Il Forno Limited v Kleine
[2020] NZHC 1889
•31 July 2020
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2016-404-621
[2020] NZHC 1889
BETWEEN IL FORNO LIMITED
Plaintiff
AND
DOUGLAS JAMES KLEINE
First defendant
AND
FLOW CONTROL LIMITED
Second defendant
AND
ANDREW MICHAEL KLEINE
Counterclaim defendant
Hearing: 13-17 and 20 July 2020 Appearances:
MJW Lenihan for the plaintiff and counterclaim defendant J G Ussher for the defendant and counterclaim plaintiff
Judgment:
31 July 2020
JUDGMENT OF JAGOSE J
This judgment was delivered by me on 31 July 2020 at 2.30pm.
Pursuant to Rule 11.5 of the High Court Rules
………………………… Registrar/Deputy Registrar
Counsel:
MJW Lenihan, Barrister, Auckland PCW Law, Auckland
IL FORNO LTD v KLEINE [2020] NZHC 1889 [31 July 2020]
[1] The plaintiff (“Il Forno”) operates a bakery and café of some repute and longevity in Auckland’s Ponsonby, run respectively by Andrew Michael Kleine (“Andrew”) and Helane Paula Mead.
[2] On 26 October 2006, with financial assistance from Andrew’s respectively older and younger brothers, Douglas James Kleine (the first defendant, “Jim”) and Barry John Kleine (“Barry”), Andrew acquired a former shareholder’s half-interest in the business. Jim also provided the business with professional accounting and other services. On 11 November 2015, Andrew terminated Jim’s involvement with the business, alleging Jim’s professional accounting services were inadequate and negligent, such as caused Il Forno to be liable for fines for failing to file tax returns. I mean no disrespect to distinguish the brothers by their first names, as was done at trial.
Claim and counterclaim
[3] In this proceeding, among other relief, Il Forno seeks to recover all money paid to the second defendant (Jim’s company, “Flow Control”) for Jim’s services and on the fines liability. They, in turn, dispute any inadequacy or negligence, and assert their financial assistance to Andrew was to acquire Andrew’s half-share in Il Forno for Flow Control. Flow Control also counterclaims for payment of some additional $650,000 as compensation for the balance of Jim’s services to Il Forno, and an unquantified sum as damages for Andrew’s alleged breach as Il Forno’s director of fiduciary duties owed to Flow Control, as holder of half its shares. Il Forno and Andrew respectively deny the foundation for any such liability. Various technical defences, including under the Limitation Acts 1950 and 2010, also are raised by both sides.
[4] To be precise, Il Forno seeks declarations Andrew is the sole legal and beneficial shareholder of Il Forno, and Jim’s or Flow Control’s involvement with it has been cancelled (in terms of ss 37 and 41 of the Contract and Commercial Law Act 2017) and Il Forno has no further obligations to Jim or Flow Control; and claims compensation under the 2017 Act, or as contractual and tortious (negligence) damages, in the amount of $43,277.61 (being the GST-exclusive fees paid to Flow Control
within the limitation period), plus $13,600 in fines and costs, and legal fees incurred, arising out of the Commissioner of Inland Revenue’s prosecution of Il Forno.
[5] So far as the statutory and contractual money claims are concerned, Jim and Flow Control assert Il Forno failed to mitigate its losses by abandoning or discontinuing its appeal against the fines liability finding; Il Forno waived or is estopped from asserting any requirement for Flow Control’s fees to be invoiced; and, if Jim is not Il Forno’s half-shareholder, Flow Control has an equitable set-off for the
$10,000 in financial assistance plus quarterly compounding interest since the date of its payment.1 On the negligence claim, Flow Control and Jim say Il Forno’s and Andrew’s contributory negligence caused Il Forno’s losses.
[6] Il Forno also seeks to recover the sum of the money claims as money had and received by Flow Control and/or Jim on their services’ failure to provide consideration for its receipt. Flow Control and Jim again assert affirmative defences of waiver and estoppel and limitation. And Il Forno seeks to recover its electronic data in Flow Control’s or Jim’s possession in trespass or conversion.
[7] By its counterclaim, Flow Control seeks a declaration Andrew holds 5000 shares in Il Forno on trust for Flow Control, and an order transferring those shares to it. It also claims $650,000 (plus GST) in quantum meruit for some 25 services said to have been provided to Il Forno over the nine or so years of Flow Control’s involvement through Jim with Il Forno’s business. Il Forno asserts the first four years of that involvement now is time-barred. And then there is Flow Control’s breach of trust claim against Andrew, as mentioned.2
[8] Although counsel essayed in submission lists of issues for my determination, I find it more constructive in this case to work my way through the particular causes of action, starting with Il Forno’s claim.
1 Il Forno’s claim to recover also disbursements paid by Flow Control to Il Forno’s suppliers was abandoned prior to closing arguments. I apprehend Flow Control’s affirmative defences of its change of position in making such payments, and equitable set-offs for monies it paid to Il Forno staff and customers, thus have no application.
2 At [3] above.
Il Forno’s claim
—ownership of Il Forno
[9] On 15 May 2003, Il Forno was incorporated as a joint venture between Andrew and Antonio Crisci, an Auckland restaurateur. Andrew previously worked for Mr Crisci, running his restaurants Toto and Non Solo Pizza. Andrew left that employment to set up with a friend an artisan bakery, Wild Wheat Limited, focusing on bread products. After a few years, wishing to focus more on pastries and sweets, Andrew proposed the joint venture to Mr Crisci, by which Mr Crisci would fund and manage the business, for Andrew’s operation. Mr Crisci agreed.
[10] 5000 shares in Il Forno were held each by Andrew and a company owned by Mr Crisci, Toto Limited. The terms of their shareholdings were not more closely evidenced, although Mr Crisci’s accountants proposed the shares should be acquired by Andrew paying $5,000 in cash, and Toto incurring the same value in meeting Il Forno’s set-up expenses.
[11] Jim previously had been employed as a management accountant by Spotless Catering Services (NZ) Limited. He says he then provided professional accountancy services through Flow Control to various clients. Jim became involved in Il Forno’s business from late 2004 or early 2005, to assist Andrew in achieving its more profitable operation, from an initial position of substantial start-up losses. Over time, Jim progressively attended to Il Forno’s payroll, payments to suppliers, and debtor management, seemingly to avoid costs otherwise incurred by Mr Crisci’s or Toto’s provision of those services. Jim says he provided those services “just because Andrew was a family member”; Andrew says Jim’s contribution was “helpful”.
