CSL Limited v Chow
[2021] NZHC 2137
•17 August 2021
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2021-404-000503
[2021] NZHC 2137
BETWEEN CSL LIMITED
Plaintiff
AND
JOHN CHOW (aka KA YU CHOW) and MICHAEL CHOW (aka KA MING CHOW)
as trustees of the JOHN CHOW
INVESTMENT TRUST and the MICHAEL CHOW INVESTMENT TRUSTDefendants
Hearing: 28 July 2021 Appearances:
P J Napier for Plaintiff S Moore for Defendants
Judgment:
17 August 2021
JUDGMENT OF ASSOCIATE JUDGE P J ANDREW
This judgment was delivered by Associate Judge Andrew on17 August 2021 at 3.30 pm
pursuant to r 11.5 of the High Court Rules Registrar / Deputy Registrar
Date …………………………..
CSL LTD v CHOW [2021] NZHC 2137 [17 August 2021]
Introduction
[1] The plaintiff, CSL Limited,1 is a financial management services company. The defendants are Ka Yu (John) Chow and Ka Ming (Michael) Chow, as trustees of the John Chow Investment Trust and the Michael Chow Investment Trust.2
[2] By share option deed of 2015,3 the defendants were granted an option entitling them to purchase CSL’s shares in INNO Capital Management Ltd, being 12 per cent of the shares in that company.4
[3] By call option exercise notice dated October 2017,5 the defendants irrevocably exercised the call option. In that call option exercise notice the defendants nominated either Deloitte or Ernst & Young (EY) to determine the economic equity value of the Shares.
[4] CSL seeks, by way of summary judgment,6 orders for specific performance, requiring the defendants to complete the valuation process and make payment for the Shares.
[5] CSL does not have a signed copy of the Deed and none of the parties produced a signed copy in evidence. CSL thus seeks summary judgment on the basis of an unsigned copy of the Deed.
[6] The defendants say that the unsigned copy is not the final version of the Deed and that the terms of the signed Deed are materially different to the unsigned version produced by CSL.
[7] In addressing the ultimate issue of whether CSL has established that the defendants have no defence,7 I must resolve the following questions:
1 CSL.
2 The Trusts.
3 The Deed.
4 The Shares.
5 The Notice.
6 Under pt 12 of the High Court Rules 2016.
7 High Court Rules, r 12.2(2).
(a)Is the absence of a signed copy of the Deed an evidential deficiency casting real doubt on CSL’s claimed right to specific performance?
(b)Is this an appropriate case for the Court to exercise its residual discretion to decline summary judgment on the basis that discovery is necessary?
(c)Has there been proper confirmation of the appointment of a valuer pursuant to the Notice?
(d)Is the economic equity value under the Deed to be determined at the date of the Notice or at another time?
[8] This judgment also contains my reasons for declining the defendants’ application that I recuse myself on the basis of a reasonable apprehension of bias.
Background facts
[9] In about October 2017, the parties entered into negotiations regarding the defendants’ purchasing of the Shares. The defendants say that multiple iterations of a share option deed were prepared, including the unsigned deed annexed to the affidavit of Mr Webber, filed on behalf of CSL.
[10]The Deed (namely, the unsigned copy before the Court) provides:
3.EXERCISE
3.1Period within which the Call Option may be exercised: The Call Option may be exercised at any time following the date of this deed.
3.2Exercise of Call Option: The Call Option may be exercised by the Option Holders jointly giving to the Shareholder a Call Option Exercise Notice in accordance with this deed.
3.3Notice of Call Option not revocable: Once given, the Call Option Exercise Notice may not be revoked by the Option Holders except with the written consent of the Shareholder. The Call Option may be exercised once only and shall only be exercised in respect of all of the Shares.
4.SETTLEMENT
4.1Settlement Date:
(a)If the Call Option is exercised, the settlement date (“Settlement Date”) for the sale and purchase of the Shares shall be the third Business Day after determination of the Economic Equity Value.
