Burri v Schuler Brothers Limited
[2020] NZHC 3177
•2 December 2020
IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY
I TE KŌTI MATUA O AOTEAROA KIRIKIRIROA ROHE
CIV-2020-419-000024
[2020] NZHC 3177
BETWEEN RENÉ BURRI and VERENA CHRISTINA MARIA BURRI
PlaintiffsAND
SCHULER BROTHERS LIMITED
Defendant
Hearing: 18-19 November 2020 Appearances:
D J Taylor for Plaintiffs
T Braun, J Bond and U B Keller for Defendant
Judgment:
2 December 2020
JUDGMENT OF ASSOCIATE JUDGE P J ANDREW
BURRI v SCHULER BROTHERS LIMITED [2020] NZHC 3177 [2 December 2020]
Introduction
[1] Rene and Verena Burri farm goats, and own shares in Swiss Belle Farm Ltd.1 Schuler Brothers Ltd (SBL) own the remaining shares. In May 2015, the parties agreed the Burris would buy the shares from SBL over four tranches.
[2] In these summary judgment proceedings, both parties (somewhat unusually) seek specific performance of the sale and purchase of the 2017 tranche of shares. Those shares were the subject of a valuation arbitration in July 2020.
[3] Swiss Belle has substantial retained earnings and imputation credits. One of the key issues that appears to be delaying settlement is whether the Burris can rely on a distribution of retained earnings or repayment of their shareholders’ loan accounts, to pay SBL for the shares.
[4] The key issues I need to determine are the terms of the orders for specific performance, whether interest is payable by the Burris and the question of costs.
Factual background
[5] This is a further set of proceedings relating to the sale and purchase of the 2017 tranche of shares. Some of the relevant factual background is set out in the judgment of Associate Judge Johnson of 1 October 2018 in Burri v Schuler Brothers Ltd.2
[6] The plaintiffs’ original summary judgment application of January 2020 related to the sale and purchase of the 2019 tranche of shares. However, in accordance with leave granted by Palmer J on 9 September 2020, the plaintiffs’ application has been amended to seek specific performance in relation to the 2017 tranche. As Mr Taylor correctly acknowledged, the current application is essentially a fresh proceeding with the plaintiffs’ claims in relation to the 2019 tranche no longer at issue.
1 Swiss Belle.
2 Burri v Schuler Brothers Ltd [2018] NZHC 2567. See also the judgment of Downs J in Burri v Schuler Brothers Ltd [2019] NZHC 1169, where his Honour refused leave to the Burris to appeal the decision of Johnson AJ to the Court of Appeal.
[7] On 6 May 2015, the parties entered into a shareholders’ agreement (the shareholders’ agreement).
[8]Clause 3.1 of the shareholders’ agreement reads:
3.1 The Shareholders wish to record by way of background to this Agreement:
3.1.1Schuler Brothers Limited (“Schuler Brothers”) currently farm dairy goats on a farm that is adjacent to the Company’s farm. Schuler Brothers established the dairy goat farm when approval was given by the Dairy Goat Co-operative in or around November/December 2012 to commence dairy goat farming. Milk production was to commence in the 2014/2015 year, targeted MSR holding 138.000 MSRs in year 2016- 2017.
3.1.2Due to Schuler Brothers’ inexperience in dairy goat farming, the assistance of René Burri and Verena Christina Maria Burri (the “Burris”) was sought as the Burris have extensive experience in dairy goat farming. The Burris have been managing the Schuler Brothers’ dairy goat farm, with a view to owning their own dairy goat farm in the future.
3.1.3In return for the Burris’ assistance with the establishment of Schuler Brothers’ dairy goat farm, Schuler Brothers has agreed to assist the Burris in establishing a dairy goat farm for the Burris.
3.1.4Schuler Brothers acknowledge that without the Burris’ assistance, the Schuler Brothers’ dairy goat farm would have been difficult to establish.
3.1.5The Burris acknowledge that without Schuler Brothers’ assistance, the Business of the Company could not commence.