[12] By mid-2006, tensions had grown in the relationship between Andrew and Mr Crisci.3 By email of 8 October 2006, Mr Crisci offered to sell Toto’s half-share in the business to Andrew for $135,000. A few minutes later, Mr Crisci advised he also sought distribution to each Andrew and Toto of Il Forno’s “surplus” funds as at
3 Andrew and Jim both have explanations for the tensions, Jim in particular attributing the tensions to Mr Crisci’s dissatisfaction with Andrew, and financial pressure on Mr Crisci. Mr Crisci was not called to give evidence, but there was no explanation of his unavailability. Without Mr Crisci’s evidence, I am not prepared to give any weight to his contended motivations.
31 October 2006. Andrew referred the emails to Jim, who responded the following day to ‘accept’ the former offer on Andrew’s behalf. The ‘surplus funds’ issue was resisted by Jim, and – while initially contentious – the transaction settled on payment of
$135,000 only, with Andrew becoming Il Forno’s sole registered shareholder and director on 26 October 2006. In the lead-up to settlement, the purchase price was deconstructed by Jim in explanation to Andrew, and separately to Mr Crisci, as comprising approximately $111,000 owing on Toto’s shareholder account and (thus)
$24,000 for Toto’s 5000 shares. On 16 October 2006, Jim asserted to Mr Crisci Il Forno’s constitution required it to settle the transaction within 14 days of his ‘acceptance’ of Toto’s offer (if the offer was not rendered incapable of acceptance by Mr Crisci’s immediately following request for a share of the “surplus” funds).
[13] Andrew funded the purchase from a range of sources, including some $2,000 from his own home loan, a contribution of $10,000 from Flow Control on 11 October 2006, some $23,000 from Il Forno’s facilities, and a $100,000 loan from Barry on 12 October 2006. The last loan was made in two tranches: $88,000 to Il Forno’s, and
$12,000 to Andrew’s, bank accounts. Jim orchestrated the split, I infer ultimately to be able to show Il Forno’s repayment of the $111,000 (including drawing on its available cash reserves and overdraft facility, eliminating any prospect of a “surplus” for distribution), and Andrew’s payment of the $24,000 balance.
[14] Neither Barry’s loan nor Flow Control’s contribution is documented in any way. There is no evidence from Barry. Both Andrew and Jim (and Ms Mead) say Barry’s loan attracted interest, Jim saying the interest compounded quarterly, and was paid off in full. Andrew understood both Barry’s loan and Flow Control’s contribution were repaid by Il Forno.
[15] This is a convenient place to address some issues with Andrew’s and Jim’s evidence. The only apparently contemporary evidence of repayments to Barry is a 12 March 2020 extract of general journal entries under the heading “2-3100 Bank Loans”. They illustrate a 12 October 2006 credit of $100,000, noted “Record refinancing of A Crisci”, and fourteen debits totalling $100,000 over the course of 2007, twelve of between $4,000 and $15,000 noted as “Creditors DC Batch”. A 23 April 2007 $6,000 payment noted “Record Loan repayment”, and a 13 December
2007 $1.00 payment noted “Gold [coin] final payt to Barry”, complete the record. The extract is headed “Il Forno Ltd”, “Account Transactions [Accrual]”, “01/10/2006 To 31/13/2007”.4
[16] Thus there is no independent support for any payment of interest to Barry. Andrew says he had no visibility of Il Forno’s finances except for what Jim told him. Although Ms Mead used Il Forno’s MYOB financial management software to enter café sales, her comprehension of Il Forno’s payments to Barry also appear to be from what she was told by Jim.
[17] So far as Andrew’s and Jim’s oral evidence is concerned, there is a degree of narrative in their accounts not soundly reflected by any contemporaneous record. An illustrative example is Andrew’s evidence Jim “had access to Il Forno’s ANZ bank accounts, from when he assisted with the shareholding buyout”. Andrew earlier said, in connection with various transfers in mid-October 2006 within Il Forno’s bank accounts in preparing for payment to Toto, “I gave [Jim] access to Il Forno’s bank accounts, as he was facilitating the transaction”. But Jim appeared to have had some access to Il Forno’s bank accounts from a materially earlier date: on 30 August 2006, the ANZ recommended to Jim he “[hold] off sending any outward payments at this time”, seemingly because of some instruction given by Mr Crisci to the bank. While Mr Crisci’s instruction is not itself in evidence, his covering email to Andrew on 29 August 2006 forwarded “emails that I sent to Jim last year”, suggesting Jim had some involvement for Il Forno also in 2005.
[18] In response to the ANZ, Jim said he “assumed accounting control of Il Forno in late February 2005”. At that time, Il Forno “was in some financial difficulty. That situation has been resolved under my guidance”. But Jim’s evidence is of his progressive provision of free services to avoid the cost incurred by their alternate provision. That is not a sustainable response to any underlying financial difficulty, however much it may provide breathing room to establish a viable business, and is substantially less than “accounting control”. Andrew has nothing more to say about
4 I apprehend from other evidence, including Ms Davis’ 2017 observation Il Forno’s MYOB financial management system continued to record Barry’s $88.000 loan as outstanding in the loan account, these journal entries were made by Jim in some database maintained separately from Il Forno’s MYOB system. I address that at [50]–[54] below.
Jim’s involvement with Il Forno prior to his acquisition of Toto’s shareholding. He observed “Jim was doing some computing work for Mr Crisci and told me he had a good relationship with him”, to justify Andrew’s involvement of Jim in the transaction.
[19] I am reluctant to accept either Andrew’s or Jim’s narrative evidence as accurately recording anything that lacks contemporaneous foundation. I am concerned by Andrew’s lack of recollection of events “17 years ago”, and Jim’s tendency to embellish factual references with exculpatory and self-aggrandising narrative.
[20] So far as Flow Control’s contended acquisition of Andrew’s half-shareholding in Il Forno is concerned, Jim rationalised the acquisition in evidence as Andrew otherwise could not fund acquisition of Toto’s shares, Il Forno’s need for additional capital investment meant “there were limited prospects of Flow Control receiving payment from Il Forno for its services in the near term”, and:
I considered that it was essential that Flow Control should be entitled to benefit from the substantial anticipated increase in Il Forno’s value by way of a shareholding.
… [I]t was agreed between Andrew and I that Andrew would sell his existing shareholding to Flow Control and then restore his own holding by acquiring Toto’s shareholding.
