MacDonald v Tower Insurance Ltd

[2014] NZHC 2876

IN THE HIGH COURT OF NEW ZEALAND DUNEDIN REGISTRY

CIV-2009-412-713 [2014] NZHC 2876

BETWEEN  DEAN ROBERT LAWRENCE Plaintiff

ANDGLYNBROOK 2001 LIMITED First Defendant

CRAIGADEAN DAIRY FARM LIMITED

Second Defendant

CRAIG WILLIAM LAWRENCE Third Defendant

ALFRED NORMAN WILLIAM LAWRENCE

Fourth Defendant

…/cont

Hearing:	12-16, 19-23 May and 26-27 June 2014
Counsel:	H McIntosh and H Macfarlane for the Plaintiff T J Shiels QC and D R Tobin for the Defendants
Judgment:	19 November 2014

JUDGMENT OF BROWN J

This judgment was delivered by me on 19 November 2014 at 3 pm, pursuant to r 11.5 of the High Court Rules

Registrar/Deputy Registrar

Solicitors:      Van Aaart Sycamore Lawyers Ltd, Dunedin

Downie Stewart, Dunedin

Counsel:       T J Shiels QC, Dunedin

D R Tobin, Dunedin

LAWRENCE v GLYNBROOK 2001 LTD [2014] NZHC 2876 [19 November 2014]

BEVERLY DIANE LAWRENCE Fifth Defendant

ALFRED NORMAN WILLIAM LAWRENCE AND BEVERLY DIANE LAWRENCE

Sixth Defendants

MARBLE HILL DAIRIES LIMITED Seventh Defendant

CONTENTS

Introduction .................................................................................................................................. [1] Matters agreed.............................................................................................................................. [7]

Relevant facts.............................................................................................................................. [10] Clydevale Farm .............................................................................................................................[11] The Partnership............................................................................................................................ [14] The August 2001 understanding ................................................................................................... [32] The October 2001 Agreement ....................................................................................................... [34] The Deed of Family Arrangement ................................................................................................ [49] The sale of Edendale Farm .......................................................................................................... [58] Dean’s departure from Edendale Farm. ....................................................................................... [66] The winding up of Craigadean – the survival of Glynbrook ........................................................ [72] The sale of Clydevale Farm to Marble Hill.................................................................................. [73] Dean’s claim – assignment by the Official Assignee .................................................................... [77]

The causes of action ................................................................................................................... [81] The Partnership claim .................................................................................................................. [82] The Glynbrook share claim .......................................................................................................... [84] The Craigadean s 174 claim ........................................................................................................ [86]

Agreed issues............................................................................................................................... [87] The Partnership Claim: the fourth cause of action ................................................................. [88]

Issue 2.1: On what date was the Partnership between Dean and Craig, Alfred and

Beverly dissolved? ...................................................................................................................... [89]

Issue 2.2: If the partnership dissolved on 31 January 2001, could the Partners subsequently agree that the Partnership would continue? If so, did they so agree,

and until when did it continue?................................................................................................. [89]

Did the partners make an agreement subsequent to 31 January 2001 purporting to

continue the Partnership? ............................................................................................................ [93]

Was the agreement effective in law to cause the Partnership to continue? ................................ [102] What is the effect of the agreement?........................................................................................... [108] Conclusions on Issues 2.1 and 2.2 ..............................................................................................[110]

Issue 2.3: Was Dean’s surrender of all his Partnership interest for a 12.5 per cent

shareholding in Glynbrook by the October Agreement in consideration for the transfer

of all Partnership assets to Glynbrook? .................................................................................. [111] The October Agreement...............................................................................................................[114] Were all the Partnership assets to be transferred to Glynbrook? .............................................. [120]

Issue 2.4: Was the October Agreement varied by a subsequent agreement? ...................... [130]

Issue 2.5: If the October Agreement was subsequently varied [what was the result

of that variation]?..................................................................................................................... [148] Issue 2.6: Are the defendants estopped from denying paragraph 2.4 and 2.5(d) above? ... [149]

Issue 2.7: What fiduciary duties were owed by Craig, Alfred and Beverly and/or the

[Lawrence (No 2)] Partnership and were such duties breached by

(a)      not allocating to Dean either:

–       his share of Partnership capital on dissolution; or

–       by not allocating to Dean profits earned in the years ended 30 June 2000 to 30 June

2004, and the period ended 16 May 2005; and/or

(b)      failing to obtain a market rental for the Partnership stock; and/or

(c)      failing to obtain a market rental for the Partnership plant; and/or

(d)      transferring the Fonterra shares to Glynbrook at undervalue; and/or

(f)     failing and/or refusing to provide Dean with information or records of the

Partnership’s activities for any year that ended between 30 June 2002 and

30 June 2010. ................................................................................................................ [150] (a)      Non-allocation of profits to Dean ................................................................................... [153] (b)      Breach of a duty to obtain a market rental for the partnership stock? ........................... [159] (c)      Breach of a duty to obtain a market rental for the partnership plant? ........................... [163] (d)      Transfer of Fonterra shares to Glynbrook at undervalue ............................................... [167] (e)      Selling some Partnership stock to Craigadean at undervalue ........................................ [168] (f)     Failing to provide Dean with information about the Partnership’s activities. ................ [169]

Issue 2.8: Was “Tong’s block” [a Lawrence (No 2)] Partnership asset? If so is it a

breach of fiduciary duty for the partners to now deny that Dean had a partnership

interest in it? ............................................................................................................................. [170]

Issue 2.9: Is Dean entitled to equitable damages in the amount of one quarter of all profits in the periods ended between 30 June 2000 and 16 May 2005 (inclusive), being profits:

(a)   actually earned by the Partnership; and/or

(b)   that would have been earned by the Partnership but for the alleged breaches of

fiduciary duty . …………………………………………………………………………...[181]

