Clark & Son Limited v Clark
[2023] NZHC 957
•27 April 2023
IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY
I TE KŌTI MATUA O AOTEAROA KIRIKIRIROA ROHE
CIV-2022-419-000274
[2023] NZHC 957
UNDER Section 91 of the Companies Act 1993 BETWEEN
CLARK & SON LIMITED
Applicant
AND
LANCE STEPHEN CLARK as trustee of the Terra Firma Trust
First Respondent
AND
COONEY TRUSTEES 2007 LIMITED as
trustee of the Terra Firma Trust Second Respondent
AND
BEVERLY PETERSEN as trustee of the Terra Firma Trust
Third Respondent
Hearing: 19 April 2023 Appearances:
Murray Branch for the Applicant
No appearances for the First and Second Respondents Mike Phillipps and Gavin Jolliffe for the Third Respondent
Judgment:
27 April 2023
JUDGMENT OF MOORE J
This judgment was delivered by me on 27 April 2023 at 3:00 pm pursuant to Rule 11.5 of the High Court Rules.
Registrar/ Deputy Registrar Date:
CLARK & SON LIMITED v CLARK & ORS [2023] NZHC 957 [27 April 2023]
Introduction
[1] The applicant, Clark & Son Limited (“the Company”), seeks a declaration that a certain parcel of its shares is legally owned by the three trustees of the Terra Firma Trust (“the TF Trust”), being the first, second and third respondents rather than by Lance Stephen Clark (“Mr Clark”), the first respondent, in his personal capacity. The application is opposed by the third respondent, Beverly Petersen who was formerly Mr Clark’s partner.
[2] On 5 October 2020, Ms Petersen commenced proceedings against Mr Clark and the trustees of the TF Trust under the Property (Relationships) Act 1976 (“the PRA”).1
[3] It appears that in those proceedings Ms Petersen is or will be claiming that the shares in question are owned by Mr Clark personally and are relationship property for the purposes of the PRA.
Factual background
[4] An understanding of the factual background is essential to the determination of these proceedings. Except where indicated, there is no real contest as to the chronology of events and the key facts as set out below.
[5] The Company is a family business based in the Waikato. It was incorporated in 1999 by Mr Clark’s parents. Since its incorporation, Mr Clark has operated the business with his parents.
[6] The original owners of the 1,000 shares issued in the Company were the trustees of the Acacia Grove Properties Trust (“the AGP Trust”), being Mr Clark’s parents jointly holding 900 shares with the balance equally owned in their personal capacities by Mr Clark (50 shares) and his parents (50 shares).
[7] In 2003, there was a change to the shareholding. The Companies Office records were updated to record this with Mr Clark’s parents, as trustees of the AGP
1 Petersen v Clark FC Hamilton, FAM-2020-019-000862.
Trust holding 997 shares and Mr Clark and each of his parents holding 1 share. The reasons behind this shareholding adjustment are uncertain.
[8] In February 2008, Mr Clark settled the TF Trust with his then wife. The intention of the TF Trust was to provide for him, his wife and any children. At about this time, the Company’s financial affairs were taken over by a local accountant, Mr Waine. Mr Waine also looked after the affairs of the AGP Trust and the TF Trust as well as members of the Clark family.
[9] In early 2007 the trustees of the AGP Trust decided they wished to make a distribution to the TF Trust as a discretionary beneficiary of the AGP Trust. They did this by transferring 499 shares from its shareholding in the Company to the TF Trust. The resolution was formally executed and the share transfer registered with the Companies Office noting that the AGP Trust shareholding had decreased by 499 shares and the TF Trust shareholding had increased by 499 shares, with the owners being recorded as the trustees of the TF Trust, being Mr Clark and his wife.
[10] In 2011, Mr Clark and his wife separated. As part of the settlement of their relationship property affairs, it was agreed that she would retire as a trustee of the TF Trust and would be excluded as a discretionary beneficiary. On 17 December 2012, Mr Clark’s mother and Mr Waine were appointed as the new trustees of the TF Trust.
[11] A share transfer form was completed and the changes in ownership registered with the Companies Office to reflect the new shareholding ratios.
