Kirby v Tekplas Limited

[2025] NZHC 345

IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY

I TE KŌTI MATUA O AOTEAROA KIRIKIRIROA ROHE

CIV-2023-419-284

[2025] NZHC 345

UNDER

AND

the Companies Act 1993 and part 18 of the High Court Rules 2016

IN THE MATTER

of an application under section 174

BETWEEN

CORRENA FAY KIRBY

Plaintiff

AND

TEKPLAS LIMITED

First Defendant

IAN MCDOUGAL

Second Defendant

TONY SCHRAMM

Third Defendant

Hearing:	7 November 2024
Appearances:	DJ Cooper KC and HL Quinlan for the Plaintiff WC Pyke for the Defendants
Judgment:	13 March 2025

JUDGMENT OF ASSOCIATE JUDGE SUSSOCK

(Leave to Appeal)

This judgment was delivered by me on 13 March 2025 at 4 pm pursuant to r 11.5 of the High Court Rules

Registrar/Deputy Registrar

Solicitors:

Anthony Harper, Auckland

KIRBY v TEKPLAS LIMITED [2025] NZHC 345 [13 March 2025]

Introduction

[1]        The defendants have applied for leave to appeal my decision dated 9 August 2024 declining their application for summary judgment (Judgment).1

[2]        The plaintiff, Correna Fay Kirby, is a former director and shareholder of the first defendant, Tekplas Limited (Tekplas). Ms Kirby has brought a claim pursuant to s 174 of the Companies Act 1993 alleging that both Tekplas and the remaining directors and shareholders, Messrs McDougal and Schramm, treated her oppressively and unfairly.

[3]        Ms Kirby says that this included failing to comply with standards of good governance and denying her access to information to which she was entitled. In addition, Ms Kirby alleges Tekplas  entered into a lease with a related  party (as     Mr Schramm has an interest in the lessor) on terms providing for above market rent. Ms Kirby pleads that this was a major transaction for Tekplas and was entered into without the required shareholder approval and without obtaining independent advice.

[4]        The defendants applied for summary judgment on the grounds that Ms Kirby’s claim cannot succeed because:

(a)Tekplas is a trustee company that holds its assets and business on trust for the Tekplas trust (Trust) so the shares in Tekplas have no value; and

(b)Ms Kirby sold the entirety of her beneficial interest in Tekplas’ business for $4 million by deed executed on 3 February 2022 (Deed of Revocation) pursuant to which Ms Kirby disclaimed and renounced any future beneficial interest in the Trust.

[5]        There is no issue between the parties as to the nature of a trading trust or that this was the role of the first defendant.2 In the Judgment I therefore held that there were three issues to be determined:

1      Kirby v Tekplas Ltd & Ors [2024] NZHC 2320.

2 At [24].

(a)If the Tekplas shares have no value, does that preclude a s 174 claim?

(b)Does the Deed of Revocation prevent Ms Kirby’s s 174 claim?

(c)Is Ms Kirby otherwise estopped from bringing the s 174 claim?

[6]        I answered each of these questions in the negative and so declined summary judgment.

[7]        The defendants submit that the nature of the beneficial interests of a shareholder in a trading trust such as Tekplas leaves no scope for any claim for losses under s 174 and that it must follow that the application for summary judgment ought to have succeeded. In the defendants’ view, the plaintiff has settled her entire beneficial interest in the Tekplas business and the s 174 claim is a device to reopen her bargain through a side-wind. No matter how the plaintiff’s claim is framed, whether as a prejudiced shareholder or as a personal claim, the defendants submit the plaintiff’s claim will inevitably fail at trial as the plaintiff has suffered no real or even measurable loss.

[8]        The defendants further point to the lack of authority either at first instance or appellate level about how the trading trust legal structure affects the rights of shareholders of a sole corporate trustee or how s 174 claims fit within such a legal structure, in particular within the context of a factual matrix similar to this case. This novelty, the defendants submit, supports leave to appeal being granted.

