IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2013-404-4037 [2015] NZHC 428

UNDER	the Companies Act	

BETWEEN	
TYRION HOLDINGS LTD Plaintiff	

AND	
PAUL FREDRIC CLAYDON First Defendant

INFRASTRUCTURE & CIVILWORKS LTD
Second Defendant	

Hearing:	3 and 4 February 2015	

Counsel:	
D G Collecutt for Plaintiff
M R Taylor for Defendants	

Judgment:	
11 March 2015	

JUDGMENT OF BREWER J

This judgment was delivered by me on 11 March 2015 at 3:00 pm pursuant to Rule 11.5 High Court Rules.

Registrar/Deputy Registrar

Solicitors:	Doug Burgess (Auckland) for Plaintiff
Blackwells (Auckland) for Defendants

TYRION HOLDINGS LTD v CLAYDON [2015] NZHC 428 [11 March 2015]

Introduction

[1]       The  plaintiff  (“Tyrion”)  has  brought  proceedings  claiming  that  the  first defendant  (“Mr Claydon”),  in  his  capacity  as  director  of  Infrastructure  NZ  Ltd (“INZL”),  misappropriated  INZL’s  assets  by  transferring  them  to  the  second defendant (“ICL”).1   Tyrion has standing to bring the claim if it is a shareholder of INZL.  It pleads that it holds 50 percent of INZL’s shares.  Mr Claydon denies that Tyrion holds any shares at all.   The parties want to resolve the issue of standing before the substantive claim goes any further.2

Issues

[2]       The principal issue I have to determine is set out in Tyrion’s application for

decision of questions filed on 17 October 2014:

Is Tyrion the holder of 50,000 shares (“the shares”) in INZL?

If I find it is not, other issues going to estoppel and rectification will have to be decided.

Is Tyrion the holder of the shares?

[3]       INZL was incorporated in 2005. The initial shareholdings were:

	Mr Claydon:	49,000	

	
Projects NZ Ltd	
31,000	

	
Blomfield Investments Ltd	
20,000	

[4]	There is no direct evidence that INZL ever had a share register.  Returns filed with the Companies Office are to the following effect:

(a)	In 2006, Projects NZ Ltd transferred its 31,000 shares to Soloman

Enterprises Ltd (“SEL”).

1	A wholly owned subsidiary of INZL, Contract NZ Ltd, is included in the plaints, but for simplicity I will refer to INZL unless a distinction is necessary.
2	Rule 10.15 gives the Court jurisdiction to decide a question separately from any other question, and at any time – including before trial.

(b)	In 2007, SEL transferred 30,000 shares to Black Trading Ltd and

1,000 shares to Mr Claydon.

(c)       In 2008, Blomfield Investments Ltd transferred its shareholding to Tyrion,  as  did  Black  Trading  Ltd.3     According  to  the  Companies Office  records,   this  resulted  in  Tyrion  holding  50,000   shares. Mr Claydon held the other 50,000 shares.

[5]       On 20 March 2009, Mr Claydon filed the online annual return for INZL.  He recorded that he and Tyrion each owned 50,000 shares.

[6]       On 4 February 2010, Mr Claydon filed the next online annual return for INZL

and showed the same shareholding.

[7]       There was no annual return filed in 2011.  On 2 May 2012, Mr Claydon filed an annual return asserting that he was the sole director of INZL and that he and Tyrion each owned 50,000 shares.  In this return he used Tyrion’s new name whereas in the previous two returns he used the original name of Black Rural Developments Ltd.

The absence of a share register

[8]       Mr Claydon’s first argument is that no matter what documents were filed in the Companies Office, Tyrion cannot be a shareholder unless it is listed as a shareholder in INZL’s share register.  There is no share register known to the parties, and there is no direct evidence that a share register ever existed.   Mr Claydon’s evidence is that when he filed the annual returns, he merely copied the information already on the Companies Office’s records.  It was a pro forma exercise.

[9]       A shareholder of a company is defined in s 96 of the Companies Act 1993

(“the Act”):

96	Meaning of “shareholder”

In this Act, the term shareholder, in relation to a company, means—

3	At that time, Tyrion was called Black Rural Developments Ltd.

(a)         a person whose name is entered in the share register as the holder for the time being of one or more shares in the company:

(b)         until the person’s name is entered in the share register, a person named as a shareholder in an application for the registration of a company at the time of registration of the company:

(c)         until the person’s name is entered in the share register, a person who is entitled to have that person’s name entered in the share register under a registered  amalgamation proposal  as  a  shareholder  in  an  amalgamated company.

[10]     Tyrion’s claim relies on the powers granted by s 174 of the Act.  This gives a shareholder the right to apply to the Court for redress if the affairs of the company have been conducted oppressively, unfairly discriminatorily or unfairly prejudicially. It can be seen from this that equitable or unregistered legal interests in shares do not qualify a person as a shareholder.  Only inclusion in the share register does that.

