Cochrane v Totara Properties Whangarei Limited

[2013] NZHC 2414

IN THE HIGH COURT OF NEW ZEALAND WHANGAREI REGISTRY

CIV-2012-488-000177 [2013] NZHC 2414

UNDER

the Companies Act 1993, s 174

IN THE MATTER OF

TOTARA PROPERTIES WHANGAREI LIMITED

BETWEEN

G A COCHRANE, N B COCHRANE and L P COCHRANE

Plaintiffs

AND

TOTARA PROPERTIES WHANGAREI LIMITED

First Defendant

ALEXANDER REGINALD COCHRANE
Second Defendant

A R COCHRANE, MAQ TRUSTEES 2011 LTD & MAC TRUSTEE SERVICES
LTD as trustees of the Snow Cochrane No 1 Trust

Third Defendant

MAREE JOYCE COCHRANE
Fourth Defendant

M J COCHRANE, MAQ TRUSTEES 2011 LIMITED & SHAREE MILDRED
COCHRANE as trustees of the Maree Cochrane No 1 Trust

Fifth Defendant

SHAREE MILDRED COCHRANE
Sixth Defendant

SHAREE MILDRED COCHRANE, CAROLYN JANICE HARRISON & MAQ TRUSTEES 2011 LIMITED as

trustees of the JS Family Trust Seventh Defendant

SHARLA MARIE COCHRANE
Eighth Defendant

COCHRANE v TOTARA PROPERTIES WHANGAREI Ltd [2013] NZHC 2414 [16 September 2013]

SHAREE MILDRED COCHRANE & CAROLYN JANICE HARRISON as

trustees of the Sharla Cochrane Family Trust

Ninth Defendant

Hearing:

16 September 2013

Appearances:

J Browne for Plaintiffs

A Holgate for First, Second and Third Defendants

Judgment:

16 September 2013

ORAL JUDGMENT OF VENNING J

Solicitors:Henderson Reeves Connell Rishworth, Whangarei Swan Law, Whangarei

Copy to:            A Holgate, Whangarei

[1] Totara Properties Whangarei Limited (Totara) applies for an order varying the injunction order made by this Court on 18 December 2012 by the addition of the following paragraph:

That the company has the authority to invest the sum of $1,500,000.

[2]      The application is opposed.

[3] On 18 December 2012 on application by the plaintiffs Andrews J made the following orders:

Until further order of the Court, Alexander Reginald Cochrane and [Totara] (“Company”) may not:

(a)issue any further dividends from the Company;

(b)make any further loans or advances, or allow any drawings from the Company;

(c)hire any new employees for the Company;

(d)Pay Alexander Reginald Cochrane and/or Marie Joyce Cochrane a salary in excess of $48,000 per annum each in respect of their roles as employees of the Company;

(e)have the Company purchase any real property; or

(f)sell, transfer, or dispose of any assets or liabilities of the Company to a third party.

...

Leave was reserved to either party to vary the terms of the injunction on two working days’ notice.

[4] Totara now seeks to vary the order in accordance with the leave reserved. Totara has two forestry blocks consisting of approximately 359 ha of which 220 have been recently planted and an additional 139 ha is in the process of being planted (if that has not already been completed). The bulk of the new planting replaces the forest recently harvested by Totara.

[5]   Totara wishes to make provision for the silviculture for the new forest over the next 30 years.  The advice of the forestry management company, P F Olsen and

Co Ltd is that the present sum required to meet the silviculture costs over that 30 year period is $1.5 million. It is that sum that Totara seeks to invest and seeks to vary the existing injunction to enable it to do so.

[6] Totara seeks to vary the injunction to permit the company to invest $1.5 million in accordance with the financial investment plan obtained from Craig’s Investment Partners Limited. The application is supported by Mr Mallett, a chartered accountant in Whangarei who acts for Totara and Mr Snow Cochrane. In his opinion the investment plan is the most practical way forward for the next 30 years with a pragmatic balance being struck between investment growth and liquidity.

[7]    The application to vary the injunction is opposed by the plaintiffs primarily on the grounds that:

(a)The investment recommended has Ms Sharla Cochrane as a signatory. She is neither a director, shareholder nor employee of Totara. Sharla is the daughter of Sheree and a granddaughter of Snow.

(b)Locking $1.5 million into an investment may limit the Court’s options in relation to the relief sought under s 174(2) of the Companies Act.

