Singh v Care Group Limited fka East Care Limited

[2022] NZHC 454

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2021-404-001835

[2022] NZHC 454

UNDER

the Companies Act 1993, s 174

BETWEEN

KUL VANT SINGH

Plaintiff

AND

CARE GROUP LIMITED formerly known as EAST CARE LIMITED

Defendant

Hearing:	14 March 2022 (by VMR)
Appearances:	U Kuddus and R Nand for Plaintiff D J Chisholm QC for Defendant
Judgment:	14 March 2022

COSTS JUDGMENT OF VENNING J AND ASSOCIATED ORDERS

This judgment was delivered by me on 14 March 2022 at 3.30 pm, pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date……………

Solicitors:           Patel Nand Legal, Auckland

Foley Hughes, Auckland Copy to:    D J Chisholm QC, Auckland

SINGH v CARE GROUP LIMITED [2022] NZHC 454 [14 March 2022]

[1]    On 29 September 2021 and on a without notice basis, the applicant Kul Vant Singh (Dr Singh) obtained an interim injunction restraining Care Group Limited, formerly known as East Care Limited, (Care Group) from divesting the 6,809 shares owned by Dr Singh in Care Group at the value of $132.79 per share.

[2]    Subsequently Dr Singh served the injunction orders on Care Group, and filed a statement of claim. The matter was set down before the Court today for hearing on an opposed basis.

[3]    At the outset of the hearing, Mr Kuddus advised that his instructions were to withdraw the application for injunction. He suggested that costs be reserved to the substantive fixture. After hearing from counsel on the issue of costs I indicated costs on the application should be fixed at this time and that I would deliver a judgment on costs.

Background

[4]    Care Group is a primary health organisation. It and its group of companies own and operate a number of medical centres in the Auckland Eastern Corridor. It has approximately 48 shareholders who are predominantly general practitioners.

[5]    Dr Singh is a shareholder in Care Group. Dr Singh holds 6,809 shares (4.46 per cent in total of the shareholding). Prior to being convicted in 2019 of a charge of unlawful sexual connection with a patient he practised as a general medical practitioner in Pakuranga. Dr Singh was convicted following trial in the District Court and sentenced to a term of imprisonment for two years, 10 months. Following dismissal of his appeal against conviction by the Court of Appeal on 15 October 2020, Care Group commenced steps to procure the divestment of Mr Singh’s shares in Care Group pursuant to cl 5.12 of its Constitution. On 18 November 2021 Care Group gave notice to Dr Singh of the divestment of the shares. Dr Singh’s solicitors responded by email of the same date, noting that he intended to seek leave to appeal the judgment to the Supreme Court and requesting that Care Group take no further steps regarding the divestment of his shares.

[6]    Care Group agreed to withhold taking steps to advance divestment of Dr Singh’s shares in the meantime. Dr Singh’s application for leave to appeal was dismissed by the Supreme Court on 24 February 2021.

[7]    By email dated 6 August 2021 Care Group confirmed it would be proceeding to exercise the divestment rights under cl 5.12 and re-attached a copy of its notice dated 18 November 2020.

[8]    On 9 August 2021, following further correspondence with Dr Singh’s solicitors, Care Group again agreed to pause the divestment process until 16 August 2021.

[9]    On 13 August 2021, Dr Singh asked Care Group to reconsider the transfer of his shares to his wife as a related party under cl 5.10 of the Constitution.

[10]   By facsimile sent 27 September 2021 Care Group confirmed that its board’s opinion was that Dr Singh fell within cl 5.12(a) of the Constitution and that it would be proceeding with the divestment of his shares. It implicitly declined his request the shares be transferred to his wife by confirming the transferee would be to Care Group. The purchase price was that set in accordance with cl 5.4 of the Constitution, namely

$132.79 per share ($904,167.11 total).

[11]   In response to that communication Dr Singh applied for and obtained the injunctive order on a without notice basis restraining Care Group from completing the divestment of his shares at $132.79.

[12]   In his statement of claim filed subsequently, Dr Singh seeks relief under s 174 of the Companies Act 1993. He alleges that Care Group has wrongly exercised its discretion to divest his shares in the manner it has and has acted unreasonably and arbitrarily in assessing his shares at a lower value than what was proposed to the board at its meeting on 29 September 2021. He pleads that Care Group’s conduct has been prejudicial and oppressive and in particular seeks an order that the fair value of the shares is $166.75 per share, rather than the $132.79 per share.

