Yu v Whitford Properties Ltd

[2013] NZHC 3162

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2013-404-004464 [2013] NZHC 3162

BETWEEN

WANG PEI YU

Plaintiff

AND

WHITFORD PROPERTIES LIMITED Defendant

Hearing:	28 November 2013
Appearances:	M Lenihan for Plaintiff TJG Allan and AL Credin for Mr Robert Bruce, Director of the Defendant  (and purporting to represent Defendant)
Judgment:	29 November 2013 at 4pm

INTERLOCUTORY JUDGMENT OF TOOGOOD J [Standing of director/shareholder to represent defendant]

This judgment was delivered by me on 29 November 2013 at 4pm

Pursuant to Rule 11.5 High Court Rules

Registrar/Deputy Registrar

WANG PEI YU v WHITFORD PROPERTIES LTD [2013] NZHC 3162 [29 November 2013]

[1]      This proceeding is an originating application that a caveat over properties owned by the defendant should not lapse.   A preliminary issue has arisen over whether a notice of opposition and amended notice of opposition filed ostensibly on behalf of the defendant was properly authorised by the defendant and whether the defendant should be heard in opposition to the application.

Background facts

[2]      On  9 December 2012,  the  plaintiff,  who  is  not  a  New  Zealand  resident, lodged Caveat 9238350.1 over properties at 40 Whitford Park Road, Auckland, and

18  Saleyard  Road,  Whitford,  owned  by  the  defendant.    The  plaintiff  seeks  to maintain  the  caveat  on  the  basis  that  she  made  voluntary  payments  totalling

$528,000 to the defendant to enable it to meet mortgage interest payments due under registered mortgages over the land in favour of the ANZ Bank.  The plaintiff asserts that she is entitled to an interest in the land by virtue of her being the beneficiary of a resulting trust arising from the making of the voluntary payments.

[3]      Following  an  objection  to  the  caveat,  the  plaintiff  made  the  application presently before the Court.  On 25 October 2013, a notice of opposition was filed by Mr RI Bruce, a 50 percent shareholder in and a director of the defendant, who was purporting to act on behalf of the defendant. An amended notice of opposition in the name of the defendant was filed on 15 November 2013. In an affidavit also filed then, Mr Bruce denies the existence of the resulting trust claimed by the plaintiff. He says that the plaintiff is not entitled to hold any interest in the land until she receives approval from the Overseas Investment Office.   He also asserts that the payments the plaintiff made, if proved, were made in fact to an associated company, Whitford Green Limited, pursuant to a joint venture agreement to develop the land. For present purposes, it is unnecessary to inquire further into the nature of the joint venture arrangements.

[4]      It is not disputed that the defendant is in financial difficulty and unable to meet its obligations under the borrowing arrangements with the ANZ.  An affidavit of Mr MJ Greer, also purportedly filed on behalf of the defendant, indicates the interest of two possible financiers in restructuring the defendant’s borrowing.   In

initiating the refinancing discussions  referred  to  by Mr Greer,  and  in  filing the notices of opposition on behalf of the defendant, Mr Bruce has claimed to be acting with the authority of the defendant by virtue of his status as one of the two directors of the company.

[5]      The other director is Mr WR Allen who is a co-trustee of a trust which owns the other 50 percent of the company’s shares.  On 21 November 2013, the plaintiff filed an affidavit sworn by Mr Allen deposing that Mr Bruce did not have authority to represent the defendant.  In his affidavit Mr Allen has represented to the Court that the defendant’s best interests lie in maintaining the caveat and a working relationship with the plaintiff, with a view to resolving the company’s immediate financial problems.

Telephone conference

[6]      During a telephone conference conducted on 27 November 2013, I granted leave for the affidavits of Mr Bruce and Mr Allen to be read in the proceeding for the sole  purpose,  initially,  of  determining  the  preliminary  question  of  Mr Bruce’s authority  to  represent  the  interests  of  the  defendant  in  the  proceeding,  and Mr TJG Allan’s authority to appear as counsel for the defendant.

[7]      I  directed  that  the  preliminary  question  of  the  notice  of  opposition  and Mr Bruce’s authority to  represent the company should be dealt with first at the hearing of the plaintiff’s application on 28 November 2013.

The competing positions of the directors

[8]      When the matter was called yesterday, Mr Allan and Ms Credin were acknowledged as appearing for Mr Bruce and purporting to appear on behalf of the defendant.  They were invited to address the Court on whether the defendant’s notice of opposition should be maintained, and whether counsel should be permitted to argue on behalf of the defendant for the lapsing of the caveat.

[9]      After having had an opportunity to reflect on the position since the telephone conference, Mr Allan frankly acknowledged that he had been unable to identify any cases dealing with the situation which he says arises in this proceeding; namely, where a company facing the consequences of a judgment made summarily against it is deadlocked and one of the two directors objects to the other representing the company’s interests.

