Holland Corporate Limited v Holland
[2015] NZHC 1407
•8 July 2014
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2011-404-008345 [2015] NZHC 1407
UNDER the Companies Act 1993 BETWEEN
HOLLAND CORPORATE LIMITED Plaintiff
AND
PETER JESSE HOLLAND First Defendant
NICOLA VIVIAN MANTHEL Second Defendant
Hearing: 30 June, 2, 3 and 4 July 2014 Appearances:
N W Ingram QC for Plaintiff
No appearance of, or for the First and Second DefendantsJudgment:
8 July 2014
Reasons:
22 June 2015
REASONSFOR JUDGMENT OF DUFFY J [re Formal Proof]
This judgment was delivered by Justice Duffy on 22 June 2015 at 3.00 pm, pursuant to
r 11.5 of the High Court Rules
Registrar/Deputy Registrar
Date:
Counsel: N W Ingram QC, Auckland
Solicitors: Graeme Skeates Law (G H Skeates), Auckland
HOLLAND CORPORATE LIMITED v HOLLAND & MANTHEL [2015] NZHC 1407 [8 July 2014]
[1] On 8 July 2014, I delivered a result judgment following a formal proof hearing of the claim made by the plaintiff, Holland Corporate Ltd (“HCL”), against the defendant, Peter Jesse Holland.1
[2] Mr Holland was a director of HCL. It alleged that as a director of HCL, Mr Holland owed it fiduciary duties of loyalty, to act in good faith, not to profit from his position as a director of HCL, and not to place himself in a position of conflict with HCL’s interests. HCL also alleged that Mr Holland had conducted himself in a way that breached the fiduciary duties he owed to it. I found that Mr Holland had breached those fiduciary duties on numerous occasions.
[3] Those occasions could be divided into three main groups. The first group resulted in Mr Holland profiting at HCL’s expense by receiving payments that were due to HCL in the total sum of AU$419,725.50.2 The second group arose from Mr Holland’s performance of services for third parties, either in his own right or for entities other than HCL, which deprived HCL of receiving value for those services. I found that HCL was entitled to equitable compensation from Mr Holland in the sum of AU$166,407.50.3 The third group arose from Mr Holland’s performance of services for Gleneagles Securities (Aust) Pty Ltd (“Gleneagles”), either in his own right or on behalf of entities other than HCL. I found that HCL was entitled to equitable compensation from Mr Holland to the value of those services, which amounted to NZ$450,000. Thus, the total sum of the money judgments entered
against him came to AU$607,205.50 and NZ$450,000.
1 Holland Corporate Ltd v Holland [2014] NZHC 1584. On 27 June 2014 HCL’s claim against
the second defendant, Nicola Manthel, was discontinued after HCL and Ms Manthel settled.
2 The result judgment stated the total sum for the group as AU$440,798. This was broken into subtotals, being the sum of AU$355,318 for identified invoices and $85,480 for unidentified
invoices. It is now clear to me that the sum of $85,480 should have been $65,480 and that there
was a typographical error in recording the sum as $85,480. As to the first sum, I now see that claims for payments regarding Apache (sums of AU$5,115 and AU$5,665 were included in the calculation of the total for the identified invoices, as well as the unidentified invoices. These sums should have been included in the unidentified invoices only. The total for group one in the result judgment was therefore AU$30,780 more than it should have been. As will be discussed below at [79], the total in this judgment of Au$419,725.50 includes two sums previously included in the second group.
3 In this judgment I have amended this amount to ASU$156,700 to account for the two invoices which I have subsequently discovered were paid and should have been included in the first judgment.
[4] My reasons for judgment now follow. Those reasons should be read together with the result judgment,4 and with Downey v Holland.5
Background facts
[5] HCL was incorporated on 7 July 2010. It carried on the business of providing corporate advisory services in New Zealand and Australia. The founding directors were Michael Kyriak, Michael Ryan, Tarun Kanji and Mr Holland. Mr Holland introduced each of them to the others.
[6] Before HCL began, these persons were independently providing corporate advisory services through their respective companies. They decided that they would work together, as their combined set of skills allowed them to offer a wider range of services than each could have offered through his company.
[7] Mr Holland was someone who had expertise through his work as a banker for the ANZ bank in the area of debt, corporate distress restructuring and turnaround. He had previously held the role of head of the ANZ bank’s corporate portfolio management unit in which he held global responsibility for the banks “distressed” accounts. Thus, he had expertise in liquidity and debt-related problems. Mr Kyriak was a qualified barrister and solicitor, who also had expertise in business divestment and acquisition experience; Mr Ryan had capital management, corporate treasury and cash-flow experience; and Mr Kanji had accounting expertise. Each was well qualified and had soundly achieved in his own right before joining HCL.
[8] Earlier in 2010, the founding directors had recorded the basis on which they agreed to offer their combined services through HCL. They documented their intent as follows: HCL was to be “a partnership of four”. Each of the principals was seen to bring “a different skill set to the provision of strategic advisory services, directed
to problem-solving, particularly but not limited to, areas of corporate distress and/or
4 Holland Corporate Ltd v Holland, above n 1.
5 Downey v Holland [2015] NZHC 595, [2015] NZAR 574.
disputes”.6 HCL was to operate in Australia and New Zealand, with offices in
Auckland and Melbourne.7
[9] In light of advice received regarding tax liability and other legal issues, HCL was incorporated as the commercial vehicle by which the founding directors were to provide business advisory services in New Zealand and Australia. Mr Holland had previously operated his consulting business under the trading name Holland Corporate, which had acquired a reputation and brand in Australia and New Zealand. HCL adopted this trading name and brand with the full knowledge and consent of Mr Holland, who was compensated for the transfer of the Holland Corporate name and branding by way of an allocation to him of a larger
shareholding in HCL than was allocated to the other founding directors.8 The legal
shareholders of HCL were the companies through which the founding directors had each previously offered their respective services.
[10] The range of services offered by HCL reflected the breadth of experience and diverse skill sets of the founding directors of HCL. The range of services included: corporate diagnostic, including strategy, development and implementation; corporate restructure and turnaround; mergers and acquisitions, including due diligence; capital management, including debt advocacy (bank relationship management) equity and debt raising, corporate treasury, risk management and working capital management.
[11] HCL’s business was established in the first half of the calendar year 2010 and included: entering into a lease of office premises situated in the Auckland central business district; purchasing the domain names HollandCorporate.com and HollandCorporate.co.nz; commissioning a website to be built to advertise HCL’s business; and developing new business collateral to advertise HCL’s business. The website was to be the forum for promoting HCL’s business. The website was
prepared under the direction of all the directors of HCL, including Mr Holland. A
6 See document dated 26 April 2010.
7 See letter dated 19 May 2010 tax advice for operating a business in New Zealand and Australia which recorded at [5] “Messrs Michael Kyriak, Mike Ryan, Tarun Kanji and Peter Holland have come together to go into business jointly to provide financial advice in New Zealand and Australia”.
8 He was allocated a 32.5 per cent shareholding with the others receiving a 22.5 per cent shareholding.
design company (AER Design) that had created the Holland Corporate branding was engaged to assist in the new branding.
[12] HCL’s website represented the company as:
an independent firm that commenced operations in 2008 when Global Financial Crisis was causing enormous problems to corporates in the region primarily solving liquidity and debt-related problems for clients.
[13] The website identified HCL’s business services to include:
Corporate restructures and turnarounds … Business and asset divestments and acquisitions … capital management, including Treasury and Working Capital Management.
[14] The website represented to the public that the new business was, in effect, a continuation of the business established by Mr Holland in 2008, which had been significantly enhanced with the introduction of three additional persons, each with new specialist skills.
[15] The website illustrated the improved public position of Mr Holland, namely that he was now a principal of a company with offices in Australia and New Zealand offering a wide range of commercial advisory services, rather than being merely a sole practice business consultant in the area of liquidity and debt-related problems.