Interim injunction principles

[13]   As noted, Dr Singh seeks an order restraining Care Group from divesting his 6,809 shares at the value of $132.79 per share.

[14]The principles that apply to an interim injunction are well settled.

[15]   As the commentary to McGechan at 7.53 notes, the grant of an interlocutory injunction is a temporary and discretionary remedy.1 Its purpose is to protect the plaintiff against injury by violation of his rights for which he could not be adequately compensated in damages recoverable in the action if the uncertainty were resolved in their favour at the trial. Adequacy of damages will be a primary factor for the Court in deciding whether to grant an interim injunction.2

[16]   Generally there are three stages to consideration of an application for an interlocutory or interim injunction:

(a)the applicant must establish there is a serious question to be tried;

(b)the balance of convenience must be considered which requires consideration of the impact on the parties of the granting of and the refusal to grant an order; and

(c)finally, an assessment of the overall justice of the position.3

[17]   An important consideration which is often overlooked, is whether damages would be an adequate remedy. In American Cyanamid Co v Ethicon Lord Diplock said:4

[t]he court should first consider whether, if the plaintiff were to succeed at the trial in establishing his right to a permanent injunction, he would be adequately compensated by an award of damages for the loss he would have

1      McGechan on Procedure (online loose-lead ed, Thomson Reuters) [at 7.53].

2      American Cyanamid Co v Ethicon Ltd [1975] AC 396 (HL) at 405-406; and Lightbourne v New Zealand Racing Board HC Auckland CIV-2008-404-7273, 10 December 2008 at [28]–[29].

3      NZ Tax Refunds Ltd v Brooks Homes Ltd [2013] NZCA 90; American Cyanamid Co v Ethicon, above n 2; and Klissers Farmhouse Bakeries Ltd v Harvest Bakeries Ltd [1985] 2 NZLR 129 (CA) at 142.

4      American Cyanamid Co v Ethicon Ltd, above n 2, at 408.

sustained as a result of the defendant's continuing to do what was sought to be enjoined between the time of the application and the time of the trial. If damages in the measure recoverable at common law would be adequate remedy and the defendant would be in a financial position to pay them, no interlocutory injunction should normally be granted, however strong the plaintiff's claim appeared to be at that stage.

Serious question

[18]   The value of the shares in Care Group is fixed by the shareholders at the annual general meeting (AGM), based on the board’s recommendation, which is the range recommended by the company’s accountants.

[19]At its AGM on 16 September 2020, the board fixed the value of its shares at

$132.79. Subject to adjustment after six months at the absolute and uncontrolled discretion of the board that price applied until the next AGM.

[20]   At its AGM on 29 September 2021 the shareholders resolved to fix the share price at $166.75 per share.

[21]   The parties’ rights as shareholders are governed by the company’s Constitution. The following provision are relevant:

5.12     Divestment of Shares

This clause applies to a shareholder (other than the nominee referred to in clause 5.8) who falls within one or more of the following categories:

(a)A shareholder whose shareholding or continued shareholding would  in the opinion of the board, be contrary or prejudicial to the best interests of the company for reasons related to the operation, efficient management, reputation, standards, philosophy or current business plan of or related to the business of the company;

…

Any shareholder to whom, in the opinion of the board, this clause 5.12 applies, and who receives from the board a written notice to that effect, shall be deemed to have given a transfer notice relating to all shares held by that shareholder and any other shareholder that, in the opinion of the board, is a person that the shareholder could transfer shares to under clause 5.10. Upon a transfer notice having been given or deemed to have been given under this clause 5.12, the provisions of this clause 5 shall apply with all necessary modifications.

5.10     Transfers to Related Persons

The restrictions in clauses 5.2 to 5.8 do not apply to any of the following share transfers:

(a)A share transfer by a shareholder to (or to trustees of any trusts which is, in the opinion of the board, exclusively or principally for the benefit of) any husband, wife, child, adopted child, grandchild, son-in-law or daughter-in-law (all of which persons are called a “permitted family member” in this clause) of that shareholder.

