Peregrine Estate Ltd v Hay and Kim Edward Hollows as Trustees of the Greg Hay Family Trust

JurisdictionNew Zealand
CourtCourt of Appeal
JudgeGilbert J
Judgment Date01 November 2017
Neutral Citation[2017] NZCA 496
Docket NumberCA476/2016
Date01 November 2017
Peregrine Estate Limited
Gregory James Hay and Kim Edward Hollows as Trustees of the Greg Hay Family Trust

[2017] NZCA 496


Gilbert, Venning and Wylie JJ



Companies — Appeal against a High Court (“HC”) decision which held it was bound by an expert's assessment of shares — whether an expert's independent assessment of fair value for the purposes of a transfer of shares in exercise of pre-emptive rightsin accordance with the company's constitution was binding.


D J Goddard QC for Appellant

N H Soper for Respondents

  • A The application for leave to adduce further evidence in support of the appeal is granted to the extent set out in [16] of the judgment.

  • B The appeal is dismissed.

  • C The appellant must pay the respondents costs for a standard appeal on a band A basis and usual disbursements.



(Given by Gilbert J)


The issue arising on this appeal is whether the parties are bound by an expert's independent assessment of fair value for the purposes of a transfer of shares in exercise of pre-emptive rights in accordance with the company's constitution. This largely depends on whether the expert's assessment complied with the mandate in the constitution.


The appellant, Peregrine Estate Ltd (Peregrine), held 74.86 per cent of the shares in Peregrine Wines Ltd (the Company). The respondents held the balance as trustees of the Greg Hay Family Trust (the Trustees). The Trustees wished to sell their shares so they issued a transfer notice in March 2015. Peregrine wished to purchase, but not at the price specified by the Trustees of $3.25 million. It had previously offered $1.414 million, in March 2013.


In accordance with the Company's constitution, an independent expert was duly appointed to “fix” the “fair value” of the shares for the purposes of any transfer. The fair value fixed by the expert, Julie Millar of BDO Christchurch Ltd, was $2.62 million as at 30 June 2015. Although this was less than the sum the Trustees had sought, they chose not to withdraw their transfer notice. In the normal course, Peregrine would have been required under the constitution to tender payment of the purchase price in accordance with the fair value as fixed within a stipulated 14-day period. However, it did not do so because it considered that Ms Millar's assessment was excessive.


Peregrine consulted John Hagen, another expert valuer. Mr Hagen subsequently reported that in his opinion the fair value of the shares at 30 June 2015 was $1.275 million, roughly half of Ms Millar's assessment.


Mr Hagen concurred with Ms Millar that any assessment based on future maintainable earnings would be significantly lower than the underlying value of the Company's assets and it was therefore appropriate to place primary reliance on an asset-based assessment. He observed that it is not uncommon for agricultural and horticultural ventures to achieve relatively low earnings compared with the value of the assets employed.


However, Mr Hagen disagreed with Ms Millar's assessment in two key respects. First and foremost, Mr Hagen considered that the assessment must be undertaken on the basis of a notional liquidation of the Company. Assuming a sale of the assets by a liquidator, Mr Hagen considered that the plant and equipment would realise book value. This reduced Ms Millar's assessment of the value of plant and equipment of $8.762 million by $851,000. The reduction to the value of inventory based on a notional liquidation was much greater. Mr Hagen arrived at a figure of $5.872 million on that basis, compared with Ms Millar's assessment of $8.762 million (the carrying value in the Company's accounts was $7.734 million). Mr Hagen then deducted the costs of the notional liquidation.


The notional liquidation approach largely explains the difference between Mr Hagen's figure at this stage of the analysis of $1.72 million for the shares and Ms Millar's final assessment of $2.62 million.


The second key difference in approach is that Mr Hagen considered a minority discount of 20 per cent was required, particularly because the shareholders' agreement provides that the shareholders' percentage shareholding shall be rounded to the nearest whole number for all purposes, including voting and dividends. This means that although the Trustees held fractionally more than 25 per cent of the shares in the Company, they could not defeat a special resolution proposed by Peregrine. Because Peregrine already has control, the acquisition of the Trustee's shares did not confer any strategic advantage. This minority discount reduced Mr Hagen's provisional assessment from $1.72 million to $1.376 million.


