Parsons v O'Connor
[2020] NZHC 483
•11 March 2020
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2020-404-0265
[2020] NZHC 483
BETWEEN MICHAEL KENNETH PARSONS
First Plaintiff
GREEN SHOOTS HOLDINGS LIMITED AS TRUSTEE OF THE GREEN SHOOTS LIFESTYLE AND EDUCATION TRUST
Second Plaintiff
AND
PAUL MICHAEL O’CONNOR AND BHW TRUSTEE 2017 LIMITED AS TRUSTEES OF THE O’CONNOR FAMILY TRUST
First Defendant
Continued over
Hearing: 4 March 2020 Appearances:
C J Pendleton for Plaintiffs
A E Hansen and L A Sheppard for Defendants
Judgment:
11 March 2020
JUDGMENT OF PETERS J
This judgment was delivered by Justice Peters on 11 March 2020 at 2 pm pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar Date: ...................................
Solicitors: Turner Hopkins, Auckland
Heimsath Alexander, Auckland
PARSONS v O’CONNOR [2020] NZHC 483 [11 March 2020]
AND PAUL MICHAEL O’CONNOR
Second Defendant
SALLY JANE CAREY AND ANDY FOX AS TRUSTEES OF THE FOX CUB TRUST
Third Defendant
SALLY JANE CAREY
Fourth DefendantDATAMINE LIMITED
Fifth Defendant
[1] This judgment determines an application by the defendants dated 26 February 2020 to stay, rescind or vary ex parte orders made by Gordon J on 20 February 2020.1
[2] Until recently, the plaintiffs, Mr Parsons and Green Shoots Holdings Ltd (“Green Shoots”), were each shareholders in Datamine Ltd (“Datamine”), the fifth defendant. The first to fourth defendants are, or are said to be, current shareholders or directors of Datamine.2
[3] The dispute between the parties concerns the first and third defendants’ acquisition of the plaintiffs’ shares in February 2020 at what is said to be the net asset value of those shares. Nothing turns on which of the defendants acquired the shares, so for convenience I shall refer to “the defendants” without drawing any distinction.
[4] The defendants contend they were entitled to acquire the shares, and at net asset value, as a result of the plaintiffs’ breach of provisions of a Shareholders’ Deed dated 18 March 2019 (“deed”).
[5] On learning of the acquisition, the plaintiffs sought an injunction requiring the defendants to reverse the transfers. Gordon J made orders to that effect.
[6] The defendants then made this application. On 26 February 2020, van Bohemen J stayed Gordon J’s orders pending further argument on the issue of whether her orders should be rescinded or varied, subject to the defendants’ undertaking not to sell or dispose of the shares pending this decision or further order of the Court (“the undertakings”).3 I heard the matter as Duty Judge, and this is my decision.
Datamine
[7] Datamine is a company which provides analytical services to businesses such as Air New Zealand and Mitre 10. Mr O’Connor and Ms Carey, the second and fourth defendants, are Datamine’s directors.
1 Parsons v O’Connor [2020] NZHC 226.
2 Counsel for the plaintiffs may wish to review the company search annexed to Mr Parsons’ affidavit of 18 February 2020 and make sure they have named the correct parties.
3 Parsons v O’Connor [2020] NZHC 313.
[8] Prior to the acquisition referred to in [3] above, Mr Parsons held 500,000 and Green Shoots held 8,600,000 shares. Since the acquisition, the shares have been held by the first and third defendants and Datamine Employee Share Trust Ltd, which is not a party to this proceeding.4
Mr Parsons
[9] Mr Parsons is a former director and senior employee of Datamine. Mr Parsons ceased to be a director of Datamine in 2018. He resigned as an employee of Datamine on 29 August 2019, leaving the company in September 2019 to take up a position as General Manager Data and Analytics at Air New Zealand.
Green Shoots
[10] Mr Parsons holds 25 percent of the shares in Green Shoots. Emily Parsons, who I understand is Mr Parsons’ wife, holds 25 percent and Paul Hebbink holds 50 percent. These shareholders are Green Shoots’ directors.
[11] Green Shoots holds its shares on trust for the Green Shoots Lifestyle and Education Trust (“Trust”), or more correctly on trust for the beneficiaries of the Trust. I do not have a copy of the trust deed and I do not know who those beneficiaries are.
Chronology
[12] On 13 November 2019, Heimsath Alexander wrote to the plaintiffs on behalf of Datamine, Mr O’Connor, and Ms Carey. The letter said Air New Zealand, for whom Mr Parsons was working, was both a customer and competitor of Datamine and that 11 Ants Analytics Group Ltd, a subsidiary of Air New Zealand, likewise was a competitor. The letter stated “You are in breach of clause 9.1(b) of the [deed] as you are working for Air New Zealand ...” and “You will be in further breach of clause 9.1(d) if you solicit, canvas or approach any customer of Datamine for business while in your role with Air New Zealand”.
4 On the face of the deed, Datamine has issued Class A and Class B shares but there is no record of that on the company search to which I have referred so I say no more about it.
