CSL LTD v CHOW [2021] NZHC 2137

CSL LTD v CHOW [2021] NZHC 2137 [17 August 2021]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYI TE KŌTI MATUA O AOTEAROATĀMAKI MAKAURAU ROHECIV-2021-404-000503[2021] NZHC 2137BETWEEN CSL LIMITEDPlaintiffAND JOHN CHOW (aka KA YU CHOW) andMICHAEL CHOW (aka KA MING CHOW)as trustees of the JOHN CHOWINVESTMENT TRUST and the MICHAELCHOW INVESTMENT TRUSTDefendantsHearing: 28 July 2021Appearances: P J Napier for PlaintiffS Moore for DefendantsJudgment: 17 August 2021JUDGMENT OF ASSOCIATE JUDGE P J ANDREWThis judgment was delivered by Associate Judge Andrewon17 August 2021 at 3.30 pmpursuant to r 11.5 of the High Court RulesRegistrar / Deputy RegistrarDate ..Introduction[1] The plaintiff, CSL Limited,1 is a financial management services company. Thedefendants are Ka Yu (John) Chow and Ka Ming (Michael) Chow, as trustees of theJohn Chow Investment Trust and the Michael Chow Investment Trust.2[2] By share option deed of 2015,3 the defendants were granted an option entitlingthem to purchase CSL's shares in INNO Capital Management Ltd, being 12 per centof the shares in that company.4[3] By call option exercise notice dated October 2017,5 the defendants irrevocablyexercised the call option. In that call option exercise notice the defendants nominatedeither Deloitte or Ernst & Young (EY) to determine the economic equity value of theShares.[4] CSL seeks, by way of summary judgment,6 orders for specific performance,requiring the defendants to complete the valuation process and make payment for theShares.[5] CSL does not have a signed copy of the Deed and none of the parties produceda signed copy in evidence. CSL thus seeks summary judgment on the basis of anunsigned copy of the Deed.[6] The defendants say that the unsigned copy is not the final version of the Deedand that the terms of the signed Deed are materially different to the unsigned versionproduced by CSL.[7] In addressing the ultimate issue of whether CSL has established that thedefendants have no defence,7 I must resolve the following questions:1 CSL.2 The Trusts.3 The Deed.4 The Shares.5 The Notice.6 Under pt 12 of the High Court Rules 2016.7 High Court Rules, r 12.2(2).(a) Is the absence of a signed copy of the Deed an evidential deficiencycasting real doubt on CSL's claimed right to specific performance?(b) Is this an appropriate case for the Court to exercise its residualdiscretion to decline summary judgment on the basis that discovery isnecessary?(c) Has there been proper confirmation of the appointment of a valuerpursuant to the Notice?(d) Is the economic equity value under the Deed to be determined at thedate of the Notice or at another time?[8] This judgment also contains my reasons for declining the defendants'application that I recuse myself on the basis of a reasonable apprehension of bias.Background facts[9] In about October 2017, the parties entered into negotiations regarding thedefendants' purchasing of the Shares. The defendants say that multiple iterations of ashare option deed were prepared, including the unsigned deed annexed to the affidavitof Mr Webber, filed on behalf of CSL.[10] The Deed (namely, the unsigned copy before the Court) provides:3. EXERCISE3.1 Period within which the Call Option may be exercised: The CallOption may be exercised at any time following the date of this deed.3.2 Exercise of Call Option: The Call Option may be exercised by theOption Holders jointly giving to the Shareholder a Call OptionExercise Notice in accordance with this deed.3.3 Notice of Call Option not revocable: Once given, the Call OptionExercise Notice may not be revoked by the Option Holders exceptwith the written consent of the Shareholder. The Call Option may beexercised once only and shall only be exercised in respect of all of theShares.4. SETTLEMENT4.1 Settlement Date:(a) If the Call Option is exercised, the settlement date("Settlement Date") for the sale and purchase of the Sharesshall be the third Business Day after determination of theEconomic Equity Value.(b) The Option Holders will nominate a valuer in the Call OptionExercise Notice. If the appointment of that (or another valuer)is not confirmed within 10 days of the Call Option ExerciseNotice, the Option Holders may request the President of theSociety of Accountants to nominate a valuer. Any suchnomination shall be binding on the parties.(c) Any valuation process under this clause will be instructedwith a time frame for delivery of the valuation that does notexceed 60 days.