Hertli v Herzog HC Blenheim CIV 2009-406-106
[2010] NZHC 1297
•25 June 2010
IN THE HIGH COURT OF NEW ZEALAND BLENHEIM REGISTRY
CIV-2009-406-000106
BETWEEN BALZ HERTLI AND WERNER ROKITZKY
Plaintiffs
ANDHANS AND THERESE HERZOG First Defendants
ANDHERZOG WINE COLLECTION LTD Second Defendant
Hearing: 25 June 2010
Appearances: QAM Davies for Plaintiff
L P Radich for Defendant
Judgment: 25 June 2010
ORAL JUDGMENT OF ASSOCIATE JUDGE BELL
Solicitors:
Gascoigne Wicks, PO Box 2, Blenheim 7240
Radich Law, PO Box 842, Blenheim 7240
B HERTLI AND W ROKITZKY V H AND T HERZOG AND ANOR HC BLE CIV-2009-406-000106 25 June
2010
[1] This matter was set down for the hearing of two interlocutory applications today. The substantive proceeding is an application for orders under s 174 of the Companies Act 1993. The plaintiffs are Balz Hertli and Werner Rokitzky, who live in Zurich. The defendants are Hans Herzog and his wife, Therese Herzog, company directors of the second defendant, Herzog Wine Collection Ltd.
[2] Before I deal with the applications that were heard today, there are some preliminary matters that need to be addressed. Counsel responsibly drew to my attention the requirements for this particular proceeding. It is governed by Part 31 of the High Court Rules and it emerges that some of the requirements of that Part have not been complied with. For one, the wrong notice of proceeding has been used. The correct notice of proceeding is form C5, whereas the normal notice of proceeding, form G2, was used for this case. I accept that that was a slip. Counsel for the defendants frankly accepts that his clients have not been prejudiced in any way by the incorrect form being used and, in my view, this is not a matter of such fundamental importance that it requires that the proceeding be set aside. The matter can be cured under r 1.5 by directing that the proceeding can be continued without any further reference to the incorrect notice of proceeding having been used.
[3] Another matter that arises because the proceeding is being conducted under Part 31 of the High Court Rules is that normally these proceedings are the subject of advertising. That is because of the potential for the Court to make an order that the defendant company be put into liquidation. Both counsel accept that it is most unlikely that an order would be made for the second defendant company to be put into liquidation. The relief sought by the plaintiffs goes towards their shares being transferred at what they would consider to be a proper value. I am also advised that the company is solvent and is not trading insolvently. There are no matters of public interest or third party interest. The dispute is internal to the company and it is appropriate, therefore, that I direct that there not be any advertising. I make this direction under r 31.11(1)(a).
[4] The next matter that arises is that counsel advise me that under r 31.22, each party required leave to bring their interlocutory applications because r 31.22 requires that apart from a small class of applications, leave is required for any interlocutory
application made before the date of hearing specified in the notice of proceeding. Because the wrong form was used, no date of hearing was specified. Neither party had sought leave. Mr Davies indicated to me that he had signalled as long ago as December last year that he would be bringing his application and Lang J gave a direction for his application to be brought. He points to that as indicating that leave was granted then. However, it does not appear that anyone specifically considered whether leave ought to be granted. For better or for worse, these applications have been brought without leave having been sought. They have proceeded to this point on the basis that the applications have been alive. There have been delays in processing this matter to date occasioned by these interlocutory applications being brought. The damage has been done. There is no point in now declining to deal with the applications simply because leave was not sought earlier. It is far better to deal with the applications rather than refuse to do so because of an earlier oversight.
[5] At the start of the hearing, I canvassed with counsel a basis for dealing with this matter which looked to directions being given for matters to be firmly focused on the ultimate issues of the case. These come down to fixing a price at which the plaintiffs ought to be bought out. After the hearing of argument this morning, counsel advised me that they had given that consideration and there followed discussion which led to a way forward being formally agreed. I now give these directions.
[6] The plaintiffs are to file a new statement of claim by 2 July 2010. That statement of claim will include these matters:
a) Following discovery, the plaintiffs have become aware of new matters which they say give rise to oppression or unfair discrimination or unfair prejudice to them under s 174. These go to the fact that the company resolved that all profits should be paid by way of salary to the first defendants. That will be included in the statement of claim.
b)Another matter to be included goes to a limitation issue that has been raised. That limitation issue arises in relation to a defence which the defendants have signalled they will raise that an agreement for the
issue of shares, which the plaintiffs allege was broken, is subject to a time limit under s 4(1)(d) of the Limitation Act. Shares were issued in 1997. The plaintiffs complain that they thought the shares would have the same rights as were attached to the shares held by the first defendants and they say that they found out only later that their shares did not have voting rights, whereas the first defendants had shares which had exclusive voting rights. The first defendants want to run a defence that that complaint is subject to a limitation under s 4(1)(d) of the Limitation Act. The plaintiffs say that they have answers to that. One of those answers is that the defendants fraudulently concealed the lack of voting rights. That should be addressed prolepticly in the new statement of claim.
[7] 15 working days after 2 July 2010, the defendants are to file a statement of defence, that is 23 July 2010.
[8] The plaintiffs are to file and serve their narrative affidavits by 24 September
2010.