(b)The Option Holders will nominate a valuer in the Call Option Exercise Notice. If the appointment of that (or another valuer) is not confirmed within 10 days of the Call Option Exercise Notice, the Option Holders may request the President of the Society of Accountants to nominate a valuer. Any such nomination shall be binding on the parties.
(c)Any valuation process under this clause will be instructed with a time frame for delivery of the valuation that does not exceed 60 days.
(d)The parties shall contribute to the costs of the nomination exercise and the valuer on a 12 (Shareholder) / 88 (Option Holders) basis.
(e)The Economic Equity Value determined by any valuer for the purposes of this deed shall be conclusive and binding on the parties in the absence of manifest error.
[11] “Economic equity value” is defined in the Deed as 12 per cent of the fair market value of the company on a going concern basis after deducting the amount by which the company is funded by its shareholders, whether by way of debt, equity or hybrid investment and whether directly or indirectly.8
[12] The Notice required CSL to confirm its acceptance of the appointment of EY or Deloitte, and states:
... If you [CSL] do not confirm (or we do not otherwise agree a valuer) within 10 days of the date of this notice we will request the President of the Society of Accountants to nominate a valuer for the purpose of the Option Deed.
[13] On 26 October 2017, CSL and the defendants signed a resolution of directors9 approving the share transfer.
8 Clause 1.1.
9 Companies Act 1993, s 84.
[14] On 1 August 2019, INNO Capital Management Ltd changed its name to ICML Ltd.10
[15] As contemplated by cl 4.2(b) of the Deed, the defendants are now the sole directors of ICML.
[16] At an interlocutory hearing on 26 July 2021, the defendants challenged the admissibility of two documents put in evidence by CSL. This included the minutes of a meeting involving Russell McVeagh, solicitors, and an internal memorandum prepared by Mr Brent Gilchrist, for the defendants, on 8 February 2018 and with regard to the share option.
[17] In his judgment of 27 July 2021,11 Powell J held that the document recording the meeting with Russell McVeagh was inadmissible,12 but the internal memorandum prepared by Mr Gilchrist was admissible.13
The Notice of Opposition
[18]The defendants oppose summary judgment on the following grounds:
(a)The copy of the Deed annexed to the first affidavit of Mr Clinton Webber is unsigned by CSL and the defendants;
(b)The unsigned Deed is not a true and correct copy of the share option Deed that was executed by the parties;
(c)The terms of the signed Deed are materially different to that of the unsigned Deed, such that CSL’s claim cannot succeed; and
(d)The order sought by CSL that the defendants immediately instruct EY to determine the economic equity value as at the date of the Notice cannot be granted because the unsigned Deed provides that:
10 ICML.
11 CSL Ltd v John & Michael Chow [2021] NZHC 1904.
12 CSL Ltd v John & Michael Chow, at [6], under s 53(3) of the Evidence Act 2006.
13 CSL Ltd v John & Michael Chow, at [7], applying s 69 of the Evidence Act.
(i)pursuant to cl 4.1(b) the appointment of the valuer nominated by the defendants’ notice was to be confirmed within 10 days of the Notice (and it was not); and
(ii)pursuant to cl 4.1(c), the valuation process was to be “instructed with a timeframe for delivery of the valuation that does not exceed 60 days”;
(iii)the order sought by CSL requires that the valuation occur at the date of the notice. Although, in the circumstances there is no basis for a valuation to occur at that date.
Relevant legal principles
[19]Rule 12.2(1) of the High Court Rules 2016 provides:
The court may give judgment against a defendant if the plaintiff satisfies the court that the defendant has no defence to a cause of action in the statement of claim or to a particular part of any such cause of action.
