Bishop v Natural Health New Zealand (2002) Limited HC Nelson CIV-2011-442-113 [2011] NZHC 1103 (12 September 2011)

Last Updated: 16 October 2011

IN THE HIGH COURT OF NEW ZEALAND NELSON REGISTRY

_{CIV-2011-442-113}

IN THE MATTER OF Section 174 of the Companies Act 1993

BETWEEN FRANCES JOY BISHOP, AND ALISTAIR RICHARD JOHN BOWERS (AS TRUSTEE OF THE FRANCES BISHOP TRUST)

Plaintiffs

AND NATURAL HEALTH NEW ZEALAND (2002) LIMITED

Defendant

CIV-2011-442-405

AND IN THE MATTER OF Section 174 of the Companies Act 1993

BETWEEN CLEVE GARY WORTHINGTON First Plaintiff

AND CLEVE GARY WORTHINGTON AND FRANK FREEMAN TRUSTEE LIMITED (AS TRUSTEES OF THE FROSWORTH FAMILY TRUST)

Second Plaintiffs

AND NATURAL HEALTH NEW ZEALAND (2002) LIMITED

Defendant

Hearing: 12 September 2011

Appearances: A R Bowers in person and for F J Bishop

M G Locke for the Worthington interests (opposing shareholders) Judgment: 12 September 2011

_{ORAL JUDGMENT OF MILLER J}

FRANCES JOY BISHOP, AND ALISTAIR RICHARD JOHN BOWERS (AS TRUSTEE OF THE FRANCES BISHOP TRUST) V NATURAL HEALTH NEW ZEALAND (2002) LIMITED HC NEL CIV-2011-442-113 12

September 2011

[1] Natural Health New Zealand (2002) Ltd carries on the business of selling natural health products. On the evidence, it is a solvent and successful firm. However, its shareholders and directors are engaged in what can only be described as an unseemly no-holds-barred brawl over the terms on which one of them, a trust associated with Frances Bishop, will sell its interest to the other, Cleve Worthington. Ultimately they disagree over the price, but that seems to have been lost sight of in the accusations and counter-accusations which I am asked to decide today.

[2] Ms Bishop and Mr Worthington are the only directors of the company. Each also owns one share and their respective family trusts each owns a further 149 shares. The sole trustee of Ms Bishop’s family trust is Mr Bowers. It is necessary to record, because it flavours the evidence before me, that Ms Bishop was formerly in a de facto relationship with Mr Worthington, but is now married to Mr Bowers.

[3] Mr Bowers, as trustee of Ms Bishop’s family trust, has moved under s 174 of the Companies Act 1993 for an order that the company be wound up. Ms Bishop who holds one share as I have mentioned is also a plaintiff. There is separate and recently filed proceeding, Mr Worthington and the trustee of his family trust have similarly invoked s 174, seeking an order that her interests sell their shares on terms to be fixed by the Court. Both claims allege that the affairs of the company are being conducted oppressively. In the affidavit evidence before me each side accuses the other of unreasonableness and conflicts of interest and untruthfulness.

[4] This judgment responds to four interlocutory applications, all brought by

Mr Worthington’s interests in Ms Bishop’s proceeding:

a) An application dated 2 May 2011 for leave to defend the proceeding on behalf of the company, brought on the ground that the company is unable to do so itself because he and Ms Bishop cannot agree;

b) An application of the same date for a stay of advertising on the grounds that the company is profitable and solvent, the real issue is the price to be paid for Ms Bishop’s shares, and the application to

wind the company up has been brought to place pressure on

Mr Worthington;

c) An application dated 5 May 2011 for an order that Mr Bowers and the firm Hamish Fletcher Law not act for the plaintiff;

d) An application dated 17 August 2011 for an order dismissing the proceeding on the ground that it is an abuse of process. Mr Worthington complains that Ms Bishop and Mr Bowers secretly incorporated another company, Zeazest Ltd, to compete with Natural Health and have moved to wind Natural Health up to remove a competitor to Zeazest.

[5] An extraordinary litany of allegations emerges from the many affidavits filed for and against these applications. I record that there was no cross-examination.

[6] I have reached the firm view that the second two applications should never have been brought and the first should not have been opposed. (The second was opposed only on the ground that it is unnecessary.) I can state my reasons shortly.

Leave to defend

[7] The application is brought on the basis that the directors are in conflict about whether to defend the proceedings and on what ground and who should represent it. In response the plaintiffs say that the company has filed an adequate defence. (They also allege that the applicants are not shareholders, but that assertion can be put to one side; there is clear evidence from the company’s accountant that Mr Worthington and the trustee of his family trust are on the register and therefore shareholders as defined in the Act.)

[8] I accept that a defence was filed for the company. However, that does not establish that the company is in a position adequately to defend the proceeding. It was filed by Mr Worthington’s solicitor and counsel, and that triggered a

professional disciplinary complaint from Ms Bishop on the ground that they had acted without authority.

