Mulholland v Mulholland
[2023] NZHC 1692
•4 July 2023
IN THE HIGH COURT OF NEW ZEALAND TAURANGA REGISTRY
I TE KŌTI MATUA O AOTEAROA TAURANGA MOANA ROHE
CIV-2022-470-111
[2023] NZHC 1692
BETWEEN VICKY-LEE MULHOLLAND
Applicant
AND
BRENT EDWARD MULHOLLAND
First Respondent
ELE HOLDINGS LIMITED
Second Respondent
Hearing: 27 March 2023 Appearances:
W Hofer for the Applicant
R Gordon for the First Respondent
Judgment:
4 July 2023
JUDGMENT OF ASSOCIATE JUDGE SUSSOCK
This judgment was delivered by me on 4 July 2023 at 12 pm pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar
Solicitors:
Tompkins Wake, Hamilton
MinterEllisonRuddWatts, Wellington
MULHOLLAND v MULHOLLAND [2023] NZHC 1692 [4 July 2023]
Introduction
[1] The plaintiff, Vicky-Lee Mulholland (Vicky), seeks leave to apply for summary judgment on liability only against the first defendant, Brent Mulholland (Brent), in respect of certain aspects of her second cause of action.
[2] The plaintiff requires leave as her application for summary judgment was filed together with her amended claim rather than at the same time as the original statement of claim.1
[3] Vicky’s proposed summary judgment application seeks judgment under s 174(1) of the Companies Act 1993 that the affairs of the second defendant, ELE Holdings Ltd (EHL), are being conducted in such a way as to be oppressive, unfairly discriminatory or unfairly prejudicial to her. Such a claim is not ordinarily amenable to summary judgment. However for six out of seven of her grounds, Vicky relies on s 175 of the Companies Act which deems a failure to comply with certain provisions in the Companies Act to be unfairly prejudicial conduct. Regarding the seventh ground, Vicky submits there is no factual dispute and so the Court will be in as good a position on summary judgment as in the substantive claim.
[4] At the hearing, Vicky’s counsel said that Vicky would not proceed with the remaining aspects of her claim if she were successful on her summary application, so only a quantum hearing would then be required.
[5]Vicky submits the application for leave ought to be granted because:
(a)if there has been a delay in filing the application for summary judgment, it is not a delay with which the court needs to be concerned or it can be satisfactorily explained;
(b)the merits of her application are strong as the application for summary judgment “in the main” relates to conduct by Brent deemed to be
1 High Court Rules 2016, r 12.4(2).
oppressive, unfairly discriminatory, or unfairly prejudicial for the purposes of s 174 of the Companies Act 1993;
(c)there is no risk of a miscarriage of justice to the respondents in granting leave as the respondents are in the same position as they were when the proceedings were initially commenced: no fixture has been set down, no case management has occurred and the parties have not taken any steps; and
(d)if leave is not granted, the risk of a miscarriage of justice to Vicky is high.
[6] Counsel for Brent submits that the delay in bringing the summary judgment application cannot be satisfactorily explained and that the merits of Vicky’s application are not strong, instead describing them as “very tenuous indeed”. Counsel submits that the deeming provision cannot be relied on here because there are factual disputes to be determined first before the deeming provisions can apply. Importantly, Brent’s counsel says that although Vicky’s counsel has asserted that she has “carved out” from her larger claim seven grounds which she considers are amenable to summary judgment, a lengthy trial will still be necessary even if Vicky’s intended application were to succeed wholly.
[7] In Brent’s submission, it is therefore not in the interests of justice to grant leave as it will add significant cost and delay to the proceeding.
Relevant legal principles
[8] The legal principles applying to leave are well settled. Leave to file out of time is not a formality and must be determined separately to the summary judgment application itself.2 In deciding whether to grant leave, the Court considers the following questions:3
(a)Has the delay in filing been satisfactorily explained?
2 Stephens v Barron [2014] NZCA 82, (2014) 21 PRNZ 734 at [13].
3 Tip Top Ice Cream Co Ltd v Polarland Ltd (2002) 7 NZBLC 103,564 (HC) at [28].
(b)Are the merits of the applicant’s case for the relief sought particularly strong and therefore deserving of determination at a later time by the Court than is prescribed by the rules?
(c)Is there any risk of a miscarriage of justice by determining the summary judgment application at the later point in time?
[9] In Waihopai Valley Vineyard Ltd v Savvy Vineyards 3550 Ltd, Andrews J held that the Court should not grant leave to apply for summary judgment out of time unless doing so will have the effect of avoiding prolonged proceedings.4
[10] I briefly set out the rules relevant to summary judgment and the principles applying to assist in considering the merits of Vicky’s proposed application.
[11] Rule 12.2(1) of the High Court Rules 2016 provides that the court may give summary judgment against a defendant if the plaintiff establishes that the defendant has no defence to a cause of action or a particular part of a cause of action in the statement of claim. Vicky is not therefore precluded from proceeding only in respect of parts of her second cause of action as she proposes to do in the draft application.