[13] The letter went on to say the breach constituted a “material breach” pursuant to cl 14.3(a) of the deed; there was a period of 20 business days to rectify the breach, which would require Mr Parsons to resign his employment with Air New Zealand; and, if the breach was not rectified within that timeframe, the remedies available to the other shareholders would include the right to purchase the plaintiffs’ shares at net asset value pursuant to cl 14.2 of the deed.
[14] I record that it seems to have been assumed by all that, if Mr Parsons was in breach of cl 9.1, then so was Green Shoots. This is incorrect.
[15] The plaintiffs’ solicitors, Turner Hopkins, replied on 27 November 2019 denying any breach and also asserting the defendants had waived any right to object to Mr Parsons’ employment, given their lack of objection at the time.
[16] Heimsath Alexander replied on 9 December 2019. On my reading of their letter, it was now asserted there were breaches of cls 9.1(a) and 9.1(b). There was a denial of waiver and the previous advice as to the possibility of an exercise of rights under cl 14.2 was repeated.
[17] This led to further correspondence in which Turner Hopkins also asserted that cl 17, a dispute resolution provision, applied.
[18] By letter dated 3 February 2020, Heimsath Alexander notified Turner Hopkins of, inter alia, the defendants’ acquisition of the plaintiffs’ shares.
Shareholders’ Deed
[19]I turn now to the relevant provisions of the deed.
[20] The defendants’ case is they were entitled to acquire the plaintiffs’ shares pursuant to cl 14.1, as the plaintiffs had committed an “event of default” as defined in cl 14.3. Clause 14.1 provides:
14.OPTION IN EVENT OF DEFAULT
14.1Event of Default: Subject to clause 17, if a Shareholder commits or suffers an event of default (as defined in clause 14.3), then any other
Shareholder will be entitled, in its absolute discretion, to require that the defaulting Shareholder, be deemed to have given a Sale Notice in respect of its Shares ...
by delivering written notice to the defaulting Shareholder, the Company [ie Datamine], and any other Shareholders stating that the option to purchase conferred by this clause may be exercised at any time following (as the case may be):
(b)the expiry of the remedy period specified in clause 14.3(a) ...
(c)the occurrence of the event.
...
[21] “Event of default” is defined in cl 14.3. It includes matters such as a change of control of a corporate shareholder, insolvency, a shareholder mortgaging his, her or its shares, and death of a shareholder’s key person. In this case, the defendants relied on cl 14.3(a):
14.3Definition: For the purposes of this clause 14, an “event of default” means, in respect of the defaulting Shareholder, any of the following:
(a)the Shareholder committing a material breach of its obligations under this Deed, and, in the case of a breach capable of remedy, failing to remedy the same within 20 Business Days of being specifically required in writing to do so by one or more of the other Shareholders;
…
[22] The obligations of which the plaintiffs are said to have committed a “material breach” are those contained in cls 9.1(a), (b) and possibly (d). Clause 9 provides:
9.NON-COMPETITION
9.1Non-Competition: Subject to clause 9.2, each Shareholder undertakes with the other Shareholders and the Company that he or she or it together with any Director appointed by him or her or it will not, except with the written consent of the Company, either as a director, agent, partner, joint venturer, employer, proprietor, contractor, employee, trustee, shareholder, or otherwise either directly or indirectly, whilst the Shareholder remains a Shareholder and for a period of twelve months after ceasing to be a Shareholder:
(a)carry on or be engaged, concerned, involved or interested in a business that is the same as, or similar in nature to, the Business in the Territory;
(b)be concerned in any corporation or business that is or may be engaged or concerned in or does or may carry on any business
that competes with the Business of the Company in the Territory;
(c)solicit, canvass, approach or entice, or endeavour to solicit, canvass, approach or entice away from the Company, or induce to breach any contract of service of any employee, officer or agent of the Company who has been contracted to the Company within six months prior to the Shareholder ceasing to hold Shares in the Company; or
(d)solicit, canvass, approach or entice, or endeavour to solicit, canvass, approach or entice away from the Company by any means whatsoever any business from any customer of the Company who has been a customer within six months prior to the Shareholder ceasing to hold Shares in the Company.
...
[23] Clause 9.2, referred to in the opening words of cl 9.1, is not relevant. “Director” is defined as a director of Datamine.
[24] Clause 14.1 is subject to cl 17. The plaintiffs contend a shareholder may not exercise its rights under cl 14.1 in the absence of compliance with cl 17. As it is, I have decided this matter on different grounds so need not address the point, but I include the provision for the sake of completeness:
17.DISPUTES
17.1Negotiation: If any dispute arises between any Party relating to or arising out of this Deed, the relevant Parties must first attempt to resolve the dispute by good faith negotiations between the Parties.
17.2Unsuccessful Negotiation: In the event that the negotiation in clause
17.1 is not successful in resolving the relevant dispute within 10 Business Days of such negotiations commencing, any Party may (by written notice to the other Party) require that the dispute be submitted for mediation by a single mediator nominated by the President for the time being of Auckland District Law Society. In the event of any such submission to mediation:
(a)The mediator shall be deemed to be not acting as an expert or as an arbitrator.
