Kirby v Tekplas Limited
[2024] NZHC 2320
•19 August 2024
IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY
I TE KŌTI MATUA O AOTEAROA KIRIKIRIROA ROHE
CIV-2023-419-284
[2024] NZHC 2320
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: 18 April 2024 Appearances:
DJ Cooper KC and HL Quinlan for the Plaintiff WC Pyke for the Defendants
Judgment:
19 August 2024
JUDGMENT OF ASSOCIATE JUDGE SUSSOCK
This judgment was delivered by me on 19 August 2024 at 4 pm pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar
Solicitors:
Anthony Harper, Auckland
KIRBY v TEKPLAS LIMITED [2024] NZHC 2320 [19 August 2024]
Introduction
[1] The plaintiff, Correna Kirby, has filed a claim against Tekplas Ltd and its two directors, Ian McDougal and Tony Schramm, pursuant to s 174 of the Companies Act 1993.
[2] Ms Kirby is a former director and shareholder of Tekplas and claims that Tekplas and Messrs McDougal and Schramm treated her oppressively and unfairly. Ms Kirby says this included failing to comply with standards of good governance, denying her access to information to which she was entitled, and causing Tekplas to enter into a lease with a related‑party (because Mr Schramm has an interest in the lessor) on terms which provided for above-market rent and so transferred value from Tekplas to the lessor. Ms Kirby alleges that was a major transaction for Tekplas and was entered into without the required shareholder approval and without obtaining independent advice.
[3] Ms Kirby alleges that this oppressive, unfairly discriminatory or prejudicial conduct by the defendants caused her loss and damage to the value of her Tekplas shareholding.
[4] The defendants have brought an application for defendant summary judgment on the basis 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. The shares in Tekplas therefore have no value. As a consequence, Ms Kirby cannot be said to have suffered loss even if there was prejudicial behaviour.
(b)Ms Kirby sold the entirety of her beneficial interest in Tekplas’ business for $4,000,000 by deed executed on 3 February 2022 (Deed of Revocation) under which Ms Kirby disclaimed and renounced any future beneficial interest in the Trust.
[5] In the defendants’ submission Ms Kirby has not purported to cancel the Deed of Revocation, nor does she sue on it claiming breach, mistake or misrepresentation
or that she was misled into accepting an offer at an unfair value. The defendant’s position is that Ms Kirby’s claim not only has no substance, it has no legal scaffolding.
[6] Ms Kirby responds that her s 174 claim can succeed as the Deed of Revocation does not provide for full and final settlement of her claims as a shareholder of Tekplas because s 174 provides both proprietary and personal remedies. These remedies include the power to order compensation to be paid by Messrs McDougal and Schramm. Such a remedy does not depend on Ms Kirby establishing the value of her Tekplas shareholding had reduced or that Ms Kirby has an ongoing beneficial interest in the Trust so the claim is not prevented by any renouncing of beneficial interest in the Trust under the Deed of Revocation.
[7] Furthermore, Ms Kirby submits her claim does have legal scaffolding with the conduct relied on expressly pleaded in the statement of claim. For the purposes of this application, the allegations of unfair conduct and oppression must be presumed to be able to be proved unless there is clear incontrovertible evidence to the contrary which there is not in this case.
Issues
[8]The issues that need to be determined are therefore:
(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?
Background
[9] Tekplas was incorporated on 12 May 2004. Rex Kirby, David Ford and Mr Schramm were initially appointed as directors, each holding 33.3 per cent of the shares.
[10] Tekplas is the corporate trustee of the Tekplas 2004 Trust (Trust) and operates the Tekplas business of plastics engineering.
[11] Messrs Kirby, Schramm and Ford were also settlors of the Tekplas Trust which was established by Trust Deed dated 10 May 2004.
[12]Clause 2.0 of the Trust Deed provides that the trustee, Tekplas, shall:
…hold the Trust Fund and all other money, investments and property added to it by the Settlors or by any person with the consent of the Trustee (“the Trust Fund”) upon the trusts and powers contained in this Deed.