…

5.4      Fixing of value of shares

The board shall provide to the shareholders at each annual general meeting a recommendation of the price per share at which shares may be transferred or issued in accordance with this constitution. The board’s recommendation shall fall within the range recommended by the company’s accountants whom the board shall consult before making its recommendation. At each annual general meeting the shareholders shall fix the price per share but such price shall not exceed that recommended by the board. The price fixed at the annual general meeting shall be the price per share at which all shares may be transferred or issued in accordance with this constitution for a period ending on the date of the next annual general meeting. At any time after the expiration of six (6) months from the date of any annual general meeting the board may in its absolute and uncontrolled discretion alter either up or down the price per share, but only after consulting the Company’s accountants, and only for the purpose of reflecting or approximating changes in the Company’s financial position since the last annual general meeting. Any transfer notice given under clause 5.2 prior to the board altering the price per share shall be unaffected by such alteration.

[22]   It cannot be in issue that given Dr Singh’s conviction Care Group is entitled to divest him of his shares in accordance with cl 5.12(a). Clearly his conviction would invoke the section and entitle the Care Group to give notice and invoke the transfer notice provisions.

[23]   Relevantly, the first notice that was given involving cl 5.12, was given on 18 November 2020, at a time when the value of the shares was $132.79. The provision of cl 5.4 which provides the board may “in its absolute and uncontrolled discretion alter” the share price did not apply at that time. The discretion was only engaged after the expiration of six months from the board meeting. The relevant board meeting was on 16 September 2020. The postponement of the transfer was at Dr Singh’s request.

[24]   Nor could there be any reasonable argument that Dr Singh could require the transfer be to his wife. Clause 5.12 makes it clear by its wording “and any other shareholder that, in the opinion of the board, is a person that the shareholder could transfer shares to under clause 5.10” that any shares held by or transferred to Dr Singh’s wife would be subject to the same transfer requirement.

[25]   The sole issue between the parties in the substantive proceeding will be the price at which the shares should be transferred.

[26]   Given the wording of the Constitution and the documentary record, there are substantial difficulties with Dr Singh’s claim. However they are matters for the substantive hearing of this case, particularly as he seeks to withdraw the application for injunction.

[27]   In any event, the short answer to this application for injunction, quite apart from the difficulties the plaintiff may have with his ultimate claim, is that damages would have been an adequate remedy in any event.

[28]   There is no challenge to the evidence of Gordon Armstrong, the Chief Executive Officer of Care Group. He has deposed that if Dr Singh is successful with his claim and secures a higher purchase price Care Group has the ability to pay the difference in purchase price of $231,233.64.

[29]   Even if Dr Singh could get over the difficulties his case faces, the balance of convenience would not have favoured injuncting Care Group to prevent it from transferring the shares from Dr Singh. Care Group understandably and appropriately wishes to cease its contact with Dr Singh given his conviction. It should be entitled to transfer his shareholding and terminate that relationship.

Dismissal of the injunction/withdrawal of the application

[30]   As damages is an adequate remedy and the balance of convenience does not favour maintaining the interim injunction, the interim injunction would have been set aside.

[31]   I formally discharge the existing interim injunction and grant leave to the plaintiff to withdraw the application for injunction. Care Group is able to transfer the shares to itself at the price of $132.79.

Costs

[32]   Mr Chisholm QC seeks costs on behalf of Care Group against Dr Singh on a 2B basis uplifted by 50 per cent.

[33]   A number of factors are of concern to the Court with this application and the way it was presented to the Court. They support the uplift sought.

[34]   First, the without notice application was presented to the Court on an urgent basis when the issues between the parties had a clear history and could have been raised earlier.

[35]   Next, in the affidavit in support Dr Singh referred on three occasions to only receiving notice of the divestment on 28 September 2021 at 4.41 pm (paras 12, 14 and 16 of the affidavit). That was incorrect. The original notice of Care Group’s intention to divest Dr Singh’s shares was issued on 18 November 2020. Further the most recent correspondence which Dr Singh was apparently referring to was actually received by his solicitors on 27 September 2021 as he noted in para 5 of that affidavit and as confirmed by the annexures to the affidavit.

[36]   Mr Kuddus suggested the references to 28 September 2021 were simply an error which Dr Singh acknowledged in his affidavit in reply. That may be correct, however, it was plainly a factor which was relevant to Duffy J in granting the interim injunction because she referred to it at [2] of her decision.5 Counsel apparently did not correct her.