[9]        The parties are agreed on the principles applying to leave to appeal. I set these out below before considering whether to grant leave.

Principles governing leave to appeal

[10]Section 56(3) of the Senior Courts Act 2016 provides:

No appeal, except an appeal under subsection (4), lies from any order or decision of the High Court made on an interlocutory application in respect of any civil proceeding unless leave to appeal to the Court of Appeal is given by the High Court on application made within 20 working days after the date of that order or decision or within any further time that the High Court may allow.

[11]      In Tomar v Tomar, the Court of Appeal summarised the approach to applications for leave to appeal pursuant to s 56(3), as follows:3

[6]        In Finewood Upholstery Ltd v Vaughan, Fitzgerald J appropriately observed that the requirement for leave to appeal should serve as a filtering mechanism to ensure that unmeritorious appeals of interlocutory orders, or appeals of interlocutory orders of no great significance to either the parties or more generally, do not unnecessarily delay the proceedings in which the orders were made.4 The following considerations were recognised as relevant on an application for leave to appeal:5

(a)A high threshold exists.

(b)The applicant must identify an arguable error of law or fact.

(c)The alleged error should be of general or public importance warranting determination or otherwise of sufficient importance to the applicant to outweigh the lack of general or precedential value.

(d)The circumstances must warrant incurring further delay.

(e)The ultimate question is whether the interests of justice are served by granting leave.

[7]        This Court in Ngai Te Hapu Inc v Bay of Plenty Regional Council indicated that considerations similar to the principles applicable to applications under the former s 24G of the Judicature Act 1908, as explained in Meates v Taylor [Leave],6 apply to applications under s 56(5) of the Senior Courts Act, stating:

We agree that leave to appeal should only be granted where the significance or implications of an arguable error of fact or law, either for the particular case or for the applicant or as a matter of precedent, warrants the further delay which the appeal process would involve.

[12]The plaintiff emphasises s 56(6) of the Senior Courts Act which provides:

If leave to appeal under subsection (3) or (5) is refused in respect of an order or a decision of the High Court made on an interlocutory application, nothing in this section prevents any point raised in the application for leave to appeal from being raised in an appeal against the substantive High Court decision.

[13]      Therefore, if leave is refused the defendants will be free to raise the arguments on which they rely both at the High Court trial and in any subsequent appeal against the substantive judgment of the High Court.

3      Tomar v Tomar [2021] NZCA 419.

4      Finewood Upholstery Ltd v Vaughan [2017] NZHC 1679 at [13].

5      At [9] and [14], citing A v Ministry of Internal Affairs [2017] NZHC 887.

6      Meates v Taylor (1992) 5 PRNZ 524 (CA) at 526.

[14]      The plaintiff further refers to the legal test to be applied in an application for summary judgment by defendants. Those principles are well established and set out in the Judgment.7 The plaintiff relies in particular on the Court of Appeal’s observation in Bernard v Space 2000 Ltd that a defendant’s application for summary judgment “contemplates an answer which is clear-cut; what in colloquial language would be described by counsel as a ‘king hit’”.8 The defendants do not challenge those principles.

Is there an arguable error of law or fact?

[15]      The defendants submit that there are arguable errors of law or fact in the Judgment as there is no residual value in Ms Kirby’s shares in Tekplas because any value held by Tekplas was at all times and entirely held on trust for the Trust, not for the shareholders of Tekplas.  Therefore even if Ms Kirby could prove liability under s 174 of the Companies Act against any or all of the defendants, she is not entitled to any relief.

[16] The defendants point to errors in paragraphs [35] to [39], [46], [70] and [79] of the Judgment. Paragraphs [35] to [39] relate to determination of the first issue, whether the fact that the shares have no value prevents a s 174 claim, [46] and [70] to the second issue, whether the Deed of Revocation prevents the s 174 claim, and [79] to the third issue, whether Ms Kirby is otherwise estopped from a s 174 claim. But the alleged error relied on in all of the paragraphs referred to is that because Tekplas is a trading trust, there can be no remedy for Ms Kirby.