3.2The Shareholders acknowledge that while the initial ownership of the Company is by way of joint ownership between the Shareholders, the Burris will eventually own and operate the Company as their dairy goat farm, targeted MSR holding 70.000 MSRs in year 2016-12017. The assistance from Schuler Brothers is in recognition of the past, and continuing, assistance provided by the Burris on the Schuler Brothers’ dairy goat farm.
[9] On 18 July 2017, the parties entered into an agreement for the sale and purchase (ASP) of the first tranche of shares. Pursuant to this agreement, SBL agreed to sell and the Burris agreed to purchase a parcel of 216 shares.
[10]Clause 4 of the ASP reads:
The settlement of the sale and purchase of the Shares will be effected on the 31st day of August 2017 (“Settlement”).
[11]Clause 5 of the ASP reads:
Consideration for the Shares shall be satisfied by way of the Purchasers paying the Vender the Price on the 31st day of August 2017, with the Vendor to contemporaneously provide a signed and otherwise registrable transfer of the Shares to the Purchasers, which shall immediately be entered in the Company share register by Cooper Aitken Limited as accountant for the Company. Consideration for the Shares paid on the 31st day of August 2017 will incur interest at 4.69% per annum, as from the 1st day of June 2017 to Settlement.
[12]The parties could not agree on a valuation of the shares.3
[13] In March 2018, the Burris received SBL’s proposed valuation of the shares together with an offer by SBL to purchase the Burri shares.
[14] On 17 April 2018, the Burris commenced proceeding CIV-2018-419-109 seeking specific performance of the ASP at a valuation arrived at by KPMG and applied for summary judgment. In his judgment of 1 October 2018,4 Johnson AJ made orders staying the substantive proceedings, including the Burris’ application for summary judgment pending further order of the Court. He also directed the parties to arbitration pursuant to s 8(1) of the Arbitration Act 1996.
[15] In his award of 22 July 2020, the arbitrator determined that the value of the 216 shares to be transacted as of 31 May 2017, was the sum of $306,832. Interest was not awarded but “without prejudice to the respondents’ rights (if any)” [SBL] to claim interest.
[16] On 2 June 2020, Deloittes, the accountants for Swiss Belle, wrote to the directors advising that the retained earnings of the company at the end of 31 May 2019 was $945,799 and the current amount of imputation credits at that date was $535,865. Deloittes sought instructions as to whether the shareholders would like to declare a dividend in the 2020 financial statements.
3 See [7] – [8] of the judgment of Johnson AJ detailing the steps and disagreement between the parties as to valuation.
4 Burri v Schuler Brothers Ltd, above n 2.
[17] By email dated 11 August 2020, the solicitors for SBL sent a settlement statement to the solicitor for the Burris in relation to the 2017 tranche of shares. The settlement statement specified the purchase price at $306,832 and claimed interest for the period 1 June 2017 to 31 August 2020 at 4.69% and in the sum of $50,495.26 (total
$357,327.26). The email also noted that before settlement was to occur it would be in both parties’ interests to sort out the “imputation issue and the equalisation of current accounts in accordance with the Shareholders’ Agreement”. SBL’s solicitors suggested that the Burris’ accounting adviser liaise with Mr John Dobson (acting for SBL) to work out the most tax-efficient and fairest way to resolve these issues.
[18] The Burris’ solicitors responded by letter dated 4 September 2020, advising the Burris did not accept any liability for interest save for the statutory rate of interest from 22 July 2020 (i.e. the date of the arbitration award). The Burris’ solicitor’s letter also noted:
Subject to resolution of the point about interest, the matter should be able to settle quite readily. Deloittes have already advised on tax matters but that should perhaps be formalised and, in any event, there is as you point out, the equalisation of the shareholders’ loan accounts to calculate and that, too, is a matter on which they should advise. We look forward to your prompt response.
