Chrystall v Chrystall Farming Limited

[2018] NZHC 2559

IN THE HIGH COURT OF NEW ZEALAND NAPIER REGISTRY

I TE KŌTI MATUA O AOTEAROA AHURIRI ROHE

CIV-2018-441-83 [2018] NZHC 2559

BETWEEN

DUNCAN SAMUEL CHRYSTALL

Plaintiff/Applicant

AND

CHRYSTALL FARMING LIMITED First Defendant

BRIDGET GEORGINA CHRYSTALL Second Defendant

CAMPBELL LACHLAN MACGILLIVRAY

Third Defendant

Teleconference:	28 September 2018
Counsel:	T Sage for Plaintiff/Applicant
Judgment:	28 September 2018

JUDGMENT OF CHURCHMAN J

[1]      The plaintiff/applicant, Duncan Samuel Chrystall, has today filed in the Court a statement of claim alleging a breach of s 157 of the Companies Act 1993 (the Act).

[2]      It was alleged that the second and third defendants breached s 157 of the Act by purporting to remove the plaintiff/applicant as a director of the first defendant, the consequence of his alleged failure to attend four directors’ meetings between 27

August 2018 and 5 September 2018.

[3]      An   affidavit   filed   by   the   plaintiff/applicant   contends   that   since   the incorporation of the company on 5 July 2017, it did not have any formal directors’ meetings and that the directors’ business was conducted on an informal basis as and

CHRYSTALL v CHRYSTALL FARMING LIMITED [2018] NZHC 2559 [28 September 2018]

when required. He alleges that the holding of four directors’ meeting in nine days was a significant departure from prior practice.

[4]      The plaintiff/applicant also alleges that he was not made aware of the meeting on  27 August  2018,  and  that  in  relation  to  the  meetings  on  31 August  2018,

3 September 2018 and 5 September 2018, the notification sent to him was by way of email, and he was not aware of those emails until 7 September 2018.

[5]      He also alleges that although he physically saw the second defendant during the time when the directors’ meetings were being held, she did not mention the fact of those meetings to him.

[6]      Mr Chrystall also points to the fact that although the constitution authorises notification of meetings by fax, it does not authorise notification by email.  He also notes that two of the meetings were called with less than 48 hours’ notice which he says was in breach of Schedule 3, cl 2 of the Companies Act 1999, which requires not less than two days’ notice of a meeting.

[7]      The relief sought by the plaintiff/applicant in the statement of claim is:

(a)an order declaring that the plaintiff was always, and remains, a director of CFL;

(b)      an order that the plaintiff/applicant be restored as a signatory of the CFL

bank accounts, and the second defendant removed; and

(c)an  order  that  the  plaintiff/applicant’s  employment  termination  be declared to be invalid.

[8]    Contemporaneously with the filing of the statement of claim, the plaintiff/applicant sought an interlocutory application for an interim injunction. Although the application refers to it as having proceeded on a Pickwick basis, the reality is that both the second and third defendants are presently out of the country. So, in effect, the application proceeded before me by way of teleconference on a without notice basis.

[9]      The relief sought in the application for interim injunction was an order re- instating the plaintiff/applicant as a director of Chrystall Farming Ltd, pending the further order of the Court.

[10]     The hearing of the interim application was held at 2.15pm on 28 September

2018.  Mr Tristan Sage, for the plaintiff/applicant, participated by teleconference.

The law

[11]     The tests to be met by an applicant for an interim injunction are well-known:

(a)      there must be a serious question to be tried;

(b)      the balance of convenience must be weighed;

(c)the  Court  must  consider  whether  damages  would  be  an  adequate alternative; and

(d)      overall justice must be considered.

Arguable case

[12]     On the base of the affidavit evidence of Mr Chrystall, there is evidence of the Board meetings which it is alleged that Mr Chrystall failed to attend so as to trigger his deemed resignation as a director were irregular in the sense that less than 48 hours’ notice was given, and that notification of the meetings was effected by a means not authorised by the company’s constitution.

[13]     There is also material which would give rise to a concern about the bona fides of the second and third directors in calling four formal meetings in nine days when no such formal meetings had occurred in the prior 11 years of the company’s existence. The alleged failure by the second defendant to raise the issue of the Board meetings and the plaintiff/applicant’s alleged non-attendance personally with him when she saw him, is also capable of supporting an inference of improper motive.

[14]     I am therefore satisfied that the plaintiff/applicant has established that there is a serious question to be tried.

Balance of convenience

[15]     Identifying the balance of convenience involves an assessment as to whether granting or refusing an injunction is the course, which, after the action itself has been tried and the issues between the parties determined, would fairly allow the adjustment of the rights of the parties in a way that accords with fairness and justice.1

[16]     From the contents of Mr Chrystall’s affidavit, it appears that there is the significant personal animosity between himself and his former wife, the second defendant.