(d) The parties shall contribute to the costs of the nominationexercise and the valuer on a 12 (Shareholder) / 88 (OptionHolders) basis.(e) The Economic Equity Value determined by any valuer for thepurposes of this deed shall be conclusive and binding on theparties in the absence of manifest error.[11] "Economic equity value" is defined in the Deed as 12 per cent of the fair marketvalue of the company on a going concern basis after deducting the amount by whichthe company is funded by its shareholders, whether by way of debt, equity or hybridinvestment and whether directly or indirectly.8[12] The Notice required CSL to confirm its acceptance of the appointment of EYor Deloitte, and states:... If you [CSL] do not confirm (or we do not otherwise agree a valuer) within10 days of the date of this notice we will request the President of the Societyof Accountants to nominate a valuer for the purpose of the Option Deed.[13] On 26 October 2017, CSL and the defendants signed a resolution of directors9approving the share transfer.8 Clause 1.1.9 Companies Act 1993, s 84.[14] On 1 August 2019, INNO Capital Management Ltd changed its name to ICMLLtd.10[15] As contemplated by cl 4.2(b) of the Deed, the defendants are now the soledirectors of ICML.[16] At an interlocutory hearing on 26 July 2021, the defendants challenged theadmissibility of two documents put in evidence by CSL. This included the minutes ofa meeting involving Russell McVeagh, solicitors, and an internal memorandumprepared by Mr Brent Gilchrist, for the defendants, on 8 February 2018 and withregard to the share option.[17] In his judgment of 27 July 2021,11 Powell J held that the document recordingthe meeting with Russell McVeagh was inadmissible,12 but the internal memorandumprepared by Mr Gilchrist was admissible.13The Notice of Opposition[18] The defendants oppose summary judgment on the following grounds:(a) The copy of the Deed annexed to the first affidavit of Mr ClintonWebber is unsigned by CSL and the defendants;(b) The unsigned Deed is not a true and correct copy of the share optionDeed that was executed by the parties;(c) The terms of the signed Deed are materially different to that of theunsigned Deed, such that CSL's claim cannot succeed; and(d) The order sought by CSL that the defendants immediately instruct EYto determine the economic equity value as at the date of the Noticecannot be granted because the unsigned Deed provides that:10 ICML.11 CSL Ltd v John & Michael Chow [2021] NZHC 1904.12 CSL Ltd v John & Michael Chow, at [6], under s 53(3) of the Evidence Act 2006.13 CSL Ltd v John & Michael Chow, at [7], applying s 69 of the Evidence Act.(i) pursuant to cl 4.1(b) the appointment of the valuer nominatedby the defendants' notice was to be confirmed within 10 days ofthe Notice (and it was not); and(ii) pursuant to cl 4.1(c), the valuation process was to be "instructedwith a timeframe for delivery of the valuation that does notexceed 60 days";(iii) the order sought by CSL requires that the valuation occur at thedate of the notice. Although, in the circumstances there is nobasis for a valuation to occur at that date.Relevant legal principles[19] Rule 12.2(1) of the High Court Rules 2016 provides:The court may give judgment against a defendant if the plaintiff satisfies thecourt that the defendant has no defence to a cause of action in the statement ofclaim or to a particular part of any such cause of action.[20] The onus is on the plaintiff to satisfy the Court that the defendant has nodefence to the claim.14[21] In Krukziener v Hanover Finance Ltd, the Court of Appeal summarised theapplicable principles on applications under r 12.2 as follows:15[26] The principles are well settled. The question on a summary judgmentapplication is whether the defendant has no defence to the claim; that is, thatthere is no real question to be tried: Pemberton v Chappell [1987] 1 NZLR 1at 3 (CA). The Court must be left without any real doubt or uncertainty. Theonus is on the plaintiff, but where its evidence is sufficient to show there is nodefence, the defendant will have to respond if the application is to be defeated:MacLean v Stewart (1997) 11 PRNZ 66 (CA). The Court will not normallyresolve material conflicts of evidence or assess the credibility of deponents.But it need not accept uncritically evidence that is inherently lacking incredibility, as for example where the evidence is inconsistent with undisputedcontemporary documents or other statements by the same deponent, or isinherently improbable: Eng Mee Yong v Letchumanan [1980] AC 331 at 341(PC). In the end the Court's assessment of the