Issue 2.10: Is the fourth cause of action time barred?........................................................... [191] (a)      When did the cause(s) of action accrue? ........................................................................ [194] (b)      For limitation purposes, when was the claim first brought?........................................... [194]

(c)      Did the [2010 Assignment] have the effect of assigning to Dean such claims as

Dean had at 16 May 2005 against Craig, Alfred and Beverly in  respect of the
Partnership? ................................................................................................................... [205]

(d)     Did the 2010 Assignment have the effect of assigning to Dean such claims in respect of the Partnership as might have accrued to the Official Assignee after

16 May 2005? ................................................................................................................. [210]

(e)      Was there consideration for the 2010 Assignment, and if not can Dean claim for

equitable relief in reliance on it? .................................................................................... [214]

(f)      Was notice of the assignment(s) required first to be given to the defendants and,

if so, was it given and when? .......................................................................................... [218]

(g)     Was the claim not brought for the purposes of the Limitation Act or other defences

leading to time barring until the fact of the assignment(s) was pleaded?....................... [221]

(h)     Do ss 4(1) and/or 4(2) of the Limitation Act apply directly or by analogy? ................... [224]

The October Agreement: the first cause of action ................................................................. [239] Issue 3.1(a): What rights does the October Agreement give Dean in respect of a

12.5 per cent shareholding in Glynbrook? ............................................................................. [241]

Issue 3.1(b): What obligations does the October Agreement impose on [the
defendants] in respect of the 12.5 per cent shareholding in Glynbrook? ............................ [241]

Issue 3.1(c): Is Dean entitled to an order of specific performance in respect of the
12.5 per cent shareholding in Glynbrook? ............................................................................. [248]

Issue 3.1(e): Is the first cause of action time-barred?............................................................ [261] (i)     When did the cause of action accrue?............................................................................. [263] (ii)      For limitation purposes, when was the claim first brought?........................................... [268]

(iii)    Did the 2010 Assignment have the effect of assigning to Dean such claims as Dean

had a 16 May 2005 in respect of the October Agreement? ............................................. [273]

(iv)    Was there consideration for the 2010 Assignment, and if not, can Dean claim for

equitable relief in reliance on it? ................................................................................... [274]

(v)      Was notice of the assignment(s) required first to be given to the defendants and, if so,

was it given and when? ................................................................................................... [275]

(vi)    Was the claim not brought for the purposes of the Limitation Act until the fact of the assignment(s) was pleaded?............................................................................................ [276]

(vii)     Does s 4(1) of the Limitation Act apply directly or by analogy to the claim for

specific performance and/or the claim for equitable damages? ..................................... [277]

The Deed: the second cause of action ..................................................................................... [288]

The signing of the Deed ......................................................................................................... [289]

Issue 3.2(a): If the Deed is binding …, what rights does it give Dean in respect of a
12.5% shareholding in Glynbrook? ........................................................................................ [296]

Issue 3.2(b): If the Deed is binding on Craig, Alfred, Beverly, the Trustees, and Glynbrook, what obligations does it impose on each of [them] in respect of a 12.5% shareholding in Glynbrook? .................................................................................................... [296]

Issue 3.2(d): Has Dean executed the Deed? ............................................................................ [301] Issue 3.2(c): Has the condition on which the Deed was delivered been performed or

fulfilled? .................................................................................................................................... [307] Issue 3.2(e)................................................................................................................................. [318]

Issues 3.2(f), (g) and (h)............................................................................................................ [320] Constructive Trust: the third cause of action......................................................................... [321]

Issue 3.3(a): Do the Trustees hold on constructive trust for Dean a 12.5 per cent

shareholding in Glynbrook? .................................................................................................... [322]

Issue 3.3(b): Is Dean entitled to: (i)  a declaration:

(aa)     that the Trustees hold on constructive trust for him a 12.5% shareholding in

Glynbrook;

(bb)     that the Trustees hold on constructive trust for him any dividends payable in respect of    that shareholding since the date of the October Agreement, together with interest from the dates those dividends were paid?

(ii)      equitable damages from the Trustees in respect of the value of his shareholding

in Glynbrook? And if so, what is the amount of such damages?.............................. [331]

Issue 3.3(c): is the third cause of action time barred? ........................................................... [336] (i)     When did the cause of action accrue?............................................................................. [338] (ii)      For limitation purposes, when was the claim first brought?........................................... [341]

(iii)     Did the 2010 Assignment have the effect of assigning to Dean such claims as Dean

had at 16 May 2005 in respect of the alleged constructive trust? .................................. [342]

(iv)     Was there consideration for the 2010 Assignment, and if not, can Dean claim for

equitable relief in reliance on it? .................................................................................... [343]

(v)      Was notice of the assignment(s) required first to be given to the defendants and,

if so, was it given and when? .......................................................................................... [344]

(vi)     Was the claim not brought for the purposes of the Limitation Act or other defences

leading to time barring until the fact of the assignment(s) was pleaded?....................... [345]

(vii)    Does section 4(1) of the Limitation Act apply directly or by analogy? Does

section 21(2) of the Limitation Act apply? ...................................................................... [346]

The shareholder oppression claim in respect of Craigadean: the fifth cause of action ...... [348]

The legal principles .................................................................................................................... [349]

Issue 4.1: Have any or all of Glynbrook, Craigadean, Craig, Alfred, Beverly or the

Trustees conducted the affairs of Craigadean in a manner that is in breach of s 174 by:

(a)   using Craigadean’s assets exclusively to repay loans to Glynbrook and failing to

repay loans made by Dean or entities associated with him; and

(b)    refusing to provide Dean with full financial and company records............................ [352] Loan repayments ........................................................................................................................ [352] Refusal to provide records.......................................................................................................... [361]

