Murphy v Crisp - [2017] NZHC 615

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2017-404-55 [2017] NZHC 615

UNDER the Companies Act 1993

BETWEEN

JOHN PATRICK MURPHY Applicant

AND

COLIN HAMILTON CRISP First Respondent

DAWNHAVEN LIMITED Second Respondent

Hearing: 28 March 2017

Appearances:

D B Beard for Applicant
L T Meys for Respondents

Judgment:

28 March 2017

ORAL JUDGMENT OF ASSOCIATE JUDGE R M BELL

Solicitors:
Legal Street Ltd (D B Beard), Auckland, for Applicant
Neilsons Lawyers (E Telle/L T Meys), Onehunga, Auckland, for Respondents

MURPHY v CRISP [2017] NZHC 615 [28 March 2017]

[1] Mr Murphy applies under s 165 of the Companies Act 1993 for leave to begin derivative proceedings in the name of Dawnhaven Ltd for two purposes:

[a] to apply for pre-commencement discovery in a proceeding in the

District Court under CIV-2016-004-1587; and

[b] to recover some of the money paid to Mr Crisp on a settlement in a

proceeding which I will refer to as the “Digitech” proceeding.

[2] Mr Murphy is a minority shareholder of Dawnhaven Ltd. Mr Crisp is the majority shareholder. There are 1,000 shares in the company. Mr Crisp holds 667 shares, Mr Murphy holds 333 shares. Both Mr Crisp and Mr Murphy are directors of the company. Because he has majority voting power, Mr Crisp could have Mr Murphy removed as director but Mr Crisp has so far not taken that step. Mr Murphy wishes to bring derivative proceedings in the name of Dawnhaven Ltd to obtain redress against Mr Crisp.

[3] Dawnhaven Ltd was incorporated as a vehicle through which Mr Murphy and Mr Crisp could invest in a scheme called Digitech. The scheme was very complicated. Kós J described it in his costs decision in N-Tech Ltd v A Booth Ltd.1
Dawnhaven Ltd was a loss attributed qualifying company - an LAQC. As Kós J noted in his decision,2 LAQCs had two advantages: their net tax position was transferrable to their shareholders, while their liability as an investor was non- transferrable.3 Mr Crisp and Mr Murphy had other LAQCs through which they made investments in Digitech. Mr Crisp’s was Crismac Ltd and Mr Murphy’s was Murmac Ltd.

[4] The Digitech scheme failed. The Serious Fraud Office prosecuted the promoters. The prosecutions failed. The promoters sued the investors for failure to
make all the payments required to complete purchases of shares in the scheme. The

1 N-Tech Ltd v A Booth Ltd [2012] NZHC 1167.
2 At [12].
3 Footnote 3 of the decision.

case went to hearing in 2011 but was discontinued on the eleventh day. In his costs decision, Kós J awarded the defendants $774,157.00 plus disbursements. He made it clear that the costs ordered were not to exceed actual costs.4 The costs decision was against the plaintiffs and in favour of one group of defendants. They were referred to in the decision as the Grove Darlow defendants. There were apparently about 60 of them altogether. Dawnhaven Ltd was one of the Grove Darlow defendants.

[5] Mr Crisp…

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 Murphy v Crisp

Details

AGLC: Murphy v Crisp [2017] NZHC 615
Case: [2017] NZHC 615
Decision Date: 28 March 2017

CaseChat Overview and Summary

The applicant, Mr John Patrick Murphy, seeks leave under section 165 of the Companies Act 1993 to bring derivative proceedings on behalf of Dawnhaven Ltd, a company of which he is a minority shareholder. The first respondent, Mr Colin Hamilton Crisp, is the majority shareholder and a director of the company, along with Mr Murphy. The dispute concerns the propriety of certain payments made to Mr Crisp in relation to legal proceedings arising from the Digitech scheme, a failed investment venture. The crux of Mr Murphy's application is twofold: to obtain leave to apply for pre-commencement discovery in a District Court proceeding, and to recover part of the settlement funds that were allegedly overpaid to Mr Crisp. The court must decide whether Mr Murphy has a proper basis for his claims and if granting leave under section 165 is warranted.

The legal issues revolve around the interpretation and application of section 165 of the Companies Act 1993, which governs derivative actions. The court must determine whether Mr Murphy has an arguable case for his claims and whether it is in the interests of Dawnhaven Ltd for the proceedings to be brought in its name. The court must also consider whether the potential costs and benefits of the proceedings align with the interests of the company. Furthermore, the court must decide if Mr Murphy's request for pre-commencement discovery is justified and if the scope of the derivative action should be limited to the Disputes Tribunal due to the relatively small amount at stake.

The court found that Mr Murphy has an arguable case for claiming his share of the $27,000 held by Foley & Hughes, which was eventually paid out to Mr Crisp. Given that the amount in dispute is within the jurisdiction of the Disputes Tribunal, the court concluded that it was appropriate for Mr Murphy to bring the claim in the name of Dawnhaven Ltd through the Tribunal. The court also noted that the claim should not exceed the Tribunal's jurisdiction and dismissed the application for pre-commencement discovery as unnecessary. The court did not grant leave for Mr Murphy to bring any claim in higher courts for sums exceeding his share of the $27,000, as such claims were deemed speculative. The court emphasised that Mr Murphy's right to have his case heard should not be prejudiced by his conduct or correspondence.

The final orders of the court are that Mr Murphy is granted leave to bring a claim in the Disputes Tribunal in the name of Dawnhaven Ltd against Mr Crisp for any overpayment exceeding his share of the settlement proceeds from the Digitech litigation. The application for leave to apply for pre-commencement discovery is dismissed, and leave to bring claims in the District Court or the High Court is also denied. The costs incurred by Dawnhaven Ltd in this proceeding are to be borne by Mr Murphy alone. The court declined to make any order for costs in this proceeding, noting the divided success of the parties.

Orders