Thomson v Surch

[2022] NZHC 820

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE

CIV-2021-409-000455

[2022] NZHC 820

BETWEEN

CHRISTOPHER BRUCE THOMSON AND DALE ANTHONY WADSWORTH

Plaintiffs

AND

TROY ADAM SURCH

Defendant

Hearing:

22 March 2022

(Further evidence and submissions filed 31 March 2022)

Appearances:

G J Ryan and N J McKessar for Plaintiffs No Appearance for Defendant

Judgment:

26 April 2022

Reissued:

9 May 2022

JUDGMENT OF EATON J ON FORMAL PROOF

This judgment was delivered by me on                   at               pursuant to Rule 11.5 of the High Court Rules

Registrar/Deputy Registrar Date:

THOMSON v SURCH [2022] NZHC 820 [26 April 2022]

Introduction

[1]                   On 6 October 2021, the plaintiffs, Messrs Wadsworth and Thomson, applied for an order rectifying the share register of NZ Radiators Trustee Ltd (the Company) pursuant to s 91 of the Companies Act 1993. The register currently records the shares to be held jointly by Mr Wadsworth, and the defendant, Mr Surch. The plaintiffs seek rectification to record the shares as held jointly by Mr Wadsworth and Mr Thomson.

Response of Mr Surch

[2]                   On 29 November 2021, Associate Judge Lester made an order for substituted service, directing that service of the claim and notice of proceeding be effected on Mr Surch other than by way of personal service. Between 6 and 8 December 2021, service was effected in accordance with the orders made by Associate Judge Lester.

[3]                   Mr Surch has not filed a statement of defence. He has taken no steps. The application was set down for a formal proof hearing. Mr Surch did not appear at the formal proof hearing on 22 March 2022.

[4]                   The application was  supported  by  an  affidavit  of  Mr  Wadsworth  dated  11 March 2022. Following discussion with Mr Ryan, on behalf of the plaintiffs, the application was adjourned for Mr Ryan to file further evidence. An affidavit was filed by Mr Thomson on 31 March 2022. I have considered both affidavits.

The evidence

[5]                   The plaintiffs are business partners. They were previously in business with Mr Surch in the Company and a radiator business, NZ Radiator Ltd (the Business).

[6]                   The Company holds the shares in the Business. The Company’s shareholding is currently held jointly,  as to 100 per cent  of  its shares,  by Mr Wadsworth  and   Mr Surch.

[7]                   In March 2016 the parties reached an agreement to beneficially own the Business through personal trusts and private companies. The agreement was

documented in a shareholders’ agreement (the Agreement) dated 23 March 2016. The parties to that agreement were:

(i)Mr Surch and Mr Wadsworth as trustees of the Zurich Oak Trust (Zurich).

(ii)Cognata Investments Ltd (Cognata).

(iii)Mr Thomson, Ms Tanja Frets and WF Trustees 2007 Ltd as trustees of Belgica Trust (Belgica).

[8]                   Mr Thomson deposes that, as set out in the agreement, the Company held the shares of the Business for Zurich, Cognata and Belgica. Zurich was a trust for the benefit of Mr Surch. Cognata was a limited liability company holding investments on behalf of Mr Wadsworth. Belgica was a trust primarily for the benefit of Mr Thomson and his now ex-wife Tanja Frets.

[9]                   In May 2017 Mr Thomson settled  the Lagmhor  trust (Lagmhor).  He and  Ms Frets entered a relationship property agreement dated 3 August 2017 recording that the trustees of Belgica are the owners of 80 per cent of the shares in the Business and that Mr Thomson or his nominated trust was to retain those shares as separate property. Mr Thomson nominated to transfer the beneficial interest in the Business shares from Belgica to Lagmhor.

[10]               By resolution dated 15 August 2017, the Business approved the 80 per cent (800 shares) interest being transferred to Lagmhor.1 On 16 August 2017 a resolution was passed by the Company acknowledging Zurich’s 10 per cent beneficial interest. The resolution records the transfer of 100 shares (10 per cent) from Laghmor to Zurich.

[11]The beneficial interest in the Business shareholding was agreed to be:

(a)Laghmor 70 per cent.

1      The resolution erroneously refers to a transfer in the shareholding of the Company. I accept this is simply an error and the resolution approved a transfer of the Business shares.

(b)Cognata 20 per cent.

(c)Zurich 10 per cent.

[12]               The Agreement provided for the removal of beneficial ownership of one or more of the parties.

[13]               Mr Wadsworth deposes that from 2018 Mr Surch effectively withdrew from the Business. This led to the plaintiffs giving Mr Surch (as trustee of Zurich) notice dated 19 November 2020 under the shareholders’ agreement of default of his obligations. Mr Surch did not respond. The plaintiffs then invoked the process in the Agreement to acquire the beneficial interest of Mr Surch. The shares were independently valued, and Mr Surch offered fair value for his 10 per cent beneficial shareholding. Mr Surch did not engage with the process.