[10]     Mr Allan argued  that  the Court  should  nevertheless  permit  Mr Bruce  to represent the defendant company’s interests, on the basis that Mr WR Allen, because of his close business connections with the plaintiff and her associates, has a conflict between his duties as a director of the defendant and his personal business interests. Counsel  submitted  that  the  apparent  conflict  between  Mr  WR Allen’s  personal interests and the interests of the company disqualify Mr Allen from acting as a director of the company in respect of this matter, leaving Mr Bruce, a fortiori, the sole effective director.   In contrast to the position of the other director, Mr Allan submitted,  Mr Bruce is  acting  in  the best  interests  of the  defendant  and  not  in conflict with them.  He argued also that the plaintiff’s application for maintenance of the caveat amounts to seeking the Court’s approval for a breach of the Overseas Investment Act 2005 by her.  Mr Allan submitted that, rather than merely deposing that he does not consent to the company’s opposition to the present application, Mr WR Allen  should  resort  to  the  provisions  of  the  company’s  constitution, particularly clause 25.9 dealing with the resolution of disputes between directors.

[11]     For the plaintiff, Mr Lenihan submitted Mr WR Allen is not conflicted, in that there is no evidence to support the proposition that he would or may derive a material financial benefit from the maintenance of the caveat.  Mr Lenihan said that, in any event, there has been effective disclosure of any self-interest with the result that, in accordance with s 144 of the Companies Act, which is preserved by s 21.5 of the constitution, Mr Allen would be entitled to vote on the matter if a board meeting was convened.

[12]     Mr Lenihan further submitted that s 165(6) of the Companies Act is decisive in that it provides that, in the absence of leave granted in a derivative action under s 165(1), a shareholder is not entitled to bring or intervene in any proceedings in the

name of,  or on  behalf  of,  a company.   While s 165(6)  would  certainly prevent Mr Bruce from acting in this proceeding as a shareholder, I understand Mr Bruce’s argument to be that he is exercising his responsibilities as a director, not as a shareholder.

[13]     Consistently with his obligations as counsel, Mr Allan referred me to Mitchell

& Hobbs (UK) Ltd v Mill1  as an example of a case where there was a dispute between directors over whether the company was authorised to sue.  In that case a director engaged solicitors to sue the company secretary who held 17 percent of the company’s shares.   A co-director also held 17 percent of the shares.   The Court struck out the proceeding on the ground that there was no resolution of the board authorising the proceedings and no other basis authorising a sole director to act on the company’s behalf.

[14]     As presently informed, I am prepared to accept that Mr Bruce’s claim that he alone, not his co-director, is acting in the best interests of the company is genuinely made but, as the decision in Mitchell & Hobbs demonstrates, that does not clothe him with the authority to act on behalf of the company or instruct counsel to do so.

[15]     Mr Allan frankly acknowledged that he was unable to point to any provision in a shareholders’ agreement or the constitution of the defendant, or to any statutory provision or principle of law, entitling a sole director to bind the company in the absence of a resolution of the board giving him delegated authority to do so.   I concluded, therefore, that the notice of opposition dated 25 October 2013 and the amended notice of opposition dated 15 November 2013, having been filed without the proper authority of the defendant company, must be struck out.

[16]     That is not the end of the matter, however.  Mr Lenihan has acknowledged that,  even  if  the  defendant  is  not  permitted  to  be  heard  in  opposition  to  the application, it is incumbent on the plaintiff to establish that the order maintaining the caveat should remain in force.   The Court has not yet addressed that substantive

issue.

1      Mitchell & Hobbs (UK) Ltd v Mill [1996] 2 BCLC 102.

[17]     Whether or not the caveat lodged by the plaintiff lapses, the present impasse between the directors needs to be resolved if the company is to survive.   Having signalled to Mr Allan, after hearing submissions, the view I had  reached about Mr Bruce’s authority, I invited counsel to confer about how the underlying deadlock between the directors might be removed, and I adjourned the hearing to enable them to do so.

[18]   Without needing the hearing to be reconvened, counsel filed a consent memorandum suggesting a sensible way through.  It is proposed that Mr Bruce will make an application to the Court pursuant to s 165 of the Companies Act 1993 (“the derivative action”) seeking leave to intervene on behalf of the company.

[19]     Counsel are agreed that the derivative action will involve an assessment of the merits of the plaintiff’s application that the caveat should not lapse, and I accept their suggestion that the present application and the derivative action should be heard at the same time.

[20]     Accordingly, I make the following timetable order by consent:

(a)       Mr Bruce  is  to  commence  the  derivative  action  no  later  than

19 December 2013;

(b)I direct the Registrar to allocate the file number of this proceeding to the derivative action, and order that it be heard with the plaintiff’s application that the caveat shall not lapse;

(c)      Any opposition to the derivative action shall be filed and served no later than 20 January 2014; and

(d)      The proceeding shall be placed in the first available Caveat List after

20 January 2014 for the allocation of a hearing date and a timetable order.

[21]     The interim order that the caveat not lapse until further order of the Court, made by Venning J on 29 October 2013, shall remain in force.  This means that the

plaintiff’s interest in the maintenance of the caveat is protected but there is undoubtedly some urgency in a resolution of the plaintiff’s right to maintain the caveat, in view of the obstacle which it represents to a refinancing of the company’s indebtedness which may require variation or replacement of the existing securities.

[22]     I reserve leave for the plaintiff and, once he has made his application under s 165, Mr Bruce, to apply for further orders.

Toogood J