Investment Services Limited v First NZ Properties Limited
[2025] NZCA 228
•11 June 2025
| IN THE COURT OF APPEAL OF NEW ZEALAND I TE KŌTI PĪRA O AOTEAROA |
| CA379/2024 |
| BETWEEN | INVESTMENT SERVICES LIMITED |
| AND | FIRST NZ PROPERTIES LIMITED |
| AND | SPRINGS ROAD PROPERTY LIMITED (IN LIQ) |
| AND | SUPERSTORE PROPERTIES LIMITED |
| CA380/2024 | ||
| BETWEEN | PAUL JOHN MEPHAN | |
| AND | FIRST NZ PROPERTIES LIMITED | |
| CA381/2024 | ||
| BETWEEN | MICHAEL JOHN MILLAR | |
| AND | FIRST NZ PROPERTIES LIMITED | |
| AND | SPRINGS ROAD PROPERTY LIMITED (IN LIQ) | |
| AND | SUPERSTORE PROPERTIES LIMITED | |
| Hearing: | 2 April 2025 |
Court: | Collins, Muir and Isac JJ |
Counsel: | M J Radich and J L Butcher for Appellants |
Judgment: | 11 June 2025 at 11 am |
JUDGMENT OF THE COURT
AISL’s appeal in relation to its contractual liability to First NZ in respect of the payments and benefits received by Gravtec and Terra Firma is dismissed.
BISL’s appeal in relation to its contractual liability to First NZ in respect of the Symonds Street property gain fee is allowed.
C ISL’s appeal in relation to its liability in negligence to First NZ is allowed.
DISL’s appeal in relation to its liability for unjust enrichment to First NZ in respect of the Gravtec and Terra Firma arrangements is dismissed.
EISL’s appeal in relation to its liability for unjust enrichment to First NZ in respect of the Symonds Street property gain fee is allowed.
FMr Millar’s appeal in relation to his liability to First NZ in respect of the Symonds Street property gain fee is allowed.
GMr Millar’s appeal in relation to his liability to First NZ in respect of the payments and benefits received by Gravtec and Terra Firma is dismissed.
H Mr Mephan’s appeal in relation to his liability to First NZ is allowed.
ISL’s appeal in relation to its liability to Superstore is allowed.
JMr Millar’s appeal in relation to his liability to Superstore is dismissed.
KFirst NZ must pay Mr Mephan costs for a standard appeal on a band A basis together with usual disbursements.
LNo other order for costs.
____________________________________________________________________
REASONS OF THE COURT
(Given by Collins J)
Table of Contents
Para No Introduction
BackgroundFirst NZ
Superstore
ISL
First NZ agreement
Franklin
Penrose Property
Gravtec and Terra Firma
Payment of gain fees
Repudiation and cancellation of the First NZ agreementThe claims by First NZ
High Court conclusions concerning the First NZ claims against ISLISL’s liability to First NZ for breach of contract
An ongoing unwritten agreement
The effect of cl 11.1(c) of the First NZ agreement
Gain fees
ISL’s liability to First NZ in negligence
ISL’s liability to First NZ for unjust enrichmentHigh Court conclusions concerning the First NZ claims against Mr Millar and Mr Mephan
SuperstoreSuperstore agreement
Superstore’s claim against ISL
Superstore’s claim against Mr Millar
ISL’s contractual liability to First NZContinuation of the original agreement
Clause 11.1(c)
Gravtec and Terra Firma arrangements
Symonds Street gain feeISL’s liability to First NZ in negligence
Conclusion
ISL’s liability to First NZ for unjust enrichment
Conclusion
Mr Millar’s liability to First NZ
Requirements of a fiduciary
First NZ losses
The profits
ConclusionMr Mephan’s liability to First NZ
Superstore claims against ISLISL’s contractual entitlements
ISL’s liability to Superstore for knowing receiptMr Millar’s liability to Superstore
Results[1]
[9]
[9]
[11]
[12]
[15]
[27]
[28]
[29]
[32]
[35]
[38][43]
[43]
[43]
[46]
[54]
[56]
[59][60]
[73]
[74]
[77]
[81]
[84]
[86]
[106]
[107]
[112]
[114]
[119]
[121]
[125]
[126]
[129]
[143]
[146]
[153]
[155]
[156]
[156]
[166]
[171]
[177]
Introduction
Investment Services Ltd (ISL) together with Mr Millar and Mr Mephan appeal parts of a judgment in which they were held liable to pay damages to First NZ Properties Ltd (First NZ) and to Superstore Properties Ltd (Superstore).[1] Where appropriate, we will refer to First NZ and Superstore as “the property companies”.[2]
[1]First NZ Properties Ltd v Millar [2024] NZHC 1225 [judgment under appeal].
[2]Springs Road Property Ltd (Springs Road) was also a successful plaintiff in the High Court. In February 2025, the appellants discontinued their appeals against Springs Road. We therefore do not refer to the Springs Road proceeding in this judgment.
ISL is a property investment and management company. It administered several properties owned by subsidiaries of the property companies. The claims against the appellants stemmed from monies that ISL received when administering those properties. The respondents successfully contended in the High Court that the appellants were liable in the ways we shall summarise at [4]. We also set out at [4] the damages each of the appellants was held liable to pay the property companies.
At all relevant times Mr Millar was the sole director of ISL and a director of each of the property companies and their subsidiaries. Mr Mephan was, for a short period of time, the Chief Executive Officer (CEO) of ISL and a director of the property companies. Mr Millar and Mr Mephan were found to be concurrently liable, to varying degrees, for having breached their fiduciary duties as directors of the property companies and for having breached the duties they owed those companies under ss 131 and 137 of the Companies Act 1993. Section 131 of the Companies Act requires directors to act in good faith and in the best interests of the company while s 137 requires a director to exercise the care, diligence and skill expected of a reasonable director when performing their director’s duties.
In summary, the findings against each of the appellants were as follows:
(a)ISL was found to be liable to First NZ for breach of contract, negligence and unjust enrichment.[3] Mr Millar and Mr Mephan were found liable to First NZ for breach of their fiduciary duties and for their breaches of ss 131 and 137 of the Companies Act.[4] ISL and Mr Millar were held to be concurrently liable to First NZ for the sum of $1,420,692.73 plus GST,[5] while ISL, Mr Millar and Mr Mephan were found to be concurrently liable to First NZ for the sum of $450,000 plus GST (which is included in the amount of $1,420,692.73).[6]
(b)ISL was held to be liable to Superstore for knowing receipt,[7] and Mr Millar was found to be liable to Superstore for breaching his fiduciary duties and for breaches of ss 131 and 137 of the Companies Act.[8] ISL and Mr Millar were held to be concurrently liable to Superstore for the sum of $656,394.52 plus GST.[9]
[3]Judgment under appeal, above n 1, at [186], [212], [311] and [313].
[4]At [260], [268], [274] and [288].
[5]At [452(a)–(b)].
[6]At [452].
[7]At [341].
[8]At [337]–[338].
[9]At [453].
ISL and Mr Millar accept many of the findings in the High Court but challenge their liability to pay $857,472.73 plus GST to First NZ and $644,945.26 plus GST to Superstore. Mr Mephan appeals his liability to pay First NZ $450,000 plus GST.
ISL had the power to appoint directors of the property companies and their subsidiaries. This it did by Mr Millar arranging for the appointment of family members and employees of ISL to be directors of the property companies and their subsidiaries during the periods to which the litigation relates. Those appointed to the boards of the property companies included Mr Neil Barnes, who was CEO of ISL from 2007 to 2018 and Mr Mephan, who is Mr Millar’s son-in-law, and who was involved from February 2018 to April 2020.
The evidence in the High Court was that Mr Millar controlled the financial affairs of the property companies and that board meetings for the property companies were held concurrently with ISL meetings and vice versa.[10]
[10]At [247].
We shall set out the background and then explain the basis upon which the appellants were found liable commencing with First NZ’s claims against ISL followed by its claims against Mr Millar and Mr Mephan. We shall then explain Superstore’s claims against ISL and Mr Millar and the basis upon which ISL and Mr Millar were found liable to Superstore. We shall then analyse the appeals.
Background
First NZ
First NZ was incorporated on 23 August 1995. Each of First NZ’s subsidiary companies acquired Foodtown supermarkets in Birkenhead, Blockhouse Bay and Te Atatū (the First NZ properties).
On 25 September 1995 First NZ and its subsidiaries entered into an investment and property management agreement (the First NZ agreement) with a property management company called Farmers’ Mutual Investment Services Ltd (FMIS).[11] At the time Mr Millar was the CEO of Farmers’ Mutual Group which owned FMIS. He was also a director of First NZ. Sir Allan Wright and Mr Vincent Norrish were also directors of First NZ, but they both retired from that role in February 1998. It is accepted Sir Allan and Mr Norrish were “independent” directors.
Superstore
[11]At the time this agreement was entered into First NZ was called Foodstore Properties Ltd (Foodstore). For convenience, we will refer to Foodstore as First NZ throughout the balance of this judgment.
On 25 January 1999, Superstore was incorporated and on 9 February 1999 it entered into a property management agreement with FMIS in relation to three Superstore properties (the Superstore agreement). We will return to this agreement when considering the proceedings initiated by Superstore against ISL and Mr Millar.
ISL
ISL was incorporated in 2000 and, on 12 February 2001, it acquired the rights and obligations of FMIS in relation to the First NZ and Superstore agreements.
The first directors of ISL were Mr Millar and Mr Kenneth Franklin. Mr Millar eventually became the only director of ISL and he has remained the sole director of that company throughout the relevant time. The shares in ISL are owned by the Kaiuma Family Trust. Mr Millar’s children are the beneficiaries of that trust.
