Parsons v O'Connor

[2020] NZHC 313

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV 2020-404-000265

[2020] NZHC 313

BETWEEN

MICHAEL KENNETH PARSONS

First Applicant

AND

GREEN SHOOTS HOLDINGS LIMITED

as trustees of the GREEN SHOOTS
LIFESTYLE and EDUCATION TRUST
Second Applicant

AND

PAUL MICHAEL O’CONNOR and BMH

TRUSTEE 2017 LIMITED as trustees of the O’CONNOR FAMILY TRUST

First Respondents

AND

PAUL MICHAEL O’CONNOR

Second Respondent

AND

SALLY JANE CAREY and ANDY FOX as

trustees of the FOX CUB TRUST Third Respondents

…/cont

Hearing:	26 February 2020
Appearances:	C J Pendleton for the Applicants A E Hansen for Respondent
Judgment:	27 February 2020

JUDGMENT OF VAN BOHEMEN J

This judgment was delivered by me on 27 February 2020 at 5.00pm

Pursuant to Rule 11.5 of the High Court Rules

…………………………

Registrar/Deputy Registrar

PARSONS v O’CONNOR [2020] NZHC 313 [27 February 2020]

AND

SALLY JANE CAREY

Fourth Respondent

AND

DATAMINE LIMITED

Fifth Respondent

[1]    This proceeding concerns a dispute between the plaintiffs and the first to fourth defendants over shares in the fifth defendant, Datamine Ltd, which the first and third defendants purported to acquire compulsorily from the plaintiffs under the terms of the Datamine 2019 Shareholders Deed. On 20 February 2020, Gordon J made orders requiring the first to fourth defendants to reverse the transfers of the shares from the plaintiffs to the first and third defendants pending the determination of the plaintiffs’ application for declaratory and other relief over the compulsory acquisition of the shares.1

[2]    The defendants have now applied for orders to stay and to rescind or vary Gordon J’s orders, while the plaintiffs have applied for orders requiring compliance with the orders.

Procedural history

[3]    Following a without notice application for an interim injunction filed on     19 February 2020, by judgment dated 20 February 2020 Gordon J made orders requiring:

(a)The first to fourth defendants to reverse the transfers of the shares that had been made from first and second plaintiffs to the first and third defendants;

(b)The second and fourth defendants, as directors of Datamine, to ensure the company’s records and the Companies Office records were updated to reflects the plaintiffs’ ownership of the shares.

[4]    Gordon J also granted leave to the defendants to apply by interlocutory application to discharge or vary her orders.

[5]    By memorandum dated 24 February 2020, Ms Hansen for the defendants advised that the defendants would apply on 26 February 2020 to vary or rescind Gordon J’s orders.

1      Parsons v O’Connor [2020] NZHC 226 [20 February 2020].

[6]    By memorandum dated 25 February 2020, Ms Pendleton for the plaintiffs asked for further orders requiring:

(a)Compliance with Gordon J’s orders within 24 hours; and

(b)Written confirmation by the defendants that Gordon J’s orders had been complied with before any application to vary, rescind or stay those orders was heard.

[7]    At the duty list hearing on 26 February 2020, Ms Hansen handed up the defendants’ application for orders staying and rescinding or varying Gordon J’s orders.

Factual background

[8]    Mr Parsons, the first plaintiff, was an employee and then Managing Director of Datamine until his resignation in September 2019, following which he took up employment with Air New Zealand as General Manager Data and Analytics.

[9]    At the time of his resignation and for some months later, Mr Parsons was also a shareholder in Datamine through the Greenshoots Lifestyle and Education Trust, the second plaintiff.

[10]   Mr O’Connor and Ms Carey, the fourth defendant, are also directors and employees of Datamine and hold shares in Datamine through the O’Connor Family Trust and the Fox Cub Trust, the first and third defendants.

[11]   The defendants say that in taking up a position in Air New Zealand and in working with Air New Zealand’s wholly owned subsidiary, 11 Ants Ltd, Mr Parsons was in material breach of his obligations under the Shareholders Deed by working for a competitor of Datamine, and that they were within their rights to acquire his shares compulsorily after he had been given formal notice of the breach and had failed to rectify. They also say that the net asset value at which they acquired the shares was in accordance with the Shareholders Deed.