[13] It is common ground that Tekplas holds all of its assets as trustee of the Trust and so all of the property of Tekplas comprises the Trust Fund.
[14]Clause 1.0(b) of the Trust Deed provided for three beneficiary groups:
(a)the family of, initially, Mr Ford, and then, from 15 September 2006, Mr McDougal (defined as Group One);
(b)the family of Mr Schramm (defined as Group Two); and
(c)the family of Mr Kirby (defined as Group Three).
[15] Mr Kirby was Ms Kirby’s husband. Ms Kirby was therefore a Group Three beneficiary of the Trust from the outset. Mr Kirby passed away on 21 August 2018.
[16] On 25 July 2019, Ms Kirby was appointed director of Tekplas in place of Mr Kirby, and on 26 July 2019 Mr Kirby's shareholding in Tekplas was transferred to her.
[17] Ms Kirby resigned as a director on 8 February 2022 and sold her shareholding to Messrs McDougal and Schramm, effective 9 November 2022. The sale was documented in the Deed of Revocation. Recital G records:
G. Given [Mr Kirby’s] death, the Group Three interests desire to exit the Business. The parties have agreed that Group Three’s interests in the Business will be sold to [Mr Schramm] and [Mr McDougal] and that the parties will revoke the trust to the extent that it provides for the Group Three beneficiaries with the intention that, following such revocation, the Group Three beneficiaries will have no further interest in the Trust Fund.
[18]I discuss the Deed of Revocation in more detail below.
Summary judgment principles
[19] For summary judgment to be granted to a defendant they must satisfy the court that none of the causes of action in the plaintiff’s statement of claim can succeed.1
[20] In Stephens v Barron, the Court of Appeal summarised the principles from the longstanding authority on defendant summary judgment, Westpac Banking Corp v M M Kembla New Zealand Ltd:2
(a)The defendant has the onus of proving on the balance of probabilities that the plaintiff cannot succeed. Usually this will arise where the defendant can offer evidence which is a complete defence to the plaintiff’s claim.
(b)An application for summary judgment will be inappropriate where there are disputed issues of material fact or where material facts need to be ascertained by the Court and cannot confidently be concluded from affidavits. It may also be inappropriate where ultimate determination turns on a judgment able to be properly arrived at only after a full hearing of the evidence.
(c)The Court must be satisfied that none of the claims can succeed. It is not enough that they are shown to have weaknesses. The assessment is not to be arrived at on a fine balance of the available evidence as would be appropriate at a trial.
(d)The residual discretion of the Court to refuse summary judgment would be properly invoked to avoid the oppression which would otherwise result if an application by a defendant for summary judgment would pre-empt a plaintiff exercising the right to amend the pleadings.
(e)Summary judgment should not be applied for unless the substantive merits of the case are clear and capable of summary disposal.
(footnotes omitted)
[21] Where a clear-cut issue of law is raised in a summary judgment application and the point can be decided as well on the application as at trial, there is no reason why
1 High Court Rules 2016, r 12.2(2).
2 Stephens v Barron [2014] NZCA 82 at [9] discussing Westpac Banking Corp v M M Kembla New Zealand Ltd [2001] 2 NZLR 298 (CA).
the Court should not deal with the whole matter on the application for summary judgment.3
[22] In Bernard v Space 2000 Ltd, the Court of Appeal held 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’”.4
If the shares have no value, does that preclude a s 174 claim?
[23] The defendants submit that Ms Kirby’s s 174 claim cannot succeed as Tekplas is an assetless limited liability company that was incorporated to act as the trustee of the Trust. Counsel for the defendants submit Tekplas is a trading trust, a structure which has been described as follows:5
The term “trading trust” was coined to identify a business operated by an assetless company, in the capacity as a trustee for named beneficiaries. The use of a company as trustee, in those circumstances, gave rise to the expression “corporate trustee”, as a shorthand means of describing the company’s business activity.
