Deane v Bowler Investment Trustee Company Ltd
[2024] NZHC 1750
•1 July 2024
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2022-404-850
[2024] NZHC 1750
BETWEEN ALAN WILLIAM DEANE as Executor and Trustee of the Estate of GLENN RONALD WAYNE BOWLER
PlaintiffAND
BOWLER INVESTMENT TRUSTEE COMPANY LTD
First Defendant
CRAIG EARL GREGORY BOWLER
Second Defendant
Hearing: 26 February 2024 Counsel:
A R Gilchrist for Plaintiff Second Defendant in person [First Defendant abides]
Judgment:
1 July 2024
JUDGMENT OF BREWER J
This judgment was delivered by me on 1 July 2024 at 3 pm pursuant to Rule 11.5 High Court Rules.
Registrar/Deputy Registrar
Solicitors:
Richard Wood (Auckland) for Plaintiff (Copy to Second Defendant in person)
BOWLER v BOWLER INVESTMENT TRUSTEE COMPANY LTD [2024] NZHC 1750 [1 July 2024]
Introduction
[1] Three brothers (Todd, Glenn and Craig) fell into dispute following the deaths of their parents. Litigation as to how the parents’ estates should be divided between the brothers ensued.1
[2] By 11 March 2016 it seemed that the brothers had resolved their disputes. Lee Salmon Long, Craig’s lawyers, had drawn up a settlement agreement and, on that date, it had been signed by Glenn and Craig.2 The agreement provided for payments to all the brothers from trust assets held by the first defendant (BITCL). I am satisfied that Todd would have signed the agreement also save for last minute advice from an accountant3 that, because Todd was resident in the United States of America, there would be adverse tax consequences for him.4
[3] The 11 March 2016 agreement provided for BITCL to “distribute” money to each of the brothers. The university accountant’s advice was that Todd’s USA tax obligation would arise from that pathway.
[4] 11 March 2016 was a Friday. I assume Lee Salmon Long worked over the weekend. That is because a re-drafted agreement was signed by all the brothers on 15 March 2016.
[5] The payments to Todd under the 15 March 2016 agreement are to be made in equal sums by Glenn and by Craig individually. The recitals make it clear that the payments settle the disputes as to Todd’s share of their deceased parents’ estates. I take it that those changes address the USA taxation point.
1 I use “estates” broadly. The disputed assets were held by the first defendant as trustee of a family trust.
2 In evidence before me, Mr Craig Bowler quibbled about whether he had actually signed the document. I found him a difficult and evasive witness and I am left in no doubt that he signed the document drawn up by his lawyers.
3 Mr Craig Bowler described him as the “university accountant”.
4 Mr Craig Bowler’s evidence is that the university accountant told the brothers that the tax would be 20 per cent.
The complications
[6]The genesis of the present case is an unintended consequence of mathematics.5
[7] BITCL is a trustee company. It was incorporated to hold in trust the assets of the Bowler Investment Trust (BIT). By 2016, BITCL was managing, as trustee of BIT, the sale of sections in a significant subdivision at Racecourse Road, Waiuku. Under the 11 March 2016 agreement money from the sale of the sections was to be distributed to the brothers as follows:
4DISTRIBUTIONS FROM BITCL
4.1BITCL shall arrange for the 54 sections at Racecourse Road to be readied for sale and shall then sell them.
4.2The net proceeds of sale received by BITCL (less any costs of sale, GST, income tax, reserve contributions and any other payments that are incurred in connection with the sales) shall be distributed as follows:
(a)The net proceeds of sale of the first sections to be sold with gross sale prices totalling$3.5million in aggregate shall be distributed to Todd.
(b)All further net proceeds shall be distributed:
(i)27.5% to Glenn.
(ii)72.5% to Craig.
[8]The provisions for payments under the 15 March 2016 agreement are:
1.4In full and final settlement of Todd’s claims to an inheritance from the Bowler family wealth and Ronald and Margaret’s estates, it is agreed that:
(a)Glenn shall pay Todd the sum of $1,075,000 on the basis that:
(i)$75,000 shall be paid within 30 days of the date of this agreement;
(ii)$500,000 shall be paid within 6 months of this agreement:
(iii)$500,000 shall be paid within 12 months of this agreement;
5 On the evidence I heard, including the written materials, I find on the balance of probabilities that the consequence which I will shortly describe was not appreciated by any of the brothers when the 15 March 20165 agreement was signed.
(iv)Interest at the rate of the prevailing OCR shall be payable on any amounts not paid by the due date, calculated daily until payment in full.
(b)Craig shall pay Todd the sum of S1,075,000 on the basis that:
(i)$75,000 shall be paid within 30 days of the date of this agreement;
(ii)$500,000 shall be paid within 6 months of this agreement:
(iii)$500,000 shall be paid within 12 months of this agreement;
(iv)Interest at the rate of the prevailing OCR shall be payable on any amounts not paid by the due date, calculated daily until payment in full.
