DrylandCarbon GP One Limited v Leckie
[2025] NZHC 2915
•3 October 2025
REDACTIONS MADE IN PARAGRAPHS [503] AND [507] IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE
CIV-2023-485-47
[2025] NZHC 2915
IN THE MATTER of section 165 of the Companies Act 1993 BETWEEN
DRYLANDCARBON GP ONE LIMITED
First Plaintiff
DRYLANDCARBON ONE MANAGEMENT LIMITED
Second Plaintiff
DC ONE H1 LIMITED
Third PlaintiffAND
WILLIAM JAMES WATERHOUSE LECKIE
First Defendant
… continued
Hearing: 9 June to 9 July 2025 Counsel:
M G Colson KC, K J Dobbs, M R M Gale and C B M Enright for Plaintiffs (CIV-2022-485-157 and CIV-2023-485-47)
J B M Smith KC, A S Olney, O C Gascoigne and C J Houlahan for Defendants (CIV-2022-485-157 and CIV-2023-485-47)
Judgment:
3 October 2025
JUDGMENT OF RADICH J
DRYLANDCARBON GP ONE LIMITED v LECKIE [2025] NZHC 2915 [3 October 2025]
continued …
CHRISTOPHER GORDON LEWIS MORRISON
Second DefendantLEWIS TUCKER AND COMPANY LIMITED
Third DefendantPHEASANT TAIL HOLDINGS LIMITED
Fourth Defendant
LEWIS TUCKER FOREST PARTNERS LIMITED
Fifth Defendant
LEWIS TUCKER FP INVESTMENTS LIMITED
Sixth DefendantFOREST PARTNERS GP LIMITED
Seventh DefendantLEWIS TUCKER FP MANAGEMENT LIMITED
Eighth Defendant
CIV-2022-485-157
IN THE MATTER
of section 174 of the Companies Act 1993
BETWEEN
ANTHONY AND WENDY BEVERLEY
Plaintiffs
AND
DC ONE H1 LIMITED
First Defendant
WILLIAM JAMES WATERHOUSE LECKIE
Second Defendant
CHRISTOPHER GORDON LEWIS MORRISON
Third Defendant
Table of Contents
Paragraph
PART ONE: INTRODUCTION
The parties [15]
Summary of the proceedings [26]
The derivative proceeding [26]
The oppression proceeding [34]
Summary of the parties’ positions on both proceedings [39]
PART TWO: THE FACTS
Evidential issues [47]
Mr Beverley’s development of the carbon afforestation concept [52]
Initial interactions with Messrs Leckie and Morrison [65]
The creation and terms of the joint venture [75]
The establishment of the Drylandcarbon fund [101]
Tensions between the parties and the removal of Mr Beverley
as a director [121]
Tensions in 2019 [121]
Steps to restructure the business [131]
The 360 degree review process [142]
The restructure proceeds [149]
Further difficulties in early 2021 [153]
Mediation is proposed [175]
The mediation conference [178]
Planning for a second fund [189]
Resolutions to pave the way for the Forest Partners fund [190]
Marketing to investors [197]
Documentation and modelling carried across [209]
Transfer of Drylandcarbon personnel [219]
The Forest Partners fund is established [228]
PART THREE: THE DERIVATIVE PROCEEDING
Diversion of corporate opportunity – the law [232]
What is diversion of corporate opportunity? [235]
When will the duty to account be engaged? [252]
What level of connection is required? [262] The overseas authorities [264]
The New Zealand authorities [271]
Discussion [278]
How would a finding that a company was intended to be a single
purpose vehicle affect the duty to account? [291] Discussion [294]
Conclusions on the law [306]
First to fourth causes of action – Was there diversion of a corporate
opportunity or other breaches of duty? [308]
Were the profits from the Forest Partners opportunity made from or out of Messrs Leckie and Morrison’s positions as directors of the
Drylandcarbon companies? [315]
An intention to pursue a single fund only? [327] Drylandmanuka [336]
Drylandnative [343]
Which companies had the ability to pursue further funds? [350]
Which companies were intended to pursue future funds? [355]
Conclusion on whether there was an intention to pursue a
single fund only [359]
Scope of business [363]
Was there misuse of company information under the Companies Act? [364]
Further breaches? [368]
Conclusions on diversion of corporate opportunity [369]
Fifth cause of action – dishonest assistance [370]
Sixth cause of action – breach of confidence against third to eighth
defendants [379]
Legal principles [383]
Discussion [390]
Seventh cause of action – breach of contract by Lewis Tucker [396]
Affirmative defence [401]
Outcomes in the derivative proceeding [402]
PART FOUR: THE OPPRESSION PROCEEDING
Legal principles [408]
Is estoppel available also? [416]
Analysis [417]
The early problems [425]
The 360 degree process [426]
The 2020 restructure [430]
The 2021 restructuring plan [432]
The removal of Mr Beverley as a director [436]
Affirmative defence [445]
Findings in the oppression proceeding [449]
PART FIVE: RELIEF
Framework for relief [456]
Equitable allowance [466]
The law on equitable allowance [466]
Discussion of an equitable allowance [469]
Determining the fair value of H1 [479]
Legal framework [479]
The expert evidence on fair value [483]
Analysis [490]
Conclusion on fair value of H1 [514]
Glazebrook Services Agreement [518]
Outcomes [524]
Appendix 1
PART ONE: INTRODUCTION
[1] New Zealand’s Emissions Trading Scheme requires businesses to account for their greenhouse gas emissions with carbon credits known as New Zealand Units (NZUs).1 One NZU is to be given up for every tonne of emissions produced.
[2] Entities that sequester carbon, such as forestry owners with eligible land, can earn NZUs for the carbon that they remove from the atmosphere. Emitters can buy the NZUs they need from the government at auctions or from carbon sequesters through secondary markets. Alternatively, emitters could buy eligible forests themselves and register them in the Emissions Trading Scheme to earn NZUs directly.
[3] Anthony Beverley had an idea. It proved to be a very good one. Through a limited partnership model, a number of investors could invest in a carbon fund: eligible carbon sequestering forests would, collectively, produce New Zealand Units for investors who would be mainly emitters. The limited partners would provide capital to a management company which would establish and maintain the fund by buying land, maintaining forests on it and, in doing so, produce NZUs for distribution to the limited partners. The limited partners would, in this way, receive a relatively low-cost supply of NZUs for offset or surrender while the management company would receive a fee.
[4] Mr Beverley discussed the idea with William Leckie and Christopher Morrison, the principals of investment banking firm Lewis Tucker and Co. They all agreed that the idea had merit and so, as part of a joint venture, they put in place a corporate structure to give effect to it. Four corporate carbon-emitting entities became limited partners of the Drylandcarbon fund which, within three years, became fully subscribed.2 Interests associated with Messrs Beverley, Leckie and Morrison became minority limited partners in the fund.3 A management company (the Drylandcarbon
1 The Scheme operates under the Climate Change Response Act 2002.
2 The Drylandcarbon fund was registered on 8 March 2019 as Drylandcarbon One Ltd Partnership. The limited partners are Air New Zealand, Contact Energy, Genesis Energy and Z Energy. The Drylandcarbon fund became fully subscribed when the agreed capital for each limited partner was fully committed and all land purchases or leases from the fund were complete.
3 With interests totalling roughly four per cent.
Manager)4 was contracted to provide management services for the fund. Under the contract, the Manager receives a base fee5 and a performance fee.6 The Manager is owned by interests associated with the Beverleys and Messrs Leckie and Morrison through a holding company, DC One H1 Ltd (H1).
