Greymouth Holdings Ltd v Jettrustees Ltd Hc Ak

JurisdictionNew Zealand
CourtHigh Court
JudgePotter J
Judgment Date20 Mar 2012
Neutral Citation[2012] NZHC 471
Docket NumberCIV-2011-404-5309

[2012] NZHC 471

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2011-404-5309

BETWEEN
Greymouth Holdings Limited
First Plaintiff

and

Robert Mark Patrick Dunphy
Second Plaintiff

and

Peter Hanbury Masfen Joanna Alison Masfen
Third Plaintiffs
and
Jet Trustees Limited
First Defendant

and

John Gilbert Sturgess
Second Defendant

and

John Sturgess & Associates
Third Defendant
Counsel:

J A Farmer QC and M D O'Brien for plaintiffs

W G C Templeton for defendants

Reasons for declining defendant's application for leave to appeal a High Court decision which granted leave to the plaintiff's under s165 Companies Act 1993 (derivative actions) to bring proceedings on the company's behalf against the defendants — parties were directors and shareholders of plaintiff company which had reached a deadlock — both sides had issued proceedings under 174 (prejudiced shareholders) for remedies — whether the “prudent business person” test was the appropriate test under s165 — whether the test of duplication as opposed to appropriateness was the correct legal test under s165 where there were concurrent proceedings under s174.

The issues on appeal were: whether the “prudent business person” test was the appropriate test under s165 CA or whether the test shold be that of the “prudent trustee” or “prudent fiduciary”; whether the test of duplication, as opposed to appropriateness, was the correct legal test under s165 CA where there was a concurrent proceeding under s174 CA based on the same facts; and, whether s174 CA was the better provision for determining issues of deadlock.

Held: The interests of the company under s165(2)(d) was appropriately assessed by the “prudent business person” rather than the Court assuming the role of the board of directors (as fiduciaries). That approach promoted a consistent, logical overview by the Court in the exercise of its discretion under s165 CA. Even if a more stringent test was adopted, that was unlikely to have changed the outcome of the application in this case, as the HC had found that the evidence put forward by the Dunphy interests was cogent and sufficient to establish breaches by Sturgess. The claims were based on credible evidence which offered at least a reasonable prospect of ultimate success.

The case involved not only a shareholder dispute but also a claim by the company. While the factual allegations of misconduct by Sturgess were essentially the same in both proceedings, if those claims were made out, then the proper plaintiffs needed to be before the Court so that the appropriate remedy could be awarded to the appropriate party. The company, not the shareholders, was the party to the management contract with Sturgess. Section 174 CA provided a procedure for shareholders who claimed to be prejudiced. Any concerns about double recovery could be met by the Court tailoring any awards to achieve a just and equitable outcome. There was overlap but no duplication.

The purpose of s165 CA was to ensure that applications for derivative actions were only made where the company was not in a position to seek relief itself. Here, the company did not intend to bring proceedings because it was a state of deadlock and so was not in a position to be able to do so. Section 165 CA (company must inform the Court, whether it intends to bring proceedings) had to interpreted in light of the purpose of s165(3) CA (in the interests of the company that proceedings should not be left to the directors) and s165 CA as a whole. It did not make sense to suggest that in a deadlock situation, s165 CA should be rendered ineffective because of the obvious inability of the company to meet the procedural requirement in s165(5) CA to notify, when the reason for the absence of formal notification was obvious in the substance of the dispute.

There were no questions of fact or law which were of such importance or of general importance that they should be considered by a higher court. Dunphy had undertaken to meet costs and the Court had discretion to award costs. There was little likelihood the company would be required to bear the costs should the derivative action prove to be unmerited.

Leave to appeal declined.

REASONS OF Potter J

for judgment on application for leave to appeal

Introduction
1

In my judgment dated 2 March 2012 I declined the defendants' application dated 23 December 2011 for leave to appeal against that part of the judgment of Rodney Hansen J dated 19 December 2011 (the judgment) granting leave to the plaintiffs under s 165 of the Companies Act 1993 (the Act) to bring proceedings on behalf of the company Greymouth Petroleum Holdings Limited (the company) against the defendants. I said my reasons would follow. These are the reasons.

2

To avoid confusion, in this judgment I shall refer to the defendants/intended appellants as the Sturgess interests, and to the plaintiffs/intended respondents and the Dunphy interests.

General approach to application for leave
3

Section 24G of the Judicature Act 1908 provides that no appeal shall lie from an interlocutory decision of the High Court in respect of any proceeding entered on the Commercial List unless leave to appeal to the Court of Appeal is given by the High Court.

4

The Commercial List is designed to secure the expeditious completion of the interlocutory stages of a commercial proceeding and so minimise the delays in its ultimate disposition. 1

5

The Court of Appeal said in Meates v Taylor that:

… leave will not be granted as a matter of course, but only where the particular circumstances clearly warrant incurring the further delay that will be involved … as a generalisation it can be said that error of fact or law is not enough; the case must be such as to create if not injustice at least real detriment … if not corrected; or it may be as to an important question of law; or it may touch upon a matter of general or public importance.