[12] In May 2012, Mr Clark and Ms Petersen commenced their relationship. In March 2017, Mr Clark and Ms Petersen “fell out” with Mr Clark’s parents and Mr Waine. According to Mr Clark, this was largely due to Ms Petersen seeking greater control of the TF Trust. It was subsequently agreed that Mr Clark’s mother and Mr Waine would be removed as trustees. In their place, Mr Clark appointed Ms Peterson and Cooney Trustees (2017) Limited (“Cooney”). As before, the TF Trust held the 499 shares in the Company.
[13] However, what happened next is central to the present application. Consistent with past practice, the Company’s share register held by Mr Waine’s firm and the Companies Office records should have been updated to reflect the change of trustees. That did not happen. Mr Waine candidly accepts that this was an oversight, although he says he would have expected the discrepancy to have been picked up by the new accountants. What does appear to have happened is that on 25 September 2017, Mr Waine’s assistant updated the company records to reflect the removal of Mr Waine and Mr Clark’s mother as the owners of the 499 shares but omitted to add the two new trustees, being Ms Petersen and Cooney. Mr Waine observes that there was no need to record a change in the ownership of the shares because although the trustees had changed, the 499 shares still remained in the ownership of the TF Trust.
[14] As a consequence of this oversight, Mr Clark was (and remains) listed in the shareholding section twice; first as to the one share he owns in his personal capacity and secondly, as a trustee of the TF Trust for the 499 shares the TR Trust owns. Since that time, the Company’s records have remained unchanged.
[15]In November 2018, Mr Clark and Ms Petersen separated.
[16] It appears that the oversight incorrectly recording the shareholding was only relatively recently discovered. There is some disagreement as to how and in what circumstances. For the purposes of the present proceedings, I do not consider this to be material. However, it is common ground that when Ms Petersen was relatively recently asked to confirm that she was a joint owner of the 499 shares in the Company by virtue of her position as a trustee of the TF Trust, she refused.
Ms Petersen’s position
[17] Despite her refusal to accept ownership of the shares as a trustee of the TF Trust, Ms Petersen acknowledges that under the 2017 deed, she was appointed as one of the new trustees and that the 499 shares were vested in the new trustees. However, she claims that since that time both the TF Trust and the Company have operated as if Mr Clark was the sole trustee and owner of the 499 shares. She points out that the TF Trust has no current account with the Company. It has received no dividends or other income from the Company. The shares are not recorded or referred
to anywhere in the Company’s financial statements and Ms Petersen has not been called on as a trustee shareholder to do anything in respect of the Company.
[18] She observes that a hotly contested issue in the Family Court proceedings is whether the shares are relationship property. She says that Mr Clark is abusing the process of the Court by using the present proceedings in this Court to answer that question by seeking a declaration of ownership and not merely seeking to rectify the share register. She maintains that the shares are relationship property and that Mr Clark is the beneficial owner of the shares whether through the TF Trust or by acquisition and the acquiescence of the trustees.
[19] She says that as sole beneficiary, Mr Clark may have called on the trustees to distribute the shares to himself and then done so as trustee. She says that Mr Clark has complete and effective control of the TF Trust. If he wished, he could remove her as a trustee at any time. She accepts that the shares vested in the current three trustees, but Mr Clark has de facto acquired them and both the TF Trust and the Company have operated on that basis. These are all matters currently before the Family Court.
Procedural background
[20] Initially, the originating application was brought under s 91 of the Companies Act 1993 (“the Companies Act”) seeking orders to rectify the share register to reflect that the 499 shares were owned by the trustees of the TF Trust being Mr Clark, Cooney and Ms Petersen.
[21] When the matter was first called before Associate Judge Andrew (as he then was), counsel for Ms Petersen raised two primary objections; first that the Company lacked standing under s 91 because it is not, for the purposes of that section, either “the person aggrieved” or “a shareholder”.2 Secondly, it was submitted that the proceedings were an abuse of process because they amounted to an improper/collateral attack on the property relationship proceedings in the Family Court. His Honour granted leave to the Company to commence the application by way of originating
2 Section 91 provides that if the name of a person is wrongly entered in, or omitted from, the share register of a company, the person aggrieved, or a shareholder, may apply to the court for rectification of the share register and/or compensation for loss sustained.
application but observed that Ms Petersen’s position appeared to have “considerable merit”. He pointed out that ordinarily, the Company is the defendant/respondent in an application under s 91. He said that the issue of standing was relatively narrow and discrete and could be addressed in the context of an originating application.
