains listed on the Companies Office website as a director of numerous Greymouth-related entities. The judgment says he alleges Dunphy sought to “assert dominance over him”, was “high-handed and autocratic”, and had breached founding company principles of shareholder equality and unanimous board decisions.

He claimed Dunphy’s version of events was “inaccurate or exaggerated,” Judge Hansen said, and was attempting to gain commercial advantage by his actions. Sturgess claims his dismissal was unlawful and unauthorised and that Dunphy and Masfen were “making it as difficult as they can for him to function as a director of the company.”

Judge Hansen noted “the various claims are supported by a substantial body of evidence in affidavits by Messrs Dunphy and Masfen and Dr Robert Brady, a petroleum geologist who works for the company”, while Sturgess had filed extensive evidence denying the claims against him.

There were indications Sturgess’s behaviour towards Dunphy had become “somewhat obstructive and secretive” as their relationship deteriorated, the judge said. While this might explain some of Sturgess’s actions, “the evidence put forward by the plaintiffs is cogent and sufficient to establish that, on their view of the world, there have been serious breaches of duty,” the judge said.

“There are causes of action available to the company based on credible evidence which offers at least a reasonable prospect of ultimate success.”

Judge Hansen ordered Sturgess to make available company records on computers in his possession.

BusinessDesk.co.nz

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