[20] The onus is on the plaintiff to satisfy the Court that the defendant has no defence to the claim.14
[21] In Krukziener v Hanover Finance Ltd, the Court of Appeal summarised the applicable principles on applications under r 12.2 as follows:15
[26] The principles are well settled. The question on a summary judgment application is whether the defendant has no defence to the claim; that is, that there is no real question to be tried: Pemberton v Chappell [1987] 1 NZLR 1 at 3 (CA). The Court must be left without any real doubt or uncertainty. The onus is on the plaintiff, but where its evidence is sufficient to show there is no defence, the defendant will have to respond if the application is to be defeated: MacLean v Stewart (1997) 11 PRNZ 66 (CA). The Court will not normally resolve material conflicts of evidence or assess the credibility of deponents. But it need not accept uncritically evidence that is inherently lacking in credibility, as for example where the evidence is inconsistent with undisputed contemporary documents or other statements by the same deponent, or is inherently improbable: Eng Mee Yong v Letchumanan [1980] AC 331 at 341 (PC). In the end the Court’s assessment of the evidence is a matter of
14 Pemberton v Chappell [1987] 1 NZLR 1, (1986) 1 PRNZ 183 (CA).
15 Krukziener v Hanover Finance Ltd [2008] NZCA 187, [2010] NZAR 307, (2008) 19 PRNZ 162 at [26].
judgment. The Court may take a robust and realistic approach where the facts warrant it: Bilbie Dymock Corp Ltd v Patel (1987) 1 PRNZ 84 (CA).
Analysis and decision
The unsigned deed
[22] The defendants’ principal submission, advanced by Mr Moore, is that there is a fundamental evidential deficiency: the plaintiff proceeds on the basis of an unsigned copy of the Deed and the onus is on the plaintiff to prove the terms of the contract it seeks to specifically perform. Mr Moore contends there were multiple versions of the Deed in the drafting phase, which is now more than six years ago. He contends a term which provides the mechanism for valuing shares in an agreement between parties to purchase those shares is an essential term of that agreement. Without the value and certainty as to the mechanism for determining that value, the transaction cannot be completed.
[23] Mr Moore also noted the inconsistencies in the evidence of Clinton Webber, for CSL, in relation to the date that the Deed was signed. In his first affidavit, Mr Webber records:16
I cannot locate a signed and dated copy of the Share Option Deed, but confirm that it was signed and dated on 15 October 2015.
However, in his second affidavit he records:17
As stated in my first affidavit, the unsigned Share Option Deed annexed as “CNW1” to my first affidavit is a true copy of that which was signed and dated 15 February 2015.
[24] In addressing this issue, it is important to record the factual matters that are not in dispute. Equally, it is relevant to address why the defendants have not put a signed copy in evidence before the Court and their explanation as to how the terms of the signed Deed vary from those of the unsigned Deed in relation to the issue of valuation.
[25] It is not in dispute that there is a valid and binding share option Deed and the defendants irrevocably exercised that option. It is also not in dispute that the
16 Dated 22 March 2021.
17 Dated 1 June 2021.
defendants have part-performed their irrevocable contractual obligations. The defendants resolved on 26 October 2017, as directors of the company, to approve the share transfer (as the Deed undoubtedly provides for).
[26] Likewise, it cannot be seriously disputed that the defendants, as the option holders, in acting in accordance with the valuation process expressly anticipated by the Deed, nominated “either Deloitte or [EY] to determine the [economic equity value]”. They signed the Notice and that is exactly what it says. They sought confirmation from CSL of the acceptance of the appointment. In the Notice they expressly acknowledged that their notice was not revocable.
[27] Further, the following facts relating to attempts to obtain a signed copy of the Deed, are also not disputed:
(a)Russell McVeagh, solicitors, acted for the defendants and drafted the Deed;
(b)CSL approached Russell McVeagh directly to obtain a signed copy of the Deed but without success; and
(c)the defendants have provided no explanation as to why they could not obtain a copy of the signed Deed from their own solicitors, Russell McVeagh.
[28] I find that this is the very sort of case where I should adopt a robust and realistic approach and not accept, uncritically, the evidence of the defendants and the doubts that they attempt to raise. As Master Venning (as he then was) held in Ferrymead Tavern Ltd v Christchurch Press Co Ltd, “it is not enough for a defendant facing an application for summary judgment to suggest that the action will be defended on the basis of facts which are not deposed to or other hypothetical defences.”18
[29] I accept that the onus is on the plaintiff to establish that the defendant has no defence but here, the defendants have in a somewhat cynical and calculated fashion,
18 Ferrymead Tavern Ltd v Christchurch Press Co Ltd (1999) 13 PRNZ 616 (HC) at [66].
sought to raise doubts about the Deed with no detail or substance provided to support their position. No valid explanation has been provided as to why they have not obtained a copy of the signed Deed from their own solicitors, Russell McVeagh. The only tenable inference to be drawn from all these facts is that the signed copy would not support the claims or doubts they try to raise.