[17]      At the time of the summary judgment hearing, one cause of action was pleaded. Paragraphs (a) & (b) referred to conduct causing “damage to the value of [Ms Kirby’s] shareholding” and that as a result she was unable to sell her shares to Mr McDougal and Mr Schramm at a fair value.

[18]After noting the above, I held in paragraphs [35] to [39]:

[35]      However at paragraph (c) of the cause of action, in addition to a pleading that the entry into the lease depleted the value of the Sale Shares, Ms

7      Kirby v Tekplas Ltd & Ors, above n 1, at [19] to [22].

8      Bernard v Space 2000 Ltd (2001) 15 PRNZ 338 (CA).

Kirby pleads that the conduct provided an unfair personal benefit to Mr Schramm. Ms Kirby does not therefore solely rely on damage to the value of her shareholding.

[36]      The Court may measure the appropriate compensation to be awarded to Ms Kirby by what Ms Kirby might have received had the lease transaction not been entered into. This does not necessarily involve an adjustment of the value received for the shares. Instead, the Court may decide that a restitutionary remedy is a better measure and consider the extent to which, for example, Mr Schramm profited from the lease transaction and whether that benefit ought to be disgorged. Counsel for Ms Kirby points out that these details will not be known until discovery is completed.

[37]      Whilst the relief currently pleaded requires Tekplas to “pay compensation to the plaintiff for the depletion in value of the Sale Shares (in an amount to be quantified following discovery)”, Ms Kirby also seeks “any other orders the Court deems appropriate”. Measuring loss or the appropriate compensation by reference to the value of the shares is not therefore the only basis on which the s 174 claim is brought.

[38]      Furthermore, if there is an ability to amend so as to plead an arguable claim then summary judgment is unlikely to be granted to a defendant. I consider the pleading is capable of amendment in this case to address this point.

[39]      I am not satisfied therefore that Ms Kirby’s claim under s 174 cannot succeed because the shares in Tekplas have no value themselves.

[19]      The defendants submit that I erred in these conclusions as even if there was an unfair personal benefit to Mr Schramm (which the defendants deny) it does not give the plaintiff any entitlement to relief. They say that this is because the Court may not award “appropriate compensation” to the plaintiff as any award if made would be payable to the Trust. Ms Kirby would not therefore be personally entitled to any such compensation or any restitutionary remedy in her favour.

[20]      In making this submission, counsel for the defendants refers to the legal principles underlying trading trusts that counsel submits emerge from recent case law as follows:

…

a.there is a distinction between a Company trading on its own account and trading as trustee of a trust;9

b.the fundamental position is that the liquidator of a corporate trustee is primarily interested in the assets of the trust only to

9      Little v NZ Natural Therapy Ltd (in liq) [2021] NZCA 461, at [26].

the extent of the trustee’s right to be indemnified: that right does not constitute a beneficial interest in the trust’s assets;10

c.the appointment of a successor trustee does not “by some mysterious alchemy” convert a right that did not amount to a charge over trust property into such a charge, in the hands of the new trustee;11

d.a trading trust is premised on the assumption that it is preferable to trade through a corporate trustee with limited liability and no assets other than the right of indemnity;12

e.Directors’ or a company’s liability to account to shareholders for profits only arise where the directors are duty bound in the company’s interests to obtain fair value in return for dispositions. Where the directors of a corporate trustee pay trading profits to beneficiaries that duty does not arise when the duty lies to the beneficiaries of a trust.13

[21]Counsel for the defendants submits therefore:

By parity of reasoning a shareholder in a trustee company has no beneficial interest in trust property of which the company is a sole corporate trustee. It must follow that the plaintiff’s rights as a shareholder in Tekplas Ltd did not give her any interest in the assets of the Tekplas Trust. Tekplas Ltd, having no other valuable property, and no dividends being payable to its shareholders, it must follow as a matter of both logic and fact that any claim under s 174 cannot attach to any assets held by Tekplas Ltd:

a.Tekplas Ltd owned nothing in its own right;

b.Tekplas’ shareholders had no entitlement to participate in capital it held for the Trust, and they were not paid dividends;

c.put another way, the plaintiff cannot be prejudiced in her rights as a shareholder of Tekplas Ltd when the company is not a reservoir of value (as opposed to allegations of prejudice as a beneficiary of the Tekplas Trust, which claims she has settled and are unavailable to her).