[9] Although the company is a necessary party, it seems manifest that this is a dispute between shareholders in which the company serves as the spoils of battle rather than the natural defendant. There is clear disagreement between them about what is to happen to the company and there is on the evidence no possibility that the two directors, or the shareholders as a group, will reach agreement on a defence. I observe that Mr Bowers did not suggest otherwise in his submissions.

[10] Under s 165 of the Act the Court may allow a shareholder to intervene in proceedings to which the company is a party to defend the proceeding on its behalf. The Court must be satisfied that the company does not intend diligently to defend the proceeding or that it is in the company’s interests that the defence should not be left to the directors or the shareholders as a whole. I am satisfied accordingly.

[11] The application is granted.

Staying advertising

[12] It is not in dispute that the company is solvent. Nor is it suggested that the interests of creditors require advertising, although I note there is some evidence that bank accounts have been frozen, which raises the possibility that some will not be paid.

[13] Rather, Mr Bowers suggested the application is unnecessary, for there is an agreement that there will be no advertising until the Court so directs. A notice of opposition has been filed to that end.

[14] The evidence does establish that on 16 March before the proceeding was filed Mr Bowers advised that advertising would not occur pending the substantive hearing or unless the Court directed otherwise. There has never been a suggestion that it was necessary for the applicants to move to stay advertising. In the circumstances, however, there will be an order staying advertising.

[15] There will be leave to seek, on seven days notice, an order that the application be advertised. I am reserving leave against the possibility that the company may begin to fail to pay its creditors as they fall due.

Order that Mr Bowers not act

[16] The application has been brought on the ground that the Court’s processes are being abused by Mr Bowers acting for Ms Bishop. Mr Locke contends that in substance Mr Bowers is acting for her, rather than himself, because there is no proof that he is a trustee. Alternatively, it was not necessary for Mr Bowers to act as trustee; he ought to have withdrawn in favour of an independent person. It is further said that Mr Bowers and his firm lack independence, and that the public’s confidence in the administration of justice will be shaken if he is not disqualified.

[17] In support of this claim, Mr Worthington emphasizes the sexual nature of the relationship between Mr Bowers and Ms Bishop as husband and wife. It is said that this means he should not act for her. A conflict of interest may arise between him qua trustee and Ms Bishop. Further, he may have to give evidence, although Mr Locke does not suggest that he is to be subpoenaed for the Worthington interests. In support is filed a lengthy affidavit from Mr Worthington the gist of which is that he has witnessed conflict between Mr Bowers, who he perceives as a controlling person, and Ms Bishop. He seeks to put in evidence allegations about other unrelated litigation in which Mr Bowers has been involved. The tenor of this evidence, in short, is that if Ms Bishop knew what was good for her she would not allow Mr Bowers to act. Mr Worthington says that he and Ms Bishop had a good working relationship for many years, until Mr Bowers arrived on the scene. He complains that Mr Bowers has acted aggressively when bringing this and other proceedings on her behalf. He fears that Mr Bowers will feel the need to prove himself to Ms Bishop when cross-examining him.

[18] Mr Worthington’s intervention on Ms Bishop’s account is decidedly unwelcome; she rejects all of his allegations as false and absurd. In her view it is Mr Worthington who has persistently sought to bully and manipulate her. She

regards her relationship with Mr Bowers as none of Mr Worthington’s business, and in that I must say she is manifestly correct.

[19] Mr Bowers also points to Ms Bishop’s affidavit verifying the statement of claim, in which she deposes that he is a trustee. That evidence is all that I require for present purposes; I could not properly accept Mr Locke’s submission that the change of trustee has not been perfected. It would involve speculation on my part. I can see no basis on which the Court could, even if it were minded to do so, preclude Mr Bowers from representing himself, as he is doing by appearing qua trustee. (It would be a different matter if there were a dispute between he and his beneficiaries, but contrary to his apparent assumption in evidence Mr Worthington has no standing to make such complaint.) Mr Bowers is on the record for Ms Bishop, but their married status does not disqualify him in itself, as Mr Locke concedes.

[20] In any event, applications to disqualify counsel are rarely granted, even when it is possible that counsel may be wanted as a witness for his own client.[1] They may be brought, as this one appears to have been, for tactical reasons. It is evident from his affidavit – and it must be said, counsel’s submissions – that Mr Worthington seeks to drive a wedge between Ms Bishop and Mr Bowers. In the submissions appears the claim that the business relationship between Mr Worthington and

Ms Bishop has caused stress between Ms Bishop and Mr Bowers, and hence between Ms Bishop and Mr Worthington. It should not be necessary to state that the Court will treat Ms Bishop as a competent adult with a mind of her own. It may yet prove to be the case, as she vigorously asserts in her evidence, that it is Mr Worthington whose conduct merits condemnation.