Although the accounts for ISL are opaque, Mr Millar accepted that ISL was “a significant source of [his] income”. He also accepted that entries concerning “shareholder drawings” in the ISL accounts probably referred to his salary. He accepted for example that shareholder drawings of $153,630 in ISL’s accounts for the year ending 31 March 2009 were probably his salary and that “the better ISL did the better [he] did”.
First NZ agreement
Henceforth we will refer to ISL in place of FMIS.
The introduction to the First NZ agreement explained that First NZ and its subsidiaries wished to appoint ISL “as their agent for the ongoing administration and investment management of [First NZ]”.
Clause 3 of the agreement set out the duties and responsibilities of ISL. Under cl 3.3 one of ISL’s duties was to “procure and supervise the acquisition, management and eventual sale of the Properties with the assistance of a professional property manager”.
Clause 3.9 allowed ISL to “instruct such solicitors, accountants, auditors, valuers or other consultants or advisors as [ISL] deems necessary or desirable in connection with any of its duties and responsibilities under this Agreement”.
Clause 4.1 provided that in performing its duties and responsibilities ISL was to act solely as the agent of First NZ and its subsidiaries. Clause 4.1 also provided that:
All costs, disbursements, expenses, taxes, debts and liabilities to third persons incurred by [ISL] in the performance of its duties and responsibilities under this Agreement shall be the costs, disbursements, expenses, debts and liabilities of [First NZ] and the Subsidiaries (as relevant) only and [ISL] shall not be liable for any such obligations by reason of performance of its duties and responsibilities under this Agreement.
Clause 6 of the agreement indemnified ISL in the following terms:
6.1[ISL] shall not in the performance of this Agreement be liable to [First NZ] or the Subsidiaries or to any other person for any act or omission negligent tortious or otherwise of [ISL], [First NZ] or any Subsidiary or any agent or employee of any of them and [ISL] shall be entitled to be indemnified and saved harmless by [First NZ] and the Subsidiaries from all liabilities, losses, damages, costs or expenses by reason of any of the foregoing acts or omissions.
6.2[First NZ] and the Subsidiaries shall save harmless and indemnify [ISL] from and against any liability (including liability for taxes), loss, cost, damage or expense that may be incurred or suffered by [ISL] howsoever arising relating to the performance by [ISL] of its duties and responsibilities under this Agreement.
Clause 7 of the First NZ agreement complemented the indemnity clause by stating that ISL would not be liable to First NZ for the decline in value of the properties as result of any acts or omissions by ISL in connection with the performance of its duties under the agreement.
Under cl 11.1, First NZ agreed to pay ISL the following fees:
(a)an establishment and administration fee of $120,000; and
(b)a management fee of 3.25 per cent per annum of gross rentals received in respect of the Properties to 31 March 1996 … ; and
(c)an annual management fee thereafter of 6.50 per cent per annum of annual gross rentals from 1 April 1996 until termination of this Agreement … ; and
(d)5.0 per cent of any capital gains realised on the sale of any of the Properties.
“Gross rentals” were defined in cl 11.2 to mean:
… all rental premiums, license fees, monies received from or in respect of any loss of profits pursuant to an insurance policy or policies and all other income whatsoever received in respect of the Properties …
There was no expiration date to the agreement. Clause 2 provided that the agreement was to continue until it was “terminated in accordance with clause 17”. Clause 17.1(a) provided for the agreement to be terminated upon either of the parties being placed into liquidation, receivership, upon becoming insolvent, or being dissolved “voluntarily or otherwise”. Clause 17.1(b) and (c) provided that ISL could give three months’ notice of termination whereas First NZ was required to give 12 months’ notice of termination.
The properties to which the agreement related were specified in the schedule to the agreement as being the three supermarkets we have described at [9]. Mr Millar and Mr Norrish signed the agreement on behalf of ISL, First NZ and the three subsidiary companies.
By 4 November 2004, First NZ had sold the three supermarket properties. It purchased replacement properties, including a property on Kilmore Street, Christchurch (the Kilmore Street property) which was purchased on 24 December 2003, a property on Sheffield Crescent, Christchurch which was purchased on 4 November 2004 and a property on Symonds Street, Auckland (the Symonds Street property) which was purchased on 31 July 2012 (the replacement properties).
Franklin
Following the execution of the First NZ agreement, ISL entered into a property management agreement with The Franklin Company Ltd (Franklin) pursuant to which Franklin provided property management services in respect of the First NZ properties for a fee that reflected 3.25 per cent of the annual gross rentals received by ISL. Franklin’s contract with ISL was terminated by ISL with effect from 31 December 2003.
Penrose Property
Following the termination of Franklin’s contract ISL employed Mr David Penrose as its in-house property manager from November 2003 to March 2007. Through Mr Penrose, ISL provided management services to the property companies. From April 2007 to August 2010, those management services were provided through Mr Penrose’s company, Penrose Property Management Ltd (Penrose Property). There is no dispute that the property management services provided “in house” by ISL through Mr Penrose and his company cost far less than the fees charged by Franklin. The High Court found ISL benefited unlawfully by retaining the difference between the fees incurred through the in-house arrangements and the fees which would otherwise have been charged by Franklin.[12] The appellants no longer challenge the findings made in relation to the arrangements when Mr Penrose and his company provided property management services to the property companies.
Gravtec and Terra Firma
[12]At [241].
After the arrangements between ISL and Penrose Property came to an end, another property management company, Gravtec Ltd (Gravtec) provided property management services to:
(a)First NZ from 1 April 2011 to 31 December 2020 (except in respect of one building that we explain at [30]); and
(b)Superstore from 1 October 2011 to 31 March 2020.
From 1 April 2012 to 31 March 2020, Terra Firma Group Ltd (Terra Firma) provided property management services to First NZ in respect of the Symonds Street property.
The property management fees of Gravtec and Terra Firma were paid by tenants of the properties owned by the property companies. At the same time, ISL continued to charge management fees at the rate that it had previously charged the property companies as well as an additional $183,220 plus GST for what ISL described as “opex management”.[13] An issue in the High Court was whether ISL was required to account to the property companies for the financial benefit that ISL received as a consequence of these arrangements.[14]
Payment of gain fees
[13]The term “opex” refers to “operating expenses”.
[14]Judgment under appeal, above n 1, at [117] and [120]–[122].
The Kilmore Street property was damaged in the 2011 Christchurch earthquakes. First NZ reached a settlement with its insurer in 2012. Thereafter Mr Millar directed payment of what is referred to as a “gain fee” of $430,000 plus GST from First NZ to ISL for the “sale” of the Kilmore Street property.
Following the sale of the Symonds Street property in 2018, Mr Millar and Mr Mephan directed the payment of a gain fee of $450,000 plus GST from First NZ to ISL.
At trial the experts agreed that the gain fees paid by First NZ reflected a five per cent capital gain achieved in relation to the Symonds Street property. But for an accounting error, the gain fee would also have reflected five per cent of the capital gain achieved in relation to the Kilmore Street property. That accounting error meant ISL was overpaid $15,630 in respect of the gain fee it received for Kilmore Street. ISL and Mr Millar acknowledged their liability to repay that sum to First NZ and, during the course of the appeal, abandoned their claim to any gain fee in relation to the Kilmore Street property.[15]
Repudiation and cancellation of the First NZ agreement
[15]At [155].
In early 2018, it was discovered that Mr Barnes had defrauded the property companies of $2,037,946.30. At the time of the High Court proceedings the respondents had managed to recover approximately $966,000 from Mr Barnes, who at that stage was also being investigated by the Serious Fraud Office.[16]
[16]At [226].
When Mr Barnes’ fraud came to light, Mr Millar arranged for Mr Mephan to take over Mr Barnes’ roles. As we have noted, Mr Mephan was a director of the property companies from 13 February 2018 until 21 April 2020 and during the same period, he was the CEO of ISL. The catalyst for Mr Mephan leaving ISL and the property companies appears to have been legal advice he received concerning the risk of ISL and Mr Millar being liable for the way ISL received fees relating to the property management agreements.
Mr Millar resigned as a director of First NZ and Superstore on 12 May 2020. On 31 December 2020, Mr Millar, on behalf of ISL, cancelled the First NZ and Superstore management agreements. He alleged that the property companies had unlawfully repudiated their respective agreements.
The claims by First NZ
First NZ argued that ISL unlawfully benefitted from changes it made after the termination of the Franklin agreement in respect of the way it acquired fees and financial benefits. It argued that ISL was liable to First NZ for breach of contract and in negligence, as well as unjust enrichment. First NZ’s claims fell into three categories.
First, fees First NZ argued it should not have paid to ISL comprising:
(a)$1,159,000.81 plus GST by way of overcharged property management fees; and
(b)$183,220 plus GST by way of overcharged “excess property management fees”.
Secondly, fees paid to Gravtec totalling $204,328.87 plus GST and fees paid to Terra Firma totalling $203,143.86 plus GST.
Thirdly, gain fees totalling $830,000 plus GST which ISL had claimed it was entitled to receive upon the disposal of the Kilmore Street and Symonds Street properties.
First NZ argued that as the fees we have summarised at [38]–[41] were paid upon the direction of Mr Millar and to a lesser extent, Mr Mephan, they were also concurrently liable with ISL for breach of the fiduciary duties they owed the property companies and for breaches of their duties under ss 131 and 137 of the Companies Act. It was also alleged Mr Millar was liable to First NZ for unjust enrichment and knowing receipt.