Issue 4.2: Did Dean contribute $1.75m in value to Craigadean? ......................................... [363] Stock contributed to Craigadean................................................................................................ [365] Capital contributed by the Family Trust .................................................................................... [368]

Issue 4.3: If any or all of Glynbrook, Craig, Alfred, Beverly or the trustees conducted the affairs of Craigadean in a manner that was in breach of s 174 what, if any, order

is it just and equitable to make?.............................................................................................. [373]

The “missing equity” ................................................................................................................. [374]

The defendants’ complaints about Dean’s conduct..................................................................... [380]

Conclusion on s 174 compensation for Dean ............................................................................. [387]

Issue 4.4: Does Dean have standing to bring the s 174 claim? ............................................. [390]

(a)     Did the 2010 Assignment or the Deed of Assignment assign to Dean a chose in action in respect of conduct by the defendants during the period when all rights and interests

in respect of the Craigadean shares were vested in the Official Assignee? .................... [393]

(b)     If so, are the Assignments limited to the cause of action as pleaded in the second amended statement of claim, such that to the extent the current claim is wider than that pleaded in the second amended statement of claim it remains vested in the

Official Assignee? ........................................................................................................... [399]

(c)      Did the 2010 Assignment have the effect of assigning to Dean such claims as he

might have had at 16 May 2005 in respect of s 174 and Craigadean? ........................... [403]

(d)      Was there consideration for the 2010 Assignment, and if not, can Dean claim for

s 174 relief in reliance on it?........................................................................................... [404]

Issue 4.5: Is the fifth cause of action barred by s 4(1) of the Limitation Act? .................... [405]

Is a limitation defence available to a s 174 claim? .................................................................... [407] (a)      When did the alleged cause(s) of action accrue? ............................................................ [412] (b)      For limitation purposes, when was the claim first brought?........................................... [414] (c)      Was notice of the assignment(s) required first to be given to the defendants and,

if so, was it given and when? .......................................................................................... [415]

(d)      Was the claim not brought until the fact of the assignment(s) was pleaded? .................. [416]

Estoppel, laches and acquiescence .......................................................................................... [417] Estoppel...................................................................................................................................... [420] Laches ........................................................................................................................................ [424] Acquiescence .............................................................................................................................. [428]

Claim against Marble Hill under s 348: the sixth cause of action ........................................ [432]

Issue 5.1: what sums, if any, should Marble Hill and/or any or all of Craig, Alfred, Beverly, the Trustees and Glynbrook pay Dean because they are sums that Glynbrook

has been ordered to pay Dean but cannot pay by reason of the dispositions? .................... [434]

Summary of findings ................................................................................................................ [435] The Partnership claim: the fourth cause of action ..................................................................... [436] The Glynbrook share claim .........................................................................................................[439] (a)             The October Agreement: the first cause of action ........................................................ [439]

(b)     The Deed: the second cause of action .......................................................................... [440] (c)           Constructive Trust: the third cause of action ............................................................... [441] The Craigadean s 174 claim: the fifth cause of action ............................................................... [442]

Interest ...................................................................................................................................... [444] Costs .......................................................................................................................................... [446]

Introduction

[1]      Clydevale Farm comprising some 275 hectares at RD 4 Balclutha was purchased  in 1980 by Alfred  Lawrence (“Alfred) who operated it for over a decade as a sheep farm.  After the formation of the ANW Lawrence Family Trust (“the Trust”), a family trust of which Alfred’s wife, Beverly, and their children (Dean, Craig and Amy) were discretionary beneficiaries, the Trust acquired a half share of the farm with Alfred and Beverly each holding a quarter share.

[2]      In 1995 Alfred, Beverly, Dean and Craig entered into a partnership (“the Partnership”)1  for the purposes of farming Clydevale Farm in its entirety as a dairy conversion.   Although the Partnership was financially successful, the relationship between the parties became strained and in the late 1990s Dean, with his wife Pamela, moved off Clydevale Farm to work elsewhere.

[3]      In 2001 the family agreed to reconstruct their business arrangements.  To that end a company, Glynbrook 2001 Ltd (“Glynbrook”), was formed to run Clydevale Farm.  A second dairy farm, Edendale Farm, was acquired.  Another new company, called Craigadean Dairy Farm Ltd (“Craigadean”), was formed to own and operate Edendale.  Dean and Glynbrook were equal shareholders in Craigadean.

[4]      The parties encountered troubled times.  Debt levels became unsustainable and it was necessary that Edendale Farm be sold.  Dean was declared bankrupt in

2005.   Other farm properties were also sold.   Eventually Glynbrook’s interests were sold to a company formed by Craig called Marble Hill Dairies Ltd (“Marble Hill”).

[5]      Upon his discharge from bankruptcy in 2008 Dean investigated whether he might have some entitlement arising from the operation of the Partnership, Glynbrook and Craigadean.    That course of inquiry culminated in the commencement of this proceeding in 2009 in which Dean pursues three distinct

claims:

1      In the documents the Partnership is sometimes referred to as the “Lawrence Partnership” or the “Glynbrook Partnership”.

(a)      A claim against Craig, Alfred and Beverly for equitable damages in connection with Dean’s alleged 25 per cent interest in the Partnership (“the Partnership claim”);

(b)A claim against Glynbrook, Craig, Alfred, Beverly and the Trust with reference to an alleged entitlement to a 12.5 per cent shareholding in Glynbrook (“the Glynbrook shares claim”); and

(c)      A  claim  under  s  174  of  the  Companies  Act  1993  against Craigadean, Glynbrook, Craig, Alfred, Beverly and the Trust for unfair,   prejudicial   and   oppressive   treatment   of   Dean   as   a shareholder of Craigadean (“the Craigadean s 174 claim”).

[6]      The defendants were very surprised2 when the claims were made by Dean. They claimed to feel disadvantaged in defending claims dating back to 2001.  The defences they raise include limitation, laches, estoppel and acquiescence.