[19] Following the directions of Palmer J of 9 September 2020 (allowing the plaintiffs to amend their summary judgment application), the solicitors for the Burris wrote to SBL’s solicitors (letter of 10 September 2020) as follows:
With this in mind [the observations of Palmer J] our clients propose immediate settlement in the terms offered by us on the 4th of September, but we will retain in our trust account from the monies our clients received, sufficient to cover your client’s claim for interest. The money will be held in our trust account on interest bearing deposit and interest will follow principal following a judgment given in this matter after 17 November 2020.
This does not completely resolve the dispute, but it does advance settlement and it protects your client for any money they may be found to be owed. The advantages for everybody are substantial. Your client will receive an amount of just over $800,000 and can be assured that, should interest be found to be owing, they will receive that money as well. Conversely, our clients settle the 2017 tranche, have paid down some debt, and have made financial provision for any interest your client may be found to be owed. The excess capital in the company is, as advised by Deloittes, reduced by just under $1 million.
[20] By letter dated 28 September 2020, the solicitors for SBL responded to the Burris’ solicitor’s letter of 10 September as follows:
3.These accounting issues relate to the taxation and equalisation of shareholder loans accounts which need to be addressed. Relating to this, is the current litigation on foot whereby there is a timetable in place directing two proceedings for specific performance for the settlement of the first tranche of shares and interest. The result of this is that there will eventually be an order for the first tranche of shares for either $306,832 or $357,327.26.
4.With this in mind, do your clients have the ability to pay the amount directed in the absence of any company dividends or access to company borrowing/funds? If so, please provide evidence of these funds sufficient to cover the judgment (and costs).5
[21] By letter dated 7 October 2020, the Burris’ solicitors responded to SBL’s solicitor’s letter of 28 September. The relevant paragraphs are as follows:
For the sake of the record, we set forth the advice that Deloittes gave. The figures are referring to the year ended 31st of May 2019 so more than 12 months ago. The 31st of May 2020 accounts will be available very soon and, of course the 2021 earnings year is well under way now. Profitability is similar.
Deloittes advise Gross dividend
1,313,581.95
Imputation credits (28%)
367,802.95
Retained earnings
945,779.00
Dividend withholding tax (5%)
65,679.10
Net dividend
880,099.90
The dividend that would be declared would be the gross dividend which would have attached to it the imputation credits. Those credits plus the dividend withholding tax would bring the tax paid to 33% or 33 cents in the dollar which is the maximum tax rate. This would also have the effect of clearing all imputation credits to the 31st of May 2019.
Using the net dividend figure, the amount is by our calculation $733.4165 per share. This gives:
Burri 876 shares 642,473.93 Schuler
324 shares
237,625.97
5 See page 424 of defendant’s bundle.
$880,099.90
In your letter you raise our clients’ ability to fund the settlement. Leaving aside interest (our clients concede some liability there) and just dealing with the amount of the award, and out calculation of the equalisation of shareholder loan accounts figure, the amount our clients must find is:
Award 306,832.00
Equalisation figure 255,000.00
561,832.00
As you can see, this will leave an amount slightly more than $80,000 available to meet any claim for interest that your client might be found to have. The figure you claim in your letter is $50,495.26, some of which our clients concede is payable. This still leave about $30,000 left over.
An alternative which comes to the same result is simply to pay a dividend on the existing shareholding; so 660 shares for Burri and 540 shares for Schuler Brothers Limited. Although Schuler Brothers Limited hold legal title to the 216 shares in the 2017 tranche, they do so subject to a trust in favour of our clients. This is similar to other cases where a vendor of a property subject to an unconditional contract, continues to hold legal title prior to settlement … If a dividend were paid on the shares, then Schuler Brothers Limited are obliged to account for that dividend to our clients. They would simply pass a credit for it against the settlement price of the shares. There is no reason why this could not have been done many months ago. Based on the 2019 accounts, your client would have received approximately half of the amount it is owed for those shares.
You enquire as to our clients’ ability to pay any amount directed in the absence of dividends from the company or access to company funds. They do have such ability but are not obliged to provide details of this and decline to do so. There is, in any event, as you can see from the above calculations, no need for them to have recourse to borrowing and neither is it a common-sense thing for them to do. Why would they wish to incur the costs of borrowing even for a very short period when they can meet the expenses out of their own money?