High Court conclusions concerning the First NZ claims against ISL
ISL’s liability to First NZ for breach of contract
An ongoing unwritten agreement
Gwyn J concluded that the First NZ agreement applied only to the properties and the investments specified in the schedule to that agreement, namely the three supermarket properties.[17] The Judge said “ISL’s remuneration under cl 11 of the Agreement is framed solely in terms of fees in relation to the Properties”,[18] and that “ISL’s ongoing fees were dependent on there being at least one property to generate the gross rentals”, with the definition of gross rentals referring to “income … received in respect of the Properties”.[19] The Judge determined that “[t]he Agreement related to the Properties as defined. Once the Properties were sold, the terms of the Agreement no longer applied, even though the termination provisions were not invoked”.[20]
[17]At [95]–[96].
[18]At [93].
[19]At [94].
[20]At [96].
On the basis of this reasoning, the Judge concluded that the First NZ agreement came to an end when the last of the supermarket properties was sold on 4 November 2004.[21]
[21]At [106].
Notwithstanding her finding that the First NZ agreement concluded on 4 November 2004, the Judge determined that a further, unwritten agreement came into being after 4 November 2004, whereby ISL continued to provide administration and management services for First NZ in respect of the replacement properties.[22] The Judge determined that the terms on which ISL provided those services after 4 November 2004 were, except in relation to the gain fees, identical to those that applied when Franklin managed the First NZ properties.[23]
The effect of cl 11.1(c) of the First NZ agreement
[22]At [107].
[23]At [108].
Gwyn J acknowledged that the First NZ agreement did not expressly divide the 6.5 per cent set out as the “annual management fee” in cl 11.1(c) into “property management” and “investment management” services.[24] Nevertheless, the Judge concluded that the First NZ agreement required ISL to fund the cost of engaging a property manager from the property management fee, namely 3.25 per cent of annual gross rentals.[25]
[24]At [61].
[25]At [70].
The Judge:
(a)accepted that the practice of the parties throughout the time that Franklin provided property management services was that 3.25 per cent of the annual gross rentals received was paid by ISL to Franklin for property management services;[26]
(b)considered that ISL was not entitled to assert that the purchase of the replacement properties required different arrangements from those that were in place when Franklin was providing property management services, as ISL never raised with First NZ the possibility of changing the arrangement that had existed between the parties over the eight years that Franklin provided property management services for ISL;[27] and
(c)held that a prospectus, which post-dated the First NZ agreement by 10 days, was able to be used to interpret cl 11.1(c) of the First NZ agreement: the prospectus was issued by Farmers’ Mutual Group, for First NZ, and explained how the First NZ agreement would operate.[28]
[26]At [61].
[27]At [62].
[28]At [68].
The effect of the prospectus was summarised in the following way by Gwyn J:[29]
(a)[ISL] (“Investment Manager”) was responsible for the investment management of First NZ, including promotion, financial management and ongoing administration.
(b)The Investment Manager was to receive (after 31 March 1996) an investment management fee of 6.50 per cent of annual rental income payable monthly in arrears.
(c)Franklin (“Property Manager”) would provide independent and operational property management services in respect of the Properties.
(d)The ongoing property management fee shall be borne by the Investment Manager, out of the investment management fee.
[29]At [53].
In determining the admissibility of the prospectus to interpret cl 11.1(c) of the First NZ agreement, Gwyn J relied on the Supreme Court’s decision in Bathurst Resources Ltd v L & M Coal Holdings Ltd (Bathurst Resources).[30] In Bathurst Resources, the Court considered the approach to be taken to the use of subsequent conduct for the purposes of interpreting a contract, and held that its admissibility depends on whether the evidence “tends to prove anything relevant to the objective approach to interpretation”.[31] The Court noted that subsequent conduct does not necessarily have to be mutual to be admissible.[32]
[30]At [64]–[69] referring to Bathurst Resources Ltd v L & M Coal Holdings Ltd [2021] NZSC 85, [2021] 1 NZLR 696 [Bathurst Resources].
[31]Bathurst Resources, above n 30, at [89].
[32]At [89].
Gwyn J considered that the prospectus was “plainly proximate” to the First NZ agreement, particularly given that it post-dates the agreement by only 10 days.[33] Furthermore, Mr Millar was the CEO of Farmers’ Mutual Group, the directors of First NZ at the time included Mr Millar and Mr Barnes, and the prospectus was mutual in the sense that First NZ and ISL must both have been aware of the prospectus, especially given the roles Mr Millar had in both Farmers’ Mutual Group and First NZ.[34] Of particular importance to Gwyn J was that the statements in the prospectus about how the payment arrangement under the First NZ agreement would operate was consistent with the practice of the parties between September 1995 and December 2003.[35]
[33]Judgment under appeal, above n 1, at [67].
[34]At [67].
[35]At [68].
The approach taken by the Judge to the First NZ agreement meant:[36]
… continuation of a contract between First NZ and ISL was on the basis of ISL continuing to be paid a total management fee of 6.50 per cent of annual gross rentals, which was to cover both “investment management” and “property management”, as had been the case while Franklin was engaged as property manager.
[36]At [108].
On this basis Gwyn J concluded that the agreement between the parties following the termination of Franklin’s services did not authorise ISL to pay itself the “opex management” or “excess” property management fee of $183,220 plus GST in addition to the property management fees it charged First NZ between 1 April 2006 and 31 March 2020.[37] There is no challenge to these findings.
[37]At [170] and [187].
The Judge also concluded ISL was not entitled to have appointed Gravtec and Terra Firma to undertake the same property management services that ISL was already being paid to provide.[38]
Gain fees
[38]At [174].
When referring to the gain fees, the Judge concluded that the new agreement did not provide for the payment of gain fees upon the sale of any of the replacement properties.[39] This was because cl 11.1(d) of the written First NZ agreement — which refers to the payment of gain fees “on the sale of any of the Properties” — was only engaged upon the sale of the properties that were specified in the First NZ agreement.[40] The Judge said that even if the First NZ agreement continued all of the terms following the sale of the last supermarket in 2004, it was “clear” to the Judge “that the provision relating to payment of a gain fee must be interpreted as applying only to the original, defined Properties”.[41]
[39]At [179]–[180].
[40]At [178].
[41]At [179].
Gwyn J noted that First NZ accepted ISL’s liability for overcharged property management fees must take into account that First NZ did in fact receive property management services.[42] Thus, when calculating ISL’s liability under this head of the claim, the Judge concluded First NZ was entitled to damages calculated by totalling the excess property management fees, the value of the fees paid to Gravtec and Terra Firma and the gain fees.[43]
ISL’s liability to First NZ in negligence
[42]At [186].
[43]At [187]–[188].
First NZ alleged that ISL owed it a duty of care to perform administration and investment management services with reasonable skill and care and that it breached its duty of care thereby negligently causing First NZ to suffer losses.
Gwyn J concluded:
(a)ISL owed First NZ a duty of care that overlapped and extended beyond the contractual relationship.[44]
(b)The duty of care that ISL owed First NZ was to exercise a reasonable standard of care in performing its management obligations to First NZ. This required ISL to ensure that there was a proper basis for charging First NZ and that its fees were not excessive.[45]
(c)ISL did not undertake an assessment of the kind we have summarised at (b).[46]
(d)ISL breached its duty of care to First NZ in relation to the Gravtec and Terra Firma arrangements and in relation to the excess property management fees as well as the gain fees.[47]
[44]At [198]–[200].
[45]At [201].
[46]At [202].
[47]At [205]–[207].
The Judge then calculated the damages under the claim for negligence in exactly the same way as she had calculated the damages for breach of contract.[48]
ISL’s liability to First NZ for unjust enrichment
[48]At [212].
Gwyn J also determined that ISL was liable to First NZ for unjust enrichment +and that ISL should account to First NZ on this basis for “the excess property management fees and the gain fees”.[49]
High Court conclusions concerning the First NZ claims against Mr Millar and Mr Mephan
[49]At [313].
Gwyn J summarised First NZ’s claims against Mr Millar and Mr Mephan as follows. First NZ pleaded that Mr Millar and Mr Mephan were in breach of ss 131 and 137 of the Companies Act, and owed it and its subsidiary companies fiduciary duties which required them:[50]
(a)to act in good faith;[51]
(b)not to benefit from First NZ and its subsidiaries;[52]
(c)not to place themselves in a position where their duties to First NZ and its subsidiaries may have conflicted with their interests;[53] and
(d)not to act for their own benefit, or for the benefit of a third person without the informed consent of First NZ and its subsidiaries.[54]
[50]At [213].
[51]Citing Holden v Architectural Finishes Ltd (1996) 7 NZCLC 260,976 (HC) at 261,028.
[52]Citing Holden v Architectural Finishes Ltd, above n 51.
[53]Citing Stevens v Premium Real Estate Ltd [2009] NZSC 15, [2009] 2 NZLR 384 at [71].
[54]Citing Stevens v Premium Real Estate Ltd, above n 53, at [72].
First NZ maintained that Mr Millar’s personal interests conflicted with his duty to First NZ and its subsidiaries in the following ways:
(a)he was simultaneously a director of ISL, First NZ and its subsidiaries;[55]
(b)he had, through ISL, the ability to appoint and remove directors from First NZ and its subsidiaries, and he used this power to appoint as directors of First NZ and its subsidiaries persons who placed their loyalty to him above their duties to First NZ and its subsidiaries;[56] and
(c)he profited from the arrangements both through the profits accrued by ISL and through his family trust being the sole shareholder of ISL.[57]
[55]Judgment under appeal, above n 1, at [216].
[56]At [216].
[57]At [218].
First NZ also pleaded that Mr Mephan “was in a similar position to Mr Millar, although for a more limited period”.[58]
[58]At [219].
Gwyn J found that Mr Millar was “in a situation of irreconcilable conflict of interest” and that clearly it was favourable for ISL to continue to provide services to First NZ, regardless of whether that was in the best interests of First NZ.[59]
[59]At [240].
