A family dispute between a couple and their daughter and her husband over the sale of Hawkes Bay farmland has had to be determined by a full bench of the Supreme Court.
The fight arose over the forced sale of a 175 hectare property called Heron Creek after the family business running it could not meet its debts – but the case raised a broader legal issue over the rights of shareholders to withhold support for a company resolution needed, in this case, to confirm the sale.
A High Court judge forced the daughter and her husband, Kathryn and Duncan Baker, to permit the sale, ruling their decision to hold out against her parents’ Wallace and Ann Hodder’s wishes had been oppressive.
The Court of Appeal then declined to become involved as the Heron Creek land had by then been sold and occupied by new owners.
But the Bakers believed the High Court’s decision, and failure to hear full arguments on the matter, deprived them of their rights and took the matter to the Supreme Court.
A five-judge panel including Chief Justice Sian Elias have now found in their favour – ticking off Justice Ellis from the High Court and their brother and sister judges at the Court of Appeal for having decided the farm sale had meant their involvement was not needed.
The Supreme Court decided not to send the matter back to the lower courts but to deal with the substance of the dispute itself.
Its decision in favour of the Bakers does not mean the Heron Creek land comes back to them or the Hodders but will allow the daughter and son-in-law to take new action to recover money they believe they are owed from the sale price for improvements they had made to the property when managing it. It also allows the Bakers to dispute a court costs order of $40,000.
The two couples had bought the land in 2008 for the Bakers to work on it. When the farming business they operated on Heron Creek and another property could not meet mortgage obligations without help from the Hodder Family Trust or a company that the trust owned, it was declared insolvent.
The parents wanted out in late 2014 but the Bakers could not afford to buy the land at the valuations obtained and only in 2016 did an offer arise from elsewhere that the Hodders agreed to counter-offer at $4.3 million. The Bakers, who were minority shareholders in the company owning the land, objected and the legal dispute began.
A “firestorm” erupted, according to the Supreme Court judgment, with the parents seeking to cancel the Bakers’ lease, demanding loan repayments and calling a shareholders meeting to remove the daughter and husband as directors. The Bakers in turn said they would agree to the sale of the land if they were paid $225,000 “as recognition of their development work” on Heron Creek.
The resolution to remove the Bakers passed but the sale of the Heron Creek land required a 75 percent majority special resolution of shareholders of the company under Section 129 of the Companies Act – which is where things started to head to court. No meeting of the shareholders was held and the Bakers did not agree to accept a written resolution.
The parents believed the Bakers wanted their debts to “entities associated with the Hodders” to be forgiven, which was denied, but the Hodders took the matter to the High Court to force their daughter and husband to agree to the sale.
Justice Rebecca Ellis agreed to an urgent timetable and found the affairs of the company were being conducted in a manner unfairly prejudicial to the Hodders. She believed any monetary claim the Bakers might have against the company had no prospect of success given it was effectively insolvent.
The Hodders asked the judge to make an order altering the levels of shareholding so that they got past the 75 percent mark, but in the end she instead ordered the Bakers to sign the special resolution authorising the sale. She did not stay the decision to allow the Bakers time to take the matter to the Court of Appeal.
However the Supreme Court said there was nothing in the Companies Act that in this case made the Bakers owe any duty to the company or Hodders to sign the sale through.
“The Bakers were entitled under the High Court rules to a trial but the process adopted by [Justice] Ellis meant the proceeding was finally resolved against the Bakers without all the normal procedural safeguards inherent in the trial process.”
The Supreme Court said: “Even if there was power to make an order… and such an order was justified in this case, the form of the order made by the judge, requiring the Bakes to sign a special resolution approving the sale of Heron Creek was inappropriate.”
“There has not been a fair hearing. [Justice] Ellis should not have made final orders requiring the Bakers to approve the sale.”
And the Supreme Court concluded the Court of Appeal ought to have heard the Bakers’ attempted appeal – in part because of the issues of fairness arising from the High Court treatment of the case and that “there were important company law issues at stake that could affect future transactions”.