[22]      I do not accept that the above conclusions necessarily follow from the cases relied on. The Court of Appeal’s dicta in Levin v Ikuia was in relation to s 298 rather than s 174 of the Companies Act. The Court was considering whether liquidators

10 Little v NZ Natural Therapy Ltd (in liq), above n 9, at [27], citing Levin v Ikiua [2010] NZCA 309, [2010] 1 NZLR 400. See also Karingal 2 Holdings Pty Ltd v Commissioner of State Revenue [2002] VSC 431, (2002) 51 ATR 190 at [73], cited with approval in Cummins v Body Corporate [2022] NZCA 658, at [11].

11 Cummins v Body Corporate, above n 10, at [22].

12 Levin v Ikiua, above n 10.

13 At [54].

could claw back inadequate consideration in the context of a transaction with an insider. The Court held that s 298 could not be relied on in relation to payments of trading profits by the trustee company to beneficiaries because, for those transactions, the directors were not duty bound in the company’s interests to obtain fair value.

[23]      The defendants’ submissions are not clear on this point but if their submission is that on this basis the directors can never be duty bound to act in the best interests of a corporate trustee, I do not consider that the Court of Appeal went so far. For example, the Court of Appeal accepted that the corporate trustee in that case had a proprietary interest in the profits at least to the extent of its right to be indemnified for expenses it had properly incurred as trustee and that s 298 could be relied on to recover to the extent of its indemnity but that the liquidators sought not to do so in that case.14

[24]      If the directors were bound to obtain fair value, such as the directors may be here in relation to entry into the lease, then such a transaction by a trading trust may be open to challenge under s 298. Later in their submissions, counsel for the defendants appears to accept that directors of corporate trustees owe duties to the trustee to ensure it complied with regulations. Whether “regulations” includes the requirements of the Companies Act is not however clear.

[25]      In any event, the Court does not  have the same broad remedial  powers in  a  s 298 claim as in a s 174 claim so any principles emerging may not be applicable in the context of an application under s 174.

[26]      Furthermore, whilst the defendants correctly cite Little v NZ Natural Therapy Ltd (in liq) for the proposition that the liquidator of a corporate trustee is primarily interested in the assets of the trust only to the extent of the trustee's right to be indemnified and that right does not constitute a beneficial interest in the trust's assets, they omit the remainder of the sentence by the Court of Appeal that the right would however constitute an equitable lien over both the capital and income of the trust.15 It does not therefore necessarily follow from the principles contained in the dicta cited that the plaintiff’s claim under s 174 cannot succeed.

14     Levin v Ikiua, above n 10, at [53].

15 At [27].

[27]      Here, Ms Kirby’s claims for example include allegations that entry into the lease in issue was a major transaction for Tekplas but was not approved by special resolution, which s 175(l) of the Companies Act deems to be a breach of s 174. The fact that Tekplas is a trading trust does not prevent such a claim against Tekplas. If Ms Kirby succeeds in establishing oppressive conduct as alleged, the Court will then need to consider how to exercise its broad remedial powers under s 174. It may be that the Deed of Revocation prevents Ms Kirby from recovering but this will depend on how the Deed is interpreted. As was held in the Judgment, this requires the application of the settled principles of contractual interpretation, including evidence of the overall context in which the contract was entered into, evidence which is not currently before the Court.16 The defendants do not challenge this finding in relation to the interpretation of the Deed except to say that “the claim is prevented by the structure of the Tekplas business as argued above, so the absence of a “full and final settlement” clause in the Deed of Revocation does not matter”.