The Judge held that “the termination of the First NZ Franklin Agreement provided an opportunity for ISL to increase the amount it received from First NZ”.[60] Under Mr Millar’s direction, ISL went from a situation where it continued to receive from First NZ 6.5 per cent of rentals from which it paid Franklin to provide property management services, to providing services in-house, more cheaply than the cost of engaging Franklin.[61] She also noted “the cost to engage Mr Penrose was a fraction of the cost of engaging Franklin”.[62]
[60]At [241].
[61]At [241].
[62]At [241].
Further, under Mr Millar’s direction:[63]
ISL then went to a situation where it received 6.50 per cent of the rentals, plus [approximately] $183,000 for “opex management”, while property management services were actually provided by Gravtec and Terra Firma …
[63]At [241].
Mr Millar’s conflicts of interest were compounded by the fact that he treated all the property companies and ISL as one entity with meetings combined for all of property companies and ISL.[64] Mr Millar was also the person with overall control of the property companies, their books and banking arrangements.[65]
[64]At [247].
[65]At [247].
The Judge was concerned that Mr Millar did not seek the consent of any of the property companies to continue to act, notwithstanding his obvious conflicts, and there was no evidence that Mr Millar took any steps to attempt to manage those conflicts.[66] The Judge also observed:
[261] Mr Millar profited from the arrangements, in breach of his duty not to profit from his position as a director of the plaintiff companies. While Mr Millar was not paid as a director of the property companies, in relation to ISL, the shares in ISL were held by the Kaiuma Family Trust. Mr Millar’s children are beneficiaries of the Trust. Mr Millar earned his income, or a large portion of it, from ISL. ISL accounts record his salary and also “shareholders’ drawings” which Mr Millar acknowledged may have been payments to him. ISL received profits from the payments made to it by the property companies. As Mr Millar acknowledged, the better ISL did, the better he did.
[66]At [249].
The Judge was in no doubt that Mr Millar was profoundly conflicted and in clear breach of his fiduciary duties to First NZ and its subsidiaries.[67]
[67]At [240] and [260].
Gwyn J also found Mr Millar breached the duties he owed to First NZ and its subsidiaries under s 131 of the Companies Act.[68] Similarly, the Judge found that Mr Millar had breached s 137 of the Companies Act.[69] He had failed to consider the best interests of First NZ and its subsidiaries and adequately disclose his conflicts at any point that would be expected of a reasonable director.[70] Gwyn J stated:[71]
He took no steps to explain or review the nature of and payment for the property management services to First NZ … [and] did not ensure that full disclosure of the effect of the changed arrangements was made. He did not take steps to ensure there was a proper basis for the payment of the gain fees.
[68]At [268].
[69]At [274].
[70]At [267] and [275].
[71]At [275].
Mr Millar was found concurrently liable with ISL to First NZ for $1,420,692.73 plus GST in respect of the excess property management fees, the fees paid to Gravtec and Terra Firm, and the gain fees.[72] Mr Millar was not held liable in relation to the claims of unjust enrichment and knowing receipt.[73] As we have noted, ISL and Mr Millar have now abandoned that part of their appeal in which they challenged their liability to repay the gain fee in relation to the Kilmore Street property.
[72]At [278] and [452(a)].
[73]At [303] and [312].
First NZ pleaded wide-ranging causes of action against Mr Mephan alleging multiple breaches of his fiduciary duties and breaches of his obligations under ss 131 and 137 of the Companies Act.
The Judge was satisfied that Mr Mephan was not as culpable as Mr Millar and that the extent of his liability to First NZ was confined to him having authorised the payment of the Symonds Street gain fee to ISL.[74] Mr Mephan’s error was, according to the Judge, his failure to ascertain “a clear and proper basis” for ISL claiming the gain fee on the sale of the Symonds Street property.[75] The Judge concluded that Mr Mephan was in breach of his fiduciary duties and his obligations under ss 131 and 137 of the Companies Act and therefore concurrently liable with ISL and Mr Millar to First NZ for the sum of $450,000, being the Symonds Street gain fee.[76]
Superstore
[74]At [288].
[75]At [288].
[76]At [288]–[289].
When Superstore was incorporated, three subsidiary companies were also created, each of which purchased commercial properties in Auckland, Christchurch and Tauranga (the Superstore properties). In 2001, ISL acquired the rights to be the investment and administration manager of the Superstore properties.
Superstore agreement
The terms of the Superstore agreement were similar but not identical to the First NZ agreement. In particular:
(a)Under cl 1, ISL was appointed as agent “for the ongoing administration and investment management of Superstore and the three [subsidiary] companies and the three properties” we have referred to at [11].
(b)Under cl 3.5, ISL was to “supervise the management” of each of the Superstore properties “with the assistance of a professional property manager”.
(c)Under cl 3.6, ISL was to “manage or arrange the management of the three properties and their leasing”.
(d)Clause 3.12 allowed ISL to instruct amongst others “such … consultants or advisors as [ISL] deems necessary or desirable in connection with any of its duties and responsibilities under this Agreement”.
(e)Under cl 11, Superstore agreed to pay ISL the following fees:
(a) a once only promotion fee of $75,000; and
(b) a once only administration fee of $75,000; and
(c) any expenses incurred relating to the initial set up of Superstore and the three companies; and
(d) a management fee of 0.75% per annum of the net capital value of the three properties until termination of the management arrangement payable monthly in arrears; and
(e) 5.0% of any capital gains realised on the sale of the Property at any time.
(f)The termination provisions of the agreement were set out in cl 17 and were almost identical to the termination provisions in the First NZ agreement which we have set out at [24].
Unlike in the First NZ agreement, the Superstore properties were not referred to in a schedule to the Superstore agreement. The agreement was signed on behalf of ISL by Mr Millar and a co-director, and on behalf of Superstore and each of the Superstore subsidiary companies by Mr James Gibson and Mr Grant Uridge.
ISL also entered into a management and administration agreement with Franklin for that company to provide property management services in relation to the Superstore properties in exchange for a property management fee of three per cent of annual gross rentals received. That arrangement also ended on 31 December 2003 when Mr Penrose and later his company managed the Superstore properties until Gravtec’s appointment on 1 October 2011.
Superstore’s claim against ISL
As with the claims by First NZ, Superstore’s cause of action against ISL postdated the termination of Franklin as the property manager for the Superstore properties and in particular, was primarily based on the benefit ISL received when Gravtec managed Superstore properties for significantly less than is likely to have occurred if Franklin were still the property manager. Superstore’s claim against ISL was based upon knowing receipt.[77]
[77]At [314].
Gwyn J accepted Superstore’s argument that by contracting Gravtec to provide property management services, ISL benefitted significantly because of the greater margin it was able to retain in relation to its 0.75 per cent management fee under the Superstore management agreement.[78] As a consequence, ISL retained a greater portion of the 0.75 per cent of the net capital value management fee paid to it by Superstore than it would have if Franklin was carrying on the property management services.[79] This occurred despite Mr Millar’s clear conflict of interest and both his failure and the failure of ISL to disclose this changed situation to Superstore.[80]
[78]At [331] and [341].
[79]At [342].
[80]At [341]–[342].
The Judge reasoned:[81]
… Superstore has a knowing receipt claim against ISL. Mr Millar owed Superstore fiduciary obligations in relation to the management fee. ISL received the management fee. Mr Millar was in effect ISL. In those circumstances I conclude that ISL received or retained the amount claimed with actual knowledge that Mr Millar, in directing the payment or retention to ISL, was in breach of his fiduciary duties to Superstore and that therefore ISL had no lawful entitlement to the amount claimed.
[81]At [341].
The Judge concluded ISL was liable to Superstore for knowing receipt and ordered damages in the sum claimed by Superstore, namely $656,394.52 plus GST.[82]
Superstore’s claim against Mr Millar
[82]At [453(b)].
Superstore claimed damages from Mr Millar for breach of his fiduciary duties, for the breaches of his duties under ss 131 and 137 of the Companies Act and for knowing receipt.[83]
[83]At [314].
The Judge, when dealing with Superstore’s claim against Mr Millar, referred to the fact that she had already analysed Mr Millar’s fiduciary duties in relation to the First NZ claim and that her analysis in relation to that claim was equally applicable to Superstore’s claim.[84] In particular:[85]
(a)Mr Millar was a director of both Superstore and ISL.
(b)He derived his livelihood from ISL.
(c)Mr Millar had placed himself in a position where his duties to Superstore and his personal interests conflicted.
(d)He was in breach of his fiduciary and statutory obligations to act in good faith and in the best interests of Superstore.
(e)He also breached his duty not to profit from his position as a director and not to act for his own benefit or the benefit of ISL without the informed consent of Superstore.
[84]At [334].
[85]At [335].
Gwyn J had no hesitation in concluding that there were multiple breaches by Mr Millar of his fiduciary duties to Superstore and of his obligations under ss 131 and 137 of the Companies Act and that he was therefore concurrently liable with ISL to Superstore for the sum of $656,394.52 plus GST.[86] However, she considered that the knowing receipt claim in respect of Mr Millar must fail, on the basis that there was no evidence that he directly received the amounts claimed by Superstore.[87]
ISL’s contractual liability to First NZ
[86]At [337]–[338].
[87]At [341].
The appeal concerning ISL’s contractual liability to First NZ has now been distilled to the following question: did the High Court err when it found ISL liable for breach of contract in respect of the payments and benefits received by Gravtec and Terra Firma for managing First NZ’s properties and in respect of the gain fee acquired by ISL following the sale of the Symonds Street property?
The amount in dispute in this part of the appeal is $857,472.73 plus GST.
Continuation of the original agreement
We commence our analysis of the contractual issues raised by the appeal by explaining the correct basis upon which the First NZ agreement continued following the purchase of the replacement properties.