[21] There is a number of difficulties with that claim. First, despite Jim’s and Flow Control’s counterclaim pleading agreement “on or around 1 October 2006 at a meeting at Il Forno’s premises between Andrew … and Jim”, no particulars of how, when, or where such agreement was reached, or what it comprised, otherwise were evidenced. Second, the agreement is denied by Andrew. Third, Jim and Flow Control admit Il Forno was incorporated as a joint venture between Andrew and Mr Crisci. But that “joint undertaking or activity”, “some contractual association … with a view to mutual profit”,5 is defeated by sale of Andrew’s shares to Jim as a third party without Mr Crisci’s consent (of which there is no evidence). Fourth, Jim’s 13 October 2006 “discussion points” description of the transaction to Mr Crisci proposed Il Forno settle the balance of the purchase price not covered by Il Forno’s available cash on hand and
5 Commerce Commission v Fletcher Challenge [1989] 2 NZLR 554 (HC) at 615, citing United Dominions Corporation Ltd v Brian Pty Ltd (1985) 60 ALR 741 at 746.
Barry’s loan “from [Andrew’s] resources”. Fifth, in 18 October 2006 correspondence with Il Forno’s solicitors, Jim represented Andrew as Il Forno’s “working proprietor”, and its “recipes/processes etc are [Andrew’s] intellectual property”, despite referring to his own “involvement”, “[t]he business … [having] been restored to profit by me” and “expected to be more profitable once free of [Mr Crisci’s] influence”.
[22] Sixth, Jim registered the 26 October 2006 change of shareholding from Toto to Andrew with the Companies Office, leaving Andrew as Il Forno’s sole registered shareholder and director, and maintained that position in all subsequent returns. Seventh, in 1 December 2011 correspondence with the Inland Revenue Department, Jim referred to “Andrew’s then business partner” and noted “[b]oth Andrew and I have current advances to Il Forno”, implying Andrew continued alone and any funding is to Il Forno (and not to Andrew, in acquisition of his shares). Eighth, in correspondence with Il Forno’s suppliers over the years, Jim consistently referred to Andrew as Il Forno’s “owner” or “proprietor”, and expressly noted his own involvement in the “family firm” as Andrew’s “brother”: “[b]ecause of that, I act as Il Forno’s accountant”. Ninth, in representing Il Forno from 2013 to 2015 on its defence of, sentencing for, and appeal against tax return offending in 2013 and 2014, including in sworn affidavits, he identified himself only as the company’s “accountant”, “company secretary”, or “duly authorised officer”. And, last, the illogic of Andrew parting with his shareholding before acquiring Toto’s shareholding is palpable. Jim’s on-the-fly response he would have restored Andrew’s shareholding to him if the Toto transaction failed, presumably on reimbursement of the $10,000, is emblematic of much of his oral evidence’s rationalisations (and outright submission).
[23] It was not until 1 January 2013, in an email addressed to their mother (but sent by Jim to Andrew), after some dispute between them, Jim explained “[Andrew] has indicated that he intends to ‘lawyer up’ to prevent me from obtaining any value for my Il Forno shares”. The email commenced with Jim’s advice to their mother he intended “to exit Il Forno in the next couple of months” over a difference of opinion with Andrew about whether Il Forno’s deliveries should be made with an in-house driver or using a courier. With reference to Andrew’s preference for the latter, Jim said “obviously, it isn’t reasonable any more for me to prevent Andrew making that choice if I don’t have to live with the consequences and he does”.
[24] In forwarding the email on 4 January 2013 to their mother, Andrew describes the dispute:
Jim has … decided to leave, and has stated he will not help anymore in running the bakery by the end of Jan, but will only finish the paperwork, not allowing me access to company information … which means Im unable to borrow, business/ personal or sell? Has demanded accounting fees (amount unknown, dont know when he stopped paying himself, and a percentage of the business, all unknown amounts at this stage but he has stated he will attempt to close the bakery [if] he is not paid ?? … I have absolutely no idea what shape the bakery is in , guess he wants me to sell the house to raise money for him …. I have no problem paying him what the business can afford now or when I can sell ( as per agreement) but that seems to have changed?
No evidence was adduced, on examination-in-chief or under cross-examination, as to what that “agreement” may be, or to what (if any) “percentage of the business” it might relate.
[25] Despite the correspondence with their mother, Jim continued to work at Il Forno, and in later correspondence with suppliers to refer to Andrew as “Il Forno’s proprietor”. He did so again in engaging with Il Forno’s intended counsel on 30 August 2013 in relation to the tax returns litigation, also explaining Andrew’s acquisition of Toto’s shares was “financed by my introducing funds to Il Forno, and my guaranteeing a loan from my youngest brother. Andrew isn’t aware that my guarantee was a prerequisite to that loan”.6 On 25 March 2015, Jim ‘disclosed’ to this Court on the tax return offending appeal “I am related to the appellant’s sole director”, and submitted the appellant had “only a single shareholder and director”. On 30 April 2015, he instructed prospective counsel on the appeal “Il Forno’s sole director and shareholder is my brother”. On 7 September 2015, Jim appeared on Il Forno’s application to have him represent it on its appeal to this Court as “its accountant (and brother of Il Forno’s director)”.7 Leaving aside the correspondence with suppliers, Jim’s engagements with Il Forno’s own lawyers and with courts begged disclosure also of his contended beneficial shareholding in Il Forno.
[26] In response to Il Forno’s 11 November 2015 termination of his involvement, Jim responded by text message to its solicitors “I am likely to assert my rights as both
6 There was no evidence of the guarantee itself.
7 Il Forno Ltd v Commissioner of Inland Revenue [2015] NZHC 2695 at [2].
a shareholder and the company’s largest creditor”. In more detailed response by letter of 12 November 2015, Jim recounted the circumstances of Flow Control “inject[ing] capital into [Il Forno] and arrang[ing] funding for the majority of the balance of the purchase price from a family member against my personal guarantee” as founding Flow Control’s “beneficial owner[ship] of a shareholding in [Il Forno]”. As that correspondence continued, Jim contended for “reasonable grounds for believing that Flow Control … remains a material shareholder in Il Forno”, which he would “evidence” from Il Forno’s record of “specific payment history and accounting transactions”. Even at this point, Jim was not specific about the now-contended foundation for a 50 per cent/5000 shares holding as based in his provision of $10,000 to Andrew.
[27] The only ‘agreement’ I can identify from the evidence is that acknowledged by Andrew in forwarding Jim’s email to their mother, apparently for Jim’s “payment” as Il Forno could afford or on its sale. Whether that was intended to be payment for Jim’s services to Il Forno, or in settlement of Andrew’s debt to him, or on some wider basis, is unclear. But it does not amount to evidence of an agreement Jim has a beneficial 50 per cent shareholding in Il Forno. Jim appears to have had a particular concern Il Forno not risk trading while insolvent. Jim expressly cautioned in that respect, not only in the lead up to Andrew’s acquisition of Toto’s shares, but otherwise in addressing Il Forno’s cashflow at times with Andrew. While Il Forno would come into a tax refund after 20 October 2006, such as would enable it to meet its obligations to creditors as they fell due, that would not be the case if settlement of the sale occurred prior.
