Dromgool v S N Dromgool Limited - [2012] NZHC 2552

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV 2011-404-3986 [2012] NZHC 2552

BETWEEN PAUL JOSEPH DROMGOOL Plaintiff

ANDS N DROMGOOL LIMITED First Defendant

ANDNOEL EDWARD DROMGOOL Second Defendant

ANDANNE MAREE ERNESTA THOMPSON Third Defendant

ANDPETER ANTHONY DROMGOOL Fourth Defendant

Hearing: 24 February 2012

Counsel: N Woods for Plaintiff
G M Litchfield for First and Second Defendants
S C Dench for Third and Fourth Defendants

Judgment: 3 October 2012

JUDGMENT OF PETERS J

This judgment was delivered by Justice Peters on 3 October 2012 at 12 pm pursuant to r 11.5 of the High Court Rules

Registrar/Deputy Registrar
Date: ...................................

Solicitors: Rice Craig, Papakura: neville.woods@ricecraig.co.nz Franklin Law, Pukekohe: grantl@franklinlaw.co.nz Styants Law, Papakura: styantslaw@xtra.co.nz

Counsel: S C Dench, Auckland: simon@simondench.co.nz

DROMGOOL V S N DROMGOOL LIMITED HC AK CIV 2011-404-3986 [3 October 2012]

[1] The issue in this case is whether pre-emptive right provisions in the constitution of the First Defendant (“the company”) have been triggered.

[2] This issue did not arise on the pleadings when the case was to be heard but arose from the terms of an agreement the parties reached on the day of the hearing. Since then, the Third and Fourth Defendants (“Anne” and “Peter” respectively) have been joined as parties to the proceedings. The parties are content that the matter should be determined on the basis of their written submissions and without the need for a further hearing.

Background

[3] The Plaintiff, Second Defendant (“Paul” and “Noel” respectively), Anne and Peter are siblings and are, or have been, shareholders in the First Defendant (“the company”). Their parents, both deceased, established the company. The share capital of the company comprises 300 voting shares and 8,700 non voting shares. Following distribution of their parents’ estates, Noel owned the voting shares and
5,700 non voting shares, and Paul, Peter and Anne each owned 1,000 non voting shares. At all material times Noel has been the sole director of the company.

Issues

[4] In the agreement referred to in [2] above, Paul and Noel agreed that the “the bona fides, effect, outcome and exercise” of options to purchase granted by Anne and Peter to Noel dated 13 December 2010 (“options”), would be referred to the Court to be determined. Since then, the issues have been defined as:

(a) Did and/or does Noel, Peter, or Anne’s actions trigger clause 11 of
the Constitution in relation to the transfer of shares?

(b) If triggered, then must the Company and Noel (as Director) give notice of transfer and otherwise effect the mechanism contained in clause 11 of the Constitution?

(c) If Noel and/or the Company are required to do so or deemed to do so (per curiam Lyle & Scott Limited v Scott’s Trustees) then what relief should be ordered?

Constitution

[5] The company’s constitution (“constitution”) confers pre-emptive rights on shareholders. The constitution provides that a shareholder who desires to sell or transfer some or all of their shares is required to give notice to that effect to the company (“transfer…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

Continue reading Dromgool v S N Dromgool Limited

Details

AGLC: Dromgool v S N Dromgool Limited [2012] NZHC 2552
Case: [2012] NZHC 2552
Decision Date: 3 October 2012

CaseChat Overview and Summary

In this case, Paul Dromgool sued S N Dromgool Limited and its shareholders, Noel, Anne, and Peter, over the interpretation and enforcement of pre-emptive right provisions in the company's constitution. Paul, a shareholder, argued that the pre-emptive rights were triggered by the actions of Anne and Peter, who had granted Noel options to purchase their shares. The central legal issues were whether Noel, Peter, or Anne's actions triggered the pre-emptive rights clause in the company's constitution, whether the company and Noel must give notice of the transfer and follow the pre-emptive rights mechanism, and what relief should be ordered if the pre-emptive rights were triggered.

The court examined the company's constitution, which provided that shareholders must give notice to the company if they desire to sell or transfer their shares. The constitution also established a mechanism for other shareholders to purchase shares at their pro rata proportion. The court found that Anne and Peter's actions did trigger the pre-emptive rights provisions because they had given transfer notices, granted options to Noel, and expressed their continued intention to sell their shares. The court rejected the argument that the pre-emptive rights provisions did not require a notice until Noel sought to exercise the options. Instead, the court held that the obligation to give notice arises when there is a desire to sell or transfer, regardless of when the option may be exercised. The court also found that Paul's case was similar to Lyle & Scott Limited v Scott's Trustees, where shareholders were required to give notice of their desire to transfer shares.

The court ordered Anne and Peter to give notice to the company in accordance with the constitution, specifying the value of their shares. The court noted that the parties could agree on the matter without implementing the order, but if not, Anne and Peter must give the notice by 1 November 2012 or another date the parties may agree. The court left the issue of costs for the parties to resolve, considering their partial success in the case.

Orders