CHABRO HOLDINGS LIMITEDAppellantAND OWEN HUGH DUNNING
[2008] NZCA 125
•15 May 2008
IN THE COURT OF APPEAL OF NEW ZEALAND
CA214/06
[2008] NZCA 125
BETWEENCHABRO HOLDINGS LIMITED
Appellant
ANDOWEN HUGH DUNNING
Respondent
Hearing:4 September 2007
Court:Chambers, O'Regan and Arnold JJ
Counsel:L J Turner for Appellant
C H Toogood QC for Respondent
Judgment:15 May 2008 at 3 pm
JUDGMENT OF THE COURT
AOrders 1 and 2 made in the High Court on 14 February 2007 are quashed.
B The other orders made in the High Court are confirmed.
CNo order as to costs in this court.
D The above orders are made by consent.
REASONS OF THE COURT
(Given by Chambers J)
Introduction
[1] Owen Dunning, the respondent, was a director, shareholder, and employee of Chabro Holdings Limited, the appellant. Mr Dunning fell out with his co-directors. As a consequence, he was removed as a director and his employment terminated. Mr Dunning sought various forms of relief. Of particular relevance for present purposes was an application to the High Court under s 174 of the Companies Act 1993. In that proceeding he alleged he had been the subject of conduct that was oppressive, and fairly discriminatory, and unfairly prejudicial.
[2] Mr Dunning was successful in the High Court. Chabro was ordered to buy his shares. Chabro appealed. Somewhat belatedly, Mr Dunning sought leave to cross-appeal. We heard the appeal on 4 September last year. Before we delivered our judgment, the parties settled. They want us to make orders by consent. We are prepared to make three of them, but not the fourth order sought. In these reasons for judgment, we shall explain why we have been prepared to make three of the orders sought (orders A to C) and why we are not prepared to make the fourth.
The relevant procedural history
[3] In order to understand the orders we are making and not making, we need to set out relevant parts of the procedural history of this case and of the appeal. This brief account will also make clear why no judgment has been forthcoming on this appeal until now.
[4] Mr Dunning’s High Court proceeding was heard by Allan J. He delivered an interim judgment on 4 September 2006, and a final judgment on 14 February 2007: Dunning v Chabro Holdings Limited HC AK CIV2005-404-4903. His Honour found in Mr Dunning’s favour. He held Mr Dunning had made out his claim of shareholder oppression and ordered Chabro to purchase Mr Dunning’s shares in the company for $880,000. The sum was to be paid by instalments. The first two orders in the sealed judgment read as follows:
1.The Defendant is ordered to purchase the Plaintiff’s shares in Chabro Holdings Limited (Chabro) for the sum of $880,000 in three separate payments:
(a)On or before 15 May 2007 Chabro is to pay the sum of $440,000 to the Plaintiff;
(b)On or before 31 October 2007 Chabro is to make a further payment of $220,000, together with all accumulated interest, to the Plaintiff; and
(c)On or before 30 April 2008 Chabro is to pay the balance, including all outstanding interest, to the Plaintiff.
2.The Plaintiff will be required to execute a valid transfer of his shares upon receipt by him of the whole of the purchase price, together with interest.
[5] The judge made five other orders, two of which concerned costs. The details do not matter.
[6] Chabro appealed. It took two principal points. First, Chabro was not guilty of oppressive conduct, with the consequence that no order should have been made under s 174. Secondly, in the alternative, the judge was wrong in fixing the value of Mr Dunning’s shares at $880,000. He should have deducted 25% as a discount to reflect Mr Dunning’s 10% minority holding in the company. If a compulsory purchase order were to be made, therefore, the purchase price should have been $660,000.
[7] Shortly before the hearing of the appeal, Mr Dunning discovered that, because Chabro was buying his shares, the proceeds may be treated as a dividend. This obviously concerned him greatly. His counsel, Mr Toogood QC, sought leave to cross-appeal out of time, to allow Mr Dunning to contend for a remedy that did not feature that disadvantage. Various possibilities were canvassed. Mr Turner, for Chabro, opposed the application for leave to file a cross-appeal out of time and also opposed the cross-appeal itself if leave were granted.
[8] At the end of the hearing of argument on Chabro’s appeal and Mr Dunning’s leave application and proposed cross-appeal, we reserved our decision. In the course of our deliberations and preparing a draft judgment, we considered that further submissions were required. We were just about to issue a minute when we received a memorandum from Mr Turner. He advised that Chabro was now prepared to drop its opposition to an order being made under s 174 requiring Chabro to buy Mr Dunning’s shares, but he maintained the argument relating to Allan J’s failure to apply a minority discount when valuing the shares. He also continued to oppose Mr Dunning’s cross-appeal.
