Burri v Schuler Brothers Limited

[2019] NZHC 1169

IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY

I TE KŌTI MATUA O AOTEAROA KIRIKIRIROA ROHE

CIV-2018-419-000109

[2019] NZHC 1169

BETWEEN

RENE BURRI and VERENA CHRISTINA MARIA BURRI
Plaintiffs

AND

SCHULER BROTHERS LIMITED

Defendant

Hearing:	On the papers
Judgment:	28 May 2019

JUDGMENT OF DOWNS J

This judgment was delivered by me on Tuesday, 28 May 2019 at 11 am pursuant to r 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Solicitors/Counsel:

Edmonds Marshall, Matamata.

Braun Bond & Lomas Ltd, Hamilton. DJ Taylor, Hamilton.

BURRI v SCHULER BROTHERS LTD [2019] NZHC 1169 [28 May 2019]

The case

[1]    René and Verena Burri farm goats, and own shares in Swiss Belle Farm Ltd.1 Schuler Brothers Ltd owns the remaining shares.2 In May 2015, the parties agreed the Burris would buy these from Schuler over four tranches. In July 2017, the parties agreed terms in relation to the first tranche—save price. Settlement did not occur, as it was meant to, on 31 August 2017; neither party was happy with the price of the shares identified by the independent expert. The Burris later brought a claim in this Court, alleging Schuler had breached the July 2017 agreement. Schuler protested jurisdiction on the basis the same agreement provides for arbitration if the parties cannot agree on price. Associate Judge Johnston stayed the claim and directed the parties arbitrate.3

[2]    The Burris seek leave to appeal Judge Johnston’s decision. They contend it is arguable the Judge erred, and highlight the decision locks them into arbitration. Normally the application would return to the Judge, but he sits in a different circuit.

By agreement, it came to me on the papers.4

[3]Central to all this is this clause in the July 2017 agreement:5

However, if either or both of the parties do not accept the value of the Shares as established by Rob Braithwaite, then in terms of Schedule 2 of the Shareholders Agreement, such party can appoint a registered valuer to suggest a value. If the other party is not comfortable with the valuer’s report, then such other party can appoint its own registered valuer. If the two registered valuers cannot agree, the value issue goes to arbitration.

[4]    Doubt attaches to whether the clause was shaped by legal advice. It will be noted it is silent about time, or what happens if the valuation process bogs down because of delay or some other impediment. Therein lies the problem.

1      Swiss Belle.

2      Schuler.

3      Burri v Schuler Brothers Ltd [2018] NZHC 2567.

4      I was to hear the case in Hamilton. But, Mr Taylor did not appear. There were extenuating circumstances, which need not be recorded.

5      The clause.

Background

[5]Little additional background is required beyond the briefest of timelines:

(a)Mr Braithwaite valued the shares in early August 2017, at $271,073. Neither party was “comfortable” with this in terms of the clause.

(b)On 10 August 2017, (a) was discussed at Swiss Belle’s annual general meeting. There is some disagreement about what was said, but both parties seemed to agree 31 August settlement was no longer possible.

(c)The Burris engaged KPMG to value the shares. On 12 October 2017, it said they were worth $192,685.

(d)In November 2017, Schuler said it would obtain its own valuation.

(e)During February and March 2018, the Burris expressed frustration at delay in relation to (d).

(f)On 16 March 2018, Schuler sent the Burris a PWC valuation pricing the shares at $458,000.

(g)On 19 April 2018, the Burris filed their claim, including an application for summary judgment (and specific performance). The claim alleges Schuler breached an implied term to obtain a valuation in reasonable time and is liable to sell the shares at the KPMG price.

(h)Schuler protested jurisdiction.

Judgment

[6]    The Judge accepted “it would be appropriate to read into the agreement … an obligation on [Schuler] to take the step of providing their valuation within a reasonable period of time”.6 However, the Judge was “satisfied—by some margin I might add—

6      Burri v Schuler Brothers Ltd, above n 3, at [22].

that [Schuler] has not breached any implied term to provide its valuation within a reasonable time”.7 The Judge concluded there was “no serious doubt” price was referable to arbitration; it “was designed to deal with this very issue”.8

[7]The Judge stayed the claim and directed the parties arbitrate.

Leave to appeal

[8]Section 56(3) of the Senior Courts Act 2016 provides:

No appeal, except an appeal under subsection (4), lies from any order or decision of the High Court made on an interlocutory application in respect of any civil proceeding unless leave to appeal to the Court of Appeal is given by the High Court on application made within 20 working days after the date of that order or decision or within any further time that the High Court may allow.

[9]    The   section   does   not   articulate   principle.      In Finewood Upholstery Ltd v Vaughan, Fitzgerald J said:9

(a)A high threshold exists for granting leave, which requires not just an allegation of error of law or fact, but an arguable error.