[16] The website identified that HCL had “offices in New Zealand and Australia” and that it consisted of a “small group of professionally qualified and highly experienced practitioners”.
[17] The website set out the detailed biographies of each of the founding directors and expressly identified Mr Holland as being the “principal of Holland Corporate” and provided his contact details both in New Zealand (with the direct dial and facsimile numbers being numbers created by HCL (and Australia with the phone and mobile numbers being the existing numbers of Mr Holland). The email address of Mr Holland was identified on the website as being a Holland.Corporate.com web address attaching to the HollandCorporate.com domain name acquired by HCL in the course of establishing its business.
[18] The website also set out in specific detail the way in which HCL would undertake business engagements with its clients. A typical engagement was identified as being a “two-stage engagement process”, with the first stage being to “undertake a corporate diagnostic of our client’s business”; the second stage engagement being typically conducted over “a longer term designed to assist our clients to realise their strategic business goals and outcomes”. The website identified how client engagements were to proceed. It provided details about both the first stage and second stage engagements that HCL would typically enter into, with the first stage typically requiring HCL to “undertake a high level investigation of the business, its books and records, its management and operations necessary to complete the Corporate Diagnostic”.
[19] Mr Holland provided papers that he had prepared in respect of his prior business and these were published, with the knowledge and consent of Mr Holland on HCL’s website. The website identified the core business values of HCL, being “honesty and integrity”.
Excluded matters
[20] It is HCL’s case that all of the directors orally agreed and, therefore, that HCL agreed, that they would each be permitted to conduct a small number of identified pre-existing business engagements on their own account and that they did not need to account to HCL in respect of those engagements. These are referred to as the “excluded matters”. All other business engagements of a nature that could have been part of the business of HCL were to be directed to HCL.
[21] This general agreement that limited directors to working for HCL was outlined in the evidence of Mr Ryan, and confirmed indirectly by Mr Kanji, who gave evidence that he would not have joined HCL if he had known that Mr Holland or any other director remained free to take on new consulting matters without having to account to HCL.9 Their evidence was consistent with a commonsense view of
matters. Persons who sell consulting services through individual companies are
9 There is also an email dated 11 June 2010 in which Mr Kyriak advises a prospective client that his consulting services are now only available through HCL and that any engagement of his services must be via HCL.
hardly likely to combine together for the same purpose if they each remain free to sell the same or similar consulting services through their individual companies. It also made sense that they would agree that each was free to conclude the consulting engagements that had arisen before HCL’s commencement.
[22] Further, HCL argued that the representations on the HCL website reflected the directors’ agreement as to how they would operate the company. They submitted that, save for the “excluded matters”, the website revealed that Mr Holland had agreed to conduct business in accordance with the representations set out in the website. Those representations supported the view that all consulting business would be done through HCL. I accepted that the representations had this effect, and that the logical inference to be drawn from them was that Mr Holland had agreed to
conform to them.10
[23] I was satisfied, therefore, that apart from the “excluded matters”, none of the directors was free to offer consulting services either as an individual or through another company.
[24] I also accepted Mr Ryan’s evidence regarding the identification of the excluded matters. The pre-existing business engagements of Mr Holland that were excluded matters were as follows:
(a) A role as a director of Bank of India (New Zealand) Ltd;
(b) A role as a director and shareholder of Apache Services Pty Ltd;
(c) An existing consulting arrangement with a corporate group based in
Australia, being a group owned and controlled by Patrick Farrugia;
and
10 Because the proceeding was by formal proof there was no evidence from Mr Holland. His statement of defence suggested something different but without evidence to support the matters pleaded therein I could not take them into account.
(d)One other unspecified consulting engagement in Australia that was identified as being largely completed other than in respect of the recovery of success fees.
[25] Mr Kyriak is a qualified barrister and solicitor of New Zealand. He continued to operate independently as a legal practitioner, and so this was an agreed “excluded matter” for him. As regards Mr Ryan and Mr Kanji, it is not necessary to traverse their “excluded maters”.11
[26] HCL’s evidence showed that the directors of HCL, other than Mr Holland, ceased to provide business consulting services independently once HCL commenced operations.12
The business performance of HCL
[27] During the period from incorporation in July 2010 until September 2011, HCL traded its business in the ordinary course. During the financial year ending
31 March 2011, it received income of $100,154. During the financial year ending
31 March 2012, HCL received income of $125,986. HCL contended that its business performance over those periods would have been substantially better had Mr Holland properly accounted to it for the business consultancy services he provided during that time.
Director’s conduct regarding HCL’s terms of engagement
[28] HCL contended that the proper manner in which its directors were expected to conduct themselves regarding the provision of consulting services can be seen from an occasion on 22 August 2010 when Mr Holland emailed the three other directors of HCL, advising them that he had identified a business opportunity for HCL in Australia, and attaching a draft engagement letter that he had prepared in
respect of that potential engagement. The email sign-off in Mr Holland’s email
11 Mr Kanji provided services to a company known as Pingar GP Ltd and he was a director of the Bank of India (New Zealand); and Mr Ryan completed work on his own account for a client known as TabCorp and thereafter worked solely for HCL.
12 The only exception would be something that came within the “excluded matters” for one of the
other directors.
identified him as the principal of Holland Corporate, and provided the New Zealand address and telephone details of HCL, as well as the Australian address and telephone details of HCL.
[29] The draft engagement letter contained a significant amount of text that was published on HCL’s website about HCL and about the way HCL conducted its business. This letter described HCL as follows:
Holland Corporate is an independent firm which commenced operations
2008 when GFC was causing enormous problems to corporates in the region, primarily solving liquidity and debt-related problems for clients. Our scope
of service offering has expanded to include: corporate restructure and
turnarounds … Business and asset divestment acquisitions … Capital
Management, including Treasury and Working Capital Management.
[30] The draft engagement letter advised:
We engage with our clients at a principle level, which is maintained throughout the engagement. As required we build specific multi-disciplinary teams for each client, depending on the mandate and their specific needs. This approach enables our clients to benefit from direct access, at a director level, where skills are matched to our clients” specific needs.
[31] The draft engagement letter identified that HCL had:
offices in New Zealand and Australia … we are a small group of professionally qualified and highly experienced practitioners, variously with banking, legal, accounting, logistics and treasury backgrounds.
[32] Attached to the draft engagement letter was a copy of the standard terms and conditions of engagement. These stated that HCL typically completed its engagements, being a “two-staged engagement process”, with the first stage being to “undertake a corporate diagnostic of our client’s business”. The second stage was identified as “typically a longer term engagement designed to assist our clients to realise their strategic business goals and outcomes”. The draft engagement letter expressly stated that HCL understood “that it is a big step to bring external consultants into your business”.
[33] The draft letter and the terms of engagement were significant because it later came to light that Mr Holland had appropriated the form of those documents for use
in business activities that he conducted either on his own behalf or behalf of entities other than HCL.
Outline of HCL’s claim
[34] HCL claimed that on multiple occasions,13 Mr Holland conducted himself in a way that placed him in a conflict of interest with HCL and which amounted in law to him being in breach of fiduciary duties he owed to the company. Those duties included the duty to act in good faith, the duty not to profit from his position as a director of HCL, and the duty not to place himself in a position of conflict with the company. Other claims were pursued under the Companies Act 1993, but they were not determined in the context of the formal proof hearing.
HCL’s realisation of Mr Holland’s wrongful conduct
[35] In September 2011, HCL became aware that Mr Holland was featured as a director on the websites of two companies that appeared to be direct competitors of HCL.14
[36] HCL undertook further investigations in relation to Mr Holland’s other business activities and discovered that he was, on an undisclosed basis and through companies that he controlled: (a) providing competing business consulting services to a competitor of HCL; and (b) continuing to trade independently in the trading
name of HCL15 to his own account. HCL became aware that he had either received
or was due significant remuneration in respect of those engagements; HCL wanted those benefits brought to the account of HCL.