[28]      Prior to the hearing of the application for leave to appeal, the plaintiff amended the statement of claim. Rather than referring to the depletion in value of the “Sale Shares”, the plaintiff now seeks compensation “for the losses she has suffered as a consequence of the defendants’ oppressive, unfairly discriminatory and unfairly prejudicial conduct” in an amount to be quantified following discovery. In addition, Ms Kirby seeks an order requiring the third defendant to pay compensation to the plaintiff for the benefit he received, directly or indirectly, as a result of Tekplas entering into the lease and/or the sale of the land over which the lease was granted.

[29]      At the hearing, counsel for the defendants pointed to the fact that the plaintiff’s claim still relied only on her capacity as a former shareholder and submitted that as the shares were valueless, there can be no loss for Ms Kirby in that capacity.

[30]      Following the hearing, Ms Kirby further amended her statement of claim to plead that the conduct of the defendants caused the plaintiff “loss and damage to the value of the Tekplas business” and the “Sale Shares”, and added her capacity as a former beneficiary of the Trust.

16     Kirby v Tekplas Ltd & Ors, above n 1, at [70].

[31]      The “Sale Shares” are defined in the Deed of Revocation (and statement of claim) as the ordinary shares in Tekplas held by Ms Kirby. Adding to the complexity of the context, the Deed records that the Trust agrees to pay $4,000,000 in consideration for the transfer of these shares. This is despite all parties now accepting that technically the Tekplas shares have no value.

[32]      The question of whether the Deed of Revocation prevents a claim by Ms Kirby in her capacity as a former beneficiary of the Trust needs to be determined in a full hearing as I did not accept in the Judgment that on its plain wording the Deed clearly settled all claims between the parties or that it clearly excludes the s 174 claim.17 Nor did I consider it appropriate to arrive at an interpretation of the Deed of Revocation on the basis of evidence of pre-contractual correspondence which may only provide part of the context.18 These findings are not expressly challenged by the defendants, although some of their submissions appear to proceed on the basis that the Deed of Revocation is a full and final settlement between the parties. This is an issue which is yet to be determined.

[33]      The defendants say further that Ms Kirby cannot be entitled to any compensation or restitutionary remedy because the lease is with the Trust, not the company. But the lease would be required to be with the company as trustee rather than the Trust directly so compensation or a restitutionary remedy may still be available.

[34]      In addition, the defendants submit that the second and third defendants are the directors of the corporate trustee, Tekplas, and they owed fiduciary duties to the beneficiaries of the Trust in relation to decisions about the assets of the Trust. They submit that the directors’ duties to the company were limited to ensuring it paid its bills, filed returns, complied with regulations and was not exposed to claims by creditors. As I referred to above, those regulations may include the requirements of the Companies Act, including not to enter into a major transaction without a special resolution, something that is alleged to have happened here.

17     Kirby v Tekplas Ltd & Ors, above n 1, at [70].

18 At [70].

[35]      The defendants say, in any event, that even if a fiduciary duty were also owed by the third defendant to Tekplas, the Trust would be entitled to any relief awarded. But this will depend on what is just and equitable in terms of the s 174 claim, including whether the Deed of Revocation is a full and final settlement.

[36]      I do not consider therefore that I erred in paragraphs [33] to [39] of the Judgment.

[37]      The defendants next submit that I erred in paragraphs [46] to [70] which are in the section considering whether the Deed of Revocation prevents a s 174 claim. But the alleged error is the same as in relation to paragraphs [35] to [39], that the structure of the Tekplas business prevents a claim. For the reasons already discussed, I do not consider I erred in these paragraphs either.

[38]      Finally, the defendants submit an error in paragraph [79] where I held that the decision of the Court of Appeal in Birchfield v Birchfield Holdings Limited did not prevent Ms Kirby’s s 174 claim.19

[39]      The defendants submit that there are no facts and circumstances that need to be determined beyond reading the Deed of Revocation and that Birchfield weighs in favour of leave being granted given the approach of the Court to upholding fair buy- out offers generally. But this presupposes the fairness of the buy-out offer. The Court of Appeal expressly cautioned against the risk of entering summary judgment for a defendant:20

We also bear in mind the need for caution before entering summary judgment for a defendant, denying the appellants the opportunity to obtain discovery and pursue their claims at trial.