[24] There is no dispute that this is the structure that was in place for the Tekplas business. The question however is whether any claim under s 174 is therefore prevented because there is no value in the Tekplas shares themselves.
[25]Section 174 of the Companies Act provides:
174 Prejudiced shareholders
(1)A shareholder or former shareholder of a company, or any other entitled person, who considers that the affairs of a company have been, or are being, or are likely to be, conducted in a manner that is, or any act or acts of the company have been, or are, or are likely to be, oppressive, unfairly discriminatory, or unfairly prejudicial to him or her in that capacity or in any other capacity, may apply to the court for an order under this section.
(2)If, on an application under this section, the court considers that it is just and equitable to do so, it may make such order as it thinks fit including, without limiting the generality of this subsection, an order—
3 Verrall v Great Yarmouth Borough Council [1981] QB 202 (CA) at 215 and 218; and Pemberton v Chappell [1987] 1 NZLR 1 (CA) at 4.
4 Benard v Space 2000 Ltd (2001) 15 PRNZ 338 (CA) at [21].
5 Levin v Ikiua HC Auckland [2010] 1 NZLR 400 at [97].
(a)requiring the company or any other person to acquire the shareholder’s shares; or
(b)requiring the company or any other person to pay compensation to a person; or
(c)regulating the future conduct of the company’s affairs; or
(d)altering or adding to the company’s constitution; or
(e)appointing a receiver of the company; or
(f)directing the rectification of the records of the company; or
(g)putting the company into liquidation; or
(h)setting aside action taken by the company or the board in breach of this Act or the constitution of the company.
(3)No order may be made against the company or any other person under subsection (2) unless the company or that person is a party to the proceedings in which the application is made.
[26] The wording of s 174 makes it clear that Ms Kirby, as a former shareholder, can bring a s 174 claim and that it can be in relation to the way in which the affairs of the company “have been” conducted, so can relate to past conduct.
[27] Further wording to note is that s 174(1) provides that the conduct can be in relation to the former shareholder “in that capacity or in any other capacity” so the conduct in issue is not restricted to conduct affecting Ms Kirby as a shareholder.
[28] While s 174(2) sets out a number of possible orders, the Court is given a broad remedial discretion, with s 174(2) providing that the Court may make such order as it thinks fit if “the court considers it just and equitable to do so”. Ms Kirby relies in particular on s 174(2)(b), which allows an order requiring the company “or any other person” to pay compensation.
[29] Importantly, an order under s 174 does not depend on establishing that the conduct resulted in a reduction in the value of the shares. Section 174(2) simply says that the Court may make an order where the application falls within s 174(1) (which does not refer to a reduction in value of the shares) and the Court considers it just and equitable to make an order. Section 174 therefore provides both proprietary and
personal remedies. Any s 174 orders made by the Court are not therefore confined to orders adjusting the value received for the shares.
[30] Counsel for Ms Kirby submits that the core part of her complaint is that Messrs McDougal and Schramm entered into a lease with a related party where the rent agreed was inflated thereby causing a transfer of value to interests associated with Mr Schramm. Counsel therefore says that it does not matter what the beneficial interests are in the assets of Tekplas, an award of compensation is sought to make good the losses Ms Kirby says she has suffered from what she alleges is a breach of s 174. Ms Kirby alleges the lease was a major transaction for Tekplas but was not approved by special resolution. Section 175 of the Companies Act deems such conduct to be a breach of s 174.6
[31] Counsel for the defendants submits that even if s 174 could provide a personal remedy, Ms Kirby’s pleading relies on the reduction in value of her shareholding when there was no value in the shareholding in the first place. The defendants say that if Ms Kirby’s s 174 claim is allowed to proceed, any loss that might be established would only be loss as a beneficiary of the Trust, not as a shareholder, because there is no value in the shares themselves, and Ms Kirby has renounced any beneficial interest in the Trust in the Deed of Revocation.
