Hay v Peregrine Estate Limited

[2016] NZHC 2558

IN THE HIGH COURT OF NEW ZEALAND INVERCARGILL REGISTRY

CIV-2016-425-000056 [2016] NZHC 2558

IN THE MATTER	of Peregrine Wines Limited
BETWEEN	GREGORY JAMES HAY AND KIM EDWARD HOLLOWS Plaintiffs
AND	PEREGRINE ESTATE LIMITED Defendant

Hearing:	20 October 2016
Appearances:	N H Soper for Plaintiffs T J Shiels QC for Defendant
Judgment:	26 October 2016

JUDGMENT (NO. 2) OF ASSOCIATE JUDGE MATTHEWS (APPLICATION FOR STAY)

[1]      The plaintiffs (the trustees of the Greg Hay Family Trust) and the defendant, Peregrine Estate Limited (PEL) are the shareholders in Peregrine Wines Limited (Peregrine Wines).   On 5 September 2016 the Court issued summary judgment in favour of the trustees.1    The judgment has been sealed.   PEL has filed an appeal against the judgment with the Court of Appeal.   It now seeks an order by way of interlocutory application staying execution of the judgment.

[2]      The application is brought under r 12(2) of the Court of Appeal (Civil) Rules

2005.  This provides that an appeal to the Court of Appeal does not operate as a stay of execution of the judgment under appeal.  It also provides for a stay to be granted

on application:

1      Hay v Peregrine Estate Ltd [2016] NZHC 2097.

HAY & HOLLOWS v PEREGRINE ESTATE LTD Judgment (No. 2) Application for Stay [2016] NZHC 2558 [26 October 2016]

12     Stay of proceedings and execution

...

(3)     Pending the determination of an application for leave to appeal or an appeal, the court appealed from or the Court may, on application, -

(a)     order a stay of the proceeding in which the decision was given or a stay of the execution of the decision; or

(b)     grant any interim relief.

(4)     An order or a grant under subclause (3) may –

(a)     relate to execution of the whole or part of the decision or to a particular form of execution:

(b)     be subject to any conditions that the court appealed from or the Court thinks fit, including conditions relating to security for costs.

[3]      Counsel for the trustees and PEL accept that the task of the Court on this application is to balance the competing rights of the trustees to receive the benefits of the judgment they have obtained, whilst preserving the position applying before the judgment in case the appeal is successful.2     In Dymocks Franchise Systems (NSW) Pty Ltd v Bilgola Enterprises Ltd, the High Court listed the factors conventionally considered by the courts when undertaking this exercise.3     These were adopted by the Court of Appeal in Keung v GBR Investment Ltd.4   The Court of Appeal said:

The stay application is brought under r 12(3) of the Court of Appeal (Civil) Rules 2005. In determining whether or not to grant a stay, the Court must weigh the factors “in the balance” between the successful litigant’s rights to the fruits of a judgment and “the need to preserve the position in case the appeal is successful”. Factors to be taken into account in this balancing exercise include:

(a)     Whether the appeal may be rendered nugatory by the lack of a stay; (b)       The bona fides of the applicant as to the prosecution of the appeal; (c)        Whether the successful party will be injuriously affected by the stay; (d)   The effect on third parties;

(e)     The novelty and importance of questions involved;

(f)     The public interest in the proceeding; and

2      Duncan v Osborne Buildings Ltd (1992) 6 PRNZ 85 (CA) at 87.

3      Dymocks Franchise Systems (NSW) Pty Ltd v Bilgola Enterprises Ltd (1999) 13 PRNZ 48 at [9].

4      Keung v GBR Investment Ltd [2010] NZCA 396, [2012] NZAR 17 at [11] (citations omitted).

(g)     The overall balance of convenience.

That list does not include the apparent strength of the appeal but that has been treated as an additional factor.

[4]      In the period between issue of the judgment and presentation of argument on this application, counsel exchanged a good deal of correspondence and various proposals in an endeavour to resolve this issue without resort to the Court.  Some of the correspondence was put before me.  It is clear from that correspondence that the principal concern of PEL is that in the event of its appeal succeeding it may not be able to recover from the trustees the difference between the sum which the Court directed was properly payable by PEL for the trustees’ shares in Peregrine Wines, and the sum which PEL maintains is the fair value of the shares and thus the sum which it should pay for them. The difference is approximately $1,400,000.

[5]      PEL is in a position to honour the judgment by paying for the shares in accordance with the judgment, in return for which it would receive a transfer of the shares and Mr Hay would also resign as a director.   It is PEL’s position that if its appeal succeeds it will retain the shares, but would be entitled to a refund of the difference between the sum assessed as fair value under the constitution of Peregrine Wines, and the sum later assessed by PEL’s valuer.  Therefore, PEL seeks an order which  would  only  have  the  effect  of  protecting  its  position  in  relation  to  the difference between the two share values, pending the outcome of the appeal, relying it seems on the prospect that the least it would have to pay is the value assessed by its own appointed expert.   That being the case, the risk against which PEL seeks protection  is  the  prospect  of  difficulty  recovering  from  the  trustees  around

$1,400,000.

