Wilding v Te Mania Livestock Ltd
[2017] NZHC 717
•12 April 2017
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
CIV-2014-409-899 [2017] NZHC 717
BETWEEN TIMOTHY WILDING
First Plaintiff
TE MANIA PROPERTIES LIMITED Second Plaintiff
AND
TE MANIA LIVESTOCK LIMITED First Defendant
W. H. HOLDINGS LIMITED Second Defendant
JOHN HARRINGTON Third Defendant
HOONG BEE TECK Fourth Defendant
WONG CHUN WIN Fifth Defendant
HONG WEIGUO Sixth Defendant
Hearing: 21, 22, 23, 24, 27, 28, 29, 30 June 2016, 1, 4, 6, 7, 8 July 2016,
7, 8, 9, 10, 14, 15, 16, 17, 18, 21, 22, 23, 24, 25, 28, 29, 30
November 2016, 1, 2 December 2016 to March 2017 (further memoranda, evidence and submissions)
Appearances:
P J Dale and V E Fletcher for First and Second Plaintiffs
T J Mackenzie for First Defendant
B M Russell and R J Hopkins for Second, Fourth and Fifth
Defendants
I G Hunt and C Light for Third DefendantReasons:
12 April 2017
NICHOLAS DAVIDSON J - REASONS FOR INTERIM JUDGMENT DELIVERED ON 5 APRIL 2017
WILDING & ANR v TE MANIA LIVESTOCK LTD & ORS [2017] NZHC 717 [12 April 2017]
INDEX
A.INTRODUCTION.............................................................................. [1] The Te Mania Aberdeen Angus Stud .................................................... [2] Te Mania Livestock Ltd (TML)............................................................. [8] TML Shareholding................................................................................ [11] Land leased by TML............................................................................. [14] Te Mania Properties Limited (TMPL) .................................................. [15] Development of relationships ............................................................... [18] Why has TML come to this pass? ......................................................... [23]
2012...................................................................................................... [27]
2013...................................................................................................... [30]2014...................................................................................................... [43] The entry of the lawyers ....................................................................... [64] The condition of the young bulls .......................................................... [67] Mediation ............................................................................................. [69] Terra Firma .......................................................................................... [78] DOC land ............................................................................................. [79] Mr Harrington’s employment claim .................................................... [80] Derivative proceedings ....................................................................... [81] Application to remove Mr Harrington and Ms Adams as directors..... [83] Attempt by Mr Harrington to liquidate TML ....................................... [84] Missing hay ......................................................................................... [85] Hacking of emails................................................................................. [86] Heartland Bank ................................................................................... [90] The valuation exercise ......................................................................... [93] The Oversight Committee .................................................................... [99]
A further perspective ............................................................................ [102] Wadi...................................................................................................... [104] Mr Haugh and Mr Hazlett ................................................................... [105]
B. THE PLEADINGS ............................................................................ [108] Mr Hong – Sixth Defendant ................................................................ [108] Mr Wilding’s amended pleading........................................................... [109] Mr Wilding’s first cause of action ....................................................... [111] The fate of the (abandoned) first cause of action................................. [117] Mr Wilding’s second cause of action ................................................... [126] Mr Wilding’s further (the fifth) cause of action ................................... [129] Te Mania Properties Ltd - third and fourth causes of action .............. [130] The First Defendant - Te Mania Livestock Ltd ................................... [132] Third Defendant – Mr Harrington ....................................................... [135] Counterclaims ...................................................................................... [137] Second, Fourth and Fifth Defendants – WHHL, Bee Teck and
Mr Wong .............................................................................................. [139] The track of these Reasons for Interim Judgment ............................... [140] The Shareholders’ Agreement............................................................... [142] Section 174 Companies Act 1993......................................................... [143] Liquidation under s 174(2)(g) ............................................................. [150]
C.ANTECEDENT LITIGATION (BEFORE TRIAL) ....................... [151] DOC grazing licence............................................................................ [152] Derivative proceedings and application for removal of directors ....... [153] Liquidation proceedings against TML ................................................ [159]
D.ISSUES ................................................................................................ [168] (1) The conduct of the parties ........................................................... [168] The TML accounts ........................................................................ [171] Underlying pressures and resentment ........................................... [177] Personalities ................................................................................. [179]
A “hidden agenda” or “strategy” on the part of the defendants?.................................................................................... [182] Allegation of disloyalty and breach of fiduciary duty ................... [191] Intermingling of Wilding family finances with TML ..................... [199] The Kirriemuir lease .................................................................... [200] Lagoon Flat .................................................................................. [201] The counterfactual ........................................................................ [202] Overview of the falling out ............................................................ [203]
(2) Are WHHL or the defendants liable to TML by refusing to give it, or to pursue, the right of first refusal to lease
Lagoon Flat in 2014? ................................................................... [208]
Lagoon Flat ................................................................................... [208] Summary of Reasons for Interim Judgment on this issue ............. [210] The history of the Lagoon Flat lease............................................. [217] The unfolding dispute ................................................................... [224] Terra Firma .................................................................................. [226] Renewal of the Lease..................................................................... [230] Arguments for an estoppel against a denial the lease was
renewed – implied contract ........................................................... [234] Conclusion as to renewal .............................................................. [243] Effect on TML................................................................................ [244] Advice ............................................................................................ [256] Did TML suffer loss without the lease of Lagoon Flat?................ [257] Feed and supplements ................................................................... [264] Forced sale and intensification claims.......................................... [265] The damages and compensation claim – conclusion .................... [269]
(3) The DOC land............................................................................... [273] Agency ........................................................................................... [276] Discussion ..................................................................................... [279]
(4) Are Mr Harrington and the defendants liable to Mr Wilding for indemnity costs incurred by him associated with the
attempt to wind up TML? ............................................................. [284]
(5) The alleged mistreatment of stock ............................................... [289] Primary findings............................................................................ [289] Analysis ......................................................................................... [290] Conclusion as to alleged mismanagement .................................... [316] Should the directors have taken action against Mr Harrington
arising from stock mismanagement in defence of his claim
for wages and other entitlements? ............................................... [321]
(6) Malicious prosecution and abuse of process............................... [328] Mr Harrington’s case .................................................................... [329] Analysis ......................................................................................... [346] Sergeant Crosson........................................................................... [365] Mr Wilding’s response to the Police decision................................ [367] Observations.................................................................................. [369] Did Mr Wilding “prosecute” Mr Harrington?.............................. [377] Was the prosecution determined in Mr Harrington’s favour?....... [384] Did Mr Wilding bring the prosecution without reasonable
cause? ........................................................................................... [385] Did Mr Wilding act maliciously? .................................................. [391] Did Mr Harrington suffer damage as a consequence of the
prosecution? .............................................................................. [396] Malicious prosecution – conclusion .............................................. [397] Abuse of process ............................................................................ [398]
(7) Is TML liable to TMPL? .............................................................. [410] TMPL claims against TML............................................................ [410] TML defence .................................................................................. [413] Section 210 Property Law Act 2007 .............................................. [414] Fertiliser........................................................................................ [418] Evidence ........................................................................................ [420] Paddock book ................................................................................ [431] Fences and gates ........................................................................... [432] General maintenance claim .......................................................... [438] Rates claim .................................................................................... [439] Saloon facility................................................................................ [442] Wadi – rent .................................................................................... [443] Overall........................................................................................... [444]
(8) Should the First Plaintiff, Timothy Wilding, be given the opportunity to purchase the shares in TML, or should
the company be liquidated?......................................................... [445]
An overview ................................................................................... [447] Mr Wilding..................................................................................... [454] Other considerations ..................................................................... [459] Finality .......................................................................................... [466] Conclusion..................................................................................... [468]
(9) The valuation of shares for the purpose of judgment? ............... [470] The approach to share valuation................................................... [472] The reduction in the value of net assets ........................................ [475]
Livestock........................................................................................ [479] Semen ............................................................................................ [480] TML liability to TMPL .................................................................. [481] Lagoon Flat ................................................................................... [482] Defendant directors’ liability under heads other than costs ......... [483] Go Beef .......................................................................................... [484] Calves at foot, grassing and cropping........................................... [485] Liquidation costs and costs of sale................................................ [492] Spring planting costs ..................................................................... [496] The fixed plant on TMPL lands ..................................................... [499] Date of valuation ........................................................................... [502] DOC grazing licence ..................................................................... [503] Interest on current accounts .......................................................... [504] Lansdowne..................................................................................... [505] Tax losses....................................................................................... [506]
E. DISPOSITION AND COSTS ............................................................ [507] Interim Judgment.................................................................................. [507] Costs ..................................................................................................... [508] Some observations as to costs .............................................................. [510] Mr Wilding’s election – mechanism...................................................... [515] Concluding remarks ............................................................................. [516]
SCHEDULE
A. INTRODUCTION
[1] These are the Reasons for Interim Judgment delivered on 5 April 2017.
The Te Mania Aberdeen Angus Stud
[2] Te Mania Aberdeen Angus Stud is a renowned stud cattle breeder, which farms land north and south of the Conway River along the coast of North Canterbury. It is well known for an on-farm sale of two year old bulls in June each year, and the sale of yearling bulls in Spring.
[3] The stud was established in 1928 by Edwin Wilding, and the Wilding family has been involved since that time. The third generation is represented by the first plaintiff, Timothy Wilding (“Mr Wilding”) and his son William (“William Wilding”), who is the current manager.
[4] In 1997 the stud business was sold into a company called Te Mania Livestock Limited (“TML”). The Wilding family for the first time had to work with shareholders outside the family. They include overseas and New Zealand interests and have evolved to the point that the Wilding family holds a minority interest.
[5] What had been a workable association has now reached an unhappy end. The future of the company and the Te Mania stud has been at issue, and all parties hope the Interim Judgment and these Reasons represent the last rites of severely fractured corporate and personal relationships. The principal issue for the Court was whether TML should be put into liquidation or whether Mr Wilding should have the opportunity to purchase the shares of other shareholders who wish to exit their investment, and if so at what price. The Interim Judgment answers that question and Mr Wilding has that opportunity on strict terms, explained further in these Reasons.
[6] Along the way a commercial approach to resolution was lost. These Reasons address multiple allegations and counter allegations played out over 32 days of hearing, with prior and subsequent litigation attendances, more than 1,300 pages of evidential transcript, and several thousand documentary exhibits. The value of the
shares in dispute is out of all proportion to the costs of this litigation, which has unfolded with excruciating detail and contest on every conceivable issue.
[7] The scale of this litigation was such that it is not viable to refer to each witness and their evidence, however judgment is reached on all the evidence.
Te Mania Livestock Ltd (TML)
[8] The Te Mania stud is owned and operated by TML in which the Wilding family now holds a 40 per cent shareholding through Mr Wilding. The second, third, fifth and sixth defendants own the remaining shares.
[9] There has been an irretrievable breakdown in relationships between members of the Wilding family and the other shareholders, except the sixth defendant, Hong Weiguo (“Mr Hong”). TML continues to farm, but in an atmosphere of elevated distrust and recrimination which was on display throughout this long trial. TML cannot go on under its present structure, and all parties seek an end to that. It is only through the good offices of Mr Simon Wing of BDO, as the Chair of an Oversight Committee put in place to manage TML through to judgment, the stock work undertaken on the farm, and the support of Heartland Bank, that TML and the shareholding have been preserved to be amenable to judgment. This was a near run thing.