[28] Taking the position as it appeared at 12 October 2006, on the basis of the evidence before me, I find, through Flow Control, Jim advanced the necessary $10,000 to Andrew as a loan, to enable Andrew to obtain Mr Crisci’s exit before 20 October 2006. I therefore find Andrew is Il Forno’s sole legal and beneficial shareholder.
[29]I will make the declaration sought on Il Forno’s first cause of action.
—agreement to provide accounting services
[30] I have similar difficulties in identifying any agreement between Il Forno and Jim or Flow Control. Il Forno’s pleading, denied by Jim and Flow Control, is the 2006 “Agreement” was for them to “[p]repare timely and accurate financial accounts for Il Forno for future years ended 31 March”, and to “[p]repare and file with Inland Revenue the company’s future two-monthly GST returns, monthly PAYE returns, and annual income tax returns”.
[31] Il Forno pleads the “Agreement” was “an oral agreement reached in mid 2006” between Andrew and Jim, for a fixed monthly fee of $500, increased to $1,500 a month in August 2009, to be paid on invoice. Again, no particulars of how, when, or where such agreement was reached, or what it comprised, otherwise were evidenced. As I noted at [17] above, Jim, whether or not operating as Flow Control, was well- ensconced in Il Forno’s business by 2005 (albeit without remuneration and, on Jim’s evidence, with “limited prospects” of such “in the near term” even after Andrew’s acquisition of Toto’s shares).
[32] The primary contemporaneous evidence relied on for the “Agreement” is Jim’s email to Andrew on Monday, 3 August 2009:
Hi Andrew,
Further to our discussion on Sunday morning, I’d like to suggest the following:
1. I’m currently charging Il Forno $500/mth for accounting services. I propose to increase this to, say, $1,500/mth for now.
2. To provide some recognition of past services rendered, I’d also like to propose a one-off “bonus” payment, to be paid over 1-2 months.
3. We just need to bear in mind that August is a GST + Provisional Tax month We should be fine for Il Forno’s commitments, but we may find our debtors become slower to pay this month.
Regards, Jim
There is no response from Andrew to Jim’s email in the documentary evidence. His oral evidence was simply he had “agreed” to the $1,500 monthly fee in discussion with Jim the previous day.
[33] Il Forno pleads, and Jim and Flow Control admit, “Flow Control received from Il Forno the total sum of $113,480.51 (including GST)”. In a schedule appended to the statement of defence to the second amended statement of claim, those payments are particularised. They are not regular in amount or time.
[34] Prior to August 2009 and contrary to both the pleading and Jim’s email, while payments net of GST often were made in $500 sums commencing on 25 January 2007, there also are payments of $700 on 29 May 2008; $100 on 12 June 2008; $400 on each 27 March and 2, 14, 16 and 23 April 2009; and $570 on each 2 and 26 June 2009. No payments were made in February 2007, from July 2007 to March 2008, or in July or August 2008. Averaged over the 32 months from November 2006 to July 2009, Il Forno paid Flow Control at a rate of minorly less than $400 per month.
[35] Payments remained irregular from August 2009: while $1,500 was paid on each 27 August 2009 and 24 September 2009, there were payments of $500, $1,000, and $1,777.78 respectively on 15, 20, and 22 October 2009; of $500 and $1,000 respectively on 12 and 27 November 2009; and of $2,500 and $1,000 respectively on 10 and 30 December 2009. No payments were made in August 2010; January, February, June, and July 2011; from September 2011 to February 2012; April 2012; or from July to October 2012. The irregularity in amount and time continued to final payments of $350, $350, $700, $700, $700, and $1,850 respectively on 2, 9, 16, 20, 23, and 30 October 2015. Again, averaged over the 74 months from August 2009 to October 2015, Il Forno paid Flow Control at a rate of minorly more than $1,200 per month.
[36] What Jim meant by “accounting services” in his email to Andrew is unclear. His correspondence with the ANZ in 2006 indicated he was managing Il Forno’s payments to staff (including to Andrew and Ms Mead), suppliers and other creditors (including to Flow Control), and the Inland Revenue Department. The contemporaneous evidence establishes that continued after Andrew acquired Toto’s shares, including filing tax returns for Il Forno. As may be inferred from the last paragraph of his email, but also is established on other contemporaneous evidence, he managed Il Forno’s debtors. The documentary evidence also contains various financial reports generated by Jim in relation to Il Forno’s business, indicating Il Forno’s
financial transactions were being recorded in some database in Jim’s possession. With the exception of Ms Mead’s entry of Il Forno’s cash receipts into its MYOB records, and of some employment of office administrators to enter similar data, there is no evidence anyone other than Jim dealt with Il Forno’s finances.
[37] As best I can assess it from the evidence, Jim continued the ‘accounting services’ he provided Il Forno prior to Andrew’s acquisition of Toto’s shares. Those ‘services’ previously were given to avoid Il Forno incurring the cost of their provision by some other internal or external resource. As I have observed,8 that was not a sustainable position. After Andrew’s acquisition of Toto’s shares, save for some data entry, all Il Forno’s accounting or financial management tasks were performed by Jim. There is no evidence anyone else, internal or external, performed any such role. And the role obviously required to be performed.
[38] I cannot tell from the contemporaneous evidence if Jim was so embedded in Il Forno’s financial management at the time Andrew acquired Toto’s shares, he just continued that function after 26 October 2006, or if Mr Crisci’s exit from his joint venture with Andrew meant other financial management services previously supplied through him additionally required to be performed. If the latter, then the evidence is Jim performed them also from 26 October 2006.
[39] Given the payments to Flow Control commenced on 25 January 2007, I infer some discussion is likely to have taken place between Jim and Andrew in late 2006 or early 2007 as to remuneration for the financial management work Jim was doing, resulting in the payments he made to Flow Control. Given their irregularity in amount and time, I cannot be certain the discussion arrived at an agreement of a monthly $500. On the other hand, it is not suggested Jim simply paid himself from Il Forno’s accounts as he saw fit. The frequent $500 payments, taken together with the lower average over the first 30 months, suggest an understanding between Andrew and Jim of remuneration for the financial management work in that sum, subject to Jim’s continued concerns for Il Forno’s abilities to meet its other commitments. Jim’s
8 At [18] above.
3 August 2009 email may reflect a similar understanding at the higher sum. But the precise sum of $1,500 only was paid seven times in the 74 months after August 2009.
