JMB TRUST LIMITED AND CHINA ANIMAL HUSBANDRY GROUP BODCO LIMITED

[2024] NZHC 2653

IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY

I TE KŌTI MATUA O AOTEAROA KIRIKIRIROA ROHE

CIV-2023-419-0123

[2024] NZHC 2653

UNDER

the Companies Act 1993

IN THE MATTER

an application for an order pursuant to s 174

BETWEEN

JMB TRUST LIMITED

Plaintiff

AND

CHINA ANIMAL HUSBANDRY GROUP

First defendant

BODCO LIMITED

Second defendant

Hearing:

12 September 2024

Appearances:

J A MacGillivray for plaintiff

B A Keown, E K Martin and K E Crichton for first defendant

Date of judgment:

13 September 2024

JUDGMENT OF JAGOSE J

This judgment was delivered by me on 13 September 2024 at 12.00pm.

Pursuant to Rule 11.5 of the High Court Rules.

………………………… Registrar/Deputy Registrar

Solicitors:

Tompkins Wake, Hamilton Bell Gully, Auckland

JMB TRUST LTD v CHINA ANIMAL HUSBANDRY GROUP [2024] NZHC 2653 [13 September 2024]

[1]                 For my decision as duty judge on  circuit  in  Hamilton  this  week  is  the  first defendant’s 30 August 2024 application to extend time for its compliance with O’Gorman J’s 17 July 2024 order “if the first defendant does not provide its discovery by the deadline of 30 August 2024, then its defence will be struck out”.1

Background

[2]                 The proceeding concerns the plaintiff’s (JMB) claim for relief, under s 174 of the Companies Act 1993, from the first defendant’s (CAHG) conduct of the affairs of the second defendant (BODCO), alleged done prejudicially to JMB. BODCO is a New Zealand company, in which CAHG (a Chinese state-owned enterprise) and JMB respectively are majority (68.16 per cent) and minority (10.26 per cent) shareholders.

[3]                 As O’Gorman J’s minute recounts2 — since 1 March 2024, when discovery initially was ordered to be exchanged between the parties3 — CAHG persistently obtained but failed to meet extensions to the proceeding’s timetable for discovery, the last in the context of a detailed and tight timetable leading to a 10-day trial to commence on 24 March 2025. O’Gorman J’s ‘unless order’ above was the result.

[4]                 On 30 August 2024, CAHG provided JMB a first tranche of 1,494 discovered documents, a second of 1,120 discovered documents on 6 September 2024 and the final tranche of 2,412 documents on 11 September 2024. The latter tranches were provided in accordance with CAHG’s 30 August 2024 indication of their progressive availability on those dates after review in China and New Zealand. As CAHG had not complied with O’Gorman J’s order, JMB withheld provision of its own discovery.4

[5]                 CAHG’s more timely provision was delayed by CAHG’s internal management requirements and restructure and its Chinese and New Zealand legal advisers’ initially inadequate (and subsequently technically and procedurally complicated) management of the discovery process, all subject to restrictive Chinese law obligations. I need not

1      JMB Trust Ltd v China Animal Husbandry Group CIV-2023-419-0123 HC Hamilton, 17 July 2024 (Minute of O’Gorman J) at [19].

2      At [3]–[13].

3      JMB  Trust   Ltd  v  China  Animal  Husbandry  Group  CIV-2023-419-0123  HC  Hamilton,    22 November 2023 (Minute of Brittain AJ).

4      For JMB, Mr MacGillivray advised JMB’s discovery was ready for provision to CAHG and would forthwith so be provided, irrespective of the outcome of the present application.

dwell on those shortcomings, except to say foreign shareholders’  investment  in New Zealand companies presumes their submission to and compliance with applicable New Zealand law, including court orders, with no allowance for any inconsistency as may arise from their foreign status.5

Approach to extensions of time

[6]Rule 1.19 of the High Court Rules 2016 provides:

Extending and shortening time

(1)        The court may, in its discretion, extend or shorten the time appointed by these rules, or fixed by any order, for doing any act or taking any proceeding or any step in a proceeding, on such terms (if any) as the court thinks just.

(2)        The court may order an extension of time although the application for the extension is not made until after the expiration of the time appointed or fixed.

[7]                 It is common ground r 1.19’s application to ‘unless orders’ is addressed by the principles set out in the Court of Appeal’s decision in SM v LFDB:6

The principles are these:

(a)    As an unless order is an order of last resort, it is properly made only where there is a history of failure to comply with earlier orders.

(b)    An unless order should be clear as to its terms. That is, it should specify clearly what is to be done, by when and what is the sanction for non- compliance. That sanction should be proportionate to the default.

(c)    The sanction will apply without further order if the party in default does not comply with the order by the time specified. However, the party in default may seek relief by application to the Court.

(d)    Justice may require that the party in default be relieved of the consequences of the unless order where the Court is satisfied that the breach resulted from something for which that party should not be held responsible. The party should not assume that belated compliance will suffice.

(e)    Where the unless order has been deliberately breached — that is, flouted

— it is difficult to conceive of any situation where the interests of justice would require granting the flouter relief from the sanction imposed, notwithstanding belated compliance with the order.

5      Comparably, Grant v Arena Alceon NZ Credit Partners, LLC [2024] NZCA 366 at [30], referring to Re Seagull Manufacturing Co Ltd (in liq) [1993] Ch 345 at 354.

6      SM v LFDB [2014] NZCA 326, [2014] 3 NZLR 494 at [31].

(f)     In deciding whether or not to excuse breach of an unless order the question for the Judge is: what does justice demand in the circumstances of this case? Considerations in answering that question include:

(i)The public interest in ensuring that justice is administered without unnecessary delays and costs.