Gwyn J reasoned that an unwritten contract came into being after 4 November 2004 but that the new contract did not contain all of the terms of the original First NZ agreement because First NZ did not “consent to an ongoing arrangement on [all] the old terms”.[88] In particular: Gwyn J was satisfied First NZ did not have the capacity to consent to the unwritten agreement continuing on all the old terms because Mr Millar effectively controlled both ISL and First NZ.[89] This approach led Gwyn J to conclude that cl 11.1(c) of the First NZ agreement continued to apply but the gain fee set out in cl 11.1(d) of the agreement no longer applied.[90]
[88]At [98]–[99].
[89]At [100].
[90]At [108].
We consider that the First NZ agreement implicitly contained the following clause in the schedule after the description of the properties: “and such other properties that First NZ acquires following the sale of any of the above properties” (the replacement properties term). As a consequence, the First NZ agreement applied to the replacement properties.
Our reasons for concluding that the First NZ agreement implicitly applied to the replacement properties engage the principles upon which contracts may be implied to accommodate business efficacy (amongst other considerations).
Courts have implied terms to commercial contracts on the basis of business efficiency since the decision of the Court of Appeal of England and Wales in The Moorcock in 1889.[91] The principle has been often invoked and explained. For example, Scrutton LJ said in 1918 that a term can only be implied:[92]
… if it is necessary in the business sense to give efficacy to the contract – that is, if it is such a term that [it can confidently be said] that if at the time the contract was being negotiated someone had said to the parties: “What will happen in such a case?” they would both have replied, “Of course, so-and-so. We did not trouble to say that; it was too clear.”
[91]The Moorcock (1889) 14 PD 64 (CA).
[92]Reigate v Union Manufacturing Co (Ramsbottom) Ltd [1918] 1 KB 592 (CA) at 149.
The principles governing the implication of terms to a contract have now been helpfully summarised by the Supreme Court in Bathurst Resources.[93] That judgment adopted aspects of the opinion of the Privy Council in BP Refinery (Westernport) Pty Ltd v Shire of Hastings (BP Refinery).[94] The Supreme Court endorsed the following statement in BP Refinery:[95]
… for a term to be implied, the following conditions (which may overlap) must be satisfied: (1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that “it goes without saying”; (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract.
[93]Bathurst Resources, above n 30, at [116].
[94]BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 16 ALR 363 (PC) [BP Refinery].
[95]Bathurst Resources, above n 30, at [94], referring to BP Refinery, above n 94, at 283.
The Supreme Court summarised in the following way the basis on which terms may be impliedly inserted into a contract:[96]
(a)The legal test for the implication of a term is a standard of strict necessity, a high hurdle to overcome.
(b)The starting point is the words of the contract. If a contract does not provide for an eventuality, the usual inference is that no contractual provision was made for it.
(c)While the task of implication only begins when the court finds that the text of the contract does not provide for the eventuality, the implication of a term is nevertheless part of the construction of the written contract as a whole. An unexpressed term can only be implied if the court finds that the term would spell out what the contract, read against the relevant background, must be understood to mean.
(d)As with the task of interpreting a contract, the inquiry for the court when considering the implication of a term is an objective inquiry – it is the understanding of the notional reasonable person with all of the background knowledge reasonably available to the parties at the time of contract that is the focus of this assessment. The court is tasked with the role of constructing the understanding of that reasonable person.
(e)Thus, the implication of a term does not depend upon proof of the parties’ actual intentions, nor does it require the court to speculate on how the actual parties would have wanted the contract to regulate the eventuality if confronted with it prior to contracting.
(f)The BP Refinery conditions are a useful tool to test whether the proposed implied term is strictly necessary to spell out what the contract, read against the relevant background, must be understood to mean. Whilst conditions (4) and (5) must always be met before a term will be implied, conditions (1)–(3) can be viewed as analytical tools which overlap and are not cumulative. The business efficacy and the “so obvious that ‘it goes without saying’” conditions are both ways, useful in their own right, of testing whether the implication of a term is strictly necessary to give effect to what the contract, objectively interpreted by the court, must be understood to mean.
[96]Bathurst Resources, above n 30, at [116] (footnotes omitted).
In Attorney General of Belize v Belize Telecom Ltd (Belize), Lord Hoffman said that the BP Refinery test was not a:[97]
… series of independent tests which must each be surmounted, but rather as a collection of different ways in which judges have tried to express the central idea that the proposed implied term must spell out what the contract actually means …
[97]Attorney General of Belize v Belize Telecom Ltd [2009] UKPC 10, [2009] 1 WLR 1988 [Belize] at [27].
In Bathurst Resources the Supreme Court, when referring to Lord Hoffman’s observations in Belize, agreed that the conditions concerning the implication of a term should “not be applied in a rigid and formulaic way”.[98]
[98]Bathurst Resources, above n 30 ,at [108].
Gwyn J focussed upon circumstances that existed when the last of the supermarkets was sold. However, a term can only be implied in the context of the circumstances when the agreement was created.[99] In this case the relevant date is 25 September 1995. At that time Mr Millar did not control ISL or First NZ. On the contrary, the evidence was that at that time First NZ enjoyed the services of independent directors (Sir Allan and Mr Norrish). Gwyn J’s concern that First NZ lacked the capacity to properly consent to a new contract, following the sale of the last of the supermarket properties, on the same terms and conditions as the written contract are not relevant to our analysis, as we focus upon the circumstances that existed when the First NZ agreement was created.
[99]Bathurst Resources, above n 30, at [41] and [43], citing Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896, [1998] 1 All ER 98 (HL) at 912–913 and Firm PI 1 Ltd v Zurich Australian Insurance Ltd [2014] NZSC 147, [2015] 1 NZLR 432 at [60].
There are three aspects to the First NZ agreement which lead us to conclude that it did not come to an end on 4 November 2004 but continued to apply to replacement properties purchased by First NZ.
First, the introduction and cl 1 of the First NZ agreement refer to its purposes as being broader than simply the management of the three supermarket properties. Those provisions refer to ISL having responsibility for “the ongoing administration and investment management of [First NZ]” in addition to the subsidiary companies and the supermarket properties.
Secondly, the agreement provided for the way it could be terminated. Clause 2 states that the agreement was to continue until it was terminated in accordance with cl 17. As we have noted, cl 17 provided mechanisms for termination upon notice of termination having been given by ISL or First NZ or upon one of the parties becoming insolvent, placed in administration or liquidation, or being dissolved voluntarily or otherwise.
Thirdly, had the parties intended for the agreement to come to an end upon the sale of the last of the supermarkets it would have been very easy to have expressly said so in the agreement. Having expressly provided for the ways in which the agreement could be terminated, it is notable that the parties did not state that the agreement would be terminated upon the sale of the last of the supermarket properties.
These factors suggest the First NZ agreement did not end on 4 November 2004 and that it continued to apply to replacement properties.
The replacement properties term satisfies mandatory conditions (4) and (5) of BP Refinery in that it is capable of clear expression and does not contradict any express term of the contract.[100]
[100]BP Refinery, above n 94, at 283.
We also rely on the following “analytical tools” to support our analysis.[101]
[101]Bathurst Resources, above n 30, at [116(f)].
First, the replacement properties term spells out clearly what the agreement must be understood to have meant to a notional reasonable person with all the background knowledge at the time it was created, that being:
(a)The agreement could only end through one of the ways set out in cl 17 of the agreement.
(b)In order to give business efficacy to the agreement, it would need to have applied to replacement properties. That is to say, it could not have been intended the agreement would subsist in a vacuum in the event of the sale of the last of the supermarket properties.
Finally, the advantage of the implied term that we favour explains the continuing relationship between the parties.[102] In particular, it explains how the agreement continued to apply to replacement properties acquired by First NZ before and after 4 November 2004. The parties treated the agreement as applying to all replacement properties from the time they were purchased. This could not have happened absent the replacement properties term. Business efficacy dictates the agreement applied to the Kilmore Street property purchased on 24 December 2003 and subsequent replacement properties. The agreement was applied by the parties to those properties from the time they were purchased. This reinforces our conclusion that from the outset of the agreement, the parties assumed that it would apply to replacement properties.
[102]See Andar Transport Pty Ltd v Brambles Ltd [2002] VSCA 150, (2002) 5 VR 169.
The consequence of the approach we favour is that all of the terms and conditions of the First NZ agreement apply to replacement properties purchased by First NZ following the sale of one or more of the supermarkets. That is to say, cl 11.1(c) and (d) of the First NZ agreement continued to regulate the remuneration of ISL in relation to the replacement properties. We will now explain the consequences of this finding.
Clause 11.1(c)
We agree with Gwyn J that the relevance of the Farmers’ Mutual Group prospectus meets the threshold of admissibility set out in Bathurst Resources. We also agree that the conduct of the parties throughout the eight years that Franklin provided property management services, combined with the prospectus, supports the interpretation of cl 11.1(c) that 3.25 per cent of the annual management fee was the most that could be charged by ISL for property management services. It is significant that at no stage did ISL engage with First NZ about changing the basis upon which First NZ would pay for property management services. Instead, ISL unilaterally changed the arrangements that had been agreed to and complied with by the parties for the first eight years of the First NZ agreement.
Gravtec and Terra Firma arrangements
As we understand the argument for ISL and Mr Millar, it is accepted that the sums paid to Gravtec and Terra Firma were in addition to the sums that First NZ paid to ISL pursuant to cl 11.1(c) of the agreement calculated on 3.25 per cent of gross rentals that was to be paid for property management services. We understand Ms Radich, counsel for the appellants, to have argued however:
(a)that as the Gravtec and Terra Firma fees were paid to those two companies directly by tenants of the properties, First NZ did not suffer any loss;
(b)two “retrospective” written agreements between Gravtec and First NZ and between Terra Firma and First NZ negate this aspect of First NZ’s claim against ISL; and
(c)under cls 3.9 and 4.1 of the First NZ agreement, ISL could instruct such advisors and consultants it deemed necessary and that any costs in doing so were to be met by First NZ.