Your letter raises a question as to whether Paul and Kevin Schuler, in their capacity as directors of Swiss Belle, have it in mind to refuse to pass a dividend to enable the settlement to proceed. Please make this clear. We have already invited you to obtain any accounting advice that you want from the company’s accountants if you are not satisfied with the advice which they have already provided nearly eight months ago now. The court should know what your client’s intentions are in this regard and why.
[22] In his submissions in reply dated 13 November 2020, Mr Taylor, counsel for the Burris, advised the Court that the parties had reached agreement on the issue of a pay-out from Swiss Belle. He stated:
In the meantime, however, there appears to be nothing in the way of settling 2017 tranche of 216 shares because both parties are now agreed that the money should be paid out of Swiss Belle by way of repayment of shareholder’s loan accounts and that the settlement of the first tranche can follow that. The plaintiffs’ hope is that the settlement of this first tranche of shares will make resolution of remaining issues earlier.
[23] Regrettably, no such agreement has in fact been reached. I was informed at the hearing that the pay-out issue remains outstanding.
Relevant legal principles
[24] Equitable principles generally govern the exercise of the discretion to grant a decree of specific performance. The Laws of New Zealand,6 refers to the doctrine as follows:
… Equity treats as done that which ought to have been done so that the equitable remedy of specific performance is intended to put both parties in the same position as if their respective contractual obligations had been performed. The court looks to the substantial justice of the case. It is for a party seeking specific performance of a contract to establish to the satisfaction of the court that the contract is one which, on equitable principles, ought to be enforced. A plaintiff must come with “clean hands” when seeking a remedy. So, for example, a vendor is not permitted to take advantage of his or her own breach of contract to defeat a purchaser’s suit for specific performance. The claim is to be judged in relation to the relief sought, the court does not deny relief if one party’s hands are not entirely clean.
[25] A plaintiff who seeks specific performance must prove that he or she is ready and willing to perform his own obligations under the contract.7 In Hurrell v Townend,8 the Court of Appeal held:
Whether or not a plaintiff is so ready and willing is a question of substance and not one to be determined in any technical or narrow sense … What is necessary by way of proof will depend upon the circumstances of the case.
[26]In Butts v O’Dwyer,9 the High Court of Australia held:10
6 Laws of New Zealand Specific Performance 1 paragraph 5.
7 Hurrell v Townend [1982] 1 NZLR 536 (CA) at 550.
8 Hurrell v Townend, above n 7.
9 Butts v O’Dwyer, (1952) AC 487 CLR 267.
10 Butts v O’Dwyer, above n 9, at 279.
If the plaintiff is entitled to any specific relief, it should be directed to the specific enforcement against the appellants of any promise express or implied on their part to do all such acts and execute all such documents as may be reasonable and proper to remove any obstacles preventing the plaintiff from becoming the registered proprietor.
[27] The courts will imply a duty to co-operate to facilitate the performance of contract if it is supported by the intention of the parties if manifest by the contract itself. In Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd,11 Mason J held:
It is easy to imply a duty to co-operate in the doing of acts which are necessary to the performance by the parties or by one of the parties of fundamental obligations under the contract. It is not quite so easy to make the implication when the acts in question are necessary to entitle the other contracting party to a benefit under the contract but are not essential to the performance of the parties’ obligations and are not fundamental to the contract.
Then the question arises whether the contract imposes a duty to co-operate on the first party or whether it leaves him at liberty to decide for himself whether the acts shall be done even if the consequence of his decision is to disentitle the other party to a benefit.
Analysis and decision
[28] As noted, it is not in dispute that the Court should make an order for specific performance. It is also agreed that as a matter of summary judgment, I should make a declaration on the issue of interest. The parties accept that that is a matter of interpretation that can be resolved at this stage without a full testing of the evidence at a trial.