[9] Also by 24 September 2010, the affidavit of the plaintiffs’ accountant as to share valuation issues is to be filed and served.
[10] I want to make it clear that I foresee the accountant carrying out his inquiries and making his report in a particular way. At the outset, I require the accountant to give an undertaking as to the confidentiality of the information he will receive for the purpose of this hearing. That is to assure the defendants that the information will be used only for the purpose of this case and will not be disclosed otherwise to third parties. The accountant is also to give an undertaking to comply with the Code of Conduct for expert witnesses under Schedule 4 of the High Court Rules.
[11] I also give a direction that the accountant may require Mr Cameron, the second defendant’s accountant, and the second defendants’ directors, to provide him with documents and information that might assist him in preparing calculations as to the value of the plaintiffs’ shares in the second defendant company. If the
accountant has difficulties in obtaining information, he may then report back to the parties’ lawyers for assistance and, if that is unavailing, the parties can then come back to Court for further directions. But I envisage that the accountant should not encounter opposition in information being made available to him.
[12] I also anticipate that any information made available to the plaintiffs’ accounting expert should also be shared with the independent accountants instructed by the defendants so that they also can share that information and prepare their evidence for share valuation purposes as well.
[13] I envisage that the evidence of the accountants may cover a range of possibilities. This will, to a certain extent, depend on the instructions they are given but accountants might prepare a share valuation based on the willing purchaser/willing seller test, but they may then wish to make adjustments, taking into account awards that courts have made under s 174. Typical matters for adjustment might be to disregard any discount for minority interests or to add back benefits taken by one party from the company.
[14] There will be a telephone conference with the Associate Judge sitting in
Blenheim on 1 October 2010 to check compliance.
[15] The defendants are to file their narrative evidence by affidavit by
5 November 2010.
[16] The defendants’ independent accountant’s evidence as to share valuation is to be filed and served by 5 November 2010.
[17] Following the accountants’ evidence by both parties having been filed, I direct that the accountants are to confer in terms of clause 6 of the Fourth Schedule of the High Court Rules to see whether they can agree on any issues and to file a report with the Court stating what matters they are agreed and on which matters they remain part.
[18] Any affidavits in reply by the plaintiffs are to be filed by 26 November 2010.
[19] The case is set down for a fixture for three days beginning on 6 December
2010.
[20] I reserve leave to both parties to file memoranda with the Court seeking a conference with Associate Judge Gendall for further directions that might be required to deal with compliance with the directions in this timetable, the need to obtain further information from one side or the other or to seek further directions.
[21] I indicated in the course of the hearing that I did not want to give a ruling on limitation point. I have made it clear that that should await the trial. Counsel cited authorities both ways, on the application of s 4(1)(d) of the Limitation Act. For my part, I would be reluctant to make a strike-out decision on the limitation issue alone as it relates only to one small part of the plaintiffs’ claim. Partial strike-outs are undesirable and the plaintiffs have signalled that they have an answer to that limitation point which arises from their claim that there was fraudulent concealment of the issue. As I have indicated, the plaintiffs will need to plead to the fraudulent concealment point, something lacking from their pleadings, and it is appropriate that it be included in their amended statement of claim.
[22] As for the balance of the plaintiffs’ strike-out claim, I do not propose to make any orders on it and Mr Davies indicated that, after consideration, he wanted to withdraw that application. But I can say that for my part, I am reasonably satisfied that the present statement of claim does spell out at some length a number of matters which the plaintiffs allege do give them cause for claiming under s 174.
[23] There are some unresolved issues but I am confident that they do not need to be the subject of further directions as to pleadings. Unresolved issues will be addressed by way of evidence. That is, there are already pleadings telling the defendants what the nature of the various allegations are and matters where Mr Davies is probing for more and better particulars are better addressed by evidence. To the extent that the evidence does not address those issues, those will simply be matters where the defendants will be able to say that the plaintiffs have not made out their case.
[24] There are also other issues which are properly the subject of argument at trial and do not need to be the subject of further and better particulars.
[25] The other matter that was the subject of formal application today was the application for better discovery made by the plaintiffs. In the end, that was largely resolved barring one particular item but Mr Davies helpfully showed Mr Radich the particular document and it was accepted by Mr Radich that, having seen the document, it actually had little relevance to the case and he no longer pursued that application.
[26] I have heard submissions as to costs. My view on the matter is that the plaintiffs have been partly vindicated on their discovery application because they were put to the trouble of preparing an application. Following that application being lodged, they did receive documentation. I think the fair way to deal with them is to allow them the costs for preparing one application. I disregard their amending the application. I leave aside time for preparation and hearing because those have been absorbed by the other matters and the decision I am going to give on the strike-out application. So they will have the costs of preparing an application on a 2B basis.
[27] For the defendants’ strike-out application, I rule in favour of the plaintiffs on that as well because the plaintiffs have been substantially successful on that application. The plaintiffs are to have the costs of preparing the notice of opposition, including their affidavits, the costs of preparation for a half-day hearing and the hearing for half a day and the plaintiffs can also have the costs on their disbursements for filing the application for discovery.
[28] Following my ruling as to costs, counsel have conferred and agree that the defendants will pay the plaintiffs’ costs in the sum of $4260, inclusive of
disbursements.
R M Bell
Associate Judge
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