evidence is a matter of14 Pemberton v Chappell [1987] 1 NZLR 1, (1986) 1 PRNZ 183 (CA).15 Krukziener v Hanover Finance Ltd [2008] NZCA 187, [2010] NZAR 307, (2008) 19 PRNZ 162at [26].judgment. The Court may take a robust and realistic approach where the factswarrant it: Bilbie Dymock Corp Ltd v Patel (1987) 1 PRNZ 84 (CA).Analysis and decisionThe unsigned deed[22] The defendants' principal submission, advanced by Mr Moore, is that there isa fundamental evidential deficiency: the plaintiff proceeds on the basis of an unsignedcopy of the Deed and the onus is on the plaintiff to prove the terms of the contract itseeks to specifically perform. Mr Moore contends there were multiple versions of theDeed in the drafting phase, which is now more than six years ago. He contends a termwhich provides the mechanism for valuing shares in an agreement between parties topurchase those shares is an essential term of that agreement. Without the value andcertainty as to the mechanism for determining that value, the transaction cannot becompleted.[23] Mr Moore also noted the inconsistencies in the evidence of Clinton Webber,for CSL, in relation to the date that the Deed was signed. In his first affidavit,Mr Webber records:16I cannot locate a signed and dated copy of the Share Option Deed, but confirmthat it was signed and dated on 15 October 2015.However, in his second affidavit he records:17As stated in my first affidavit, the unsigned Share Option Deed annexed as"CNW1" to my first affidavit is a true copy of that which was signed and dated15 February 2015.[24] In addressing this issue, it is important to record the factual matters that are notin dispute. Equally, it is relevant to address why the defendants have not put a signedcopy in evidence before the Court and their explanation as to how the terms of thesigned Deed vary from those of the unsigned Deed in relation to the issue of valuation.[25] It is not in dispute that there is a valid and binding share option Deed and thedefendants irrevocably exercised that option. It is also not in dispute that the16 Dated 22 March 2021.17 Dated 1 June 2021.defendants have part-performed their irrevocable contractual obligations. Thedefendants resolved on 26 October 2017, as directors of the company, to approve theshare transfer (as the Deed undoubtedly provides for).[26] Likewise, it cannot be seriously disputed that the defendants, as the optionholders, in acting in accordance with the valuation process expressly anticipated bythe Deed, nominated "either Deloitte or [EY] to determine the [economic equityvalue]". They signed the Notice and that is exactly what it says. They soughtconfirmation from CSL of the acceptance of the appointment. In the Notice theyexpressly acknowledged that their notice was not revocable.[27] Further, the following facts relating to attempts to obtain a signed copy of theDeed, are also not disputed:(a) Russell McVeagh, solicitors, acted for the defendants and drafted theDeed;(b) CSL approached Russell McVeagh directly to obtain a signed copy ofthe Deed but without success; and(c) the defendants have provided no explanation as to why they could notobtain a copy of the signed Deed from their own solicitors, RussellMcVeagh.[28] I find that this is the very sort of case where I should adopt a robust and realisticapproach and not accept, uncritically, the evidence of the defendants and the doubtsthat they attempt to raise. As Master Venning (as he then was) held in FerrymeadTavern Ltd v Christchurch Press Co Ltd, "it is not enough for a defendant facing anapplication for summary judgment to suggest that the action will be defended on thebasis of facts which are not deposed to or other hypothetical defences."18[29] I accept that the onus is on the plaintiff to establish that the defendant has nodefence but here, the defendants have in a somewhat cynical and calculated fashion,18 Ferrymead Tavern Ltd v Christchurch Press Co Ltd (1999) 13 PRNZ 616 (HC) at [66].sought to raise doubts about the Deed with no detail or substance provided to supporttheir position. No valid explanation has been provided as to why they have notobtained a copy of the signed Deed from their own solicitors, Russell McVeagh. Theonly tenable inference to be drawn from all these facts is that the signed copy wouldnot support the claims or doubts they try to raise.