[6]      Although  there  was  some  debate  by  counsel  about  what  the  effect  of  a successful appeal may be, neither counsel suggested that either party wished to depart from the basic proposition that PEL will buy the trustees’ shares – it just comes down to the price.  Counsel did not seem to agree, however, on whether the immediate consequence of the appeal succeeding would be that only the difference between the two values (adjusted for interest) would be refunded pending trial, or whether the full  purchase price should  return  to  PEL until  that  point.   For the purposes of assessing this application I think it safer to assess it on the basis that the

latter would be the position.  The appeal is against a summary judgment directing specific performance of a share sale.  If that order is set aside, the shares would be transferred back to the trustees in the absence of agreement otherwise.  In that event the entire price paid would also be refundable (some $2,700,000).  Although counsel did not foresee this as an inevitable consequence of the appeal succeeding, it seems to me to follow.  That is therefore the way I will approach this application, but as will be seen, it does not affect the result.

[7]      Mr  Hay  filed  an  affidavit  in  opposition  to  this  application  in  which  he disclosed, in general terms, the financial position of the trustees.   He says that on satisfaction of the judgment they will receive $2,705,860.20, and even if PEL is successful the trustees will be entitled to retain approximately half of that sum.  He says that he and the Trust, and companies owned by the Trust, have substantial and significantly unencumbered financial interests and assets including a property development, a valuable commercial property, a retail business and an interest in tourism businesses.  As well, he is a primary beneficiary in his late father’s estate. He says that his co-trustee, Mr Hollows, owns a number of property investments, a cinema business, residential properties and a successful helicopter business.   He describes the unsubstantiated suggestion by PEL that either he, Mr Hollows, or the Trust, would be unable to meet an order for reimbursement of the disputed portion of the share price as ridiculous.  He says the plaintiffs have the financial resources to make such payment if required.

[8]      Mr Shiels QC says that although this evidence is before the Court, PEL does not know how impaired the assets may be, by debt.  Nor can it assess how difficult it may be to recover the money overpaid.   It asks for a second mortgage over one property, described as The Woolshed at Bendemeer, behind a mortgage to the Bank of New Zealand which would be limited in priority to $200,000.

[9]      As Mr Shiels accepts, this is not a case where it can be said that the effect of a successful appeal will be rendered nugatory unless the present position is maintained in the sense of, say, an appeal against an injunction.  The most that will occur will be a need to recover a sum of money paid to the trustees.  In my view, the appeal would only be rendered nugatory if there was little prospect that could occur.

I do not see, on the evidence before the Court, the likelihood of any significant difficulty in so doing, as Mr Shiels suggests may be the case, or any significant risk of the funds having become irrecoverable.  For that to occur it would be necessary for them to have been entirely dissipated.  Once the judgment is satisfied the trustees will have the assets listed above, plus approximately $2,700,000 in cash.  Mr Hay has disclosed a debt to the BNZ of around $800,000 but they would still have cash, after repayment of that debt as intended, of approximately $1,900,000.   Even if a successful appeal required the entire $2,700,000 to be refunded to PEL pending trial, the trustees would have their present assets and, of course, their shareholding in Peregrine Wines which would also have to be returned to them, pending trial.   In short, they would have substantial assets against which PEL could take enforcement steps. The trustees would be jointly and severally liable and they have in my opinion disclosed a financial position which shows that the risk of their not being in a position to honour their liability is minimal.

[10]     The remaining factors identified in Keung do not materially assist in the exercise before the Court.  The bona fides of PEL in bringing and prosecuting the appeal  cannot  be doubted.   There is  no  identified  effect  on  third  parties.   The question before the Court is novel, involving as it does an argument that fair value established by a contractually binding protocol does not equate to fair value which will satisfy the obligations in s 149 of the Companies Act 1993, and there is an element of importance in resolution of this point as the contractual term in question is set out in a form of company constitution which was available for purchase on the market and may be in widespread use.  For the same reason there is an element of public interest.   I do not find, however, that these factors assist in any way in deciding whether the judgment of the Court should be stayed.  In this case, they are not relevant.

[11]     The  final  factors  to  be  considered  are  whether  the  trustees  would  be injuriously affected by a stay, the apparent strength of the appeal, and the overall balance of convenience.  Mr Soper says, and I think correctly, that the trustees would be adversely affected.  They intend to use part of the monies to repay the debt to the BNZ to which I have referred, and there is an element of adverse effect in their not

having access to monies derived from the sale of their shareholding in Peregrine

Wines.

[12]     So far as the apparent strength of the appeal is concerned, the judgment speaks for itself, and I add only one more observation.   Section 31(2) of the Companies Act provides that the constitution of a company is binding between each shareholder, and s 31(1) provides that a constitution has no effect to the extent that it contravenes or is inconsistent with the Act.   It is entirely consistent with these provisions that the constitution of Peregrine Wines required assessment of fair value, which is the requirement of s 149.  There appear to be difficulties in the way of the

stated grounds of appeal.5

[13]     Finally, I consider the balance of convenience.  As I have assessed the risk to PEL of not being able to recover the purchase monies paid for the trustees’ shares, whether the  full  purchase price  or only the difference between  the  assessments between the two valuers, as low, I find the balance of convenience favours the trustees receiving and retaining the full purchase price in accordance with the judgment.

[14]     For these reasons the application is dismissed.   PEL will pay costs on the application on a 2B basis plus disbursements fixed by the Registrar.

J G Matthews

Associate Judge

Solicitors:

Mike Garnham, Wellington
Counsel: N H Soper, Anderson Lloyd Lawyers, Dunedin

Downie Stewart Lawyers, Dunedin

Counsel: T Shiels QC, Dunedin

5      Notice of Appeal dated 16 September 2016, paragraph 1(a) and (b).