[37] Further, through investigations and through discovery within this proceeding, HCL became aware that Mr Holland had negotiated in the name of HCL to assist an Australian company, Glen Eagles Securities (Aust) Pty Ltd (“Glen Eagles”), with its dealings with the Bank of Scotland International (BOSI) on a matter relating to the Fiji Hilton, for which Glen Eagles had agreed to pay a fee of AU$450,000 on
completion of the engagement. Despite the completion of the engagement,
13 Being the occasions that fell into the three groups referred to in [3] above.
14 These were Providence Growth Solutions Pty Ltd and an entity known as Liquidity Partners.
15 Being Holland Corporate.
Mr Holland failed to take any reasonable action to recover the fees owing in respect of that transaction. Further, he had never disclosed the existence of this engagement to HCL.
Fiduciary duties owed to HCL
[38] It is well settled law that company directors owe their companies fiduciary duties of loyalty and to act in good faith,16 not to profit from their position as a company director,17 and not to place themselves in a position of conflict with the company’s interests.18 The duties of loyalty and to act in good faith require a director to act at all relevant times in the company’s interests. A fiduciary may not
act for his or her own benefit or for the benefit of a third person without the informed consent of the principal.19
[39] Because judges are reluctant to second-guess the commercial decisions of directors, judges tend to presume that directors have acted in good faith unless their actions are acts which no director with an understanding of fiduciary duties would have taken.20 Where a director acts in a way in which no director with an understanding of fiduciary duties would act, the director’s subjective belief that his actions are in the company’s interests will not preclude a finding of breach of duty.21
Like other fiduciaries, company directors cannot participate in self-dealing or otherwise act where there is a conflict of interest.22 It is possible for the shareholders of a company to dispense with requiring a director’s compliance with these duties.23
However, there would need to be clear evidence of this, which was not present here.
[40] I have already referred to the three groups into which Mr Holland’s wrongful
conduct can be conveniently categorised. I shall now deal with each in turn.
16 Holden v Architectural Finishes Ltd (1996) 7 NZCLC at 260, 976 (HC). This decision was upheld by the Court of Appeal in Architectural Finishes Ltd v Holden CA272/95, 7 April 1997.
17 Boardman v Phipps [1967] 2 AC 46 (HL) at 85-87 and 123.
18 At 106.
19 Bristol and West Building Society v Mothew [1998] Ch 1 (CA).
20 Australian Growth Resources Corp Pty Ltd v Van Reesema (1988) 13 ACLR 261 (SASC).
21 Shuttleworth v Cox Brothers [1927] 2 KB 9 (CA) at 18.
22 Regal (Hastings) Ltd v Gulliver [1942] 1 All ER 378 (HL).
23 The right of shareholders to ratify breaches of duty owed to the company and when they can do so is discussed by Gummow J in Re New World Alliance Pty Ltd (No 2) (1994) 51 FCR 425 (FCA) at 444-445.
[41] There are two subsets of this group, being: (a) consulting engagements that Mr Holland undertook for third parties where he provided services for value to those entities, and his company, TM Advisory Services Pty Ltd (“TM Advisory”), received payment in return; and (b) occasions where as regards some of the third parties for whom he had provided services, there was evidence to suggest that additional work was performed and payment received by TM Advisory, but no invoices for this work were in evidence.
[42] Regarding one of the third parties, Apache Pty Ltd (“Apache”), and its related entities, there was an additional question. This was the question of whether the Apache dealings were excluded matters for which Mr Holland had the prior informed consent of HCL or not. This question did not arise in respect of the consulting engagements with third parties, other than Apache.
Dealings with Providence Growth Solutions Pty Ltd (“PGS”)
[43] While a director of HCL, Mr Holland provided business consulting services for value to PGS, which was a competitor of HCL. Payment for those services was made to TM Advisory, an Australian registered company controlled by Mr Holland with no association with HCL.
[44] By October 2011, the other directors of HCL had become aware that Mr Holland featured on the website of PGS as a director of that company, and the biographical and professional details as recorded on that website were much the same as those shown on HCL’s website. This led to the directors emailing Mr Holland seeking an explanation from him; however, none was forthcoming.
[45] So, on 3 October 2011, as part of an investigation of Mr Holland’s suspect activities, all of the directors of HCL met at HCL’s office in Auckland. The meeting was recorded and notes circulated to all directors. In this way, Mr Holland was given the opportunity to provide his comments, which he did, in writing by email, dated 14 October 2011.
[46] One of the topics discussed at this meeting was Mr Holland’s involvement
with PGS. The meeting notes recorded that:
PH24 has continuing dealings with PGS but only in respect of the pre- existing matter (one matter only) that had commenced prior to the inception of Holland Corporate in early 2010.
Mr Holland did not object to this statement in his comments on the meeting notes, although he did provide some explanatory comments about the one identified matter.
[47] The meeting notes also recorded that:
PH has not had any engagements with PGS (other than the one referred to above).
Mr Holland’s response in relation to this aspect of the notes was to state:
PH said he had no interest, equity or otherwise with PGS, although I have been approached.
[48] The meeting notes recorded that:
PH was not aware that he remained on the PGS website and noted that their website was out of date for other parties also.
Mr Holland’s response in relation to this was to state:
It is out of date, there are two parties on the website materials I was shown by Mike who are no longer with the firm.
[49] The meeting notes recorded that:
PH has no fee arrangements agreed with PGS (other than the one referred to above).
Mr Holland’s response to this was to state: “See above”.
[50] The meeting notes recorded that:
PH has no agreement, arrangement or understanding to work with, or for
PGS (other than the one referred to above).
24 Mr Holland.
[51] Finally, in relation to PGS, the meeting notes recorded that:
PH has indicated that he would like to work more closely with PGS – MR [Mike Ryan] asked and PH confirmed that this proposal was for Holland Corporate P/L to work with PGS – not PH separately.
Mr Holland’s response in relation to this was to state:
I mentioned this on previous occasions, and remained of the view they could provide access to deal flow, that HCC is lacking.
[52] Later, HCL became aware that Mr Holland, contrary to his representations at the directors’ meeting held on 3 October 2011, did in fact have a personal agreement with PGS to work with PGS more generally, rather than in respect of the one matter that Mr Holland identified at the 3 October 2011 meeting. This is described below.
[53] Mr Holland’s working relationship with PGS was recorded in an email from a
director of PGS to Mr Holland, dated 14 January 2010, as being a:
handshake agreement to trial over the next 6 months an arrangement that hopefully will lead to a win/win permanent agreement.
A further email from a director of PGS, dated 28 June 2010, recorded that PGS and
Mr Holland had:
for some months now … been working on the Lechte matter and simultaneously have been attempting to decipher the model of how we come together.
This email advanced a commercial proposition to Mr Holland to work together and to “conduct all Australian activity under the PGS brand”. The emails of 14 January
2010 and 20 June 2010 evidence Mr Holland having a working relationship with
PGS, which predated the establishment of HCL.
[54] However, on 8 August 2010,25 Mr Holland provided PGS with a template engagement letter, standard terms and conditions and description of services.
Mr Holland had drafted those documents to identify that the engagement letter,
25 After HCL’s incorporation.
standard terms and conditions and description of services were to be documents issued by PGS; they did not refer to HCL. The form and content of those documents were largely identical to the form and content of the draft engagement letter, dated
22 August 2010, of HCL; as well as the content contained on HCL’s website in relation to the manner in which HCL provided its consulting services. A further email from a director of PGS, dated 15 November 2010, revealed that Mr Holland had continued to work with PGS on a contract basis beyond HCL’s incorporation.