Matters agreed

[7]      There has been an admirable degree of cooperation between counsel which resulted in:

(a)       a statement of agreed facts;

(b)      a statement of issues in dispute;3 and

(c)       a   joint   witness   statement   of   the   parties’  accounting   expert

witnesses.

[8]      The consequences of the joint position of the accounting witnesses is that the value of the claims, if established, are agreed as follows:

2      Alfred deposed to being absolutely astounded when in 2009 he received a letter from Dean’s

solicitor.

3 See [87] below.

(a)      The Partnership claim:          $343,830

(b)      The Glynbrook share claim:    $114,395 or $122,976 (c)         The Craigadean s 174 claim:  $367,934 or $436,580

[9]      Early in the hearing counsel also agreed that the documents in the seven volumes of the Common Bundle would be evidence in the proceeding. Consequently  it  was  unnecessary  to  observe  the  procedure  provided  for  in r 9.5(4).

Relevant facts

[10]     In relating the history of the dispute, on each topic I will first recite the relevant part of the statement of agreed facts and then elaborate by reference to the evidence.

Clydevale Farm

[11]     Statement of agreed facts:

On or about 25 February 1980, the Trust was settled.

Subsequently, the Trust acquired a one-half share as a tenant in common of approximately 275 hectares of land at Wharetoa/Clydevale, RD 4, Balclutha (“Clydevale Farm”) having:

(a)       Certificates of title OT18A/1030 and OT18A/1031; and

(b)       The  legal  descriptions  Lot  1  Deposited  Plan  26150  and  Part

Section 101 Block II, Pomahaka Survey District.

At all material times up to January 2002, the legal owners of Clydevale

Farm were:

(a)       Alfred: quarter share

(b)       Beverly: quarter share

(c)       Alfred and Mr Smaill4 (as trustees of the Trust): half share.

In around 1995, Clydevale Farm was converted from a sheep farm to a dairy farm.

4      Mr Smaill was a solicitor in the Balclutha office of the firm Sumpter Moore.  He was the

Lawrence family solicitor and remained a trustee of the Trust until late 2003.

[12]     Alfred and Beverly farmed Clydevale Farm as the Lawrence Partnership paying a modest rent to the land-owning partnership comprising themselves and the Trust.  In the early 1990’s Dean and Craig, formed a bobby calf joint venture and were granted an option to purchase 57.5 hectares of Clydevale Farm.  Dean and Craig’s venture encountered difficulties when they became significantly indebted to PPCS.   The proposal that Alfred, Beverly, Dean and Craig should form the Partnership was very beneficial for Dean and Craig because the Partnership assumed their liability to PPCS.

[13]     The dairy conversion appears to have been a somewhat radical step, being only the second undertaken in the Clutha Valley and in defiance of the views of financiers as to whether it was achievable.   The endeavour was to be a family affair with both Dean and Craig actively involved in the dairy operation.

The Partnership

[14]     Statement of agreed facts:

In or about 1995, Alfred, Beverly, Dean and Craig entered into a partnership (“Partnership”) holding equal shares, for the purpose of farming Clydevale Farm as a dairy conversion.  There was no written partnership agreement.

From 1995 until at least January 2002, the Partnership farmed Clydevale

Farm.

By June 1999 at the latest, Dean had left Clydevale Farm to work elsewhere.

In December 2000, Alfred, Beverly and Craig decided that they wished to terminate the Partnership.  By letter dated 22 January 2001, their solicitor notified Dean that they required dissolution of the Partnership effective from 31 January 2001 and suggested a meeting to arrange how to effect the dissolution.

During 2001, the family members discussed the possibility of Dean being paid a fixed capital sum in respect of his equities in the Partnership and the Trust.  For example, by a without prejudice solicitor’s letter dated 12

April 2001, Dean was offered $450,000, to be paid in 5 years’ time.  That

offer was not accepted, and the discussions continued.

[15]     Although the Partnership farmed and improved Clydevale Farm, it did not benefit from the capital improvements resulting from the dairy conversion.  As Mr Smaill explained in a letter to Dean dated 6 April 1998, the resultant asset (in

the form of the dairy conversion) was not reflected in the Partnership balance sheet but in the land-holding partnership between Alfred, Beverly and the Trust. Consequently in the early years the Partnership made losses which were reflected in negative balances in the four partners’ current accounts.

[16]     Mr Smaill’s letter advising Dean of the financial position was apparently prompted by an intimation from Dean that he might be considering withdrawing from  the  Partnership.    Mr Smaill  foreshadowed  the possibility of a  Deed  of Family Arrangement if Dean withdrew and the Partnership was dissolved.

[17]     Subsequently  Dean  did  leave  Clydevale  Farm  although  there  was  a significant difference in perspective as to the date of and the reasons for his departure.  Dean contended that he left because he was essentially being excluded from the management of the farm and the Partnership.  He claimed that after discussions with the family he left in 1999 on “gypsy day” (which is the day when sharemilkers move at season end) to work as a sharemilker in Tuatapere.

[18]     The family’s perspective was quite different.  They claimed that Dean was difficult to work with, that he left in June 1998 and that they were taken by surprise by his departure.

[19]     Whichever view is correct, the fact of Dean’s departure does not pose an impediment to his claim for recovery in respect of his interest in the Partnership, whatever it might be.  Nevertheless it is appropriate that I reach and record a conclusion on this issue.   Craig, Alfred and Beverly were all firm in their conviction but they were unable to point to any piece of evidence that anchored the fact of Dean’s departure to a particular date.  Beverly had a vivid recollection of learning of the fact from a neighbour who was transporting some furniture for Dean and who asked Beverly for petrol for the trip.

