Kent v Glenn
[2013] NZHC 355
•28 February 2013
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2013-404-779 [2013] NZHC 355
BETWEEN ROBERT WAYNE KENT First Applicant
ANDBARRY HAMER BAINES AND VERITY ANN BAINES
Second Applicants
ANDDAVID LEONARD GLENN, SAMFORD LEE MAIER AND SHERRY WITHERS MAIER
First Respondents
ANDMONTAGU INVESTMENT HOLDINGS LTD
Second Respondent
ANDRADIUS PROPERTIES LTD Third Respondent
Hearing: 27 February 2013
Counsel: GP Curry and RA Edwards for Applicants
AS Ross and J Marcetic for First Respondents
DJ Chisholm and M Morrison for Second Respondent
SE Fitzgerald and SL Cogan for Third Respondent
P Radich and A Hudson for Takeovers Panel
Judgment: 28 February 2013
INTERIM JUDGMENT OF BREWER J
This judgment was delivered by me on 28 February 2013 at 4:30 pm pursuant to Rule 11.5 High Court Rules.
Registrar/Deputy Registrar
KENT & ORS V GLENN & ORS HC AK CIV-2013-404-779 [28 February 2013]
Introduction
[1] By interlocutory application dated 14 February 2013, the first and second applicants seek interim relief.
[2] On 27 February 2013, I heard argument from counsel on behalf of the first and second applicants and from counsel, separately, on behalf of the first respondents, second respondent, third respondent and the Takeovers Panel.[1]
[1] Leave was granted at the hearing, by consent, for the Takeovers Panel to intervene in the
proceeding as an interested party.
[3] For practical purposes, it is necessary for me to give my decision today. I have reached my decision but in the time available it is not possible for me to give full reasons. Accordingly, in this interim judgment I will give my decision and I will indicate the basis upon which I have reached it. I reserve leave for any party, within
14 days, to seek a further judgment setting out my reasons in full.
Background
[4] The substantive case is set out in a statement of claim dated 14 February
2013. The first plaintiff is the holder of 2000 ordinary shares in the third defendant. The second plaintiffs are the holders of 9000 ordinary shares in the third defendant. On 9 November 2012, the second defendant made an offer to shareholders in the third defendant to purchase shares for $0.42 cents per share. As a result of acceptance of that offer, the second defendant acquired 19.99% of the shareholding of the third defendant. On 5 January 2013, the second defendant made a takeover offer to increase its 19.99% shareholding in the third defendant to 50.01% of its shares.
[5] On 16 January 2013 another company, Radius Residential Care Ltd (Radius Care) made an indicative conditional offer to acquire all of the assets of the third defendant. On 30 January 2013 Radius Care delivered a formal signed offer to purchase the said assets for a purchase price of $23,759,398. This offer is
conditional only on approval by special resolution of the third defendant’s
shareholders.
[6] The causes of action in the statement of claim allege, very broadly, that the defendants (including the first defendants who are directors of the third defendant) have behaved in relation to the offers by the second defendant and the offer by Radius Care illegally in various respects.
[7] The first cause of action by the first plaintiff against all of the defendants alleges breach of s 174 of the Companies Act 1993 (the Act). A declaration is sought that the affairs of the third defendant “have been, are being and are likely to continue to be conducted in a manner that is likely to be oppressive, unfairly discriminatory or unfairly prejudicial to the first defendant in his capacity as a shareholder”. Consequential orders for relief are sought under s 174(2) of the Act. These would require the first plaintiff ’s shares to be acquired by the defendants for fair value and that the third defendant be liquidated.
[8] The second cause of action is by the second plaintiffs against all of the defendants and also alleges breach of s 174 of the Act. The second plaintiffs have accepted the second defendant’s takeover offer. They plead that the agreement is in breach of s 149 of the Act. The second plaintiffs seek relief in similar terms to the first plaintiff.
[9] The third cause of action is by the second plaintiffs against the first and second defendants. This pleads breach of s 149 of the Act. The relief sought is the fixing of the fair value of the second plaintiffs’ shares and an order that they receive such value.
[10] It will be seen from this that the remedies sought by the plaintiffs are essentially remedies satisfiable by money.
[11] The application for interim relief is now confined to the following:[2]
1.3An interim injunction restraining the second respondent from voting on the Radius Care proposal at an Extraordinary General Meeting of the shareholders of the third respondent.
[2] This is the extant application because the other applications have been settled by the provision of
undertakings.
[12] The point of this application is that an Extraordinary General Meeting of the shareholders of the third respondent has been scheduled for 5 March 2013 to consider the Radius Care proposal. The second respondent has made it clear that it will vote against the proposal. Given that a 75% vote would be necessary to accept the proposal, the second respondent’s 19.99% shareholding might well carry the day for the opposition. If the second respondent closed its takeover offer on 2 March
2013 (which is the date it is due to close) then it would certainly have the voting power to defeat the Radius Care proposal.
[13] The case for the applicants is being funded by Radius Care.