[40] On the evidence before me, I find Il Forno agreed, through Andrew, Jim was to be remunerated for his financial management tasks performed for Il Forno at a rate of no more than $500 per month from January 2007, increasing to a rate of no more than $1,500 per month thereafter, subject to Il Forno’s ability to meet its other financial commitments. I am unable on the evidence to go further to conclude the payments were for any particular “accounting services”, regarded distinctly from whatever financial management or other tasks Jim was performing, or to be provided by Flow Control. I therefore find there is no “Agreement” as pleaded by Il Forno.
[41] I will dismiss Il Forno’s second and third causes of action, each being contingent on contended breaches of the “Agreement”.
[42] Had the agreement I have found to exist been pleaded – for the reasons I set out in relation to Il Forno’s fourth cause of action in negligence, and with the relief I there will order – I would have held Il Forno was entitled to cancel it under s 37 of the Contract and Commercial Law Act 2017, for compensation or contractual damages on Jim’s breach of an implied (and admitted) term to take reasonable care in performance of his financial management tasks.
—negligence
[43] Il Forno pleads, “between 2006-2015”, Jim and/or Flow Control “assumed and/or owed a duty to Il Forno to take reasonable care” in preparing its annual financial statements, preparing and filing its tax returns, maintaining its accounting and financial records, and in rendering full itemised invoices for any payment sought from Il Forno. The first and last piggy-back on the contended terms of the “Agreement”. Given my finding as to the “Agreement”,9 I disregard them.
[44] Jim and Flow Control’s defence is not entirely happily phrased: they deny the negligence claim but admit they owed a duty in providing services to Il Forno,
9 At [40] above.
including to take reasonable care in preparing Il Forno’s financial accounts, and in preparing and filing its tax returns. Given my findings at [40] above, the duty can only engage on financial management tasks to be performed by Jim. No financial statements were produced for Il Forno during the period, as Jim conceded under cross- examination, but I have not found he was required to do so. There can be no doubt Jim’s tasks included preparing and filing Il Forno’s tax returns, as essentially is admitted. But Jim also conceded in cross-examination, as Il Forno’s accountant, it was his duty to maintain proper hard copy and electronic financial records for it.
[45] Neither can there be any doubt Il Forno’s tax returns were not all filed. Il Forno was convicted of six charges of failing to file annual income returns for each of the years ending 31 March 2007–2012; monthly PAYE schedules on eight occasions between March 2011 and November 2012; monthly PAYE schedules for November and December 2012 and January 2013; two-monthly GST returns on eight occasions between March 2008 and August 2011; two-monthly GST returns on seven occasions between September 2011 and October 2012; and the two-monthly GST return for October and November 2012. Of those 35 unfiled returns, 25 remained unfiled at the time of conviction.10
[46] After meeting Ms Mead socially in October 2015, and discussing Il Forno’s financial circumstances, a retired accountant, Lynda Ann Brockliss, offered to look at Il Forno’s accounts. In November 2015, she reviewed Il Forno’s MYOB data file after termination of Jim’s involvement with Il Forno. Considering it to be incomplete and not current, she turned to other sources of information about the company, starting with the Inland Revenue Department, which informed her there were then 63 outstanding returns. Together with Ms Mead, Ms Brockliss commenced reconstruction of Il Forno’s accounts from its bank records, to regularise its tax position.
[47] In his defence, Jim asserts essentially he had too much else to do at Il Forno, and relies on his unsuccessful defences against Il Forno’s tax return charges to justify his failures. It is clear Jim held an obsessive animus toward the Inland Revenue
10 Commissioner of Inland Revenue v Il Forno Limited DC Auckland CRI-2013-004-2514, 15 September 2014.
Department, which permeates his dealings with it to the point of failing to meet both Flow Control’s and Il Forno’s tax return obligations. In Murray John Lazelle’s expert accountancy opinion – after describing the filing of Inland Revenue returns as “a most basic accounting function” – “a competent accountant would have ensured that they met the company’s Inland Revenue obligations”. Il Forno’s convictions represented Jim’s “fundamental failure”. Mr Lazelle was not meaningfully challenged on those propositions in cross-examination, putting the obligation above “technical” difficulties in meeting it, and observing “[r]efusing to file returns is not part of [the] objection procedures” available to dissenting taxpayers.
[48] Unfiled returns aside, Jim nonetheless made provisional and voluntary tax payments on Il Forno’s behalf, in what appear from Mr Lazelle’s evidence largely to be rounded rather than calculated sums. Whether by accident or design, they were payments which exceeded the Inland Revenue Department’s assessments of Il Forno’s tax liability drawn from Ms Brockliss’ work, and Il Forno obtained substantial tax refunds as a consequence. Jim disputes Ms Brockliss’ work correctly identified Il Forno’s income, and therefore asserts it was not entitled to the refunds. But there can be no dispute the Inland Revenue Department is satisfied as to Il Forno’s met liability.
[49] I find Jim failed to take reasonable care preparing and filing Il Forno’s tax returns.
[50] Nor can there be any doubt Jim did not properly maintain Il Forno’s accounting and financial records. It is common ground Il Forno used MYOB financial management software as its repository for that data, commencing in April 2003 (consistently with the commencement of Andrew’s and Mr Crisci’s joint venture).
[51] After Ms Brockliss’ comprehension Il Forno’s MYOB financial management data was incomplete and not current, Ms Mead obtained the assistance of Marion Elizabeth Davis to set up a new MYOB data file. Ms Davis is a MYOB expert. She explained MYOB software provides double entry accounting functionality for small businesses, reconciling transaction data entered into its database. Ultimately Ms Davis inspected three Il Forno MYOB data files, initially to export data for the new file. In
the event, that was not possible because of the data’s deficiencies, and only the file’s structure was replicated for Il Forno’s new data file commencing 1 February 2016.
[52] Ms Davis’ criticisms of the state of Il Forno’s MYOB data files are wide- ranging. She summarised them as lacking reconciliation since dates from 2005, and irregularly recording sales and receipts to imply very substantial debtors in sum exceeding $1 million; outstanding bills from suppliers in sum exceeding $3 million; unpaid payroll in sum exceeding $1.5 million; Flow Control transactions largely ending in 2008; and tax paid only to 2011, and tax payable only with a single entry for 31 March 2006.