[10] Until the end of the trial in December 2016, the third defendant, John Harrington (“Mr Harrington”), wanted the opportunity to buy Mr Wilding’s shares and those of the other defendants who wish to sell. He abandoned that position and sought liquidation of TML, but otherwise asks the Court to fix the price which he says Mr Wilding should pay for his shares. Mr Harrington’s position changed in part because he identified the deterioration in TML’s equity over time. He saw further conflict and litigation and, like other defendants, he was concerned that if Mr Wilding gained control of TML there would be further litigation. The Court would not countenance that as an outcome and this judgment ensures that, bar the prospect of appeal. Mr Hong took no part in the litigation. The other defendant shareholders do not want the company liquidated, other than as a last resort in the
event they are not able to sell their shares to Mr Wilding at a value fixed by the
Court.
TML shareholding
[11] Over time the shareholding of TML has changed. TML has 675,400 shares on issue: Mr Wilding 273,990 (40.6%), W.H. Holdings Limited (“WHHL”) 170,470 (25.25%), Mr Harrington 64,815 (9.6%), Chun Win Wong (“Mr Wong”) 64,815 (9.6%), and Weiguo Hong (“Mr Hong”) 101,310 (14.96%).
[12] The five directors of TML are: Timothy Wilding (first plaintiff); John Harrington (third defendant); Hoong Bee Teck (“Bee Teck”) of Singapore (fourth defendant) and his alternate, Ms Sarah Adams (“Ms Adams”); Wong Chun Win (“Mr Wong”) of Singapore (fifth defendant) and his alternate, Ms Adams, and Hong Weiguo of China (sixth defendant), and his alternate Mr Ian MacDonald (“Mr MacDonald”).
[13] Bee Teck and Mr Wong are shareholders of WHHL and are broadly aligned with Mr Harrington in this litigation. I refer to Mr Hoong as “Bee Teck” and to Mr Wong as such because they were so described in much of the evidence. Bee Teck and Mr Wong are from Singapore. Mr Hong is from China and retains some connection with the Wilding family.
Land leased by TML
[14] TML over time has farmed leased properties including Te Mania, Wadi (Mt Admiral) and Rafa, owned by the second plaintiff, Te Mania Properties Limited (“TMPL”), a Wilding family company. It has leased land nearby, including Lagoon Flat, owned by the second defendant, WHHL, which some of the defendants own. It has leased other properties, including Wenlock, Lansdowne and Kirriemuir (Ashburton), and has held rights to graze land administered by the Department of Conservation (“DOC”).
Te Mania Properties Limited (TMPL)
[15] A striking feature of the case is the informality of TML’s tenure of the properties owned by TMPL, in particular Wadi and Rafa, in respect of which no formal leases were ever entered. Their tenure was not formalised by the TML or TMPL directors as any orthodox and prudent board would have done. Lagoon Flat and Te Mania were owned by WHHL and TMPL respectively. Both were leased to TML under Agreements dated 28 January 2005 on similar terms. It is remarkable that these formal leases came to the end of their initial five year term and to a disputed renewal term of five years without prior resolution by the TML directors of future tenure. After all, apart from the people involved, the lifeblood of TML was made up of the cattle and the lands on which they were farmed.
[16] Although Rafa and Wadi are not held by TML under a formal lease, for the purposes of judgment Mr Mackenzie, representing TML, properly acknowledged that by necessary implication, they are held on terms similar to the formal leases governing Te Mania and Lagoon Flat. That does not mean they were held for the same five plus five year terms, as there was no term agreed, but the primary obligations of TML as lessee, and TMPL as lessor, are otherwise the same and thus relevant to the TMPL claim for compensation or damages for alleged breaches of lease by TML.
[17] The informality and insecurity of TML tenure was reflected in 2012 – 2014. There were many points of conflict between the shareholders and directors. At one stage Mr Wilding contemplated sale of those properties, and thus withdrawal of TMPL farms from TML use, because of financial pressure on the Wilding interests. No sale eventuated, and Mr Wilding says this was just a testing of the waters. The evidence indicates otherwise. Clearly, the loss of these leased lands would have destabilised TML. In 2014 Lagoon Flat was leased by WHHL to a neighbouring farming company, Terra Firma Land Company Limited (“Terra Firma”). This is said by Mr Wilding to have been in breach of contract with TML, or otherwise in breach of obligations held by the defendants as directors of TML, given his contention that TML purportedly had the right of first refusal should WHHL have decided to lease Lagoon Flat after TML’s lease came to an end, and the importance
of Lagoon Flat to TML. The possibility of losing the lease of Lagoon Flat was addressed in a very casual way by the directors before becoming a sore issue, which remains the case for judgment.
Development of relationships
[18] Mr Harrington has worked in the rural sector for about 30 years, in New Zealand and Australia. On the evidence, including that of Mr Wilding, he is an experienced and skilled livestock manager, well versed in stock selection, breeding management, and genetics. He is of the school of management that grew up shepherding after leaving school at the age of 16. He came to Te Mania in February 1999.
[19] Over the next 13 years, the Te Mania stud business grew, first on three leased properties, Te Mania and Rafa owned by TMPL, and Lagoon Flat owned by WHHL. The area farmed grew from 750 hectares to about 1,800 hectares with the leases of Lansdowne in 2001, Wenlock in 2002, and Wadi in about 2006. Wadi had been owned by Mr Wilding’s uncle.
[20] The shared aim for TML was to improve the genetic quality and predictability of the bulls, to secure higher stock prices based on their genetics. The plan included increasing the female mating herd from approximately 300 to more than 1,000, which would allow greater stock selection. As Mr Harrington described it, the larger cow herd acted as a “bigger filter” of the inferior animals. More bulls were bred, and sales increased from 140 in 2004, to 272 in 2012. Mr Harrington says that the genetic quality improved, evidenced by record bull sales and reflected in the Agri Breedplan, a genetic evaluation software programme, and one of the largest performance beef recording systems in the world. Te Mania is now one of the largest Angus genetic suppliers in New Zealand.
[21] After they met Mr Wilding, Bee Teck and Mr Wong invested in the New Zealand operation. Mr Wilding was involved in their decision to invest, and the necessary approvals. They acquired Lagoon Flat in the name of WHHL and took an assignment of a licence to occupy 17.4 hectares (the DOC land) from a neighbouring farmer. WHHL acquired a shareholding in TML. Te Mania’s
Aberdeen Angus herd was sold into TML and thus the Wilding family held their interest in the stud through TML, with others. Mr Harrington later put a proposal to Mr Wilding and his wife, Katie Wilding (“Mrs Wilding”), that he with WHHL would inject funds into TML. He acquired 9.6 per cent of the shares, paying $3.60 per share. Mr Wong became a shareholder in his own name, and WHHL increased its shareholding. Later Mr Hong became a shareholder.
[22] A Shareholders’ Agreement of 28 January 2005 allowed each shareholder to appoint a director, and Bee Teck became the director for WHHL. The management team included Bee Teck, but he lives in Singapore, so on the ground it comprised Mr Harrington, Mr Lindsay Smith (“Mr Smith”) as an independent director, Mr David Stone (“Mr Stone”) the then TML accountant, and “in practice”, Mr Wilding.
Why has TML come to this pass?
[23] Put simply, TML is ungovernable under its present structure, and has been for several years. There has been no common purpose since 2013. There is entrenched and palpable personal enmity between the principal protagonists, Mr Harrington and Mr Wilding, and it extends to Mr Harrington’s partner, Ms Adams. Where it began is uncertain, as there was once a close bond and mutual respect between Mr Harrington and the Wilding family. They shared working and personal lives, and that bond was evident when Mr Harrington suffered personal loss. When William Wilding gave evidence, that respect and bond of earlier times was abundantly clear.
[24] Mr Smith was in a good position as an independent director of TML to observe the breakdown in the relationships between the shareholders. Despite his association with the Wilding family, I found his evidence balanced, and his straightforward and perceptive observations are a useful filter for the animosity between the parties. Mr Smith’s view was that the TML stud business grew faster than it should have done, and some shortcuts were taken, but if the parties dwelt on peripheral issues, they would not move forward. He was proved correct. He thought that the underlying problem was that Mr Harrington was the general manager of TML but Mr Wilding was seen as intrusive, and Mrs Wilding’s involvement with the
accounts was a problem for Mr Harrington. Mr Smith said Mrs Wilding gave “110 per cent plus” to the company, so it was not for lack of effort on her part that conflict developed. Correspondence between Mrs Wilding, Mr Harrington and Ms Adams was at times acerbic, in particular about Wilding accounts that should not have been paid by TML. A particular sore was TML money being used to help a young New Zealand rower, and another that TML paid Wilding family costs associated with protecting water rights.
[25] With the financial position of TML at best holding, but personal relationships worsening, the history of Te Mania in the period 2012 to 2014, and through to 2017 is studded with incident and acrimony. That it has come to this, a trial of such length, such division, and such cost, is summed up by Mr Smith saying “I can’t believe it”.
[26] The following narrative identifies the principal issues for separate determination.
2012
[27] The evidence shows how payments made by TML for the benefit of the Wilding family, or without Mr Harrington’s authorisation, outraged him. This was elevated by Bee Teck to a statement that, if proven, such payments amounted to a “criminal breach of trust”. This was never the case, and I make that finding now, given its reputational import. This was some two years before events culminated in mid 2014 with an allegation by Mr Wilding of serious herd mismanagement by Mr Harrington, including the deliberate starving of young bulls (also described as bull calves), and Mr Harrington soon after leaving his management position at Te Mania. In fairness I make my finding equally clear, that there was no deliberate starvation of the young bulls.
[28] Mr Wilding wrote a fulsome apology on 20 August 2012 addressed to “Johnny” (Mr Harrington) saying that he was “upset and apologetic” that his actions had caused such a rift, and that he was “mostly to blame”. He asked that Mr Harrington not take out his frustrations on Mrs Wilding and said that his personal financial position had not allowed him to support TML as he wished. He suggested
changes to financial and management strategy and asked Mr Harrington to accept his
apology, and that they “at least communicate on a personal basis”.
[29] Mr Smith said he thought that Mr Wilding may have “stepped over the line occasionally” and treated the company as if it was his own, but communication lines were poor, and the company was growing. He did not think “for one minute” that there was any malice in what Mr Wilding was trying to do, as it was always for the betterment of the company. There were differing “drivers”, and some investors wanted a swift return on their investment and thought that return was not made quickly enough. Mr Smith described the parties’ behaviour as “living in the past”. No matter what TML achieved, and there were real successes, the trust and common cause between the shareholders were steadily eroded. As the relationships worsened, TML was exposed to more and more risk.
2013
[30] The lack of formal agreements about important contractual elements between the parties was reflected in January 2013 when Mr Wilding suggested that he (on behalf of TMPL) would invoice TML for grazing on Wadi over the previous six years, but adjust for $30,000 spent by TML on the Rafa house owned by TMPL. The idea that TMPL was owed unpaid rent for the past six years did not sit well with Mr Smith, and certainly not with Bee Teck.
[31] About this time Mr Wong and Bee Teck decided that they wanted to exit TML, but in an orderly way. In February 2013, they suggested downsizing TML so it might be sold to Mr Wilding, or that it should be sold as a whole. The status quo was not acceptable to Bee Teck as he thought it was unsustainable. Mr Smith too recognised something had to be done.
[32] From Bee Teck’s perspective, at a meeting on 21 February 2013 it was agreed that an arrangement whereby TML paid for capital development on Wadi in lieu of rent was not working, and from 1 August 2012 annual rent of $30,000 would be paid, as it was the final issue to be resolved under a new management structure. Bee Teck and the other defendants resist the claim that TMPL is owed $90,000 rent for Wadi. TML funding then included a fixed loan of $1,000,000 from
PGG Wrightson (“PGGW”) and an overdraft, and drought conditions were a challenge. Bee Teck wanted to sell stock to repay PGGW as much as possible. He did not like the idea of WHHL being asked to provide further security to refinance TML on an open-ended basis, which did not have an equivalent input from other shareholders.