[30]In his affidavit sworn on 13 May 2021, Mr John Chow states:
I have not yet located a copy of the signed Share Option Deed. However, efforts are being made to locate it and I confirm that there have been multiple versions to the Share Option Deed.
Changes were made to the draft versions of the Share Option Deed, especially in relation to determination of valuation of Economic Equity Value, an essential term of the agreement between CSL and the trusts.
[31] As Mr Napier, for CSL, submitted, Mr Chow has not explained or set out what material differences there are and, in the context where it is not disputed that the defendants have taken steps themselves, albeit incomplete, to invoke the valuation process. Indeed, the internal memorandum from the defendants’ own adviser, Mr Gilchrist, records that the parties had agreed the valuer and the next step required was to instruct the valuer to deliver the valuation within 60 days. There is no contemporaneous evidence to suggest that the defendants were under any misunderstanding or uncertainty as to what the valuation process was and the methodology to be adopted by the valuer. It may be that there were multiple versions of a draft deed, but that provides no explanation or basis for a suggestion that there is doubt about the final signed version containing the economic equity value clause.
[32] It is also notable that Mr Chow’s explanation as to attempts to locate a copy of the signed deed provides no detail as to what steps have been taken.
[33] It is not enough for the defendants to contend that the terms of the signed Deed are materially different to the those of the unsigned Deed before the Court without specifying what those differences are. Both deponents for the plaintiff, Mr Webber and Mr Gilchrist, have given evidence that the unsigned copy before the Court is in the same form as that that was executed and the valuation process and methodology
are not complex or unorthodox. There is no apparent substance to the contrary contention of Mr John Chow.
[34] Mr Moore is correct to contend that a term which provides the mechanism for valuing shares in an agreement between parties to purchase those Shares is an essential term of that agreement. However, it is not credible to contend that on the facts of this case there is any real doubt or uncertainty as to what that mechanism is. In substance, there is no conflict in the evidence. Mr Webber’s own evidence as to the date of execution is inconsistent, but there is no doubt that the Deed was executed and ultimately no real doubt as to the terms of the Deed that the plaintiffs now seek to enforce.
[35] I conclude that CSL has established that the defendants’ evidential objection has no merit. The defendants’ response, an attempt to create doubt when there is none, falls well short of a genuine basis for defeating the summary judgment application.
Issue (b) – Should I decline summary judgment on the basis that discovery is necessary?
[36] Pursuant to r 12.2 of the High Court Rules, the Court has a residual discretion to decline summary judgment in certain limited circumstances, including where the proceedings are of a particular nature that opportunity should be given to allow discovery.19
[37] The defendants contend that CSL has provided no evidence of any open correspondence between it and the defendants (or between CSL’s lawyers and Russell McVeagh, solicitors) regarding the negotiation or signing of the Deed or the issue of the valuation of the shares. Rather, the defendants say that the only documents relied upon by CSL are the unsigned Deed and the internal memorandum prepared by Mr Gilchrist. Mr Moore submits that in these circumstances, the Court should exercise its residual discretion to decline summary judgment on the basis that discovery is necessary.
19 Bromley Industries v Martin & Judith Fitzsimmons Ltd [2009] NZCA 382, (2009) 19 PRNZ 850 at [65].
[38] However, I reject that submission. For the reasons given above, I am of the view that there is no real dispute as to the critical terms of the Deed or the valuation methodology to be applied by the valuer. Furthermore, the defendants suggest that discovery is necessary without providing any probative evidence as to whether there are any additional documents in existence that might shed light on what they say are matters at issue. Again, they seek to raise doubts without providing any real evidential foundation to suggest that there are any.