6

The desirability of minimising delay in the ultimate disposition, is pertinent in this case. The proceeding has a firm fixture in October of this year for five weeks.

The board of directors is deadlocked because of a requirement for unanimity in decision-making by both directors and shareholders, and there are assets and business goodwill of considerable value at stake (the company's claim in damages is potentially in the vicinity of $40m). Clearly it is in the interests of all parties that the dispute be brought before the Court and determined as expeditiously as possible. All interlocutory steps need to be directed to that end.
Background
7

The parties to this proceeding and CIV-2011-404-5442, which are proceeding in tandem in the Commercial List, are shareholders and directors of the company. Differences have arisen between the Sturgess interests and the Dunphy interests. Both sides have issued proceedings seeking remedies under s 174 of the Companies Act claiming unfair prejudice as shareholders.

8

Further detail of the factual background is set out in the judgment 2 and need not be repeated here.

The judgment
9

The application of the Dunphy interests for leave under ss 165 and 167 of the Act to bring proceedings in the name of and on behalf of the company is dealt with in the judgment at [23]–[39]. At [54](b) Rodney Hansen J granted leave to the Dunphy interests:

… to bring proceedings in the name and on behalf of Greymouth Petroleum Holdings Limited against the second and third defendants by way of a cross-claim against them, the cross-claim to be lodged by the plaintiffs' solicitors who, pending further order of the Court, may have the conduct of the cross-claim.

10

In addressing the question of leave the Judge set out s 165 of the Act:

165 Derivative actions 3

  • (1) Subject to subsection (3) of this section, the Court may, on the application of a shareholder or director of a company, grant leave to that shareholder or director to-

    • (a) Bring proceedings in the name and on behalf of the company or any related company; or

    • (b) Intervene in proceedings to which the company or any related company is a party for the purpose of continuing, defending, or discontinuing the proceedings on behalf of the company or related company, as the case may be.

  • (2) Without limiting subsection (1) of this section, in determining whether to grant leave under that subsection, the Court shall have regard to-

    • (a) The likelihood of the proceedings succeeding:

    • (b) The costs of the proceeding in relation to the relief likely to be obtained:

    • (c) Any action already taken by the company or related company to obtain relief:

    • (d) The interests of the company or related company in the proceedings being commenced, continued, defended, or discontinued, as the case may be.

  • (3) Leave to bring proceedings or intervene in proceedings may be granted under subsection (1) of this section, only if the Court is satisfied that either-

    • (a) The company or related company does not intend to bring, diligently continue or defend, or discontinue the proceedings, as the case may be; or

    • (b) It is in the interests of the company or related company that the conduct of the proceedings should not be left to the directors or to the determination of the shareholders as a whole.

  • (4) Notice of the application must be served on the company or related company.

  • (5) The company or related company-

    • (a) May appear and be heard; and

    • (b) Must inform the Court, whether or not it intends to bring, continue, defend, or discontinue the proceedings, as the case may be.

  • (6) Except as provided in this section, a shareholder is not entitled to bring or intervene in any proceedings in the name of, or on behalf of, a company or a related company.

11

He then considered the test to be applied by the Court under s 165 as set out by Fisher J in the leading authority of Vrij v Boyle. 4 Fisher J noted that in determining whether to grant leave, the first...

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3 cases
  • Yao Wei He v Zhixiong Chen
    • New Zealand
    • Court of Appeal
    • 17 Abril 2014
    ...is the first (bringing proceedings) so subsequent references are only to that element. 6Greymouth Holdings Ltd v Jet Trustees Ltd [2012] NZHC 471 at [35]; Peters v Birnie [2010] NZAR 494 (HC) at [26]; Chappell v Morris Crock Ltd HC Auckland CIV-2003-404-2389, 5 February 2004 at [9]; Frykber......
  • Yao Wei He v Zhixiong Chen CA590/2013
    • New Zealand
    • Court of Appeal
    • 17 Abril 2014
    ...element is the first (bringing proceedings) so subsequent references are only to that element. Greymouth Holdings Ltd v Jet Trustees Ltd [2012] NZHC 471 at [35]; Peters v Birnie NZAR 494 (HC) at [26]; Chappell v Morris Crock Ltd HC Auckland CIV-2003-404-2389, 5 February 2004 at [9]; Frykber......
  • Waterhouse v Contractors Bonding Limited
    • New Zealand
    • High Court
    • 26 Julio 2013
    ...AttorneyGeneral (1998) 12 PRNZ 287 (CA). See, for example, McCulloch v Quinn [2012] NZHC 2469; Greymouth Holdings Ltd v Jet Trustees Ltd [2012] NZHC 471. Waterhouse v Contractors Bonding Ltd HC Auckland CIV-2010-404-3074, 13 December 2010 [2] – [10]. agreed portion of the premiums. An agree......

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