…
4.DISTRIBUTIONS FROM BITCL
4.1BITCL shall arrange for the 54 sections at Racecourse Road to be readied for sale and shall then sell them.
4.2BITCL shall receive all proceeds and shall pay all costs incurred in connection with the sales (including any GST output tax, real estate agent commissions, advertising costs, legal fees, rates, other levies and cost of stock).
4.3BITCL shall then distribute the net surplus as follows:
(a)27.5% as gross income to Glenn; and
(b)72.5% as gross income to Craig.
[9] The unintended consequence of mathematics arises from the ratio of payments of the net proceeds from the sales of sections of 27.5 per cent to Glenn and 72.5 per cent to Craig.
[10] Under the 11 March 2016 agreement, Todd’s payment was to come direct from BITCL. In colloquial terms, “off the top” of the overall net proceeds from the sales of sections. The 27.5 per cent – 72.5 per cent distribution ratio would apply only to the remainder of the net proceeds.
[11] Under the 15 March 2016 agreement, Todd’s payment came from Glenn and Craig equally. Read literally, the whole of the overall net surplus is to be paid to Glenn
and to Craig pursuant to the 27.5 per cent – 72.5 per cent ratio. That results in Glenn receiving $529,425 less than he would under the 11 March 2016 agreement.
[12] When Glenn realised the disparity he tried to have Craig and Todd recognise the unintended consequence and to remedy it. The overall position is that neither Craig nor Todd unequivocally conceded the point.
[13] In June 2022, Glenn commenced the current proceeding. Unfortunately, he died on 8 April 2023. The proceeding is continued by Mr Deane as his executor.6
[14] At the time of his death, Glenn and Craig were the directors of BITCL and owned its shares jointly. On Glenn’s death, Craig became the sole director (he later appointed another) and the sole shareholder by survivorship.
[15] Prior to Glenn’s death it was agreed, and confirmed in an exchange of correspondence between counsel, that BITCL would retain $1,300,000 until Glenn’s claim in this proceeding was resolved. Shortly after Glenn’s death, Craig, as sole director and shareholder, directed this money be paid to an account under his control. His evidence about this was, I find, evasive. But, I infer from his evidence that once Glenn died he considered the money to be his and has used it for his own purposes.
[16] This history is relevant to the point that although BITCL is a trust company and did not own any of the proceeds from the sale of the sections beneficially, the brothers did not treat BITCL in that way. That is not uncommon where family members control a trust company incorporated to hold, and deal, with assets owned pursuant to a family trust. But, as I will come to, it complicates the relief claimed in this case.
[17] I now come to the pleadings. The first statement of claim was filed on 1 June 2022. Glenn sues BITCL7 and Craig. He pleads:
6 Glenn swore an affidavit on 1 June 2022 verifying the statement of claim. To the extent I find the contents of the statement of claim and other documents made by or on behalf of Glenn reliable then I will have regard to them as evidence pursuant to s 18 of the Evidence Act 2006.
7 BITCL abides the decision of the Court.
3. THAT the affairs of the Defendant company have been, and are being, conducted in a manner that is oppressive, unfairly discriminatory, and unfairly prejudicial to the Plaintiff in the Plaintiffs capacity as a member and shareholder of the Defendant company.
[18]The particulars given are:
(a)That the Plaintiff owns 50% of the shares in the Defendant company, and the Second Defendant owns 50% of the shares in the Defendant company.
(b)That the Plaintiff and the Second Defendant are both directors of the Defendant company.
(c)That the Defendant company is the sole Trustee of The Bowler Investment Trust.
(d)That the Second Defendant will not communicate with the Plaintiff, or, in the alternative, not adequately communicate with the Plaintiff, about the requirements for the winding up of the Trust.
(e)That the parties are unable to work together.
(f)That the Plaintiffs attempts to have an orderly disengagement of The Bowler Investment Trust have been ignored by the Second Defendant.
(g)That the Second Defendant will not acknowledge legitimate sums due by The Bowler Investment Trust to third parties, and seeks that distribution be made without reference to such sums.
(h)That there are broadly three areas of dispute between the Plaintiff and the Second Defendant, which the Second Defendant refuses to address, and refuses to make a distribution of the Trust funds whilst “ringfencing” sufficient funds to deal with the disputed items.
(i)That the areas in dispute are:
(i)Whether a debt of approximately $65,000 is a debt of the Second Defendant (or a personal debt of the Plaintiff);
(ii)Whether a payment of $2,150,000 to the Plaintiff and Second Defendant’s brother, under a Deed of Settlement, was to be a payment of the Second Defendant, or a payment (as to 50% each) of the Plaintiff and the Second Defendant (which, if the latter, because of the amounts that each is to receive from the Trust, represents an additional cost to the Plaintiff of
$529,425; and
(iii)That there be a full accounting and checking of all OST and income tax obligations of the Defendant company (and the making of any legitimate payments) before the making of distributions to the Plaintiff and the Second Defendant from The Bowler Investment Trust.