(c)The investment involves the purchase of a variety of shares as well as term deposits and holding moneys as cash.

[8] The respondents do not oppose Totara investing the $1.5 million in term deposits for appropriate terms to co-incide with the expected fixture date of these proceedings provided that neither Sharla nor Maree Cochrane are signatories. Such investments would provide Totara with cash flow without prejudicing further orders following trial.

[9] There is obviously a complete  divergence  in  the  family  between  Snow, Maree, Sharee and Sharla on the one hand and the plaintiffs on the other. Mr Larry Cochrane has raised a concern about the money spent since the hearing on 18

December.   Between that date and 31 March 2013 cheques totalling more than

$490,000 were presented. He also queries the need for $1.5 million to be invested. A further affidavit has recently been filed on behalf of the plaintiffs noting that it appears drawings have been taken despite the orders of the Court.

[10] Mr Snow Cochrane has filed an affidavit in reply.  He notes that Sharla has his power of attorney in any event. He proposed to have three persons operate the proposed investment account – himself, Mr Mallett and Sharla. He denies there is anything unusual or sinister about the spending since 18 December. The company was in the process of harvesting mature forestry blocks and was obliged to replant those forest blocks in order to maintain its carbon credit status and to avoid penalties. He has provided information as to the payments made, which include accounting to the Inland Revenue Department, pruners and also payment of legal fees, which total in excess of $405,000.

[11] It is apparent that, unfortunately, there is currently a complete breakdown in the relationship and trust between the parties. If the parties are unable to resolve that on a practical basis with a view to the future then the further direction of the company will have to be determined by this Court.

[12] I understand there is to be a pre-trial conference with an Associate Judge in the next short period of time. It is anticipated that at that conference a fixture will be allocated for this fixture. In my view a fixture should be allocated for the hearing to provide certainty to the parties and to the company as to its future direction.

[13] In my judgment, as discussed with counsel, there is no need at the present time for the $1.5 million to be invested in the way suggested and argued for by the defendants at this particular time. The company has sufficient funds available currently on various term deposits which will enable it to readily meet its current and existing commitments over the next six to 12 months in terms of the silviculture. To the extent that funds will be required to carry out the necessary silviculture work in that period the company has ample funds available to do so.

[14] What the defendants are seeking to do is to provide for the company’s long term future in terms of its silviculture obligations but no decision on that should be made pending the determination of the Court on these proceedings which may substantially affect the future control and direction of the company. It is appropriate that long-term decisions such as that be left to follow the outcome of these proceedings (in the event that the parties are unable to resolve the issues themselves).

[15]    I see no reason for the company at this stage, in September 2013, to set aside

$1.5 million to provide for silviculture costs over the next 30 years.

[16]   As noted in my judgment the answer is for these proceedings to be resolved as soon as possible and then once the proceedings have been resolved and orders made by the Court then the future operation of the company and its future will be determined.

[17]  I also have regard to the reasons for the terms of the interim injunction issued by Andrews J. The injunction was made because the Judge was satisfied at that stage Totara’s assets were at risk and that there was a need for some form of interim control over the management of the company. The suggestion that the $1.5 million of the company be invested with control being under Mr Snow Cochrane, Mr Mallett and Sharla, as Mr Snow Cochrane proposes, seems to me to be outside the objective of Andrews J in issuing the interim injunction. In making that observation I make it clear I make no personal criticism of Mr Mallett.

[18] Next, a principal reason advanced for the need to invest in accordance with the recommendations by Craigs Investment Partners appears to be that the returns will be significantly better than the more limited returns available on the various term deposits. I am not persuaded that that is a compelling argument, certainly not over the short term. Mr Browne drew my attention to a number of relevant matters noted even in Craigs Investments Partners’ recommendations. In their summary of detailed portfolio recommendations they note that the indicative 12 month gross yield on investment expected is 3.99%. They also expect that the proposed investment will incur an estimated portfolio fee of about $10,000 per annum and

perhaps, most significantly, their recommendation is for an “averaging in” to the markets, noting that a portfolio of this size may take six months to a year to implement. So effectively the proposal would be for the $1.5 million, or part of it, be invested in equities over time but, as noted, over the same period of time this Court will have made a determination as to the future outcome of the company.

[19]    For all those reasons the application to vary the injunction is declined.

Costs

[20] Costs should follow the event. The plaintiffs are to have costs on a 2B basis together with any disbursements as fixed by the Registrar.

Venning J