The difficulty with the first of the arguments advanced by Ms Radich is that ISL was paid a property management fee based upon 3.25 per cent of the gross rentals of the properties managed by Gravtec and Terra Firma. At the same time, Gravtec and Terra Firma deducted property management fees from the rents paid by First NZ’s tenants, thereby diminishing the returns that First NZ would otherwise have received from its tenants. In other words, First NZ did lose the benefit of the fees charged by Gravtec and Terra Firma and at the same time it paid ISL a property management fee based on 3.25 per cent of gross rentals.
The retrospective agreements were between First NZ and Gravtec and between First NZ and Terra Firma. The Gravtec agreement was signed by Gravtec and Mr Barnes on behalf of First NZ on 20 November 2017. It purported to commence on 1 October 2011. The Terra Firma agreement was undated but said it would expire on 31 March 2019. Mr Mephan acknowledged he signed this agreement on behalf of First NZ and that it was likely he signed it in about March 2018.
Like Gwyn J we are satisfied the retrospective agreements between First NZ and Gravtec and between First NZ and Terra Firma do not affect the nature of the contractual relationship between ISL and First NZ and merely recorded in writing the basis of Gravtec and Terra Firma’s remuneration. Gwyn J was justifiably suspicious about the retrospective nature of those agreements but, in reality, they did not impact on the terms of the agreement that bound ISL and First NZ.
As to Ms Radich’s third point, properly understood, cl 3.9 did not authorise ISL to appoint property managers whose remunerations would be in excess of the fees that ISL received to cover the costs of those services. It follows therefore that property management expenses incurred by ISL pursuant to cl 4.1 of the agreement were to be absorbed within the 3.25 per cent property management fee that was covered by cl 11.1(c) of the First NZ agreement. It was not open to ISL to unilaterally change the basis upon which First NZ paid for property management services.
Symonds Street gain fee
As we have noted, the Symonds Street gain fee accurately reflected the remuneration that ISL was entitled to receive under cl 11.1(d) of the First NZ agreement following the sale of that property. As a consequence, ISL was entitled to the gain fee it was paid following the sale of the Symonds Street property.
Conclusion
ISL’s appeal in relation to the fee arrangements involving Gravtec and Terra Firma fails. However ISL’s appeal concerning the gain fee paid to ISL following the sale of the Symonds Street property succeeds. The judgment against ISL in favour of First NZ is therefore varied by removing the $450,000 that ISL was entitled to receive following the sale of Symonds Street. ISL’s liability to First NZ is reduced to $407,472.73.
ISL’s liability to First NZ in negligence
The law governing concurrent actions in contract and tort was explained by this Court in Frost & Sutcliffe v Tuiara (Frost & Sutcliffe).[103] The following principles emerge from that judgment:[104]
(a)Where the factual basis for a claim in contract and tort coincide, the two causes of action are usually concurrent and co-extensive.
(b)If the facts are not co-extensive, there might be a wider duty in tort because of the greater width of the circumstances that may be relevant to that cause of action.
(c)Where the facts for both causes of action are the same it would not normally be appropriate to hold that greater duties were owed in tort than in contract, thereby outflanking an agreed limitation of liability.
[103]Frost & Sutcliffe v Tuiara [2004] 1 NZLR 782 (CA).
[104]At [22].
Gwyn J held that ISL owed First NZ a duty of care to exercise its management obligations to First NZ in a reasonable way and that ISL breached its duty of care to First NZ through the arrangements concerning Gravtec and Terra Firma as well as when it received the gain fees.[105] The Judge said that these circumstances constituted an exception to the general rule we have summarised at [114(c).[106]
[105]Judgment under appeal, above n 1, at [198]–[200] and [205]–[207].
[106]At [200].
We understand the Judge to have acknowledged that the factual basis for her findings in tort were identical to the factual findings that underpinned ISL’s contractual liability to First NZ.[107] Nevertheless, the Judge appears to have imposed a wider duty of care in tort in order to circumvent cl 6 of the First NZ agreement which, on its face, indemnified ISL for any claims in tort by First NZ arising from the way ISL discharged its obligations and duties under the agreement.[108] Having reached this conclusion the Judge found that First NZ’s claim in negligence succeeded and that the damages it should receive under that cause of action were to be calculated in the same way as ISL’s contractual liability to First NZ.[109]
[107]At [207].
[108]At [199]–[200].
[109]At [211]–[212].
As Tipping J said in Frost & Sutcliffe:[110]
… in general, parties should be able to limit the scope of their potential liability by the terms of their contract. It would not normally be appropriate for that express … limitation [of liability] to be outflanked by an unlimited application of general tortious liability.
This was reiterated by this Court in Rolls-Royce New Zealand Ltd v Carter Holt Harvey Ltd, where it was recognised that “[e]ven where there is concurrent liability in contract and tort, the Courts are careful to ensure that tort liability does not extend beyond the contractual liability”.[111] Furthermore, this Court went on to note that where there is a contract between “sophisticated commercial parties capable of looking after their own interests”, there is no need for the courts to “interfere in bargains they have freely arrived at”.[112] Here, ISL is entitled to expect that the indemnity provision contained in cl 6 of the NZ First agreement, that was negotiated between two capable commercial parties, will not be disturbed by the courts.
[110]Frost & Sutcliffe v Tuiara, above n 104, at [22].
[111]Rolls-Royce New Zealand Ltd v Carter Holt Harvey Ltd [2005] 1 NZLR 324 (CA) at [68].
[112]At [123].
We see no merit in invoking a claim in tort in order to circumvent the limitations upon liability set out in the contract, when:
(a)the factual basis for causes of action based in contract and tort is identical;
(b)the breaches are indistinguishable; and
(c)the damages are the same.
Conclusion
In this case ISL’s liability to First NZ for breaching the remuneration provisions of the agreement have been clearly established. It is not appropriate for us to also find ISL liable in tort.
We accordingly allow ISL’s appeal against the finding that it was liable in negligence to First NZ.
ISL’s liability to First NZ for unjust enrichment
Gwyn J correctly identified that the elements of unjust enrichment required First NZ to demonstrate:[113]
(a)that ISL was enriched by the receipt of a benefit;
(b)the enrichment was at the expense of First NZ; and
(c)the retention of the enrichment would be unjust.
[113]Judgment under appeal, above n 1, at [307], citing Gillies v Keogh [1989] 2 NZLR 327 (CA) at 332, 341, 342 and 351; National Bank of New Zealand Ltd v Waitaki International Processing (NI) Ltd [1997] 1 NZLR 724 (HC) at 728; and Torbay Holdings Ltd v Napier [2015] NZHC 2477, (2015) NZAR 1839 at [168].
The Judge found that ISL was not entitled to the benefit of the inflated property management fees it received through the Gravtec and Terra Firma arrangements or the gain fees.[114] As we have already explained, however, Gwyn J erred when she held that ISL was not entitled to the gain fee in respect of the sale of the Symonds Street property. The Judge did however correctly conclude that ISL was not entitled to the benefits it received from being paid the full management fee for properties that were being managed by Gravtec and Terra Firma.
[114]Judgment under appeal, above n 1, at [310].
For there to be a successful claim for unjust enrichment it is necessary for the plaintiff to establish more than just a contractual entitlement to the benefit in dispute. It is, as we have explained at [121], also necessary to demonstrate that it is unjust for the defendant to retain the disputed benefit.
In the present case the injustice arises through the way Mr Millar controlled First NZ’s affairs in a way that enabled ISL to benefit significantly from the Gravtec and Terra Firma arrangements. Aside from Mr Millar having full knowledge of these arrangements, the shareholders of First NZ appear to have been unaware that their company was unjustly inflating the profits of ISL at the expense of their company. First NZ’s “agreement” to the Gravtec and Terra Firma arrangements was shrouded in ignorance. We therefore agree with Gwyn J that this was a case in which ISL was properly held liable for unjust enrichment to First NZ but only in respect of the benefit ISL received through the Gravtec and Terra Firma fee arrangements.
Conclusion
ISL was unjustly enriched, but only in respect of the Gravtec and Terra Firma arrangements. The judgment against ISL in favour of First NZ in relation to the unjust enrichment claim is varied by removing the $450,000 that ISL was entitled to receive following the sale of the Symonds Street property. ISL’s liability to First NZ is reduced to $407,472.73 in relation to its unjust enrichment cause of action.
Mr Millar’s liability to First NZ
Gwyn J recorded that “Mr Millar acknowledged that he owed fiduciary duties and duties under s 131 of the Companies Act to the [property] companies”.[115]
[115]At [238].
Mr Millar contended in the High Court, and on appeal, that he did not breach the duties he owed First NZ because:
(a)ISL was contractually entitled to be paid the property management fees it received in respect of the properties managed by Gravtec and Terra Firma and the gain fees paid to ISL following the sale of the Symonds Street property; and
(b)First NZ did not suffer any loss through the Gravtec and Terra Firma arrangements, and correspondingly, Mr Millar did not make any profits through those arrangements.
We have already determined that ISL was entitled to be paid under cl 11.1(d) of the First NZ agreement the gain fee that was paid following the sale of the Symonds Street property. As a consequence, Mr Millar cannot be liable in equity or under s 131 of the Companies Act for directing First NZ to pay the fee that it contracted to pay ISL upon the sale of the Symonds Street property. In this case the law governing breaches of fiduciary duties and s 131 of the Companies Act cannot be deployed to circumvent the clear contractual obligations of First NZ. The only remaining issue therefore is whether Mr Millar can be liable to First NZ for having breached fiduciary duties and/or his duties under s 131 in respect of the Gravtec and Terra Firma arrangements.