[12] To succeed in establishing liability in the summary judgment application Vicky would need to establish that Brent has no arguable defence to the claims made and the Court must be left without any real doubt or uncertainty on the matter.5 This means there must be no real question to be tried.6 Although the onus would be on Vicky, Brent would need to provide some evidential foundation for any defences which are raised. Failure to do so would mean Vicky’s claim stands unchallenged and ought to be accepted unless they are patently wrong.7
[13]Rule 12.3 allows the court to enter judgment on liability only, providing:
4 Waihopai Valley Vineyard Ltd v Savvy Vineyards 3550 Ltd [2015] NZHC 592, (2015) 22 PRNZ 724 at [34]–[35].
5 Krukziener v Hanover Finance Ltd [2008] NZCA 187, [2010] NZAR 307 at [26].
6 Pemberton v Chappell [1987] 1 NZLR 1 (CA) at 3.
7 Australian Guarantee Corporation (NZ) Ltd v McBeth [1992] 3 NZLR 54 (CA) at 59.
12.3 Summary judgment on liability only
The court may give judgment on the issue of liability, and direct a trial of the issue of amount (at the time and place it thinks just), if the party applying for summary judgment satisfies the court that the only issue to be tried is one about the amount claimed.
[14]However as Fitzgerald J held in Fullarton v Arowana International Limited:8
[80] For the Court to be satisfied that the only issue to be tried is one about the amount claimed is a reasonably high threshold.9 There must a “clear dichotomy” between issues affecting liability and damages.10 The rationale for this is self-evident. Like applications for split trials (between liability and damages), the Court is alive to the risk of inefficiency where there is overlap between the issues and evidence that will need to be considered for the purposes of liability and quantum/damages. …
Issues
[15]The issues are therefore:
(a)Has the delay in applying for summary judgment been satisfactorily explained?
(b)Are the merits of the applicant’s case particularly strong and therefore deserving of determination by the Court at a time later than prescribed by the High Court Rules?
(c)Is there any risk of a miscarriage of justice by determining the application at that later point in time?
[16] I set out the factual background briefly below before considering each of the above questions.
8 Fullarton v Arowana International Limited [2021] NZHC 931 at [80] (footnotes omitted).
9 OHL Ltd v Johns [2019] NZHC 594 at [29].
10 246 Investments Ltd v Herbert HC Auckland CIV-2008-404-6612, 10 July 2009 at [63] to [64].
Factual background
[17] Vicky and Brent are siblings. They are both shareholders of the second respondent, EHL. Vicky and Brent’s brother, Paul Mulholland (Paul), is a former shareholder.
[18] Brent, Paul and Vicky entered into a shareholders’ agreement in relation to EHL on or around 22 November 2017 (Shareholders’ Agreement).
[19] The Shareholders’ Agreement recorded in the background that Brent, Vicky and Paul were the shareholders in EHL and that EHL was “the holding company for shares in various enterprises in which the shareholders intend to create new businesses and make profit.”11 Recital C to the Shareholders’ Agreement then said:
C.It is Brent, Vicky and Paul’s intention to:
(a)be shareholders in [EHL];
(b)for Vicky, Paul and Brent to be directors of [EHL] (with Brent having the ability to appoint the fourth director); and
(c)have no other shareholder in [EHL] unless mutually agreed.
[20] Clause 2 of the Shareholders’ Agreement recorded the shareholdings as follows: “Brent (and/or his family trust) shall have 50% of the shares in [EHL] and Vicky and Paul (and/or their respective family trusts) shall have 25% each of the shares in [EHL].” This remained the state of the shareholdings up until December 2020.
[21]Brent appointed Ken Shirley as director of EHL on or around 16 January 2019.
[22] In or around December 2020, Paul sold his 25 per cent shareholding to his siblings. Since then, Brent has been the holder of 66 per cent of the shares in EHL and Vicky the remaining 34 per cent.
[23] Vicky was removed as a director of EHL in January 2022 by way of an ordinary resolution of shareholders. Brent submits that the resolution was validly passed in accordance with clause 22.2 of EHL’s constitution and s 105(2) of the Companies Act.
11 Shareholders’ Agreement, Recital B.
Vicky however submits that pursuant to clause 3.1 of the Shareholders’ Agreement, she is entitled to still be a director of the company. This is discussed in more detail below in considering ground five of Vicky’s proposed summary judgment application.
[24] On 13 October 2022 Vicky filed her substantive claim against Brent and EHL. One cause of action was pleaded including both:
(a)that Brent had breached the terms of their “quasi-partnership”; and/or
(b)conducted the affairs of EHL in a manner deemed to be oppressive, unfairly discriminatory, or unfairly prejudicial against Vicky.
[25] The relief sought was an order that Brent purchase Vicky’s shares at either the “pro rata value” of Vicky’s shares as at the date of judgment or “a price that the Court considers fair to remedy Vicky for the oppressive, unfairly discriminatory, or unfairly prejudicial conduct against her.” If the Court was not willing to grant an order that Brent acquire Vicky’s shares, an order was sought in the alternative that EHL is to be put into liquidation under s 174(2)(g) of the Companies Act.
[26] Following correspondence between the parties an amended statement of claim was filed on 22 December 2022 together with the proposed summary judgment application. The amended statement of claim separates the alleged breach of the “quasi-partnership” and the s 174 claim into two separate causes of action.
[27] The proposed summary judgment application relates to a subset of the allegations of prejudicial conduct which, Vicky submits, are either (or both):
(a)actions taken by Brent deemed by s 175 of the Companies Act to be oppressive, unfairly discriminatory, or unfairly prejudicial against Vicky in terms of s 174 of the Act; or
(b)conduct that is obviously unfairly prejudicial that it is capable of being determined on a summary basis.
[28] Leave to file the summary judgment application was not sought initially. Following my minute dated 27 January 2023 confirming that a leave application was required, the application for leave was filed on 3 February 2023 as directed.
[29] Prior to the filing of the amended claim, the parties had agreed that no statement of defence was required to be filed until after the amended statement of claim was filed. As a summary judgment application was filed together with the amended claim, no statement of defence has yet been filed.