[19]The relief sought is the liquidation of BITCL.
[20] Craig, through Lee Salmon Long, filed a pro forma statement of defence dated 27 July 2022.
[21] An amended statement of claim was filed on 16 October 2023. It updates the record to account for Glenn’s death and adds three further pleadings under sub- paragraph (i) of the particulars:
(iv)That, on or about 18 April 2023, without authority, and in disregard of the Plaintiff’s rights, the Second Defendant altered the Defendant company’s registered office to Campbell Tyson;
(v)That, on or about 18 April 2023, on an unauthorised basis, and without authority, the Second Defendant transferred the Plaintiff’s shares to himself without notice, such that the Second Defendant now controls all of the shares in the Defendant company to the detriment of the Plaintiff; and
(vi)That, despite demand being made for the return of the Plaintiff’s shares, and/or for the Second Defendant’s authority to take the steps taken, the Second Defendant has not communicated on that point with the Plaintiff, and acts to the detriment of the Plaintiff.
[22] Craig, now self-representing, filed, at some point, a further statement of defence. I take it to be a general denial of anything significant.
[23] At the hearing before me, it was agreed that the only live area in dispute is that recorded in 5(i)(ii) of the amended statement of claim:
Whether a payment of $2,150,000 to the Plaintiff and Second Defendant’s brother, under a Deed of Settlement, was to be a payment of the Second Defendant, or a payment (as to 50% each) of the Plaintiff and the Second Defendant (which, if the latter, because of the amounts that each is to receive from the Trust, represents an additional cost to the Plaintiff of $529,425).
[24] Further, Mr Gilchrist for the plaintiff submits that what is really sought is rectification of the 15 March 2016 agreement to give effect to the common intention of the parties that the sums to be paid to Todd were to come to Glenn and Craig from BITCL and that only the balance of the distributions to Glenn and to Craig were to be subject to the 27.5 per cent – 72.5 per cent ratio.
Discussion
[25] I find that the 15 March 2016 agreement was not intended to change substantively the obligations and benefits specified in the 11 March 2016 agreement as between Glenn and Craig.
[26] The 15 March 2016 agreement was drafted to address Todd’s tax advice. So, instead of the payment to him coming from BITCL (as trustee of BIT) from the proceeds of the sale of sections in the subdivision, it was to come from Glenn and Craig.8
[27] The schedule of payments in the 15 March 2016 agreement reflects that the money payable by Glenn and Craig would come from the proceeds of the ongoing sales of sections. In other words, BITCL would make distributions to Glenn and Craig and they would pay Todd.
[28] I find that Glenn had no idea that on a literal interpretation of the 15 March 2016 agreement he would receive $529,425 less than under the 11 March 2016 agreement. I find that Craig had no idea that on a literal interpretation of the 15 March 2016 agreement he would receive $529,425 more than he would have under the 11 March 2016 agreement.
[29] I find also that the relationship between Glenn and Craig meant that, particularly on this issue, the operation of the first defendant was in deadlock until the date of Glenn’s death. From that date, Craig assumed unhindered control of BITCL and exercised its power as trustee of BIT for his own benefit and without regard for the interests of Glenn’s estate. The breaching of the obligation to hold $1,300,000 pending resolution of this proceeding by taking the money for himself is in point.
[30] Against these findings, and with the constraints of the pleadings in the amended statement of claim, the issue becomes what remedy can the Court provide in furtherance of the interests of justice?
8 I infer that the difference in amount to be paid under the agreements comes from the abandonment of the reference to “gross amounts” in the 11 March 2016 agreement
[31] The amended statement of claim seeks an order that BITCL be put into liquidation pursuant to s 174 of the Companies Act 1993. This provides:
174 Prejudiced shareholders
(1)A shareholder or former shareholder of a company, or any other entitled person, who considers that the affairs of a company have been, or are being, or are likely to be, conducted in a manner that is, or any act or acts of the company have been, or are, or are likely to be, oppressive, unfairly discriminatory, or unfairly prejudicial to him or her in that capacity or in any other capacity, may apply to the court for an order under this section.
(2)If, on an application under this section, the court considers that it is just and equitable to do so, it may make such order as it thinks fit including, without limiting the generality of this subsection, an order—
(a)requiring the company or any other person to acquire the shareholder’s shares; or
(b)requiring the company or any other person to pay compensation to a person; or
(c)regulating the future conduct of the company’s affairs; or
(d)altering or adding to the company’s constitution; or
(e)appointing a receiver of the company; or
(f)directing the rectification of the records of the company; or
(g)putting the company into liquidation; or
(h)setting aside action taken by the company or the board in breach of this Act or the constitution of the company.
