GJ Holding Trustee Limited v Frith - [2023] NZHC 563

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2020-404-002250

[2023] NZHC 563

UNDER the Companies Act 1993

IN THE MATTER OF

an application for relief by a prejudiced shareholder

IN THE MATTER OF

a breach of fiduciary duties

BETWEEN

GJ HOLDING TRUSTEE LIMITED as
trustee of the GJ HOLDING TRUST Plaintiff

AND

KERRY FRITH

Defendant

Hearing: 14 - 18 November 2022 and 2 March 2023

Counsel:

DW Grove and SP Maloney for Plaintiff J Long and JM Alexander for Defendant

Judgment:

23 March 2023

JUDGMENT OF DOWNS J

This judgment was delivered by me on Thursday, 23 March 2023 at 12 pm pursuant to r 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Solicitors/Counsel:
Foy & Halse, Auckland. DK Law Ltd, Auckland. DW Grove, Auckland.
J Long, Auckland.
JM Alexander, Auckland.

GJ HOLDING TRUSTEE LTD v FRITH [2023] NZHC 563 [23 March 2023]

Table of Contents

The case [1]
Background [2]

The claim and issues [25]

Did Ms Frith breach her obligations as a trustee under the trust
agreement by failing to appoint Mr Jorna as a director of Sealord? [28]
Did Ms Frith conduct Sealord’s affairs in an oppressive, unfairly
discriminatory, or unfairly prejudicial manner, by failing to consult
Mr Jorna in relation to the sale of the properties? [47]
Did Ms Frith conduct Sealord’s affairs in an oppressive, unfairly discriminatory, or unfairly prejudicial manner by selling the

properties at an undervalue? [57]

Difficulties in relation to Mr Wigmore’s evidence  [64]
Difficulties in relation to Mr Beasley’s evidence  [69]
Value?  [71]

May Mr Jorna rely on the deeming provisions of the Companies Act in relation to oppressive, unfairly discriminatory, or unfairly

prejudicial conduct? [76]
Did Ms Frith breach her obligations as a trustee by selling the properties

at an undervalue?  [84]
Allegations beyond the pleadings  [92]
Another pleading point  [110]

Relief [112]

Standing back  [132]
Result  [134]
Costs  [136]

The case

[1] Section 174 of the Companies Act 1993 confers a broad discretion for the provision of “just and equitable” relief to a prejudiced shareholder of a company. This case involves an application for such relief in the context of a regrettably familiar tale: the breakdown of a relationship between hitherto amicable business partners. As in other cases under the section, the facts are important.

Background

[2] Between 2015 and 2019, Kerry Frith and Gerard Jorna developed nine Auckland properties. Their first involved a property in Bundena Place, Clendon Park, hence the moniker, the Bundena model.

[3] The Bundena model involved Ms Frith buying the properties through her company, Nuincum Ltd,1 and being responsible for associated funding; Mr Jorna renovating the properties and meeting associated costs; and net profits being divided equally between Ms Frith and Mr Jorna. Each individual development was just that; no overarching, joint venture existed. The parties were free to do business with others, and without the other.

[4] On 17 October 2016, Ms Frith and Mr Jorna bought 15 Sealord Place, Manurewa, through Nuincum.2…

Grounds of appeal

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

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

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

Consideration

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

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

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Details

Case: [2023] NZHC 563
Decision Date: 23 March 2023

CaseChat Overview and Summary

GJ Holding Trustee Limited v Frith is a case concerning the sale of three properties owned by Sealord Properties Ltd, a company in which Gerard Jorna and Kerry Frith held equal shares. The case involves claims of breach of fiduciary duties under a trust agreement, as well as allegations of oppressive, unfairly discriminatory, or unfairly prejudicial conduct under the Companies Act 1993. The court was required to determine whether Frith breached her obligations as a trustee by failing to appoint Jorna as a director of Sealord, whether she conducted Sealord's affairs in an oppressive, unfairly discriminatory, or unfairly prejudicial manner by failing to consult Jorna in relation to the sale of the properties, and whether she breached her obligations as a trustee by selling the properties at an undervalue. The court also considered whether Jorna could rely on the deeming provisions of the Companies Act in relation to oppressive, unfairly discriminatory, or unfairly prejudicial conduct, and whether Frith breached her obligations as a trustee by selling the properties at an undervalue.

The court found that Frith did not breach her obligations as a trustee by failing to appoint Jorna as a director of Sealord, as there was no evidence she encouraged Sealord's accountants to delay or frustrate Jorna's appointment. The court also found that Frith conducted Sealord's affairs in an oppressive, unfairly discriminatory, or unfairly prejudicial manner by failing to consult Jorna in relation to the sale of the properties, and by selling the properties at an undervalue. The court held that Frith must pay Jorna compensation of $24,000 and interest under the Interest on Money Claims Act 2016.

The court rejected Jorna's contention that he could rely on the deeming provisions of the Companies Act in relation to oppressive, unfairly discriminatory, or unfairly prejudicial conduct, as Jorna could rely on section 174 of the Act. The court also found that Frith did not breach her obligations as a trustee by selling the properties at an undervalue, as her obligations under the trust agreement were confined to holding the shares on trust for Jorna and appointing Jorna as a director if requested.

The court disallowed all unpleaded allegations as the statement of claim did not plead them by way of fact or cause of action. The court found that the level of compensation awarded was just and equitable given Frith's oppressive, unfairly discriminatory, or unfairly prejudicial conduct. The claim otherwise fails and is dismissed. If the parties do not agree on costs after reflection and dialogue, they may file memoranda of not more than eight pages each.

Orders