[33] On 22 May 2013, Mr Wilding wrote to Mr Wong, Bee Teck and Mr Hong to tell them he was under financial pressure. TMPL receivership was in prospect unless he could sell assets, such as Wadi, which he had been trying to do. The farming business of a close friend had been put into receivership and it had shaken everyone.
[34] Paradoxically, relationships worsened further at a time when Mr Smith said that the company was in good heart, with the target of 1,000 breeding cows reached, and strong demand for Te Mania bulls. On 5 July 2013, the Minutes record the June sale of 150 two year old bulls exceeding expectations. Only two bulls were passed in, but sold after the auction. The Minutes record congratulations to all those involved. The account with Heartland Bank was in credit. A dividend would not be paid as the general feeling was not to pay dividends by resorting to overdraft. Mr Wilding offered to buy the shares he did not hold in TML, and WHHL land, but it was recorded that “no party wished to sell their shares”.
[35] An “angel investor” came to light, possibly to purchase shares from WHHL, Mr Wong and Mr Hong, and who would want to lease Lagoon Flat with a right to purchase. Mr Harrington said that he had not been asked about this and would not stay at Te Mania if it transpired. The potential investor would want Mr Harrington to stay on. There were obstacles to this idea including price, and that Mr Harrington was not offered an exit. It came to nothing.
[36] Mr Wilding’s position as of July 2013 was that he would not agree to sell TML unless they could achieve the “$8,000,000 plus” valuation that Mr Wong put on the company. Bee Teck had suggested a sale of shares, based on a lesser figure.
[37] The second to fifth defendants (generally “the defendants” and excluding
Mr Hong) then made a proposal which became a running sore to Mr Wilding, and a
central part of his case to which further reference is made. It was tabled by Mr Harrington, supported by Bee Teck and Mr Wong, that the shareholders split the TML assets according to their shareholding and a new entity take over the leased properties of Lansdowne, Lagoon Flat and Kirriemuir. Mr Wilding would retain the TMPL properties, and the TML brand. This would split the stud operation and the parties would go their separate ways. Mr Smith sought advice from Mr Stock, solicitor. The outcomes contemplated were the status quo, a 60:40 split, or total sale of the stock. Mr Smith said the company was at a stalemate, but there was no conduct on Mr Wilding’s part which he thought justified splitting the company. He remembers that Mr and Mrs Wilding were taken aback, and he was surprised that it came so soon after TML had taken up a new lease of Kirriemuir in Ashburton. In April 2013, Mr Harrington had promoted the Kirriemuir lease, yet two months later in July, he was discussing breaking up the company and his taking over Kirriemuir with others.
[38] The idea of splitting the company was scotched by Mr Stock’s legal advice that 75 per cent of the voting shares had to be exercised in favour of transactions recorded in clause 9.1 of the Shareholders’ Agreement, which covered such a proposal. An email from Bee Teck then referred to potential liquidation of the company, and Mr Smith said he would tender his resignation as an independent director of TML if this occurred. Bee Teck says the split was his idea. He was not aware of any plan by Mr Harrington to run a rival business to TML, but simply thought his idea was a pragmatic solution.
[39] In the last part of 2013 relations were “very strained” according to Bee Teck. It was at this point Mr Wilding put the TMPL land leased by TML on the market as a result of pressure from his bank, but he did not tell the other directors what that meant for TML. Aside from pressure on Mr Wilding, TML had its own bank debt to deal with, and agreement was needed on a method of selling down cows to reduce debt. Mr Wong, Bee Teck and Mr Harrington wanted to call in all current account debts, but resistance was raised by Mr Wilding. This took a long time to resolve, and was a further corrosive element affecting relationships.
[40] Bee Teck said that there was little goodwill left between the shareholders, and while strongly in favour of the 60:40 split of the company’s assets, he otherwise supported a dissolution of the company. Mr Smith contemplated Lagoon Flat being sold by WHHL, and another company being formed with investors such as Mr Hong and Mr Harrington, and Mr Smith might join them. He said a decision “appeared to be coming” to downscale the TML operation.
[41] Mr Wilding thought that TML could have paid a dividend until the company “over exposed itself” with the Ashburton lease (email of 4 September 2013) and said “the lease of 100 hectares at Ashburton is a very bad replacement of Wenlock’s
375 hectares!!”. Mr Harrington under cross-examination agreed that by late 2013 trust was broken, and should a break up of TML not be achieved, or a share sale not be effected, TML would simply have to carry on, and he says that is what happened. There was a lack of trust arising from company funds being used to meet Wilding family liabilities, so Mr Harrington saw no long term future for the relationship. He agreed the 2013 June bull sale was a good one, but that “one swallow does not a summer make”. Mr Dale put to him that the 1,000 cow herd milestone had been reached, but Mr Harrington said TML never had 1,000 cows, as he defined that. The financial statements reflect the number of cows mated, indeed more, but after dry cows were taken out, and then calves sold, most years ended with about 800 cows on hand. He said that by late 2013 the company was not in good heart and he rejected the idea that it was in a “sweet spot” for several reasons, including debt risk. Mr Dale put it to him that he was determined to paint a negative picture of the company, which he rejected.
[42] For Mr Wilding, Mr Dale put it that the strategy of Mr Harrington, supported by some of the other WHHL defendants, was to disadvantage TMPL while advantaging properties not leased from TMPL, including Kirriemuir at Ashburton. Mr Dale submitted this was intended to adversely affect TML, to force a severance of shareholder interests.
2014
[43] By 2014, the need for the parties to go their separate ways was, in my view, crystal clear, but there was no workable solution on the table. Mr Wilding wanted to carry on. The defendants did not. Something had to give. Mr Harrington expressed dissatisfaction but Mr Wilding said that had nothing to do with what was in the best interests of the shareholders in TML. Mr Harrington’s email to Bee Teck of
13 January 2014 says it all, from his perspective:
I agree with you, that the present situation is untenable and I guess with all equity partnerships, which can be in the form of a variety of business structures… inevitably they all come to an end! This can be for any number of reasons… the only certainty in life is change… when this happens, it is time for the parties to go their separate ways. In my opinion, this is where TML has got to.
I don’t think there is any point in discussing at a meeting how to continue TML under its present structure, as in my view, it has got past the point of no return. I have no desire to continue to be involved in a business with Tim and Katie. So, I agree with Bee Teck, if a special meeting is required it should have clear agenda, which needs to be sent to all shareholders well prior to the meeting, as per Bee Teck’s recommendation. If a meeting is to take place – the priority up for discussion, in my view, should be around how we implement shareholders who want to exit the current structure or/how the company is liquidated as a whole.
With the above response, I’m sure this gives you and the other shareholders
my perspective of the current untenable situation of the company.
Regards
Johnny
[44] Bee Teck suggested a paper go to the TML Board, with Mr Harrington’s proposal for a resolution given the “current untenable situation of the company”. TML could not sustain its operations given the high fixed term loan from PGGW of
$1,000,000, plus the $600,000 overdraft, which was at its limit. The overdraft was lower than the $1,000,000 which had been available in the past. He referred to the expense of leasing land, the personnel required for the level of operations, money owed to TML by Mr Wilding, and trade debtors. The shareholders were unwilling, or unable, to guarantee credit lines from the bank, resulting in high interest costs. Bee Teck said all shareholder loans should be repaid and the shareholders make loans to TML in proportion to their shareholding. There should be a reduction in the herd size, and a reduction in the land area leased.
[45] Ms Adams told Mr Harrington that equity partnerships do come to an end with changes in relationships, and when something harmonious and constructive becomes something else, people should face up to it. Ms Adams said that should be addressed at a meeting which should be limited to how the parties might exit, or how the company might be liquidated. In this Ms Adams was giving orthodox and prudent advice given the different aspirations, the personal antipathies, and the recurrent points of difference between the parties.
[46] Mr Harrington set out for the Board the financial position of TML and market conditions, and proposed five steps. Debts owed to TML would be called, there would be a sale of 300 – 500 cows in April, the area leased would be reduced, expenses addressed for efficiencies, and wages reviewed. A budget for the remainder of 2014 would be prepared and circulated to shareholders by
10 February 2014.
[47] Mr Smith stepped down, by email of 31 January 2014, ostensibly because his work with ASB was taking too much of his time. Mr Wilding thanked him and referred to Mr Harrington and others “trying to divide the company for personal gain and with blatant disregard for the interests of all shareholders”. Bee Teck responded on 3 February 2014. He qualified Mr Wilding’s reference to a proposal made by Mr Smith which would, as Mr Wilding said, have saved interest costs, but which would have required a mortgage over the Lagoon Flat property owned by WHHL with the burden of guarantee on Mr Wong and Bee Teck. Bee Teck was frank that dissolution of TML was not just Mr Harrington’s proposal in his own interests, but a joint position taken with Bee Teck, Mr Wong and Mr Hong. They had confidence in Mr Harrington and his analysis of the problems facing TML, in particular the high debt and high expenses, which had been the case for years “with no end in sight”. So they looked to Mr Wilding “to amicably dissolve TML or [agree to] a proposal to resolve the present stalemate.”
[48] Yet TML ran on, against what I consider were impossible odds, without structural change. The possible termination of the Kirriemuir lease was discussed, although a three year lease had just been taken up. The merits of that lease were debatable, but it was a commercial decision and I find it was not a strategy on the
part of Mr Harrington and others to somehow unseat TML or advantage themselves in this regard. The June 2013 bull sale had been a success and the question properly turned to why Kirriemuir should be let go. Mr Harrington said it suited TML to give it up, in the context of pressure from the Bank. Mr Glubb, of Heartland Bank, had told him in vivid terms (for a banker) that he would be “riding TML like a pony with spurs on”. Mr Dale pressed Mr Harrington at length that at this stage things had not changed for the worse, but rather the better. However, Mr Harrington was adamant that something had to give to reduce the substantial debt. Mr Wilding had not by this stage paid the $310,000 off his current account which, after exhaustive enquiry, was eventually paid. There was more angst when Mr Harrington told Mrs Wilding that an “independent audit is to be carried out on the TML accounts”, and set out an extensive request for information back to 1 August 2006. He said her answer should be ready within two days. This was provocative, nevertheless his underlying purpose was justified, as it turns out.
[49] Mr Wilding reacted in an email of 20 February 2014, by saying that Mr Harrington was out of line and full Board approval was required for an inquiry into debts owed to TML, and the TML accounts. Mr Harrington was to produce a budget, and Mr Wilding asked him to focus his efforts on that, and the Board needed to give him a clear mandate as to what he could and could not do as managing director. Mr Harrington replied the same day answering each point. He then found out that the TMPL properties were on the market, and was concerned about the effect that might have on TML. He inquired of Mr Wilding who told him it was “none of [your] business”.
[50] Despite this, Mr Dale put to Mr Harrington that Mr Wilding was trying hard to have the shareholders and directors move forward. There was agreement about herd reduction. Mr Wilding had proposed that the breeding herd be reduced from
1,000 to 500 in May/April 2014, setting out criteria for culling. Mr Lindsay Haugh was to be involved as an independent genetic adviser, with Mr Harrington. Mr Sidey, a livestock genetics representative with PGGW, wrote to Mr Harrington about a “reduction sale”.