[5]The basic structure of the arrangement is depicted in the following diagram:
[6] The partnership proved to be a lucrative venture. There was strong demand, among existing and other potential investors, for another fund. The blueprint used for the Drylandcarbon fund was unrolled and used to create a second fund; the Forest Partners fund.7 Three of the five investors in the Forest Partners fund were investors in the Drylandcarbon fund. The Forest Partners fund, too, has been successful.
[7] However, the Forest Partners fund was set up and continues to be managed by Messrs Leckie and Morrison through companies associated with Lewis Tucker, without Mr Beverley’s involvement. Relationship issues had developed between Mr Beverley and Messrs Leckie and Morrison. The issues led to Mr Beverley’s removal as a director of H1 and of the Drylandcarbon Manager as well as the
4 Drylandcarbon One Management Ltd.
5 Assessed as a function of a set margin on deployed capital.
6 An entitlement to five per cent of most distributions made by the Drylandcarbon Partnership, including NZU distributions.
7 The Forest Partners fund was registered on 12 April 2022 as Forest Partners Ltd Partnership.
termination of his personal management services agreement with the Drylandcarbon Manager.8
[8] In the CIV-2023-485-47 proceeding, it is said that the corporate opportunity to create and manage the Forest Partners fund was wrongly diverted from one or more of the plaintiff companies9 (which I refer to as the Drylandcarbon companies) and that confidential company information was unlawfully used. It is a derivative action, brought in the names of and on behalf of the Drylandcarbon companies. As shareholders of H1, Mr and Mrs Beverley obtained leave to bring the derivative action10 against Messrs Leckie and Morrison and companies associated with their interests,11 including the Forest Partners companies which were formed in pursuit of the Forest Partners fund.12 The Beverleys allege that Messrs Leckie and Morrison breached their duties as directors of the Drylandcarbon companies and that the defendant companies13 dishonestly assisted those breaches. I refer to this proceeding as the derivative proceeding.
[9] At the heart of the case is the question of whether the corporate opportunity for carbon afforestation funds beyond the Drylandcarbon fund was held collectively by Messrs Beverley, Leckie and Morrison through one or all of the Drylandcarbon companies, such that Messrs Leckie and Morrison breached their duties as the directors of those companies by creating a second fund on their own.
[10] Mr and Mrs Beverley say that it was so held – and that Messrs Leckie and Morrison must account to H1 for the profits that they unlawfully gained by breaching those duties.
8 The personal management services agreement was between the Drylandcarbon Manager and a company owned by Mr Beverley, Glazebrook Capital Ltd.
9 H1, the Drylandcarbon Manager, and Drylandcarbon GP One Ltd.
10 Beverley v Drylandcarbon GP One Ltd [2022] NZHC 3606 [Derivative leave decision (HC)]. The High Court’s decision granting leave for the Beverleys to bring a derivative action on behalf of the Drylandcarbon companies was upheld on appeal in Leckie v Beverley [2023] NZCA 570
11 The third to eighth defendants in CIV-2023-485-47.
12 The fifth to eighth defendants in CIV-2023-485-47: respectively Lewis Tucker Forest Partners Ltd (a holding company), Lewis Tucker FP Investments Ltd (a minority limited partner in the Forest Partners Fund), Forest Partners GP Ltd (the General Partner of the Forest Partners fund), and Lewis Tucker FP Management Ltd (contracted as the manager of the Forest Partners fund under a management services agreement).
13 I refer to the 3rd–8th defendants in the derivative proceeding as the defendant companies.
[11] Messrs Leckie and Morrison say that their venture with Mr Beverley was limited to the Drylandcarbon fund and that the Drylandcarbon companies created for that fund were intended to be single purpose corporate vehicles. They say that they were perfectly entitled to establish the Forest Partners fund without the Drylandcarbon companies.
[12] In the CIV-2022-185-157 proceeding, Mr and Mrs Beverley have brought shareholder oppression causes of action in their own names14 against H1 and Messrs Leckie and Morrison as its directors, relating to the ways in which Mr Beverley’s involvement in the Drylandcarbon companies was brought to an end. I refer to this as the oppression proceeding.
[13] In the oppression proceeding, Mr and Mrs Beverley say that their shares in H1 should be purchased by Messrs Leckie and Morrison. But they say that the fair value of the shares in H1 must be determined not only by reference to the expected value of the Drylandcarbon fund but also by reference to the expected value of the Forest Partners fund and the value of the opportunity to create further future funds, most of which belongs properly to H1, through the account of profits sought in the derivative proceeding. In this way, the different relief obtainable in both proceedings would, essentially, be combined.
[14] Therefore, the value of the Forest Partners fund to the Forest Partners companies is of central importance to both proceedings. In the derivative proceeding it represents the amount for which the derivative defendants may need to account and, therefore, in the oppression proceeding it represents part of the value of H1’s shares. The Beverleys, through their expert witnesses, claim the values of the Drylandcarbon and Forest Partners funds to H1 are $34.4 million and $63 million respectively. Messrs Leckie and Morrison and the defendant companies, through their expert witnesses, say that the values are $12.2 million and $14.2 million respectively. The main difference in the experts’ valuations reflect the inherent uncertainty in predicting the future value of NZUs and forestry.
14 As trustees of the Puriri South Trust.
The parties
[15] Appendix 1 to this decision is a detailed corporate structure diagram. It shows the corporate structures put in place for both the Drylandcarbon and Forest Partners funds and the ownership interests in each of the companies that are the subject of the proceeding and other relationships between them. The paragraphs that follow describe the parties in further detail.
[16] The plaintiffs in the derivative proceeding – which I refer to collectively as the Drylandcarbon companies – are the corporate vehicles through which the Drylandcarbon fund operates.
[17] Drylandcarbon GP One Ltd (the Drylandcarbon General Partner) is the general partner of the limited partnership that is the Drylandcarbon fund. The limited partners are Air New Zealand Ltd (as to 20.6612 per cent), Contact Energy Ltd (as to 16.5289 per cent), Genesis Energy Ltd (as to 25.2066 per cent) and Z Energy Ltd (as to 37.1901 per cent). There are also two minority limited partners: DC One H2 Ltd and DC One H3 Ltd.15 DC One H2 is owned by Mr and Mrs Beverley16 and DC One H3 is owned by Pheasant Tail Holdings Ltd, the fourth derivative proceeding defendant. Pheasant Tail Holdings is owned equally by Messrs Leckie and Morrison. DC One H2 and DC One H3 are intended to enable Messrs Beverley, Leckie and Morrison to have some ‘skin in the game’.
[18] The Drylandcarbon Manager manages the Drylandcarbon fund under a management services agreement (the Drylandcarbon MSA).
[19] H1 is a holding company that owns all of the shares in the Drylandcarbon General Partner and Manager. The shares in H1 are held as to 50 per cent by Mr and Mrs Beverley17 and 50 per cent by Messrs Leckie and Morrison through Pheasant Tail Holdings.
15 When I refer to “the Drylandcarbon companies”, I do not refer to DC One H2 Ltd or DC One H3 Ltd. The term only refers to H1 and its subsidiaries.
16 As trustees of the Puriri South Trust.
17 As trustees of the Puriri South Trust.
[20] The Drylandcarbon fund is overseen by the Drylandcarbon Advisory Committee, a body appointed under the Drylandcarbon Limited Partnership Agreement (Drylandcarbon LPA). The Drylandcarbon Advisory Committee is like a shareholders’ council. It oversees the execution of the fund’s mandate18 by the general partner and the Drylandcarbon Manager. Each of the significant limited partners appoint a representative to the Drylandcarbon Advisory Committee and it has, in addition, an independent chair – Paul Foley – and deputy chair – Mike Petersen.