Mr Hagen applied a further discount to allow for the lack of marketability of the Trustees' shares and the fact that the Trustees could not access the asset-based value of the Company without the assistance of Peregrine. Absent a sale or a liquidation, the Trustees' only source of return on their investment for the foreseeable future would have been from the comparatively low future earnings expected to be generated by the Company. Applying this further discount, Mr Hagen arrived at his final assessment of $1.275 million as being the fair value of the shares.


In the light of Mr Hagen's advice, Peregrine argues that the assessment carried out by Ms Millar was fundamentally flawed, contrary to established legal principles and not in accordance with the Company's constitution.

High Court judgment

The Trustees applied for summary judgment for $2.62 million being the fair value of the shares fixed by Ms Millar. Associate Judge Matthews found that Peregrine had no arguable defence and was bound by Ms Millar's determination. He accordingly granted summary judgment on 5 September 2016. 1

Grounds of appeal

Peregrine appeals. First, it claims to have an arguable defence that Ms Millar did not “validly” determine the fair value of the shares in terms of the Company's constitution. Second, it claims that she arguably failed to exercise her own judgment about whether a minority discount should be applied and instead delegated this aspect of the determination to her solicitors. Third, Peregrine contends that it is at least arguable that Ms Millar's valuation did not conclusively determine fair value for the purposes of s 149 of the Companies Act 1993 (the Act), which prevents directors from disposing of their shares in a company for more than fair value. Accordingly, Peregrine claims to be entitled to set off any differential between the “fair value” fixed by the expert and the “fair value” that may be determined by the Court pursuant to s 149 of the Act.


After summary judgment was entered, Peregrine issued proceedings against the Trustees seeking a declaration that Ms Millar's valuation is not a valid and

binding determination of the fair value of the shares for the purposes of the Company's constitution and seeking the appointment of another expert to undertake the exercise. Peregrine also claims that Ms Millar did not validly or correctly determine the fair value of the shares and the Court must now determine that issue for the purposes of s 149 of the Act. Peregrine seeks judgment in the new proceedings against the Trustees, or against Gregory Hay as a director of the Company, for the amount by which $2.62 million exceeds the fair value of the shares as assessed by the Court
The issues

The issues are whether any of the following defences are arguable:

  • (a) Ms Millar's determination was invalid and therefore not binding.

  • (b) Ms Millar wrongly delegated to her solicitors her duty to determine whether a minority discount should be applied.

  • (c) Ms Millar's determination did not conclusively determine fair value for the purposes of s 149 of the Act and Peregrine has a right of set-off for the amount by which the Court's assessment of fair value under s 149 exceeds that of the expert.

Application to adduce further evidence

Peregrine applies for leave to admit further evidence in support of its appeal, being an affidavit from Lindsay McLachlan, the sole director of Peregrine, and a further affidavit from Mr Hagen.


Mr McLachlan's affidavit updates the Court on the present position following the entry of summary judgment. All it does is attach the statement of claim that was filed by Peregrine against the Trustees and Mr Hay. We have already referred to this. The statement of claim is a matter of court record and we are prepared to receive it.


However, we are not able to admit Mr Hagen's further affidavit because it is neither fresh nor cogent. 2


With reasonable diligence the evidence could have been obtained for the summary judgment hearing. Mr Hagen provided an affidavit for the purposes of that hearing and the further affidavit does not rely on any new information. The evidence is clearly not fresh.


Nor is the evidence cogent. Mr Goddard QC for Peregrine accepted at the hearing that the evidence provided to the High Court, including Mr Hagen's first affidavit, is sufficient to found the arguable defences he contends for. Further, Mr Hagen's new affidavit is substantially in the nature of a submission directed to the legal issues identified by Mr Goddard (who was not counsel in the High Court). Indeed, Mr Goddard invited the Court to treat Mr Hagen's further affidavit as forming part of his submissions if it is not accepted as evidence.

Was the expert's determination arguably invalid?

Mr Goddard contends that Ms Millar's valuation assessment is the product of errors that are so fundamental that it cannot be regarded as a valuation of the shares. Where, as in this case, the valuation is based on the value of the net tangible assets rather than future maintainable earnings, he...

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1 cases
  • Woolley v Fonterra Co-Operative Group Ltd
    • New Zealand
    • High Court
    • 8 October 2021
    ...Paterson “Implied Fetters on the Exercise of Discretionary Contractual Powers” (2009) 35 Mon LR 45. 120 Peregrine Estate Ltd v Hay [2017] NZCA 496, [2018] 2 NZLR 345 at [33]–[37], although the Court of Appeal declined to apply the rule or the English authorities in the context of this 121 ......

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