[37]   Next, a particularly material communication, namely the notice issued on 18 November 2020, was not included in the material before the Court in Dr Singh’s affidavit. That notice was sent to Dr Singh by email. The email referred to the exercise

5      Minute of Duffy J, dated 29 September 2021.

of the right of divestment of the shares as per cl 5.12 of the Care Group’s Constitution. The letter stated:

Further to the recent publication of your conviction and subsequent custodial sentence, I am writing to you to give you notice that Care Group Ltd (the company) will be exercising its rights under clause 5.12 (divestment of shares) of the Care Group Constitution.

Pursuant to the provisions of that section, you are deemed to have given a transfer notice relating to all shares held by you personally. Those shares will be offered for sale pursuant to the provisions of Section 5 (Transfer of Shares) of the Constitution, and you will be advised in due course as to the outcome of that process.

Please provide your bank account details for the deposit of funds resulting from the above transfer process.

[38]   Mr Kuddus sought to explain the failure to include the document by saying that Dr Singh did not consider it to be relevant on his interpretation. With respect, that is an entirely unsatisfactory response. It is not for a party, such as Dr Singh, to determine what may or may not be considered relevant by the Court. Further, quite apart from Dr Singh’s misapprehension as to the relevance of the document, Mr Kuddus had a responsibility as counsel to ensure that all relevant documents were before the Court. The communication of 18 November was clearly relevant. The omission of it from the documents put before the Court was a serious breach of that obligation.

[39]   Next, the application for the without notice injunction failed to comply with   r 7.23 of the High Court Rules 2016,. That rule requires an applicant to use form G32, which provides for counsel to certify the grounds on which the application relies that warrant the application being made without notice are made out. Counsel is also required to certify that all reasonable inquiries and steps have been made or taken to ensure that the application contains all relevant information. The failure to use the correct form and certify the application in the present way compounded the failure to provide the Court with all relevant information.

[40]   As a related point, the rule also notes that if the application is of a kind likely to be contested if it were made on notice (as in this case it clearly would have been) a memorandum is required. The memorandum should set out the background to the proceeding, the grounds on which the order is sought, an explanation of the grounds

on which it is sought without notice and all information relevant to the application, including any known grounds of opposition or defence that the other party may rely on or any other facts that would support opposition to the application or defence of the proceedings by any other party. Again the applicant failed to file such a memorandum with the application.

[41]   Next, the application was only withdrawn at the very last minute when the matter was called before the Court this morning. The lack of merit in Dr Singh’s application for injunction should have been apparent to Dr Singh and counsel well in advance of this morning’s hearing.

[42]   When addressing the Court on the issue of costs Mr Kuddus referred to a without prejudice communication with an accompanying email sent at 3.24 pm last Thursday, 10 March 2022. Mr Kuddus suggested it was relevant as it was a without prejudice offer, save as to costs. I agreed to accept that document. Mr Kuddus filed  it after the hearing, together with two other communications between counsel. As Mr Chisholm correctly noted the letter was an offer to resolve all issues in the proceeding, and was not restricted to this application. It was not accepted. I do not consider it to assist Dr Singh’s position in relation to costs. Mr Chisholm objected to the other communications being sent to the Court. I agree they are privileged. They are to be removed from the Court file.

[43]   Mr Kuddus then filed a further memorandum in response to Mr Chisholm’s response and purported to make further submissions about costs without leave. I did not require a response from Mr Chisholm. I do not accept the explanation advanced in that memorandum.

[44]   The short point is that this application was misconceived. It should not have been brought in the first place, and certainly not on the basis it was brought. The Court was not provided with the information it should have had to enable it to properly consider the without notice application. As soon as the plaintiff’s opposition to the application was filed, even if the difficulties with the plaintiff’s claim were not apparent before then (which they should have been) the plaintiff should have

withdrawn the injunction it had wrongfully obtained on receipt of the application. He failed to do so.

[45]   In all the circumstances of the case Care Group is entitled to an uplift on costs. The actions of the plaintiff and his advisers have contributed unnecessarily to the time and expense of the proceeding by the failure to comply with the rules, quite apart from the apparent lack of merit of the application for injunction.

[46]   Care Group is to have costs on a 2B basis uplifted by 50 per cent for all steps taken in the proceeding to date, including the opposed application for adjournment (which would have been unnecessary if the plaintiff had properly accepted the lack of merit of its interim injunction earlier). In fixing costs I allow a quarter of a day for this morning’s hearing. Care Group is also to have disbursements as fixed by the Registrar.

Venning J