Libra Developments Limited v Clark - [2013] NZHC 1578

IN THE HIGH COURT OF NEW ZEALAND DUNEDIN REGISTRY

CIV-2002-412-000039 [2013] NZHC 1578

BETWEEN LIBRA DEVELOPMENTS LIMITED First Plaintiff

ANDRUSSELL ERNEST HYSLOP Second Plaintiff

ANDLINDSAY ALLAN CLARK Defendant

Hearing: 7 June 2013

Appearances: P Churchman QC for Plaintiffs
L A Andersen for Defendant

Judgment: 27 June 2013

JUDGMENT OF CHISHOLM J

[1] This hearing was convened to enable several outstanding matters to be resolved so that the account taker can proceed with his task: see minute of 23 April
2013. All the issues concern matters arising out of the interest of the partnership in Cargill Hotel 2002 Limited (CH2002). It has been agreed that the value of the hotel, excluding stock and vehicles, is $17,475,000.

[2] The background has been traversed in numerous previous judgments and minutes, and does not need to be repeated. Suffice to say that in its most recent judgment1 the Court of Appeal accepted that Mr Clark owed fiduciary obligations to
the plaintiffs and that the duty of good faith extended beyond dissolution of the

1 Clark v Libra Developments Limited & Ors [2011] NZCA 493.

LIBRA DEVELOPMENTS LIMITED v CLARK [2013] NZHC 1578 [27 June 2013]

partnership until the completion of winding up.2 For the purposes of this litigation the partnership is deemed to have been wound up on 30 June 2010.

[3] The Court of Appeal also explained that the appropriate remedy in this case:3

...was to order Mr Clark to account to Libra for any profit achieved by him which was properly attributable to his breach of duty in appropriating the business opportunity of the partnership to himself...The advantage Mr Clark had wrongly obtained was realised and expressed in the shares he or his interests held in CH 2002.

Thus the value of the shareholding held by Mr Clark’s interests in CH2002 is to form part of the accounting exercise to be undertaken.4

[4] The following issues remain to be determined: FF& E (furniture, fit out and equipment); tax liability for depreciation recovered; a GST issue; interest on vendor finance and the B shares; further information concerning taxation; the ledgers; and costs. At the hearing the plaintiffs adduced expert evidence which was primarily directed to the first two issues. Mr Hyslop also gave evidence. Expert evidence was also adduced by the defendant.

FF & E

[5] For the year ended 30 June 2010 the accounts of CH2002 include a current liability of $864,240 for “FF & E replacement fund”. A liability in relation to that fund also appeared in earlier accounts from 2006.

[6] According to the plaintiffs these entries for FF & E represent double accounting and should be reversed for the purpose of taking accounts. While the defendant accepts that these entries should not be regarded as a liability, he maintains
that FF & E is nevertheless an item that needs to be considered by the account taker.

2 At [55].
3 At [62].
4 At [64].

A brief history

[7] Having earlier raised the issue of FF & E5,…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

Continue reading Libra Developments Limited v Clark

Details

AGLC: Libra Developments Limited v Clark [2013] NZHC 1578
Case: [2013] NZHC 1578
Decision Date: 27 June 2013

CaseChat Overview and Summary

Libra Developments Limited and Russell Ernest Hyslop, acting as plaintiffs, brought an action against Lindsay Allan Clark, the defendant, to address several outstanding matters arising from the interest of the partnership in Cargill Hotel 2002 Limited (CH2002). The court was tasked with resolving issues concerning the accounting treatment of furniture, fixtures, and equipment (FF&E), tax liability for depreciation recovered, GST issues, interest on vendor finance and B shares, further information concerning taxation, the ledgers, and costs. The court also needed to determine the value of the hotel, excluding stock and vehicles, which had been agreed upon as $17,475,000.

The court concluded that the FF&E item should not be taken into account when arriving at the valuation of the shares. The concession that, as at 30 June 2010, FF&E was not to be taken into account as a liability was difficult to reconcile with the proposition that the account taker should still consider it as a future liability. The timing of the future "liability" was speculative and it could not be described as a liability. Furthermore, the management agreement contemplated that the FF&E would be paid into a separate bank account, which never happened.

The court also ruled that the account taker should not take into account the possibility of taxation on depreciation recovered when arriving at his valuation of the shares. The defendant had failed to establish that the possibility of taxation for depreciation recovered should form part of the valuation exercise in this case.

The court ordered that interest on the vendor finance should be treated as an operating expense before net profit was calculated. However, it would not take priority over other uses of surplus cash. There was not to be any provision for interest on the B shares.

The court also ordered that the plaintiffs were entitled to costs of $1000 on the ledgers issue, as well as costs and witnesses' expenses in accordance with the previous rulings.

Orders