[30] In his affidavit sworn on 13 May 2021, Mr John Chow states:I have not yet located a copy of the signed Share Option Deed. However,efforts are being made to locate it and I confirm that there have been multipleversions to the Share Option Deed.Changes were made to the draft versions of the Share Option Deed, especiallyin relation to determination of valuation of Economic Equity Value, anessential term of the agreement between CSL and the trusts.[31] As Mr Napier, for CSL, submitted, Mr Chow has not explained or set out whatmaterial differences there are and, in the context where it is not disputed that thedefendants have taken steps themselves, albeit incomplete, to invoke the valuationprocess. Indeed, the internal memorandum from the defendants' own adviser,Mr Gilchrist, records that the parties had agreed the valuer and the next step requiredwas to instruct the valuer to deliver the valuation within 60 days. There is nocontemporaneous evidence to suggest that the defendants were under anymisunderstanding or uncertainty as to what the valuation process was and themethodology to be adopted by the valuer. It may be that there were multiple versionsof a draft deed, but that provides no explanation or basis for a suggestion that there isdoubt about the final signed version containing the economic equity value clause.[32] It is also notable that Mr Chow's explanation as to attempts to locate a copy ofthe signed deed provides no detail as to what steps have been taken.[33] It is not enough for the defendants to contend that the terms of the signed Deedare materially different to the those of the unsigned Deed before the Court withoutspecifying what those differences are. Both deponents for the plaintiff, Mr Webberand Mr Gilchrist, have given evidence that the unsigned copy before the Court is inthe same form as that that was executed and the valuation process and methodologyare not complex or unorthodox. There is no apparent substance to the contrarycontention of Mr John Chow.[34] Mr Moore is correct to contend that a term which provides the mechanism forvaluing shares in an agreement between parties to purchase those Shares is an essentialterm of that agreement. However, it is not credible to contend that on the facts of thiscase there is any real doubt or uncertainty as to what that mechanism is. In substance,there is no conflict in the evidence. Mr Webber's own evidence as to the date ofexecution is inconsistent, but there is no doubt that the Deed was executed andultimately no real doubt as to the terms of the Deed that the plaintiffs now seek toenforce.[35] I conclude that CSL has established that the defendants' evidential objectionhas no merit. The defendants' response, an attempt to create doubt when there is none,falls well short of a genuine basis for defeating the summary judgment application.Issue (b) – Should I decline summary judgment on the basis that discovery isnecessary?[36] Pursuant to r 12.2 of the High Court Rules, the Court has a residual discretionto decline summary judgment in certain limited circumstances, including where theproceedings are of a particular nature that opportunity should be given to allowdiscovery.19[37] The defendants contend that CSL has provided no evidence of any opencorrespondence between it and the defendants (or between CSL's lawyers and RussellMcVeagh, solicitors) regarding the negotiation or signing of the Deed or the issue ofthe valuation of the shares. Rather, the defendants say that the only documents reliedupon by CSL are the unsigned Deed and the internal memorandum prepared byMr Gilchrist. Mr Moore submits that in these circumstances, the Court shouldexercise its residual discretion to decline summary judgment on the basis thatdiscovery is necessary.19 Bromley Industries v Martin & Judith Fitzsimmons Ltd [2009] NZCA 382, (2009) 19 PRNZ 850at [65].[38] However, I reject that submission. For the reasons given above, I am of theview that there is no real dispute as to the critical terms of the Deed or the valuationmethodology to be applied by the valuer. Furthermore, the defendants suggest thatdiscovery is necessary without providing any probative evidence as to whether thereare any additional documents in existence that might shed light on what they say arematters at issue. Again, they seek to raise doubts without providing any real evidentialfoundation to suggest that there are any.[39] This is clearly not a case to exercise the Court's residual discretion and declineto order summary judgment to enable discovery.Issue (c) – Confirmation of the valuer[40] In his affidavit of 13 May 2021, Mr John Chow contends that he and hisbrother, Mr Michael Chow, have not received confirmation of acceptance from CSL,nor have they otherwise agreed EY as the valuer. He notes that Mr Webber states inhis affidavit that CSL had accepted the nomination of EY, however no evidence ofcommunication of acceptance had been produced.