[20]     There were four pieces of evidence which pointed to a 1999 departure. The first was the evidence of Pamela that she was sure that she and Dean left Clydevale  Farm  when  she  was  seven  months  pregnant  with  their  daughter

Stephanie who was born in September 1999.5   The second item was the fact that according to the Partnership’s accounts Dean was paid what appeared to be full drawings for the year ended 30 June 1999.

[21]     Thirdly, the sharemilking agreement which Pamela and Dean signed with Tuatapere Dairy Farm was dated 17 March 1999 and provided that the agreement would come into force on 1 June 1999 and continue until 31 May 2000.  The fact of that agreement does not preclude the possibility of an earlier agreement. However there was no evidence of the existence of an earlier agreement and the

17 March 1999 agreement provided for extensions of term which is consistent with it being the initial agreement.  Fourthly, there was reference in a letter from Argyle, Welsh & Co dated 24 March 2005 to an agreement dated 26 July 1999 (said to be attached to the letter but not in evidence) whereby Mr and Mrs Leadley (who were Pamela’s parents) had leased 500 dairy cows to Dean and Pamela for a period expiring on 31 May 2003.

[22]     Pamela impressed me as a forthright witness with a clear recollection of her whereabouts at a point in time which was significant for her.   Furthermore, given the unhappy state of Dean’s relationship with his parents and Craig, I consider it unlikely that the other three partners would have countenanced the payment of drawings throughout an entire year when Dean was absent from the Partnership’s operations.  The fact that the sharemilking agreement was to take effect on 1 June 1999 does not of course preclude the possibility that Dean was engaged in other activities in Tuatapere prior to that time.  However the fact of the entry into the formal agreement effective from 1 June 1999 which contained provision  for  extension  tends  to  corroborate  Dean’s  and  Pamela’s  version  of events.  For those reasons I conclude that Dean and Pamela left Clydevale Farm sometime in mid-1999.

[23]     On 14 July 2000 Mr Smaill sent a letter to Dean at Tuatapere advising that he was instructed to inquire as to Dean’s intentions concerning the Partnership.

He suggested that, if it was Dean’s intention to withdraw, a dissolution be back-

5      This was countered by Beverly who had no recollection of seeing Pamela pregnant while she was at Clydevale Farm.

dated to 30 June 2000.  He also commented that agreement would need to be reached in any event on the division of profit having regard to the contributions by each partner in that year.  Dean neither withdrew nor agreed to a departure from the practice which had prevailed of equal division of profit.  It transpired that the taxable profit for the year was slightly more than $250,000.

[24]     On 21 November 2000 Alfred met with Mr Smaill and advised that the Partnership anticipated a cash surplus of $180,000 which he described as a significant improvement.  He wondered what to do about Dean because Craig wanted Dean out of the Partnership.

[25]     On  5  December  2000  Craig  met  with  Mr  McAuslan  of  Hayward McAuslan & Co, Chartered Accountants, concerning the Partnership’s financial statement and taxation matters.  Mr McAuslan’s letter dated 13 December 2000 enclosing the Partnership’s financial statement concluded by saying that he assumed Mr Smaill had been contacted with a view to resolving the Partnership situation.

[26]     On 20 December 2000 a meeting was held at Mr Smaill’s office attended by Alfred, Beverly, Craig.   Mr Smaill made a handwritten note of some of the matters discussed. Alfred, Beverly and Craig decided that they wished to dissolve the Partnership.  There was discussion about a sum which might be paid to Dean. It was resolved that on his return from Christmas leave in 2001 Mr Smaill would send a letter to Dean giving notice of the intention to dissolve the Partnership. Dean said that he learned of the other partners’ intentions on New Year’s Eve from Pam who had been informed by Beverly.

[27]     Mr Smaill’s letter to Dean dated 22 January 2001 was in the following terms:

On behalf of the three other partners in the Glynbrook Partnership, I have been instructed to advise you that they require dissolution of the partnership effective from the 31st  January 2001.  You accordingly must take this letter as notice that dissolution is to occur, effective from that date.

There are issues of course that flow from this and I suggest you consult your Solicitor or Accountant and then we have a meeting this week, if possible, with them present to agree on what is to occur to give effect to the dissolution.  I would suggest a meeting here at our offices and ask you phone with a suitable time.

There are procedures that must be followed and if all parties can agree on an amicable basis for this, it would be best for all concerned.

[28]     On  receipt  of  the  letter  Dean  then  engaged  Mr  Tony  Sycamore  of

Anderson Lloyd.  Correspondence between the lawyers ensued.

[29]    An issue of significance in the Partnership claim is whether or not the Partnership was dissolved from 31 January 2001.  Alfred, Beverly and Craig contend that it was.   However Dean argues that it was not and that there were three reasons for that:

(a)      It proved not to be possible to decide how to settle Dean’s interest in the Partnership or any interest he might have had as a discretionary beneficiary of the Trust;

(b)It  transpired  that  there  would  be  major  tax  disadvantages  in transferring the Partnership assets to another entity; and

(c)      Alfred, Beverly and Craig were unable to decide how to structure their combined business interests for the future.

This matter is explored in the consideration of the Partnership claim.6

[30]     The  state  of  play  at  the  beginning  of  May  2001  was  conveniently summarised in a PriceWaterhouseCoopers letter to Alfred, Beverly and Craig (and his wife Leeann) in this way:

the farming property at Clydevale was converted from a sheep and beef farm to a dairy farm operation five seasons ago,

the current trading entity is the Lawrence Partnership which owns all the livestock, plant & machinery and milking shed,

6      Issue 2.1 at [89]-[110].

the farm property is owned jointly by A N W Lawrence and the

A N W Lawrence Trust,7

Alfred, Beverley, Dean and Craig each have a 25% interest in the Lawrence Partnership, although Dean is not actively involved in the day to day operations.

Alfred has income tax losses of approximately $170,000 to carry forward to the 2001 income year.