[51] On 21 March 2014 Mr Glubb wrote to Mr Harrington referring to TML’s
term loan of $1,000,000 and overdraft of $664,632 (limit $600,000), and said:
As discussed on previous occasions, TML needs to provide Heartland with a debt reduction proposal that ensures that TML has a sustainable and financially viable future. We are both aware that Heartland’s security for the above facilities is predominantly secured by livestock only and that TML has made no headway in recent years at reducing debt.
I look forward to receiving TML’s debt reduction proposal in due course.
[52] The Board met on 21 March 2014. Mr Wilding had met Mr Glubb that morning, who indicated he might extend the overdraft to $900,000. Mr Wilding acknowledged that this was a band-aid. By the June bull sale Mr Harrington said the company would owe nearly $2 million which was unsustainable, particularly if the bull sale did not meet budget. Bee Teck was concerned with the cash position of TML through to the sale, and said Mr Harrington should call in money owed to the company. Debt reduction was supported by Mr Wilding, but he wanted a “fair and reasonable process”.
[53] The directors agreed to sell cows, but disagreed as to the process. Mr Harrington said the older age groups should be sold, but Mr Wilding opposed that because that would be selling the “top intellectual property” in the company, and the value lay in the genetics. Mr Harrington said the younger cows would be genetically superior. No motion was put to the vote. Mr Wilding said that decisions should not be “railroaded” because of Bank pressure as the Bank had agreed to extend the overdraft to $900,000 and Mr Hong said he would top up the facility. Mr Wilding said that because Wadi and other TMPL property might be sold, TML should maintain the lease of Kirriemuir or go back to the purchaser and see if a payment out of the lease could be negotiated.
[54] On 24 March 2014, Mr Wilding wrote to the directors thanking them for the “timely and constructive” meeting, and Mr Hong for offering to support the company with bridging finance. There would be no need for a “fire-sale” of TML assets. He said Mr Smith should negotiate an exit of the Kirriemuir lease, but if a “fair settlement” could not be reached, then other options should be looked at including sub leasing. Mr Harrington disagreed as to how the Minutes should be
read, which for Mr Wilding was further evidence of “the corrosive environment and dysfunctional working relationship between [them]”. Mr Wilding thought Mr Harrington might be conflicted in the selection process for selling cows off. If sold to established breeders, there would be implications for his future employment. Mr Harrington thinks that about this time Mr Wilding was trying to get rid of him, which Mr Dale rhetorically put to him made no business sense, given his importance to TML.
[55] The hostilities escalated. On 25 March 2014, Mr Harrington wrote to Mr Glubb at Heartland Bank and said he had been trying to get across to the directors the financial predicament of the company. This letter was highly critical of Mr Wilding and this can only be explained in the context of the fractured personal relationships, but it hardly assisted TML or Wilding interests generally.
[56] Thus, by the end of March 2014, it was agreed TML would undertake a cow reduction sale, the Kirriemuir lease would be relinquished by negotiation, and debts would be called up. These plans were set against a simmering backdrop: intense resentment and distrust on the part of the defendants towards Mr Wilding, a reciprocal grievance that the defendants would not support TML as he thought they should, but were actively trying to break it up or sell it down, in the midst of considerable pressure on the Wilding family’s finances.
[57] Mr Wilding wrote to Bee Teck on 30 March 2014, expressing concern about the sale of stud cows to competitors. He seemed to resile from the idea of a short term profit from sale of the cows, particularly if Mr Hong was prepared to lend money against the overdraft with Heartland Bank, giving TML breathing room. Yet the day before, Mr Wilding had written to the directors saying he unreservedly supported the sell down of the herd, and that time was of the essence. His view was that selling the cows to one or two large farming operations which would undertake to run the animals as commercial cows would be the best option, so they would not be sold or marketed as having TML genetics.
[58] Bee Teck replied that there had to be asset sales to pay Heartland Bank. Mr Wilding was selling TMPL properties so this was another reason to downsize the
TML herd. TML would retain 500 cows with the best genetics so there should be no great fear of competition. Speaking for Mr Wong as well, Bee Teck said: “We have no wish to continue with TML in its present mode, saddled with large, high interest borrowing and lack of trust and goodwill amongst shareholders”.
[59] On 31 March 2014, Mr Orr, who is vastly experienced in the stud stock industry, wrote to Mr Wilding saying that the number of bulls sold, and the average prices expected in the June sale, would not in his view maintain the good trend of the last five years. There were market constraints on cow numbers, and the number of bulls which could be sold. He thought the sale of stud cows would have a negative effect on TML, particularly at auction where the vendor has no control over the purchaser and what becomes of the cows, and he referred to the conjecture and gossip in the farming community about the sale of TMPL land.
[60] On 3 April 2014, Bee Teck wrote to Mr Wilding and said “at this critical stage of TML’s financial crisis, our first concern must be with the here and the now; otherwise, there is no long term future to talk about”.
[61] Mr Peachey of PGGW, expressed a view similar to Mr Orr’s. He said the selection of cows to be retained at Te Mania should be based on strong visual considerations, to breed solid high country bulls with good bone, depth and head. The rest of the cows should be sold as a commercial line, putting aside the possibility of their being used as pedigree producers. The debate continued into June 2014. Mr Wilding took strong issue with Mr Harrington’s ideas because he thought Mr Harrington wanted TML to be liquidated, and was not acting in the best interests of the company. He thought there was a risk of losing a sale of cows to Rimanui Farm. Mr Harrington remains very critical that the sale of cows to Rimanui Farm went ahead.
[62] Mr Wilding’s distrust of the defendants, which has led to the allegation of a concerted and improper strategy against the interests of TML, is reflected in his email of 6 April 2014 to Bee Teck where he said:
I am determined to protect the value of TML for all shareholders and do what is best for the company so if you are insistent in supporting Johnny
when he is refusing to answer simple questions to provide comfort to the board as to what his true intentions are then you will leave me no choice but to also seek legal advice as to what remedies the majority of shareholders have at their disposal to protect the best interests of the company.
[63] Through April 2014 the correspondence between shareholders reflects other ways in which the assets might have been realised, including the sale of TML in its entirety rather than being broken up. Mr Wilding said TML’s position would not be known until closer to the June bull sale and the outcome of land sales by TMPL, and was keen to defer relinquishment of the Kirriemuir lease. Mr Smith wrote on
6 April 2014, wondering why his input had been sought to extricate TML from the lease when legal advice was contemplated, and relinquishment of the lease would not be known until closer to the bull sale. He said it had been a waste of his time, as he had entered into discussions in good faith for TML to relinquish the lease early, following what he thought had been agreement in March.
The entry of the lawyers
[64] The correspondence between lawyers began in earnest with a letter sent from Ewart & Ewart for Mr Wilding and Mr Hong to Young Hunter, on 15 April 2014. Mr Ewart said TML’s financial position must be secured. A re-think by Mr Wilding and Mr Hong about reducing the herd size was explained, given the risk of losing Te Mania’s competitive advantage if new owners of the cows could breed from them. There was said to be no immediate need to sell the breeding stock as the Bank was comfortable, and short term funding was available from Mr Hong. Underlining this was a concern about Mr Harrington’s motives. Mr Harrington had not provided a reassurance that he would have no interest in the ultimate owner of the cattle. He had been corresponding with Mr Glubb at Heartland Bank, but he would not release that correspondence because it might put him in an “invidious position”. Mr Wilding and Mr Hong sought Mr Harrington’s undertaking not to speak with the Bank without prior consent of the Board, and to stand aside from his roles as employee and director so the value of his shares could be assessed for sale to the other shareholders. They alleged that Mr Harrington’s conduct was in breach of the Shareholders’ Agreement so that it was likely the majority shareholders would call a meeting to remove him from the Board, and consider his future employment.
[65] Mr Harrington said that between March and the end of May 2014, he was substantially occupied in preparing cattle for the June bull sale. This was a very wet period. The bull walk undertaken before the June sale is on the last Friday in May and there was a lot of pressure on feed. 270 in-calf females from Kirriemuir had arrived back at Te Mania, and about 400 cows were sold in June 2014. The June bull sale went ahead as usual and a large sum was banked from the sale proceeds.
[66] On 8 July 2014, Young Hunter wrote to Mr Dale to say that Mr Wilding and/or TMPL owed about $480,000 to TML. An audit was called for. Mr Wilding admitted some of the debts, but made some counterclaims against TML, including unpaid rent for the TML leasing of TMPL land, which Bee Teck says was designed to create a set-off.
The condition of the young bulls
[67] The June 2014 bull sale came and went, but not without controversy. There followed a dramatic and hotly disputed allegation by Mr Wilding against Mr Harrington. The evidence that young bulls were found to be starved, and in very poor condition at the end of July 2014, is conflicting. There is dispute as to their condition and the cause. There is a further dispute as to whether TML suffered any loss as the result of their condition, and whether as Mr Wilding says, TML suffered loss when directors other than Mr Harrington failed to raise the allegation of mistreatment against Mr Harrington to offset his employment claim against TML.
[68] Bee Teck’s view was that when the incident arose Mr Wilding did not seem focused on solving the problem, but rather was gathering evidence to build a case against Mr Harrington. He says that Mr Wilding later refused to provide the 600 day weights for these bulls, which made him suspicious there was no long term problem with them, whatever their earlier condition. The near immediate effect was that Mr Harrington resigned and left TML. The condition of these young bulls at that time, and the reason for their condition, remains an issue for determination.
Mediation
[69] A mediation conducted by senior counsel on 9 September 2014 was unsuccessful. This reinforced the view held by Bee Teck that the best interests of the company were that the shareholders separate their interests. Bee Teck correctly recognised that resolution of multiple claims and counterclaims would be relevant to any valuation of the shares, as otherwise there was little clarity as to the balance sheet of TML for the purpose of share valuation. Bee Teck made no secret of the fact that he told Mr MacDonald (Mr Hong’s alternate) that he had wanted to de-couple Lagoon Flat from TML for a long time past. Mr Wilding, for his own reasons, had been quite prepared to de-couple the TMPL properties by sale which may, or may not, have resulted in a lease back to TML. Apart from de-coupling Lagoon Flat, Bee Teck said he was willing to sell his shares in TML. He did not see any prospect of TML’s position improving in the near future given the acrimony that existed between the shareholders. No offer had been made to him by Mr Wilding to acquire his and, I infer, Mr Wong’s shares. The angel investor had fallen away.
[70] In late September 2014, Mr MacDonald was working on an informal valuation of TML for Mr Hong, to make an offer to buy Mr Harrington’s shares. Mr MacDonald wanted a statement of financial position for the financial year ended
31 July 2014. The accountants would not begin work for the 2014 year until the
2013 year accounts had been finalised. Here was another drag on resolution.
[71] By this time, the herd size had been reduced by about 40 per cent. However, Bee Teck wanted a further herd reduction in light of TML’s debt. In the meantime, TML’s lease commitments could be reduced. He did not think Mr Wilding would agree, so he told Mr Harrington that terminating the TML lease of Lagoon Flat was something that should be considered to put pressure on TML to downsize its herd further. This is a further plank of Mr Wilding’s case, that WHHL and its directors improperly used termination of the Lagoon Flat lease in breach of an obligation to TML that it be offered first right of refusal of any further lease entered by WHHL, which Mr Wilding says it did, with Terra Firma.
[72] On 1 October 2014, Mr Harrington resigned from TML. On the same day, WHHL, through Bee Teck, gave one month’s notice that TML leave Lagoon Flat, which was on a month-to-month holding. Bee Teck thought TML’s financial position would not be impacted. Then Mr Wilding said that WHHL was contractually bound to offer Lagoon Flat back to TML under the 2005 lease, which provided:
3.3 Right of First Refusal
If the Lessor decides to offer the Land for lease from 1 August 2014 the Lessor shall give the Lessee the first right to lease the Land and shall not offer the Land to any other third party without giving the Lessee the first right to lease the Land on the same terms and conditions.