Requirements of a fiduciary
The relationship of a director to his or her company is inherently fiduciary.
The obligations of a fiduciary were succinctly summarised by Millett LJ in Bristol and West Building Society v Mothew (Bristol and West Building Society):[116]
The principal is entitled to the single-minded loyalty of his fiduciary. This core liability has several facets. A fiduciary must act in good faith; he must not make a profit out of his trust; he must not place himself in a position where his duty and his interest may conflict; he may not act for his own benefit or the benefit of a third person without the informed consent of his principal.
[116]Bristol and West Building Society v Mothew [1988] Ch 1 (CA) at 18.
Millett LJ’s summary of the duties of a fiduciary has been accepted by the Supreme Court. For example, in Chirnside v Fay Blanchard and Tipping JJ referred to the duty of a fiduciary “not to act in a way which is contrary to the [principal’s] interests”.[117] Furthermore, in Amaltal Corp Ltd v Maruha Corp the Court referred to a fiduciary’s obligation of “loyalty” to their principal.[118] In Premium Real Estate Ltd v Stevens (Stevens) the Supreme Court discussed the importance of a fiduciary not putting “himself in a position of having two irreconcilable duties”.[119]
[117]Chirnside v Fay [2006] NZSC 68, [2007] 1 NZLR 433 at [80].
[118]Amaltal Corp Ltd v Maruha Corp [2007] NZSC 40, [2007] 3 NZLR 192 at [21].
[119]Premium Real Estate Ltd v Stevens [2009] NZSC 15, [2009] 2 NZLR 384 at [71].
Recently, Millett LJ’s description of a fiduciary’s “single-minded loyalty” to his principal was adopted by Lord Briggs in Recovery Partners GP Ltd v Rukhadze (Rukhadze).[120] That case was cited by Ms Radich as support for her argument that a fiduciary can only be found to be liable in equity if they have made a profit at the expense of the principal.
[120]Recovery Partners GP Ltd v Rukhadze [2025] UKSC 10, [2025] 2 WLR 529 at [17].
Rukhadze constituted a challenge to what has become known as the “profit rule” which holds that a fiduciary “must not make a profit out of his trust”.[121] The case arose in the context of the appellants having been introduced to a business opportunity whilst working for Recovery Partners GP Ltd.[122] The business opportunity involved recovering assets for the family of a deceased billionaire.[123] After resigning from Recovery Partners GP the appellants concluded a contract with the family of the deceased billionaire which resulted in them providing the recovery services and making a substantial profit from their efforts.[124] The appellants tried to persuade the United Kingdom Supreme Court to depart from the established principles that underpin the profit rule.[125] They submitted that a fiduciary’s duty to account for profits is “subject to a but for condition that the profit would … have been made without any breach of fiduciary duty”.[126]
[121]At [17], citing Bristol and West Building Society v Mothew, above n 116, at [18].
[122]Recovery Partners GP Ltd v Rukhadze, above n 120, at [9]–[11].
[123]At [9].
[124]At [12].
[125]At [2].
[126]At [44].
Writing on behalf of Lord Reed P, Lord Hodge DP and Lord Richards, Lord Briggs declined to depart from the profit rule saying it was a rule that continued to “underpin adherence by fiduciaries to their undertaking of single-minded loyalty to their principals and beneficiaries”.[127]
[127]At [75].
Ms Radich relied on the concurring judgment of Lord Leggatt in which he criticised formulations of the profit rule. Ms Radich referred to the following passage from Lord Leggatt’s judgment:[128]
… the very label “profit rule” is something of a misnomer. It treats a consequence (in some cases) of breach of a fiduciary duty as if it were itself a breach. There is nothing wrong in making a profit. To do so is not in itself a wrongful act; indeed, it may not involve any act by the fiduciary at all in so far as it simply consists in receiving money.
[128]At [94].
Lord Leggatt also explained however that:[129]
If … the profit results from conduct which is a breach of fiduciary duty, the fiduciary may be required to pay over the profit to the principal as an alternative to being required to compensate the principal for loss caused by the breach. To say that a fiduciary must not make a profit out of his trust or other fiduciary position fails to identify, and diverts attention from, the nature of the underlying fiduciary duty which, if a profit is derived from its breach, gives rise to a liability to account for the profit.
[129]At [94].
It is clear that the “profit rule” continues to underpin the obligations of a fiduciary to their principal.
There are ways a fiduciary can manage a potential conflict of interest. In Stevens the Supreme Court explained that a potential conflict:[130]
… can be modified by an informed agreement or consent on the part of the principal … Whether a disclosure has been sufficient in the circumstances must depend upon the facts of each case. The requirement is for the principal’s informed consent to the agent’s acting with a potential conflict of interest. An informed consent is one which is given in the knowledge that there is a conflict of interest between the parties. The burden of proof of adequate disclosure is on the agent. The vendor/principal would need to have been told enough to appreciate that a real conflict of some kind existed for the agent.
[130]Premium Real Estate Ltd v Stevens, above n 119, at [72] (footnotes omitted).
We shall now briefly explain s 131 of the Companies Act, aspects of which compliment the law governing a director’s fiduciary obligations.
Section 131(1) of the Companies Act provides that:
… a director of a company, when exercising powers or performing duties, must act in good faith and in what the director believes to be the best interests of the company.
In Madsen-Ries (in liq) v Cooper the Supreme Court explained that although the s 131 test is subjective:[131]
… directors will probably have a hard task persuading the court that they honestly believed that an act or omission that resulted in substantial and foreseeable detriment to the company was in the company’s best interests. Under a subjective test, the fact that an allegedly unreasonable belief was held may, however, provide evidence that the belief was not honestly held.
[131]Madsen-Ries (in liq) v Cooper [2020] NZSC 100, [2021] 1 NZLR 43 at [109] (footnotes omitted).
The Supreme Court also referred to a number of exceptions and qualifications to the subjective test including the absence of evidence of actual consideration of the best interests of the company.[132]
First NZ losses
[132]At [113(a)], citing Re HLC Environmental Projects Ltd (in liq) [2013] EWHC 2876 (Ch), [2014] BCC 337 at [92(b)].
We agree with Gwyn J when she held that Mr Millar’s responsibilities as a director of the property companies conflicted profoundly with his responsibilities to ISL.[133] In particular, as we have explained, the Gravtec and Terra Firma arrangements significantly disadvantaged First NZ. The Gravtec and Terra Firma arrangements effectively meant First NZ was paying twice for property management of the same building. One fee was paid directly to ISL while the second fees were paid indirectly by First NZ through the Gravtec and Terra Firma arrangements.
[133]Judgment under appeal, above n 1, at [240].
This state of affairs arose because Mr Millar did not separate his responsibilities as a director of First NZ from his responsibilities to ISL. He appears to have treated ISL and the property companies as part of the same entity, with combined board meetings and with Mr Millar, through ISL, operating all of the bank accounts of First NZ and the subsidiary companies.
Nor did Mr Millar give any consideration as to how his conflicts of interest could be effectively managed. This might have been achieved if First NZ had independent directors and if the full impact of the Gravtec and Terra Firma arrangements had been properly explained to First NZ and it had thereafter provided genuine consent to those arrangements. Absent any evidence of Mr Millar having considered how to manage his significant conflict of interests he cannot realistically claim to have acted in what he believed were the “best interests of the company”.[134]
The profits
[134]Companies Act 1993, s 131(1).
In addition to arguing that First NZ did not suffer losses for the Gravtec and Terra Firma arrangements, Ms Radich also maintained that there was no profit to Mr Millar from the arrangements. Ms Radich endeavoured to draw support for this proposition from the passage from Lord Leggatt’s judgment we have set out at [135].
It is true that the Gravtec and Terra Firma arrangements directly benefitted ISL rather than Mr Millar. That however does not provide salvation for Mr Millar.
Mr Millar did benefit indirectly through ISL’s increased profit margins arising from the Gravtec and Terra Firma arrangements. He acknowledged he was a beneficiary of ISL’s profits and that as ISL’s fortunes grew so did his.
In Regal (Hastings) Ltd v Gulliver, Lord Wright referred to a director’s liability to account for “any benefit which he obtains in the course of and owing to his directorship”.[135]
[135]Regal (Hastings) Ltd v Gulliver [1967] 2 AC 134 (HL) at 156 (emphasis added).
It is also settled law that there need only be “a reasonable relationship” between a fiduciary’s breach of duty and the profits in issue.[136] The Court of Appeal of England and Wales has explained:[137]
There needs to be some link or nexus between the breach of duty proved and the profits for which an account is ordered, such that there is a “reasonable relationship” between them (as Lewison J said in the Ultraframe case). But the link or nexus does not need to be of causal character. It will normally be sufficient if the profit arose within the scope of the defaulting fiduciary’s conduct in breach of duty.
[136]Ultraframe (UK) Ltd v Fielding [2005] EWHC 1638 (Ch) at [1588].
[137]Gray v Global Horizons Corp [2020] EWCA Civ 1668, [2021] 1 WLR 2264 at [128].
There was sufficient connection between Mr Millar’s breach of his duty of loyalty to First NZ and the remuneration he received from ISL that was linked to the profits enjoyed by ISL through the Gravtec and Terra Firma arrangements.
In addition, the fifth “facet” of a fiduciary’s obligations set out by Millett LJ in Bristol and West Building Society is clearly engaged. Millett LJ said a fiduciary “may not act for his own or the benefit of a third person without the informed consent of his principal”.[138] Mr Millar acted for the benefit of ISL when orchestrating the Gravtec and Terra Firma arrangements without the informed consent of First NZ.
Conclusion
[138]Bristol and West Building Society v Mothew, above n 116, at 18 (emphasis added).
