N M Tobin Orthodontics Ltd v Tobin - [2013] NZHC 463

IN THE HIGH COURT OF NEW ZEALAND PALMERSTON NORTH REGISTRY

CIV2012-454-000440 [2013] NZHC 463

UNDER the Companies Act 1993

IN THE MATTER OF an interlocutory application for leave to bring a derivative action

BETWEEN N M TOBIN ORTHODONTICS LIMITED First Plaintiff

ANDTHE ORTHODONTIC CENTRE LIMITED
Second Plaintiff

ANDSADIE TOBIN First Defendant

ANDJOHN CAWOOD AND LYNN CAWOOD Second Defendants

Hearing: 9 August 2012

Appearances: P J Drummond for applicant
D G Dewar for respondents

Judgment: 28 February 2013

Reasons: 11 March 2013

REASONS FOR JUDGMENT OF ASSOCIATE JUDGE ABBOTT

This judgment was delivered by me on 11 March 2013 at 5pm, pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date……………

Solicitors:
M Woods, Winter Woods, PO Box 12067, Palmerston North
Thomas Dewar Sziranyi Letts, PO Box 31240, Lower Hutt 5040

Counsel:
P J Drummond, Barrister, PO Box 12164, Palmerston North

N M TOBIN ORTHODONTICS LIMITED V SADIE TOBIN HC PMN CIV 2012-454-000440 [28 February
2013]

[1] On 28 February 2013 I issued a judgment granting leave to Mr N M Tobin to bring a derivative action on behalf of two family companies against his estranged wife, Mrs S Tobin and her parents, J and L Cawood, seeking to recover a total sum of
$223,393 removed from the company’s account and paid into the account of Mr and

Mrs Cawood.

[2] This judgment records the reasons for that decision.

Background

[3] Mr Tobin is an orthodontist by profession. He is a director and minority shareholder of both of the intended plaintiffs. He is also a trustee of a family trust that holds the majority of the shares in the intended plaintiffs.

[4] Mr Tobin is married to, but separated from, the first respondent, Mrs S Tobin, who is the intended first defendant. Mrs Tobin has continuing responsibilities for the children of the marriage. Mrs Tobin is also a director and minority shareholder of the intended plaintiffs. The second respondents are the intended second defendants, Mrs Tobin’s step-father and mother, L & J Cawood (for simplicity I will refer to them as her parents).

[5] Mr Tobin provided his services to the intended first plaintiff, N M Tobin Orthodontics Ltd, which operated an orthodontic practice. The intended second plaintiff, The Orthodontic Centre Ltd, is a property holding company which owns the premises in which the practice was conducted. Mrs Tobin worked on the administration side of the practice. A family trust, the Neil & Sadie Family Trust, holds 2,850 of the 3,000 shares in N M Tobin Orthodontics Ltd (the operating company) with Mr Tobin holding 145 shares and Mrs Tobin 5 shares. The family trust holds 900 of the 1000 shares in The Orthodontic Centre Ltd (the property company). Mr and Mrs Tobin each hold 50 shares in that company.

[6] Mr and Mrs Tobin have separated (the actual date of separation has not been determined, but it seems to be accepted that they were separated by 27 February
2012).

[7] In transactions on 17 February 2012, 20 February…

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.

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Details

Case: [2013] NZHC 463
Decision Date: 11 March 2013

CaseChat Overview and Summary

The case of N M Tobin Orthodontics Ltd v Tobin concerns an interlocutory application for leave to bring a derivative action. The applicants, N M Tobin Orthodontics Limited and The Orthodontic Centre Limited, seek to recover a total sum of $223,393 removed from their accounts and paid into the account of Sadie Tobin and her parents, John and Lynn Cawood. The application was heard on 9 August 2012, and the judgment was issued on 28 February 2013. The central legal issue in this case is whether the Court should grant leave for N M Tobin to bring a derivative action on behalf of the two companies against Sadie Tobin and her parents, John and Lynn Cawood, for the recovery of the funds transferred from the companies' accounts. The Court must consider the relevant statutory factors under s 165 of the Companies Act 1993 and assess whether a prudent business person, acting in the conduct of their own affairs, would decide to bring the proceedings after taking into account these factors and any other material matters.

In its judgment, the Court found that a prudent business person would indeed decide to bring the proceedings after considering 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 companies to obtain relief, and the interests of the companies in the proceedings being commenced. The Court also considered the family context and the reasonable expectations of the shareholders but ultimately concluded that the companies' interests should be treated separately from Sadie Tobin's claim in a division of relationship property. The Court granted leave for N M Tobin to bring the derivative action on behalf of the companies, subject to him meeting the companies' costs pending any claim for reimbursement. The successful party, N M Tobin, is entitled to costs against Sadie Tobin and her parents on a scale 2B basis, together with disbursements as fixed by the Registrar.

Orders