[22] By memorandum, the Company later responded that if a declaration as to the ownership of the shares was not available under s 91, the Company should be permitted to seek a declaration as to the ownership of the shares. Accordingly, it sought leave to amend its application by seeking, in the alternative, such a declaration. On 8 February 2023, Andrew J (as he now is) granted the application and on 6 March 2023, the amended application was filed seeking an order declaring the 499 shares to be “legally owned by Lance Stephen Clark, Cooney Trustees (2017) Limited and Beverly Petersen (as trustees of the Terra Firma Trust) …”. Instead of relying on s 91, the application sought to invoke the inherent jurisdiction of the Court to make the orders.
Does the Court have jurisdiction to make the orders sought?
[23] It is common ground that the declaration sought does not fit within the scope of s 3 of the Declaratory Judgments Act 1908 (“the Declaratory Judgments Act”). The declaration does not concern the construction or validity of any statute, deed or other instrument, but rather is one as to the legal ownership of shares. It is for that reason that the Company relies on the inherent jurisdiction of the High Court, as recognised in s 2 of the Declaratory Judgments Act, to grant a declaration.
[24] I agree with Mr Branch, for the Company, that this Court has the jurisdiction to determine the legal ownership of the 499 shares. As he points out, share ownership and issues relating to incorporated companies are governed by the Companies Act. Matters relating to the Companies Act are to be determined by the High Court.3 In
3 Companies Act 1993, s 2.
that context, Mr Branch referred me to commentary on the nature of declarations made in the context of the Court’s inherent jurisdiction:4
“The declaratory judgment is a judicial statement confirming or denying the legal right to the applicant. Unlike most rulings, the declaratory judgment merely declares and goes no further in providing relief to the applicant than stating [its] rights.”
[25] In determining whether to exercise its inherent jurisdiction, the Court applies the same factors as when exercising its discretion under s 10 of the Declaratory Judgments Act. Hammond J referred to this in Kung v Country Section NZ Indian Association Inc when he said:5
“This kind of approach is very like the approach of a Court to equitable remedies, the broad question being whether justice requires a declaration. A wide range of factors will then be relevant: whether a plaintiff has a sufficient interest in the proceedings; whether an issue is now moot; and the practical utility of issuing a declaration. And I can see no reason why the so-called traditional equitable defences, or at least the ideas which underlie them, are not also apposite to declarations. To take a simple example, if a plaintiff’s conduct has been itself questionable, why should (say) the clean hands doctrine not also apply to declaratory relief?”
[26] Here what is sought is a judicial statement confirming the Company’s rights to carry out its business with a legally correct register of shareholders. Section 87 of the Companies Act requires a company to maintain a share register which records the shares issued and s 90 makes it an offence if the share register is not properly kept.
[27] I am satisfied that the declaration will serve a useful purpose because, if successful, it will ensure that the Company is able to maintain an accurate record of its shareholding and thus be compliant with its obligations under the Companies Act. It will also reflect the correct factual and legal position as to the ownership of the 499 shares.
[28] Furthermore, what is being sought is, as both counsel accepted in the course of the hearing, is effectively a rectification of the register to reflect what was intended by the parties when the composition of the trustees changed in June 2017.
4 Lazar Sarna The Law of Declaratory Judgments (2nd ed, Carswell Co Ltd, Ontario, 1908) at 1.
5 Kung v Country Section NZ Indian Association Inc [1996] 1 NZLR 663 (HC) at 666.
Discussion
[29] In determining this matter, the Court is required to undertake two broad enquiries; first, what is the correct legal and factual position in terms of the ownership shares and secondly, in the event it determines the shares are legally owned by the trustees of the TF Trust, whether the Court should exercise its discretion to make a declaration as to ownership.
[30] I am easily satisfied that the 499 shares are jointly legally owned by the three trustees of the TF Trust. My reasons follow.
[31] First, Ms Petersen accepts, as she is all but bound to on the contemporary documentary evidence, that on 26 June 2017 when the deed recording the replacement of trustees was executed, she became a joint owner of the 499 shares.