[73] Mr Wilding said the major land providers to TML needed to ensure that TML interests were properly protected which was why this condition was in the Te Mania lease, entered on the same date in 2005.
[74] Bee Teck did not have a signed copy of the Lagoon Flat lease, but had a copy
of the signed Shareholders’ Agreement which provided:
6. LEASES OF PROPERTIES
6.1TW agrees to cause Te Mania Properties Limited to enter into a lease of the property known as Te Mania in favour of TML for a term of five years together with a right of renewal for five years.
6.2WHL will enter into a lease of the property known as Lagoon Flat in favour of TML for a term of five years together with a right of renewal for five years.
6.3The terms and provisions of such leases in 6.1 and 6.2 above shall be in accordance with the leases attached as Appendix 1.
[75] Bee Teck also had a copy of the lease of Te Mania, but not Lagoon Flat. Wearing their WHHL hats, Bee Teck, with Mr Wong, withdrew Lagoon Flat from TML’s use, with its irrigated land, and said that was entirely for them as, at that stage, they denied the very existence of the lease and thus the right of first refusal.
[76] In defence of WHHL’s actions, including leasing Lagoon Flat to Terra Firma,
Bee Teck places emphasis on two emails from Mr Wilding dated 2 October 2014 and
sent within two hours of each other. In the first, Mr Wilding said that TML would have to sell animals to compensate for the loss of Lagoon Flat but it would allow reduction of bank debt, and he suggested that Lagoon Flat and WHHL shares in TML be sold to him as a package. However, in the second email he said:
… if you are insistent on not wishing to re lease Lagoon Flat this does put TML in an awkward position as far as running the extra 500 calves the property can potentially carry. However after taking into account all the cattle we have recently sold and this year’s calving results and doing a stock reconciliation you will be pleased to know that I have worked out we will in fact NOT need to sell any more cattle outside normal culling practices and can retain all the animals we have left by running them on our remaining lease properties as well as in the feedlot.
I am sorry if my previous email was misleading, obviously it’s not in the best interest for TML to have to down size any further given our current market share opportunities and I just wanted to clarify that we won’t have to be selling down any more cattle although our operational costs may increase slightly if we need to plant more crop etc on our remaining lease properties.
[77] As he was contemplating the purchase of the interests of Bee Teck and Mr Wong, Mr Wilding asked for a copy of the Lagoon Flat lease, which Bee Teck did not have. Although he was a signatory to the lease, Bee Teck said there was no signed lease as he understood it, and that WHHL would not have given a right of first refusal of the sort that Mr Wilding asserted, but which it had obviously done. Mr Wilding said that given the dry season and the drought, the company should graze Lagoon Flat until other arrangements were made and all TML issues were sorted out. Mr Wilding said that it would be irresponsible and negligent for TML directors to let the Lagoon Flat lease go at that time. Mr Wilding’s position now stands in contrast with his position of 2 October 2014, and his earlier preparedness to withdraw the TMPL properties from TML use.
Terra Firma
[78] On 24 October 2014, Lagoon Flat was leased to Terra Firma, owned by Mr and Mrs Luporini. Bee Teck explained he had told the Board that TML should reduce its herd size further and, as WHHL intended to sell Lagoon Flat, it was not in TML’s best interests to hold Lagoon Flat under a short term lease, terminable at short notice when a buyer appeared. Mr Wilding says WHHL was in breach of the right of first refusal to offer TML a lease on the same terms as Terra Firma, and that TML
has suffered loss, which should be compensated. Bee Teck and the WHHL defendants say there was no obligation, contractual or otherwise to lease Lagoon Flat to TML, that they would not support TML taking a further lease, and otherwise no loss was suffered by TML that should sound in compensation.
DOC land
[79] Bee Teck said that TML livestock on the DOC land should be removed by
1 December 2014. Mr Wilding countered that Terra Firma cattle should be removed because the land was held under a new licence (in the names of Mr and Mrs Wilding) and was sown down in winter feed for TML. William Wilding took Terra Firma’s stock off the DOC land and put them in the yards at Lagoon Flat. Bee Teck then found out that the new DOC grazing licence had been issued to Mr and Mrs Wilding. Bee Teck’s position is that Mr Wilding used information available to him as agent since Lagoon Flat was purchased by WHHL in 1996, when WHHL took an assignment of the licence, and, knowing of the terms, was able to get the grazing licence for himself and Mrs Wilding. He says Mr and Mrs Wilding hold the licence for WHHL derived from Mr Wilding’s role as agent when the licence was acquired, and asserts that Mr Wilding’s fiduciary obligation to WHHL derived from his agency continued.
Mr Harrington’s employment claim
[80] Following his resignation, Mr Harrington filed a claim with the Employment Relations Authority (“ERA”) which related to holiday pay and other employee entitlements, on 5 December 2014. Mr Wilding said TML should resist it based on his allegations of animal neglect. The directors did not agree. They took legal advice, and no defence or counterclaim was raised. Mr Wilding says this caused TML loss because there was a set off counterclaim available and it should have been used. Mr Harrington’s claim settled, but it remained a live issue when Mr Harrington brought proceedings to liquidate TML, at first based on the debt created by settlement, which was in due course paid.
Derivative proceedings
[81] Mr Wilding did maintain an application for leave to bring derivative proceedings in the name of TML in the first Statement of Claim through to the Third Amended Statement of Claim, but did not pursue that further.
[82] On 17 February 2015, Lane Neave for the defendants wrote to Ewart & Ewart about the possible Lagoon Flat claim against WHHL which was part of the application for leave to bring derivative proceedings by Mr Wilding. The Board had decided not to bring a claim against WHHL, one way or another, and an application for derivative leave was said by the defendant directors to be premature. Mr Wilding also sought leave to bring derivative proceedings in relation to alleged stock neglect by Mr Harrington. These applications did not extend to breach of a director’s duties. The application was in the end abandoned by Mr Wilding because of the potential delay which Mr Dale says meant such proceedings were impractical. The claims by Mr Wilding then found their way into these proceedings through the (abandoned) first cause of action and the claim for relief under s 174 of the Companies Act 1993 (“the Act”).
Application to remove Mr Harrington and Ms Adams as directors
[83] Mr Wilding’s position that Mr Harrington and Ms Adams held conflicting interests and should not be directors came to a head when he applied for their removal from the Board. That application failed before Dunningham J, discussed under Antecedent Litigation.
Attempt by Mr Harrington to liquidate TML
[84] From July 2014 to the commencement of this trial other controversial events unfolded, including the attempt by Mr Harrington to liquidate TML, supported by the defendants other than Mr Hong, initially based on the sum owing to Mr Harrington for his successful ERA claim. This failed, but the attempt lingers as a claim for indemnity costs by Mr Wilding for defending the liquidation, and is part of his allegation that the defendants breached their obligations as directors to act in the best interests of TML.
Missing hay
[85] In June 2015 Mr Harrington was prosecuted for theft of TML hay to the extent he was charged and served before the Police dropped the prosecution. This gives rise to the claims in the torts of malicious prosecution and abuse of process against Mr Wilding, discussed further in this judgment.
Hacking of emails
[86] Across the litigation lies the shadow of email hacking. Mr Heyward, Mrs Wilding’s brother, gave evidence admitting that he hacked into Mr Harrington’s email account before the server was changed. He had set up a cloud based email system for TML which could be remotely accessed, and he knew the password for Mr Harrington’s email address. He noticed emails which reflected tension developing between Mr Harrington and Mr and Mrs Wilding, and which contained references to Ms Adams.
[87] Mr Heyward said that after his sister married Mr Wilding, he shared their excitement at the aspirational future for TML. He looked into Mr Harrington’s emails when the personal and corporate relationships deteriorated so rapidly, and with such severity. He passed on emails which he thought Mr and Mrs Wilding would find useful, with limited, and often wry commentary. He made no bones about the fact that he should not have done this, but maintains he was driven by concern about his sister’s distress at the animosity, and what was happening to TML generally.
[88] In due course, Mr Wilding’s counsel, Mr Dale, found out about the hacking. He disclosed it, and contended that the emails did not appear particularly significant. For some time Mr and Mrs Wilding had access to the thoughts of Bee Teck, Mr Harrington, Ms Adams, and Mr Thwaites solicitor, regarding TML, the Board, and the shareholders’ dispute. Mr and Mrs Wilding did not instigate the hacking but they should have put a stop to it. Mr Wilding asked Mr Heyward to stop, but he did not do so.
[89] The hacking involved documents which had references from 2010 until
23 September 2014, although the hacking occurred over a shorter period. Most emails sent on to Mr and Mrs Wilding were in 2013 and 2014 when there was severe conflict between the shareholders and directors. Emails in June 2013 included Mr Thwaites’ advice sent to Mr Harrington before a Board meeting. There was correspondence with Mr Thwaites in 2014, as to how Mr Harrington and others might exit TML. The notion that Mr Wilding could read this advice is of course anathema to Mr Harrington and to the other defendants, and is very troubling to the Court. This was a very bitter and personal contest which involved strategic steps by the parties. Some of the hacked emails were, in my view, not associated with legal advice or otherwise confidential and were thus discoverable. Others were legally privileged. I am not prepared to read legally privileged emails which might have assisted Mr Wilding’s case. This was a serious breach of privacy and confidentiality, and of itself, it engendered distrust that runs deep. It remains relevant to judgment whether Mr Wilding should have the opportunity to buy the defendants’ shares.
Heartland Bank
[90] Both TML and TMPL have needed Heartland Bank’s support. Heartland Bank specialises in rural and business lending. The extent of bank lending has long been an issue with some defendants, who take the view that increased borrowing has simply eroded TML equity. Mr Prain of Heartland Bank wrote on 26 January 2016 to say that should the Bank become concerned about the Bank’s security or possible compromise of animal welfare, then it might have to appoint a receiver. That was no idle threat. TML’s liquidity problems hung over it, and continue to do so through this litigation. The Bank was also concerned with the lack of unity and direction between the directors and signatories to the TML accounts. A letter reflecting these concerns was sent from Bee Teck to Mr Prain on 18 February 2016, which reads:
Dear Ben
You are correct that any increase in bank lending to TML will need formal approval of the TML board.
At the current scale of TML operations, I am concerned that any debt increase, especially at the current high interest levels, is not sustainable. It will only erode shareholder value. In fact, at a recent TML board meeting it was decided that the fixed loan level be reduced. Furthermore, there is
need to review the current rate of interest charged by HBL for TML’s fixed
loan. TML should also consider refinancing its debt.
Any loan increase that you propose should state clearly the interest rate before the directors can consider your proposal.
Thank you and regards
Bee Teck
[91] Mr Wilding wrote to Bee Teck regarding his concern about interest costs, and that he (Bee Teck) was not prepared to approve the overdraft. Mr Wilding said he would pay the “extra” interest up to the June bull sale. TML expenses were being kept to a minimum so far as Mr Wilding was concerned, but there were fixed operating costs which had to be met and had been agreed in the budget.
[92] My reading of the Heartland Bank documents indicates a knowledgeable and patient banker addressing a tricky situation with care and experience. The Bank’s support of TML is one reason, already mentioned, that there is a judgment to deliver regarding the future of TML.