[21] The defendant companies are the corporate vehicles through which the Forest Partners fund operates. Their configuration mirrors, in material ways, the corporate structure for the Drylandcarbon fund.
[22] Forest Partners GP Ltd (the Forest Partners General Partner) is the general partner of the limited partnership that is the Forest Partners fund. The limited partners are Todd Forestry Investments Ltd (as to 18.9295 per cent), Contact Energy (as to
22.348 per cent), Genesis Energy (as to 28.006 per cent), Z Energy (as to 20.5377 per cent) and Mercury Energy (as to 10 per cent). Lewis Tucker FP Investments Ltd is a limited partner with a minor, 0.1788 per cent, interest. It is owned as to 95 per cent by Pheasant Tail Holdings and five per cent by interests associated with Colin Jacobs (the executive director of Lewis Tucker). The Forest Partners limited partnership agreement (Forest Partners LPA) was entered into on 11 April 2022.
[23] Lewis Tucker FP Management Ltd (the Forest Partners Manager) manages the fund under a management services agreement (the Forest Partners MSA).
[24] Lewis Tucker Forest Partners Ltd is a holding company that owns all of the shares in the Forest Partners Manager and in the fund’s general partner. It is owned as to 95 per cent by Pheasant Tail Holdings Ltd and five per cent by interests associated with Colin Jacobs.
[25] The Forest Partners fund is overseen by the Forest Partners Advisory Committee. It is structured in the same way as the Drylandcarbon Advisory
18 Drylandcarbon LPA; cl 2.5.
Committee – with each of the significant limited partners appointing a representative and with Messrs Foley and Petersen as chair and deputy chair respectively.
Summary of the proceedings
The derivative proceeding
[26] In broad terms, it is alleged19 in the derivative proceeding that Messrs Leckie and Morrison unlawfully misused company information and diverted a corporate opportunity belonging to the Drylandcarbon companies. The Beverleys say that, by these actions, Messrs Leckie and Morrison breached the statutory and fiduciary duties they owe to the Drylandcarbon companies as their directors.
[27] The first to fourth causes of action allege that Messrs Leckie and Morrison breached their duties as directors of the Drylandcarbon companies. It is said that Messrs Leckie and Morrison:
(a)breached the duty to act in good faith and the best interests of the companies;20
(b)misused company information in breach of s 145 of the Companies Act 1993 (the Act);
(c)breached the fiduciary duty of loyalty and the duty to exercise care, diligence and skill under s 137 of the Act; and
(d)breached other fiduciary duties including the duty not to place themselves in a position in which their personal interests conflict with their duties to the companies, not to profit personally from their positions as directors, and not to prefer their own interests to those of the companies.
19 By the Beverleys and in the names of the Drylandcarbon companies. The Beverleys, as is the way with derivative proceedings, have control of the proceedings.
20 This is a fiduciary duty and a statutory duty pursuant to s 131 of the Companies Act 1993.
[28] The primary allegations advanced under these heads are that, in breach of those duties, Messrs Leckie and Morrison:
(a)diverted the opportunity to create and manage the Forest Partners fund from the Drylandcarbon companies to corporate entities associated with them;
(b)established the Forest Partners fund and the Forest Partners companies using company information belonging to the Drylandcarbon companies; and
(c)facilitated the passing of targeted special resolutions and the permanent transfer of the Drylandcarbon Manager’s staff and business development capabilities to Lewis Tucker.
[29] The fifth cause of action alleges that the defendant companies21 dishonestly assisted Messrs Leckie and Morrison in breaching the statutory and fiduciary duties they owed to the Drylandcarbon companies as their directors.
[30] The sixth cause of action alleges that the defendant companies breached the Drylandcarbon companies’ confidence.
[31] In each of the first to sixth causes of action, the Beverleys seek for the Drylandcarbon companies:
(a)equitable damages;
(b)account of profits;
(c)a declaration that future proceeds from the breach of duty, dishonest assistance, or breach of confidence are held on constructive trust for the benefit of the Drylandcarbon companies; and
21 The third to eighth defendants in the derivative proceeding, as defined earlier.
(d)an order under s 167(d) of the Act directing that any of the amounts mentioned above are paid to “certain of the shareholders” (presumably, Mr and Mrs Beverley), costs, and any other relief the Court deems fit.
[32] The seventh cause of action is a common law breach of contract claim by the Drylandcarbon Manager against Lewis Tucker for breach of a 2019 agreement under which Lewis Tucker provided services to the Drylandcarbon Manager (Lewis Tucker Services Agreement) by, allegedly, failing to keep confidential information confidential. The seventh cause of action alleges also that Lewis Tucker breached the agreement by failing to act in the Manager’s best interests when providing services under the agreement. Relief in the form of common law damages is sought.
[33] The defendant companies plead an affirmative defence in estoppel, alleging that misrepresentations on the part of the Beverleys, including in a mediation agreement, are such that they are estopped from claiming that the defendant companies breached obligations to the Drylandcarbon companies by establishing a second fund.
The oppression proceeding
[34] In the first cause of action in the oppression proceeding, the Beverleys allege that Messrs Leckie and Morrison have, as the directors of the Drylandcarbon companies, conducted the affairs of the Drylandcarbon companies in a manner that is oppressive, unfairly discriminatory and unfairly prejudicial to the Beverleys in their capacity as shareholders of H1.22 The Beverleys allege that Messrs Leckie and Morrison excluded Mr Beverley from involvement in the management and running of the Drylandcarbon companies by, among other things:
(a)alienating Mr Beverley from the management and staff of the Drylandcarbon Manager;
(b)approaching the chair of the Drylandcarbon Advisory Committee and manipulating a subsequent feedback process;
22 Which in turn holds all of the shares in the other Drylandcarbon companies; the Drylandcarbon Manager and the Drylandcarbon fund’s general partner.
(c)developing a plan to remove the Beverleys from their involvement with the Drylandcarbon companies, and Mr Beverley from his role as a director of the Drylandcarbon Manager and General Partner, and as a service provider for the Drylandcarbon Manager under a 2020 agreement under which Mr Beverley, acting for his company Glazebrook Capital Ltd,23 provided services to the Drylandcarbon manager (the Glazebrook Services Agreement);24 and
(d)soliciting the support and approval for the execution of this plan from Drylandcarbon Advisory Committee’s chair, deputy chair, and treasurer (at the time, Richard Norris).
[35] In the second cause of action the Beverleys allege that the removal of Mr Beverley as a director of the Drylandcarbon Manager and General Partner amounted to oppression, unfair discrimination and unfair prejudice against Mr Beverley in his capacity as a remaining director of H1.
[36] The primary relief sought in the first and second causes of action is an order that Messrs Leckie and Morrison purchase Mr and Mrs Beverley’s interests in the Drylandcarbon companies at fair market value. In addition, the Beverleys seek declarations that the Glazebrook Services Agreement remains on foot and that the removal of Mr Beverley as director was unlawful.
[37] The third and fourth causes of action are based in estoppel. It is alleged that Messrs Leckie and Morrison are estopped from departing from expectations they created about equal ownership and control of the Drylandcarbon companies and about future fund opportunities being pursued by the Drylandcarbon companies and their shareholders.
[38] The defendants plead an affirmative defence in estoppel and say that any prejudice caused to the Beverleys has been remedied, including by an offer they have made to buy out the Beverleys’ shares in H1.