Has the delay in applying for summary judgment been satisfactorily explained?
[30] Counsel for Vicky, Mr Hofer, submits that Vicky’s application for summary judgment pre-dates technical service of her statement of claim or her amended statement of claim so there has been no delay. This is on the basis that proceedings pursuant to s 174 of the Companies Act are required by rule 18.14A to be brought pursuant to part 18 of the High Court Rules. Mr Hofer submits that service of the statement of claim was not effective until directions for service were made by this Court on 27 January 2023.
[31] If that is not accepted, Mr Hofer refers to Bank of New Zealand Ltd v Fernando where the Court held that any delay that did occur is not delay with which r 12.4(2) is concerned.12 Mr Hofer says that the application for summary judgment in this case was made prior to the defendant having to take any steps, which was even earlier than in the Bank of New Zealand Ltd v Fernando case.13
[32] In addition, Mr Hofer points to ground six of the application for summary judgment which relates to the conduct of the affairs of EHL in breach of s 178 of the Companies Act on 19 December 2022 which was after the (attempted) service of the initial claim. Mr Hofer says that up until early December 2022, MinterEllisonRuddWatts had purported to act for both Brent and EHL which he submits it is plainly not entitled to do in an unfair prejudice dispute between shareholders.
12 Bank of New Zealand Ltd v Fernando [2021] NZHC 1683 at [31].
13 At [31].
[33] By December 2022 EHL was being advised by RVG Law, but Mr Hofer submits RVG Law’s refusal to provide information about EHL’s expenditure on 19 December 2022 confirmed that Brent personally, and through EHL, intended to continue a pattern of unfairly discriminatory, oppressive and unfairly prejudicial conduct towards Vicky. Vicky gives evidence that a “change of strategy” was therefore required.
[34] Mr Hofer submits that Vicky’s prediction of continued oppressive behaviour has proved correct as evidenced by ELE Management Limited, a wholly owned subsidiary of EHL, issuing summary judgment proceedings against Vicky for conversion in order to recover a motor vehicle currently in Vicky’s possession. Vicky submits those proceedings have been filed directly in response to the current proceedings against Brent and EHL.
[35] Brent’s counsel, Mr Gordon, submits in response that Vicky’s counsel’s reliance on Bank of New Zealand Ltd v Fernando is misplaced because it was a very different case. Mr Gordon says Fernando was a debt collection case where Mr Fernando was being sued under his personal guarantee for debts owed to the bank by his companies (and following the realisation of a shortfall on the sale of secured properties). Mr Gordon says that since the 1998 amendments to the High Court Rules, it has been common practice in such debt collection matters for the unpaid creditor to elect to commence their claim by way of ordinary proceedings rather than summary judgment.
[36]Mr Gordon submits, however, that this is done for bluntly pragmatic reasons:
(a)assuming the debtor does not file a statement of defence, then judgment by default may be sealed without delay and that judgment may then be enforced in all of the normal ways; and
(b)if the debtor should (as often happens) file a spurious defence, simply to stave off judgment by default, all is not lost – and the creditor does not find themselves wedded to a full-blown civil trial. They can still
access the summary judgment procedure at that point by seeking leave of the Court.
[37] Mr Gordon’s submission is that the 1998 amendments to the High Court Rules meant that the parties would save time and costs, and busy court lists were decluttered, by creditors not feeling compelled to apply for summary judgment in every debt collection case. Indeed, he says, that was the key purpose of the change to the rules. However, in Mr Gordon’s submission that is a million miles away from the shareholders’ dispute in this case.
[38] Mr Gordon sets out what he describes as the “unhappy procedural path” in this case where upon personal service of the initial statement of claim in October 2022, issue was immediately taken with it by the respondents because, Mr Gordon submits, “it was (frankly) an outrageous pleading.” Mr Gordon says that the original pleading was extremely and unnecessarily prolix, including extensive pleading of purely evidential material, therefore failing to comply with r 5.26 of the Rules, and that it mounted concerted personalised attacks on Brent’s reputation by pleading a number of scandalous and untrue accusations against him, including fraud. In doing so, Mr Gordon submits Vicky’s advisers failed to comply with their ethical obligations under r 13.8 of the Lawyers and Conveyancers Act (Lawyers: Conduct and Client Care) Rules 2008. Mr Gordon agrees that there was also an issue with the form of the original pleading because it did not comply with part 18 of the High Court Rules, but submits that was very much a side issue.
[39] Mr Gordon continues that faced with what otherwise would have been an interlocutory application to strike out the statement of claim as an abuse of process, Vicky agreed to file an amended statement of claim with the time for any statements of defence to only run from the date of service of that amended claim. Mr Gordon submits that it was only then, without any warning, that Vicky decided to proceed with an application for summary judgment and that the only reason for this was a change in strategy. Mr Gordon says that it does little credit to the plaintiff to now dress up this “tactical volte-face” by saying that it was caused by an alleged failure by EHL to comply with the latest of Vicky’s information requests when Vicky does not even seek
to pursue summary judgment against EHL. Mr Gordon therefore submits that Vicky’s delay in seeking to pursue summary judgment has not been satisfactorily explained.
[40] As I set out in my minute dated 27 January 2023, the fact that the original statement of claim was not pleaded as a part 18 proceeding (and an application for directions as to service was not made) does not affect the requirement for leave. Rule 1.5(3) expressly states that the Court must not wholly set aside any proceeding for failure to commence the proceeding in accordance with the required originating process. The original statement of claim cannot therefore be set aside so it stands as the original pleading. The summary judgment application was filed together with the amended pleading just over two months later and so requires leave.