The valuation exercise
[93] The Interim Judgment already delivered determines that Mr Wilding should have the chance to buy the shares of the defendants, rather than TML being put into liquidation. The first course requires that a fair value of the shares be fixed by the Court. The principal item of value is the livestock. The trial began with evidence of several witnesses who were to be called for livestock and semen valuation. The livestock valuation should have been carried out without the Court’s involvement, except to resolve any underlying factual or timing issue. Most farming valuations are conducted with the nomination of valuers by each party, and their appointment of an umpire.
[94] The breakdown of the parties’ relationships was manifested in their approach to the valuation process. A striking example arose in the evidence of Mr Orr for Mr Wilding. Mr Orr gave valuation evidence, but not without objection on various grounds by the defendants. When the trial went into recess on 8 July 2016, having exhausted the allocated trial dates, the defendants sought an order that Mr Orr’s
evidence not be admitted on the basis that it was expressly not given as an expert, and that his relationship with the Wilding family was such as to disqualify him for bias. By the time this point crystallised, Mr Orr’s evidence in chief had already been given. It was clear that he had extensive knowledge of the Te Mania operation and the stud stock industry in New Zealand. It was equally clear that he had a close relationship with the Wilding family, which will not always disqualify a witness, but which raises a question as to impartiality. As Mr Orr refused to give evidence as an expert, the admissibility and relevance of his evidence was at large. The Court ruled by a Minute of 21 October 2016, that Mr Orr’s evidence was already on the record, and that it may be relevant to judgment. There then arose a challenge to the evidence of the valuer to be called for the defendants, Mr Simon Cox, and whether he should be heard, and if so, on what basis. The spectre of interminable factual and expert valuation evidence and contest about admissibility hung over the Court. Fortunately, the livestock valuation was largely resolved after intervention by the Court, and a valuation process was agreed upon and recorded by Minute of 10 November 2016 as follows:
[2] …
Formal appointment of the Valuers and Umpire – on terms agreed by the parties
(i) I direct that Callum Stewart and Anthony Cox be appointed as the valuers for the nominating shareholders in Te Mania Limited.
(ii) Mr Stewart is appointed by the Wilding interests and Mr Cox is appointed by the Harrington, Hoong Bee Tec and Wong interests.
(iii) The terms of appointment of the two valuers are as follows:
(a) the two valuers are required to read and confirm in writing that they will comply with the Code of Conduct for Expert Witnesses in this court;
(b) the conduct of the valuation process is to be fully transparent.
That means that any information provided by one side to either valuer must also be provided to the other side;
(c) the two valuers have appointed Mr Geoff Wright of Hazlett
Rural as umpire;
(d) the intention is that the decision of the valuers and umpire is final, but leave is reserved for the valuers or the umpire to return to the court for any directions if required;
(e) each party will be responsible for their own valuer’s costs, and the parties will share equally in the umpire’s costs.
(iv) Because the herd currently contains approximately 496 calves, the defendants say that an issue in the proceeding is the value of those calves after weaning in approximately January 2017. Accordingly, I direct the valuers’ opinion on both the value of the calves “at foot” at the date of inspection and the valuers’ opinions and analysis of what the difference in the outcome would be if the stock valuation was undertaken immediately after the calves had been weaned.
(v) The date of valuation is 23 November 2016, unless otherwise directed.
Semen valuations
[3] Evidence has already been given in this regard, and there is more to be given. Mr Donald will be giving evidence at a distance, by AVL, as he is unwell.
[4] Like the valuation of stock, all witnesses as to the valuation of semen are directed to confer. I leave this to counsel to organise. It will require them first to provide one to the other their valuation of the semen, and in this regard evidence already given would be referred to those intended valuers of the semen who have not been involved in the proceedings, or have not seen that evidence. The intention is simply to achieve a full exchange between the experts.
[5] As with the valuation of stock, if the parties have any information of their own to provide to the witnesses, just as they will for stock valuation, they should ensure that is provided to all the intended semen valuers.
[6] In short:
(i) all those witnesses who have or are to give evidence as to the value of semen are to be identified between counsel and advised to the court (an email from one counsel will suffice);
(ii) counsel should organise some form of conferral between those experts so that the position of each is understood, and the material upon which they base their opinion;
(iii) if the parties have information they consider is relevant to this valuation process, they should ensure it is sent to all of those witnesses involved in this valuation process;
(iv) the valuers should prepare a schedule which records any agreement (as between all of them) and if there is no such agreement, then the position taken by each valuer in respect of each element of dispute.
[458] On the other hand, Mr Wilding fought for the very survival of TML against a determined attempt by Mr Harrington, supported by other defendants, to liquidate the company, when that was not an appropriate course for them to take. Had it not been for him TML would have passed into liquidation with all the adverse publicity and uncertainties associated with that. In the end I conclude participation in the hacking should not result in his disqualification from purchasing the shares, but only when I put the issue alongside other very important considerations which dictate whether the company should be liquidated or not.
Other considerations
[459] I do not think it is of decisive import that Mr Wilding is the third generation Wilding family member at Te Mania, with his son William now the stock manager. That is an incident of history. He chose to bring others into TML and retains the largest individual shareholding, which with the support of Mr Hong represents a
55 per cent stake. Because the parties are going their separate ways after this judgment, or hope to, the percentage of shares held by Mr Wilding, by himself or in concert with Mr Hong is not of moment to the judgment, but I do recognise that Mr Wilding would carry on the long tradition of the Te Mania stud, and no one else likely would. That is a factor in my view.
[460] Mr Wilding has given the Court an assurance that he will be able to find the money required to complete a share purchase, and promptly. Without that he would not be given the opportunity. Whether that involves Mr Hong is for Mr Wilding and the Wilding family. Mr Wilding said that he would have the means, based on the valuation evidence adduced to that date by Mr Munn. Mr Hunt questioned him in cross-examination, but I accept Mr Wilding’s assurance that he has the means, as I would have accepted that of Mr Harrington, supported by Ms Adams. He could only give that assurance recognising that the outcome he sought to reflect in the balance sheet and fair value, might not be successful. The acid test of this will be his response to the Interim Judgment and these Reasons.
[461] As I do not consider Mr Wilding has conducted himself in such a way as to disqualify him from the opportunity to purchase the shares, the continuum of the
stud, and the use of Wilding family properties for that purpose, means that TML has a future for its staff and associated contracting parties, and the stud herd can be retained. In liquidation its future is uncertain, and its constituent parts may be broken up, with further uncertainty for the future of a famous name, and its immense value to the New Zealand stud cattle industry.
[462] The parting of the ways can be achieved with one party taking over TML and the others exiting for fair value. Mr Wing was asked why he thought the future of TML was “difficult to predict”. Mr Wing has a sound grasp of TML, its history, its present position, and the first reason he gave for this view relates to the people concerned, and the division between them. Aside from that, even with its reduced herd, and adjusting for the properties it needs, and with the support of Heartland Bank, he says the company should break even and it has a future. I agree, subject to all the contingencies which were a hallmark of the evidence in this case. It is in a highly competitive market, but it is a leading stud breeder, and it has a fine reputation in New Zealand and elsewhere. Any reputational stain is largely the product of the division between the parties, and this judgment emphasises the Court’s view that although the dysfunctional relationships and an imprudent approach by all involved to land tenure have blighted the past, they should not blight its future.
[463] I do not consider liquidation of the company should be ordered as sought by Mr Harrington. His attempted liquidation was an understandable, if provocative action, but it would lead to further uncertainty and a stain across the Te Mania name, which is not in the interests of the company, nor in my view, the ultimate interests of the shareholders.
[464] Finally, there is no evidence which demands that liquidation take place to protect the assets and there is no knowing what that would mean for the shareholders. Whereas this judgment, if executed by Mr Wilding taking up the opportunity given him to purchase shares, would see a smooth changeover and TML continue as the Wilding family, and any parties involved with it, should choose. A fair value reached on the basis that the company still trades, with bank support, and allowing a clean break between the shareholders, is a compelling reason to allow
Mr Wilding to have that opportunity. I am concerned for the creditors. There are debts accruing, held over pending judgment. The security for TML is best achieved by continuing to trade, as Mr Wilding will do if he takes up the opportunity given him.
[465] TML is now a very different operation to that which it was when at the peak of its cow numbers, and now farms on a smaller base of the TMPL properties; Te Mania, Wadi/Mt Admiral and Rafa, the DOC licensed land, some railway land. The TMPL properties have been inextricably linked with TML. I consider that the person who had the initial vision for TML, and his family company which provided the properties which TML has been able to utilise, with the determined effort by William Wilding to revive the fortunes of TML on the ground, support the Wilding interests having the opportunity to acquire the shares of others.
Finality
[466] A factor which in the end is particularly influential to the outcome is the prospect of further litigation. If Mr Wilding is to acquire the shares, he would in theory have the opportunity to bring proceedings in the name of TML. This is why the parties want all issues between the entities in this litigation resolved, and washed up in judgment. Mr Wilding’s first cause of action has been abandoned so all his claims are resolved within the second cause of action, and in the counterclaims, under s 174 of the Act.
[467] I record that Mr Wilding, through Mr Dale, advised the Court that he would not issue further proceedings in the name of TML and gives an undertaking in that regard. That has been addressed as a condition of the opportunity given him to acquire the defendants’ shares, and reflected in the Interim Judgment.
Conclusion
[468] The remedy under s 174 of the Act is not punitive. Conduct may preclude either party having the right to purchase shares, but that would be rare in my view. The outcome should best advantage the shareholders as a whole. I have no doubt s 174 is engaged at the suit of Mr Wilding and the defendants. The conduct and
attitude of all parties is such that TML is ungovernable, and unmanageable, because the parties are now largely unable to agree on anything, and a winding up order would inevitably result. Both sides in this litigation have contributed to the likelihood, indeed certainty, that the affairs of TML will be conducted in an oppressive, discriminatory or prejudicial way, fatal to TML’s future.
[469] If Mr Wilding is able to purchase the shares of the others, on terms which end all disputes between the parties, that is a much better outcome than liquidation with its uncertain outcome, and the potential for future dispute. A clean break is needed and by the Interim Judgment of 5 April 2017 that opportunity now exists.
(9) The valuation of shares for the purpose of judgment
[470] The idea that Te Mania stud, of national and international renown, would reflect in a high valuation of the underlying business, or its assets, whatever the valuation methodology, is not really the case. The assets of TML are substantially those of the stud. The tangible value of its long history is the development of a herd of substantial size and quality. In assessing a fair value, the WHHL defendants say that Mr Wilding has tried to achieve the lowest share price possible, including the way the 2016 bull sale was marketed, his conduct regarding stock valuation, and the semen valuation. I dismiss the marketing allegation on the facts. While there may have been more or better advertising, to attribute loss to Mr Wilding is without evidential foundation. There are more difficult valuation issues to resolve.
[471] The approach to fair value is discussed further but the point must be recognised that it is a fair value as between the parties as shareholders. The valuation outcome reflects that, and Mr Wilding has the opportunity to adjust the balance sheet to suit. For example, by the Interim Judgment his current account bears interest. With control of TML he can adjust that as he chooses. There are several such examples. Mr Hong would be part of that of course.
The approach to share valuation
[472] Two valuation experts, Mr Munn for the defendants and Mr Hagen for the plaintiffs, largely agreed on the approach, that of a notional liquidation. An earnings
based valuation is unrealistic. The company has seldom made a profit, and TML has not generated enough earnings to justify such approach. TML has made further losses through the litigation period.
[473] The valuation adopted for this judgment is reflected in the Schedule. Adjustments to the balance sheet were sought by the parties, to which the valuers responded. However, the various claims and counterclaims addressed in this litigation were beyond their expert knowledge. They reflect in a “plug in” to the balance sheet reflected in the Schedule.
