Beverley v Drylandcarbon GP One Ltd - [2022] NZHC 3606

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE

CIV-2022-485-000158

[2022] NZHC 3606

BETWEEN
ANTHONY and WENDY BEVERLEY

Applicants

AND

DRYLANDCARBON GP ONE LIMITED

First Respondent

AND

DRYLANDCARBON ONE MANAGEMENT LIMITED

Second Respondent

AND

DC ONE H1 LIMITED

Third Respondent

AND

WILLIAM JAMES WATERHOUSE LECKIE

Fourth Respondent

AND

CHRISTOPHER GORDON LEWIS MORRISON

Fifth Respondent

AND

LEWIS TUCKER AND COMPANY LIMITED

Sixth Respondent

AND

PHEASANT TAIL HOLDINGS LIMITED

Seventh Respondent

AND

LEWIS TUCKER FOREST PARTNERS LIMITED

Eighth Respondent

AND

LEWIS TUCKER FP INVESTMENTS LIMITED

Ninth Respondent

AND

FOREST PARTNERS GP LIMITED

Tenth Respondent

AND

BEVERLEY v DRYLANDCARBON GP ONE LTD [2022] NZHC 3606 [22 December 2022]

LEWIS TUCKER FP MANAGEMENT LIMITED
Eleventh Respondent

Hearing: 3 and 4 October 2022

Appearances:

M G Colson KC, K J Dobbs and M R M Gale for Applicants A S Olney and M Mallett for Fourth to Eleventh Respondents

Judgment:

22 December 2022

JUDGMENT OF ASSOCIATE JUDGE PAULSEN

This judgment was delivered by me on 22 December 2022 at 3.00 pm pursuant to Rule 11.5 of the High Court Rules

Registrar/Deputy Registrar Date:

Table of Contents

Para No

What has happened [5]

Section 165 of the Companies Act 1993

[31]

Standing

[34]

Threshold requirements

[35]

Mandatory criteria

[38]

The nature of the proposed claims

[41]

Likelihood of success – s 165(2)(a)

[43]

Diversion of corporate opportunity

[47]

Use of company information

[73]

Targeted special resolutions and the permanent transfer of DC Manager’s staff to Lewis Tucker

[79]

The position of the sixth to eleventh respondents

[84]

Section 165(2)(b) – cost/benefit analysis

[88]

Section 165(2)(c) – any action already taken by the company

[93]

Section 165(2)(d) – interests of the company or related company

[94]

The prudent business person

[103]

The position on costs

[104]

Result

[113]

[1] Anthony Beverley, William Leckie and Christopher Morrison established a carbon afforestation fund to produce carbon credits (NZUs) for the fund’s investors. The first to third respondents (the intended plaintiffs) are the corporate vehicles incorporated to pursue their joint enterprise. Major corporate investors participated in the fund via a limited partnership registered for the purpose. The fund has been very successful, but the relationship between Mr Beverley, on the one hand, and Messrs Leckie and Morrison (who for convenience I shall refer to as the Directors), on the other, has broken down.

[2] The Directors have now established a second fund, incorporating the eighth to eleventh respondents for that purpose. Mr and Mrs Beverley (the Beverleys) consider that in establishing the second fund the Directors unlawfully diverted a corporate opportunity belonging to the intended plaintiffs, misused company information belonging to the intended plaintiffs, and breached statutory1 and fiduciary duties owed by them as directors to the intended plaintiffs.

[3] The Beverleys apply for leave under s 165 of the Companies Act 1993 (the Act) to bring a derivative action on behalf of the intended plaintiffs against the Directors and their corporate entities (which include the sixth and seventh respondents) involved…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2022] NZHC 3606
Decision Date: 22 December 2022

CaseChat Overview and Summary

Anthony and Wendy Beverley, as shareholders and a director of H1, DC General Partner, and DC Manager, have applied for leave under section 165 of the Companies Act 1993 to bring a derivative action on behalf of the intended plaintiffs against the Directors and their corporate entities involved in the development, marketing, and pursuit of a second fund. The Beverleys allege that the Directors unlawfully diverted a corporate opportunity belonging to the intended plaintiffs, misused company information belonging to the intended plaintiffs, and breached statutory and fiduciary duties owed by them as directors to the intended plaintiffs. The Directors oppose the application and argue that the claims have insufficient likelihood of success, the intended plaintiffs have insufficient interest in the outcome of the claims, and there are other more appropriate avenues available to the Beverleys to seek redress for their grievances in their own names.

In assessing the application, the Court must consider the likelihood of success, the costs of the proceedings in relation to the relief likely to be obtained, any action already taken by the company or related company to obtain relief, and the interests of the company or related company in the proceedings being commenced, continued, defended, or discontinued. The Court must also consider the threshold requirements set by section 165(3) of the Act.

The Court found that the threshold requirements were met, and the proposed claims were at least arguable. The claims that the Directors diverted a corporate opportunity from the intended plaintiffs to corporate entities associated with them, established the new fund using company information belonging to the intended plaintiffs, and facilitated the passing of targeted special resolutions and the permanent transfer of DC Manager's staff to Lewis Tucker are potentially valuable and not insignificant when measured against the amounts at stake. Furthermore, the proceeding may determine the position that applies in the event of further funds being created.

The Court also found that the Directors had not advanced any good reason why it would be unjust or inequitable for the intended plaintiffs to bear the costs of the proceeding. The Beverleys consider the intended plaintiffs are likely to have the means to fund the derivative action, but they are also prepared to provide the intended plaintiffs with funding if that becomes necessary.

As a result, the application was successful, and the Beverleys were granted leave to bring proceedings in the name and on behalf of the intended plaintiffs against the Directors and their corporate entities involved in the development, marketing, and pursuit of the second fund. The reasonable costs of the intended proceeding are to be met in the first instance by the intended plaintiffs, and the costs of this application are to be met by the Directors.

Orders