(ii)The interests of the injured party, in particular in terms of delay and wasted cost.

(iii)Any injustice to the defaulting party, although that consideration is likely to carry much less weight in the circumstances than considerations (i) and (ii).

In terms of [31(d)], by ‘satisfied’ is meant I just make up my mind that is the case.7

[8]                 CAHG’s belated compliance does not suffice to relieve it of the consequences of O’Gorman J’s unless order. However, I am satisfied the breach arose from something for which CAHG should not be held responsible in all the circumstances.

[9]                 Beyond the factual context I have summarised above, those circumstances include:

(a)on the evidence of Cao Siyuan’s informal affidavit signed in Beijing on 9 September 2024, CAHG has not deliberately flouted the unless order;

(b)O’Gorman J’s  tight timetable to  the 10-day trial to commence on    24 March 2025, made on the basis there was “no further room for slippage”;8

(c)her Honour’s identification of the consequences of the unless order’s breach:9

[I]f the first defendant does not provide its discovery by the deadline of 30 August 2024, then its defence will be struck out under rr 7.48(2)(a) and/or 15.1. The consequences of that will be:

(a)    subject to subparagraph (b) below, the plaintiff may then proceed to seek judgment in an undefended formal proof hearing on the substantive issues of whether there has been a breach of s 131 of the Companies Act and the appropriate form of relief, including whether an order

7      Z v Dental Complaints Assessment Committee [2008] NZSC 55, [2009] 1 NZLR 1 at [96].

8      JMB Trust Ltd v China Animal Husbandry Group, above n 1, at [17]–[18].

9 At [19].

should be made under s 174(2)(a) that CAHG acquires JMB Trust’s shares;

(b)    the first defendant may still be heard on the quantum issue of  what  is  a  fair  price  if  an  order  is  made  under    s 174(2)(a).

(d)the s 131 test is subjective;10

(e)the risk at any undefended formal proof hearing, without use of CAHG’s discovery, JMB may not be able to “file affidavit evidence establishing, to a Judge’s satisfaction”,11 BODCO’s directors, in exercising powers or performing duties, did not “act in good faith and in what the director believes to be the best interests of the company”;12

(f)the likely impropriety of JMB seeking judgment in an undefended formal proof hearing in reliance on CAHG’s discovery if its defence was struck out, as an outworking of the principle discovered documents may not be used for collateral or ulterior purposes and, in particular, “the privacy expectations of a party who is required to produce documents for one purpose and is entitled to expect that they will not be used for another”, meaning CAHG, required to produce documents as defendant, may be entitled to expect they will not be used if its defence is struck out;13

(g)to the extent CAHG’s 12-day delay in the provision of its discovery impinges on the timetable for bringing interlocutory applications, that date may be extended for JMB’s benefit alone without impact on the balance of the timetable;

10 Madsen-Ries v Cooper [2020] NZSC 100, [2021] 1 NZLR 43 at [31], citing Nicholson  v Permakraft (NZ) Ltd [1985] 1 NZLR 242 (CA) at 250 and 255 and Sojourner v Robb [2006] 3 NZLR 808 (HC) at [102] (upheld in Sojourner v Robb [2007] NZCA 493, [2008] 1 NZLR 751), [112]–[115] and [177]. Similarly, Yan v Mainzeal Property and Construction  Ltd  (in  liq) [2023] NZSC 113, [2023] 1 NZLR 296 at [142]–[143].

11     High Court Rules 2016, r 15.9.

12     Companies Act 1993, s 131(1).

13 High Court Rules, r 8.30(4) and the principles expressed in Wilson v White [2005] 3 NZLR 619 (CA) at [20(b)], referring to Telstra New Zealand Ltd v Telecom New Zealand Ltd (1999) 14 PRNZ 108 (HC) at 113; and Alterskye v Scott [1948] 1 All ER 469 at 470.

(h)the impact on JMB, as the successful party in obtaining O’Gorman J’s unless order, of the indulgence afforded CAHG by grant of an extension of time may be compensated by an award of indemnity costs;

(i)CAHG’s response to any interlocutory application by JMB arising out of CAHG’s provision of discovery may be disciplined by a prospective award of indemnity costs; and

(j)the interests of justice accordingly favour retention of CAHG’s defence.

In discussion at the hearing, Mr MacGillivray, while noting he did not have his instructing solicitors’ day-to-day familiarity with the file, allowed the risk I identify at [9(e)] above may have substance.

Result

[10]I therefore direct:

(a)O’Gorman J’s timetable is amended:

(i)at [18(a)], to read “The parties are to exchange discovery by

30 August 2024 11 September 2024”; and

(ii)at [18(c)], to read “Any interlocutory applications and supporting affidavits shall be filed and served by 20 September 2024,  except  any  interlocutory  applications  and  supporting

affidavits to be filed and served by JMB in respect of CAHG’s

discovery are to be filed and served by 7 October 2024”;

(b)O’Gorman J’s timetable directions otherwise remain in full force;

(c)JMB’s provision of  its  discovery  to  CAHG  in  accordance  with  Mr MacGillivray’s advice recorded at n 4 above complies with [10(a)(i)] above; and

(d)CAHG pay the actual costs and disbursements reasonably incurred by JMB in respect of JMB’s 9 July 2024 application for unless orders,

CAHG’s 30 August 2024 application for an extension of time and any interlocutory applications made by JMB in respect of CAHG’s discovery (irrespective of their outcome).

—Jagose J