[39] This is clearly not a case to exercise the Court’s residual discretion and decline to order summary judgment to enable discovery.
Issue (c) – Confirmation of the valuer
[40] In his affidavit of 13 May 2021, Mr John Chow contends that he and his brother, Mr Michael Chow, have not received confirmation of acceptance from CSL, nor have they otherwise agreed EY as the valuer. He notes that Mr Webber states in his affidavit that CSL had accepted the nomination of EY, however no evidence of communication of acceptance had been produced.
[41] Mr Moore submits the only evidence put forward by CSL regarding the issue of acceptance by CSL of EY as the valuer are the unsigned Deed and the internal memorandum of Mr Gilchrist.
[42] I find that this is a further attempt to create doubt when, in substance, none exists. There is no probative evidence, supported by documentation, challenging the clear position set out by Mr Gilchrist in his memorandum that the parties had already agreed the valuer by 8 February 2018. Indeed, Mr Gilchrist also states that EY has in fact already been instructed to carry out the valuation. As at February 2018, Mr Gilchrist was working for the Stonewood Group Ltd, a company owned by the defendants. It was, of course, the internal memorandum that the defendants unsuccessfully sought to have excluded by Powell J.
[43] That internal memorandum is also to be read together with the Notice, signed by both defendants. In that notice they nominated “either Deloitte or EY” to determine the economic equity value.
[44] I find that there is no merit to this ground of opposition. There has been proper confirmation that EY is the appointed valuer.
Issue (d) – Date of determining economic equity value
[45] CSL seeks, in its statement of claim, an order that the valuation be carried out by EY as at the date of the notice of the call option exercise.20
[46] The defendants say this valuation is “retrospective”, which is not contemplated by the Deed. They say that the Deed is silent as to what date the valuer should apply and, in the circumstances, it is not appropriate for the Court to order a retrospective valuation.
[47] The Deed expressly provides that the option holders (i.e. the defendants) will nominate a valuer in the call option exercise notice (which they did) and that if a valuer is not agreed within 10 days of the notice, the president of the Society of Accountants is to nominate a valuer. The Deed then expressly provides that the valuer is to deliver the valuation within 60 days.21
[48] I accept that the Deed itself is silent as to the date of valuation. However, as a matter of objective interpretation, it is clear the valuation date is the date of instruction which, at its earliest would be the date of the Notice (if the valuer was appointed immediately and valued at the date of appointment), and at the latest, 70 days after the Notice issues.
[49] I agree with Mr Napier’s submission that there is no other tenable interpretation. The defendants cannot credibly contend that as a result of their delay and failures to comply with their obligations under the Deed, that a different date altogether should now apply as the date of the valuation.
[50] Mr Moore contended that it is not certain that the range of 70 days would be unlikely to make any difference as to the valuation exercise or the value ascertained. I disagree. That submission is not supported by any evidence; it is simply assertion. In
20 At [12](a) of the statement of claim dated 25 March 2021.
21 In cl 4.1(c).
the circumstances here it seems highly unlikely that the 70-day date range would make any material difference. This is a further attempt to create doubt and, in substance, none exists.
[51] In concluding that the date of valuation is the date of instruction, I find that the obvious and sensible approach is to direct, as CSL seeks, that the valuation be carried as at the date of the Notice of the call option exercise.
[52] Finally, I reject the defendants’ alternative submission that even if a claim for breach of contract is established, damages would be the appropriate remedy, not specific performance. The orders CSL seeks are essentially procedural and relatively straightforward. There would be no practical utility in further delaying matters and directing there be a hearing on remedies.
Conclusion
[53] I find CSL has established that the defendants have no defence to CSL’s claim for specific performance. The defences raised by the defendants lack substance. There is no evidential deficiency giving rise to any real doubt about CSL’s claim and no basis to decline an order for specific performance.