[41] The delay in this case was relatively short and did not prejudice the defendant significantly as no statement of defence had yet been required to be filed. It appears that the delay arose largely as a result of a change in strategy. In any event, delay is just one of the factors to consider and in this case is unlikely to be a determining factor given the time period involved.
Are the merits of Vicky’s case for summary judgment particularly strong and therefore deserving of determination at a later time than prescribed by the High Court Rules?
[42] In respect of the merits, Mr Hofer submits for Vicky that she only needs to show that she has a “sufficient prospect of success in obtaining summary judgment”, relying on Bank of New Zealand Ltd v Fernando.14 Mr Hofer describes this as a low threshold with the purpose of the leave hearing not being to delve deeply into the merits.
[43] I do not agree that “sufficient prospect of success” is a low threshold. The three questions set out by Master Faire in Tip Top Ice Cream Co Ltd v Polarland Ltd, as referred to by Associate Judge Paulsen in Fernando,15 expressly refer to whether the merits of the case for summary judgment are “particularly strong”. The overriding consideration must be the interests of justice having regard to the objective of the High
14 Bank of New Zealand Ltd v Fernando, above n 12, at [34].
15 At [17].
Court Rules to secure the just, speedy, and inexpensive determination of proceedings.16 To justify granting leave, the summary judgment application needs to have a sufficient prospect of success to outweigh the delay that would be caused. It makes no sense to grant leave if there is not a real likelihood of success as otherwise it will be a waste of all parties’ time and money.
[44]The plaintiff’s application for leave pleads as follows in respect of the merits:17
(i)The applicant has carved out of the statement of claim and inserted into the [summary judgment] application issues it considers are amenable to summary judgment;
(ii)In the main, the [summary judgment] issues relate to conduct deemed oppressive, unfairly discriminatory, or unfairly prejudicial under s 174 of the Companies Act 1993 (Act) by s 175(k) of the Act.
(iii)The [summary judgment] issues are matters of the second respondent’s documentary records or facts following correspondence between solicitors where there is no factual dispute or arguable defence that the conduct complained of fits within s 175(k) or s 174 of the Act;
[45] Mr Hofer submits for Vicky that the key point is that while there are several specific points that will need to be determined on the summary judgment application, these points are all matters:
(a)that are capable of being resolved without discovery and cross-examination; and
(b)upon which Vicky has a strong prospect of success.
[46] Vicky pleads seven grounds on which she asks the Court to grant summary judgment on liability under s 174 of the Companies Act. The first six are alleged to relate to failures to comply with s 117 of the Companies Act. Failure to comply with s 117 is deemed to be unfairly prejudicial conduct for the purposes of s 174 by s 175(1)(k) of the Companies Act. The seventh ground relates to a valuation by
16 High Court Rules, r 1.2.
17 Interlocutory application on notice for leave to apply for summary judgment, dated 3 February 2023, at [2(c)].
Deloitte that Vicky submits is a discrete instance of conduct for which there is no factual dispute, so while it is not deemed prejudicial conduct under s 175, Vicky submits it is still amenable to summary judgment.
[47]Section 117 provides as follows:
117 Alteration of shareholder rights
(1)A company must not take action that affects the rights attached to shares unless that action has been approved by a special resolution of each interest group.
(2)For the purposes of subsection (1), the rights attached to a share include—
(a)the rights, privileges, limitations, and conditions attached to the share by this Act or the constitution, including voting rights and rights to distributions:
(b)pre-emptive rights arising under section 45:
(c)the right to have the procedure set out in this section, and any further procedure required by the constitution for the amendment or alteration of rights, observed by the company:
(d)the right that a procedure required by the constitution for the amendment or alteration of rights not be amended or altered.
(3)For the purposes of subsection (1), the issue of further shares ranking equally with, or in priority to, existing shares, whether as to voting rights or distributions, is deemed to be action affecting the rights attached to the existing shares, unless—
(a)the constitution of the company expressly permits the issue of further shares ranking equally with, or in priority to, those shares; or
(b)the issue is made in accordance with the pre-emptive rights of shareholders under section 45 or under the constitution of the company.
[48] The purpose of the prohibition established by s 117(1) has been described as being to “protect the interests of minority shareholders where the company proposes an action that will affect their proprietary interests in their shares”.18
18 Linda Howes and Stephen Revill Company Law (online ed, Thomson Reuters) at [CA117.01].
[49] Subsections 117(2) and (3) list rights that are included as rights attached to shares for the purposes of s 117(1). These include at s 117(2)(a) the “rights, privileges, limitations, and conditions” attached to the shares by the Act or by a company’s constitution, including voting rights and rights to distributions.
[50] Section 36 of the Act sets out the rights and powers attached to shares as follows:
36 Rights and powers attaching to shares
(1)Subject to subsection (2), a share in a company confers on the holder—
(a)the right to 1 vote on a poll at a meeting of the company on any resolution, including any resolution to—
(i)appoint or remove a director or auditor:
(ii)adopt a constitution:
(iii)alter the company’s constitution, if it has one:
(iv)approve a major transaction:
(v)approve an amalgamation of the company under section 221:
(vi)put the company into liquidation:
(b)the right to an equal share in dividends authorised by the board:
(c)the right to an equal share in the distribution of the surplus assets of the company.
(2)Subject to section 53, the rights specified in subsection (1) may be negated, altered, or added to by the constitution of the company or in accordance with the terms on which the share is issued under section 41(b) or section 42 or section 44 or section 107(2), as the case may be.