[29]The following issues, relating to the terms of my orders, require determination:
(a)Whether SBL, as vendor, is entitled to interest on the sum of $306,832 beyond the date of 31 August 2017;
(b)Whether and how the issue of a pay-out by Swiss Belle (whether by way of distribution of retained earnings or repayment of shareholders’
11 Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd 144 CLR 596; (1979) 26 ALR 567 at 557.
loan accounts and thus giving the Burris access to funds) can be provided for;
(c)Costs.
Issue – interest
[30] The Burris accept that they should pay interest at the rate of 4.69 per cent from 1 June 2017 until 31 August 2017. They say there is no contractual obligation to pay interest beyond that date. However, they do accept that they should pay statutory interest on the arbitral award as from 22 July 2020, although they say that the Court should fix a date when the statutory interest will terminate.
[31] SBL says that the Burris are contractually obliged to pay interest at 4.69 per cent from 1 June 2017 until the actual settlement date for the payment of the shares, whenever that occurs.
[32] The parties agree that this is an issue of interpretation and that in applying orthodox principles of contractual interpretation, the test is an objective one; interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract.12
[33]In Firm PI1 Ltd v Zurich Australian Insurance Ltd,13 the Supreme Court held:14
While context is a necessary element of the interpretative process and the focus is on interpreting the document rather than particular words, the text remains centrally important. If the language at issue, construed in the context of the contract as a whole, has an ordinary and natural meaning, that would be a powerful, albeit not conclusive, indicator of what the parties meant. But the wider context may point to some interpretation other than the most obvious one and may also assist in determining the meaning intended in cases of ambiguity or uncertainty.
12 Burrows Finn & Todd on the Law of Contract in New Zealand 6th ed at 6.3.2 pp186 and 187.
13 Firm PI1 Ltd v Zurich Australian Insurance Ltd [2014] NZSC 147; [2015] 1 NZLR 433.
14 Firm PI1 Ltd v Zurich Australian Insurance Ltd, above n 13, at [63].
[34] The starting point is the text, a matter of central importance, as the Supreme Court has observed. The text here is clear and unambiguous. Clause 4 clearly defines, by reference to the specific date of 31 August 2017, the “Settlement”. Clause 5 also refers to the date of 31 August (i.e. the date of payment) and it immediately follows cl 4. The word “Settlement” (and with a capital S) must be a reference back to the definition of that term in cl 4. In my view, this reference to “Settlement” can only mean the 31st day of August 2017.
[35] It is clear that the parties expressly contemplated a specific date for the settlement, namely 31 August 2017. No provision was made for default interest beyond that date. It was of course open for the parties to do so. A specific settlement date of 31 August 2017 is consistent with the minutes of a meeting of the Swiss Belle directors on 11 May 2017 (i.e. the uncontested minutes). Those minutes were recorded by Cooper Aitken and approved by the directors. They expressly state that the settlement “will be 31 August 2017” and that “the actual transition of shares will occur 31 August 2017”. Clause 5 of those minutes reads:
The consideration for the shares paid on 31 August 2017 will incur interest at 4.69% per annum, as from the 1 June 2017 to date of payment 31 August 2017.
[36] I accept that cls 7 and 8 might contemplate a settlement agreement beyond 31 August 2017 (which is, of course, in fact what happened) but that does not, in my view, mean that the interest calculation, which has a specifically agreed finite end point of 31 August 2017, should be interpreted in the same manner. The parties intended that the purchase monies would be paid on a specific date with interest running only until then.
[37] I also accept, as Mr Schuler stated, that the interest rate of 4.69 per cent is very specific. He says it is based on their cost of money with the bank on their floating loan. However, while his evidence provides some explanation for the specific figure, it is ultimately of no real assistance with the interpretation of the duration of the interest period.
[38] The context for interpreting cls 4 and 5 is of course the primary contract, namely the shareholders’ agreement. That agreement contains no provision for
interest and expressly provides that shares will be sold and purchased on specific dates with the initial valuation of shares done annually by Swiss Belle’s accountant. Clause
12.1 of the shareholders’ agreement reads:
On the following specified dates, the original group A shareholder will sell and the original group B shareholders will purchase shares in the company, in accordance with the following schedule and in accordance with this clause 12.