[32]In her affidavit she states:
“[8] The Trust was created by a Trust Deed dated 21 February 2008. I was appointed trustee of the Trust by deed dated 26 June 2017. I have addressed the relevant events regarding my appointment as trustee and the subsequent requests made to me as trustee shareholder after I filed the Family Court proceedings, in my affidavits …
[9] I acknowledge that on 26 June 2017 under the deed appointing me as trustee and/or under the Trustee Act 1956, the 499 shares (the Shares) in the Company vested in the new trustees. Despite this, the Company accountant registered the Shares solely in the Company’s Register in the name of Lance Clark. Since that time, both the Trust and the Company have operated on the basis that Lance is the owner of the Shares.”
[33] Ms Cooney, a director and shareholder of Cooney has made an affidavit in support of the Company’s application. Ms Cooney confirms that when Cooney was appointed a trustee of the TF Trust with Ms Petersen in June 2017, one of the assets of the TF Trust was the 499 shares. She confirms that those shares continue to be held by the trustees of the TF Trust, including Ms Petersen. Ms Cooney observes that the issue of ownership needs to be resolved so that the trustees have certainty and are able to deal with the assets of the TF Trust and to act collectively as shareholders in the Company in respect of its operations.
[34] Furthermore, there is no evidence that the composition of the trustees of the TF Trust has in any way changed since the deed was executed. Nor is there any evidence that the trustees have acquiesced in such a way or to such an extent that the legal ownership of the shares now vests solely in Mr Clark.
[35] Ms Petersen is correct that the TF Trust has no current account with the Company, has received no dividends or other income from the Company and the shares are not recorded or referred to anywhere in the financial statements. She is also correct that her name does not appear in any of the Company’s financial statements and I accept that she has never been called on as a trustee shareholder to do anything in relation to the Company. However, as Mr Waine points out, the TF Trust has no current account with the Company and has not received dividends from the Company because current accounts are used to show funds introduced and paid out by shareholders. The TF Trust has not advanced any funds to the Company and has not borrowed from the Company. As for why the trustees’ names are not recorded in the Company’s financial statements, as Mr Waine records, there is no legal requirement to record the shareholders. As I read the evidence, the Company has been able to conduct its affairs to date without requiring any active steps to be taken by the trustees of the TF Trust.
[36] There is some dispute on the evidence as to when the error in the Company’s records was first discovered; whether it was to obtain shareholder approval to purchase machinery when the bank sought details of the TF Trust deed and deed of appointment and retirement as I understood Ms Petersen claims or, as Mr Waine deposes, in 2021 when the Company was seeking finance from ASB and the AGP and TF Trusts (as shareholders) were required to give security. According to Mr Waine, because Ms Petersen did not accept she was a shareholder, the application for further finance could not be progressed. In my view, to the extent the time the omission was first discovered is, indeed, a contested fact, it is not material to my determination in this matter.
[37] The fact of the matter is that there is an uncontradicted factual narrative which supports the Company’s claim that the three trustees of the TF Trust are the legal owners of the 499 shares in the Company and thus a declaration to that effect may be
made. The situation would be different if, for example, the making of a declaration required the determination of contested facts.6 Here, the factual basis on which the declaration is sought is clear and, I am satisfied, borne out on the evidence.
[38] Having made that finding the next question is whether I should exercise my discretion to make the declaration sought. I am satisfied that I should exercise my discretion in the way sought for the reasons which follow.
[39] First, the Court is simply being asked to make a declaration which is consistent with the deed of 26 June 2017. Ms Petersen was a party and signatory to that deed.
[40] Secondly, there are several reasons why, despite the submissions of Mr Jolliffe, for Ms Petersen to the contrary, there is a sound purpose and utility in making the orders sought. The Company must be able to conduct its affairs by dealing with the legal owners of the shares. There is some evidence that Ms Petersen’s intransigence may be having the effect of frustrating aspects of the Company’s affairs. Furthermore, the Companies Act requires its share register to be correct. At present, its recording of the shareholders of the 499 shares is incorrect.
[41] Thirdly, the Company is not seeking orders to amend the share register. It is simply seeking a declaration as to the legal ownership of the shares. If the declaration is made, the Company can confidently accept that the respondents are the legal owners and amend the share register to reflect the true and correct legal position. For as long as one of the trustees does not accept that she is, in fact, a legal owner of the shares, there can be no such confidence.
