Peregrine Estate Ltd v Hay - [2017] NZCA 496

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IN THE COURT OF APPEAL OF NEW ZEALAND

CA476/2016
[2017] NZCA 496

BETWEEN	PEREGRINE ESTATE LIMITED Appellant
AND	GREGORY JAMES HAY AND KIM EDWARD HOLLOWS AS TRUSTEES OF THE GREG HAY FAMILY TRUST Respondents

Hearing:	10 October 2017
Court:	Gilbert, Venning and Wylie JJ
Counsel:	D J Goddard QC for Appellant N H Soper for Respondents
Judgment:	1 November 2017 at 3.00 pm

JUDGMENT OF THE COURT

AThe application for leave to adduce further evidence in support of the appeal is granted to the extent set out in [16] of the judgment.
BThe appeal is dismissed.
CThe appellant must pay the respondents costs for a standard appeal on a band A basis and usual disbursements.

____________________________________________________________________

REASONS OF THE COURT

(Given by Gilbert J)

Introduction

The issue arising on this appeal is whether the parties are bound by an expert’s independent assessment of fair value for the purposes of a transfer of shares in exercise of pre-emptive rights in accordance with the company’s constitution. This largely depends on whether the expert’s assessment complied with the mandate in the constitution.

Background

The appellant, Peregrine Estate Ltd (Peregrine), held 74.86 per cent of the shares in Peregrine Wines Ltd (the Company). The respondents held the balance as trustees of the Greg Hay Family Trust (the Trustees). The Trustees wished to sell their shares so they issued a transfer notice in March 2015. Peregrine wished to purchase, but not at the price specified by the Trustees of $3.25 million. It had previously offered $1.414 million, in March 2013.
In accordance with the Company’s constitution, an independent expert was duly appointed to “fix” the “fair value” of the shares for the purposes of any transfer. The fair value fixed by the expert, Julie Millar of BDO Christchurch Ltd, was $2.62 million as at 30 June 2015. Although this was less than the sum the Trustees had sought, they chose not to withdraw their transfer notice. In the normal course, Peregrine would have been required under the constitution to tender payment of the purchase price in accordance with the fair value as fixed within a stipulated 14-day period. However, it did not do so because it considered that Ms Millar’s assessment was excessive.
Peregrine consulted John Hagen, another expert valuer. Mr Hagen subsequently reported that in his opinion the fair value of the shares at 30 June 2015 was $1.275 million, roughly half of Ms Millar’s assessment.
Mr Hagen concurred with Ms Millar that any assessment based on future maintainable earnings would be significantly lower than the underlying value of the Company’s assets and it was therefore appropriate to place primary reliance on an asset‑based assessment. He observed that it is not uncommon for agricultural and horticultural ventures to achieve relatively low earnings compared with the value of the assets employed.
However, Mr Hagen disagreed with Ms Millar’s assessment in two key respects. First and foremost, Mr Hagen considered that the assessment must be…

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: [2017] NZCA 496
Decision Date: 1 November 2017 at 3.00 pm

CaseChat Overview and Summary

Peregrine Estate Limited sought to appeal a High Court decision that it was bound by an expert's assessment of the fair value of shares under the company's constitution. Peregrine argued that the expert's valuation was invalid, that the expert had wrongly delegated her responsibility to determine whether a minority discount should be applied, and that the expert's valuation did not conclusively determine fair value for the purposes of s 149 of the Companies Act 1993, thereby entitling Peregrine to a right of set-off for the amount by which the Court's assessment of fair value under s 149 exceeded that of the expert. The Court of Appeal considered whether any of these defences were arguable. The Court found that there was no arguable defence to the Trustees' claim. The Court held that the expert's valuation complied with the terms of the constitution and that Peregrine was not entitled to a set-off under s 149. The appeal was dismissed.

Orders