23 Glazebrook Capital Ltd is owned by Mr and Mrs Beverley and Mr Beverley is its director.
24 The September 2020 services agreement between the Drylandcarbon Manager and Glazebrook Capital Ltd.
Summary of the parties’ positions on both proceedings
[39] In broad terms for these introductory purposes, the derivative action defendants say that there is no basis for a claim that Messrs Leckie and Morrison diverted a corporate opportunity. They say that the corporate opportunity did not “belong” to any of the Drylandcarbon companies because the Drylandcarbon companies were single purpose vehicles – they were incorporated to pursue a specific, limited purpose of creating and managing the Drylandcarbon fund. The manifestation of the discussions between Messrs Beverley, Leckie and Morrison boiled down in the end, they say, to an agreement to pursue that single fund alone.
[40] One must look, the defendants say, at the scope of business of each of the Drylandcarbon companies; at the terms of their constitutional documents. For example, the Drylandcarbon LPA and Drylandcarbon MSA include terms to the effect that the Drylandcarbon Manager and General Partner are to provide services to the Drylandcarbon fund on an exclusive basis for the life of the fund.25
[41] The defendants say that a corporate opportunity, to be diverted, must have belonged to the Drylandcarbon companies in the first place. For that to be so, they say, it must have been something the companies could pursue and were actively considering. Then, they say, Messrs Leckie and Morrison, as directors and shareholders (through H1) in the Drylandcarbon companies simply could have said “we are not going to pursue another fund through these companies”. They were entitled, as they see it, to block any such further venture. They were not getting on with Mr Beverley and they could have declined to be involved in a further fund opportunity with him through the Drylandcarbon companies.
[42] The defendants deny any confidential information belonging to the Drylandcarbon companies was used or disclosed. They say that much of the information was developed before the companies were incorporated, and so cannot be confidential information belonging to them.
25 The Drylandcarbon General Partner is so bound by the Drylandcarbon LPA at cl 6.4; and the Drylandcarbon Manager is so bound by the Drylandcarbon MSA at cl 3.5.
[43] The Beverleys, on the other hand, say that it is not relevant to look at potential limitations on the activities of the Drylandcarbon companies. There is, they say, no requirement to prove that the opportunity to pursue a second fund ‘belonged’ to the companies or to prove that the companies could or would have pursued an opportunity for a second fund. They say that it is enough that the profits Messrs Leckie and Morrison made from the Forest Partners fund were (and are) “sufficiently connected” with their fiduciary relationship with the Drylandcarbon companies as their directors such that they must account for the profits. They emphasise the prophylactic nature of the doctrine of corporate opportunity, which they say, is policy driven.
[44] The Beverleys say that, as directors of the Drylandcarbon companies, when the opportunity for a second fund arose Messrs Leckie and Morrison could not have taken it for themselves without the Drylandcarbon companies’ consent. They say this is the case regardless of whether the companies were set up as single purpose vehicles. In any event, they say, the facts show that the arrangements relating to the Drylandcarbon companies were not ‘one and done’ in nature: it was envisaged from the outset that subsequent carbon afforestation funds would be pursued and that the corporate structures of the Drylandcarbon companies did not prevent them from doing so. The Beverleys say that the fact that Messrs Leckie and Morrison fell out with Mr Beverley did not change that.
[45] In terms of the oppression proceeding, Messrs Leckie and Morrison say that, to the extent that Mr Beverley became alienated from the activities of the Drylandcarbon companies, it was the consequence of his own poor conduct. They see the steps they took in response to his conduct to have been proportionate and appropriate.
[46] The Beverleys say that Mr Beverley’s treatment at the hands of Messrs Leckie and Morrison – resulting in his removal from the companies (in all ways other than as a shareholder) – was oppressive, unfairly discriminatory and unfairly prejudicial; it was not fair play.
PART TWO: THE FACTS
Evidential issues
[47] Before turning to the facts, there are several evidential matters that should be mentioned at the outset.
[48] The first relates to the deletion of emails from a Drylandcarbon Microsoft account associated with Mr Beverley. Mr Beverley was concerned that emails from the account might have been deleted by third parties associated with Messrs Leckie and Morrison. However, both the Beverleys and Messrs Leckie and Morrison engaged computer forensic experts to file evidence on the point26 and in a joint statement filed by both experts they agreed that the deletion activity was most likely user-driven; that is to say, the emails must have come to be deleted by Mr Beverley’s actions.
[49] The second is the non-retention by Messrs Morrison, Leckie and Jacobs of certain text messages. The derivative action defendants accept that a number of text messages were not retained and that, as a result, they breached their obligations under r 8.3 of the High Court Rules 2016. They accept that their compliance with the rule in relation to text messages was inadequate and regrettable, but say it was explicable. I agree. In each case, the loss of messages was due either to automated settings on the relevant telephones or a personal practice of deleting messages as a matter of course. There was no intention to breach r 8.3 in any case and the plaintiffs have not been denied a fair trial as a result. Documents discovered in the proceeding have been considerable; close to the point of being overwhelming, and further text messages would have been unlikely to have assisted the Court.
[50] Thirdly, both parties have raised inadmissibility concerns with extracts from the briefs of evidence filed by the other. It was agreed at the beginning of the trial that the evidence was to be admitted but subject to any admissibility objections taken in
26 Cameron Hansen-Beadle for the defendant and Campbell McKenzie for the plaintiff in reply.
relation to it. Tables were filed with admissibility objections, others were raised during the trial and a number have been addressed in the parties’ submissions.
[51] All of the evidence has been considered on the basis of the objections raised, with no weight having been attached to evidence that is in the nature of a submission, speculation, personal views, opinion or amounting to hearsay or extrinsic evidence.
Mr Beverley’s development of the carbon afforestation concept
[52] Mr Beverley has worked in the funds management and property investment sectors for over 40 years. He has particular experience in the forestry sector. He developed New Zealand’s first computer-based discounted cash flow analysis and evaluation model for property while studying for his master’s thesis. While working as a valuer, following graduation, he developed his computer-based valuation model further. Different versions of it were applied by Mr Beverley throughout his career in the financial sector.
[53] The New Zealand Emissions Trading Scheme came into existence in 2008. The Scheme does three primary things:
(a)It requires businesses to measure and report on their greenhouse gas emissions.
(b)It requires businesses to surrender one NZU to the Government for each tonne of emissions they emit.
(c)It limits the number of NZUs available to emitters (in other words, the number of units that are supplied into the scheme).
[54] By setting and reducing the number of NZUs supplied into the scheme over time, the idea is that the level of emissions can be managed with New Zealand’s emissions reduction targets in mind.
[55] Businesses that participate in the Scheme can buy and sell units from each other. The price for units reflects supply and demand in the scheme and the price
signal allows businesses to make economically efficient choices about how to reduce emissions.
[56] In 2007, Mr Beverley began investigating potential business opportunities in the carbon afforestation industry with the then pending Emissions Trading Scheme in mind. He and Mrs Beverley incorporated a company – Carbon Systems (NZ) Ltd – to promote their interests in potential carbon afforestation enterprises.
[57] Mr Beverley’s ambition at the time was to create, own and operate an enterprise that provided forest portfolio establishment and management services to a separate but related enterprise, which would utilise third-party investor capital to establish a forestry portfolio for the purpose of generating carbon credits and harvesting revenue for its investors.