[55] The evidence showed that while he was a director of HCL, Mr Holland provided PGS with business consulting services of the type provided by HCL, and issued invoices to PGS and in return received payments for the total sum of AU$142,933, inclusive of GST to PGS. The invoices identified the respective
clients of PGS to whom the services related.26 The description of the services on the
invoices fitted with business consulting services. The invoices referred to Holland Corporate as being the provider of the services and used the same branding as HCL.27 They stipulated that cheques were to be made payable to Holland Corporate. However, the nominated bank account to which the cheques were to be paid was the account of TM Advisory. Bank statements of TM Advisory show deposits that co-relate to the invoices in terms of the sums deposited and the dates of the deposits. At all material times, HCL never knew of these engagements, so it did not consent to Mr Holland undertaking them.
[56] The bank accounts of TM Advisory also revealed that PGS made a payment of AU$12,000 to TM Advisory Services on 26 August 2010, and a further payment of AU$37,200 on 28 February 2011, making a total of AU$49,200, inclusive of GST. HCL contended that in light of the surrounding evidence, it could reasonably be inferred from the circumstances that those payments were for much the same type of services that Mr Holland had rendered to PGS on other occasions.
[57] Total payments from PGS came to AU$192,133.
26 They were identified as: Osaka Enterprises Ltd, Par Rams, Phillip Island Hotel Pty Ltd, APCH (Prime Trust), Balena Forza, Frew/Waves/PIM, Unibic.
27 HCL used the trading name Holland Corporate and used a distinctive golf ball logo impression on its invoices as part of its branding.
[58] While Mr Holland was a director of HCL, he accepted a number of other business consulting engagements in the name of Holland Corporation, but he never disclosed those opportunities to HCL. Instead, he completed the engagements, and then he issued invoices on letterhead with HCL’s brand, but with the payment direction being to the bank account of TM Advisory Services. Payments were made to that account, so it was Mr Holland who benefited, not HCL. Once again, at all material times, HCL never knew of those engagements and so it did not consent to Mr Holland carrying them out.
Cedenco
[59] Sheahan Locke Partners (acting as liquidators of the Cedenco Group of companies) contacted Mr Holland by email in November 2010. He did not disclose this contact to HCL, but instead, negotiated and reached agreement with Sheahan Locke Partners. A letter of instruction was emailed to Mr Holland on
30 November 2010; he accepted the engagement by email dated 2 December 2010. Later, in January 2011, he provided a written report in respect of this engagement to Sheahan Locke Partners. The report was issued in the trading name of HCL. Two invoices28 for the total sum of AU$9,680 inclusive of GST, were issued to Sheahan Lock Partners by Mr Holland in relation to this engagement. Each of the invoices was issued using HCL’s trading name and brand, with payment directed to the
account of TM Advisory. Payments for the amounts invoiced appear in the bank statements of TM Advisory.29
The liquidators
[60] Mr Holland also invoiced the liquidators, Sheahan Lock Partners for services provided. The invoice was dated 15 December 2010 and was for a fee of AU$3,200,
plus GST. The invoice stipulated payment to Holland Corporate, but identified the
28 Invoices dated 21 January 2011; and 6 February 2011.
29 Payment for the invoices of 21 January and 6 February 2011 were by TM Advisory on 22
February 2011 (AU$1,980) and 23 February 2011 (AU$7,700).
bank account number of TM Advisory. The bank statement of TM Advisory shows payment of AU$3,520 received by TM Advisory on 24 January 2011.
Costa
[61] Another of the third party business consulting engagements was with a client identified by Mr Holland as the Costa Group. Mr Holland provided this client with terms of engagement, dated 12 December 2010, on HCL’s letterhead. These were accepted by the client on 14 December 2010. This engagement was not disclosed to HCL, although Mr Holland had identified “the Costa Group” as a potential client of HCL.30 Two invoices were issued to the Costa Group by Mr Holland. The first, dated 15 December 2010, was for an amount of AU$5,000, plus GST. The second was dated 15 February 2011 and was for an amount of AU$5,000, plus GST. Each
invoice was issued in the trading name of HCL and using HCL’s brand, with payment directed to the account of TM Advisory. Payments totalling AU$11,000, inclusive of GST, were made to that account. Neither TM Advisory Services nor Mr Holland accounted to HCL for those fees.
Balanced Securities Ltd
[62] The engagement of Balanced Securities Ltd was initiated through a referral from an insolvency partner at Minter Ellison. On 17 June 2011, Balanced Securities wrote to Holland Corporate at the PO Box address and email address of Mr Holland seeking to engage Holland Corporate to assist in conducting a detailed review of their loan portfolio. Mr Holland prepared an engagement letter, dated 22 June 2011, on the letterhead of Holland Corporate. The engagement letter recorded that Holland Corporate had been approached by Balanced Securities Ltd because of Holland Corporate’s “extensive experience, including banking, legal and accounting that our firm has in the area of loan portfolio management …”.
[63] On 22 June 2011, Mr Holland issued an invoice to Balanced Securities Ltd for AU$7,500, plus GST.31 Once again, the invoice was issued in the trading name
30 In a spreadsheet dated 20 January 2011, which was prepared following a meeting of the directors of HCL to discuss work in progress.
31 AU$8,250.00.
and using the brand of HCL, with payment directed to the bank account of TM Advisory. On 23 June 2011, the sum of AU$8,25032 was deposited into the account of TM Advisory.
[64] Mr Holland issued a second invoice to Balanced Securities for a further amount of AU$7,500, plus GST. The second invoice was dated 2 August 2011 and, once again, was issued on the Holland Corporate letterhead, with payment of the fees being directed to the bank account of TM Advisory.
[65] A further invoice to Balanced Securities Ltd, dated 7 September 2011, was issued in a similar fashion for an amount of AU$3,200, plus GST.
[66] Then, on 14 October 2011, Mr Holland attempted to cancel the invoices dated
2 August 2011 and 7 September 2011 issued in the name of Holland Corporate to
Balanced Securities Ltd. This action followed the directors’ meeting of 3 October
2011, by which time it would have been apparent to Mr Holland that the other directors of HCL had an idea he was working on his own behalf, or on behalf of third parties.
[67] On 21 October 2011, Mr Holland then issued a replacement invoice on the letterhead of TM Advisory, with payment being directed to that company’s bank account. The amount of the replacement invoice was AU$10,700, plus GST,33 which is the exact amount of the two cancelled invoices. Payment of the replacement invoice to TM Advisory’s bank account was received on 8 November 2011.
[68] The total amount of funds that Mr Holland received through TM Advisory for services provided to Balanced Securities Ltd was AU$20,020, inclusive of GST.
[69] The engagement with Balanced Securities Ltd was not disclosed to HCL. The prospect of such an engagement was conveyed to HCL by an email, dated 7
June 2011, from Mr Holland to the other directors of HCL in which he advised that he had received a call from a partner in Minter Ellison, who had referred HCL for a
role advising the Board. Mr Holland described this role as being related to “portfolio
32 Being the GST inclusive amount of the invoiced fee.
33 AU$11,770.00.
(provisioning) advice in relation to finance portfolio”. But he said nothing further
about it to HCL.
My Size Pty Ltd
[70] Another of the third party building consulting engagements was with an Australian company called My Size Pty Ltd. On 31 August 2010, Mr Holland issued an invoice to My Size Pty Ltd for the total amount of AU$13,150, plus GST. 34 Once again, the invoices were issued in the name of Holland Corporate, with payment directed to the account of TM Advisory. The invoice was paid in full; the total sum received being $14,465, inclusive of GST.35
[71] A third deposit of AU$2,675 was paid into TM Advisory’s bank account by My Size Pty Ltd on 20 August 2010. This brought the total sum received to AU$17,140, inclusive of GST.