[11]     I have decided, on the balance of probabilities, that INZL did originally have a share register.  INZL was incorporated by a firm of accountants which produced a folder containing the constitution of the company and other documents relevant to the incorporation.  Mr Blomfield (who was a director of INZL from or about 14 July
2006 to 8 July 2010) gave evidence that although he has no recollection of seeing INZL’s share register, he does recall seeing other company incorporation folders produced by the firm of accountants and remembers that they contained a share register.  It is a standard document and I infer that it would have been prepared.

[12]     I consider that there were a number of situations which could have led to the share register being misappropriated or mislaid.  INZL had a number of professional advisers, both legal and accounting.   In 2006, documents showing the company’s shareholding were filed by Beach Ladd & Co Ltd, accountants for Mr Claydon and for INZL.   In 2007, the annual return was filed by another firm of accountants, Nixon Cate Ltd.   This firm acted both for Mr Claydon and INZL.   In 2008, the particulars of shareholding showing that Tyrion had acquired 50,000 shares from Black Trading Ltd and Blomfield Investments Ltd was filed by a Mr Johnson, the solicitor for INZL.  Thereafter, the returns were filed by Mr Claydon.  Further, when Mr Blomfield found out that INZL had ceased trading and came to understand that its assets had been transferred to the second defendant, he went to INZL’s business premises and removed a great many documents.   His evidence is that the share

register was not among them.  The rest of the documents were left in the possession of Mr Claydon who, likewise, says that there was no share register.

[13]     I  infer  that  a  company  which  was  incorporated  professionally,  and  had changes of shareholdings which were notified to the Companies Office by professional  advisers,  more  likely  than  not  had  an  operating  share  register. Therefore, in 2008, I infer that Tyrion’s shareholding of 50,000 shares was entered into the share register which, either because of changes of professional advisers or because of confusion caused by Mr Blomfield’s actions, has gone missing.

[14]     I acknowledge that there is no evidence of INZL records showing the receipt of share transfer forms for the transfers to Tyrion and which would have prompted registration in the share register.  But, I infer that, on the balance of probabilities, this occurred.  In 2008 a professional adviser, Mr Johnson, notified the Companies Office of the changes in shareholding which resulted in Tyrion holding 50,000 shares.  It is inherently unlikely that he did that without INZL’s records showing that to be the case.

[15]     I infer also that Mr Claydon, also the holder of 50,000 shares, must have considered that Tyrion held the other 50,000 shares.   Otherwise, copying the Companies Office records or not, he would not have included Tyrion in the annual returns he filed in 2009, 2010 and 2012 – which included inserting Tyrion’s current name when it changed.  I acknowledge that Mr Claydon, in cross-examination, said that he “never believed” that Tyrion was a 50 percent shareholder of INZL.  I do not accept that evidence.  I consider it was given in the heat of the moment.  In addition to the inferences which can be drawn from the facts that this was a small company of which Mr Claydon was a director (and latterly the sole director), there are other documents indicating Mr Claydon’s view of the shareholding.   He sent a fax to Tyrion  on  2 September  2013  in  which  he  wrote,  under  the  heading  “Tyrion shareholding in Infrastructure NZ”, that:

Records indicate that

1.         Tyrion  Holdings  have  $20000  (twenty  thousand  dollars)  share capital that is unpaid.  The provisions of the Constitution apply and you have 14 days to pay the amount due, to InfrastructureNZ at

3a/80 Paul Matthews Road, by way of cash or bank cheque on or before 16/9/2013. Failure to pay by 9.00 am on 17/9/2013 will result in Forfeiture of the shares.

2.	The transfer of shares from Soloman Enterprises to Black Trading was not undertaken as described by the requirements of clause 15.2
Pre-emptive provisions of the Constitution. Therefore it is deemed that this share transfer is invalid. Furthermore, unless documentation
is provided within 7 days that subsequently confirms the share transfer  process  as  meeting  the  Pre-emptive  provisions,  then  the
shares will be removed from your allocation.

[16]     It was submitted by Tyrion that if I found that, on the balance of probabilities, its shareholding was not registered in INZL’s share register (because there was no share register, or because it was not being used) then I can take the records of the Companies Office as a de facto share register.   Tyrion relies on Wellington Audio
Visual Ltd v Euro Boston Group Ltd,4 in which Heath J used, as a starting point, the

records contained in the public share register in order to work out the parties’ shareholding in a company in the absence of a share register.  However, recourse to the public register did not assist Heath J in the resolution of that case.  I note that this decision is used as authority for the proposition in Company Law in New Zealand that:5

At most, the public register might be evidence of share issues and title to shares, if for some reason, the company’s share register is unavailable.

[17]     I do not have to decide this point.  However, I consider there is a distinction between using the records of the Companies Office as evidence of the contents of a missing share register and taking the records to be, for the purposes of the Act, an alternative or de facto share register.   The former is legitimate while the latter, I think, is not.  It is not in conformity with the Act.

