Cowan v Sand Dune Limited

[2013] NZHC 1378

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

CIV-2013-485-000260 [2013] NZHC 1378

BETWEEN  CHRISTOPHER PATRICK COWAN Plaintiff

ANDSAND DUNE LIMITED First Defendant

SAND DUNES EARLY LEARNING CENTRE LIMITED

Hearing:                   10 June 2013

Counsel:                  M Freeman for Applicants/Defendants

J A Langford and A Kouthroulas for Respondent/Plaintiff

Judgment:                10 June 2013

Reasons:                  11 June 2013

REASONS FOR JUDGMENT OF COLLINS J

Introduction

[1]      Mr Cowan and Ms Robinson were in a relationship.  During the term of their relationship Sand Dune Ltd and Sand Dunes Early Learning Centre Ltd (the companies) were incorporated.  Mr Cowan and Ms Robinson acquired a number of other assets during the course of their relationship.

[2]      After the relationship between Mr Cowan and Ms Robinson ended Mr Cowan became the registered owner of 50 per cent of the shares in the companies.

[3]      Ms Robinson has commenced proceedings in the Family Court to determine, amongst other matters:

COWAN v SAND DUNE LIMITED [2013] NZHC 1378 [10 June 2013]

(1)whether her relationship with Mr Cowan was a qualifying relationship for the purposes of the Property (Relationships) Act 1976 and, if so

(2)       the legal nature of that relationship;  and

(3)       what property constitutes relationship property;  and

(4)       the parties’ respective shares of the relationship property.

[4]      The companies have succeeded and are solvent.   However, Mr Cowan has applied to liquidate the companies on the grounds that it is just and equitable to do so in order to enable him to realise the value of the shares he holds in the companies.

[5]      Ms Robinson has applied to stay the liquidation application. At the end of the hearing I advised the parties that I was granting the stay application.  My reasons for that decision are set out below.

Background

[6]      It is neither possible or desirable for me to determine a number of factual issues which are likely to have to be resolved in the Family Court.  Suffice to say for present purposes:

(1)       Ms Robinson met Mr Cowan at a bar in Wellington in July 2002.

They commenced a relationship.

(2)       Ms Robinson became pregnant and gave birth to the parties’ twins on

30 October 2003.

(3)Ms Robinson and Mr Cowan lived together at a property that was owned by a trust which Mr Cowan had established.

(4)       Ms Robinson moved out of that property after about one month.

(5)Mr Cowan moved into a house where Ms Robinson was living in about August 2003.

(6)Mr Cowan and Ms Robinson purchased a home together in about April 2004 at 87 Pope Street.  Ms Robinson is the registered owner of half that property.  Mr Cowan’s trust owns the other half.

(7)       In  November  2007  Ms  Robinson  moved  out  of  87  Pope  Street.

However, she returned to that address and lived there on occasions between November 2007 and January 2010.

(8)      Since January 2010 only Mr Cowan has lived at 87 Pope Street.

[7]      In September 2005 and January 2006 the companies were incorporated as part of an early childhood centre which Ms Robinson established in Plimmerton.

[8]      Sand Dune Ltd was incorporated in September 2005.   It is essentially a property holding company.  It owns two adjoining properties upon which the early childhood centre is built.  When this company was established Mr Cowan acquired ten per cent of the company’s shares.  Ms Robinson owned the balance of the shares and was the sole director of that company.

[9]      Sand Dunes Early Learning Centre Ltd was incorporated in January 2006. Ms Robinson was the sole shareholder and director of that company.

[10]     On 23 July 2010,  approximately six  months  after Ms  Robinson  had  left

87 Pope Street for the last time, Mr Cowan became the registered owner of 50 per cent of the shares of both companies.

[11]     In June 2006 the parties created a third company, Sand Dune Carpet Ltd. Mr Cowan is the sole director of that company.  The parties each own 50 per cent of the shares of Sand Dune Carpet Ltd.

[12]     In February 2009 Sand Dune Ltd acquired a one-third share in a property in

Turangi.

[13]     Ms Robinson’s affidavit filed in support of her application in the Family

Court sets out a number of statements about:

(1)       the nature of her relationship with Mr Cowan;

(2)       the  parties’  respective  roles  in  the  establishment  of  the  early

childhood centre business;  and

(3)Mr Cowan’s accessing of assets and money belonging to one or more of the companies.

[14]     I emphasise that in this judgment I make no findings about the veracity of Ms Robinson’s claims and Mr Cowan’s counterclaims.   What is clear is that the parties’ business and personal finances and assets are complex and that unless they are able to reach agreement, they are destined to spend considerable time and money litigating their respective claims and counterclaims in the Family Court.

