Appeal dismissed in winery shareholder spat

A prolonged spat between shareholders of Peregrine Winery may have at last come to rest. Photo / file

The Court of Appeal has dismissed a challenge from the owner of a Central Otago winery over orders that it buy a fellow shareholder's stake for $2.62 million.

Greg Hay, co-founder of Peregrine Wines, wished to sell his family trust's 25.14 per cent stake in the company to majority shareholder Peregrine Estate, whose sole director is Lindsay McLachlan.

The dispute began in 2013 when McLachlan offered to buy the Hay Family Trust out for $1.414 million -- a third of its $3.25m asking price.

An independent valuer, Julie Millar of BDO in Christchurch, was appointed to set a "fair value" price for the shares, finding them to be worth $2.62m.

However, McLachlan and Peregrine did not agree to this price, instead hiring their own advisor to assess a fair value.

That adviser came up with the substantially lower sum of $1.275m.

The matter was taken to the High Court, which last year issued a judgment finding Millar's $2.62m valuation was to be binding, entitling the Hay Family Trust to enforce the transfer of shares for that amount.

Peregrine subsequently went to the Court of Appeal, which today released its judgment upholding the earlier High Court decision.

Peregrine had questioned the validity of Millar's valuation and claimed it was at least arguable that she did not conclusively determined fair value, the Court of Appeal's judgment says.

Lawyer for Peregrine argued that her assessment was based on the value of the winery's net tangible assets rather than future maintainable earnings, and that Millar was required to conduct the assessment on the basis of a notional liquidation of the company.

"This is because that is the only way a shareholder can access a company's assets," Peregrine argued.

It further contended that Millar may have failed to exercise her judgment about whether a minority discount -- where the amount is reduced due to the smaller shareholder's lack of control -- should be applied, the judgment said.

"Accordingly, Peregrine claims to be entitled to set off any differential between the
'fair value' fixed by the expert and the 'fair value' that may be determined by the
court."

The Court of Appeal declined to fix a new value, concluding both parties had entrusted Millar to carry out the valuation and had agreed to be bound it "in the exercise of the expert's independent skill and judgment, acting honestly and in good faith".

The court was not convinced that Millar had stepped outside her mandate under the company's constitution.

"We conclude that the fresh proceedings commenced by Peregrine in the High Court do not assist it in seeking to make out an arguable defence to the present claim," the judgment said.

"The first cause of action seeking a declaration that Ms Millar's valuation is not valid and binding for the purposes of the constitution is an abuse of process."

Peregrine had no arguable defence to the trustees' claim, the court found in dismissing it.

Peregrine Wines produced its first vintage in 1998, stating on its website that during "its short history it has been an impressive high achiever, with its wines winning numerous prestigious awards and trophies around the world".

The architecture of the South Island winery has also attracted international attention.