[42] Fourthly, I cannot accept Ms Petersen’s submission that the application amounts to an abuse of process designed to collaterally attack her interests in the Family Court proceedings. By way of background, the three respondents were originally included by Ms Petersen as parties to the Family Court proceedings but were struck out in a decision of that Court on 6 May 2021.7 The Judge determined that s 37 of the PRA provides the mechanism by which trustees may be included as parties to
6 Mandic v The Cornwall Park Trust Board (Inc) [2011] NZSC 135.
7 Petersen v Clark [2021] NZFC 4070.
proceedings. However, if the trustees do not elect to be parties or actively oppose being included, there is no power to require them to be joined. He thus struck out Mr Clark, Ms Petersen and Cooney as respondent trustees.
[43] As I understood Mr Jolliffe’s submission, this step has the potential to somehow adversely affect Ms Petersen’s ability to obtain relationship property orders against the trustees of the TF Trust. I struggle to see how the effect of the Family Court’s decision is logically connected to the present application and how it might somehow operate to defeat any beneficial interest Ms Petersen might have in the assets of the TF Trust and the Company. In the context of this case, legal and beneficial interests may prove to be quite different. Whether Ms Petersen can make a claim in respect of any beneficial interest she might have relative to the 499 shares involves a separate and quite different determination to legal ownership . The former will be resolved in the Family Court. The latter, as already discussed, is properly a matter for this Court. I cannot accept that somehow the determination I am asked to make will have an effect on the Family Court’s determination as to Ms Petersen’s relationship property rights. For that reason, I was surprised to learn from counsel that while the Family Court proceedings are well advanced, they have been put on hold pending the outcome of these proceedings.
[44] Mr Jolliffe referred me to the decision of this Court in Yeoman v Public Trust.8 As I understood his submission, Yeoman stands as authority for the proposition that this Court should not determine matters which are also the subject of proceedings in the Family Court. However, Yeoman is a very different case and is readily distinguishable on its facts. There, in the context of family protection and relationship property proceedings brought in the Family Court, one of the parties brought proceedings in this Court claiming that the Family Court could not determine the ownership of assets held by a family trust. Only the High Court had that power. As in the present case, the proceedings in the Family Court were put on hold pending the High Court’s determination. Associate Judge Bell stayed the High Court proceedings observing that in the circumstances, it was preferable to deal with all matters within a single jurisdiction if possible. He determined that the Family Court was capable of
8 Yeoman v Public Trust Limited [2011] NZFLR 753 (FC).
determining whether or not the trust comprised relationship property and, as such, fell within the estate. Leave was reserved to have the stay removed if the Family Court determined it was unable to decide the matter. Plainly, that is not the case here. As already noted, there is no bar to the Family Court determining whether the TF Trust’s shareholding in the Company is relationship property.
[45] Finally, Mr Jolliffe took me through various pieces of correspondence between the legal advisers for the Company and Ms Petersen during 2021 and 2022. I apprehend that the purpose of this exercise was to demonstrate a lack of good faith on behalf of the Company. Nothing in the correspondence referred to me supports such a contention. To the contrary, read as a whole, the narrative reflects an unremarkable exchange between professional advisors in contemplation of proceedings which might be initiated at some point in the future.
Conclusion
[46] For these reasons it follows I am satisfied that the orders sought should be made.
Result
[47] The application is granted. Orders are made declaring that Allocation One of the Company’s shares (being 499 shares) are legally owned by Lance Stephen Clark, Cooney Trustees (2017) Limited and Beverly Petersen (as trustees of the Terra Firma Trust).
Costs
[48] The Company, being the successful party, is entitled to costs. I direct that if the parties are unable to agree as to costs:
(a)the applicant is file and serve its memorandum no later than 5:00 pm on Thursday, 25 May 2023; and
(b)the third respondent is to file and serve her memorandum as to costs no later than 5:00 pm on Friday, 9 June 2023.
[49] No memorandum is to exceed three pages in length (excluding appendices). I shall then determine the question of costs on the papers.
Moore J
Solicitors:
Harkness Henry, Hamilton
Vicki Ammundsen Trust Law, Auckland
0