[58] After some planning, Mr Beverley approached a number of potential investors from 2011 to 2013, including ExxonMobil, Contact Energy, BP and Todd Energy. During this time, he came up with the name “Drylandcarbon” as a working name for the fund that he had in mind. He reserved the name, incorporated Drylandcarbon Ltd and developed a logo and branding.
[59] From 2011 to 2013, Mr Beverley continued to work on the business model, developing materials, structures and financial models.
[60] However, in 2013, cheaper European carbon credits flooded the New Zealand market. The price of NZUs fell and the carbon afforestation opportunity did not in those circumstances seem viable.
[61] In 2015, regulatory reform revived NZU pricing and the carbon afforestation opportunity appeared viable once more. By 2017, NZUs were trading at nearly
$20 per NZU and the price outlook appeared promising. Mr Beverley took further steps to get the fund underway.
[62] He approached Contact Energy and PF Olsen Ltd, a forestry advisory and management company, for support. Subsequently, Contact Energy became an investor
in, and PF Olsen became the main provider of forestry advisory services to, the Drylandcarbon fund. Moreover, Mr Beverley developed a spreadsheet model for the proposed enterprise. The spreadsheet gave effect to the modelling Mr Beverley had developed – a forecasting and performance evaluation methodology to forecast and simulate NZU generation and, accordingly, to project the overall performance potential of the envisaged fund and its forestry portfolio. Multiple iterations of the model were developed.
[63]A core component of the model was a net present value equivalent – or NPVe
– metric which could be applied to represent the effective cost of NZUs generated, either through a particular land or forest investment or across the broader partnership taking into account matters such as timings, volumes and investor-weighted cost of capital.
[64] Ten years of work on Mr Beverley’s part was captured in a “Drylandcarbon concept outline” document prepared by Mr Beverley in late 2017. The document, aimed at potential investors in the afforestation fund, explained the business case for investing and described the envisaged structure for managing the fund – a structure that can be traced directly through to the Drylandcarbon and Forest Partners funds.
Initial interactions with Messrs Leckie and Morrison
[65] In November 2017, Mr Beverley arranged a meeting with Messrs Leckie and Morrison to discuss his concept and whether any of Lewis Tucker’s clients might be interested in it.
[66] Messrs Leckie and Morrison were interested, themselves. They had been considering possible workstreams in the emissions trading and carbon farming areas, prompted in part by work that Lewis Tucker had been instructed by Landcorp to undertake, alongside PF Olsen, to value Landcorp’s forestry estate. The modelling exercise for that work had been undertaken by PF Olsen, resulting in a detailed spreadsheet to show, based upon Landcorp’s forest holdings, projections of NZU credits and liabilities out to 2026, both at an overall forest and at an individual stand level. The model was calibrated to show maximum net present value over the simulation period.
[67] A little later in the month, Lewis Tucker received instructions from Landcorp to evaluate an approach that had been made to Landcorp by a company called New Zealand Carbon Farming Ltd to purchase the rights to the carbon generated by Landcorp’s forests. PF Olsen’s modelling was directly on point for the exercise. With that information in hand, Lewis Tucker needed to consider the net present value of Landcorp’s carbon revenue stream. That, in turn, is influenced by the carbon sequestration rate of Landcorp’s forest portfolio.
[68] Carbon sequestration is the process of capturing and storing atmospheric carbon dioxide to reduce its concentration in the atmosphere and to mitigate climate change. Forests absorb carbon during photosynthesis, particularly in species exotic to New Zealand like pinus radiata. In essence then, the volume of carbon sequestered over the life of a forest determines the number of NZUs earned, while the rate of sequestration determines the timing of NZUs that are issued for the forest.
[69] There are two primary methods by which carbon sequestration is assessed under the Emissions Trading Scheme. The first is through the Ministry for Primary Industries | Manatū Ahu Matua (MPI) default “look-up” tables and the second is through actual field measurements. The field measurement approach that is to be used is a mandatory, site-specific measurement system for larger forest holdings, above a certain area threshold.
[70] Lewis Tucker produced a report for Landcorp in December 2017. It used a modelling approach at a different level from that which had been developed by Mr Beverley. For example, when considering the future price of carbon the Lewis Tucker report used MPI’s carbon look-up tables. It is acknowledged in the Lewis Tucker report that the tables had been criticised for their conservatism. The report went on to recommend that Landcorp stall the process with New Zealand carbon farming until it could establish an appropriate value for its portfolio.27
27 Subsequently, Mr Wynne-Lewis, a Lewis Tucker employee who was involved in the establishment of both the Drylandcarbon and Forest Partners funds, worked on a model for Landcorp which incorporated sequestration data from Landcorp’s estate (supplied by PF Olsen) and sequestration rates from MPI’s look-up tables.
[71] Lewis Tucker did not at that stage have a sense of the more sophisticated modelling and carbon afforestation fund structure that Mr Beverley had developed. But it had access to Landcorp’s carbon pricing information now, which proved to be of benefit to the joint venture that was soon to develop.
[72] In late February 2018, Mr Beverley gave Messrs Leckie and Morrison his “Drylandcarbon concept outline” document, referred to earlier. The concept outline set out the background and purposes for the concept – the creation of a land and capital carbon farming partnership to establish a portfolio of forests for the primary purpose of generating and distributing NZUs to its participants to enable them to meet their emission offset or surrender requirements or enabling them a regular low-cost supply of NZUs for sale at market prices. The document outlined the proposed participants and the limited partnership and management structure and mechanics that, ultimately, were adopted by Messrs Beverley, Leckie and Morrison and came to be the foundation of the Drylandcarbon enterprise.
[73] The concept document was the culmination of Mr Beverley’s work since 2007 and was the subject of a number of discussions with Messrs Leckie and Morrison. The discussions led to mark-ups in the document of a relatively minor nature. Alongside the addition of personal profiles (and photographs) for Messrs Beverley, Leckie and Morrison at the end of the document, it came on to be the promotional flyer used by the venture in March 2018.
[74] Messrs Beverley, Leckie and Morrison met on a number of occasions during February and March 2018. Over the year that followed, the joint venture between them was designed and came into being.
The creation and terms of the joint venture
[75] During the course of discussions between Messrs Beverley, Leckie and Morrison during 2018, a number of documents were prepared. The first of them is described as a “strawman for discussion”. It was prepared by Mr Beverley and sent to Messrs Leckie and Morrison with the intention (expressed in Mr Beverley’s covering email) that it had been prepared to “set out what this opportunity might look like, how we want to approach it and what we are aiming for on a longer-term basis”.
It was expressed by Mr Beverley as having been provided as “a pretty quick mind dump to get us started” which would “no doubt need to be knocked into shape”.
[76] The document referred to Lewis Tucker and Mr Beverley having separately identified an opportunity. Lewis Tucker, here, is a reference to Messrs Leckie and Morrison, who were the owners of that business. The opportunity was described as the establishment of a “carbon (NZU) farming/forestry management enterprise that captures current high levels of government, investor, emitter and landowner interest in forest establishment, carbon farming/NZU supply and ancillary commercial activity”.
[77] The enterprise that would capture the opportunity was described in the document in following way:
The broader enterprise has the potential to comprise a small number of independent but potentially related partnership or joint venture vehicles, together with ancillary businesses such as a seedling nursery, forest access rights (manuka/honey etc), NZU supply/sale facility, and independent third party management mandates etc.”
[78] It was said in the document that Lewis Tucker and Mr Beverley “want to join forces to capture the opportunity and wish in this document to set out their broad understanding and agreement as to its potential scope and immediate priorities, and how they wish to approach the establishment and longer-term management of the enterprise”.
