Kelly v Kelly Construction (2002) Limited

[2020] NZHC 458

IN THE HIGH COURT OF NEW ZEALAND DUNEDIN REGISTRY

I TE KŌTI MATUA O AOTEAROA ŌTEPOTI ROHE

CIV-2019-412-132

[2020] NZHC 458

BETWEEN

STEVEN WILLIAM KELLY

First Plaintiff

AND

JAMES WILLIAM RAYMOND KELLY

Second Plaintiff

AND

KELLY CONSTRUCTION (2002) LIMITED

Defendant

Hearing:

5 March 2020

Appearances:

D R Tobin for Plaintiffs

No appearance for Defendant

Judgment:

10 March 2020

JUDGMENT OF ASSOCIATE JUDGE LESTER

(on application for summary judgment)

This judgment was delivered by me on 10 March 2020 at 3.00 pm pursuant to Rule 11.5 of the High Court Rules

Registrar/Deputy Registrar 10 March 2020

KELLY v KELLY CONSTRUCTION (2002) LIMITED [2020] NZHC 458 [10 March 2020]

[1]This proceeding unfortunately involves a dispute within a family company.

[2]                 The plaintiffs are shareholders in Kelly Construction (2002) Ltd (“the company”),   each   holding   19 per cent   of   the   shares.   The   plaintiffs’   father is a 52 per cent shareholder and the plaintiffs’ mother is a 10 per cent shareholder.

[3]                 The company is a building company and the plaintiffs’ evidence is that they are the only people “on the tools”, that is the only people actively involved in the building process. They say that has been the case since 2006.

[4]                 The plaintiffs have a number of concerns about the operation of the company. They say that it was only in August 2017 that they received copies of the company’s accounts and that was after they asked for them through their lawyer. Receipt of the accounts raised a number of concerns.

[5]                 The plaintiffs say that the accounts show that they had been allocated shareholder salaries which they have never received. The accounts also show that money has been taken out by the company in cash of which they have no knowledge. The plaintiffs also understood the company owned a property in Alexandra but that is not shown as an asset in the accounts. They have learnt that the Alexandra property is owned by a Family Trust, but they say the company has been paying the mortgage.

[6]The unexplained cash withdrawals amount to nearly $85,000.

[7]                 Lawyers acting for the plaintiffs have written asking for explanations but without response. Adding to the plaintiffs’ concerns is that the Alexandra property has now been listed for sale.

[8]                 Because the requests of the plaintiffs made pursuant to s 178 of the Companies Act 1993 (“the Act”) for information went without response, the plaintiffs have brought a proceeding made pursuant to s 178 of the Act seeking disclosure of bank statements of the company and a copy of the agreement entered into by the defendant and the real estate agent of the Alexandra property.

Legal principles

[9]I adopt Associate Judge Bell’s statement as to the purpose of s 178 of the Act:1

The purpose of s 178 is to ensure that those in control of a company, the directors and management, are accountable to shareholders. Accountability is enhanced by allowing shareholders access to company information.  Under   s 178, there is a wide range of reasons for refusing disclosure of information to shareholders. Some of them are noted in subsection (4) but they are not the only ones. If the company does not co-operate or if it refuses to provide information, the shareholder can come to court to seek orders under s 178(7). On such an application, the court considers whether there are outweighing reasons to justify a refusal of information to a shareholder.

[10]              The request for information under s 178 of the Act must be made in good faith and for a proper purpose.2

[11]              Section 178 of the Act requires a shareholder to have made a written request for information held by the company.  That took place here.  The  company within  10 working days must either provide the information, agree to provide the information within a specified time, agree to provide the information and require that the shareholder pay the reasonable cost which of providing the information, or refuse to provide the information and specifying the reasons for the refusal. No response was received.

[12]              Given the circumstances described by the plaintiffs in their affidavit, there is a need for them to be provided with information to understand what is happening with the company. I consider this case falls directly within the purpose of s 178 of the Act as set out in [9] above.

[13]              I have no difficulty with there being an order in terms of para (a) of the prayer for relief of the statement of claim.

[14]              Accordingly, there is an order pursuant to s 178(7) of the Companies Act 1993 requiring the defendant supply to the plaintiffs within 10 working days of this judgment; all bank statements of the defendant (excluding loan accounts but including

1Ayyildiz v Casablanca Sylvia Park Ltd [2018] NZHC 2782 case applied in Sayegh v Fermit NZ Ltd [2019] NZHC 703.

2            Wells v Mega-Merger Housing Ltd (2005) 9 NZCLC 263,727 (HC) at [21].

current accounts, overdraft accounts, savings accounts and fixed term deposits) from November 2001 to the date of provision to the plaintiffs.

[15]              Paragraph (b) of the relief sought in the statement of claim seeks an order requiring the defendant to supply a copy of the listing agreement entered into by the defendant with the real estate agent for the Alexandra property.

[16]              The potential difficulty in respect of that relief is that it appears the Alexandra property is in the name of a Family Trust.

[17]              To  meet the objectives of s 178 of the Act and the concerns of the plaintiffs,  I make the following order in respect of the Alexandra property:

(a)There is an order pursuant to s 178(7) of the Companies Act 1993 requiring the defendant supply to the plaintiffs within 10 working days of the date of this judgment, the following documents:

(i)any  agreement  entered  into  by  the   defendant   and   Bulsara Limited (trading as Tall Poppy) or with Peter Hishon, for the marketing of 12 Royal Terrace, Alexandra;

(ii)any documents held by the defendant relating to the acquisition of 12 Royal Terrace, Alexandra;

(iii)any documents held by the defendant relating to the defendant meeting the mortgage payments in respect of 12 Royal Terrace, Alexandra;

(iv)any documents held by the defendant relating to the defendant meeting any outgoings such as rates, insurance and maintenance for 12 Royal Terrace, Alexandra;

(v)all documents relating to the accounting treatment, including communication with the company’s accountants, in respect of the above documents.

[18]              The short point is the plaintiffs are entitled to understand what is happening within the company. I started this judgment by saying it was unfortunate that this family matter has come to Court. The plaintiffs have said that they have sought mediation in respect of the issues. This is a matter that cries out for a family meeting. I urge William Kelly and Valerie Kelly to engage with their sons in respect of company matters as a refusal to do so will simply create costs and cause further friction.

Costs

[19]              The plaintiffs seek costs. They seek costs on an indemnity basis as the plaintiffs’ actual costs are less than scale. That is an entirely proper step for counsel to take reflecting the principle that scale costs cannot exceed actual costs. The plaintiffs have provided  evidence as to their actual costs and disbursements and    the total amount claimed, including disbursements, is $4,696.04. That amount is modest in the context of costs awards and that is approved.

[20]              There is accordingly an award of costs to the plaintiffs against the defendant in the sum of $4,696.04 including disbursements.

Associate Judge Lester

Solicitors:
Ross Dowling Marquet Griffin, Dunedin

Copy to counsel:

D R Tobin, Princes Chambers, Dunedin