The letter also recorded that Craig was interested in acquiring a greater interest in the Partnership and also an interest in the farm property itself.

[31]     Approximately three weeks later a further PriceWaterhouseCoopers letter dated 24 May 2001 outlined a proposal which it was said had recently been proposed by Mr Smaill:

a new partnership will formed (sic) between Alfred, Beverley and

Craig, each having a one-third share,

this  partnership  will  own  an  adjoining  block  of  land,  with settlement due in 2004, the recently purchased tractor and the additional 100 cows to be purchased,

the family trust is to be wound up with the assets of the trust distributed in favour of Craig,

the Lawrence Partnership will continue to trade until such time as an agreement has been reached with Dean to buy out his interest in the partnership,

onsettlement of the above, all of the assets and liabilities will be transferred from the Lawrence Partnership to the new partnership, which will then undertake the farming operations.

The August 2001 understanding

[32]     Statement of agreed facts:

In around July and August 2001, the four family members discussed the possibility of purchasing additional farm property, for the purposes of providing them with an opportunity to carry on dairy farming businesses in association with each other.

In August 2001, acting by consent as agent for the Partnership, Dean entered into an agreement for sale and purchase for land at Edendale with the certificates of title SL 6D/962, SL 9B/787, SL 26/83, SL B2/631, and

7      This failed to recognise Beverly’s one quarter interest in Clydevale Farm.

SL  39/199  (“Edendale  Farm”)  for  approximately  $5.7  million.    The

possession date for Edendale Farm was June 2002.

At  a  further  meeting  on  or  about  29  August  2001,  the  four  family members reached an understanding that:

(a)       a  new  company  would  be  incorporated  to  settle  the  family’s

purchase of Edendale Farm;

(b)       Dean would pay $1.75 million cash, or a combination of cash, stock or plant, into that company in return for a 50 per cent shareholding in it;

(c)       Craig, Alfred and Beverly would together pay $1.75 million in cash, or a combination of cash, stock or plant, into the company in return for a 50 per cent shareholding; and

(d)       The company would borrow the balance of the money required to settle the purchase of Edendale Farm and to establish the farming operation there.

The new company eventuated to be Craigadean.

Two other companies were connected with the parties, as follows:

(a)      Fairplace Grazing Company Ltd (“Fairplace”), a land holding company incorporated on 7 December 2001 with the following shareholdings:

(i)       Glynbrook: 50 per cent; and

(ii)      Craigadean: 50 per cent.

(b)     Lawrence Machinery Group Ltd (“Lawrence Machinery”), incorporated on 24 September 2002 with the following shareholdings (now struck off):

(i)       Glynbrook: 1 share;

(ii)      Craigadean: 1 share; and

(iii)     Fairplace: 1 share.

[33]     The understanding reached at the meeting on 29 August 2001 (which Dean attended by telephone) was recorded by Mr Smaill in a handwritten document entitled “Memo of Understanding”.  On 31 August 2001 Mr Smaill sent a copy of that document to Mr Sycamore under cover of a letter which stated:

We have not given great thought to the concept yet but clearly the formation of a company is involved and we have applied for name approval.  Initial thoughts would be that this would be a joint venture company, although this may not be necessary.  There is also thoughts of

forming a second company and transferring the Clydevale operation in, or at least the land and buildings into this.   We are hopeful that any outstanding issues can be resolved between the parties on an amicable basis.  For this reason we view the recent development of the purchase as positive although it is somewhat bigger than we would have imagined would have purchased.

The October 2001 Agreement

[34]     Statement of agreed facts:

At a family meeting on or about 26 October 2001, Craig, Alfred, Beverly, Dean and Glynbrook; and Alfred and Mr Smaill as trustees of the Trust, agreed that:

(a)     Clydevale  Farm,  together  with  the  plant,  machinery, shareholdings in  Fonterra (“Fonterra  shares”) and other  assets used by the Partnership to farm Clydevale Farm, would be transferred to Glynbrook:

(b)      The shareholders of Glynbrook would be as follows: (i)     Craig: 40 per cent

(ii)      Alfred: 20 per cent

(iii)     Beverly: 20 per cent

(iv)     Dean: 12.5 per cent; and

(v)      The Trust: 7.5 per cent.

(b)      Edendale Farm would be acquired by Craigadean on the terms of the sale and purchase agreement as entered into by Dean;

(c)       The shareholders of Craigadean would be as follows: (i)    Dean: 50 per cent; and

(ii)      Glynbrook: 50 per cent.

By letter dated 12 November 2001, Dean’s solicitor sent to Mr Smaill, as solicitor for Glynbrook, Craig, Alfred and Beverly, a draft deed, for approval and execution.

Between that date and May 2002, the parties’ solicitors corresponded in relation to that draft deed, and in the course of that it was proposed that Glynbrook   and   the   Partnership   would   enter   into   a   “disappearing bailment” arrangement to the effect that:

(a)       Glynbrook would have the use of the Partnership’s livestock and

would retain all replacements; and

(b)      the Partnership would receive a rental for that livestock, to be reviewed annually.

In or around January 2002, Glynbrook commenced farming Clydevale

Farm.  Specifically:

(a)       Glynbrook purchased Clydevale Farm;

(b)      the Partnership transferred all of its Fonterra shares and Peak

Notes to Glynbrook; and

(c)       Glynbrook started milking the Partnership’s cows.

In or about June 2002, Craigadean took possession of Edendale Farm and commenced farming operations there.

[35]     In a fax to Mr Sycamore dated 17 October 2001 Mr Smaill proposed as “an initial shareholding” for Glynbrook that Craig would have 40 shares and that Alfred, Beverly and the Trust would have 20 shares each.  He further noted that the shareholding could be finalised once the impending meeting was held. Glynbrook was incorporated that same day with 100 shares allocated in that manner.