[79] The strawman document included a diagram entitled “Enterprise scope” which showed an early blueprint for the eventual Drylandcarbon corporate structure shown in Appendix 1, except that it did not at this stage include H1 as a holding company. It identified, as well, some of the businesses that were seen as having the potential to be included in the venture alongside Drylandcarbon including, for example, a joint venture between Landcorp and Drylandcarbon which did not come to pass.
[80] The diagram showed the primary vehicle for Messrs Beverley, Morrison and Leckie’s involvement as a company described as “FundMgtCo”, the aim of which was said to be to generate a sustainable income from management and, potentially, to invest in particular areas of the enterprise. That company, it was said in the document, would
provide certain management services directly (resourced from management fees) and would coordinate the provision of external services from specialist providers as required. It went on to record that “once operational, it is anticipated that [Mr Beverley] would take the CEO role and [Lewis Tucker] would provide various back-office functions and support”. It was to be owned to 50 per cent by Mr Beverley and 50 per cent by Messrs Leckie and Morrison.28
[81] The defendants say that the strawman reflects early discussions and no more, that it is vague and that it represents only Mr Beverley’s thinking. However, Messrs Leckie and Morrison did not seek to push back on the terms of the document in any way and did not suggest changes to it. Moreover, it formed the basis for the Heads of Agreement that Mr Morrison went on to develop. As Mr Morrison said, he “did a copy and paste” from the strawman in order to develop the Heads of Agreement.
[82] While it was the first step in the design process for the venture, it does support the existence of a common intention at that time to use a management company to own and manage multiple businesses.
[83] Mr Beverley sent a further version of the “Drylandcarbon concept outline” document, with some further minor changes, to Messrs Leckie and Morrison on 5 March 2018. At that stage, Mr Leckie said that they would start pulling content from the document into a flyer format for the purpose of marketing the opportunity. There is a direct and clear lineage from Mr Beverley’s 2017 concept document to the initial draft of the investment flyer, through to amended versions of the flyers produced and used for the Drylandcarbon fund in September 2018 and February 2020 and then through to Lewis Tucker’s investment flyer for the Forest Partners fund. While the documents are not replicas of each other, they all carry through the same structure and content headings – when describing the concept itself, the purpose of the fund, target investors, the Emissions Trading Scheme and NZUs, risks and solutions for emitters, the proposed legal structure for the fund, the partnership structure, duration and liquidity, governance, decision-making, capital call controls, management, limited
28 The document refers to 50 per cent ownership by Mr Beverley and 50 per cent by Lewis Tucker. However, the reference to Lewis Tucker in the document was more properly a reference to Messrs Leckie and Morrison – this was the effective eventual outcome (through Pheasant Tail Holdings Ltd, a company which Messrs Leckie and Morrison each own in half shares).
partner structure advantages, entitlement to and allocation of NZUs, expenses, the benefits of a pooled approach, New Zealand’s carbon budget and Emissions Trading Scheme participation, the importance of forestry, and NZU demand and price pressure.
[84] Between May and August 2018, Messrs Beverley, Leckie and Morrison were working on a “terms sheet” relating to “Drylandcarbon structure and mechanics”. It was sent to Steven Nightingale, a partner at Buddle Findlay who advised Lewis Tucker and who set up the Drylandcarbon corporate structure, on 18 May, essentially as a foundational document to enable the corporate structure that would give effect to the joint venture arrangements to be put in place. The terms sheet identified the “legal entities involved” as being a “partnership”, a “general partner” and an “external manager”. A degree of flexibility, in terms of possible future operations, can be seen through the description in the document of the “duration and wind up” of the partnership: it would be formed for a period of 35 years and then could wind up or “continue to exist and operate under the existing or a revised operating structure”.
[85] A snapshot of where matters stood at this point in time is provided through a letter signed by Mr Beverley as the chief executive officer (CEO) of Drylandcarbon and dated 13 June 2018 to Air New Zealand, in response to questions received about the Drylandcarbon venture. Messrs Beverley, Leckie and Morrison had by this time been in active contact with potential investor participants in the venture, including, for example, Meridian Energy, Z Energy and Air New Zealand.29 The letter contained the following question from Air New Zealand and answer from Mr Beverley:
vii) How many investors are you envisaging for each fund and is the pool closed or does it remain open (and if open, what are the dilution risks for the other LPs)?
We anticipate the partnerships each comprising between 5 and 10 partners and being closed-end funds whereby once the offer is closed (late 2018), the partnerships will not seek to raise further capital, thus avoiding complications around taxation and potential dilution.
29 In March 2018, Mr Beverley contacted Meridian Energy and Contact Energy. In April 2018, Mr Morrison contacted Z Energy and Genesis Energy, Mr Beverley contacted Z Energy and Air New Zealand, and Messrs Beverley and Leckie met with Sanford Ltd. In May 2018, Mr Beverley contacted Genesis Energy and PGG Wrightson, Messrs Beverley and Leckie together delivered a presentation to ANZ Regional Bank, and Mr Leckie spoke with the Todd Corporation. Non- disclosure agreements were, subsequently, signed by Genesis Energy, Air New Zealand, Contact Energy and Z Energy in May and June 2018.
Any unsatisfied or future participation demand could be satisfied by the creation of subsequent partnerships, the timing of these needing to be structured to avoid any conflicts that might otherwise arise.
[86] The strawman document, mentioned above, formed the basis of the Heads of Agreement document that was then drafted. Mr Beverley says that successive drafts of the Heads of Agreement were exchanged between him, Mr Leckie and Mr Morrison in August 2018. Messrs Leckie and Morrison say that they were developing the document alone at that stage and had not copied Mr Beverley into it. Mr Beverley says that, at the very least, he received a hard copy of the document from Mr Morrison but had access to it in any event through the shared drive to which he and Messrs Leckie and Morrison had access. Whatever the case, it is sufficiently clear that Mr Morrison took on responsibility to develop this document and that, in doing so, he cut and pasted content from Mr Beverley’s concept outline document and, for other content, summarised or reworded content from that document.
[87] After describing the opportunity as a carbon farming and forestry management enterprise for the purpose of generating carbon credits, the Heads of Agreement document went on to provide, in its background section:
The parties recognise that Drylandcarbon has the potential to comprise a small number of independent but related partnerships, joint ventures, and ancillary businesses such as a seedling nursery, forest access rights (for manuka and honey) as well as an NZU trading enterprise, referred hereafter as the Dryland Carbon Group or ‘Group’ as the diagram in Appendix I seeks to demonstrate. The parties agree that this HOA incorporates all independent but related enterprises within the Dryland Carbon Group and for the avoidance of doubt, each will be ultimately owned 50 per cent by Lewis Tucker and 50 per cent by AB.
[88] The document described itself as being the genesis of a shareholders’ agreement between the parties and that the parties would form a new company, ‘FundMgtCo’ as the entity that manages the limited partnership “together with the wider Dryland Carbon Group”.
[89] The “enterprise structure” diagram in the appendix to the document was the same as that attached to the strawman document.
[90] A subsequent version of the Heads of Agreement document exchanged between Mr Leckie and Mr Morrison included a second venture within the description of the initiative. Under the “Drylandcarbon initiative” it was proposed that two investment vehicles were to be established. First, an exotic afforestation vehicle focused on establishing forests with high carbon sequestration capacity and, secondly, a native afforestation vehicle focused on establishing manuka forests to generate commercial returns from manuka honey extraction together with lower volumes of carbon sequestration capacity.30 Accordingly, it is sufficiently clear that the parties were seeing some capacity for further ventures within the Drylandcarbon enterprise.