Diamond Waters Pty Ltd
[72] There is evidence that shows that Mr Holland had carried out consulting services for Diamond Waters. The bank accounts of TM Advisory record a deposit for AU$2,750 received on 2 November 2011. In answer to interrogatories about this deposit Mr Holland described it as a deposit for the Robertson matter. An invoice of
4 November 2011 identified Mr Robertson as a client and sought payment for the sum of AU$2,750 inclusive of GST. The bank accounts of TM Advisory Services show that on 17 February 2012, a further deposit of AU$2,750 was made by Diamond Waters Pty Ltd. The aggregate sum came to AU$5,500. HCL argued that the inference to be drawn from the invoice and the deposits was that Mr Holland had performed consulting work for Diamond Waters and had directed payment to TM Advisory.
[73] In a schedule of payments annexed to the evidence of Michael Ryan for HCL
there is reference to two payments of AU$2,750 only. However, in his brief of
34 AU$14,465.00.
35 The invoice was paid by instalments of $6,000, $2.500, $2,500, $2,500 and $965 received on 10
September , 20 September, 5 October, 18 October and 29 October respectively.
evidence, Mr Ryan (by handwritten addition) referred to a third deposit of AU$2,750, which was made to TM Advisory’s bank account on 4 November 2011. This sum was included in the result judgment. Accordingly the total sum received was AU$8,250, inclusive of GST.
Apache
[74] Mr Holland first identified Apache as a potential client for HCL and, in this regard, he arranged for HCL to build a financial business model for Apache. HCL completed this work and invoiced Apache for AU$3,000 on 2 August 2010. In September 2010, Mr Holland advised HCL that he thought there was potentially more work to be obtained from Apache. Later, it became apparent that Mr Holland used the financial model developed by HCL for Apache in support of ongoing consulting engagements that he obtained for himself personally, and that he continued to provide ongoing consulting services to Apache, notwithstanding that by his own direction, Apache had then become a consulting client of HCL. Mr Holland did not inform HCL that he provided consulting services in the name of HCL, or that he would use HCL’s branding and other intellectual property. HCL asserted that it did not, and it would not have consented to Mr Holland providing consulting services to Apache, given that it could provide those same services.
[75] HCL knew that Mr Holland was a director and shareholder of Apache. HCL considered that his entitlement to receive directors’ fees and dividends was an excluded matter. However, when it came to Mr Holland receiving payment from Apache for providing business consulting services, HCL considered that this fell outside the excluded matters. On this view, any services provided and fees earned in this regard were attributable to HCL.
[76] HCL referred to Mr Holland’s conduct on 10 June 2010 when at a directors’ meeting he raised the prospect of HCL providing consulting services to Apache. HCL provided some limited work to Apache and was paid for this work. In September 2010, Mr Holland wrote to Mr Kanji stating: “I think this is worth a bit more. Will keep chipping away”. Later, in November 2010, Mr Holland initiated
Mr Kanji performing work for Apache that fell outside Mr Holland’s skills.36
Mr Holland’s conduct in this regard evidenced his recognition and acknowledgement that the provision of business consultancy services to Apache were outside the bounds of his work as a director of that company, and therefore not capable of being an “excluded matter”.
[77] Between 29 July 2010 and 1 October 2011, Mr Holland issued 12 invoices to Apache for business consulting services. Those invoices used the HCL trading name and brand and stipulated that the fees were to be paid to Holland Corporate. However, the nominated bank account on the invoices was that of TM Advisory. Each invoice gave specific details of the work that was done for Apache, and it is clear from those invoices that the services and fees for which payment was sought were not something that would ordinarily be seen to flow from a director’s role. The total amount received came to $61,700, inclusive of GST.
[78] After October 2011, Mr Holland issued further invoices to Apache for much the same business consulting services as he had earlier performed, but from this time onwards the invoices were issued in the name of TM Advisory, and payment was to be made either to that company’s bank account or to the account of the second defendant. There was no reference to HCL in terms of its branding. HCL contended that this was due to Mr Holland’s awareness of HCL investigating his conduct. These payments came to a total of AU$59,707.50, inclusive of GST.
[79] Included in this total is a sum of $9,707.50 that was deposited in the bank account of TM Advisory. That relates to two Apache invoices being invoice 5 and invoice 12. The details of how those payments were made and why HCC is entitled to the benefit of those payments is set out below.37
[80] Mr Holland issued four other Apache related invoices that in total came to
AU$25,795. The first was an invoice dated 29 July 2010 and was in connection with
the “Abigroup Apache Joint Venture. The fee was for AU$4,250, plus GST.
36 Mr Kanji gave evidence that at the material time he did not realise that the work he did for Mr Holland in November 2010 was not for the benefit of HCL. He said that had he known this he would not have done the work.
37 At [91] and [95].
Payment of this amount, inclusive of GST, (AU$4,675) was made to TM Advisory on 9 August 2010. The second and third invoices were both issued on 25 May 2011. Each was in relation to Apache (in Administration). Fees of AU$7,500 plus GST were sought for each invoice. Payment of these invoices (AU$16,500, GST inclusive) was made to TM Advisory’s bank account on 1 and 20 June 2012. The fourth invoice of AU$4,200, plus GST, was issued on 4 December 2011 for Mr Holland’s services. Payment of AU$4,620 was made to TM Advisory’s bank account on 3 January 2012.
[81] On 2 February 2011, AU$5,115 was deposited in the TM Advisory bank account, and then on 30 March 2011, AU$5,665 was deposited in this account by Apache. No invoices for those sums were available. However, HCL contended that those payments were also made to Mr Holland for business consulting services he had provided.
Evidential findings
[82] I was satisfied that the evidence of the occasions where invoices were issued and payments received established that Mr Holland had performed business consulting services of the type on offer from HCL. Further, he had done so using the Holland Corporate name and brand, despite his agreement to that name and brand being assigned to HCL. Moreover, he had chosen not to inform HCL of those occasions, which suggested that he had not wanted HCL to learn of them. And when
HCL had challenged him about his conduct,38 he had failed to reveal the true extent
to which he had continued to operate on his own account while a director of HCL. Finally, despite some of the invoices being issued in the name of Holland Corporate, he had chosen to have the invoiced amounts paid to a bank account under his control and beyond the control of HCL. The combined effect of this conduct satisfied me that Mr Holland recognised that his conduct was wrongful and in breach of the duties he owed to HCL. For the reasons expressed herein,39 I was also satisfied that the work for which Mr Holland had sought payment from Apache was not within the
“excluded matters”.
38 At the meeting of 3 October 2011.
39 At [74] – [76].
[83] Regarding the occasions after October 2011 when Mr Holland had engaged with clients through TM Advisory, I was satisfied that he had provided those clients with services through TM Advisory that were the type of services that he had provided to them earlier using the brand Holland Corporate. I considered that the provision of services through TM Advisory was also a breach of fiduciary duties he owed to HCL.
[84] Regarding the occasions where deposits were found in the bank account of TM Advisory from identified clients of Mr Holland but no invoices for those amounts were found, I was satisfied that the logical and reasonable inference to draw from those circumstances was that those deposits were also payments for services that he had provided to those entities.40
[85] I was also satisfied from the many occasions when Mr Holland had wrongfully provided business consultancy services for which he invoiced the clients and received payments that he had a propensity to act on his own behalf in a way that was in breach of the fiduciary duties he owed to HCL. I considered that his propensity for acting in this way was a factor that went to confirm the view I had reached on how the deposits from identified clients came to be in the bank account of TM Advisory.
[86] Accordingly, the total amount received by Mr Holland, both where invoices have been identified for the amount received and where deposits were found where it was reasonable to infer that they were for services received, comes to AU$419,725.50.
[87] It follows that the total amount of invoices for group one comes to
AU$419,725.50.