[32]The statement of claim pleads one cause of action as follows:
(a)The conduct of the defendants particularised at paragraphs 23 and 38 to 66 of this claim has caused Tekplas to conduct its business in a manner which is and was oppressive, unfairly discriminatory or unfairly prejudicial to [Ms Kirby] and thereby caused [Ms Kirby] loss and damage to the value of her shareholding.
(b)As a result of [Ms Kirby’s] exclusion from management of Tekplas and the oppressive, unfairly discriminatory or unfairly prejudicial conduct directed at [Ms Kirby], [Ms Kirby] was unable to sell her shares to [Mr McDougal and Mr Schramm] at a fair value.
(c)Entry into the Lease unfairly prejudiced [Ms Kirby] as it:
(i)depleted the value of the Sale Shares; and
(ii)provided an unfair personal benefit to [Mr Schramm].
6 Companies Act 1993, s 175(1).
(d)It is just and equitable in the circumstances for orders to be granted against the defendants under s 174 of the Act.
[33]The relief sought is then set out as follows:
(a)Requiring Tekplas and/or [Mr McDougal and Mr Schramm] to pay compensation to [Ms Kirby] for the depletion in value of the Sale Shares in an amount to be quantified following discovery
(b)Any other orders the Court deems appropriate; and
(c)Costs.
[34] Both subparagraphs (a) and (b) of the single cause of action as set out above refer to conduct causing “damage to value of [Ms Kirby’s] shareholding” and that she was unable to sell her shares to [Mr McDougal and Mr Schramm] at a “fair value”.
[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 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.7 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.
Does the Deed of Revocation prevent a s 174 claim?
[40] The defendants further submit that the plaintiff has no s 174 claim because the Deed of Revocation operates, alternatively or together:
(a)as an estoppel against the plaintiff’s claim; or
(b)as a final settlement of the plaintiff’s claim.
[41] Counsel for the defendants, Mr Pyke, refers to the vehicle for settlement under the Deed of Revocation as being the sale to the defendants of all of Ms Kirby’s shares in Tekplas. The defendants submit that because the “Sale Shares,” as defined under the Deed of Revocation, were in fact and at law linked to the rights of Ms Kirby as a shareholder in Tekplas, the Deed of Revocation amounted to a full and final settlement of all claims by Ms Kirby as a shareholder in Tekplas, including any claims under s 174.
[42] The defendants say Ms Kirby cannot therefore logically or factually disentangle the sale of the entirety of her shareholding in Tekplas from the terms of the Deed of Revocation. The defendants point to the fact that Ms Kirby describes how earlier sums offered for her shares in Tekplas led her to decline an earlier offer and say that she was clearly negotiating a share buy-out.
[43] The defendants rely on clause 5 of the Deed of Revocation in which they say Ms Kirby renounced her entire beneficial interest in the Trust’s assets, with effect from the settlement of that deed.
7 Stephens v Barron, above n 2, at [9(d)].
[44]Clause 5 provides:
5.Renunciation of beneficial Interest
5.1With effect from Settlement [Ms Kirby] irrevocably for herself, and in her capacity as executor of [Mr Kirby’s] estate, covenants and agrees that she fully, finally and absolutely disclaims and renounces any and all powers, interests and rights she or [Mr Kirby’s] estate may have in respect of the Trust, whether pursuant to the Trust Deed or at law including as an appointor of trustees and as a discretionary beneficiary of the Trust.
5.2With effect from Settlement, to the maximum extent permissible at law, [Ms Kirby], for herself, and in her capacity as executor of [Mr Kirby’s] estate, hereby releases and discharges the Trustee from the payment and performance of all and every part of the trusts whether past, present or future to which, but for the existence of this deed, [Ms Kirby] and any other beneficiaries of Group Three may have been entitled for consideration, in any respect, during the term of the Trust, or as a potential recipient of any part of the Trust Fund on the Distribution Date, whether under the Trust Deed or at law, to the intent that [Ms Kirby], [Mr Kirby’s] estate and [Mr Kirby’s] family shall have no further interest or be entitled to any benefit whatsoever under the Trust. For the avoidance of doubt, [Ms Kirby] (for herself and in her capacity as executor of [Mr Kirby’s] estate) confirms that, save for the payments contemplated in clause 2, she has no expectation of any further interest or payment from the Trust between the Effective Date and Settlement.