[51] Subsection (2) is important as it makes clear that the rights attached to shares can be affected by the terms on which a share is issued. It is subject to s 53, which prevents differential dividends (as defined) unless certain objective criteria are met, but otherwise provides that rights may be affected by such terms. Sections 41(b), 42, 44 and 107(2) are all sections in the Companies Act under which shares may be issued.
[52] As stated, s 117 provides that a company must not take action that affects one of these rights unless a special resolution of each interest group approves the action.
[53]A “special resolution” is defined in s 2 of the Companies Act as:
a resolution approved by a majority of 75% or, if a higher majority is required by the constitution, that higher majority, of the votes of those shareholders entitled to vote and voting on the question.
[54] Powers reserved to shareholders by the Companies Act, such as the power to pass a special resolution, may be exercised only at the annual meeting of shareholders (s 120) or a special meeting of shareholders (s 121), or by a resolution in lieu of a meeting pursuant to s 122.19 Where powers are reserved to shareholders by the constitution (as opposed to the Companies Act) then the constitution of the company may determine how those powers are exercised.20
[55] I discuss each of the grounds relied on by Vicky below and Brent’s response to assess the likely merits of the summary judgment proceeding.
Ground one – breach of Shareholders’ Agreement on 27 February 2019
[56] Vicky submits that on 27 February 2019 the directors of EHL voted on whether or not to adopt a board charter, the effect of which would result in Vicky’s removal as director from EHL’s subsidiary companies. Brent and newly appointed director and chairperson, Ken Shirley, voted for the adoption of the board charter and Vicky and Paul Mulholland, who was a shareholder at that time, voted against the adoption of the board charter.
[57] Vicky submits that in breach of clause 3.2 of the Shareholders’ Agreement, the chairperson did not allow the directors to seek external assistance from their advisors to break the deadlock, instead declaring that as chairperson he had the casting vote. As a result, the board charter was adopted and Vicky was removed as a director of the EHL subsidiary companies the same day.
[58]Clause 3.2 of the Shareholders’ Agreement provides:
Directors’ decisions will be determined by a simple majority of the votes cast. If there is an equal number of votes cast for and against any matter being voted on, the Directors will seek external assistance from their advisors to break the deadlock. If that is not successful, the chairman shall have the casting vote.
19 Companies Act 1993, s 104(1).
20 Section 104(2).
[59] Vicky submits in reliance on this clause that as a shareholder of EHL, she had a right attached to her shares to seek external assistance from her advisors to break the deadlock before the chairperson was able to give the casting vote.
[60] As a result, Vicky submits the respondents failed to comply with s 117 of the Act:
(a)by denying the applicant the right to seek external assistance, EHL took action to affect the rights attached to Vicky’s shares; and
(b)no special resolution was passed approving EHL’s action to affect the rights attached to Vicky’s shares.
[61] Vicky submits this failure to comply with s 117 is deemed by s 175(1)(k) to be unfairly prejudicial conduct for the purposes of s 174.
[62] In response, Brent’s counsel submits that what is in issue here is not Vicky’s right to vote but instead the procedural steps that had to occur before the chairperson was entitled to exercise their casting vote and in fact whether those procedural steps were followed.
[63] It is clear from the evidence filed that there is a factual dispute between the parties as to the process that was followed, including whether there was an earlier meeting at which there was a vote on the board charter and whether Vicky did obtain legal advice.
[64] Whether there is a failure to comply with s 117, and therefore a deemed breach of s 174, is not therefore a matter that could be determined on a summary judgment basis given the disputed evidence of the parties, including as to whether there was a vote at the first meeting and whether legal advice was obtained. In addition, the actions complained of appear to be actions of the chairperson, Ken Shirley, rather than the first respondent, Brent.
[65] In any event, it is not clear that there would be a breach of s 117 if clause 3.2 of the Shareholders’ Agreement was not followed firstly because clause 3.2 relates to
directors’ decisions rather than rights attached to shares, but secondly because s 117 does not necessarily protect rights and privileges under the Shareholders’ Agreement (as opposed to those under the Companies Act or the company’s constitution). In Feldman v Dexibit Ltd the rights set out in the shareholders agreement were incorporated into the constitution by express reference.21 Here, by contrast, there is no reference in EHL’s constitution to the Shareholders’ Agreement. Clause 14 of the Shareholders’ Agreement does say that where there is any conflict between the constitution and the Shareholders’ Agreement, “the provisions of the [Shareholders’ Agreement] take priority and apply to the exclusion of the Constitution”. I did not hear argument however on whether the effect of this clause is to incorporate procedures required by the Shareholders’ Agreement into the constitution. Even if I had, interpretation of the way in which the constitution and the Shareholders’ Agreement are to work together is a matter that requires context and would not appropriately be determined on a summary judgment basis.
[66] For all the above reasons, this first ground does not appear to provide a sufficient prospect of success for leave to be granted.
Ground two – failure to pay declared dividends to the applicant
[67] Vicky submits that on 30 March 2021, EHL declared gross dividends in the sum of $1,120,000 resulting in net dividend sums as follows:
(a)to Vicky of $255,136; and
(b)to Brent of $495,264.
[68] Vicky submits that EHL has refused to pay her dividends and relies on the reference in s 36(1)(b) of the Companies Act to the rights attached to shares including “the right to an equal share in dividends authorised by the board”.