Second group
[88] The second group concerned Mr Holland providing business consulting services for value to third parties in circumstances where HCL contended it was
40 Those occasions are set out at [56] herein in relation to PGS; [71] and [73] in relation to
Diamond Waters; [71] in relation to My Size Pty Ltd; and [81] herein in relation to Apache.
entitled to receive equitable compensation for his conduct. Here, there was no evidence that payment was received for these services. However, in the light of the invoices generated by Mr Holland, HCL contended that his wrongful conduct caused it to suffer loss through him providing services on his own account, rather than through HCL. In this way, HCL contended that he had deprived HCL of the opportunity of providing his services to the third parties. Thus, its loss was of equivalent value to the invoices that Mr Holland rendered for his services. I deal with each occasion in turn.
Balena Forza
[89] On two occasions, Mr Holland provided business consulting services to PGS for its client, Balena Forza. For one such occasion, payment of $11,000 was received. However, on another occasion when PGS was invoiced for $105,000 on account of Balena Forza, no payment was identified.
[90] An invoice dated 4 April 2011 was in evidence. This invoice recorded an amount of AU$94,450, plus GST,41 and described the service provided as: “Balena/Forza part settlement, on term to be discussed being 35 per cent of initial settlement.” Payment of the invoice was directed to the bank account of TM Advisory. No deposit appeared in that company’s bank statements. However, on 23 March 2011, PGS paid AU$105,000 to a personal account of Mr Holland, following a direction he gave by email dated 22 March 2011. This shows that, in an indirect way, this invoice was paid.
J D Herbert
[91] Under the letterhead of TM Advisory Services, Mr Holland issued two invoices to J D Herbert. The first was issued on 7 July 2010 for AU$8,500, plus GST.42 The services provided were described as “Consultancy fee for the period May to June 2010”. The second invoice was dated 11 July 2011 and was for
AU$37,500, plus GST.43 The services were described as “Fees for Consultancy
41 AU$105,500.
42 AU$9,450.
43 AU$41,250.
Services as advised for the year ended June 30th 2011”. There was no evidence of
these invoices having been paid.
Apache
[92] Two invoices were issued to Apache for business services provided by Mr Holland, and no payments were recorded as having been received. The first invoice (being invoice 5) was dated 4 November 2011 for AU$3,675, plus GST.44
The services were described as “Fees in respect of time spent by Peter Holland in October, in relation to accounts finalisation, preparation of cashflow forecasts, liaising with Continum and the directors”. The second invoice was dated 29
December 2011 (being invoice 12) and was for AU$6,150, plus GST. The services described were “Fees for December, covering review of cashflows, and related forecasting of 2011/12, liaising with Continum in relation to ATO matters being in the amount of $3,650 plus catch up of the balance of advisory and services for 2011 of $2,500”. These amounts totalled AU$6,765, including GST. Mr Ryan for HCC said there was no evidence of receipt of those payments.45
Evidential findings
[93] The evidence satisfied me that Mr Holland had provided services to PGS in respect of Balena/Forza to the value of $105,000. The services he provided were invoiced for this amount and payment of this sum was made indirectly to his personal account.
[94] In the case of the invoices to J D Herbert, there was no evidence of payment. Nonetheless, I considered that there was sufficient evidence to prove to the civil standard of proof that Mr Holland had provided those services. The fees sought were an indication of the value that he placed on those services. I considered that it was reasonable to adopt the value that he applied to those services.
[95] As regards the Apache invoices, in reliance on Mr Ryan’s evidence I found
that the total value of Mr Holland’s services in respect of group two came to
44 AU$4,042.50
45 See [95] below.
AU$166,407.50. However, in preparing the reasons judgment I have come upon bank statements of TM Advisory which show that in relation to the work performed for Apache, payments were made to the bank accounts of TM Advisory. On 15
December 2011 a deposit of $4,042.52 was made and recorded on the bank statement as payment of invoice 5. On 4 January 2012 a bank statement of TM Advisory records receipt of $5,665 as a payment to invoice 12. This would leave $1,100 outstanding on invoice 12. Thus when the missing payments are identified and taken into account, the equitable compensation would reduce by $9,707.50 to the sum of
$156,700. Those payments now have to be added to the total amount sought for the account of profits for the group one claims.
[96] It follows that the total amount of invoices for group two comes to
AU$156,700.
Third group
[97] The third group concerned Mr Holland’s dealings with Glen Eagles Securities (Aust) Pty Ltd (“Glen Eagles”). There was no evidence that payment was made for services that he provided to Glen Eagles. HCL argued that I could infer that payment was made. Also for the same reasons as apply to the second group, HCL contended Mr Holland’s wrongful conduct had caused it to suffer loss to the value of the invoice rendered to Glen Eagles for the services it received.
[98] While a director of HCL, Mr Holland reached an agreement in writing with Glen Eagles for the payment of a significant fee by Glen Eagles. The agreement was reached and recorded in emails exchanged between Mr Holland and directors of Glen Eagles on 5 April 2011. The fees were payable on completion of a transaction between Glen Eagles and BOS International (Aust) Ltd (“BOSI”). Mr Holland’s role was to assist in the completion of that transaction. The purchase price in the Glen Eagles agreement was NZ$16.5M. The fee payable was for NZ$450,000. Mr Holland did not disclose the fee arrangements with Glen Eagles to HCL, although he did tell the other directors of HCL on 8 April 2011 that he had some recent dealings with senior members of BOSI.
[99] HCL later learnt that on 7 April 2011, Mr Holland signed a confidentiality agreement provided by BOSI in the name of HCL. On 8 April 2011, BOSI asked Mr Holland to arrange for two directors of the plaintiff to sign the confidentiality agreement. Mr Holland did not inform the other directors of HCL; nor did he seek a signature from one of them. Instead, he amended the confidential agreement by hand so that HCL was removed as a party, and replaced by TM Advisory trading as Holland Corporate. HCL argued that Mr Holland did this because he could not obtain the signature of another HCL director without alerting HCL to his involvement with BOSI, which was something he did not want to do.
[100] By 25 May 2011, Mr Holland had confirmation that the deal had been signed by BOSI, and he understood that he was entitled to a fee of, by his calculation,
$400,000. Mr Holland did not inform HCL of the completion of this transaction and the fees that were payable in respect of it. He did, however, offer to Glen Eagles to reduce the amount of the fee payable, saying that he felt it was too much, and that he would be more comfortable on settling at something lower. In doing so, he told Glen Eagles that:
Hopefully my offer builds confidence in our firm/me and what we do and trust that we will do the right thing.
[101] On 29 May 2011, Glen Eagles confirmed that they hoped that the transaction would settle in the next few weeks, and expressly confirmed that Mr Holland would then be paid his “well deserved fee”.
[102] Then on the following day, 30 May 2011, Mr Holland wrote to Mr Kyriak and advised him that he had been called by Glen Eagles, who had asked him if he could open a door to the Bank of Scotland on a deal. Mr Holland confirmed that he had agreed to help for a fee of $25,000, but he described the deal as a “long shot”. This advice to Mr Kyriak was at odds with the communication from Glen Eagles the previous day. It presented Glen Eagles as offering a future prospect of work when the email from Glen Eagles the very day before presented Mr Holland’s engagement with Glen Eagles as something that had been successfully executed.
[103] The Glen Eagles transaction was raised at the meeting of directors on
3 October 2011 as by this time HCL had wind of it. At that meeting, Mr Holland confirmed that he had assisted Mr Lance Rosenberg, who is a director of Glen Eagles, with a transaction with BOSI. Mr Holland said the deal had not been concluded and he confirmed that if a finder’s fee emerged, it would be to the account of HCL.