[41] Mr Moore submits the only evidence put forward by CSL regarding the issueof acceptance by CSL of EY as the valuer are the unsigned Deed and the internalmemorandum of Mr Gilchrist.[42] I find that this is a further attempt to create doubt when, in substance, noneexists. There is no probative evidence, supported by documentation, challenging theclear position set out by Mr Gilchrist in his memorandum that the parties had alreadyagreed the valuer by 8 February 2018. Indeed, Mr Gilchrist also states that EY has infact already been instructed to carry out the valuation. As at February 2018,Mr Gilchrist was working for the Stonewood Group Ltd, a company owned by thedefendants. It was, of course, the internal memorandum that the defendantsunsuccessfully sought to have excluded by Powell J.[43] That internal memorandum is also to be read together with the Notice, signedby both defendants. In that notice they nominated "either Deloitte or EY" to determinethe economic equity value.[44] I find that there is no merit to this ground of opposition. There has been properconfirmation that EY is the appointed valuer.Issue (d) – Date of determining economic equity value[45] CSL seeks, in its statement of claim, an order that the valuation be carried outby EY as at the date of the notice of the call option exercise.20[46] The defendants say this valuation is "retrospective", which is not contemplatedby the Deed. They say that the Deed is silent as to what date the valuer should applyand, in the circumstances, it is not appropriate for the Court to order a retrospectivevaluation.[47] The Deed expressly provides that the option holders (i.e. the defendants) willnominate a valuer in the call option exercise notice (which they did) and that if a valueris not agreed within 10 days of the notice, the president of the Society of Accountantsis to nominate a valuer. The Deed then expressly provides that the valuer is to deliverthe valuation within 60 days.21[48] I accept that the Deed itself is silent as to the date of valuation. However, as amatter of objective interpretation, it is clear the valuation date is the date of instructionwhich, at its earliest would be the date of the Notice (if the valuer was appointedimmediately and valued at the date of appointment), and at the latest, 70 days after theNotice issues.[49] I agree with Mr Napier's submission that there is no other tenableinterpretation. The defendants cannot credibly contend that as a result of their delayand failures to comply with their obligations under the Deed, that a different datealtogether should now apply as the date of the valuation.[50] Mr Moore contended that it is not certain that the range of 70 days would beunlikely to make any difference as to the valuation exercise or the value ascertained. Idisagree. That submission is not supported by any evidence; it is simply assertion. In20 At [12](a) of the statement of claim dated 25 March 2021.21 In cl 4.1(c).the circumstances here it seems highly unlikely that the 70-day date range would makeany material difference. This is a further attempt to create doubt and, in substance,none exists.[51] In concluding that the date of valuation is the date of instruction, I find that theobvious and sensible approach is to direct, as CSL seeks, that the valuation be carriedas at the date of the Notice of the call option exercise.[52] Finally, I reject the defendants' alternative submission that even if a claim forbreach of contract is established, damages would be the appropriate remedy, notspecific performance. The orders CSL seeks are essentially procedural and relativelystraightforward. There would be no practical utility in further delaying matters anddirecting there be a hearing on remedies.Conclusion[53] I find CSL has established that the defendants have no defence to CSL's claimfor specific performance. The defences raised by the defendants lack substance. Thereis no evidential deficiency giving rise to any real doubt about CSL's claim and no basisto decline an order for specific performance.Result[54] I grant CSL's application for summary judgment and make an order for specificperformance of the defendants' obligations under the share option Deed of 15 October2015, as follows:(a) the defendants are to immediately instruct EY to determine theeconomic equity value of the shares as at the date of the notice of thecall option