Benbrak Investments Limited v O'Shea [2018] NZHC 2517 (25 September 2018)

Last Updated: 28 September 2018

IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY I TE KŌTI MATUA O AOTEAROA KIRIKIRIROA ROHE

CIV-2018-419-141 [2018] NZHC 2517

UNDER	Section 290 of the Companies Act 1993
BETWEEN	BENBRAK INVESTMENTS LIMITED Applicant
AND	JOHN JOSEPH O’SHEA Respondent

Hearing:	25 September 2018
Appearances:	Mr L Meys for applicant Ms A M Cook for respondent
Judgment:	25 September 2018

JUDGMENT OF ASSOCIATE JUDGE JOHNSTON

[1] This is an application by Benbrak Investments Ltd for an order pursuant to s 290 of the Companies Act 1993 setting aside a statutory demand dated 22 May 2018 served on the company by Mr John O’Shea in respect of directorship fees which, it is alleged, the company owes him.

[2] As I understand it Benbrak is a property investment and development company. Its sole shareholder and director was, up until the events described below, Mr Harry Hoske. By mid-2017 Mr Hoske was resident outside the jurisdiction. That presented a problem for the company because of the requirement that New Zealand companies have at least one director who is a local resident. It would also seem that the company was involved in disputes in relation to some of its investments. Mr Hoske was in contact with Mr O’Shea whose firm, O’Sheas, had been engaged by Benbrak in the past. In a series of email exchanges between Mr Hoske and Mr O’Shea in mid-2017

BENBRAK INVESTMENTS LIMITED v O’SHEA [2018] NZHC 2517 [25 September 2018]

it was agreed that Mr O’Shea would become a director of the company. The precise terms of the arrangement are not clear from the contemporaneous documentation. But, putting Mr O’Shea’s claim as strongly as the evidence permits, he became a director on 28 July 2017 for a term of 3 months until 28 October 2017. From 28 October 2017 Benbrak was entitled to terminate the arrangement without notice. Mr O’Shea, if he wished to terminate the directorship, was obliged to give 21 days notice. Benbrak agreed to pay Mr O’Shea $2,000 per month by way of directorship fees.

[3] Some of the early correspondence focusses on the purpose for which Benbrak was considering appointing Mr O’Shea as a director and what work the parties expected he would be doing. Mr Meys sought to develop an argument to the effect that Benbrak was entitled to terminate the directorship for breach because Mr O’Shea did not do everything expected of him or did things which were not expected of him. I do not think that it would be appropriate for the Court to become engaged in an examination of those issues. Benbrak engaged Mr O’Shea as a director and whist he was a director the company was, in my view, obliged to pay him his directorship fees. If the company concluded, for whatever reason, that it did not wish him to continue as a director, it was open to it to resolve to terminate the directorship (which is exactly what it ultimately did).

[4] The evidence is that on 7 October 2017 Benbrak passed a resolution terminating Mr O’Shea’s directorship. In my judgement, the company was perfectly entitled to do so and it is not for the Court in the context of this application at least to examine the reasons for this.

[5] For Mr O’Shea, Ms Cook advanced an argument that the resolution in question did not comply with certain requirements of the Companies Act.

[6] First, she submitted that the resolution had not been passed in accordance with the requirements of s 156 of the Act. As I understood the argument this was because notice had not been given of the intention to pass the resolution. But this was a shareholder resolution and Mr Hoske was at all material times the only shareholder. I do not think that this argument assists the respondent’s case.
[7] Second, Ms Cook submitted that the resolution was defective because it was signed by a non-shareholder. It is true that whilst Mr Hoske was the only shareholder of the company, the resolution was signed by Mrs Hoske as well as him. I cannot see how the addition of an unnecessary signatory to the resolution can undermine its efficacy.

[8] Finally, Ms Cook submitted that the resolution was not provided to Mr O’Shea until May 2018. The evidence is that he was told about the resolution around the time it was passed and indeed wrote an email on 2 November 2017 expressing his disappointment about the termination of the arrangement.

[9] In short I do not accept that the resolution passed by the shareholder of Benbrak on 7 October 2017 was defective.

[10] Ms Cook also submitted — and quite rightly — that one of the consequences of this resolution, if it had the effect of removing Mr O’Shea, would have been to put the company in breach of certain provisions of the Companies Act. An example is the requirement already referred to that companies have a New Zealand resident director. But, as Mr Meys submitted, the Companies Act is replete with obligations on the part of companies the non-observance of which does not mean that the actions of the shareholders or directors as the case may be are ineffective, but simply exposes the company to penalties and the like.

[11] For Mr O’Shea, Ms Cook submitted that he became a director on 28 May 2018 and that directorship continued — notwithstanding the shareholder resolution of 7 October 2017 or anything else — until the Register was amended so as to remove him. That occurred on 14 May 2018. So, the argument goes, Mr O’Shea was entitled to his directorship fees at the rate of $2,000 per month (and expenses) from 28 July 2017 down to 14 May 2018 which he calculates — no doubt correctly — to be
$14,856.21, the amount of his statutory demand.

[12] Mr Meys referred me to s 362(4) of the Companies Act and the principle that the Register is not a reflection of the legal position but merely a reflection of the information that has been provided by the company or from external sources. In short,
whilst the company may have breached certain obligations under the Companies Act by not notifying the Registrar of Companies of the passing of their resolution on 7 October 2017, that did not alter the fact that Mr O’Shea was removed as a director on that date.

[13] My preliminary conclusion is that that is correct and that Mr O’Shea’s term as a director of Benbrak Investments Ltd ended on 7 October 2017.

[14] But of course, I do not need to reach a definitive conclusion in relation to that. All I need to conclude is that there is a substantial argument to that effect. And I so conclude.

[15] If that is correct, then, in those circumstances, the maximum claim Mr O’Shea can have against Benbrak Investments Ltd is remuneration for the period 28 July 2017 down to 7 or 28 October 2017. The undisputed evidence is that Benbrak has already paid him $4,000 which means that any unpaid directorship fees are de minimus and certainly nowhere near $14,000.

[16] As I have already said, my judgement is that there is substantial dispute as to Mr O’Shea’s claim.

[17] Accordingly, I make the order sought by Benbrak setting aside Mr O’Shea’s statutory demand.

[18] Counsel did not address me on costs. Accordingly, I reserve costs. I expect that counsel will be able to resolve costs between them. If it is of any assistance, I can indicate that my preliminary view — without the benefit of counsel’s submissions, is that the applicant should have its costs on a 2B basis but that there is no obvious ground for reduced or increased costs. If counsel are unable to resolve costs between them then they may file memoranda and I will deal with them on the papers.


Associate Judge Johnston

Solicitors:

Neilsons Lawyers, Auckland for plaintiff O’Sheas Law, Hamilton for defendant