[17]     There is evidence that, during the course of the parties’ marriage, and for many years before that, Mr Chrystall was responsible for the farming operations undertaken by the first defendant, with the second defendant’s role being limited to administrative matters and matters related to her profession as a lawyer.  There is also evidence that would indicate that post separation, the second defendant has involved herself or attempted to involve herself in operational issues relating to the farming operations of the first defendant.

[18]     One of the central issues is whether or not damages would be a suitable alternative remedy.2   In this regard, Mr Sage drew the Court’s attention to the steps that the defendants have taken since 7 September 2018.  It appears that they have written to various suppliers and service providers of the first defendant advising them that Mr Chrystall is no longer a director of the company and that they should not take instructions from him.   This has allegedly resulted in long-standing business relationships between the first defendant and those service providers being either jeopardised or severed.

[19]     There is also the potential for significant damage to Mr Chrystall’s reputation with the entities who have received communications of this nature. I am satisfied that,

in these circumstances, there is an appreciable risk that damages may not be an adequate remedy.

[20]     I also consider whether or not, if the interim relief is granted, but not ultimately sustained, where damages would be an adequate remedy for the defendants. Effectively, what the plaintiff/applicant is asking the Court to do is to re-instate the status quo ante.   Mr Chrystall has been a director of the first defendant since its inception and also a signatory of cheques.

[21]     I have not been able to identify any irreparable harm to the defendants for the making of an interim order.  The courts have often said that in this situation, “it is a counsel of prudence to take such measures as are calculated to preserve the status quo”.3

Overall justice

[22]     This is not a case where interim relief will have effect of producing a final judgment.  Indeed, some aspects of the relief sought in the statement of claim are not pursued by way of interim injunction.

[23]     One consideration is whether or not the defendants could be said to have brought about the situation by their own actions.4

[24]     In the present case, there is an argument in that, by adopting the novel approach of holding four Board meetings in nine days when no formal Board meetings of this nature had ever previously been held, and, failing to contact the plaintiff/applicant by telephone to ascertain whether there was a reason for his non-attendance when contact by a telephone was readily available and had previously been the normal means of communication between the company directors about company matters, the second and third defendants could be alleged to have brought the problem on themselves. Likewise, it appears that promptly after the plaintiff/applicant became aware of the purported actions of the second and third defendants, his lawyer raised the issue with them but they appear to have disregarded the concerns raised.

[25]     Another factor to be considered is whether or not the plaintiff/applicant comes “with clean hands”, or has acquiesced in the breach.5     Here, it appears that the plaintiff/applicant acted promptly as soon as he became aware of the second and third defendants’ purported actions, and also immediately instructed his lawyer to raise the matter with the defendants.  No question of delay or acquiescence arises.

[26]     I note that the plaintiff/applicant has filed an undertaking as to damages in the required form.

Without notice

[27]     HCR 7.46 authorises the Court to deal with such applications on a without notice basis.   Such an application can be granted where requiring the applicant to proceed on notice would cause undue delay or prejudice.

[28]   Relevant to a consideration of whether a without notice application is appropriate, is whether full disclosure has been made by the plaintiff/applicant. In this case, a substantial affidavit has been filed which exhibits extensive documentation and correspondence.

[29]     It appears that the second and third defendants are determined to broadcast to as many of the first defendant’s suppliers or contractors as possible their view that the plaintiff/applicant is no longer a director of the first defendant and has no entitlement or authority to act for the first defendant or incur debt in its name. The correspondence from the plaintiff/applicant’s solicitor putting them on notice that their conclusion that the plaintiff/applicant had ceased to be a director has been ignored.  It appears likely that, unless restrained from so doing, they will continue to make such representations.

[30]     I am advised that the second defendant is presently out of the country, returning tomorrow, and that the third defendant returns to New Zealand on 4 October 2018. While it appears unlikely that they will continue to inform entities about their view of

Mr Chrystall’s status as a director of the first defendant while they are overseas, there

5      Bates v Lord Hilsham of St Marylebone [1972] 3 All ER 1019.

is no indication that, upon their return to New Zealand, without being restrained, they would refrain from this activity.

Conclusion

[31]     I am satisfied that the tests for the granting of an interim injunction have been met and that this is an appropriate case for the application to be made on a without notice basis.

[32]     Accordingly, I grant an interim injunction against the defendants re-instating the plaintiff/applicant as a director of Chrystall Farming Ltd pending further order of the Court.

[33]     I direct that, to the extent that the application and supporting documentation (along with this order) have not already been served on the defendants, that they are served forthwith, and I abridge the time for the filing of any statement of defence and/or application to set aside the interim injunction to 14 days from today’s date.

[34]     I direct that this matter be allocated a first call telephone conference as soon as possible after the expiry of 14 days from today’s date.

[35]     Costs in respect of this application are reserved.

Churchman J

Solicitors:

Sainsbury Logan & Williams, Napier for Plaintiff/Applicant