[53] Considering those same data files, Mr Lazelle considered the “substantially better” data for the year to 31 March 2007 indicated another accountant may have used the MYOB software to provide accounting services to Il Forno prior to October 2006. The data for the year to 31 March 2008 “started to significantly deteriorate, which was compounded in subsequent years”. After 31 March 2007, the data could not have been relied on to produce management accounts or to know Il Forno’s financial position. Mr Lazelle considered Jim’s explanation he maintained extensive accounting records outside MYOB was no answer to recording the transactions in MYOB, “which is the most important of the accountant records that need to be maintained”, and Jim’s Microsoft Excel platform for those records as “completely inappropriate” for a business of Il Forno’s scale and complexity.
[54] I view Jim’s maintenance of Il Forno’s financial records against s 194(1)(a) of the Companies Act 1993, which requires “there are kept at all times accounting records that … correctly record the transactions of the company” – a comprehensive record such as permits “a proper understanding of [the company’s] financial position”11 – and s 189(1)(i), which requires by default they be kept at the company’s registered office. If Jim has such a comprehensive record on his own computer at his residence, as I understood the essence of his evidence to be, it does not meet the point of maintenance of Il Forno’s financial records.
[55]I find Jim failed to take reasonable care to maintain Il Forno’s financial records.
11 Vey Group Ltd v Vance [2020] NZCA 232 at [48].
[56] Both having a duty to take reasonable care in preparing and filing Il Forno’s tax returns and in maintaining Il Forno’s financial records, and being found to have failed to take such reasonable care, I hold Jim negligent in the performance of that duty to Il Forno.
[57] The consequences of that finding are complicated by pleading considerations. In the first place, Il Forno claims as damages its fees paid to Flow Control, and the fines, costs and legal fees incurred in the tax returns proceeding. In closing submission on the fees as damages, Il Forno’s counsel, Michael Lenihan, explained “[the] damages claims under the negligence cause of action are those as set out … for the contractual causes of action”. There he had argued, on the basis of Mr Lazelle’s opinion Jim’s work had “nil” value, Jim’s failure “was so complete that an order that
all professional fees … should be refunded would be justified” (original emphasis). As negligence damages, Mr Lenihan submits:
[T]here is no difference between [those reliance damages] and the basic tort measure of damages which is to put the plaintiff in the position the plaintiff would have been if the wrong had not been committed.
[58] I have considerable difficulty with that submission. As I have recounted at [33] to [38] above, Jim plainly performed financial management tasks for Il Forno and was paid in respect of them. The payments are no proxy for Il Forno’s losses incurred by Jim’s negligence. I view Mr Lazelle’s opinion as more explained by his consideration Jim’s work:
… would have cost Il Forno money. It had to incur costs in relation to a new MYOB system, it had to write off debts from many customers …, [and] it could have suffered lost profits ….
[59] Mr Lazelle’s considerations are the more obvious and orthodox subjects of tortious damages:12
The measure of damages in tort is the sum of money which will put the party who has suffered a loss in the same position as he would have been in had he not sustained the wrong for which he seeks compensation. … The injury for which damages are claimed must be a foreseeable one.
12 Attorney-General v Geothermal Produce New Zealand Ltd [1987] 2 NZLR 348 (CA) at 359, citing Livingstone v Rawyards Coal Co (1880) 5 App Cas 25 at 39; Benton v Miller & Poulgrain (A Firm) [2005] 1 NZLR 66 (CA) at 101.
…
… [W]hat a Court has to do is to put the plaintiff, so far as money can do it, in the same position he or she would have been in had the relevant term or duty of care been discharged, either by compensating for benefits of which the client has been deprived or the non-pecuniary losses suffered, or the expenses or liabilities that have been incurred as a result. The assessment will normally be as at the date of breach.
Had Jim’s duties to Il Forno been discharged, Il Forno would not have acquired tax penalties and would have had comprehensive financial records. Without the latter, it is entirely foreseeable it could not have obtained a proper understanding of its financial position, such as may have served to identify any debts owed to it, and would incur expenses in establishing its current financial records.
[60] But those debts and expenses are not pleaded, quantified, or evidenced (beyond Ms Mead’s acknowledgments all pre-2015 debts were written off, as were some of other specified customers, still others taking up repayment plans). And there are complications in seeking to recover the amount of Il Forno’s tax penalties, because the cause of Il Forno’s loss there was its absolute liability under s 143(1)(b) of the Tax Administration Act 1994 to provide tax returns as required by law, and there are public policy grounds against permitting any indemnification of that liability.13 On my raising that in the course of his closing submissions, after reflection over the lunch adjournment, Mr Lenihan cautiously relied on McGregor on Damages’ endorsement that “[g]enerally, with damages and fines the claimant will recover the amount thereof that he has to pay”.14
[61] Mr Lenihan’s caution was because he had not had time properly to work through the commentary, to see if that general endorsement overstated other analysis. The endorsement expressly only is to address the amount recoverable “[o]nce all the hurdles presented by the issues of remoteness have been crossed”.15 In considering those issues in connection with recovery of fines and costs incurred in committing a wrong, the commentary unpromisingly advises the law “was for long in a state of flux”, and despairingly notes:16
13 Leason v Attorney-General [2013] NZCA 509, [2014] 2 NZLR 224 at [91] and following.
14 James Edelman, Simon Colton, and Jason Varuhas (eds) McGregor on Damages (20th ed, Sweet & Maxwell, London, 2017) at 21-078.
15 At 21-077.
16 At 21-067.
The authorities do not start until the opening of the 20th century and end in 1970 with a decision which may be said finally to settle what the law is. Since then nothing has appeared; the cases have dried up.
[62] That decision related to a motorist seeking to recover from his negligent insurers the fine and costs imposed on his conviction of the absolute offence of driving without an insurance policy. After surveying conflicting first instance decisions, the English Court of Appeal would permit such recovery as damages:17
… unless it is shown that there was on the part of the person fined a degree of mens rea or of culpable negligence in the matter which resulted in the fine. The onus … is on the defendants, who were the true cause of the sequence of events leading to the fine, to show that there are circumstances which make that fine irrecoverable as damages by the claimant.
Such an approach here would be consistent with our Court of Appeal’s acceptance “the basis of the defence of ex turpi causa will depend on the particular situations in which it is sought to be applied”.18
[63] Jim and Flow Control resist negligence liability to Andrew on the basis of his alleged contributory negligence. Andrew, as Il Forno’s director, is the person fixed by s 194 of the Companies Act 1993 with ensuring Il Forno’s accounting records were kept, to which end he “must establish and maintain a satisfactory system of control of its accounting records”. Andrew’s evidence was he was aware from an early date Il Forno’s records were not within his control, but Jim’s, on Jim’s computer at his residence. And Mr Lenihan accepted in response to a question from me, as Il Forno’s director, Andrew also was the person responsible for ensuring Il Forno’s tax returns were filed. Had there been charges brought against him personally for that failure, Mr Lenihan “[couldn’t] see how that could have been resisted or defended”. That is not a duty open to being delegated, even if its performance is to be done by another.