[39] Clause 12.2 provides that the sale and purchase of shares under cl 12 will “be recorded in an agreement for sale and purchase of shares in the form and on such terms as set out in schedule 3 of this agreement”. There is no provision for interest in the schedule 3 (it is a share transfer form).
[40] In viewing all these factors and adopting the objective test, I find that there is no basis for departing from the clear and express wording of the agreement for sale and purchase. The evidence that SBL relies on is in the main irrelevant, subjective understandings of the issue of interest and, in my view, of no assistance to the interpretation process. The result does not lead to any commercial absurdity.
[41] As Mr Taylor submitted, what SBL seeks to do in substance is to change the clear and express language of cl 5. That is apparent from the submission of Mr Braun, where he contended that the word “Settlement” should have appeared in cl 4 immediately after the words “purchase of the shares”. In my view, that would be to re-write cl 4 and to re-shape its intention (although such re-writing would not necessarily address the remaining difficulty of cl 5 specifically referring to the date of payment being the 31st day of August 2017). If SBL does have a remedy, it would be in rectification.15 However, having said that, and in light of the directors’ resolution of 11 May 2017, it is difficult to see how a claim for rectification might succeed.16
[42] I further reject Mr Braun’s submission that the contra proferendum doctrine ought to be applied here (i.e. because the agreement for sale and purchase of shares
15 See Savvy Vineyards 4334 Ltd v Weta Estate Ltd [2018] NZHC 989.
16 Mr Kevin Schuler, in his affidavit of 21 October 2020 at paragraph 12, says that the minutes of the 11 May 2017 directors’ meeting “also recorded that interest was payable until settlement …”. However, as noted at [32] of the judgment, the minutes actually record “clause 5 running to the specific date of 31 August 2017”. Likewise the affidavit of Mr Paul Schuler of 19 October 2020 at [4] does not correctly record the resolution adopted at the 11 May 2017 meeting.
was prepared by the Burri’s solicitors). In my view, there is no call to rely on this rule given the ordinary and natural meaning of the words.17 In any event, I note that SBL sought legal advice on the agreement for sale and purchase of the shares before signing it.18
[43] I likewise reject SBL’s contentions of an estoppel in relation to interest or that as a matter of implied term, the obligation to pay interest should extend beyond 31 August 2017. In my view, these are all contrived arguments.
[44] The overall behaviour of the Burris is far from unconscionable and on that basis alone, I cannot see how there might be a credible claim of estoppel.19 There is furthermore no arguable representation made by Mr Burri that he would pay interest until settlement, whenever that occurred. At the very most, he indicated a willingness to pay interest up until 31 October 2017.
[45] As to an implied term, a provision for interest beyond the date the parties expressly agreed, is not necessary to give business efficacy to the contract and is certainly not so obvious that “it goes without saying”.20 Furthermore, as Mr Taylor submitted, given the background of the common law which did not permit the recovery of interest as general damages upon a default and in payment of a debt,21 (leading to the enactment of s 87 of the Judicature Act 1908 providing for the payment of interest on a judgment) it is hard to see there is a proper basis for implying a term into a contract that interest is to be paid before there was a default.22
The terms of my order for specific performance
[46] Both parties say they are willing and committed to concluding the outstanding share transaction.
17 See Burrows, Finn & Todd Law of Contract in New Zealand (6th ed LexisNexis at p242-243).
18 Affidavit of Mr Kevin Schuler dated 21 October 2020 at paragraph 50 (p220 defendant’s bundle of documents.
19 Gold Star Insurance Ltd v Gaunt [1998] 3 NZLR 80 (CA) at p86.
20 BP Refinery (Westernport) Pty Ltd v Shire of Hastings [1977] 180 CLR 266 (PC).
21 See Page v Newman (1829) 9 B & C 380.
22 See also Dodds v Coopers Creek Vineyards Ltd [1987] 1 NZLR 530.
[47] The critical issue in relation to the terms of any orders for specific performance is to identify particular steps that the parties should take to ensure that in reality, the transfers are actually settled as the shareholders’ agreement specifically contemplates.
