Milnes v Glenara Holdings Ltd
[2013] NZHC 2057
•14 August 2013
IN THE HIGH COURT OF NEW ZEALAND WHANGAREI REGISTRY
CIV 2012-488-96 [2013] NZHC 2057
BETWEEN FREDERICK SELWYN MILNES Plaintiff
ANDGLENARA HOLDINGS LTD Defendant
Hearing: 13 August 2013 (by telephone) Counsel: F A King for Plaintiff
D M Grindle for Defendant
Judgment: 14 August 2013
JUDGMENT (NO. 2) OF HEATH J
This judgment was delivered by me on 14 August 2013 at 2.00pm pursuant to Rule
11.5 of the High Court Rules
Registrar/Deputy Registrar
Solicitors:
Lewis’, PO Box 529, Cambridge
Webb Ross, Private Bag 9012, Whangarei
Counsel:F A King, 2313 Mountain Road, Inglewood, RD 8
MILNES v GLENARA HOLDINGS LTD [2013] NZHC 2057 [14 August 2013]
[1] Mr Selwyn Milnes (the Father) and Mr Frederick Milnes (the Son) are shareholders in a family company called Glenara Holdings Ltd. The Father is the sole director. The Son holds 26.6% of the share capital.
[2] The Son became increasingly concerned about the way in which the family company was being run. His concerns culminated in an application under s 179 of the Companies Act 1993 (the Act) to appoint an auditor. While, initially, the application was opposed as being unnecessary, an order was ultimately made by consent on 10 October 2012.[1] Also by consent, costs were awarded in favour of the Son, on a 2B basis together with reasonable disbursements, up to 10 October 2012.
[1] Milnes v Glenara Holdings Ltd [2012] NZHC 2634.
[3] The auditor’s report was received in March 2013. The report has (if anything) heightened the Son’s concerns. Separate proceedings have now been issued as a “prejudiced shareholder”, among other things making claims against the director, for breaches of duty.[2] This proceeding was issued on 1 August 2013 but had not been served at the time of the hearing yesterday.
[2] Milnes v Milnes HC Whangarei, CIV 2013-488-379.
[4] The problems arising from the auditor’s report were summarised by Mr King, for the Son, in a memorandum dated 21 March 2013:
(a) Shareholder Loans – the audit confirmed that the defendant company has serious tax issues given the non-interest bearing shareholder loans. The tax issues include deemed dividends and fringe benefit taxes. The audit also confirmed loans forwarded to Rosanna Milnes were quite separate and distinct from the plaintiff. This contrasted with the defendant’s earlier contention that such loans were made to the plaintiff
(b) Shareholder Loan Account of the plaintiff – no evidence was found of transfer of any monies or loans to the plaintiff. The auditor rightfully found that the plaintiff’s shareholder loan account must be reduced to zero immediately. The plaintiff will seek further recourse including potential Companies Office prosecution if this issue is not remedied immediately.
(c) Authority to sign on behalf of plaintiff – no evidence was found in the audit that authorised another signatory (in the place of the plaintiff) to sign the 2006 – 2009 financial accounts. Clearly this is a serious issue and raises concerns of fraud.
(d) Major Transaction of Farm Sale in 2005 – the special resolution authorising this transaction does not meet the required 75% of shareholder signatories. This is an offence under the Companies Act
1993. The plaintiff did not sign the special resolution and, accordingly a section 120 Companies Act 1993 share buy-out is
triggered as at the date of this transaction. Further, the auditor’s
report found that the rental income received by the defendant company was extremely low, particularly given the buoyant
economic and property climate at that time.
(e) Major Transaction of Property purchase 2012 – the special resolution was passed with 75% of shareholder signatories. However again the plaintiff did not sign, thus providing another s 120 buy-out trigger- point before this transaction.
[5] Initially, there were difficulties in having Glenara pay the costs of the audit. I had directed it to pay them on 10 April 2013.[3] The payment of $14,928.30 has recently been made.
[3] Milnes v Glenara Holdings Ltd (Minute (No. 3)) HC Whangarei CIV 2012-488-96, 10 April 2013 at para [2].