Liquidation on just and equitable grounds

[15]     When considering the appropriateness of liquidating a company on just and equitable grounds, the Court will usually examine the interests of those who have an interest in the company, rather than look simply at the interests of the company.

[16]     The jurisdiction to order liquidation of  a company on just and equitable grounds stems from s 241(4)(d) of the Companies Act 1993 which provides:

241     Commencement of liquidation

...

(4)      The Court may appoint a liquidator if it is satisfied that—

...

(d)      It  is  just  and  equitable  that  the  company  be  put  into liquidation.

...

[17]     The  predecessor  to  s  241(4)(d)  of  the  Companies  Act  1993  prevented liquidation of a company on just and equitable grounds if some other remedy was available to the applicant and they were acting unreasonably in seeking to have the company wound up instead of pursuing that other remedy.1    Although this bar to winding up a company on just and equitable grounds no longer exists in legislation, it nevertheless is still a factor that can be taken into account when assessing the merits of an application to liquidate a company on just and equitable grounds.2

[18]     Although there is no prescribed set of circumstances in which an order should be made under this section, it will be appropriate where considerations of a personal character  make  it  inequitable  to  insist  on  the  enforcement  of  legal  rights.3

Lord Wilberforce stated in Ebrahimi v Westbourne Galleries Ltd that:4

The superimposition of equitable considerations requires something more, which typically may include one, or probably more, of the following elements:  (i) an association formed or continued on the basis of a personal relationship, involving mutual confidence – this element will often be found where a pre-existing partnership has been converted into a limited company; (ii) an agreement, or understanding, that all, or some (for there may be

‘sleeping’ members), of the shareholders shall participate in the conduct of the business;  (iii) restriction upon the transfer of the members’ interest in the company – so that if confidence is lost, or one member is removed from management, he cannot take out his stake and go elsewhere.

[19]     It has been suggested by New Zealand courts that the appropriate threshold for liquidation under s 241(4)(d) was the “complete and irreversible breakdown in the company’s ability to carry on business”,5  or a total deadlock that impedes the continued operation of the company, and there are no other remedies available to resolve the shareholders’ dispute.6

Analysis

[20]     In  my  assessment,  the  High  Court  should  not  consider  Mr  Cowan’s

application to liquidate the companies until the Family Court has determined the key

1      Companies Act 1955, s 220(2).

2      Jenkins v Supscaf Ltd [2006] 3 NZLR 264 (HC) at [98].

3      Jenkins v Supscaf Ltd, above n 2, at [110].

4      Ebrahimi v Westbourne Galleries Ltd [1973] AC 360 (HL) at 379.

5      Cornes v Kawerau Hotel (1994) Ltd (1999) 8 NZCLC 261,815 (EmpC) at 261,823.

6      Sea Management Singapore Pte Ltd v Professional Service Brokers Ltd HC Auckland CIV-2011-

404-5315, 25 January 2012.

issues relating to the nature of the parties’ relationship and their respective interests

in any relationship property they may have.

[21]     The  Family  Court  proceedings  provide  the  most  effective  and  fairest mechanism for the parties to determine exactly what interest Mr Cowan has in the companies,  and  whether  his  interest  in  the parties’ relationship  property can  be satisfied without it being necessary to liquidate the companies.  Liquidation on just and equitable grounds should only be pursued as a last resort, and Mr Cowan is yet to exhaust potential remedies available to him.

[22]     If   the  companies   were  liquidated   the  efficacy  of  the   Family  Court proceedings would be seriously undermined.  It would, in a strict legal sense, be an abuse of process7 for the High Court to totally undermine the Family Court proceedings  in  circumstances  where that  Court  is  seized  of the lis  between  the parties.8

Conclusion

[23]     For the reasons set out above, the application to liquidate the companies is stayed until further order of this Court.

[24]     Costs  are  reserved.    I  did  give  consideration  to  awarding  costs  but  on reflection believe that as this proceeding is the first of what is likely to be many steps in a long litigation road, I have decided to reserve the question of costs until the parties’ respective positions are more clearly determined by the Family Court.  At that juncture, if questions of costs are still outstanding the parties can return to me

for an order in relation to costs.

7      W v W [1999] 2 NZLR 1 (PC) at 5.

8      If that Court deemed it appropriate, proceedings could be transferred to the High Court pursuant to s 22 of the Property (Relationships) Act 1976, and both relationship property and Companies Act claims could be heard together.

D B Collins J

Solicitors:

Thomas Dewar Sziranyi Letts, Lower Hutt for Applicants/Defendants
Langford Law, Wellington for Respondent/Plaintiff