Birchfield v Birchfield Holdings Ltd
| Jurisdiction | New Zealand |
| Judge | Goddard J |
| Judgment Date | 02 September 2021 |
| Neutral Citation | [2021] NZCA 428 |
| Docket Number | CA404/2020 |
| Year | 2021 |
| Court | Court of Appeal |
French, Gilbert and Goddard JJ
CA404/2020
IN THE COURT OF APPEAL OF NEW ZEALAND
I TE KŌTI PĪRA O AOTEAROA
Civil Procedure, Companies — appeal against a High Court decision which granted the respondent's summary judgment application that the appellant's claim as prejudiced shareholders had no realistic prospect of success — Companies Act 1993
K G Davenport QC and A M Cameron for Appellants
No appearance for First to Fourth Respondents
R J Hollyman QC and G K Riach for Fifth to Ninth Respondents
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A Leave is granted to adduce in evidence the financial statements for BHL exhibited by Ms Butterworth, and the audited versions of those financial statements exhibited by Mr Noone. The application for leave to adduce further evidence on appeal is otherwise dismissed.
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B The respondents must, within 10 working days, file a memorandum of counsel that either:
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(a) confirms that an adjusted offer has been made in accordance with [85] of this judgment, and attaches that offer; or
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(b) advises that no such offer has been made.
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C If a memorandum confirming the making of an adjusted offer is filed:
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(a) the appeal is dismissed with effect from the date 20 working days after the date of that memorandum; and
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(b) the appellants must pay costs to the respondents for a standard appeal on a band A basis, with usual disbursements.
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D If a memorandum confirming the making of an adjusted offer is not filed within 10 working days, we direct the Registrar to arrange a telephone conference with the parties.
Table of contents
| Para no | |
| Differences within a family company | [1] |
| Buy-out offers | [4] |
| Summary judgment granted in the High Court | [6] |
| Background | [11] |
| The differences between the siblings | [11] |
| Proposals by PLC Trust to sell its shares in BHL | [13] |
| The buy-out offers | [16] |
| The proceedings | [25] |
| Application by defendant for summary judgment in s 174 proceedings | [29] |
| Application to adduce further evidence on appeal | [41] |
| Is the appellants' claim incapable of succeeding in light of the offer(s) made? | [48] |
| The timing of the offers | [50] |
| Compensation for effect of conduct on value of company | [55] |
| Lack of strategic plan and other management/strategy issues | [59] |
| Remuneration and firewood business | [62] |
| Exclusion from participation in the company | [66] |
| Failure of offer to address other proceedings | [69] |
| Access to information/discovery before valuer appointed | [74] |
| Personal guarantees and securities | [76] |
| The costs of the proceedings | [80] |
| Summary | [84] |
| Next steps | [85] |
| Costs | [89] |
| Result | [91] |
(Given by Goddard J)
The Birchfield family have extensive coal mining interests on the West Coast of the South Island. The family's coal mining business is carried on through Birchfield Holdings Ltd (BHL) and its subsidiaries: Birchfield Coal Mines Ltd, Birchfield Energy and Resources Ltd, and North West Coal Company Ltd (the companies). 1 Allan Birchfield (the second appellant), his sister Karen and his brothers Gary and Evan each hold, either directly or through a family trust, 25 per cent
of the shares in BHL. Allan Birchfield's family trust, the PLC Trust (the first appellant), owns 25 per cent of the shares in BHLAll four siblings were, until recently, directors of each of the companies. However following a breakdown in the relationship between Allan Birchfield and the other directors, he was removed as a director of the companies in April 2019.
In September 2019 Allan Birchfield and the PLC Trust (the appellants) issued proceedings in the High Court under s 174 of the Companies Act 1993, claiming that the affairs of the companies were being conducted in a manner that was oppressive, unfairly discriminatory or unfairly prejudicial to them. They sought wide-ranging orders reinstating Allan Birchfield as a director of the companies and regulating the future conduct of BHL's business.
Before the proceedings were filed, the respondents made an offer to buy the PLC Trust's shares in BHL at fair value, to be assessed in accordance with BHL's constitution. After the filing of the proceedings further, more detailed, buy-out offers were made. None was accepted.
The respondents say that the buy-out offers they have made remove any unfair prejudice there might otherwise be as a result of the exclusion of Allan Birchfield from the management of the companies. They say the offers provide the appellants with all the relief they might possibly obtain in their proceedings, if successful. On that basis, they applied for summary judgment.
The respondents' summary judgment application was successful. Associate Judge Lester considered that there was no realistic prospect of a court granting the extensive relief sought by the appellants. 2 At most, if the claims were made out, the court would require the respondents to buy out the PLC Trust. 3 In those
However certain aspects of the buy-out offer had been clarified, or had developed, in the course of the hearing. The Associate Judge directed the respondents to file and serve a memorandum containing the full details of their final offer, including the instructions to be given to the valuer in relation to certain matters. The offer should nominate a valuer, or set out the means by which the valuer can be determined. The offer should also address payment of the costs of the proceedings. It should be open for acceptance for 20 working days. 4
Allan Birchfield was not obliged to accept the offer. But if he did not do so, then the proceedings would be at an end. 5
An offer consistent with the requirements set out in the High Court judgment was made on 24 August 2020 (the August 2020 offer). It is set out in the appendix to this judgment. That offer was not accepted.
The appellants appeal to this Court against the entry of summary judgment.
It is unnecessary to set out in any detail the differences that have arisen between Allan Birchfield and his fellow siblings. It is common ground that the relationship between them has broken down irretrievably.
Allan Birchfield accepts that it may be unrealistic for him to be reinstated as a director of the companies. But he says that the PLC Trust could continue to own 25 per cent of the shares in BHL, and could continue to be represented in the management of BHL through the appointment of his daughter as a director.
The BHL constitution contains provisions governing the sale of shares in the company of a kind that are commonly found in closely held companies. A shareholder wishing to dispose of their shares must first offer them to the other shareholders. The constitution prescribes a mechanism for assessment of the fair value of the exiting shareholder's shares by an expert valuer.
In August/September 2018, the PLC Trust issued a formal transfer notice (the transfer notice) under BHL's constitution. Correspondence followed between the siblings, and between the lawyers acting for the PLC Trust and for BHL. However it appears that Allan Birchfield changed his mind about following the process prescribed by BHL's constitution. The transfer notice was withdrawn on 25 September 2018.
On 15 November 2018 Allan Birchfield requested that the other shareholders make an offer for the PLC Trust's shares. He observed that there was little point in the parties continuing in business together.
An offer to purchase the PLC Trust's shares for a specified sum was made on 23 November 2018. It was rejected (without reasons) on 25 November 2018.
Allan Birchfield was asked what the PLC Trust would consider to be an acceptable offer. His response was that the value of the PLC Trust's shares would have to be determined by the valuation process as set out in the company constitution. Gary Birchfield advised his brother that BHL would start the valuation process under the constitution.
On 8 August 2019 the respondents made an offer to purchase the PLC Trust's shares for fair value to be determined under the BHL constitution. That offer was also declined.
On 5 November 2019 (after the proceedings had been commenced) the respondents made a further offer to purchase the PLC Trust's shares for fair value. The offer was made on the basis that there would be “no issue as to costs”. That is, each party would bear its own costs of the proceedings to that point in time.
The appellants declined that offer on 11 November 2019.
On 8 April 2020, after the respondents had filed their application for summary judgment/strike out, the respondents made a further offer to purchase the PLC Trust's shares....
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