(emphasis added by defendants)
[45] By contrast Ms Kirby submits that when interpreting the plain and ordinary meaning of clauses 5.1 and 5.2 of the Deed, including in the context of the background negotiations, there is a reasonably arguable case that the Deed of Revocation did not fully and finally settle any claim Ms Kirby has in her capacity as shareholder for actions of the defendants during her tenure as a shareholder.
[46] Mr Cooper KC accepts for Ms Kirby that s 174 claims are often settled by a buy-out of shares but submits in that case the agreement entered into would expressly record that the buy‑out was in full and final settlement of the dispute. Counsel says that the fact that there were three sets of lawyers involved in finalising the Deed of Revocation supports a conclusion that if it was intended to settle claims between the parties, the Deed of Revocation would have said so. Counsel for the defendants responds that there was no such wording because a s 174 claim was not available due
to Tekplas being an assetless corporate trustee. However, as I have found above, a s 174 claim is not prevented by the structure of the Tekplas business.
[47] Ms Kirby further points to the fact that there are no references in clauses 5.1 and 5.2 to her capacity as a shareholder. The only capacity in which she is referred to is as a beneficiary in Group Three of the Trust, which sits distinctly from her role as a shareholder of Tekplas. As clauses 5.1 and 5.2 do not refer at all to Ms Kirby’s capacity as a shareholder, Ms Kirby submits that the clauses cannot and do not cover her rights as a shareholder.
[48] Ms Kirby says that the Deed of Revocation is instead focussed on renouncing the Group Three beneficiaries' interests in the Trust, as evidenced by recitals E, F, G, H and J and that there is nothing in the recitals which refers to any dispute or any intention to settle a dispute. There is also nothing in the Deed of Revocation which settles, releases or compromises claims by Ms Kirby against Messrs McDougal or Schramm.
[49] In response the defendants submit that a letter dated 8 October 2021 leading up to the Deed of Revocation linked Ms Kirby’s rights under the Trust to a threatened claim under s 174, as follows:
3We confirm that our client is prepared to file proceedings if necessary to ensure the value of the Kirby investment is protected and maintained. In particular, we see clear grounds here for a claim under s 174 of the Companies Act 1993.
…
9Our client's motivation is to establish a professional working relationship with the Tekplas Limited board to ensure the interests of the Kirby beneficiaries are not prejudiced.
(emphasis added by defendants)
[50] Ms Kirby says this communication was sent as a separate proposal in an attempt to ensure Tekplas was being governed effectively and that at no point during this exchange of correspondence between September and October 2021 was a sale of her shareholding or the revocation of any rights, including those of the Group Three
beneficiaries, discussed. At that stage, Ms Kirby says she was actively seeking to remain in the business.
[51] Counsel for Ms Kirby submits that there were three key periods of time predating the execution of the Deed of Revocation:
(a)September 2020 to March 2021;
(b)September 2021 to October 2021; and
(c)December 2021 to February 2022.
[52] Ms Kirby says that between September 2020 and March 2021, the parties first attempted to negotiate a deed of revocation in order to revoke the Group Three beneficiaries' interest in the Trust. These discussions arose from Ms Kirby’s expressed wish to leave Tekplas and Messrs McDougal and Schramm’s intention to transfer the business operations to a limited partnership. This was to form the basis of one overall transaction which included equally distributing the net proceeds of sale to all three beneficiary groups.
[53] Several draft iterations of a deed were exchanged between legal counsel before negotiations ultimately failed as the amount that Messrs McDougal and Schramm were prepared to offer for Ms Kirby’s shares reduced from the original starting point of $8,000,000 to $5,000,000.