[104] Following the 3 October 2011 meeting, Mr Holland proposed to Glen Eagles on 20 October 2011 an arrangement that entailed Glen Eagles paying a “finder’s fee” of $25,000 in respect of the BOSI transaction, and that he, Mr Holland, would enter into a services agreement with Glen Eagles, with a minimum fee payable to him of “$100,000 with an “at risk” component of between $250-$350K”. This proposal was made in the name of TM Advisory. Mr Holland sent a further proposal to Glen Eagles on 16 November 2011, which proposed a services agreement with a sign-on fee of $10,000 and monthly fees payable of $20,000 per month for a minimum of six months. This offer was also made in the name of TM Advisory. These proposals were inconsistent with the impression to be gained from the Glen Eagles’ email of
29 May 2011. Further, there is no evidence of any response from Glen Eagles to the later proposals.
[105] HCL submitted that Mr Holland was dishonest in disclosing to it that his fee arrangements with respect to Glen Eagles were for $25,000 when, at that time, there was an existing understanding between him and Glen Eagles that he was entitled to a fee by his calculation of $400,000. HCL submitted that Mr Holland was dishonest in his disclosures regarding the Glen Eagles transaction at the meeting of directors on
3 October 2011 insofar as he did not disclose the fee arrangements that he had negotiated, and that BOSI had signed the deal with Glen Eagles in May 2011.
[106] HCL submitted that the arrangements Mr Holland purported to make with Glen Eagles from 20 October 2011 onwards were no more than a smokescreen to cover the earlier more lucrative arrangement that he had made with Glen Eagles as evidenced by the emails in April and May 2015. HCL argued that the later emails were simply the result of Mr Holland being aware by then that he was being investigated by the plaintiff.
[107] HCL submitted that Mr Holland had acted disloyally and dishonestly in respect of the Glen Eagles transactions by:
(a) Taking steps to exclude HCL from the transaction by having it removed as a party to the confidentiality agreement;
(b)Failing to keep HCL informed as to the existence and progress of the opportunity, including the amount of fees payable in respect of that transaction;
(c) Deliberately misinforming HCL that it had an entitlement to a fee of
$25,000, when the fee entitlement was in the mind of Mr Holland
$400,000 and, as agreed between him and Glen Eagles, $450,000;
(d)Providing incorrect and misleading answers to queries at the meeting on 3 October 2011 and in the subsequent notes of that meeting; and
(e) Apparently taking steps to re-negotiate the agreement with Glen Eagles once Mr Holland was aware that he was being investigated by HCL.
[108] HCL further submitted that it had lost the opportunity to recover the fees paid by Glen Eagles as a direct result of Mr Holland’s disloyalty and dishonesty. It submitted that it was reasonable to expect that Glen Eagles, which was clearly willing to pay what it described as a “well earned” fee would have paid; and HCL would have received the fees in question, had Mr Holland acted properly. Accordingly, HCL submitted that Mr Holland did not take the steps that a reasonable director would have taken to recover the fees in question for HCL. Indeed, on the contrary, Mr Holland seemed to have offered to reduce the fees payable, and seemed also to have subsequently sought to reach alternative fee agreements with Glen Eagles for his own benefit in what HCL described as an apparent attempt to recover only $25,000 for HCL, with a significant amount to himself directly.
[109] I was satisfied that HCL’s submissions were supported by the evidence relevant to the Glen Eagles’ transaction. The purpose that could reasonably be inferred from Mr Holland’s removal of HCL’s brand name from the confidentiality agreement was for the avoidance of the requirement imposed by BOSI for two directors to execute this agreement. Mr Holland could never have met that requirement without first alerting HCL’s directors to his involvement with Glen Eagles.
[110] Further there was no reasonable explanation for Mr Holland not referring all the relevant material regarding the Glen Eagles matter to HCL at the relevant times. Any good fiduciary would have done so. Instead the circumstances showed that Mr Holland had chosen to keep the Glen Eagles agreement to himself. This all shows that he wanted to benefit personally from the Glen Eagles transaction.
[111] Mr Holland’s raising the Glen Eagles matter as a possible opportunity for HCL after he had been advised by Glen Eagles that the transaction had concluded is suggestive of an attempt by him to present the transaction as no more than a possibility, just in case HCL heard about it. Similarly he failed to provide a proper explanation about his involvement in the transaction when asked about it at the 3
October 2011 meeting. His conduct here strikes me as dishonest.
[112] Mr Holland’s emails to Glen Eagles after 30 May 2011 might suggest that the transaction had not yet been completed. On the other hand his conduct in this regard could be viewed as attempts by him to minimise his role and fee so that, if HCL did learn more about his dealings with Glen Eagles, he could have presented them as earning him no more than the lower fees referred to in the post 30 May 2011 emails.
[113] In view of the manner in which Mr Holland had conducted himself in his dealings in the transactions in groups one and two, I considered that the latter view was one that was reasonably open to me to take. I was satisfied that Mr Holland’s conduct in the group one and group two transactions revealed a propensity on his part to disregard his fiduciary obligations to HCL, to put his personal interests first and to attempt to hide such wrongful conduct from HCL. When he was challenged
about such conduct, he had either attempted to deny it or to explain it away by giving accounts that did not square with the actual facts.
[114] In addition, at the meeting of HCL directors on 3 October 2011 Mr Holland actually admitted to one circumstance that showed him to breach his fiduciary duty to HCL. This circumstance also reveals that Mr Holland has on occasion attempted to hide the true position from HCL and only acknowledged the true position once forced to do so. The admission related to an Australian company identified as Sodashi. At the 3 October 2011 meeting, when Mr Holland was questioned about whether Sodashi had paid him for services he had provided to it he advised that he was not sure what Sodashi had done, but that he understood fees had been paid. He claimed he had not provided Sodashi with an invoice. However, he later admitted that in May 2011 he had provided an invoice to Sodashi and that he had directed payment of the invoice to a bank account controlled by him. In short, the explanations Mr Holland gave regarding the Sodashi matter changed over time. The admission that payment had been received into an account controlled by him followed the threat from Mr Kyriak that if he did not receive a full explanation for this matter, he would approach Sodashi for an explanation. Once HCL learned that Mr Holland had received payment for the work he had done for Sodashi, it demanded he disgorge that payment to it. This was done in full on 13 October 2011.
[115] I considered, therefore, that HCL had provided enough direct and propensity evidence to establish that Mr Holland had embarked on the Glen Eagles transaction for his own benefit and advantage; and so in breach of his fiduciary duty to HCL.
[116] There was enough circumstantial evidence in my view to establish that the Glen Eagles transaction had been concluded and that he was entitled to receive the agreed fee of NZ$450,000. The email communications from Glen Eagles stated that the relevant agreement had been signed, settlement was to occur in a couple of weeks and confirmed the intention to pay the “well earned” fee on settlement. There were no further communications from Glen Eagles to suggest that the settlement did not proceed.
[117] Further, whilst it may have been convenient for Glen Eagles to delay payment until the agreement had settled, it is hard to see how it could legally avoid responsibility for payment of what it acknowledged to be a “well earned fee” simply because the other party to the agreement defaulted on settlement. Accordingly, I do not see the payment of the fee being contingent on settlement occurring. There is no evidence to suggest that might have been so.
[118] On the other hand, if I was wrong in drawing that conclusion, I was satisfied that at the very least, Mr Holland had provided services to Glen Eagles which were to the value of NZ$450,000, this being the value that Glen Eagles placed on those services. I considered, therefore, that Mr Holland’s wrongful conduct had deprived HCL of the chance of providing services of that value to Glen Eagles. There was no doubt in my mind that Glen Eagles would have engaged HCL as the original confidentiality agreement stated HCL’s trading name, “Holland Corporate”, and Glen Eagles had sought the signatures of two directors of Holland Corporate. This informed me that Glen Eagles was offering to engage the company, Holland Corporate, and not Mr Holland in person. Further, Glen Eagles had shown it was satisfied with Mr Holland’s work and considered he deserved his “well earned” fee; and since Mr Holland could have performed those services through HCL it was clear to me that HCL was in just as good a position as Mr Holland was to provide Glen Eagles with the services that it required.