[48] The jurisdiction to make orders of specific performance is a deliberately wide one, focused on the removal of obstacles to any settlement taking place and ultimately one guided by the substantial justice of the case.
[49] These are summary judgment proceedings and not therefore, the forum for the resolution of genuine factual disputes, particularly those turning on credibility. However, I find that this is an appropriate case for not uncritically accepting every statement put forward in evidence and where I can properly assess some of the relevant evidence by adopting a robust and realistic approach.23 There are substantial and numerous affidavits before me and in addressing the terms of any order for specific performance, it will be important to ensure that no party can put forward further unnecessary obstacles or excuses for a settlement.
[50] In principle I accept that the issue of how Swiss Belle cash is applied or profits distributed is a matter for the Swiss Belle board to discuss and agree upon. That is a matter separate from the issue of the overdue settlement of the share transfer. I also accept that the shareholders’ agreement did not expressly contemplate that the Burris would pay for the shares by way of pay-out from Swiss Belle. Having said that, there is nothing in that shareholders’ agreement which precludes the Burris from having recourse to such funds and it does expressly state that they would share in the rewards of the company.
[51] I acknowledge the need for caution in not exercising my jurisdiction in a way which improperly interferes with the autonomy of the Swiss Belle board. However, on the evidence before me, the sensible solution, as set out in the Burris’ solicitor’s letter of 27 October 2020, would be for the Burris to have access to the retained earnings in order to pay SBL for the shares. No good reason has been put forward in evidence as to why that, in the current circumstances, would not be the obvious solution.
23 Krukziener v Hanover Finance Ltd [2010] NZAR 307 at [26].
[52] I reject the submission of SBL that the Burris are not able and willing to complete the settlement because they cannot pay for the purchase price without recourse to Swiss Belle funds. This issue is a question of substance and not one to be determined in any technical or narrow sense.24 The dilemma that Mr Burri refers to (i.e. having to explain to a bank as to why Swiss Belle funds have not been released) is surely a real one. Furthermore, it would be fundamentally wrong for SBL to be able to rely upon any alleged inability of the Burris to perform when its directors have the power and control over the release of any funds.
[53] It appears that there is no good reason why the Swiss Belle board should not convene promptly to resolve the issue of the retained earnings. If it is necessary for the respective parties’ accountants to meet, then the reasonable and common-sense approach would be to take steps to make sure that that happens. Having said that, it seems that the respective accountants have already provided a great deal of advice on the best way forward for the Swiss Belle board.
[54] It would not be appropriate and likely beyond my jurisdiction in these proceedings, to make any formal directions requiring the Swiss Belle board to convene or to make any particular decision. As Mr Braun submitted, there is no obligation that can be enforced against SBL (at least not in these proceedings) requiring it to distribute retained earnings in Swiss Belle or to pay dividends. That would clearly be a step too far. However, it would be a regrettable and surely unnecessary step for separate s 174 Companies Act 1993 proceedings to be brought to resolve any impasse. If that were to occur, the background to the dispute, as set out in this judgment, might well be relevant both to the outcome of any such proceedings and the question of any costs award. Furthermore, as Mr Braun responsibly accepted, the parties in their capacities as directors of Swiss Belle have obligations to the shareholders (i.e. each other) of that company.
[55] It is apparent from the shareholders’ agreement that the Swiss Belle goat farming business is a joint venture based on mutual assistance. The parties have expressly committed to the Burris eventually owning and operating the company as
24 Hurrell v Townend [1982] 1 NZLR 536 (CA) at 550.
their dairy goat farm (cl 3.2). They have committed to entering into and enforcing any agreements necessary to operate the business and to share, in accordance with their respective shareholdings, the risks and rewards of the operation of the company (cls
2.1.3 and 2.1.4). At cl 5.1 they agreed that all shareholders would procure the company to perform and absorb all of the covenants on the part of the company contained in the agreement (and in any agreement entered into in terms of the agreement). At cl 24.13 they agreed to execute and deliver all documents and “do all things necessary” for the proper and complete performance of their respective obligations under this agreement”.