[6] During a telephone conference on 10 April 2013, Mr Grindle, for Glenara, confirmed it was prepared to attend a mediation to determine the value of the Son’s minority shareholding. Directions were made in consequence of that. Mr King asked me to extend the time for the Son to require Glenara to purchase his shares.[4] I was unable to find power for the Court to extend time, but I recorded that Mr Grindle consented to a notice being given within 10 working days of that date.[5]
[4] Companies Act 1993, s 111(1)(b).
[5] Milnes v Glenara Holdings Ltd (Minute (No. 3)) HC Whangarei CIV 2012-488-96, 10 April 2013 at paras [4]–[6].
[7] A further telephone conference was scheduled for yesterday. There has been no resolution. Mr King asked me to determine two distinct issues before formally dismissing the application, leaving consequential questions to be dealt with as part of the new proceeding.
[8] The Son seeks an order that a loan account in the books of Glenara recording an advance made to him be “deleted”, on the grounds that the audit has established no money to be owing. Orders are sought under s 179(1) and (4) of the Act. However, those provisions do not provide a source of jurisdiction for such an order.
There is no jurisdiction to make an order.
[9] The second issue concerns costs since the order of 10 October 2012. Mr King has pointed to conduct on the part of Glenara that has tended to delay resolution of issues. He seeks indemnity costs, under r 14.6(4) of the High Court Rules. Mr Grindle opposes any further costs being ordered. He contends that the proceeding was spent on receipt of the auditor’s report, and no further order should be made.
[10] I do not accept Mr Grindle’s threshold submission. While it is true that the proceeding could have been dismissed after the auditor’s report had been considered, the parties elected, within the existing proceeding, to take steps to resolve outstanding differences. Counsel have been required to attend before the Court by telephone conference. In my view, there is no reason why costs should not be ordered. The only question is whether they should be on standard 2B rates, or on an indemnity or increased basis.
[11] The circumstances in which standard, increased and indemnity costs might be ordered was discussed by the Court of Appeal in Bradbury v Westpac Banking Corporation.[6] Delivering the judgment of the Court, Baragwanath J observed:
[6] Bradbury v Westpac Banking Corporation [2009] 3 NZLR 400 (CA).
[27] The distinction among our three broad approaches – standard scale costs, increased costs and indemnity costs – may be summarised broadly:
(a) standard scale applies by default where cause is not shown to depart from it;
(b) increased costs may be ordered where there is failure by the paying party to act reasonably; and
(c) indemnity costs may be ordered where that party has behaved either badly or very unreasonably.
[12] In my view, indemnity costs cannot be justified. However, using the “unreasonable behaviour” touchstone, there are factors that justify increased costs. Rule 14.6(3) of the High Court Rules sets out the circumstances in which such an order can be made. Relevantly, it provides:
14.6 Increased costs and indemnity costs
...
(3) The court may order a party to pay increased costs if—
...
(d) some other reason exists which justifies the court making an order for increased costs despite the principle that the determination of costs should be predictable and expeditious.
....
[13] In my view, Glenara has evidenced a clear intention not to co-operate in resolving questions of purchase of its shares. That was the point of keeping the proceeding alive. Although a last minute offer to arbitrate was made, that smacked more of an intention to delay than a genuine willingness to settle. That view is confirmed by Glenara’s earlier attempt to resile from its consent to an extension of time to serve a notice to purchase shares. I also have doubts about the genuineness of its commitment to the mediation process.
[14] I consider that the circumstances are sufficient to justify an order for increased costs. I consider an uplift of 20% to be appropriate.
[15] The proceeding is dismissed. Costs are awarded in favour of the Son on a 2B basis, with an uplift of 20%, together with reasonable disbursements. Both costs and disbursements are to be fixed by the Registrar.
[16] After proof of service, the Registrar is directed to set the new proceeding[7]
[7] Milnes v Milnes HC Whangarei, CIV 2013-488-379.
down for a case management conference before an Associate Judge at the earliest possible time.
Delivered at 2.00pm on 14 August 2013
P R Heath J
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