[54] Ms Kirby submits that the correspondence from the time and the draft deeds show there was no reference to, or consideration of, any claims she may have in her capacity as a shareholder of Tekplas.
[55] In September 2021, Ms Kirby through her solicitors proposed the appointment of an alternative director as a solution to assist with producing an effective working relationship on the Tekplas board. This was rejected by Messrs McDougal and Schramm. Ms Kirby says it was in response to Messrs McDougal and Schramm’s refusal to allow an alternative director that her then lawyers referred to a potential claim under s 174.
[56] Ms Kirby says that the defendants are wrong to claim that this separate correspondence in September and October 2021 ultimately resulted in the execution of the Deed of Revocation.
[57] In the third key period between December 2021 and February 2022, Ms Kirby says the parties entered into the phase of negotiations leading to the Deed of Revocation. The original draft deed was used as a base and was updated to reflect recent developments. The correspondence from December 2021 does not refer to a potential s 174 claim from Ms Kirby and critically the Deed of Revocation was not amended in any way to refer to such a potential claim.
[58] Importantly, Ms Kirby’s evidence is that after the failure of her separate proposal to appoint an alternate director she went back, towards the end of 2021, to the original exit plan:
Again, there was no discussion or mention of any settlement of all claims that I might have in my capacity as a shareholder of Tekplas.
[59] In their joint affidavit in reply, Messrs Schramm and McDougal do not specifically dispute that evidence — although there is a disclaimer in terms of evidence they do not specifically address.
[60] Although, Ms Kirby submits that the facts outlined above objectively demonstrate that the purpose of the Deed, specifically clause 5, was to ensure the Group Three beneficiaries had no interest in the Trust moving forward, Ms Kirby submits that the necessary contractual interpretation exercise is not suitable for summary determination. This is particularly because the Court may not have the complete contextual information that was available to the contracting parties at the time.
[61] The defendants accept that the Court endeavours to ascertain meaning in the context of a contract as a whole but says in this proceeding there is really no issue between the parties about the material background leading to the execution and performance of the Deed of Revocation.
Contractual interpretation
[62] Considering the principles of contractual interpretation briefly, it is settled that the process is objective with the aim being to:8
[ascertain] the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract.
[63] The above reflects the fact that "contractual language, like all language, must be interpreted within its overall context, broadly viewed."9 Factual matrix evidence is relevant (and sometimes critical) to contractual interpretation and so it may not be possible for questions of contractual interpretation to be adequately addressed in a summary judgment context.10
[64] The Court must commence any exercise in contractual interpretation having regard to the plain meaning of the words in the context of the document as a whole — as this accords with the policy reasoning of providing commercial certainty.11
[65] It is common ground that relevant evidence of pre‑contractual negotiations will be admissible where they have been communicated between the parties and tend to show a common mutual understanding as to the meaning of the contents of the contract referring to Kemp v Kemp-Upton.12
Interpretation of the Deed of Revocation
[66] There is no reference in the Deed of Revocation to a dispute or the settling of claims between the parties, either in the Recitals or the operative clauses. Although the word “settlement” is used, this is defined in clause 3.4 as meaning “upon completion of the above‑mentioned steps in this clause 3, “settlement” shall have
8 Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 (HL) at 912 cited with approval in Firm PI 1 Ltd v Zurich Australian Insurance Ltd [2014] NZSC 147, [2015] 1 NZLR 432 at [60].
9 Firm PI 1 Ltd v Zurich Australian Insurance Ltd, above n 8, at [61].
10 Ferrer-Aza v NZONE Race Management Ltd [2016] NZHC 885 at [44].
11 Bathurst Resources Ltd v L&M Coal Holdings Ltd [2021] NZSC 85; [2021] 1 NZLR 696 at [46].
12 Kemp v Kemp-Upton [2024] NZHC 398 at [31].
occurred for the purposes of this deed”. “Settlement” is therefore used in the sense of completion. “Settlement Consideration” again is simply defined as the payment of various instalments.