[69] Brent says the dividend was in fact paid by way of set off against Vicky’s current account debt to EHL, submitting that payment of dividends by way of set off
21 Feldman v Dexibit Ltd [2021] NZHC 2488 at [107] to [110].
is commonplace in closely held companies and that there is no prohibition on doing so in the Shareholders’ Agreement.
[70] There appears to be a dispute in respect of the amount that was owed by Vicky in her current account and so on any basis this is not a matter that can be determined on summary judgment, even if the failure to pay declared dividends was an alteration of Vicky’s shareholder rights pursuant to s 117 of the Companies Act which I am not certain that it is. Again this ground does not provide a sufficient prospect of success on summary judgment to justify leave.
Ground three – conducting meetings and voting on resolutions without a quorum
[71] Vicky pleads that on 30 March 2021, EHL conducted a board meeting and voted on resolutions without a quorum because Vicky was not physically present at that meeting. Vicky says this is a breach of clause 3.3 of the Shareholders’ Agreement which provides:
Quorum: A quorum for Directors’ meetings will be at least two Directors – one of either Vicky and Paul and one of Brent’s two Directors or their respective alternate Directors being physically present.
[72]Vicky submits that the resolutions passed at that meeting included:
(a)noting Brent’s decision to establish a professional consulting business which will have close alignment with labour hire firms and recruitment initiatives, as well as professional consultancy to support external organisations including current clients of ELE Group and confirmation that EHL had no objection to Brent pursuing the new business; and
(b)EHL employing Brent’s spouse as a personal assistant to Brent with an annual salary of $77,500.
[73] In response to this, Mr Gordon submits for Brent that clause 3.3 of the Shareholders’ Agreement is a procedural mechanism concerning the process for decision making by the directors of the company and that it does not affect any rights attached to the plaintiff’s shares.
[74] In any event, Mr Gordon submits cl 27.2 of EHL’s constitution provides that the directors may regulate their meetings as they see fit. Mr Gordon says that this is where context and a proper understanding of the background facts is needed, requiring a full hearing after discovery. By the date of the meeting in March 2021, the evidence filed on behalf of Brent is that the disputes between Brent and Vicky had been on foot for more than two years and Vicky was, in counsel’s submission, “simply refusing to attend the directors’ meetings.”
[75] Mr Gordon submits that in these circumstances it was open to the directors to regulate the conduct of that meeting, including deciding any question arising at it by a majority of votes in accordance with cl 27.3 of the constitution. Brent also relies on the Latin maximum nullus commodum capere potest injuria sua propria; that Vicky may not take advantage of the non-performance of her own duties and obligations as a then director of EHL to now assert breach by Brent.
[76] The draft minutes of the meeting record that only Ken Shirley and Brent were at the meeting. Whether Vicky was refusing to attend meetings and the consequences of that in terms of quorum are not matters that will be able to be determined on a summary basis. This ground does not support the granting of leave.
[77] In addition, I question whether clause 3.3 of the Shareholders’ Agreement provides a right attached to a share. Procedural rights in the Act or the constitution can be protected but not necessarily procedures set out in the Shareholders’ Agreement, unless incorporated by reference.22 As I set out above, clause 14 of the Shareholders’ Agreement may provide some assistance to Vicky but it is not a matter that can be determined on a summary basis.
Ground four – voting on and passing resolutions without the required majority
[78] Vicky pleads that on 20 April 2021, EHL held a shareholders’ special meeting pursuant to s 121 of the Companies Act. Vicky submits that again contrary to the Shareholder’s Agreement, the chairman, Ken Shirley, gave notice of a purported alteration to the quorum requirement for the meeting:
22 Feldman v Dexibit Ltd, above n 21, at [109]–[110].
The quorum requirement for the meeting is one shareholder attending personally or by proxy or who has cast postal votes, and holds more than 50 per cent of the voting shares of the Company.
[79] Vicky says she was not asked to and did not approve the alteration of the quorum requirements. Vicky then refers to cl 4(3)(b) of Schedule 1 of the Companies Act that requires a shareholders’ meeting to be dissolved or adjourned if a quorum is not present. Vicky submits that the resolutions purportedly passed at this meeting by Brent exempted EHL from compliance with s 211 of the Companies Act, allowing EHL to avoid reporting obligations, including stating the total remuneration and other benefits received by each director of the company during the reporting period. Vicky relies on s 211(3) which requires 95 per cent of the shareholders to approve such a resolution and says that Brent would not have had that if he could not satisfy the quorum requirements on his own.
[80] Again it is not clear to me whether the alteration to the quorum requirement would constitute an alteration of the rights attached to shares as Vicky could still have exercised her right to vote either by attending the meeting or appointing a proxy or postal voting, for example. The evidence filed in support of the summary judgment application does not record the date that notice was given of the alteration to the quorum requirements and whether this Vicky’s proxy or postal voting rights could still have been exercised.
[81] There are also disputes between the parties as to whether the resolutions were required or not for EHL to avoid appointing an auditor and preparing annual accounts. Brent submits resolutions were not required because:
(a)none of EHL or its subsidiaries was a “large” company as defined in the Financial Reporting Act 2013; and
(b)none of Brent, Vicky or EHL opted into the requirement to be audited or to prepare an annual report for that financial year, which Brent submits would have needed to be done within six months of the start of that financial year but was not done.
[82] Vicky disputes this, saying that EHL was a large company for the 2021 financial year as the total revenue of EHL and its subsidiaries exceeded $33 million dollars for the two preceding accounting periods.
[83] Again, I consider it is unlikely a failure to comply with s 117 of the Companies Act could be established on a summary basis on this ground.