exercise;(b) the defendants shall at the same time instruct EY that its instructionsinclude the fact that it is being retained by both CSL and the defendantsfor the purpose of determination of the economic equity value of CSLshares and that CSL will pay 12 per cent of EY's cost of the valuationand the defendants will pay 88 per cent of the cost of the determination;(c) the defendants are to provide copies of these instructions to CSL;(d) the defendants shall pay to CSL the economic equity value asdetermined by EY within three working days of EY's determination;and(e) the defendants are to pay to CSL interest on the economic equity valueas determined by EY pursuant to s 10 of the Interest on Money ClaimsAct 2016, from 4 January 2018.[55] Leave is granted to the parties to apply in respect of further orders relating toimplementation of any of the above orders.[56] The defendants are to pay costs to CSL on a 2B basis plus disbursements.Recusal[57] At the commencement of the hearing the defendants made an oral applicationthat I recuse myself from hearing the summary judgment application. The defendantscontended that the Court file, which had not been expunged to remove the inadmissibleRussell McVeagh minutes that Powell J had excluded, was "infected" and that myhaving read it as part of preparing for the case gave rise to a reasonable apprehensionof bias.[58] At the hearing I advised the parties that I had "glanced" at the inadmissibleRussell McVeagh minutes and quickly realised that they were the subject of PowellJ's judgment excluding them as inadmissible. I did not read the content of thoseminutes. I also advised that I had not read those parts of the original submissions filedby the parties that addressed the defendants' challenge to the admissibility of eitherthe minutes or the memorandum of Mr Gilchrist.[59] After hearing submissions from the parties on the issue of bias and whether Ishould recuse myself, I adjourned briefly to consider the authorities filed by Mr Mooreon behalf of the defendants. Upon returning to Court, I advised that I could see nobasis for a recusal and proceeded to hear the summary judgment application.Relevant legal principles[60] Clause 1.2 of the recusal guidelines22 provides the test, as it was stated in theSupreme Court's judgments in Saxmere Company Ltd v Wool Board DisestablishmentCompany Ltd23 and Saxmere Company Ltd v Wool Board Disestablishment CompanyLtd (No 2):24A judge should recuse him or herself if, in the circumstances, a fair-minded,fully informed observer would have a reasonable apprehension that the Judgemight not bring an impartial mind to the resolution of the question the Judgeis required to decide. The standard for recusal is one of "real and not remotepossibility" rather than probability.25Decision on recusal[61] The recusal guidelines state a Judge must apply the guideline principles "firmlyand fairly and not accede too readily to suggestions of bias."26[62] I find that a fair-minded lay observer would not reasonably apprehend that Imay not have brought an impartial mind to the resolution of these proceedings.[63] This is not a case where I inspected the document at issue and I do not acceptthe retention of the document on the file has infected my fair resolution of theproceedings. The minutes were obviously relevant to my summary judgmentdetermination (that is no doubt why their admissibility was challenged), but in whatway they might have been relevant or how significant they were, I simply do not know.22 Issued by the Chief High Court Judge on 12 June 2017, pursuant to s 171 of the Senior Courts Act2016.23 Saxmere Company Ltd v Wool Board Disestablishment Company Ltd [2009] NZSC 72, [2010] 1NZLR 35, citing Ebner v Official Trustee in Bankruptcy (2000) 205 CLR 337.24 Saxmere Company Ltd v Wool Board Disestablishment Company Ltd (No 2) [2009] NZSC 122,[2010] 1 NZLR 76.25 Clause 1.3.26 Clause 1.5.In circumstances where I have no knowledge of the content of the document, it couldnot have been of any consequence, either actually or apparently, to my decision.[64] In accordance with the directions of Powell J in his judgment of 27 July 2021,27an amended affidavit of Mr Gilchrist, excluding the Russell McVeagh minutes, wasfiled and served.[65] In the circumstances there is no logical and sufficient connection between myhaving glanced at the document and any real apprehension of bias.[66] I conclude that the recusal application is to be dismissed.__________________________Associate Judge P J Andrew27 CSL Ltd v John & Michael Chow, above n 11, at [80].