Mowlem v Keach - [2017] NZHC 267

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2016-404-2283 [2017] NZHC 267

UNDER
Section 174 of the Companies Act 1993

and Part 18 of the High Court Rules

BETWEEN

NIGEL JAMES MOWLEM Plaintiff

AND

BARRY JOHN KEACH First Defendant

NOC HOLDINGS LIMITED Second Defendant

METRO FLOORING LIMITED Third Defendant

THE FLOORING SHED LIMITED Fourth Defendant

Hearing: 16 February 2017

Appearances:

G Blanchard for the Plaintiff
P Rice for the First, Second and Third Defendants
No appearance for Fourth Defendant

Judgment:

24 February 2017

JUDGMENT OF MUIR J

This judgment was delivered by me on 24 February 2017 at 4.30 pm
Pursuant to Rule 11.5 of the High court Rules.

Registrar/Deputy Registrar

Date:…………………………

Counsel/Solicitors:
G Blanchard, Barrister, Auckland
P Rice, Barrister, Auckland

Mowlem v Keach [2017] NZHC 267 [24 February 2017]

Introduction

[1] The plaintiff (Mr Mowlem) applies under s 165 of the Companies Act 1993 (the Act) for leave to bring a derivative action on behalf of the fourth defendant, The Flooring Shed Limited (TFSL).

[2] His application in that respect was filed contemporaneously with proceedings under s 174 of the Act in which he seeks orders that:

(a) the first and second defendants take steps to transfer a franchise agreement, relating to a business operated by TFSL, into its name;

(b)the first to third defendants pay compensation in an amount to be quantified; and

(c) the first defendant sell his shares in TFSL to the plaintiff at fair value on such terms the Court thinks fit.

[3] The present application proceeds on the basis foreshadowed in Vrij v Boyle1 and Greymouth Holdings Ltd v Jet Trustees Ltd2 and is designed to ensure that relief which may properly flow to TFSL, rather than the plaintiff personally, may do so.

[4] I am satisfied that leave is appropriately granted.

Background

[5] Mr Mowlem and the first defendant (Mr Keach) each hold 50 per cent of the shares in TFSL. Both are directors of the company.

[6] TFSL operates retail premises in Mt Wellington as part of the “Carpet Court”

franchise. The second and third defendants (NOC Holdings Limited (NOC) and

Metro Flooring Limited (MFL)) are companies owned and controlled by Mr Keach.

1 Vrij v Boyle [1995] 3 NZLR 763 (HC).
2 Greymouth Holdings Ltd v Jet Trustees Ltd HC Auckland CIV-2011-404-5309, 19 December
2011.

[7] TFSL was incorporated on 23 June 2005. At that time Carpet Court’s business in New Zealand operated on a licence model. MFL held licences for the “Western” and “Central” Auckland territories being respectively New Lynn to Helensville and Orakei to New Lynn. It established retail stores in Henderson to service the Western territory and Newmarket to service the Central territory. They appear to have acted as separate profit centres, albeit through the one company and under the same GST registration.

[8] During the first half of 2005 Mr Mowlem and Mr Keach began to discuss the concept of setting up a new retail outlet in Mt Wellington which was considered well placed…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

Continue reading Mowlem v Keach

Details

AGLC: Mowlem v Keach [2017] NZHC 267
Case: [2017] NZHC 267
Decision Date: 24 February 2017

CaseChat Overview and Summary

Nigel James Mowlem applied to the High Court of New Zealand under s 165 of the Companies Act 1993 for leave to bring a derivative action on behalf of The Flooring Shed Limited (TFSL). Mowlem also applied for orders under s 174 of the Act for the first and second defendants to transfer a franchise agreement into TFSL’s name, for compensation in an amount to be quantified, and for the first defendant to sell his shares in TFSL to Mowlem. Mowlem and the first defendant each hold 50% of the shares in TFSL, and both are directors of the company. Mowlem and the first defendant had entered into an agreement to establish a retail business in Mt Wellington as part of the “Carpet Court” franchise. Mowlem alleged that the first defendant had transferred the franchise agreement into the name of his wholly-owned company, and retained the benefit of rebates, and that through his other company, rebates properly payable to TFSL had been appropriated. Mowlem submitted that the intended claims satisfied the test for the likelihood of the proceedings succeeding. The first defendant submitted that Mowlem endeavoured to “rewrite” how TFSL was set up and intended to operate, and that there was no reason why he should part with the licence for no return. The court found that there was sufficient evidence to the contrary that a prudent person of business would regard the claim as properly brought. The court also considered the other mandatory considerations and jurisdictional requirements and found that leave should be granted. The court granted leave to Mowlem to bring proceedings in the name of TFSL against the first defendant, his wholly-owned company, and his other company. The court allowed costs to the plaintiff on a 2B basis against the first to third defendants.

In this case, the court had to decide whether to grant leave for Mowlem to bring derivative proceedings on behalf of TFSL against the first defendant, his wholly-owned company, and his other company. The court considered the likelihood of the proceedings succeeding, the costs of the proceedings in relation to the relief likely to be obtained, any action already taken by the company to obtain relief, and the interests of the company in the proceedings being commenced, continued, defended, or discontinued. The court found that the intended claims satisfied the test for the likelihood of the proceedings succeeding, and that the other mandatory considerations and jurisdictional requirements were met. The court granted leave to Mowlem to bring proceedings in the name of TFSL against the first defendant, his wholly-owned company, and his other company. The court also allowed costs to the plaintiff on a 2B basis against the first to third defendants.

Orders