[40]      Counsel for the plaintiff submits this factor is important because Ms Kirby alleges that during her time as a director and shareholder she was excluded from management of the company by the second and third defendants and her requests for documents and information were refused. Ms Kirby submits this creates an asymmetry of information with the defendants currently holding all relevant company

19     Birchfield v Birchfield Holdings Ltd [2021] NZCA 428; [2022] 2 NZLR 123.

20 At [40].

documents and seeking to have Ms Kirby’s claim finally determined without discovery.

[41]      I do not consider I erred in paragraph [79] in relation to the analysis of Birchfield and the conclusion that it did not support summary judgment in this case. Contrary to the defendants’ submission that there are no facts or circumstances that need to be determined beyond reading the Deed of Revocation, the background context needs to be considered both to interpret the Deed and because whether a s 174 claim can succeed where there has been a buy-out offer “is highly sensitive to the facts and circumstances of the case”.21 As I held in the Judgment, the fact that the buy-out in this case has been concluded does not remove the need for the analysis of the facts and circumstances.22

[42]      For the above reasons, I do not consider that the defendants have identified a relevant error of law or fact in the Judgment.

[43]In case I am wrong on this however I go on to consider the remaining factors.

Is the alleged error of sufficient importance either generally or to the parties to justify appeal?

[44]      The defendants submit that there is not a wealth of authority either at first instance or at appellate level about how the trading trust legal structure affects the rights of shareholders of a sole corporate trustee or how s 174 claims apply to such a legal structure and that this supports leave to appeal being granted.

[45]      As submitted by the plaintiff, this submission by the defendants counts against leave to appeal being granted. It is a settled principle that summary judgment is not appropriate where the case involves novel or developing points of law.23

[46]      Furthermore, whilst this question might not previously have been considered, the Court of Appeal’s comments in Birchfield that whether a s 174 claim can succeed

21     Birchfield v Birchfield Holdings Ltd [2021] NZCA 428; [2022] 2 NZLR 123 at [40].

22     Kirby v Tekplas Ltd & Ors, above n 1, at [79].

23     Westpac Banking Corp v New Zealand Limited [2000] 14 PRNZ 631 at [62].

where there has been a buy-out offer is “highly sensitive to the facts and circumstances of the case”24 count against allowing an appeal at the summary judgment stage, except perhaps where the facts and circumstances are agreed. The general importance of any error in declining summary judgment is likely to be reduced by the importance of context to any s 174 claim, therefore reducing precedential value.

[47]      I accept however that the earlier resolution of the claim for the defendants is of sufficient importance to justify an appeal.

Do the circumstances warrant the further delay of an appeal?

[48]      Since the defendants’ application for leave to appeal was heard, a two-week substantive trial has been allocated to commence on 13 April 2026. If leave were granted to appeal, it is unlikely that the appeal would be heard and determined significantly in advance of that date. Granting leave would therefore put that date in jeopardy.

[49]      The errors alleged by the defendants will be able to be raised in the full hearing, as provided for in s 56(6) of the Senior Courts Act. As a result, I do not consider that even if there were an error, that the circumstances warrant the further delay of an appeal.

Are the interests of justice served by granting leave?

[50]      The delay that would likely be caused by granting leave and the apparent novelty of the context in which the s 174 claim is being considered both suggest leave would not serve the interests of justice. There do not appear to be any additional circumstances relevant to the interests of justice that support granting leave.

Result

[51]The defendants’ application for leave to appeal is declined.

24     Westpac Banking Corp v New Zealand Limited, above n 23, at [40].

Costs

[52]      The plaintiff has succeeded and so in the usual course is entitled to costs. I ask the parties to confer to try to reach agreement. If that is not possible, memoranda may be filed on behalf of the plaintiff by 4 April 2025 and the defendants by 11 April 2025.

Associate Judge Sussock