[56] There are thus very clear, legally enforceable, contractual commitments requiring the parties to take all reasonable practical steps to implement any settlement
– and that is the context in which my orders are to be framed.
Result
[57] I grant the plaintiffs’ application for summary judgment and make the following orders for specific performance:
(a)The plaintiffs and defendants are to confer, communicate and cooperate with each other before 22 January 2021 with a view to reaching an agreement on the prompt convening of the board of Swiss Belle Ltd for the purposes of the board making a decision whether to make a distribution of retained earnings or repay shareholders’ loans accounts;
(b)The defendant is to specifically perform its obligations to transfer the
216 shares in the 2017 tranche of shares to the plaintiffs on the following terms:
(i)The plaintiffs are to pay to the defendant the sum of $306,832 together with interest at 4.69 per cent from 1 June 2017 until 31 August 2017 within one working day of the distribution of retained earnings or repayment of shareholders’ loan accounts to the year ending 31 March 2019, by Swiss Belle Farm Ltd;
(ii)The defendant contemporaneously with payment for the shares is to provide share transfers for 216 shares in the 2017 tranche of shares;
(iii)The plaintiffs are to pay interest under the Interest on Money Claims Act 2016 from the date of the arbitral award, namely 22 July 2020 until payment, but in any event no interest is payable beyond 1 March 2021;
(iv)If the Swiss Belle board has not made the determination on whether to make a distribution retained earnings or repay shareholders’ loans accounts by 1 March 2021, then either party may seek further directions from the Court.
[58] I make a declaration that under the Agreement for Sale and Purchase the plaintiffs are required to pay interest at 4.69 per cent only for the period 1 June 2017 until 31 August 2017. There is no contractual obligation to pay interest at 4.69 per cent beyond the date of 31 August 2017.
[59]The defendant’s application for summary judgment is dismissed.
[60] Leave is reserved to the parties to seek further directions from the Court in any event.
Costs
[61] Both parties have sought costs for steps taken prior to June 2020 and in relation to the original summary judgment application by the plaintiffs which sought specific performance of the transfer of the shares in the 2019 tranche. As noted above, the summary judgment proceedings the subject of this judgment are in substance fresh proceedings following the leave granted by Palmer J to amend the application, in September 2020.
[62] The plaintiffs’ claims in relation to the 2019 tranche have in effect been abandoned because it appears that the parties have reached a settlement in relation to
the 2019 tranche. However, no formal notice of discontinuance has been filed and the focus has shifted to the outstanding issues in relation to the 2017 tranche.
[63] I accept there is a presumption in accordance with r 5.23 of the High Court Rules that the defendant is entitled to costs because the plaintiffs have in substance effectively discontinued the proceedings as they relate to the 2019 tranche of shares. However, the Court retains a discretion to order otherwise.
[64] The Court is in a difficult position because there is limited information before me as to what has actually transpired in relation to the 2019 tranche. It would appear that both parties have had some degree of success in relation to the 2019 tranche. While I have some sympathy for the position of the plaintiffs (they have a contractual right to purchase and took steps to enforce their rights), in all the circumstances I am of the view that there should be no order as to costs for the steps prior to June 2020. Costs should lie where they fall.
[65] As to costs in relation to the current summary judgment application (as it relates to the 2017 tranche), the subject of this judgment, I am of the preliminary view that in substance the Burris, the plaintiffs, have succeeded and are entitled to costs on a 2B basis plus disbursements for steps taken (including the filing of the amended application) since the grant of leave to amend by Palmer J in September 2020. I acknowledge that the defendants also sought specific performance but the orders I have made are more akin to those sought by the plaintiffs rather than the terms sought by the defendant. Furthermore, on the issue of interest, the plaintiffs have clearly been successful.
[66] If the parties cannot agree on costs, as they relate to the current application for summary judgment, then memoranda (no more than three pages) are to be filed and served within 14 days.
Associate Judge P J Andrew
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