[18]     As a fallback, Mr Claydon argued that the 2008 transfers of shares resulting in Tyrion holding 50,000 shares are invalid because his pre-emption rights under the constitution of the company were not given effect.  I do not have to decide this issue because of my finding that, on the balance of probabilities, there was a share register
and that Tyrion’s shareholding was entered in it.  It is clear that a person becomes a

4	Wellington Audio Visual Ltd v Euro Boston Group Ltd  HC Auckland CIV 2007-404-1089,
9 December 2009.
5	Peter Watts, Neil Campbell and Christopher Hare Company Law in New Zealand (Wellington, LexisNexis, 2011) at 179.

shareholder by reason of inclusion in the share register.  Arguments as to entitlement to be registered, for whatever reason, do not affect this simple point unless and until they are resolved in a way that removes the shareholder from the register.6   However, on the evidence of Mr Claydon’s knowledge of the transfer I would have found a waiver of pre-emptive rights.

[19]     Another argument that was before me, in the event I found either there was no share register or that Tyrion’s shareholding was not included in it, was that I should make an order for rectification of the register.7    This again gets back to the simple point that it is inclusion in the share register which creates a shareholding and a person cannot rely on a beneficial interest in shares to have standing to bring an action under s 174 of the Act.8

[20]     Again, I do not have to decide this argument.  But the evidence left me in no doubt that Tyrion acquired a legal or beneficial interest in its 50,000 shares.  I have already indicated that I would not have found for Mr Claydon on the pre-emptive rights argument; Tyrion was entitled to be registered as the holder of its shares. Therefore, I would have required the creation of a share register and the registration therein of Tyrion’s shareholding. That would have given effect to the 2008 transfers.

[21]     The last point I need to consider in relation to the question of whether Tyrion has standing to continue the proceeding against the defendants is the argument by Mr Claydon that Tyrion’s delay in bringing the action bars Tyrion from continuing it.

[22]     Mr Claydon argues that in RPB Solutions the Court considered that there needed to be a critical temporal connection in the relationship between the shareholder asserting prejudice and the director against whom the shareholder seeks redress.  RPB Solutions involved a former shareholder who brought a s 174 action based on conduct that occurred after he had ceased to be a shareholder.  Ellis J held that the ability of a former shareholder to bring a claim under s 174 must be limited
to situations where the prejudicial conduct complained of occurred in the period

6	Companies Act 1993, s 91.
7	A power which I have under s 91 of the Companies Act 1993.
8           RPB Solutions v Avoca Holdings Ltd [2010] 2 NZLR 857 (HC) at [23]; People’s Republic of China (Ministry of Justice) v Top International Ltd [2010] NZAR 741 at [20]; Yang v Chen [2011] NZCCLR 13 at [284].

during which the claimant was a shareholder.9   Mr Claydon argues that the principle is applicable to any claim by a shareholder.   It is submitted that here there is no “temporal and specific connection” between the alleged prejudicial conduct on the part of Mr Claydon and Tyrion.

[23]     I disagree.  It is a well-established principle in Commonwealth jurisprudence that a person may apply for relief from oppressive, discriminatory or unfairly prejudicial conduct where the person is a shareholder at the time of the application for relief, even if the conduct in question occurred before the date of his or her registration  as  a  shareholder.10      In  Company  Law  in  New  Zealand,  the  learned authors explain that this proposition of law is unaffected by the decision RPB Solutions  because  Ellis J  “did  not  suggest  that  there  was  a  similar  temporal requirement in respect of current shareholders”.11

Decision

[24]     I answer the issue:

Yes, Tyrion is the holder of 50,000 shares in INZL.

[25]    It follows that Tyrion has standing to bring the proceedings against the defendants and it may now continue them.  I direct that the proceedings be put back into the case management system for allocation of a fixture date and for timetabling of intermediate steps.   In this regard, I note Mr Taylor’s point, on behalf of the defendants, that an application for relief under s 174 is governed by r 18.14A.  Issues of re-pleading will arise.

Costs

[26]     In the normal run of things, costs follow the event.  However, from what I
have learned of this case, there could be quite difficult questions of causation and quantum, leaving aside liability.  I think it best to leave the costs of this application

9	RPB Solutions v Avoca Holdings Ltd, above n 8, at [26]-[29].
10	See, for example, Re Quickdome Ltd [1988] BCLC 370 (Ch); Bermuda Cablevision Ltd v Colica
Trust Co Ltd [1998] AC 198 (PC); and Lloyd v Casey [2002] 1 BCLC 454 (Ch).
11	Peter Watts, Neil Campbell and Christopher Hare Company Law in New Zealand, above n 5, at
783.

to be dealt with by the trial Judge in the overall context of the eventual outcome.

Accordingly, I reserve costs.

Brewer J