[14]               The prescribed process was completed in February 2021. On 4 February 2021 the plaintiffs’ lawyer advised Mr Surch that settlement of the transfer of the 10 per cent shareholding and the current account entitlements had been completed. From that date, the interest of Mr Surch was limited to the joint shareholding of the Company. Mr Surch was asked to transfer his shareholding to the plaintiffs to reflect the acquisition of his beneficial interest in the Business.  Mr Wadsworth  deposes that  Mr Surch has neglected to allow the share records of the Business to be updated.

[15]               The current application has been necessary as Mr Surch failed to engage with the plaintiffs at all. Mr Wadsworth believes this is due to a breakdown in his personal and business relationship with Mr Surch, which has resulted in other legal proceedings.

Legal principles

[15]   Pursuant to s 91 of the Companies Act, the Court has the power to rectify the share register if the name of a person is wrongly entered in the share register of a company. Section 91 provides as follows:

91       Power of court to rectify share register

(1)If the name of a person is wrongly entered in, or omitted from, the share register of a company, the person aggrieved, or a shareholder, may apply to the court—

(a)for rectification of the share register; or

(b)for compensation for loss sustained; or

(c)for both rectification and compensation.

(2)On an application under this section the court may order—

(a)rectification of the register; or

(b)payment of compensation by the company or a director of the company for any loss sustained; or

(c)rectification and payment of compensation.

(3)On an application under this section, the court may decide—

(a)a question relating to the entitlement of a person who is a party to the application to have his or her name entered in, or omitted from, the register; and

(b)a question necessary or expedient to be decided for rectification of the register.

[16]   In Rodgers v Advanced Creative Technologies Ltd Wylie J summarised the Court’s power under s 91 as follows: 2

[122] The Court has power under s 91 of the Act to order the rectification of a company’s share register, if it concludes that the name of a person has been wrongly entered in, or omitted from, the register. The Court’s power to make an order under the section is discretionary. The right to rectify is not an original source of power. Rather, it is a discretionary power enabling the Court to put right the register so as to reflect that which, under some other power, whether originating in the statute, or in equity, has been or ought to have been done. The person claiming rectification must show some equity, which the Court should protect.

Submissions for plaintiffs

[17]   In support of the application, Mr Ryan submits that the plaintiffs, through the trusts or companies they control, are the beneficial owners of the Business. It is submitted that a proper process has been undertaken whereby Mr Surch and his

2      Rodgers v Advanced Creative Technologies Ltd [2013] NZHC 577, [2013] NZCCLR 17 (footnotes omitted).

associated trust, Zurich, no longer have any beneficial ownership in the shares of either the Company or the Business. Absent any beneficial interest, the Court ought to rectify the share register to protect the plaintiffs’ equitable interests.

[18]    With reliance on Parkinson v James Products Ltd it is submitted Mr Thomson, as a beneficial owner of the shares, should be included in the share register of the Company in place of Mr Surch. 3

[19]   Mr Ryan contends that unless the share register is rectified, Mr Surch would remain as a shareholder with no beneficial or equitable interest in the shares of the Company, while Mr Thomson, who does have a beneficial interest in those shares, remains omitted from the register.

Analysis

[20]I accept the submission advanced on behalf of the plaintiffs.

[21]   The relationship between Belgica and Lagmhor, and Mr Thomson’s shareholding have been satisfactorily explained.

[22]   The process prescribed by the shareholders’ agreement has been undertaken. Mr Surch no longer has a legal or equitable interest in the shares of the Company. His shareholding as recorded in the share register of the Company does not reflect the beneficial ownership of the Company. The consequence of the completion of the process prescribed in the Agreement is that the Company now holds 70 per cent of the shares in the Business on trust for Lagmhor and 30 per cent on trust for Cognata.

[23]   It is appropriate the legal and  beneficial  ownership  of  the  shares  align.  Mr Surch has refused to cooperate with the plaintiffs’ request that the share register be rectified. It is therefore appropriate to rectify the register under s 91 of the Companies Act.

3      Parkinson v James Products Ltd [2009] NZCCLR 8 (HC).

Result

[24]   I make an order pursuant to s 91 of the Companies Act rectifying the share register of NZ Radiators Trustee Ltd by:

(a)The removal of Troy Adam Surch as a shareholder of NZ Radiators Trustee Ltd; and

(b)Recording the shareholders of NZ Radiators Trustee Ltd as Christopher Bruce Thomson and Dale Anthony Wadsworth, jointly.

[25]   I grant leave to the plaintiffs for a period of three months to apply for any further consequential orders or directions in order to give effect, or to implement, the order rectifying the share register.

[26]   The defendant is to pay costs to the plaintiffs on a 2B basis in accordance with the schedule attached to the memorandum of counsel for the plaintiffs dated 15 March 2022.

...................................................

Eaton J

Solicitors:
White Fox & Jones, Christchurch

Copy to:
Troy Surch – Defendant