[64] But none of that is the contributory negligence relied on by Jim and Flow Control. Instead, they assert Il Forno’s mismanagement of its bakery operations “including by subverting product quality improvement initiatives implemented by Flow Control”, Andrew’s “maintaining his own income from Il Forno”, and their
17 Osman v J Ralph Moss [1970] 1 Lloyd’s Rep 313 (CA) at 316.
18 Leason v Attorney-General, above n 13, at [116].
failure “to contribute any additional resources to Il Forno” as the cause of Il Forno’s losses.
[65] None of those contribute to Il Forno’s unrecovered debts or restorative expenses, or tax fines and associated costs and expenses, as may be recovered as damages. On the other hand, there may have been a degree of Andrew’s culpable negligence in failing to ensure Il Forno’s accounting records were kept (and within its control) and tax returns were filed.19 But the onus of that proof lay on Jim and Flow Control and they have not met it.
[66] In the absence of any evidence of Il Forno’s consequential unrecovered debts, expenses, or lost profits, and absent also proof of Andrew’s culpable negligence by Jim and Flow Control, I will award negligence damages against Jim in the sum of the tax fines, costs, and associated legal fees in discontinuing the appeal against their making.
[67] I have considered if to set off Jim’s loan to Andrew against that liability. Mr Lenihan argues recovery of the loan now is time-barred. But there are live issues if the loan is to be regarded as having been made on demand in fact, and then if that is effective to defer the accrual of time to the point of demand,20 as the Limitation Act 2010 now expressly provides, and Jim does not plead set-off in response to the claim in negligence. I therefore disregard any liability Andrew may have to Jim on the loan I have found to exist.
—money had and received
[68] Il Forno says it is entitled to recover the monies paid to Flow Control as Jim’s professional fees on grounds there was a total or partial failure of consideration for them. Again, the extent of the failure is coterminous with my finding as to Jim’s negligence.21 Consideration was provided by the financial management tasks Jim
19 Re Global Print Strategies Ltd (in liq) (2004) 2 NZCCLR 236 (HC) at [70]–[71] (overturned on appeal, but not on this point: Mason v Lewis [2006] 3 NZLR 225 (CA)).
20 Alan Sorrell “Limitations on recovery of on demand loans: time for a change” (2016) 22 NZBLQ 79.
21 At [49] and [55] above.
provided.22 I am not able to distinguish fees incurred on account of performance of those tasks from those unperformed. Given my findings as to the “Agreement”,23 and to Jim’s negligence,24 it is a reasonable conclusion Il Forno incurred no fees on account of the tasks Jim did not perform.
[69]I will dismiss Il Forno’s fifth cause of action.
—Jim’s retention of Il Forno’s electronic information
[70] Finally, I turn to Il Forno’s claim to recover company information in Jim’s or Flow Control’s possession. The claim is brought in trespass and conversion. While the defence is difficult to understand in parts, it seems to claim exclusive possession to the information, or as a co-owner, or in any event (so far as the electronic files are concerned) as intangible property. Jim and Il Forno say they have returned all Il Forno’s physical documents. No material submissions were raised by either party on the points at issue.
[71] It is not determinative if Il Forno never had physical possession of the information remaining in Jim’s or Flow Control’s possession. While mere entitlement to reversionary possession may not be enough, a resisted right to take possession will support a claim in trespass,25 and conversion.26 As I have held,27 neither Jim nor Il Forno are co-owners. And the modern tendency is to regard digital files as property.28 Given the lack of argument, I do not expand on the last proposition in the present context. I will order Jim to deliver up to Il Forno any digital files in his or Flow Control’s possession relating to Il Forno’s business.
[72] Il Forno also seeks orders prohibiting Jim’s and Flow Control’s use of email accounts or addresses using the Il Forno name, and any rights in relation to the Il Forno website. These issues were not raised at trial, except for observations of Jim’s technical computing skills, and his establishment of an Il Forno email address. Given my
22 At [58] above.
23 At [40] above.
24 At [49] and [55] above.
25 Penfolds Wines Pty Ltd v Elliott (1946) 74 CLR 204 at 217.
26 Cuff v Broadlands Finance Ltd [1987] 2 NZLR 343 (CA) at 346.
27 At [28] above.
28 Dixon v R [2015] NZSC 147, [2016] 1 NZLR 678 at [25].
findings now, there can be no foundation for any such use, but neither is there evidence of its threat. I will not make anticipatory orders on that basis alone.
Jim’s and Flow Control’s counterclaims
—declaration of shareholding
[73] Jim’s and Flow Control’s first cause of action for a declaration of Flow Control’s shareholding in Il Forno effectively is dismissed by my indicated declaration in Andrew’s favour.29
—quantum meruit
[74] On Flow Control’s second cause of action, to be compensated in quantum meruit, Jim categorised in evidence some 25 services provided by Flow Control to Il Forno, and sought to substantiate them by reference to a spreadsheet of time spent on Il Forno’s account from 20 October 2006 to 10 November 2015. The spreadsheet identifies 23,200 hours of Jim’s time over that period, for which compensation is sought at $32 per hour plus GST. In net terms, after crediting sums paid by Il Forno, Flow Control seeks payment of $650,000 (plus GST) “or such other sum as the Court finds to be the value of services provided for which no payment was received”.
[75] I have some reservations about the veracity of the hours spreadsheet, said by Jim to have been derived from his hours entered into Flow Control’s Timekeeper time recording software. Tina Kirstin Payne, an expert forensic accountant and electronic forensic investigator, noted annotations on the spreadsheet not derived from Timekeeper, and queried its consecutive time entries as tending against entry with other client hours. The latter is material because Jim resisted disclosing the database itself on grounds it held data confidential to other clients. As a result, in answer to a question from me, Ms Payne had not been able to identify the time or date of the original data’s entry.
[76] Jim lives with the three brothers’ aunt, Margaret Lilian Given, who says he spent “increasing amounts of time on a wide range of tasks related to Il Forno”. Jim
29 At [29] above.
described the spreadsheet as disclosing a regular pattern of his “total commitment of time to Il Forno” on each recorded day, including for example “supervising the nightshift” every Wednesday night and during the Christmas and New Year period for years during Andrew’s, or Andrew’s and Ms Mead’s, absences. Andrew said Jim had no technical ability to supervise overnight baking shifts, which was the head baker’s responsibility. Among the 25 tasks claimed are some not obviously engaging any identified skill or qualification on Jim’s part: for example, “regularly monitoring customer orders and the bakery shift production plan”; “quality control and hygiene follow up”; “training non-bakery staff”; “investigating and resolving customer complaints”; “appearing for Il Forno” on various litigation, including on “customer insolvency issues” and in the Employment Relations Authority; “liaising with the Immigration Department on staff work permits”; and “manag[ing] staff performance issues”. In these respects, and particularly evident in his engagements with Inland Revenue, Jim’s claims to competence are grandiose.