Result
[54] I grant CSL’s application for summary judgment and make an order for specific performance of the defendants’ obligations under the share option Deed of 15 October 2015, as follows:
(a)the defendants are to immediately instruct EY to determine the economic equity value of the shares as at the date of the notice of the call option exercise;
(b)the defendants shall at the same time instruct EY that its instructions include the fact that it is being retained by both CSL and the defendants for the purpose of determination of the economic equity value of CSL
shares and that CSL will pay 12 per cent of EY’s cost of the valuation and the defendants will pay 88 per cent of the cost of the determination;
(c)the defendants are to provide copies of these instructions to CSL;
(d)the defendants shall pay to CSL the economic equity value as determined by EY within three working days of EY’s determination; and
(e)the defendants are to pay to CSL interest on the economic equity value as determined by EY pursuant to s 10 of the Interest on Money Claims Act 2016, from 4 January 2018.
[55] Leave is granted to the parties to apply in respect of further orders relating to implementation of any of the above orders.
The defendants are to pay costs to CSL on a 2B basis plus disbursements.
Recusal
[57] At the commencement of the hearing the defendants made an oral application that I recuse myself from hearing the summary judgment application. The defendants contended that the Court file, which had not been expunged to remove the inadmissible Russell McVeagh minutes that Powell J had excluded, was “infected” and that my having read it as part of preparing for the case gave rise to a reasonable apprehension of bias.
[58] At the hearing I advised the parties that I had “glanced” at the inadmissible Russell McVeagh minutes and quickly realised that they were the subject of Powell J’s judgment excluding them as inadmissible. I did not read the content of those minutes. I also advised that I had not read those parts of the original submissions filed by the parties that addressed the defendants’ challenge to the admissibility of either the minutes or the memorandum of Mr Gilchrist.
[59] After hearing submissions from the parties on the issue of bias and whether I should recuse myself, I adjourned briefly to consider the authorities filed by Mr Moore on behalf of the defendants. Upon returning to Court, I advised that I could see no basis for a recusal and proceeded to hear the summary judgment application.
Relevant legal principles
[60] Clause 1.2 of the recusal guidelines22 provides the test, as it was stated in the Supreme Court’s judgments in Saxmere Company Ltd v Wool Board Disestablishment Company Ltd23 and Saxmere Company Ltd v Wool Board Disestablishment Company Ltd (No 2):24
A judge should recuse him or herself if, in the circumstances, a fair-minded, fully informed observer would have a reasonable apprehension that the Judge might not bring an impartial mind to the resolution of the question the Judge is required to decide. The standard for recusal is one of “real and not remote possibility” rather than probability.25
Decision on recusal
[61] The recusal guidelines state a Judge must apply the guideline principles “firmly and fairly and not accede too readily to suggestions of bias.”26
[62] I find that a fair-minded lay observer would not reasonably apprehend that I may not have brought an impartial mind to the resolution of these proceedings.
[63] This is not a case where I inspected the document at issue and I do not accept the retention of the document on the file has infected my fair resolution of the proceedings. The minutes were obviously relevant to my summary judgment determination (that is no doubt why their admissibility was challenged), but in what way they might have been relevant or how significant they were, I simply do not know.
22 Issued by the Chief High Court Judge on 12 June 2017, pursuant to s 171 of the Senior Courts Act 2016.
23 Saxmere Company Ltd v Wool Board Disestablishment Company Ltd [2009] NZSC 72, [2010] 1 NZLR 35, citing Ebner v Official Trustee in Bankruptcy (2000) 205 CLR 337.
24 Saxmere Company Ltd v Wool Board Disestablishment Company Ltd (No 2) [2009] NZSC 122, [2010] 1 NZLR 76.
25 Clause 1.3.
26 Clause 1.5.
In circumstances where I have no knowledge of the content of the document, it could not have been of any consequence, either actually or apparently, to my decision.
[64] In accordance with the directions of Powell J in his judgment of 27 July 2021,27 an amended affidavit of Mr Gilchrist, excluding the Russell McVeagh minutes, was filed and served.
[65] In the circumstances there is no logical and sufficient connection between my having glanced at the document and any real apprehension of bias.
[66]I conclude that the recusal application is to be dismissed.
Associate Judge P J Andrew
27 CSL Ltd v John & Michael Chow, above n 11, at [80].
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