(3)No order may be made against the company or any other person under subsection (2) unless the company or that person is a party to the proceedings in which the application is made.
[32] I note that BITCL is a party to the 15 March 2016 agreement in its capacity as trustee of BIT.
[33] The immediate difficulty is that the amended statement of claim treats the competing interests of Glenn and Craig as shareholders and directors as if BITCL owns beneficially the assets it controls. But, it does not. It owns the assets as trustee for BIT.
[34] Therefore, Glenn’s standing to bring the action under s 174 cannot be focused on how he is affected as a shareholder (now, former shareholder) of BITCL.
[35] Nor can I say that Glenn, as a beneficiary of BIT, is an “entitled person”. That term is defined9 as a shareholder or “a person upon whom the constitution confers any of the rights and powers of a shareholder”. It has not been suggested that Glenn is such a person.
[36] But, BITCL owed Glenn a fiduciary duty as a beneficiary of BIT to distribute assets held in trust for him in accordance with the terms of the 15 March 2016 agreement. And Glenn was a shareholder of BITCL.
[37] Craig, as a director of BITCL, and for his personal interest, prevented BITCL from giving due effect to the 15 March 2016 agreement by preventing the distribution of money to Glenn as an entitled beneficiary of BIT. After Glenn’s death, Craig caused BITCL to breach its obligation to hold the $1,300,000 against the outcome of this proceeding. He used his powers as sole director to take the money for himself.
[38] I find that Glenn was able to bring the proceeding as a shareholder of BITCL, and that his estate is entitled to continue it as a former shareholder during the relevant period. I find also that Craig’s actions resulted in the affairs of BITCL being oppressive, unfairly discriminatory, or unfairly prejudicial to Glenn in his capacity as a beneficiary of BIT with an entitlement to a distribution by BITCL under the 15 March 2016 agreement.
[39] Mr Gilchrist, for the plaintiff, submits that I should direct rectification of the 15 March 2016 agreement to make explicit that the payments required to be made to Todd by Glenn and Craig should be first paid to them by BITCL as distributions from BIT equally before distribution of the balance of the assets held in trust by BITCL using the 27.5 per cent – 72.5 per cent ratio.
[40]I adopt for convenience Mr Gilchrist’s summary of the law:
9 Companies Act 1993, s 2(1).
37.Rectification applies where the parties’ document inaccurately reflects the agreement. Where the written document does not correctly record what was agreed, the Court has the ability to rectify the document to the agreed position.
38.It has long been settled that oral evidence is admissible to prove that the intention of the parties expressed in the antecedent agreement, whether written or not, does not represent their true intention. It is therefore an exception to the general principle that parole evidence cannot be received to contradict or vary a written agreement.
39.A summary of the principles covering rectification for common mistake is set out in Swainland Builders Limited v Freehold Properties Limited [2002] 2 EGLR 71 (extract from Burrows, Finn and Todd, Law of Contract in New Zealand):
(a)The parties had a common continuing intention, whether or not amounting to an agreement, in respect of a particular matter, and the instrument to be rectified.
(b)There was an outward expression of the accord.
(c)The intention continued at the time of the execution of the instrument sought to be rectified.
(d)By mistake, the instrument did not reflect that common intention.
[41] I find that the legal principles for rectification are made out. However, the reason why I will not order rectification is that it is not a pleaded remedy and Todd is not a party to the proceeding. He would be entitled to be heard on any changes to the 15 March 2016 agreement.
[42] Instead, bearing in mind that s 174 is a remedial enactment, I will make an order under s 174(2)(b) requiring BITCL to pay the plaintiff compensation of
$529,425.
[43] I think it also necessary to appoint a liquidator. Craig, in the context of a deeply personal and bitter family dispute, has used his control of BITCL to his personal benefit. If I felt able to, I would order Craig to pay Glenn’s estate the $529,425. But that was not pleaded as a remedy and it was not argued.
[44] I do not know what assets, if any, BITCL still controls. The liquidator might have to pursue Craig for all or part of the $1,300,000 to pay Glenn’s estate his entitlements.
Decision
[45]I give judgment in favour of the plaintiff and I make the following orders:
(a)BITCL is to pay the plaintiff $529,425 as compensation for his unpaid entitlement as a beneficiary of BIT under the 15 March 2016 agreement.
(b)BITCL will be put into liquidation on the date I appoint the liquidator. The parties are to confer and to advise the Court by memorandum who might be appointed. The memorandum is to be provided no later than 19 July 2024. In default of agreement, the Court will select the liquidator.
Costs
[46] The plaintiff is entitled to costs. Memoranda comprising no more than five pages in length are to be filed no later than 26 July 2024.
Brewer J
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