[119] I considered that HCL has taken the proof of the Glen Eagles dealings as far as it could. Had this proceeding gone ahead as a defended hearing it would have been for Mr Holland to explain that he had not profited at HCL’s expense from the Glen Eagles matter. It is a well established principle of equity that where there is a fiduciary relationship between parties, the party that has or has taken an unfair advantage over the other party carries the burden of proving that he has not used that
advantage for his personal benefit.46 Here Mr Holland owed HCL a fiduciary duty.
He had an unfair advantage over HCL as unbeknownst to that company he had engaged in conduct that put his personal interests in conflict with those of HCL; to the detriment of HCL. He was the person best placed to explain what he had done.
In such circumstances, I considered that once HCL had established an evidential
46 Erlanger v New Sombrero Phosphate Co (1878) 3 App Cas 1218 (HL).
foundation that showed Mr Holland acting to pursue his personal advantage, in breach of his fiduciary duty to HCL, the onus of proof then shifted to Mr Holland to prove that: (a) he had enjoyed no personal benefit from those actions; and/or (b) his wrongful conduct had not been detrimental to HCL.
[120] However, because this proceeding had proceeded as a formal proof hearing there was no evidence from Mr Holland. In such circumstances I was satisfied that HCL had taken matters as far as it could and, as there was no evidence from Mr Holland to suggest otherwise, I considered that HCL had proved that the Glen Eagles matter was another example of Mr Holland performing valuable business consulting services on his own behalf and so depriving HCL of the chance of providing those services. I was also satisfied that the value of those services amounted to the NZ$450,000 fee that he was to be paid under this arrangement. I considered that Mr Holland’s attempts to reduce the value of those services by offering to accept a discounted payment were no more than him having an eye to receiving future work from Glen Eagles and so seeking to make himself more attractive to Glen Eagles. I did not consider that such conduct could, from the perspective of HCL’s entitlement to compensation, reduce the value of the services that Mr Holland provided to HCL. Accordingly, I considered that for the purposes of assessing equitable compensation the services retained the value of $450,000.
[121] The evidential findings I reached in relation to Mr Holland’s conduct were based on the civil standard of proof. However, when it came to the findings that show him to have given false explanations and to have attempted to hide his breaches of fiduciary duty from HCL I have taken into account the seriousness of such findings and therefore the need for strong and cogent evidence. I was satisfied that the findings I made in this regard were supported by such evidence.
Relief
[122] Regarding the category one matters, here Mr Holland had directed payment for his services to be made to TM Advisory. Accordingly, I considered that HCL was entitled to relief that required Mr Holland to ensure that those profits were disgorged and paid to HCL.
[123] In the alternative, I considered that insofar as it might be thought that the profits had gone to a separate entity in the form of TM Advisory, the loss of those profits entitled HCL to equitable compensation from Mr Holland. It was he who was responsible for HCL not enjoying the advantages and benefits of the category one matters, and it was he who was responsible for the payments being directed to T M Advisory.
[124] Thus whether the relief regarding the category one matters was viewed as an account of profits or equitable compensation I was satisfied that the total sum of money that I had found represented the profits that flowed from Mr Holland’s breach of fiduciary was payable to HCL.
[125] Regarding the category two and three matters, here HCL only sought equitable compensation. Equitable compensation is now readily available.47 Here I saw no difficulty in placing a value on the compensation. Here the compensation was for HCL missing out on having its director perform on its behalf services he clearly was capable of performing to clients who clearly wanted his services. Thus, I saw no need to discount the value of the compensation on the basis that HCL was seeking compensation for loss of a chance.48 I was satisfied that the other parties to the wrongful transactions would have been just as happy with Mr Holland’s services if he had performed them in his role as a director of HCL. I was satisfied that it was Mr Holland’s breach of fiduciary duty owed to HCL that had caused HCL to lose the opportunity to perform those services. I was also satisfied that the loss HCL had suffered is not something that would have occurred in any event.49 I saw it as being entirely due to Mr Holland’s wrongful conduct.
[126] Regarding the account of profits relief, I did not see this proceeding as raising one of the issues that was discussed in both Premium Real Estate and Chirnside v Fay: namely, whether an errant fiduciary duty should be allowed some allowance for
his efforts in generating the profits for which disgorgement is sought. This is
47 Aquaculture Corp v New Zealand Green Mussel Co Ltd [1990] 3 NZLR 299 (CA); Stevens v Premium Real Estate Ltd [2009] NZSC 15, [2009] 2 NZLR 384; and Chirnside v Fay [2006] NZSC 68, [2007] 1 NZLR at [20], n 26.
48 Chirnside v Fay [2007] 1 NZLR 433 (SC) recognises that, in principle, some discount may on occasion be appropriate.
49 Stevens v Premium Real Estate Ltd [2009] 2 NZLR 384 (SC).
because the same efforts that Mr Holland provided in his own right should have been provided by him as a working director of HCL, had he been true to his fiduciary obligations. Thus, there is no personal factor here that he could have pointed to as responsible for the other parties receiving something over and above what HCL could have provided to them.
[127] As to whether the account of profits and equitable compensation should be discounted to allow for expenses that Mr Holland would necessarily have incurred in providing the services to the third parties, this cannot be done without evidence to support such expenses. In Crampton-Smith v Crampton-Smith50 the Court of Appeal awarded the plaintiff gross profits from the proceeds of sale without any deductions in favour of the defendant. The absence of any evidence to support making allowance for the plaintiff’s cost and effort in constructing townhouses meant that the Court refused to speculate as to how some form of allowance might be made.51
[128] In addition, HCL had argued that Mr Holland’s conduct was so reprehensible that he should not be entitled to any financial recognition for any value that he may have added to his services. I accept that submission. This is a case where Mr Holland knowingly placed his personal interests before those of HCL and then attempted on occasion to hide his wrongful conduct from HCL.
[129] HCL also sought exemplary damages. I did not award those damages. In Downey v Holland,52 I determined the basis on which this proceeding could continue. In view of that finding, I considered that exemplary damages did not fall within the scope of the limitations that I had placed on HCL’s ability to continue with its claims against Mr Holland.
[130] I included provision for GST in the sums that I found were recoverable from
Mr Holland. This was because had HCL provided these services giving rise to those payments, it would have been liable to pay GST on them. I considered allowance
50 Crampton-Smith v Crampton-Smith [2012] NZLR 5 (CA).
51 In Crampton-Smith a sister was instructed to purchase land in her brother’s name with funds he provided. Instead she purchased it in her own name and developed townhouses on the land. Because there was no evidence of the expenses included in this exercise she was required to account to her brother for the gross profit rather than net profit from the proceeds of sale.
52 Downey v Holland [2015] NZHC 595.
should be made for GST so that HCL could, in the way that it ordinarily would, be in a position to discharge liability for GST as a result of recovering the profits and compensation for loss of change to earn profits that I had found it was due.
[131] The profits for which Mr Holland should account (group one invoices) to
HCL come to a total of AU$419,725.50.
[132] The equitable compensation that Mr Holland should pay HCL for the group two matters comes to a total of AU$156,700.
[133] The equitable compensation that Mr Holland should pay HCL for the group three matters comes to NZ$450,000.
[134] The amount differ from the total amounts in the result judgment.53
Duffy J
53 As noted above, the differences in totals in the group one and group two amounts are due to the inclusion of AU$9.707.50 in group one which was previously in group two, as well as AU$30,780 erroneously included in the total for group one in the result judgment due to a typographical error and double counting of two amounts: see [3], n 2 and 3.
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