[14] The third defendant is a “code company” for the purposes of the Takeovers Act 1993 and the Takeovers Code Approval Order 2000. Complaints have been made to the Takeovers Panel about the situation which I have thus far described. I am advised by Mr Radich for the Takeovers Panel:[3]
21.The Panel will hold a meeting for the purposes of determining whether to exercise its powers under section 32 of the Takeovers Act on Friday, 1 March 2013. It has, pending that meeting, made temporary restraining orders under the Act restraining Montagu from acquiring securities in Radius Properties, restraining Montagu from declaring unconditional its partial offer and directing Radius Properties not to register the transfer or transmission of any Radius Property securities.
The law
[3] Submissions for the Takeovers Panel in support of plaintiffs’ application for interim injunction,
dated 26 February 2013.
[15] The law relating to granting an interlocutory injunction is well settled. Its purpose is to protect plaintiffs against injury by violation of their rights for which they could not be adequately compensated in damages recoverable in the action if the uncertainty were resolved in their favour at the trial. A plaintiff’s need for such protection must be weighed against a defendant’s need to be protected against injury resulting from being prevented from exercising legal rights for which the defendant
could not be adequately compensated under the plaintiff’s undertaking in damages if the uncertainty were resolved in the defendant’s favour at the trial. The Court must weigh one need against another and determine where the balance of convenience lies.[4]
[4] American Cyanamid Co v Ethicon Ltd [1975] AC 396, per Lord Diplock.
[16] A two-stage approach is required. First, I must decide whether there is a serious question to be tried in the proceeding and, if there is, where the balance of convenience lies. Within the latter examination will be a focus on the adequacy of damages as a remedy available to a plaintiff.
Discussion
Serious question to be tried
[17] The factual background demonstrates sufficiently for my purposes that the third respondent is a company with limited liquidity for its shareholders. The first respondents as directors decided to initiate, and be involved in, the acquisition of shares in the third respondent by the second respondent. That involvement is through a company called Hosel Holdings Ltd (Hosel). In this regard, I accept the
submission of the second respondent as follows:[5]
2.2Hosel was incorporated on 12 July 2012. Mr Priscott is the sole director of Hosel and holdings effectively 100% of the voting rights in that company. Mr Priscott holds 35 voting shares while Mr Glenn holds 35 non-voting shares and Maier Family Trustees Ltd holds 4 non-voting shares...
[5] Second Respondent’s submissions in opposition to Applicants’ interlocutory application for interim orders, dated 27 February 2013.
[18] There is nothing intrinsically unlawful in the first respondents taking an interest in the second respondent. But by doing so they become subject to additional obligations of transparency and fair dealing to (in this case) the shareholders of the third respondent. The issue is whether the applicants have raised as a serious question to be tried that the respondents (and particularly the first respondents) have
breached their obligations to the shareholders.
[19] In my view, the applicants have not demonstrated that there is a serious question to be tried. In general, I accept the respondents’ submissions on this aspect. In particular:
(a) The evidence of the repeated disclosure by the first respondents of their interest in the second respondent significantly detracts from the allegations of the applicants. I do not regard the affidavit of Mr Cree sworn on 14 February 2013, taken on its face, as raising as a serious question that the first respondents, as directors of the third respondent, had a knowledge of Radius Care’s position such that their relevant duties became engaged.
(b) I do not accept that the Campbell McPherson valuation dated
9 November 2012 raises a serious question that the 19.99% of shares was acquired by the second respondent at an actionable undervalue.
(c) The actions of the first respondents upon receiving Radius Care’s approaches to purchase the assets of the third respondent do not, in my view, raise a serious question of misconduct. Indeed, they tend to demonstrate that they had a proper regard for their duties.
(d)In my view, s 149 of the Act does not apply to the factual situation in this case. The first respondents’ non-voting, minority interests in Hosel are too remote.
(e) Section 174 of the Act is more problematic for the respondents.
However, against my view of the underlying fact situation, and the strained construction of s 174 which would be required to extend it to the second respondent, I do not see a serious question to be tried.
Balance of convenience
[20] If I am wrong about there not being a serious question to be tried, I nevertheless find for the respondents on the balance of convenience. In my view, the balance is firmly in their favour:
(a) The applicants’ substantive action is for money.
(b)The interim relief sought would deny the second respondent the benefit of bargains it has made for the purpose of allowing a commercial competitor an advantage.
(c) The interim relief sought would not preserve the status quo. It would, in essence, provide the applicants with substantive relief.
(d) The money amounts sought by the applicants are small. Their total,
$6,930, has been paid into a solicitors’ trust account. A damages remedy is appropriate, and the money is available. I accept that the applicants have applied to bring a representative action. That application is opposed and might have to be argued later. However, even if successful, the money would not change to an extent where a damages remedy would be inappropriate.
(e) Standing back, and on an interests of justice analysis, the intervention by the Takeovers Panel gives me significant assurance that the factual allegations of the applicants will be examined expeditiously by a specialist body with the power to give redress. I weigh this in the balance.
Decision
[21] The application for interim relief is denied.
[22] The respondents may file memoranda as to costs by 28 March 2013. The
applicants may respond by 30 April 2013.
Brewer J
Solicitors
Anderson Creagh Lai (Auckland) for Applicants
Chapman Tripp (Auckland) for First Respondents
Lowndes Jordan (Auckland) for Second Respondent
Russell McVeagh (Auckland) for Third RespondentAndrew Hudson, General Counsel (Wellington) for Takeovers Panel
Counsel
GP Curry; RA Edwards; DJ Chisholm; P Radich
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