[12]   The plaintiffs say Air New Zealand is not a competitor of Datamine and that Mr Parsons was not in breach of the Shareholders Deed. They also say that the defendants were not entitled to exercise the right to acquire Mr Parson’s shares compulsorily because that right is subject to the dispute resolution provisions in the Deed and the plaintiffs had failed to comply with those provisions. They say further that net asset value at which the defendants acquired their shares was at a significant undervalue and that they would suffer significant prejudice if the defendants sold the shares to a third party. They also say that the market value of shares in Datamine have increased significantly and that the defendants are seeking to deny the plaintiffs that increased value.

Gordon J’s decision

[13]    In her decision, Gordon J recorded that the plaintiffs’ position was that there was a real risk that, unless restrained, the defendants might on-sell the shares to a third party and that this could significantly prejudice the plaintiffs’ remedies in the substantive proceeding.2 She also recorded the shareholder rights that the plaintiffs had lost including the right to relevant company information, the right to sell their shares at fair value and the right to remain shareholders for an indeterminate time.3

[14]   Gordon J accepted there was a serious question to be tried, namely whether the defendants were entitled under the Shareholders Deed to trigger the compulsory acquisition process in clause 14 of the Deed when that clause is subject to clause 17 which sets out the procedures to be followed in the event of dispute between shareholders.4 In reaching that conclusion, Gordon J noted Ms Pendleton’s submission that until the defendants had taken all reasonable steps to go to mediation to attempt to resolve the dispute, the defendants were not entitled to invoke the compulsory acquisition process.5

[15]   Gordon J accepted that damages would not be an adequate remedy because of the difference between the net asset value and the fair market value of the shares. She

2 At [8].

3 At [9].

4 At [20].

5 At [19].

also accepted that there was also the loss of shareholder rights referred to at [13] above, and that there was no obvious foreseeable loss to the defendants.6 She also accepted that the overall justice weighed in favour of granting the orders sought.7

Position of defendants on application to stay and vary or discharge Gordon J’s order

[16]   At the Duty List hearing on 26 February 2020, Ms Hansen for the defendants submitted that Gordon J was misled by the plaintiffs in the interpretation of clauses 14 and 17 of the Shareholders Deed and that there was no serious issue to be tried. She said that clause 17 provides for the possibility of mediation if the parties agree but that mediation is not mandatory. Nor have the plaintiffs requested mediation. She also submitted that, in any event, clause 17 does not preclude a shareholder from exercising contractual rights under clause 14 even if negotiations are in progress.

[17]   Ms Hansen accepted that a decision on the defendants’ application to rescind or vary Gordon J’s order was unlikely to be made at the duty list hearing and submitted that the defendants’ application should be referred to Gordon J  in accordance with   r 7.49 of the High Court Rules 2016. However, Ms Hansen said the defendants sought a decision on their application for a stay of Gordon J’s orders pending a decision on their application to rescind or vary the orders on the grounds that the return of the shares to the plaintiffs would:

(a)Expose the defendants to requests for commercially sensitive and proprietary information from Datamine as was the right of shareholders to make under the Shareholders Deed and which could cause unquantifiable losses to Datamine; and

(b)Confer on Mr Parsons, Air New Zealand and 11 Ants a substantial commercial advantage;

6      At [21]-[22] and [24].

7 At [26].

(c)Diminish market confidence in and the reputation of Datamine which would be unable to confirm to others that it was protecting the interests of its business, clients and employees.

[18]   With respect to the undertakings offered by the defendants, Ms Hansen agreed to seek new instructions following my indication that I would be unlikely to stay Gordon J’s order on the basis of an undertaking by the defendants only to account to the plaintiffs for the net market value of the shares if sold. After taking instructions, Ms Hansen provided a revised undertaking from the first and third defendants, the holders of the shares, not to sell the shares until the earlier of the outcome of the defendants’ application to rescind filed on 26 February 2020 or further order of the Court.