[36]     The scope of the matters to be addressed on 26 October 2001 is usefully illustrated  by  the  draft  agenda  for  the  “Lawrence  Family  Meeting”  which Mr Smaill sent to Mr Sycamore on the previous day:

1.        Purchase of Wilton Property

(a)      How to be owned?

(b)      If a company, then shareholding?  Company structure? (c) Price how to be met?  Reaffirm capital contributions. (d)   Management contract for Dean

2.        Clydevale

(a)      Sell whole operation to Glynbrook 2001 Ltd? (b)   Shareholding in Company

(c)      Management contract for Craig

(d)      Shareholding in company purchasing Wilton Property?

3.        Family Trust

(a)      Future of the existing trust?

(b)      Involvement of families and respective family trusts in planning for future.

The references to the “Wilton Property” were to the Edendale Farm.

[37]     The meeting was apparently successful.  Indeed in Mr Sycamore’s fax of

26 October 2001 referred to below he thanked Mr Smaill for the way he had chaired the meeting and commented that all parties should be very pleased that the matter which had dragged on for several months was able to be resolved in a two hour meeting.

[38]     Given the range of matters in the written agenda, it is surprising that there was no formal record of the agreement reached at the meeting.   However the terms of the agreement were recited in two communications: the first, the fax from Mr Sycamore to Mr Smaill dated 26 October 2001; the second, a  letter from Mr Smaill to the Bank of New Zealand (“BNZ”) dated 30 October 2001.  Both documents referred to a shareholding in Glynbrook for Dean of 12.5 per cent.

[39]     Mr Sycamore’s fax commenced as noted above at [37] and proceeded to confirm his understanding of the agreement reached concerning the Edendale property and the Clydevale property.  With reference to the Clydevale property it included the following statement:

2.1The entire entity will be transferred to a company, which shall own all land, buildings, stock and plant.  Dean or related entity shall hold 12.5% of the shares in that company.

[40]     The fax concluded by requesting Mr Smaill to sign the bottom of the letter and fax it back.  Mr Sycamore also volunteered to assist with preparing first drafts of the documentation required to give effect to the agreement.  On 1 November

2001 Mr Smaill sent a letter to Mr Sycamore advising that his letter had been approved and stating that Mr Smaill would be pleased if Mr Sycamore could prepare the appropriate documentation.

[41]     Mr Smaill’s letter to the BNZ, which was copied only to Alfred, Beverly and Craig,8  was more specific concerning the shareholding in Glynbrook.   It stated:

(a)       The Clydevale farming operation will be transferred to Glynbrook

2001 Limited at the end of this season.

(b)      Dean, Craig, Alfred and Beverly will be the directors.

(c)       The shareholding will be:     Craig  40%  400 Shares Dean  12.5%  125 Shares Alfred  20%  200 Shares Beverly  20%  200 Shares Existing Family Trust      7.5%   75 Shares

[42]     That letter concluded by noting that additional shares in Glynbrook would be created to raise the number of shares to 1000.  That course was necessary in order to allocate 125 shares to Dean.  However it appears that that step was not attended to promptly.  When on 21 January 2002 Mr Smaill sent a number of documents to Dean for signature in connection with the Westpac refinancing, the share transfer from the Trustees to Dean in respect of Glynbrook (which was one

of those documents) provided for a transfer of 13 shares9  rather than 125.  Dean

signed that transfer.

[43]     In pursuance of the October Agreement, the following steps were taken:

(a)       Glynbrook  issued  a  shareholders’  resolution  (signed  by  Dean)

authorising a mortgage to Westpac of $12 million;

(b)      Glynbrook purchased Clydevale Farm from Alfred, Beverly and the

Trustees  for  $4  million10   and  repaid  its  BNZ  mortgage  with

Westpac funding;

8      A copy  was  subsequently  sent  to  Mr  Sycamore  under  cover  of  Mr  Smaill’s  letter  of

28 November 2001.

9      Apparently a rounding up of a 12.5 per cent shareholding.

10     The further terms of sale recorded that the transaction was a going concern for GST purposes and that the consideration was subject to the approval of the IRD, with the parties reserving the right to re-negotiate the consideration if the IRD considered it inadequate.

(c)      Dean, Craig, Alfred and Beverly guaranteed the Westpac advance and executed a stock mortgage and chattel security in favour of Westpac;

(d)Craigadean  executed  a  mortgage  in  favour  of  Westpac  with  a priority amount of $12 million; and

(e)       Craigadean settled the purchase of Edendale farm.

[44]    In addition to Clydevale Farm and Edendale Farm, another farm a short distance from Mandeville was acquired as a grazing unit to provide run-off feed for the two dairy farms.  The third farm was held by Fairplace and the acquisition was financed entirely by Westpac.   In his evidence Craig said that he was apprehensive about the Fairplace acquisition but could see the sense in having it.

[45]     It was common ground that the change in banking services from BNZ to

Westpac was at Dean’s instigation.   The facility offered by Westpac to what it

described as the “Lawrence Group” on 29 November 2001 was:

Craigadean:	Overdraft	$   300,000
Term Loan	$4,300,000
Glynbrook:	Overdraft	$   300,000
Term Loan	$3,500,000
Fairplace:	Term Loan	$4,000,000

[46]    With the benefit of hindsight the Lawrence Group’s combined farming enterprise, with the amount of debt which was involved, was an ambitious project. It is fair to say that Beverly had reservations about the scope of the project. At the time  that  Edendale  was  acquired  Mr  Smaill  had  observed  in  a  letter  to Mr Sycamore that the purchase was positive (in the context of resolving issues between the parties on an amicable basis) but that it was somewhat bigger than he would have imagined would have been purchased.