[77] I already have found myself unable to distinguish fees incurred by Il Forno on account of Jim’s performance of tasks from those unperformed.30 Equally, I am unable to distinguish Jim’s tasks performed unpaid from those for which payment was made. As previously said,31 I do not know what comprised Jim’s financial management tasks.
[78] Among the 25 categories claimed are some clearly falling within financial management: “producing daily wholesale invoices”; “payroll processing”; “reconciliation and payment of suppliers”; “data entry of accounting transactions”; “cash flow management”; “capital budgeting”; and “tax returns”. Noting Jim’s particular competencies, so too may be “implementation of internal software systems”; and “maintaining Il Forno’s computer systems and installing cabling”. And it is arguable, in the present context, Il Forno’s financial management extended to addressing whatever cost savings were within Jim’s capabilities to achieve. That was, after all, the foundation for his involvement with Il Forno.32
30 At [68] above.
31 At [40] above.
32 At [11] above.
[79] “[P]roducing daily delivery maps and routes” may be an example of that extended meaning of ‘financial management’, even if only useful until the driver learned the route, as both Andrew and Trudy Ann Banton, a delivery driver for Il Forno, said. Andrew directly accepts Jim worked as a delivery driver on occasions, to avoid the cost of either a contracted or courier driver, and expected Jim would have paid Flow Control for his time accordingly. Whatever financial management tasks Jim was performing, whether or not that extended to relief delivery driving, Jim was responsible for paying Flow Control for them, up to the rates I have found as comprising his agreement with Il Forno.33
[80] That leaves the question of compensation for whatever other tasks Jim may have been performing. But I also do not know how to delineate them from Jim’s uncompensable engagement with Il Forno’s bakery and café operations. There is significant room to distinguish Jim’s contended “commitment of time” to Il Forno from the time he spent on its premises or otherwise in connection with its operations. The evident social nature of his engagements with Il Forno staff and suppliers, confirming he “liked to talk”, is illustrative. At the same time, his self-regard meant his occupation of others’ time was not welcome and he was sought to be avoided. Philip Norman Dowling, a supplier to Il Forno, described Jim as “attempt[ing] to insert himself as the relevant person to deal with” instead of Andrew.
[81] While Andrew’s and Ms Mead’s perspectives toward Jim likely have hardened since discovery of his negligent conduct, Ms Mead also described the workplace as having “a special atmosphere, it is like a family, and with some of our staff [having] several members of the same family working for us”. Carla Masciarelli, who worked front of house in the café, described “bring[ing] everybody a present” when she returned from holidays in Italy. It does not surprise me, in that environment, no issue was taken with Jim engaging himself in other tasks, whether or not desired or desirable. That is especially given Andrew’s light-handed exercise of his director’s duties, and the sentiment described by Ms Mead “as long as wages and our suppliers were paid, the company’s overall financial position was not a pressing problem for me”. Ms Given explained working hard for family “was how we were brought up”.
33 At [40] above.
[82] Quantum meruit, however, involves “claims for reasonable compensation to be paid for services where the level of remuneration has not been agreed”.34 There is doctrinal dispute as to the foundation for the claim, but general agreement:35
[A] plaintiff will be able to establish a quantum meruit claim where the defendant asks the plaintiff to provide certain services, or freely accepts services provided by the plaintiff, in circumstances where the defendant knows (or ought to know) that the plaintiff expects to be reimbursed for those services, irrespective of whether there is an actual benefit to the defendant.
[83] With the exception of Jim’s financial management services, however broadly they may be described, I cannot identify Il Forno either asked Jim or Flow Control to provide any services, or freely accepted such as were additionally provided. Neither are the circumstances such Il Forno knew (or ought to know) Jim expected future reimbursement for those services. Rather Andrew expected Jim was reimbursing himself. If Jim’s commitment was more broad than for which he was in fact paid, then the agreement Andrew referred to in his email to their mother may serve to deny Il Forno’s actual or constructive knowledge Jim’s or Flow Control’s expectations of specific reimbursement. Neither is there any evidence of what may be reasonable compensation for tasks ranging from those exercising professional skill and judgement to those of a more mundane nature. The flat hourly rate sought by Jim is improbable in its singular application, and I am provided with no basis on which to assess its averaging. Regardless, Jim and Flow Control bore the burden of proving those elements and, in the ambiguous environment created by their alternative claims to co-ownership, they have not done so.
[84]I will dismiss Flow Control’s second cause of action.
—breach of trust
[85] Flow Control’s third cause of action, alleging Andrew’s breach of trust to Flow Control, for is grounded in its claim to a beneficial shareholding, which I have held against, and therefore also fails.
34 Worldwide NZ LLC v NZ Venue and Event Management Ltd [2014] NZSC 108, [2015] 1 NZLR 1 at n 24, citing Harrison v Franich [2007] NZCA 538 at [32] and Benedetti v Sawiris [2013] UKSC 50, [2013] 3 WLR 351 at [17].
35 Morning Star (St Lukes Garden Apartments) Ltd v Canam Construction Ltd CA90/95, 8 August 2006 at [50].
Result
[86] I declare Andrew Michael Kleine is Il Forno Limited’s sole legal and beneficial shareholder.
[87]I order Douglas James Kleine to:
(a)pay Il Forno Limited $14,185 as damages in negligence; and
(b)deliver up to Il Forno Limited all digital files in his or Flow Control Limited’s possession containing any aspect of information belonging to Il Forno Limited.
[88]Otherwise I dismiss all causes of action in both claim and counterclaim.
Costs
[89] In my preliminary view, although Il Forno has achieved a measure of success, no party can claim comprehensively to be successful in the proceeding, and the family context of the proceeding also justifies avoiding continued grounds for dispute. For those reasons, from what I presently know, costs should lie where they fell or fall: that is, legal expenses are to be borne by the party incurring them.
[90] If that is not accepted, or the parties cannot otherwise agree, I reserve costs for determination on short memoranda of no more than five pages – annexing a single- page table setting out any contended allowable steps, time allocation, and daily recovery rate – to be filed and served by Il Forno within ten working days of the date of this judgment, with any response and reply to be filed within five working day intervals after service.
—Jagose J
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