(b)The circumstances must warrant further delay.

(c)The alleged error should be of general/public importance, or otherwise be of sufficient importance to the applicant to outweigh the lack of any general or precedential importance.

(d)The requirement for leave should serve as a “filtering mechanism” to ensure unmeritorious/insignificant appeals do not unnecessarily delay the proceedings.

(e)The overarching principle is whether the interests of justice are served by granting leave to appeal.

7      Burri v Schuler Brothers Ltd, above n 6, at [27].

8 At [29].

9      Finewood Upholstery Ltd v Vaughan [2017] NZHC 1679.

[10]I gratefully adopt this framework.

Analysis

[11]Three alleged errors are advanced in support of leave.

[12]   First, the applicants contend the July 2017 agreement required the parties to provide an alternative valuation before 31 August 2017 (as will be recalled, settlement date). Because neither did so, Mr Braithwaite’s valuation is binding.

[13]   This ground was not foreshadowed in the leave application. It is not clear it was raised with the Judge. However, the applicants argue the Judge erred because he did not conclude the parties were bound to accept Mr Braithwaite’s valuation.

[14]   This argument cannot succeed. The statement of claim alleges on “10 August 2017 the parties agreed to  complete  their  own  valuations  of  the  shares  …  by  31 October 2017”. The claim goes on to allege the binding valuation is that of KPMG. In other words, the claim alleges the agreement changed to one in which each party would obtain its own valuation, and Mr Braithwaite’s valuation would not be binding.

[15]   The applicants submit first-instance arguments are not necessarily controlling.10 I agree. However, the proposed argument is irreconcilable with the claim. Leave for appellate ventilation would therefore be wrong.

[16]   Second, the applicants submit an Associate Judge does not have jurisdiction under cl 8 of the first schedule to the Arbitration Act 1996 to direct arbitration. This argument can be swiftly addressed given counsel’s responsible acknowledgement, “if this were the only ground of appeal, there would be little future in the appeal because [an Associate Judge] would have had jurisdiction to grant a stay of execution”, leaving arbitration the only means to resolve the dispute.

[17]   Third, the applicants submit it is at least arguable the Judge erred in concluding there had been no breach of the implied term to obtain a valuation within reasonable

10     McCollum v Thompson [2017] NZCA 269.

time. The Judge failed to assess what the parties “objectively intended their contract to mean as at the date of the contract” and approached the question “as if it were the exercise of a judicial discretion as to what was reasonable in the particular factual circumstances”. More particularly, the Judge had “regard to the subjective intentions of the parties” and considered “post-contract conduct in an inappropriate and wrong way”.

[18]   The Judge identified eight factors in support of the conclusion the implied term had not been breached. These included what the parties were concerned with “right up until… 9 March 2018”.11 This particular consideration is amenable to challenge of the kind identified by the Burris, and for the reasons they cite. I also accept the Judge did not refer to the evidence of Mr Lowe, a KPMG director, who said the valuation of the Swiss Belle shares was “not particularly cumbersome” because the shareholders agreement was prescriptive as to valuation methodology. Mr Lowe said four to six weeks would be needed to complete the valuation; three were it urgent.

[19]But, there are difficulties with the proposed ground of appeal.

[20]   It is not seriously arguable the Judge erred overall. The applicants did not obtain their (KPMG) valuation until 12 October 2017. Schuler obtained its (PWC) valuation on 16 March 2018, having signalled it would do so in November 2017. Christmas and the associated holiday period interrupted the sequence. It could scarcely be contended that viewed objectively, the parties intended time of year be irrelevant. No urgency attached to the process, so Mr Lowe’s three-week estimate has little significance.

[21]   The claim presupposes the KPMG valuation is determinative, and arbitration not provided for in these circumstances. However, as observed, the clause does not appear to have been shaped by legal advice. At best, it is loose. As against this, the clause makes one thing clear: disputes about price are to be resolved by arbitration, not the courts. However viewed, this dispute is about price, not the agreement. A counter-factual may be illustrative. If PWC had valued the shares at say, $180,000, it

11     Burri v Schuler Brothers Ltd, above n 3, at [26](h).

is all but certain the applicants would not be complaining about delay or construction of the July 2017 agreement.

[22]It follows the Judge’s decision is not amenable to serious challenge.

[23]   I have not overlooked the claim has essentially been determined by the Judge. This factor would strongly favour leave if it were accompanied by an arguable point. Absent one, leave should be declined.

Result

[24]The application for leave to appeal is dismissed.

Costs

[25]   Schuler should have 2B costs.12 If the parties disagree, they may submit memoranda of not more than five pages:

(a)The Burris by 11 June 2019.

(b)Schuler by 18 June 2019.

……………………………..

Downs J

12     Including the appearance before me.