[21] There is another difficulty. In his submissions Mr Locke invites me to make, without benefit of cross-examination, a long series of factual findings on which I might base a conclusion that Mr Bowers is so misconducting himself that he cannot be allowed to appear, whether for himself or as counsel, in this proceeding. They include, for example, a claim that Mr Bowers has obstinately refused to engage in

_{mediation. Every one of these allegations is hotly contested. I regret to say that it}

should have been obvious to counsel on a moment’s reflection that I am in no

position to make such findings in this interlocutory setting.

[22] I do note, in fairness to Mr Locke, that another of his complaints is that disciplinary complaints have been made against him by Mr Bowers, without success. I accept that that is so and I accept that the record before me tends to confirm that Mr Bowers too has suffered a loss of perspective. But that does not excuse the decision to bring these applications.

[23] Finally, counsel’s concern for the administration of justice is also somewhat misplaced. The trial Judge can be relied upon to ensure that the hearing is properly conducted and confined to the matters properly in issue. If Mr Bowers is found to have misconducted himself, sanctions, including costs, will surely follow.

[24] The application is dismissed.

Order dismissing proceedings as an abuse of process

[25] This application was brought late, after Mr Worthington learned of the existence of Zeazest. He regards it as convincing evidence that the attempt to wind up Natural Health is an abuse of process, maintaining that the new company has exploited business opportunities that were initially presented to Natural Health and now seeks to eliminate Natural Health as a competitor.

[26] The application is, with respect, hopeless. To begin with, the allegations of a conflict of interest are vigorously denied. Ms Bishop deposes that although an opportunity was presented to Natural Health to market the product (honey lozenges) that Zeazest now sells, Mr Worthington rejected it. She maintains that it has no connection to the other products, all marine-based, that Natural Health sells. She says Mr Worthington’s evidence is false. There is some limited support for her stance in an affidavit from the maker of the lozenges. Mr Worthington responds that internal emails and documents give the lie to her evidence, but while the emails may ultimately be found to support her claim that she has breached her duty to Natural Health, this conflict of evidence cannot possibly be resolved here. It would require

that I find, as Mr Locke invites me to do, that her evidence is untruthful, based on inferences to be drawn from emails. The flavour of the argument is captured by his submission that Zeazest’s very existence casts the entire proceeding in a “more sinister light”. He invites me to infer that it must supply an improper motive for bringing the proceeding. I need not cite the many authorities in which it is said that the Court will not resolve factual disputes of this sort on affidavit evidence unless it can be satisfied that it has all the requisite information.

[27] Next, even if there has been a breach of Ms Bishop’s duty to Natural Health, that merely gives the company a separate cause of action against her. It does not mean that this proceeding is an abuse of process. This proceeding alleges that Mr Worthington is conducting the company’s affairs in an oppressive manner because he refuses among other things to permit the payment of dividends. That is a separate allegation. Indeed, the non-payment of dividends may not prove to be in dispute, as I understand the affidavits. There is abundant evidence that the directors are intractably at odds with one another, such that relief under s 174 is appropriate. Quite from what form that relief will ultimately take is an open question. To seek an order winding up, which will be the ultimate result if the price fixed by the Court is found unacceptable to Mr Worthington, is not to abuse the Court’s processes. I observe that the theme of Mr Worthington’s complaint – apart from what he regards as Mr Bowers’ undue influence over his wife – appears to be not that the proceeding is an abuse but that Ms Bishop will not settle at what Mr Worthington thinks a reasonable price.

Costs

[28] Costs will lie where they fall. (I record that Mr Bowers responsibly did not seek them.)

Timetabling and other matters

[29] I direct that the separate proceeding brought by the Worthington interests be consolidated with this one. It should not be necessary that a separate statement of defence be filed, but if counsel consider that that is necessary or that the pleadings

need to be amended then they should file a joint memorandum, which I will deal with.

[30] There is no dispute that relief is available under s 174, nor that the relief ought, initially at least, take the form of an order fixing the price at which Mr Worthington’s interests may buy the shares owned by Ms Bishop’s. The proceeding must now focus on that issue, to the strict exclusion of the many collateral issues that have been raised to date.

[31] I direct that the fixture is to be set down for hearing in the February sitting, when I will be in Nelson. It will be given a nominal date of 13 February, which is the beginning of that session, and I will then fix the actual date.

[32] The parties must complete their evidence as to value and any updating evidence directed to that question. There is evidence for the Worthington interests from a valuer, Mr Leonard. That is to be updated and any updating evidence from Mr Worthington himself is also to be filed. That evidence must all be filed by the end of October. At the same time, Ms Bishop’s interests are to file evidence from their valuer and any supporting evidence. Within a further three weeks any evidence in reply is to be filed.

[33] I direct that before the end of the year the parties are to engage in alternative dispute resolution. Two mediators are acceptable to both parties. They are Geoff Sharp and John Marshall QC. The mediation should be scheduled after the evidence as to value and updating evidence has been exchanged.

Miller J

Solicitors:

Hamish Fletcher Law, Nelson for Plaintiffs

R Somerville, Nelson for the Worthington interests

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[1] Beggs v Attorney-General [2006] 2 NZLR 129 (HC).