[91] Mr Morrison discussed the Heads of Agreement document with Ms Crengle at Crengle Shreves & Ratner in September 2018.31 Ms Crengle sent a marked-up version back to Mr Morrison on 13 September. The suggested mark-ups included the removal of the paragraph about the venture having the potential to comprise a small number of related partnerships and focused more on the establishment of “a carbon funds management vehicle”.
[92] It is not known what Messrs Leckie, Morrison or Beverley made of those suggested amendments. The Heads of Agreement did not progress past that point. The venture was developing at a considerable pace with investors keen to sign on and the focus of the joint venture shifted to the incorporation of the entities needed and the launch of the fund itself and associated enterprises.
[93] The defendants say that the draft marked up by Ms Crengle is consistent with the parties having made no commitments and having no agreement beyond the single fund that became Drylandcarbon. However, that is far from clear, is at odds with the words that Messrs Beverley, Leckie and Morrison had themselves used in the drafts that they had prepared, with the exchange of correspondence with Air New Zealand and with exchanges that then followed.
30 The carbon sequestration capacity of New Zealand native forests is considerably less than that of exotic forests.
31 Ms Crengle was engaged by Mr Morrison to provide independent advice.
[94] For example, in an email dated 13 September 2018 from Mr Beverley signed as “Chief Executive, Drylandcarbon” to a representative from BP, and copied to Mr Leckie, it was said:
We are well advanced in creating and capitalising this partnership and aim to have it committed to draw our first tranche of capital in November. At this stage it would not be practical to introduce another potential partner. Our intention once Drylandcarbon is fully invested however, is to follow this with further emission reduction and carbon afforestation vehicles and there may be a real opportunity for your group to participate in these.
If you are interested, it would be worthwhile us getting together next time you are in Wellington. It would be helpful to me to understand your situation and objectives with respect to carbon, and we could explore any interest you may potentially have in our projects going forward.
[95] To similar effect, on 17 December 2018, Mr Leckie sent an email to Mr Beverley in which he referred to a conversation that he (Mr Leckie) had had with Mr Morrison, and expressed Mr Morrison’s views in the following terms:
He feels we need to back ourselves to get this set. As long as we can get this one set and make sure we are not out of the money, we can then leverage the team to do the second fund; …
[96] In November 2018, Buddle Findlay, who were in the course of getting the corporate structures for the venture together, sent through a diagram which included for the first time the prospect of a holding company to be owned by Messrs Beverley, Leckie and Morrison, for the Drylandcarbon Manager and the General Partner.
[97] What is clear to this point is that Messrs Beverley, Leckie and Morrison agreed to use their collective resources to promote and establish the Drylandcarbon fund and associated enterprises for their mutual benefit. The corporate structure was yet to come but, certainly, there was more than one carbon afforestation fund in mind and there was no clearly defined single goal because multiple business opportunities other than funds were being considered. The progression of events shows that Mr Beverley’s concept, including the types of structure and modelling incorporated within it, were used alongside the Lewis Tucker brand and its resources. The joint venture had been created.
[98] There is no doubt that the Lewis Tucker brand was an important component of the market offering and that the enhanced modelling provided within Lewis Tucker, primarily by Mr Tom Wynne-Lewis,32 brought material benefits. The Lewis Tucker name was put front and centre. For example, promotional documents referred to the opportunity being promoted by “Lewis Tucker”, “Lewis Tucker and Co and Associates”, “Lewis Tucker & Company” or as being a “Lewis Tucker enterprise”. That was a deliberate, market-facing, strategy. It has also meant that there has been some confusion because many documents were marked as “confidential to Lewis Tucker”. However, it is clear that references to “Lewis Tucker” in many of these documents are actually intended to be references to the joint venture. For example, the promotional documents all included profiles of Messrs Leckie and Morrison, who were from Lewis Tucker, and of Mr Beverley, who was not.
[99] The material certainly hit the mark. By September 2018, Air New Zealand, Genesis, Contact and Z Energy had received a final Terms Sheet and an acceptance letter, Ernst & Young had provided a final report on its independent review of the Drylandcarbon model,33 an application for exemption from the Overseas Investment Regulations was prepared, the Drylandcarbon LPA was negotiated and prepared, the Drylandcarbon MSA was negotiated and prepared and the Drylandcarbon Advisory Committee, envisaged under the LPA, was established and its members appointed.
[100]The Drylandcarbon enterprise was on its way to establishment.
The establishment of the Drylandcarbon fund
[101] By February 2019, it had been agreed that a holding company would be put in place for both the Drylandcarbon General Partner and Manager. It had been agreed also that H2 and H3 would be minority limited partners.
32 Mr Wynne-Lewis was employed by Lewis Tucker from 2015–2022 to provide advisory services to Lewis Tucker’s clients. He was involved in the preparatory work that led to the establishment of both the Drylandcarbon and Forest Partners funds. He also provided advice to the Drylandcarbon Manager and Forest Partners Manager, for example financial modelling, land acquisition analysis, investor reporting and regulatory research.
33 Which was, in turn, provided to the investors together with a supporting assumption booklet and an updated Drylandcarbon model.
[102] The Drylandcarbon Manager, the Drylandcarbon General Partner, H1, H2 and H3 were all incorporated on 28 February 2019. The fund itself was registered as a limited partnership on 8 March 2019.
[103] Messrs Beverley, Leckie and Morrison were the initial directors of all three Drylandcarbon companies. Messrs Leckie and Morrison were the sole directors of those companies from 19 May 2021.
[104] Under the Limited Partnerships Act 2008, a limited partnership is a separate legal person.34 It may enter into contracts.35 It must have a general partner, which is responsible for the management of the limited partnership.36 A limited partner must not take part in the management of the limited partnership.37
[105] Here, the Drylandcarbon General Partner has delegated all of its functions, duties and powers to the Drylandcarbon Manager under the Drylandcarbon MSA.
[106]The primary financial elements of the corporate structure are these:
(a)All of the capital for the fund was provided by the limited partners. Their return on capital invested comes over time, primarily through the NZUs generated by the portfolio of forests established through the deployment of that capital. The total capital contributed to the fund was $121 million.
[508] All of this is material information and I do not see there to be such a difference between the value of an interest in the management companies for both funds and the value of the interests of a limited partner as to warrant the information to be disregarded. The management fees in both cases are linked to the performance of the relevant fund as a whole.
[509] In the event, the market approach reduces the volatility inherent in the income approach. And, beyond that, the further cost approach assessment undertaken by Mr Newton provided further support for his bottom line. As Mr Burdon said, the cost to replicate the equivalent NZU profile on the part of potential investor by simply buying a forest operates as a limit on the market value of an interest in the Forest Partners fund.
272 A five per cent interest being the value of the management fee payable to the Forest Partners Manager – in other words, the material part of the value of the interest in the management company for the purposes of this proceeding.
[510] In addition, I do see an additional discount (through the alpha factor) as being warranted to reflect the difference between management rights and limited partner interests – such as the lack of rights to the land and the lack of control over key partnership decisions. Moreover, I agree with Mr Newton that the base management fee needs to be excluded – as it is passed through to Lewis Tucker under Lewis Tucker’s services agreement with the Forest Partners Manager for resources and time committed by it.