[67] The defendants themselves seek to rely on extrinsic evidence in support of their interpretation of the Deed of Revocation, so emphasising its importance to the contractual interpretation exercise in this case. However, I accept Ms Kirby’s submission that it is arguable that the reference to the s 174 claim in the 8 October 2021 letter relied on by the defendants was related to the potential appointment of an alternate director rather than leading to the Deed of Revocation. The reference may not therefore be relevant to whether the Deed of Revocation fully and finally settled any s 174 claim. As a result, I do not accept the defendants’ submission that there is “really no issue between the parties about the material background.”
[68] Mr Cooper submits for Ms Kirby that need to interpret the Deed of Revocation in its full context applies with more force than usual in this case because the Deed was a bespoke contract that was actively negotiated between the parties over some time. Mr Cooper accepted that perhaps where there were standard terms, extrinsic evidence may be less likely to impact on the interpretation of a contract but here that was not the case.
[69] Furthermore, as Mr Cooper points out, the correspondence leading to the Deed of Revocation is all sent on an open, rather than a without prejudice basis, as one would have expected if intended to settle any dispute.
[70] From all of the above, I do not accept that on its plain wording the Deed of Revocation clearly settles all claims between the parties or that it clearly excludes the s 174 claim. In addition, I do not consider that it is appropriate in this summary judgment application to arrive at an interpretation of the Deed of Revocation on the basis of evidence of pre-contractual correspondence which may provide only part of the context. The defendants have not therefore established that Ms Kirby’s claim cannot succeed because of the Deed of Revocation.
Is Ms Kirby otherwise estopped from bringing a claim?
[71] The defendants further submit Ms Kirby is estopped from bringing a s 174 claim. One of the defendants’ bases for this is estoppel by deed, relying on the Deed of Revocation. This requires interpretation of the Deed of Revocation which, for the reasons set out above, is not appropriate in this summary context. Difficulties therefore arise in terms of estoppel by deed.
[72] The defendants further rely on Birchfield v Birchfield to submit that because Ms Kirby has received valuable consideration for the sale of her shares and was released from liability as a Tekplas shareholder, she has no actionable claim, saying that here there has not just been a buy-out offer, as there was in Birchfield, but a fully concluded settlement of the sale.13
[73]However, in Birchfield the Court of Appeal acknowledged that:14
… whether a buy-out offer establishes that a s 174 claim is bound to fail will be highly sensitive to the facts and circumstances of the case, including the nature and terms of any offer made.
[74] Furthermore, earlier in the judgment, the Court of Appeal held that where the conduct alleged to be unfairly prejudicial had a material effect on the value of the company, an offer to buy the shareholder out for fair value is unlikely to cure the alleged prejudice.15 The Court gave further examples, including where a company has not kept proper accounting records where this has a material effect on an expert’s ability to assess fair value, or if the buy-out offer is made on terms which prevent the prejudiced shareholder from obtaining access to information needed to satisfy themselves the offer is fair.16
[75] In s 174 claims, the Court is therefore required to consider the substance of the unfair prejudice allegations and the implications of those allegations for the assessment of fair value. The Court of Appeal held in Birchfield that this includes, for example, where a minority shareholder alleges that the majority shareholder
13 Birchfield v Birchfield Holdings Ltd [2021] NZCA 428, [2022] 2 NZLR 123.
14 At [40].
15 At [36].
16 At [36].
misapplied company assets, as Ms Kirby is alleging here in relation to the related party lease.17
[76] The defendants submit that Ms Kirby has no substantial s 174 claim in any event, saying she has not conveyed the full facts to the Court. But these are not matters that can be determined on a summary judgment basis. In Birchfield, the Court of Appeal was assessing a buy-out offer made to a current shareholder as against orders requiring third party intervention or liquidation, neither of which Ms Kirby is claiming here.