Ground five – removal of the applicant as director of EHL
[84] Vicky submits that under the Shareholder's Agreement she had a right attached to her shares to be a director of EHL. Contrary to that right, Vicky submits that on 19 January 2022 she was removed as a director by resolution of the shareholders with Brent exercising his 66 per cent majority to remove her.
[85]Clause 3.1 of the Shareholder's Agreement states:
3.1 Number of directors:
While the shareholder remains as proposed under this agreement, Vicky, Paul and Brent shall each be Directors of the Company and Brent shall appoint an additional Director, to be approved by Vicky and Paul (such approval not to be unreasonably or arbitrarily withheld).
[86] Brent disputes that this gives Vicky the right to be a director of EHL once the shareholding changed from what was proposed in the Shareholder's Agreement, that is 50 per cent to Brent, 25 per cent to Vicky and 25 per cent to Paul. At the time that Vicky was removed as a director, the shareholding was 66 per cent to Brent and 34 per cent to Vicky.
[87] Vicky submits that it would be a perverse reading of clause 3.1 in the Shareholder's Agreement for her right to be a director to be removed when her shareholding had increased following Paul selling his shares.
[88] However, Brent submits that it makes sense commercially for the right to be a director to no longer be available despite Vicky’s increased shareholding. As matters stood prior to December 2020, Vicky and Paul could (if acting in concert) block the passage of ordinary resolutions because together they held 50 per cent of the shares in the company. Holding that power, it makes sense for them each to be entitled to be
directors of EHL. Brent submits that this is no longer the case and Vicky now only holds a minority 34 per cent shareholding as against Brent’s remaining 66 per cent. Brent submits that the normal status quo under the Act should resume and that is what clause 3.1 of the Shareholders’ Agreement does.
[89] I accept that a shareholder’s right to be, or to appoint, a director may be a right that is protected by s 117 (although whether in this case it is a purely contractual right or a s 117 right will need to be determined). However, the issue here is exactly what Vicky’s rights are now that the shareholding in EHL has changed from that set out in the Shareholders’ Agreement. This is a matter of interpretation of the Shareholders’ Agreement and is not a matter that could be determined in a summary judgment application given the disputed evidence. As a result, I do not consider that there is a sufficient prospect that Vicky will be able to establish on a summary basis a failure to comply with s 117, and therefore a deemed breach of s 174, on this ground either.
Ground six – failure to comply with information requests made under s 178 of the Companies Act
[90] An immediate difficulty with this ground is that the summary judgment application is brought against Brent only and not the company. Furthermore, failure to provide information allegedly in accordance with rights to such information are issues that are intensely factual and not amenable to summary judgment because all of the circumstances need to be considered. Whether a failure to comply with an information request is an alteration of a right attached to a share is also a matter that would need to be determined. I do not consider this ground further as in my view it is clearly not amenable to a summary judgment claim against Brent.
Ground seven – Deloitte valuation
[91] Vicky submits that ground seven is a discrete instance of conduct where there is no factual dispute so, whilst not falling within the deeming provision, it is clearly prejudicial conduct and is therefore still amenable to summary judgment. Vicky submits that the following facts are not in dispute:
(a)On 29 July 2022 MinterEllisonRuddWatts provided Vicky with a valuation of Vicky’s minority shareholding that EHL had obtained from Deloitte (Deloitte Valuation). The Deloitte Valuation was commissioned to provide it to Vicky to discuss the terms of her exit from EHL.
(b)The Deloitte valuation was conducted on a “fair market value” basis which Vicky submits is the most unfavourable valuation basis to her and contrary to the Shareholders’ Agreement which requires valuation of her shares on a “fair value” basis.
[92] Vicky submits that the provision of the Deloitte Valuation on a “fair market value” basis for negotiating Vicky’s exit from her minority shareholding is, in and of itself, oppressive, unfairly discriminatory, and unfairly prejudicial conduct.
[93] In response, counsel for Brent refers to the second paragraph of the Deloitte Valuation which records:
We understand that our valuation will be used to assist you in forming your own view on the value of [EHL] in the context of a potential future capital raise (the Purpose). Our valuation report (the Report) has been prepared for this purpose and no other.
[94] Counsel for Brent submits it is difficult to understand Vicky’s complaints over what they say was a good faith provision to her of the Deloitte Valuation. The evidence filed on behalf of Brent is that by the time this valuation was provided, the parties had been trying to negotiate commercial terms for Vicky’s exit from her minority shareholding for over nine months and that Vicky had expressed a view that she did not have enough information to make her own decision on value. The Deloitte Valuation was to hand so it was provided to her in good faith to try and help progress the commercial negotiation. Most importantly, however, Brent submits it cannot sensibly be suggested that sharing this information was or is “prejudicial” conduct.
[95] I agree with the submission that it is unlikely that provision of this valuation could provide a basis for a finding of unfairly prejudicial conduct. Vicky could either choose to rely on this valuation or choose to disregard it. In addition, one of the facts
that Vicky submits is undisputed in relation to the Deloitte Valuation in that it was commissioned to provide it to Vicky to discuss the terms of her exit. The valuation itself records an alternative purpose and Brent disputes this so again it is not a matter that could be determined on a summary judgment basis. In addition, one of the facts that Vicky submits is undisputed in relation to the Deloitte valuation is that it was commissioned to provide to Vicky to discuss the terms of her exit. Brent disputes this and the valuation itself records an alternative purpose. Again, this does not appear to be a matter that could be determined on a summary judgment basis. This ground therefore does not support leave either.
