Burnett v Patterson - [2015] NZHC 1974

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

CIV-2014-409-000653 [2015] NZHC 1974

BETWEEN
ALEXANDRA JANE BURNETT

Plaintiff

AND

SEAN PATTERSON First Defendant

JOHN DENHOLM PATTERSON Second Defendant

SCIMED LIMITED Third Defendant

Hearing:

Closing
Submissions

28 April 2015 - 1 May 2015

14 May 2015 - Defendants
15 June 2015 - Plaintiff

Appearances:

B P Henry for Plaintiff
B Nathan and S Galbreath for Defendants

Judgment:

19 August 2015

JUDGMENT OF GENDALL J

BURNETT v PATTERSON [2015] NZHC 1974 [19 August 2015]

Table of Contents

Para No

Introduction [1]

The dispute [5]

Was there oppressive or unfairly prejudicial conduct? [12]

Legislative framework [12]

Meaning of “oppressive, unfairly discriminatory or unfairly

prejudicial conduct”?
[14]

Removal as a director and from management roles? [20]

What does Alexandra seek in her pleadings? [35]

Fair market valuation of the shares [45]

Introduction [45]

Calculating fair market value [46]

Capitalisation of Future Maintenance Earnings (FME) [49]

Date of valuation [55]

What years of trading should be considered when assessing FME? [59]

Should a possible credit to the Capital Coast District Health Board be

taken into account?
[70]

How is Sean’s sick leave to be treated? [78]

How should Denholm’s consultancy fees be treated? [82]

Have the acts or omissions of the defendants caused missed sales? [86]

Multiplier [88]

The Court and valuation issues [101]

The “open offer” of 17 April 2015 [104]

Conclusion [110]

Orders [111]

Costs [112]

Introduction

[1] SciMed Limited (SciMed), the third defendant in these proceedings, is a company incorporated in New Zealand on 29 September 2009 under the Companies Act 1993 (the Act). From its inception the plaintiff, Alexandra Jane Burnett (Alexandra), has been a 40 per cent shareholder in SciMed and in the past she has occupied the position in SciMed of its life science business manager. She was also a director of SciMed until she was removed on 18 March 2014. The first defendant, Sean Patterson (Sean) and the second defendant, his father John Denholm Patterson (Denholm), are both directors of SciMed. Sean has held a 40 per cent shareholding in the company from its inception and Denholm held the other 20 per cent.

[2] SciMed has carried on business since 2009 as a distributor in New Zealand of specialist scientific equipment to District Health Boards, research laboratories, biochemists and molecular scientists. It was set up principally to take over a distributorship of high-tech products produced by a United States company PerkinElmer Inc. SciMed holds that agency agreement with PerkinElmer to distribute in New Zealand some of its extensive analytical instrumentation equipment. PerkinElmer is a very substantial United States based company listed on the New York Stock Exchange with an equity value of over $5,000,000,000. SciMed’s business is that of technical sales, applications, support and servicing of this high level technology equipment in New Zealand. SciMed generates 98 per cent of its revenue from the sale by it of PerkinElmer equipment under the agency. There is no doubt therefore that the agency agreement that SciMed holds with PerkinElmer is…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

Continue reading Burnett v Patterson

Details

AGLC: Burnett v Patterson [2015] NZHC 1974
Case: [2015] NZHC 1974
Decision Date: 19 August 2015

CaseChat Overview and Summary

Alexandra Burnett, a 40% shareholder in SciMed Limited, brought an application against Sean Patterson and John Denholm Patterson, the other two directors, seeking relief in relation to their conduct in running the company. Alexandra claimed that the defendants’ conduct in running the company was oppressive, unfairly discriminatory and unfairly prejudicial to her. The relief sought was a declaration of unfairness, a fair market valuation of Alexandra’s shares and an order for the defendants to purchase her shares for the fair value found. The defendants denied the allegations of oppressive conduct but agreed that a buyout of Alexandra’s shares was the best course of action for all parties. The court held that Alexandra’s removal from management roles and as a director was unfairly prejudicial to her. However, the court found that Alexandra had not established that she had been unfairly prejudiced by the alleged manipulation of accounts, unauthorised payments, removal from access to the company’s server, restructuring and transfer of shares into a family trust. The court held that the appropriate date for assessing fair value was 18 March 2014. The court held that the years of trading to be considered were those for the financial years ending 2011, 2012, 2013 and 2014. The court held that the return of equipment from the Capital Coast District Health Board should be taken into account as a loss of profit margin in the 2014 accounts. The court held that Sean’s sick leave and Denholm’s consultancy fees should not be treated as adjustments to the 2013 accounts. The court held that the appropriate multiplier was 3.8. The court held that the open offer of 17 April 2015 should be considered in determining the fair market value of the shares. The court ordered that Sean and Denholm purchase Alexandra’s shares for $290,000, bearing interest of 5% per annum from 18 March 2014 to the date of final payment.

Orders