[77] Furthermore, in Birchfield, the plaintiff was not a former shareholder alleging depletion of share value and seeking monetary compensation from the other directors/shareholders personally. In that case, the Court of Appeal was clear that the only available remedy was a buy-out order18 and the Court was satisfied that the prejudicial conduct pleaded either would not materially affect the valuation of the company, so as to call into question the buy-out offer, or could be cured by the buy- out offer itself.19
[78] In the end, the Court of Appeal in Birchfield directed that an adjusted offer be made at fair value addressing any arguable claims of unfair prejudice.20
[79] Here, there has already been a buy-out and Ms Kirby is seeking compensation not only against Tekplas but against Messrs McDougal and Schramm personally. As the Court of Appeal accepted, 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 Here, those facts are in dispute and so cannot be determined on summary judgment. The fact that the buy-out offer is concluded in this case does not remove the need for this analysis.
17 Birchfield v Birchfield Holdings Ltd,, above n 13, at [39] citing Re Sprintroom Ltd [2019] EWCA Civ 932, [2019] All ER (D) 41 at [133].
18 At [68].
19 At [65].
20 At [85] and [92].
21 At [40].
[80] The defendants further submit that Ms Kirby is estopped from bringing a s 174 claim because settlement under the Deed had to be full and final for Ms Kirby and her Group Three interests to be released from their obligations to the Westpac Bank, describing this as a condition precedent to Westpac’s release. Counsel for the defendants describes it as sharp practice for Ms Kirby’s lawyers not to communicate to the defendants or their lawyers that Ms Kirby reserved a claim under s 174, which counsel says is egregious in view of a communication from the defendants’ lawyers to Ms Kirby’s lawyers saying:
[Mr Schramm] has been in touch with Westpac who advised that we need to provide a written confirmation to Westpac that the terms of the Deed have been satisfied and the settlement is full and final before [Mr Kirby’s] guarantee will be released.
[81] Ms Kirby’s lawyers did not reply contradicting this statement, yet the defendants say Ms Kirby accepted the benefit of Westpac’s release, given under a false premise that must have been known to her lawyers. The defendants say Westpac would not have released her from liability had it known Ms Kirby was reserving a further claim against Tekplas.
[82] Counsel for Ms Kirby accepts that confirmation was not given by Ms Kirby but says there is nothing untoward in that. The obligation to procure the release of the guarantee in the Deed of Revocation was an obligation on the defendants (cl 3.3) and there was no obligation on Ms Kirby to confirm there was full and final settlement. Counsel submits that the fact Westpac released the guarantee without receiving the confirmation supports this.
[83] The defendants further point to [39] of Ms Kirby’s affidavit where they say she refers to the importance of settling her “ongoing personal liability”. However, Ms Kirby’s affidavit actually says “ongoing potential liability” and she makes this comment in the first period of negotiating the Deed of Revocation, apparently in the context of saying that she did not see why she needed to give an indemnity. It does not appear therefore to be a reference to a release of the guarantee to Westpac Bank.
[84] In any event, exactly what is meant by “full and final settlement” in the communication referred to above is a matter that needs to be interpreted in the full
context of communications between the parties and not this summary context. Estoppel does not therefore provide a separate basis for the defendants establishing the plaintiff cannot succeed on her claim.
Result
[85] I am not satisfied that the defendants have established that the plaintiff’s s 174 claim cannot succeed. The defendants’ application for summary judgment must therefore be declined.
Costs
[86] Counsel for the defendants asked to be heard on costs but I consider that it is appropriate to reserve costs until determination of the substantive proceedings in accordance with the usual position on unsuccessful summary judgment applications set out in NZI Bank v Philpott.22 If the parties consider that costs ought to be awarded now I ask them to confer to see whether agreement can be reached.
[87] If agreement is not possible memoranda may be filed, on behalf of the plaintiff by 16 September 2024 and the defendants by 30 September 2024.
Further Directions
[88] The parties are to file a joint memorandum (with any differences set out) proposing next steps to progress the proceeding to a substantive hearing by 19 September 2024.
Associate Judge Sussock
22 NZI Bank v Philpott [1990] 2 NZLR 403 (CA).
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