Worth Richard: Companies (Minority Buy-out Rights) Amendment Bill — Second Reading In Committee Third Reading 
Text is incorporated into the Bound Volume 
Worth Richard: Companies (Minority Buy-out Rights) Amendment Bill — Second Reading In Committee Third Reading 
[Sitting date: 02 September 2008. Volume:649;Page:18532. Text is incorporated into the Bound Volume.] 
Dr RICHARD WORTH (National) 
: 
 I will respond to the comments that the Minister of Commerce has made because I think the matter is actually a bit more subtle than the way in which she has put it. The core provisions in Part 1 which National supports are quite clearly the new section 112 and the provisions in new section 112A—both sections are in clause 7—which the Minister and Mr Brownlee have been referring to. 
The scheme of the legislation is very simple. The company gives notice of its offer to a shareholder and the shareholder may accept that offer or may object. In the absence of objection the company must purchase the shares. Then there is the arbitration mechanism which is described in section 112A. 
I think probably two substantive points emerge from what I have said. The first is the point that I made in part in my second reading speech. From the way that section 112(2) was originally drafted the price had to be “an honest estimate of the value”. That has now been changed and appropriately so—and the Commerce Committee comments in its report on why it made that change—to a new test: “a fair and reasonable price”. There were big problems with using the phrase “an honest estimate”. I think there are certainly some problems of a linguistic nature in talking about “fair and reasonable”. What is the actual difference between “fair” on the one hand and “reasonable” on the other hand? There are two subsections that will guide those who have to make a judgment on these issues as to what is “fair and reasonable”. The first is set out in subsection 112(2) and subsection 112(3) allows for a different methodology which can be used if the first methodology is not appropriate. The second methodology is to be used where it would be “clearly unfair” to follow the methodology contained in the previous subsection. 
Comment has been made on this issue of arbitration. There is no doubt about it: these are most generous arbitration provisions which one would not normally strike in a statute. Normally there would simply be something along the line that in the event of a dispute there could be a submission to arbitration and the provisions of the Arbitration Act 1996 would apply. But here we have something quite different and I think much better. 
I think the Minister has correctly identified the most common class of case where there exists the possibility of an injustice being done to a minority shareholder—the founder shareholder who continues in the company then events change and he or she wants to exit the company. The normal rule in an arbitration context is that costs follow the event which means the loser pays. In these particular provisions relating to arbitration we see that that principle is being echoed in a number of ways. For example if we look at section 112A(2) we see that it states: “If the price determined for the shares—(a) exceeds the provisional price paid the arbitral tribunal must order the company to pay the balance owing to the shareholder:”. In that circumstance it would be the shareholder who gained the costs award. In the second circumstance where the price determined for the shares “(b) is less than the provisional price paid the arbitral tribunal must order the shareholder to pay the excess to the company.” it would be the company that received the costs award. But there is the prospect of not only a costs award; the award may include interest. Again we see the reflection of the loser pays in section 112A(3): “Except in exceptional circumstances an arbitral tribunal must award interest on any balance owing or excess to be paid …”. 
The final thing I would say on the question of costs is picked up in subsection 112(7) which imports clause 6 of schedule 2 of the Arbitration Act 1996. If we look at that particular provision we see that it really is nothing more than a code for the “costs and expenses of an arbitration”. But here the term “costs and expenses of an arbitration” is given an extended meaning. Also I have picked up an error in the drafting that has been occasioned by the delay. I am referring to section 112A(7). The term “costs and expenses of an arbitration” in that provision includes “where a balance is owing to the shareholder—(a) the reasonable legal costs of the shareholder on a solicitor-and-client basis;”. Under the Lawyers and Conveyancers Act those concepts have now been changed and that wording should be “on a lawyer-and-client basis” in order to be consistent with the new regime. 
Section 112A(7)(b) states: “the reasonable costs of expert witnesses.” So we see here a bias in the case of the minority shareholder who wins. That shareholder in the context of a costs award can get a little more. It is unusual—very unusual—for costs to be awarded reflecting what used to be called a “solicitor-and-client basis” but is now called a “lawyer-and-client basis”. That is most unusual. It is reasonable that the costs of expert witnesses generally form part of a costs award so that is a change that should be made. 
I have no other comment on Part 1. Part 1 is otherwise I believe well-drafted and strikes an appropriate balance.