Is there any risk of a miscarriage of justice by determining the application for summary judgment at this later point in time?
[96] Vicky submits that there is no possibility of a miscarriage of justice because the parties are effectively at the same stage as a plaintiff applying for summary judgment on commencement of proceedings (where leave is not required). Mr Hofer says that Brent can be no worse off than if the application for summary judgment had been filed as of right.
[97] Mr Hofer continues that if that is not accepted, the secondary submission is that there is no miscarriage of justice to Brent because:
(a)Vicky has carved out from her wider claim grounds which she considers are amenable to summary judgment because they relate to matters of EHL company records and are deemed unfair prejudicial under s 117, or in respect of ground seven involve undisputed matters of fact.
(b)If the claim for summary judgment fails, then Brent will be able to file a statement of defence and the proceeding will continue in the usual way.
(c)If judgment on liability against Brent is obtained it will significantly narrow the issues for trial which will be limited to remedy and/or quantum (if the remedy ordered is buy-out or compensation) and this should reduce the scope of discovery and evidence substantially.
(d)Vicky does not accept that a full re-trial will be needed even if summary judgment is granted, submitting that this overstates the position of the company in unfair prejudice proceedings. In Vicky’s submission, the company is a defendant because it has documents relevant to the proceedings, will be required to provide discovery and may be affected by the remedy.
[98] Conversely, Vicky submits that if leave is not granted there will be a miscarriage of justice for her. Vicky is already facing a long and protracted dispute against Brent, who is supported by EHL. The application for summary judgment is not to cause cost, effort, distraction and delay, but to avoid it.
[99] In response, Brent submits that he strongly disagrees that this is the kind of case where there is a clear liability/quantum divide. There are in effect three stages with liability, remedy and quantum tightly intertwined. If there have been any failures to comply (which Brent denies) the appropriate remedy needs to take into account the seriousness of any matters that have not been done perfectly, with the possibility that the only relief ordered by the Court is to regulate future conduct.23 In addition, Mr Gordon submits on behalf of Brent that quantum will require a whole raft of other evidence, including expert evidence.
[100] In Fullarton v Arowana International Limited, Fitzgerald J was faced with a similar request to enter summary judgment on liability but expressed her concern and the possible issues with doing so as referred to above at [14].24 Although Fitzgerald J was considering securities legislation and the Fair Trading Act 1986, rather than the Companies Act, similar issues arise.
[101] The discretion afforded to the Court by s 174 is very broad with the Court being empowered to order a remedy where it considers it is “just and equitable to do so.” In those circumstances, under s 174(2), it may “make such order[s] as it thinks fit” including, “without limiting the generality of this subsection”, an order requiring the company or any other person to acquire the shareholder’s shares or to pay
23 Companies Act 1993, s 174(2)(c).
24 Fullarton v Arowana International Limited, above n 8, at [80].
compensation, or simply to direct the rectification of the records of the company or regulate the future conduct of the company’s affairs. These matters need to be considered in the round. Entering summary judgment on only a handful of the allegations made in the statement of claim will not, in my view, shorten the substantive hearing even if there were matters that provided a basis for claiming a failure to comply with s 117.
[102] In my earlier decision in Feldman v Dexibit Ltd,25 I was prepared to enter summary judgment for liability but in very different circumstances. There was no factual dispute as to what had happened but rather a dispute as to the legal interpretation of those circumstances.
[103] I am conscious that s 174 proceedings are difficult for minority shareholders because there are power and information imbalances and the proceedings are often lengthy and expensive, but that is not a reason to grant leave where the prospects of success do not justify it. In the end it will not be to the minority shareholder’s advantage if they fail on a summary judgment basis as that will just make the litigation more expensive and more protracted.
[104] Mr Hofer indicated at the hearing that if Vicky is successful in her claim for summary judgment on liability, she will discontinue the remainder of the claim so that there would then just need to be a quantum hearing. In his submission, this would avoid a prolonged dispute and lead to a just and speedy outcome.
[105] However, even if Vicky could establish on a summary basis that some of the alleged conduct was deemed unfairly prejudicial conduct under the Act, those findings would be unlikely to provide a sufficient basis for determining appropriate relief and quantum without significant further evidence being necessary. In my view it is likely there would be considerable doubling up between the summary judgment hearing and the relief and quantum hearing. The approach most consistent with the objective of the High Court Rules would therefore be to decline leave.
25 Feldman v Dexibit Ltd, above n 21, at [171].
Conclusion
[106] Taking the answers to the three questions above into account I do not consider that leave ought to be granted as it is likely to prolong the proceedings. The merits of the proposed summary judgment application do not have a sufficient prospect of success because to establish whether the matters fall within the deeming provisions will require determination of disputed issues of fact. In addition, questions remain as to whether, even if the facts could be established, the conduct would fall within the deeming provisions. For the remaining ground based on Deloittes’ valuation, Brent clearly has a reasonably arguable defence.
[107] Furthermore, even if the alleged conduct did fall within the deeming provisions or could be found to be unfairly prejudicial on a summary basis, the determination of the appropriate relief and quantum would still require a lengthy hearing with the risk of significant doubling up.
Result
[108] The plaintiff’s application for leave to proceed with the summary judgment application is declined.
Costs
[109] The respondent has succeeded and so is entitled to costs. My preliminary view is that costs ought to be awarded on a 2B basis. I ask the parties to confer and only if agreement cannot be reached to file memoranda of no more than five pages excluding schedules, on behalf of the respondent within 20 working days of this judgment and the applicant a further 10 working days.
Associate Judge Sussock
2
3
1