[474] There are over-arching principles to apply in this exercise. The judgment should be remedial, to fit the circumstances of the case, and the Court will fashion the remedy. A fair value must be reached. This is not an orthodox willing but not anxious vendor and purchaser test, and fair value does not have to be at notional liquidation value. There must be principled reasons for the judgments required but the Court retains an element of discretion, in order to achieve fair value.
The reduction in the value of net assets
[475] The net asset value reduced significantly between 31 March 2016 and
18 November 2016. An agreed valuation of the livestock reflected the significant reduction in the cow herd. Current liabilities reduced but accounts payable increased, reflecting the operating expenditure incurred by TML at the dates adopted for valuation. The overdraft has been held for some time now, and at judgment there are accounts payable, and Mr Wilding has provided further funding to keep TML afloat.
[476] The equity in TML reduced between 31 March 2016 and 18 November 2016, by some $1.17 per share with an overall decrease of net asset value after allowing for contingent liabilities and realisation fees of $790,000. I have made an adjustment in the Schedule for this aspect, as will be explained.
[477] Mr Munn said that the draft accounts at 31 July 2016, prepared by Mr Wing reflected another net loss for the financial year. He made assumptions as to a commission rate of nine per cent for the sale of stock, and that the realisation rates
for plant and equipment did not move between 31 March 2016 and
18 November 2016. He adopted notional liabilities for employee redundancy and holiday pay, and he considers those relevant. The fee range for the costs to liquidate the company were the same. He applied a net figure for realisation fees and contingent liabilities rounded to $457,000 or 21 per cent of the net assets.
[478] Mr Munn adopted a value range from a low of $1,650,000 to a high of
$1,700,000, and adopted a mid-point valuation per share of $2.48. Mr Munn said that the various claims and counterclaims can be introduced into his valuation, provided any judgment as to a sum payable to TML is assessed for its recoverability, and any sum payable by TML is recognised as a liability which must be paid. This consideration is important and I have adopted it. The approach for Mr Wilding is to adopt some of Mr Munn’s approach. Mr Hagen expressed his view on the various valuation issues and that leaves for judgment the following matters.
Livestock
[479] The valuation was simplified by the sensible approach adopted by the parties mid trial rather pressed on them by the Court. It was agreed that valuers, Callum Stewart, National Genetics Manager of PGGW and Anthony Cox of Rural Livestock Ltd, should value the livestock and they did so as at 25 November 2016, fixing the value at $2,437,515. That value applies in the Schedule. A valuation post-weaning is addressed further.
Semen
[480] This remains problematical. The experts who were to give evidence for the plaintiff and the defendants, Mr Sergeant and Mr Donald, adopted very different perspectives of the semen valuation by a margin of some 3:1. Mr McIlroy reported as umpire, but there was immediate contest about some factual premises. On the eve of judgment extensive further evidence (if admitted) and memoranda were put before the Court. The dispute involves a difference of some $70,000 and for disposition by the Interim Judgment. Mr Wilding’s figure is included, so the balance is in dispute, and will be determined in a “second phase” valuation process.
TML liability to TMPL
[481] TML is not liable to TMPL.
Lagoon Flat
[482] Neither WHHL nor the defendants are liable to TML.
Defendant directors’ liability under heads other than costs
[483] There is no liability.
Go Beef
[484] WHHL, Beeteck and Mr Wong did not approve TML entering the GoBeef contract, but it was entered at Mr Wilding’s instigation. If TML makes a loss from the venture, as Mr Harrington and Ms Adams say, but which I doubt, that will fall to Mr Wilding if he is to acquire the TML shares. Mr Jansen Travis disagreed but Ms Hopkins submitted that his evidence should be put aside as he has submitted to have misunderstood that standing feed would have been sold in January when there was little market for it and surplus feed should have been sold in December 2016 when there was a good market. It was submitted that he was not qualified as an independent expert and did not provide a brief of evidence, but I found his evidence persuasive. I am not prepared to treat the Go Beef contract as a loss to TML which should be reflected in the valuation, and for which Mr Wilding should compensate TML. The evidence of the outcome of the Go Beef contract is at best equivocal.
Calves at foot, grassing and cropping
[485] The Interim Judgment refers to this factor.
[486] Mr Wing said that if the Court is to value the shares as at 18 November 2016, which is the date I fix, then it should also recognise that up to weaning the calves at foot may increase in value, and cost will have been incurred in planting and setting things up for the rest of the season, for significant benefit to TML later. The WHHL defendants say they should not be penalised by adopting a date of valuation which is the product of finding Court time, and party availability. They say the stock
valuation was undertaken at a low period in the annual cycle, and substantial cropping costs have been incurred, which will only show benefit for TML later.
[487] The stock valuers, Mr Stewart and Mr Cox, were not prepared to anticipate the value of the calves after weaning. When they gave their evidence in late 2016, the valuation had proceeded on an orthodox basis, with the cows valued as calves at foot. They were adamant that it was not possible at that time to value the calves as of after weaning, and it would be a guess to attempt that. The case for Mr Harrington, supported by the other defendants aligned with him, is that the valuation of TML shares should include some element for calves after weaning which may increase the stock valuation. On the eve of judgment Mr Harrington’s further affidavit was filed as to the value of such animals on the market. I do not bring it to account. No leave was given.
[488] I have determined a broader based, discretionary adjustment which is made to the Schedule for the following reasons.
[489] The valuation of the calves after weaning, asserted by the defendants, has given me considerable thought. Mr Stewart and Mr Cox would not look ahead and value these calves after weaning. The fact the valuers were not prepared to try to value the calves after weaning was fully explained and is accepted. They could now do so. There is a clear indication that this may produce a higher value for the stock overall. Yet to do so would require further evidence of the value of the cows at the same date, and to bring to account the valuation of the cows with the calves at foot. The valuers simply advised a value of the cows with calves at foot which reflected an orthodox valuation which, in turn, reflects the cows having produced calves with the prospects of those animals entering the production herd. Whether they did or not, and how many, were matters that the valuers were not prepared to consider. In short, the question of the valuation of the cows with calves at foot against the cows with calves weaned would require further evidence and submissions, which would further delay judgment.
[490] Another and broader consideration is that equity in the company fell significantly in 2016, and the company has been running with the increased costs of
administration, including litigation. The evidence as at November 2016 pointed against an improvement in the company’s position which may be ameliorated if stock prices show an uplift. It would be inappropriate to value the calves after weaning, and revisit the valuation of the cows, in a period during which there is uncertainty as to the company’s financial position. The track record of TML otherwise indicates, if anything, a trend to the downward, which is reflected in advice given the court that Mr Wilding has put more money into TML, as the directors would not agree to increase the overdraft and it has needed cash, and deferral of payments.
[491] The Interim Judgment has been reached on the basis there should be some allowance to reflect the seasonal cycle. I do not discount the possibility that the revaluation of the cows with calves at foot and the weaned calves would produce a higher stock valuation. However, I will not speculate on what the figure may be, and the exigencies of the case, and what I consider a principled approach of addressing share value at November 2016 militates against any further evidence and submissions. In other reasons, the seasonal cycle is reflected, as indicated by the Interim Judgment, addressed under “Spring planting costs” below.
Liquidation costs and costs of sale
[492] Mr Munn said it was appropriate to adjust for all costs of realising net assets in the business when applying a notional liquidation approach and at the mid-point the net impact of adjusting for realisation costs was about $450,000 or 21 per cent.
[493] Mr Munn’s position was that while conventional accounting practice would include those deductions, it is for the Court to decide fair value to meet the particular situation. The argument for the WHHL shareholders is that the purchasing shareholder should not achieve a windfall, because that is not a fair value, and sales commission has already been paid twice by TML in the 2016 calendar year. The defendants say that Mr Munn’s deduction for realisation of $15,000 to $40,000 for liquidation costs, and $234,376 sale costs, should not be included.
[494] I agree that the liquidation costs should not apply. There is no liquidation, and no prospect of that.
[495] The stock have the value attributed by Mr Stewart and Mr Cox. That value reflects stock bred for sale into stud and commercial heads, and culled animals to slaughter, and retained for breeding and fattening. The actual return to TML on any sale reflects commission. What and when sales are made is for TML and in this case for Mr Wilding, if he acquires the shares. I reflect the fact that some stock will be sold and some retained, by reducing the commission, as shown in the Schedule, for calculation. The commission rate should apply, but discounted by one half.
Spring planting costs
[496] The defendants say that TML has incurred $155,232.63 for spring planting. Mr Wing said the cost of the planting programme was one reason for the net asset value decreasing since his first brief of evidence. Mr Glennie for the defendants said that in his view TMPL should pay TML for the cost of the spring planting programme. As TMPL is a party, then an order under s 174(3) of the Act is available at the discretion of the Court. The issue is whether any part of the
$155,232.63 should be reflected in the share valuation. Not to do so is said to penalise the outgoing shareholders for expenditure to produce an asset which is of no value to them given the valuation date adopted.
[497] Mr Wing says the expenditure of $155,233.63 does not reflect internal costs. He says there is no valuation of feed on hand, or the spring crop costs, and they were not previously included in the accounts. This is a different setting, and the judgment is concerned with achieving a fair value. Mr Munn said without a valuation from a farm adviser he would not ascribe a value for feed on hand or the cost of spring crops. To assess how feed which is sown but not mature enough to be harvested or fed to stock, is valued, is regarded by Mr Munn as a very unusual situation. He says the fairest way may be to treat the “old” owners of TML as dealing with the lessor rather than a new owner of TML. A lease will normally stipulate a certain amount of feed and feed crop left at lease end and that is why transfers in the dairy sector are usually made in June. Mr Glennie is reluctant to value the crop based on potential yield. He would favour the “old” owners of TML receiving the actual costs of sowing the crops.
[498] I conclude that this is an expense which was incurred in the ordinary course of TML’s farming operations. It is not for TMPL to adjust in favour of TML, as that is to introduce the lessor to the valuation. However, this is a cost to TML which comes at this stage of the farming cycle, and the benefit does not reflect in the balance sheet. I would allow more than two thirds of these costs on the evidence, as not to do so would fail to recognise the seasonal cycle of valuation. The same reasoning applies to the calves at foot. There is no exactitude in this but it is fair to the outgoing shareholders and to Mr Wilding, that there be adjustment which I fix at
$200,000 in the Schedule notes *2 and *6. This represents an additional $90,000 in
the value of the defendants’ shares.
The fixed plant on TMPL lands
[499] The WHHL defendants say this should be fairly treated as an asset of TML. The share valuers deducted from the balance sheet $148,794 for plant, property and equipment attached to the TMPL lands, being the Rafa house extension at $44,756, the feedlot at $79,032, and cattle yards of $25,006. These assets were paid for by TML, and reflect depreciated values.
[500] The feedlot was bought by TML from Mr Wilding for $220,200. Mr Stone said that in hindsight it must have been thought appropriate to treat the feedlot as an asset of TML. The idea that the shareholders (TML) should buy the feedlot from Mr Wilding, but Mr Wilding not have to pay for that as part of the share valuation because it is on TMPL land, is to be submitted unfair. It was also submitted that TMPL should purchase the assets from TML, but the defendants say it is fair for these items to be treated as assets of TML.
[501] I conclude that Mr Wilding can adjust between TMPL and TML as he wishes for these items but recognition should be made in the TML share valuation for the fact TML paid for these items. Without further valuation guidance I have allowed the depreciated value in the valuation.
Date of valuation
[502] I am not prepared to adopt any part of Mr Munn’s 31 March 2016 valuation in order to achieve what the defendants submit to be fair value. The evidence is simply not tested. The case has been mounted on a completely different basis, and during the course of litigation the parties agreed to a valuation by a particular methodology at a date in November 2016.