[511] Accordingly, I do see Mr Newton’s valuation as accounting properly for all available market information and minimising reliance on subjective inputs. It aligns the three main valuation methods and is consistent with the other valuation material before the Court, including Booster’s view of value for the Beverleys’ interest in H1, and earlier calculated value assessments that were conducted by KPMG for both Lewis Tucker and Todd. The underlying uncertainty in the price path information that is a central foundation for Mr Graham’s evidence, in the absence of other valuation methods as a cross-check, draws me to the view I have formed.
[512] Therefore, for the purposes of considering relief in this proceeding, I adopt Mr Newton’s valuation evidence and find that the value of the Drylandcarbon enterprise is worth $12.2 million to H1 and that is the value of the Forest Partners enterprise to the Forest Partners Manager is $14.2 million.273
[513] I do not make any further provision for an assessment of the value of potential future funds to H1. The view I have reached is that the provision that is to be made in the relief to be granted in the proceeding – including an assessment of the level of equitable assistance that is appropriate – provides appropriate relief, in the round, for the causes of action that have been made out.
Conclusion on fair value of H1
[514] The value of H1 must not only reflect the value of the equity in the Drylandcarbon enterprise but, also, the value of the equity in the Forest Partners
273 Both figures being the mid-points in Mr Newton’s valuation ranges.
enterprise that H1 beneficially owns – which does not include the value of the equitable compensation ordered. The formula is:
H1 value = Drylandcarbon value + (Forest Partners value – equitable compensation)
[515]I find the following:
(a)the value of the management rights in the Drylandcarbon enterprise is
$12.2 million;
(b)the value of the management rights in the Forest Partners enterprise is
$14.2 million; and
(c)the value of the equitable compensation (15 per cent of the value in the Forest Partners Manager) is $2.13 million.
[516] I have not found it necessary to include in the formula the value of future opportunities that H1 could pursue.
[517]Accordingly, I find that the fair value of H1 to be $24.27 million.
Glazebrook Services Agreement
[518] There is one remaining prayer for relief to be considered in the context of the oppression proceeding. As discussed when recounting the factual background to the proceeding, the Glazebrook Services Agreement was entered into in October 2020, as part of the restructure of the Drylandcarbon Manager, between the Drylandcarbon Manager and Mr and Mrs Beverley’s company, Glazebrook Capital Ltd. It was entered into in place of Mr Beverley’s employment as executive director of the Drylandcarbon Manager.
[519] In the amended statement of claim in the oppression proceeding, among the relief sought is a declaration that the Glazebrook Services Agreement remains on foot with outstanding fees and default interest being payable by the Drylandcarbon Manager. The argument is advanced on the basis that the plaintiffs, through a letter of 20 May 2021 from their solicitors to the defendants’ solicitors, purported to cancel the
mediation agreement as a result of the removal of Mr Beverley as a director of the Drylandcarbon Manager and General Partner. The plaintiffs say that, with the mediation agreement cancelled, the Glazebrook Services Agreement remains on foot. Mr Beverley has issued an invoice to the Drylandcarbon Manager on a monthly basis under the services agreement since August 2021.
[520] A prayer for relief in the first and third causes of action in the oppression proceeding is a “declaration that the Glazebrook services agreement remains on foot with the outstanding fees and default interest being payable by the management companies when they are in a position to do so”.
[521] I do not see the claim as being tenable. Without getting into the topic of the cancellation of the contract (which is not directly in issue), it was a term of the mediation agreement that the Glazebrook Services Agreement would terminate with effect from 31 July 2021. Without determining whether the provision was effective or not, what is clear is that Mr Jacobs confirmed that the Glazebrook Services Agreement would terminate on 31 July 2021 by email to Mr Beverley on 22 April 2021. The three months’ notice of termination was in accordance with clause 8.1 of the services agreement, which enables termination on not less than three months’ notice without cause.
[522] In addition, services have not been performed under the agreement for well over four years now. While, when sending his invoices, Mr Beverley has on each occasion said to Mr Jacobs that he is ready and willing to perform his obligations, the fact that none of the many commitments under the agreement have been met since that time would, in my view, necessarily see a breach.
[523] Furthermore, the claim is made against the Drylandcarbon Manager, which is financed only through the Drylandcarbon fund and, as Mr Foley confirmed in his evidence, the Drylandcarbon Advisory Committee had not approved, and would not approve, any expenditure under the Glazebrook Services Agreement after 31 July 2021. This head of claim is not, for these reasons, made out.
Outcomes
[524]In the derivative proceeding, I have found that:
(a)Messrs Leckie and Morrison:
(i)breached their duties not to profit personally from their position as directors of H1 by diverting the Forest Partners opportunity from it;
(ii)misused H1’s and the Drylandcarbon Manager’s company information in their pursuit of the Forest Partners opportunity; and
(iii)as a result, breached the duties of good faith, loyalty and to avoid conflicts of interest, owed by them to H1 and the Drylandcarbon Manager as their directors.
(b)The third, fourth, fifth, seventh and eighth defendants dishonestly assisted Messrs Leckie and Morrison in those breaches.
(c)Lewis Tucker breached the confidence of all three Drylandcarbon companies.
[525] The result of the derivative proceeding is that the defendants, except the sixth defendant, must account to H1 for profits made by them from the Forest Partners opportunity, with the exception of the equitable allowance I have made of 15 per cent of the total profits to them from the Forest Partners enterprise. The requirement to account follows from the breaches of fiduciary duty and dishonest assistance given. Accordingly, there is no need for the Court to order that a constructive trust be put into place: it simply exists. As a result, H1 is the beneficial owner of profits from the Forest Partners enterprise – present and future – bar 15 per cent.
[526] In the oppression proceeding, I found that affairs of H1 – the breaches on the part of Messrs Leckie and Morrison of their duties as directors, and the removal of
Mr Beverley as a director of both the Drylandcarbon General Partner and Manager – were conducted in a way that was oppressive, unfairly discriminatory and unfairly prejudicial to the Beverleys in their capacities as shareholders of H1. In addition, the removal of Mr Beverley as Director was oppressive to him in his capacity as director.
[527] Accordingly, I declare that the removal of Mr Beverley as director of both the Drylandcarbon General Partner and Manager was unlawful.
[528] I will make an order under s 174 of the Companies Act that Messrs Morrison and Leckie purchase Mr and Mrs Beverley’s interest in H1 for $12.135 million. I have found that the valuation for H1 must include the value of the management rights in the Drylandcarbon enterprise – which I found to be $12.2 million – as well as the value of H1’s beneficial ownership of the profits made by the liable defendants from the Forest Partners enterprise – which, accounting for the equitable allowance ordered, I found to be $12.07 million. The fair value of H1, as a consequence, is $24.27 million. The Beverleys’ interest in H1, held by the Puriri South Trust, is 50 per cent of that value.
[529] I will hear from the parties on the precise form of the orders. Provision will need to be made to enable Messrs Leckie and Morrison to pay through, for example, a percentage of the cash flows available to H1 (including those from the Forest Partners fund). The parties may find, during the intervening period, that they are able to settle upon the terms of practical mechanisms to give effect to the net outcome of the proposed orders.
[530]I make the following timetabling orders:
(a)The plaintiffs are to file written submissions on the form of the proposed order within 20 working days of the date of this decision.
(b)The defendants are to file submissions on the form of the proposed order within a further 15 working day period.
(c)The parties are to liaise with the Court, through the case manager, over the allocation of a half-day fixture for the hearing of those submissions, if necessary.
(d)Costs are reserved at this stage and will be addressed through timetabling orders made at the conclusion of the hearing on the proposed orders.
Radich J
Solicitors:
Bell Gully, Wellington for Plaintiffs
Mallett Partners, Wellington for Defendants
APPENDIX 1