Position of the plaintiffs on application to stay and vary or discharge Gordon J’s order

[19]   Ms Pendleton also accepted that a decision on the defendants’ application to rescind or vary Gordon J’s order was unlikely at the duty list hearing and that the defendants’ application should be referred to Gordon J for determination if possible. With  regard  to  the  defendants’  application  for  a  stay  of  Gordon  J’s  orders,  Ms Pendleton submitted that the balance of convenience lay strongly in favour of requiring the defendants to transfer the shares to the plaintiffs as required by the orders pending determination of the defendants’ application to rescind or vary the orders.

[20]   Ms Pendleton said that if the Court did not stay Gordon J’s orders and required the transfer of the shares to the plaintiffs in accordance with those orders, the plaintiffs would undertake not to make any requests for information of Datamine under the Shareholders Deed pending the determination of the plaintiffs’ substantive application. Such an undertaking would resolve the only real prejudice to the defendants from a return of the shares.

[21]   Ms Pendleton accepted that the plaintiffs’ position would be protected to an extent by the revised undertaking provided by Ms Hansen on behalf of the defendants. However, she submitted that there would be a real risk of prejudice to the plaintiffs if the defendants were to breach their proposed undertaking whereas there would be no

real risk of prejudice to the defendants if the plaintiffs breached the undertaking she had offered. In the latter case, if the plaintiffs asked the defendants for information under the Shareholders Deed, the defendants could simply refuse or decline to answer any such request.

Discussion

[22]   I consider that both counsel considerably overstated the prejudice to their clients that would result if the courses each urged on me were not followed.

[23]   It would appear that the principal issue to be decided in the defendants’ application to rescind or vary Gordon J’s orders will be whether the Court is prepared to reconsider whether there is indeed a serious question to be tried having regard to the terms of clauses 14 and 17 of the Shareholders Deed. Having regard to r 7.49 and the relevant authorities on the review of interim orders, it will be for the judge considering the application to decide whether to revisit that question, taking into account the fact that Gordon J had the benefit of submissions on that point only from the plaintiffs’ perspective.8

[24]   The issue for me to decide at this stage is whether to stay Gordon J’s orders pending determination of the application to rescind or vary the orders.

[25]   In considering that issue, I have had regard principally to where the balance of convenience lies. The ultimate issue in the plaintiffs’ substantive application is the ownership of the shares. Each side appears to wish to gain possession of the shares to protect their respective positions in the meantime. However, final ownership of the shares will be the result of a legal determination of the parties’ respective rights under the Shareholders Deed and will not be determined by possession.

[26]   As reflected at [8] in her decision, Gordon J ordered the transfer of the shares to avoid the risk of the defendants on-selling the shares and prejudicing the plaintiffs’ available remedies in the substantive proceeding. The first and third defendants have now provided undertakings not to sell the shares until the earlier of the outcome of the

8      See Kiwi Capital Dairies Ltd v Capital Dairy Products Ltd (1989) 1 PRNZ 622 at 627.

defendants’ application to rescind or further order of the Court. I interpret that as including an undertaking not to otherwise dispose of the shares. On that basis and in the expectation that Mr O’Connor and Ms Carey will live up to their responsibilities as trustees for the first and third defendants, the risk that Gordon J sought to guard against is avoided. It follows that the status quo is preserved and the position of the plaintiffs protected without the need for further action by the parties.

[27]    By contrast, to require the transfer of the shares pending the outcome of the defendants’ application, as the plaintiffs seek, would require further action within the company and with the Companies Office, all of which would have to be undone if the defendants’ application is successful.

[28]   For these reasons, I am satisfied that the balance of convenience lies in granting the stay.

Orders

[29]   I direct that the orders made on 19 February 2020 by Gordon J are stayed pending determination of the defendants’ application to rescind or vary those orders.

Hearing of application to rescind or vary Gordon J’s orders

[30]   I have ascertained that Gordon J is not available next week. For that reason, and in accordance with r 7.49(5), I have set down the defendants’ application for hearing before another judge at 11.45 am on Wednesday, 4 March 2020.

G J van Bohemen J

Solicitors/Counsel:

Turner Hopkins, Auckland Heimsmith Alexander, Auckland