In these circumstances, we agree with Gwyn J that Mr Millar breached his fiduciary obligations to First NZ and his duties under s 131 of the Companies Act owed to First NZ. The consequence is that he is concurrently liable with ISL for the benefits ISL obtained as a consequence of the Gravtec and Terra Firma arrangements.
This finding renders it unnecessary for us to also consider whether or not Mr Millar breached his duties to First NZ under s 137 of the Companies Act which, in any event, overlaps with the duty of care a director owes his company.
Mr Mephan’s liability to First NZ
Having found that the gain fee paid to ISL following the sale of the Symonds Street property was entirely within the terms of the First NZ agreement, we can see no basis upon which Mr Mephan could be held liable in equity or for breaching s 131 of the Companies Act when he participated in arranging the payment of the Symonds Street gain fee to ISL. Accordingly, the judgment obtained against Mr Mephan by First NZ must be set aside.
Superstore claims against ISL
ISL’s contractual entitlements
The amount in dispute in respect of the Superstore claim is $644,945.26 plus GST. This sum reflects the benefit that Superstore claimed ISL received, primarily, through Gravtec managing the Superstore properties from 1 October 2011 to 31 December 2020.
For completeness, we record that so far as we can ascertain, Superstore did not sell the properties referred to in the Superstore agreement. If this understanding is incorrect, we would hold that the Superstore agreement applied to replacement properties for the same reasons that we have explained in relation to the First NZ agreement.
We have explained at [74]–[75] the terms of the Superstore agreement. Under that agreement, ISL was able to charge Superstore a property management fee calculated at 0.75 per cent of the net capital value of each of Superstore’s properties. Unlike the First NZ agreement, the fees that ISL could charge Superstore did not differentiate between investment and property management services.
There is another important distinction between the Superstore agreement fee arrangements and those which applied to the First NZ properties. As we have explained, First NZ paid property management fees directly to ISL and indirectly through the Gravtec and Terra Firma arrangements. ISL’s liability to First NZ is based on the benefit it derived through the Gravtec and Terra Firma arrangements which exceeded the 3.25 per cent gross rental fees that ISL was entitled to receive under the property management provisions of the First NZ agreement.
In the case of Superstore however, ISL was paid by Superstore in accordance with the Superstore agreement, that is to say, ISL was paid 0.75 per cent of the net capital value of Superstore properties. Gravtec was paid by ISL from the fees Superstore paid ISL. Gravtec’s fees were significantly lower than the fees that had, for example, been charged by Franklin when it managed the Superstore properties. The fee arrangement for Franklin in relation to the First NZ properties was virtually the same as the fee arrangements which applied to Franklin’s management of the Superstore properties. The amount that Superstore claimed against ISL was based on the notional amount that Franklin would have been paid if it had continued to manage the Superstore properties ($796,176.26) less the amount that ISL actually paid Gravtec ($151,231). The balance ($644,945.26) was in effect the profit that ISL made through the Gravtec arrangement.
The evidence at trial established that all ISL did was assert its contractual entitlement to be paid property management fees by Superstore based on 0.75 per cent of the net capital value of the Superstore properties.
The Superstore agreement required ISL to supervise the management of the Superstore properties “with the assistance of a professional property manager”. That was done from the time Superstore was incorporated in 1999. ISL always met the costs of managing Superstore properties from the property management fee. All that changed was the profit margin that ISL enjoyed when it contracted the services of cheaper property management companies, and in particular, Gravtec.
The evidence in support of these arrangements came, from amongst other witnesses, Mr David Osborn, a forensic accountant called as a witness by the property companies who accepted that “all property management services provided to Superstore were paid by ISL”. That evidence was never disputed.
Notwithstanding ISL’s contractual entitlement to the property management fee it received from Superstore, Gwyn J held that ISL was liable to compensate Superstore for the profit it made through the Gravtec arrangement, namely $644,945.26 plus GST.[139]
[139]Judgment under appeal, above n 1, at [345(b)].
ISL’s liability to Superstore was based on knowing receipt. Gwyn J said that she accepted that Superstore had a knowing receipt claim against ISL:[140]
Mr Millar owed Superstore fiduciary obligations in relation to the management fee. ISL received the management fee. Mr Millar was in effect ISL. In those circumstances I conclude that ISL received or retained the amount claimed with actual knowledge that Mr Millar, in directing the payment or retention to ISL, was in breach of his fiduciary duties to Superstore and that therefore ISL had no lawful entitlement to the amount claimed.
ISL’s liability to Superstore for knowing receipt
[140]At [341].
The essential ingredients of a claim for knowing receipt was summarised by this Court in McLennan v Livaja:[141]
[38] A claim for knowing receipt, however, depends on the tainted circumstances of receipt of property. Liability will arise where it is unconscionable for the recipient to retain it because of the recipient's state of knowledge in respect of the fact that the transfer involved a breach of fiduciary obligations owed by the transferor.
[39] Different High Court judgments have described the basis for knowing receipt as either unconscionability or unjust enrichment, a divergence possibly arising from the nature of the remedy applied in such cases. This in turn has led to differing conclusions as to the level of knowledge required to establish liability.
[40] We consider that the correct basis for knowing receipt is unconscionability. We prefer to characterise the liability incurred on a finding of knowing receipt as a personal liability to account in equity to the beneficiaries by restoring the property lost by the unconscionable receipt. The core duty of that liability is to restore misapplied assets, or their equivalent, to the beneficiaries.
[141]McLennan v Livaja [2017] NZCA 446, [2018] NZAR 405 (footnotes omitted).
The crucial question is whether it was unconscionable for ISL to have profited from the Gravtec arrangements in circumstances where:
(a)the contractual arrangements between ISL and Gravtec were implemented by Mr Millar;
(b)Superstore was unaware of the full nature of the arrangements between ISL and Gravtec;
(c)Superstore was denied the opportunity to renegotiate its fee arrangement with ISL when Gravtec started to manage Superstore’s properties; and
(d)ISL profited through the Gravtec arrangements in accordance with its fee entitlements under the Superstore agreement.
In addressing this issue it is important to focus upon whether ISL acted unconscionably and to not conflate ISL’s role with Mr Millar’s duties to Superstore.
Conclusion
Unlike Gwyn J, we have reached the conclusion that ISL did no more than profit from the terms of its fee arrangements with Superstore. It was not unconscionable for ISL to profit from the Superstore agreement when all ISL did was charge Superstore the agreed property management fee, albeit in circumstances where the profit that ISL received was greater than when, for example, Franklin was the property manager. ISL’s actions were also entirely consistent with the terms of the Superstore agreement, which permitted it to subcontract property management services to third parties such as Gravtec.
We conclude therefore that the High Court erred when it found ISL was liable to compensate Superstore for the profits it made through the Gravtec arrangements.
Mr Millar’s liability to Superstore
Different considerations apply however to Mr Millar. As with the case of First NZ, Mr Millar owed fiduciary duties and duties under s 131 of the Companies Act to Superstore. The evidence established beyond doubt:
(a)Mr Millar failed to consider the interests of Superstore when he put in place the fee arrangements between ISL and Gravtec.
(b)Mr Millar failed to give Superstore his undivided loyalty.
(c)Mr Millar failed to take any steps to manage his conflicts. We have set out at [145] ways in which he may have done so in the case of First NZ. The same considerations apply to Superstore.
The fact ISL was contractually entitled to profit from the Gravtec arrangement did not absolve Mr Millar from discharging his fiduciary and s 131 obligations to Superstore by:
(a)providing Superstore with a clear and transparent opportunity to renegotiate its fee arrangements with ISL when the Gravtec arrangement was entered into; and
(b)managing his conflicts through ensuring Superstore fully consented to the Gravtec arrangements.
Conclusion
As with First NZ, Mr Millar personally benefitted from ISL’s enhanced profits. We therefore agree with Gwyn J that he is liable to Superstore for the profit gained by ISL as a result of his failure to discharge his duties and obligations to Superstore.
Costs
Mr Mephan has fully succeeded in his appeal. First NZ must pay his costs for a standard band A appeal together with usual disbursements.
ISL and Mr Millar have succeeded in having the damages they are liable to pay First NZ reduced by approximately 50 per cent. In these circumstances we consider that the honours are even and that no other order for costs should be made in relation to the appeals involving First NZ.
ISL has succeeded in its appeal against Superstore but Mr Millar has failed in this aspect of his appeal. As the interests of ISL and Mr Millar substantially overlap we think the appropriate course is to make no further order for costs in relation to the Superstore proceeding.
Results
ISL’s appeal in relation to its contractual liability to First NZ in respect of the fee arrangements involving Gravtec and Terra Firma is dismissed.
ISL’s appeal in relation to its contractual liability to First NZ in respect of the Symonds Street property gain fee is allowed.
ISL’s appeal in relation to its liability in negligence to First NZ is allowed.
ISL’s appeal in relation to its liability for unjust enrichment to First NZ in respect of the Gravtec and Terra Firma arrangements is dismissed.
ISL’s appeal in relation to its liability for unjust enrichment to First NZ in respect of the Symonds Street property gain fee is allowed.
Mr Millar’s appeal in relation to his liability to First NZ in respect of the Symonds Street property gain fee is allowed.
Mr Millar’s appeal in relation to his liability to First NZ in respect of the payments and benefits received by Gravtec and Terra Firma is dismissed.
Mr Mephan’s appeal in relation to his liability to First NZ is allowed.
ISL’s appeal in relation to its liability to Superstore is allowed.
Mr Millar’s appeal in relation to his liability to Superstore is dismissed.
First NZ must pay Mr Mephan costs for a standard appeal on a band A basis together with usual disbursements.
No other orders for costs are made.
Solicitors:
Radich Law, Blenheim for Appellants
Duncan Cotterill, Nelson for First and Third Respondents
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