[9] Mr Turner’s memorandum led to several teleconferences involving the panel and counsel. The details do not matter. It is sufficient to note that in February this year Mr Turner advised that Chabro, after further consideration, no longer wished to make the proposed concession. We were thus back to the position that pertained at the end of the oral hearing. This then caused us to release the minute concerning the matters on which we required further submissions. Mr Turner filed his submissions on 3 March and Mr Toogood his on 14 March. Mr Turner filed reply submissions on 25 March.
[10] The panel then resumed its deliberations. On 7 April, however, we were advised that the parties had reached a settlement. In due course, we were asked to make consent orders.
[11] We were uncertain as to why this court needed to make any orders at all: why could the parties not simply rely on their settlement agreement? We sent out a further minute. On 9 May, the parties filed a revised set of orders, which they have asked us to make by consent.
The orders sought
[12] The first order the parties seek is an order quashing orders 1 and 2 as made in the High Court: see [4] above. We are prepared to make that order: see order A. Chabro’s case was that it should not be required to acquire Mr Dunning’s shares. It is now clear that Mr Dunning does not want Chabro to acquire his shares. In those circumstances, Chabro should be relieved of its obligation to acquire the shares and Mr Dunning should be relieved of his obligation to sell them to Chabro.
[13] The parties are also agreed we should confirm the other orders made in the High Court. Again, we see no difficulty in making a consent order to that effect: see order B. Some of these orders required payments to be made. Apparently, though the orders are confirmed, the payments required under them are now subsumed within the agreed terms set out at [17] below.
[14] As it now turns out, neither side seeks costs in this court. Again, we have no difficulty in complying with that request: see order C.
[15] The fact we have made orders A to C as requested says nothing, however, as to what the outcome of the appeal and proposed cross-appeal would have been. Our deliberations in that regard proceeded fitfully because of the post-hearing steps we have outlined and never reached conclusion because of the advice received on 7 April that the parties had reached a settlement.
[16] The one order we are not prepared to make is that “Chabro shall procure a nominee to purchase Mr Dunning’s shares in Chabro”. There is no problem, of course, in the parties reaching an agreement to that effect, but we do not consider that we should make such an order when the jurisdiction to make it is based on s 174 being engaged and we have not made any decision that it is engaged on the facts of this case. Even if we had decided that s 174 was engaged, we have not made a decision on what the appropriate remedy would have been.
[17] Counsel asked us to record in our reasons for judgment five terms on which they had agreed. We are happy to do that. We shall add to that list the agreed term as to Chabro having to procure a nominee to purchase Mr Dunning’s shares, since we have not been prepared to make an order to that effect. The six agreed terms are as follows:
1Chabro shall procure a nominee (“Nominee”) to purchase Mr Dunning’s shares in Chabro.
2The Nominee shall purchase Mr Dunning’s shares for $1,030,000, payment shall be made by a payment of $739,600 from the Nominee to Mr Dunning on the 11th April 2008, $290,400 on the 11th May 2008.
3The cancellation of the Chabro purchase order [ie orders 1 and 2 as made in the High Court] shall mean Mr Dunning shall repay the net sums paid to him by Chabro pursuant to the Chabro purchase order (but not including the interest component) on the 11th of April 2008. For the avoidance of doubt, the sum Mr Dunning shall repay is $589,600.
4With respect to the amounts of RWT paid by Chabro to the IRD for which Chabro shall seek a refund, should part or all of this amount be refunded to Mr Dunning by the IRD, such amounts are to be repayable within two business days of receipt by Mr Dunning.
5Mr Dunning shall return the shareholder dividend statements relating to the Chabro purchase order. On the 11th of May 2008 after the final payment by the Nominee for Mr Dunning’s shares, Chabro will be entitled to transfer Mr Dunning’s shares in Chabro to the Nominee by entering the name of the Nominee on its share register, pursuant to a transfer which Mr Dunning has executed and which is currently being held in escrow and will be delivered to Chabro.
6Costs in respect of the parties’ appeals and cross-appeal are to lie where they fall, as are costs in respect of the High Court proceeding which may have arisen subsequent to Judgment.
Solicitors:
Russell McVeagh, Auckland, for Appellant
Lee Salmon Long, Auckland, for Respondent
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