DOC grazing licence
[503] The DOC grazing licence has been valued at $14,000 by Mr Oxnam and this is to be treated as an asset of TML.
Interest on current accounts
[504] The outstanding interest on Mr Wilding and TMPL’s current accounts should be assessed according to the November 2014 agreement to pay interest at the overdraft rate.
Lansdowne
[505] Just before Interim Judgment was delivered, TML settled with the Lansdowne lessor for $22,000 plus GST and three items of plant. This will reflect in the release of the balance of $50,000 held in trust for TML, plus any interest. This may alter the plant figure in the balance sheet reflected in the Schedule, which therefore includes provision for an adjustment for monies now released from trust. This should reflect in the current assets, with adjustment for the plant items. This is
referred to under “Lansdowne adjustment” in the Schedule Note *3 and that is for the
parties to agree, or revert to the Court.
Tax losses
[506] TML has accumulated tax losses. If it returns to profit they will likely be available. I do not value them, as they depend on sustainable profits, yet to be achieved.
E. DISPOSITION AND COSTS
Interim Judgment
[507] By a mechanism detailed in the Interim Judgment of 5 April 2017. Mr Wilding has been given the opportunity to purchase the shareholding of the defendants, bar Mr Hong unless he should so choose, at a share price which for the purpose of his election is reflected in the Schedule to these Reasons for Interim Judgment, and to the Interim Judgment.
Costs
[508] All costs have been reserved. Certain costs may influence the share price once finally determined. Some elements of judgment may impact on costs in favour of, or against TML. There may be costs orders which do not affect the share price.
[509] There are open letters of offer relevant to costs. There was an unsuccessful judicial settlement conference held on 1 July 2015, when Mr Harrington made an offer on an open basis to settle the proceedings, whereby his shareholding and that of WHHL and Mr Wong would be sold for $1,523,949, valuing TML at $3,430,000. Alternatively, that Mr Harrington purchase the shares of Mr Wilding and Bee Teck at the same valuation, after deducting the then current account debts of Mr Wilding and TMPL and the baled livestock debt because it would be difficult for TML to recover these debts from Mr Wilding/TMPL. Soon after, a letter asserted that Mr Wilding’s claims would not succeed, and invited negotiation. Open correspondence followed between the parties leading up to a letter on behalf of Mr Harrington dated
23 June 2016, after Mr Dale had addressed the Court in opening. Mr Harrington proposed that the Court proceed to a fair valuation of the shares, and only valuation witnesses would have to be called. That settlement would put all other issues aside, including Mr Harrington’s malicious prosecution claim. The proposal was open for acceptance until Mr Wilding was called as a witness. It was rejected on
27 June 2016.
Some observations as to costs
[510] The Interim Judgment holds that WHHL and the defendants do not have to compensate TML for the circumstances in which Lagoon Flat was withdrawn from TML’s leasehold use. I have concluded WHHL was not in breach of any obligation to TML, nor are the other defendants, but had breach been proved, no loss was caused to TML.
[511] Mr and Mrs Wilding accept that they hold the DOC land in trust for TML. That has an ascribed value. The circumstances in which they acquired the licence were such that I do not provisionally consider that Mr Wilding should have costs in his favour.
[512] There are other costs which lie outside the ambit of the TML share valuation. Mr Wilding is, on the face of it entitled to costs against Mr Harrington in respect of the claims of a malicious prosecution and abuse of process, but that issue may also fall within the ambit of costs in the s 174 proceedings.
[513] The parties demonstrated little commercial reality in the valuation process until they had no option but to agree to an orthodox valuation process for the cattle, which resulted in a straightforward and final resolution of that bar the claim for adjustment regarding the calves at foot. The semen valuation should have been relatively straightforward, but has proved otherwise. There were complications in securing the umpirage of Mr McIlroy, then extensive further dispute. There are open offers of settlement to consider.
[514] The s 174 judgment responds to multiple allegations and counter allegations. All parties have had some success, some failure. Relativity will be relevant to costs.
Mr Wilding’s election - mechanism
[515] This has been addressed in the Interim Judgment.62
62 Wilding v Te Mania Livestock Ltd [2017] NZHC 649.
Concluding remarks
[516] I record my broader perspective of the parties in the hope that they will recognise that an objective observer, in this case the court, can well recognise their individual qualities and their original good intent.
[517] Mr Wilding is a strong personality. Given his association with fellow investors who conduct their business affairs in a customary setting of courtesy, Mr Wilding’s correspondence, including some generated through the trial, was on occasions over the top. The email hacking was inexcusable and wrong, yet he was fighting his corner, and he did so in a way which veered between courtesy and charm, accusation and pressure. Yet I am sure that he very much wanted TML to succeed for all. His financial position cut across his contribution to that. Harnessed with the goodwill and co-operation of the defendants, as first anticipated, he would have been a great force for the good of TML, and should now be so once again. He has the drive, the will, and the ability to secure the future of the Te Mania stud.
[518] Mrs Wilding was caught living in the middle of what was at first a very close friendship with Mr Harrington and his partner, and then disintegrating personal and commercial relationships. TML was at risk, and she did her very best. She was deeply hurt by emails sent to her. Her intent for TML was always to do the right thing, as Mr Smith said, and she bore the brunt of the conflict stoically.
[519] William Wilding came into this difficult setting as a young man, but I consider conducted himself in the litigation process and in management, with aplomb. He was sincere and truthful in his evidence.
[520] Bee Teck demonstrated that he is a man of considerable talent and ability, and I consider took the actions which have been criticised in this judgment only because he was at his wits’ end. It was very difficult for him living at a distance in Singapore. His correspondence and his evidence was reasoned, although his response to the question of the Lagoon Flat lease was curious and I attribute that in part to a deep sense of grievance, and a sense he was trapped. However, he is clearly an honest man, and harnessed with the knowledge and skills available to Te Mania through Mr Wilding and Mr Harrington, would have been a great ally.
[521] Mr Wong played little part, and gave no evidence, but his correspondence was thoughtful and straightforward, and he clearly wanted the best result for TML until matters reached the point that he saw no way to go on.
[522] I have said that Mr Harrington is a man of considerable skill, and highly regarded. I am not surprised he went on stress leave in July 2014. Between him and Mr Wilding there lay an animosity, evident in the evidence given in court and in the correspondence, whereby everything he or Mr Wilding said or did seemed to attract the ire of the other. He is an honest and able man. He reached the point where the personal relationships, and the need to exit TML, become of so much concern to him that his dispute with Mr Wilding descended into acrimonious recrimination. This was entirely the product of the ruined relationship, and not a reflection on Mr Harrington, and the high regard with which I am sure he is still held.
[523] Ms Adams was a central figure in this case, and gave evidence which demonstrated her commercial knowledge, skills, and attention to detail. She stood with Mr Harrington through a very bitter period, and I have said that she gave him good sound advice which if taken and accepted earlier, would have saved the parties a great deal of angst, to say nothing of cost. I conclude she is honest and was seeking to do the best for Mr Harrington and the other defendants, and in what she thought were the best interests of TML as a whole.
[524] These final observations have been made because it would be unfair for anyone who reads this judgment, including the parties, to focus on specific incidents, and not to have these broader reflections available to them. The parties could have collectively gone on to achieve great things for Te Mania, but they fell out. It is as simple as that.
…………………………………………
Nicholas Davidson J
Solicitors:
Lane Neave (Christchurch) Young Hunter (Christchurch) Ewart & Ewart (Auckland)
cc: Counsel PJ Dale, Chancery Street Chambers (Auckland)
SCHEDULE
TML Balance Sheet as at 18 November 2016
With adjustments determined by the Court
(“TBD” = to be decided)
Notes
| Current Assets | Agreed between parties | Judgment | |
| Accounts Receivable | 4,137.00 | Yes | 4,137.00 |
| Livestock on Hand | 2,437,515.00 | Yes | 2,437,515.00 |
| Less Commission on Hand | 6.9% of above | No | TBD *1 |
| Calves after weaning | No | See *2 | |
| Shareholders Advance Account: T Wilding | 104,012.00 | No | 104,012.00 |
| Te Mania Properties Limited receivable | 113,417.00 | No | 113,417.00 |
| Income tax receivable | 565.00 | Yes | 565.00 |
| Solicitors Trust Account | 49,509.00 | Yes | TBD * 3 |
| Semen | 44,654,00 – 115,000 | No | TBD 41,594.00 *4 |
| Total Current Assets | |||
| Non Current Assets | Agreed between parties | Judgment | |
| Property, Plant and Equipment | 144,412.00 | Yes | 144,412.00 |
| Property, Plant and Equipment on TMPL Land | 147,897.00 | No | 147,897.00 *5 |
| Crops Planted | 155,232.63 | No | See *6 |
| Farmlands Shares | 1,090.00 | Yes | 1,090.00 |
| Alliance Group Shares | 17,724.00 | Yes | 17,724.00 |
| Balance Agri-Nutrients Shares | 18,241.00 | Yes | 18,241.00 |
| Ravensdown Shares | 10,474.00 | Yes | 10,474.00 |
| Silver Fern Farm Shares | 1,070.00 | Yes | 1,070.00 |
| Farmpure Investment Account | 0.00 | Yes | |
| Bailed stock returned | 8,629.00 | No | Nil |
| DOC Licence | 14,000.00 | No | 14,000.00 |
| Interest on current accounts | TBD *7 | ||
| Items *2 and *6 | 200,000.00 | ||
| Costs awarded | TBD *8 | ||
| Total Non Current Assets | TBD | ||
| TOTAL ASSETS | |||
| Current Liabilities | Agreed between parties | Judgment | |
| Heartland Current Account | 292,031.00 | No | 292,031.00 |
| Accounts Payable | 207,737.00 | No | 207,737.00 |
| GST Payable | -18,761.00 | Yes | -18,761.00 |
| Employee redundancy and notice period costs | 11,012.00 | No | Nil |
| Employee holiday leave owing | 11,727.00 | Yes | 11,727.00 |
| Costs awarded | TBD *9 | ||
| Total Current Liabilities | |||
| Non Current Liabilities | Agreed between parties | Judgment | |
| PGG Wrightson Loan | 450,000.00 | Yes | 450,000.00 |
| TMPL – proportion of rates payable | No | Nil | |
| Total Non Current Liabilities | |||
| TOTAL LIABILITIES | |||
| Net Assets | Agreed between parties | Judgment | |
| Less Liquidation Costs | 15,000-$40,000 | No | Nil |
| VALUE | TBD |
NOTES *1 Notional liquidation value would include commission but
not all stock will be sold as on a liquidation. One half of the commission on realisation is to apply. The Court understands the rate is agreed.
*2 The Court regards the valuation of the cattle as fairly
fixed without further valuation, but recognises that costs incurred in the seasonal cycle and the timing of valuation, have an effect and this is recognised with *6 below.
*3 The settlement of Lansdowne is understood to reflect on
this figure, and may also reflect in plant.
*4 The semen is included in Mr Wilding’s value for Interim
Judgment, but the disputed value will be determined and
brought to account on the “second phase” valuation.*5 This plant is at the historical expense of TML. The
feedlot was treated as a TML asset. Depreciation values treated as fair value.
*6 The overall allowance made is based on judgment that
this item is better addressed in the share valuation as it is a benefit to TML although on land TML does not own. It reflects in the overall financial position of TML and represents a seasonal adjustment.
*7 Interest is to be calculated at the rate agreed and
previously applied in the accounts.
*8 Costs relevant to valuation. *9 Costs relevant to valuation.
5