Holmes v Kiriwai Consultants Ltd - [2015] NZCA 149

IN THE COURT OF APPEAL OF NEW ZEALAND

CA201/2014
[2015] NZCA 149

BETWEEN	KENNETH ANGUS HOLMES Appellant
AND	KIRIWAI CONSULTANTS LIMITED First Respondent
KENNETH ANGUS HOLMES AND DAVID BRIAN RUSSELL AS TRUSTEES OF THE K A HOLMES 2003 FAMILY TRUST Second Respondent

Hearing:	5 February 2015 (further submissions received 26 February 2015)
Court:	Stevens, French and Miller JJ
Counsel:	B D Gray QC and S D Williams for Appellant P J Dale for Respondents
Judgment:	6 May 2015 at 10.00 am

JUDGMENT OF THE COURT

AThe appeal is dismissed and the judgment of the High Court against the appellant for $3.287 million is confirmed.
BThe application for extension of time in which to bring the cross-appeal is granted.
CThe cross-appeal is allowed. The judgment of the High Court against the second respondents is quashed and replaced with a judgment in the sum of $1,932,908.
DThe appellant must pay the first respondent costs for a standard appeal on a band A basis and usual disbursements.

____________________________________________________________________

REASONS OF THE COURT

(Given by French J)

Introduction

A company director buys the shares of a minority shareholder. The director does so without telling the minority shareholder that the company is in the process of negotiating a highly lucrative deal that, were it to go ahead, would significantly affect the value of the shares. Shortly after the shares are transferred, the lucrative deal does indeed go ahead. The minority shareholder (who had also been an employee of the company) finds out about it and sues the director.
That was the scenario before Courtney J in the present case.[1]
[1]Kiriwai Consultants Ltd v Holmes [2014] NZHC 512.
The Judge held that the fair value of the shares for the purposes of s 149 of the Companies Act 2003 was not affected by the possibility of the lucrative deal but that, in the special circumstances of the case, the director owed a fiduciary duty to the minority shareholder to disclose what he knew about the negotiations. The Judge found the director had breached that duty and awarded the minority shareholder the difference between what was paid for the shares and the amount they would have been worth after the lucrative deal went ahead.
The director now appeals that decision and the minority shareholder cross‑appeals the Judge’s ruling regarding the assessment of fair value under s 149.

Background

The appellant, Mr Holmes, is an experienced businessman in the forestry industry. In 2006, he acquired the Lambert group of companies. The acquisition was done through the vehicle of a company he formed especially for that purpose called Holmes Ventures Limited (HVL).
Kiriwai Consultants Limited (Kiriwai) had been providing contract management services to the Lambert Group. Kiriwai was owned by Mr Emmens who was a friend of Mr Holmes.[2]
[2]Mr Emmens was a director and shareholder of Kiriwai. The other shareholders were his wife and a family trust.
After the takeover, Mr Emmens (through the auspices of Kiriwai) continued to provide management services to HVL. It had…

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: [2015] NZCA 149
Decision Date: 6 May 2015 at 10.00 am

CaseChat Overview and Summary

In the Court of Appeal of New Zealand, Holmes appealed against a decision of the High Court that found him liable for a breach of fiduciary duty and ordered him to pay Kiriwai Consultants Limited, the company he had taken over, $3.287 million. Kiriwai cross-appealed the finding on the assessment of fair value under s 149 of the Companies Act 2003. The Court dismissed the appeal and confirmed the High Court judgment against Holmes. The Court also granted an extension of time for the cross-appeal to be brought and allowed the cross-appeal. The judgment of the High Court against Kiriwai was quashed and replaced with a judgment in the sum of $1,932,908. Holmes must pay Kiriwai costs for a standard appeal on a band A basis and usual disbursements.

The Court found that the fair value of Kiriwai's shares for the purposes of the s 149 claim was $4.1395 million, taking into account the likelihood of the sale of Quality Marshalling proceeding at $34 million. The Court also found that a fact-based fiduciary duty existed between Holmes and Kiriwai because of Kiriwai's vulnerability arising out of an imbalance of power and knowledge as between the parties. Holmes breached that duty by failing to disclose the fact of the negotiations with the Port of Tauranga in respect of the Quality Marshalling shares. The Court held that the circumstances did give rise to a fiduciary duty on the part of Holmes to disclose the information about the prospective sale of Quality Marshalling to the Port.

Orders