(b)The mediator shall determine the procedure and timetable for the mediation.
(c)The cost of the mediation shall be shared equally between the Parties.
(d)The determination of the mediator shall be non-binding.
17.3Other Proceedings: No Party may require any arbitration, or issue any legal proceedings (other than for urgent interlocutory relief) in respect of any such dispute unless that Party has first taken all reasonable steps to comply with clauses 17.1 and 17.2. In the event that the negotiation in clause 17.1 and mediation in clause 17.2 is not satisfactory to any Party to such negotiation and mediation, any such Party may take any action it deems necessary in the circumstances.
Discussion
[25] By the time counsel appeared before me, the issue on which they differed was the terms on which the defendants might be permitted to retain the plaintiffs’ shares pending trial. The plaintiffs required any continued retention to be subject to the undertakings. The defendants wished to be free to dispose of the shares prior to trial, as damages would be an adequate remedy for the plaintiffs. I asked the parties to advise me if they reached agreement, failing which I would determine the defendants’ application, as I now do.
[26] It is not possible to determine whether Mr Parsons is in breach of cl 9.1 prior to trial. The issue is hotly disputed.
[27] Turning to Green Shoots, in response to an enquiry I made after the hearing, counsel for the defendants confirmed it was the defendants’ case that Green Shoots was in breach of cl 9.1 as a result of its close association with Mr Parsons who is said to be in breach. The significant matters relied upon are Mr Parsons’ shareholding in Green Shoots; that Mr Parsons is one of the company’s three directors; that Mr Parsons is Green Shoots’ “key person” under the deed, the significance of which is that Mr Parsons’ death would constitute an event of default as defined in cl 14.3; that Mr Parsons’ street and email addresses are Green Shoots’ addresses for notices under the deed; that Mr Parsons executed Green Shoots’ undertaking for damages; and that Mr Parsons states in his affidavit he is authorised to make the affidavit on behalf of Green Shoots.5
[28] There is no express provision in the deed which renders a breach of an obligation by Mr Parsons a breach by Green Shoots. Nor is there any suggestion that
5 I have not referred to [2](a) of the memorandum of counsel for the defendants of 5 March 2020 because it is inaccurate.
Green Shoots is in breach of a separate obligation under the deed. That leaves the defendants’ “close association” argument. It is possible, I suppose, two shareholders might be so closely associated that a breach of an obligation by one causes the other to be in breach but I am not persuaded the matters referred to in the previous paragraph would be sufficient to make out such a case, particularly because Mr Parsons is a minority shareholder in Green Shoots. On that basis he cannot control the company.
[29] Accordingly, on the evidence before me, I am not satisfied there is a case Green Shoots was in breach of cl 9.1 at the time the defendants acquired its shares under cl 14.1, let alone that the breach was material. For those reasons, those who acquired Green Shoots’ shares must transfer those shares back to Green Shoots, although Green Shoots is to retain its shares pending agreement or further order of the Court.
[30] As to Mr Parsons, there is an argument for maintaining the present status quo and leaving his shares in the defendants’ hands, subject to their continuing to undertake they will retain them pending further order. Ultimately, however, I have decided it would be pointless to restore Green Shoots’ shares but not Mr Parsons’, given his relatively few shares. Moreover, if Mr Parsons’ shares were susceptible to acquisition under cl 14.1, but Green Shoots’ were not, Green Shoots was entitled to participate in any offer of those shares, and it was not given that opportunity.
[31] To conclude, I am satisfied it is appropriate to discharge the stay imposed by van Bohemen J and to require the defendants to restore the plaintiffs’ shares to the plaintiffs in accordance with [3] of Gordon J’s orders. The plaintiffs are to retain their shares pending agreement or further order of the Court.
[32] Lastly, when drafting their correspondence, pleadings and so on it would be preferable for the parties and their legal advisers to bear in mind that the shareholders in Datamine are those who hold its shares. That is not altered because the shares are held on trust. 6 For instance, Ms Carey and Mr Fox are shareholders. The Fox Cub trust is not. The second plaintiff is Green Shoots Holdings Ltd, not the Green Shoots Lifestyle Education Trust (as pleaded in [2] of the statement of claim). There are
6 See also Companies Act 1993, s 92.
numerous inaccuracies, on both sides, in the documents to date and greater care needs to be taken from hereon.
Result
[33] I dismiss the defendants’ application of 26 February 2020. The defendants are to implement [3] of Gordon J’s orders of 20 February 2020 as soon as possible and in any event by 4 pm, 13 March 2020.
[34] In the absence of agreement, the parties may file and serve submissions as to costs.
Directions
[35] This matter is to be called in the Duty Judge list at 10 am, 23 March 2020 for further directions. The parties should ensure the Court has their proposed directions, ideally agreed, two clear working days in advance, ie by 5 pm, 18 March 2020.
Peters J
Parsons v O'Connor [2020] NZHC 483
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