[47]     More pointedly, in a letter to the directors of Glynbrook, Craigadean and Fairplace dated 18 February 2002, which served as a record of a meeting held at Westpac in Invercargill on 11 February 2002, Mr Fitzgibbon, whose firm had

become  the  new  accountants  for  the  Lawrence  family,  warned  that  the  debt loading (which by then was $12,560,000, a figure which he noted was $760,000 higher than the amount approved by Westpac in November 2001) was very high and would need to be carefully managed so that no additional costs were incurred. He said:

In summary the projects you are undertaking have the potential to provide good and safe income streams going forward.  However it is easy for the debt loadings to escalate without a firm handle being taken on all costs. The proposed debt loading is very high and must not climb higher or the bottom line and ultimately equity in your farm business will be greatly affected …

[48]     Sadly a combination of costs overruns and unexpectedly difficult farming conditions resulted in escalating levels of debt which ultimately led to the demise of the Lawrence Group’s three farm enterprise.

The Deed of Family Arrangement

[49]     Statement of agreed facts:

In or about early June 2002:

(a)       a Deed of Family Arrangement (“Deed”) that was based upon the

draft deed … but that also incorporated the disappearing bailment

… was executed by Craig; Alfred; Beverly; and

(b)       Mr Smaill, as solicitor for those parties:

(i)       witnessed the signatures of Craig, Alfred and Beverly in their respective capacities; and

(ii)      sent the Deed to Dean’s solicitor.

Dean subsequently signed the Deed, on a date unknown, but the other parties were not aware of this until 2009.

[50]     A first draft of the Deed was prepared by Mr Sycamore who sent it to Mr Smaill on 12 November 2001.  The recitals stated that the Partnership would be dissolved and that the Partnership’s assets, along with Clydevale Farm, would be sold to Glynbrook.

[51]     However in his letter to the BNZ of 30 October 2001 Mr Smaill had noted:

NB - Whether the stock to be transferred to be looked at in tax cost to be way too high.   In which case Glynbrook Partnership to continue for a time. This to be decided.

[52]     In his response to Mr Sycamore dated 28 November 2001 Mr Smaill noted that Dean was to have come out of the Partnership effective from the beginning of the dairy season but that “we are still giving this matter some thought”.  Indeed on

7 March 2002 Mr Smaill raised with Mr Fitzgibbon the severe taxation effects of a sale of the livestock and had proposed the idea of the disappearing bailment whereby the Partnership would lease the stock to Glynbrook for a fee but Glynbrook would retain the replacements and so gradually acquire the herd over a period of years.

[53]     In his response of 21 March 2002 Mr Fitzgibbon said:

The sale of the livestock would create a one off tax cost.  To get around this we recommend a profit sharing agreement.  The existing partnership would continue to own the livestock which they would make available to the company for a percentage of the net profit. We recommend this figure be fifteen percent initially but this can be changed up or down going foreword (sic) depending on what the company’s income is.  All progeny born from the livestock are in the company’s ownership while all culls are the partnerships income.   This will have the effect of transferring ownership of the livestock from the partnership to the company over a four to five year period.  This is very similar to the disappearing bailment that you recommended and a copy of the profit shearing (sic) agreement is enclosed for your perusal.

[54]     Mr Smaill amended the draft Deed to include the following clause:

1.3      The parties shall enter into a joint venture arrangement in regard to the livestock to the effect that the partnership shall retain ownership but the company shall have the use of the livestock and shall retain all replacements.   The partnership shall receive a rental to be reviewed annually.

[55]      On 27 May 2002 he sent it to Craig for execution and asked him to forward it to Alfred and Beverly for execution again (they having previously executed it in only one capacity).  Once Mr Smaill had received it back, he then sent the executed Deed to Mr Sycamore on 11 June 2002 with a request that Dean execute and return it.  On receipt Mr Sycamore wrote to Dean advising that the signed Deed had finally been received and inquiring whether Dean was likely to

be in Dunedin in the near future.  Dean recalled receiving that letter but he was too busy preparing Edendale Farm for the new season to go to Dunedin.

[56]     Dean maintains that subsequently Mr Sycamore sent the Deed to Dean for execution.  Pamela deposed to finding it while they were living on the West Coast in 2003, prompting Dean to sign it and then sending the signed but unwitnessed Deed back to Mr Sycamore.11

[57]    The consequence of the insertion in the Deed of clause 1.3 was that the Partnership was required to continue in existence as the owner of the stock in order that no tax liability would be triggered by a transfer of ownership of the stock to Glynbrook.  However while the Partnership was to receive rent for the stock, it carried out no farming activities itself.

The sale of Edendale Farm

[58]     Statement of agreed facts:

In Craigadean’s first year of operation (June 2002 to June 2003), it encountered difficult trading conditions, and while it earned significant revenue, it also made a significant trading loss.

In February 2003, Craigadean sold a small part of the land at Edendale

Farm for approximately $432,000.   The purchasers took possession on

27 February 2004.

On 29 August 2003, Craig was appointed general manager of all of the

Lawrence companies, including in respect of Edendale Farm.

Following pressure from the company group’s banker, Westpac, to reduce group debt, on or about 17 September 2003 Craigadean agreed to sell the remainder of Edendale Farm for approximately $5.82 million.

From that point on until 2005, Craigadean’s business was progressively wound down, and it ceased trading.   Craigadean’s Financial Statements for the year ended 30 June 2005 indicate that, as at that date, it had assets of approximately only $1,624.

No  later  than  31  October  2003,  the  Trustees  jointly  acquired  the Glynbrook shares previously held jointly by Alfred and Mr Smaill as trustees.   Since that transfer, the shareholdings in Glynbrook have remained unchanged.

11 This evidence is reviewed at [291]-[294] below.

In or around June 2004, the purchasers of Edendale Farm took possession of the property.

[59]     Dean lived with his family at and worked on Edendale Farm from June

2002 until October 2003.  A number of difficulties were encountered.   First, Fonterra’s dairy payout dropped and, because Edendale Farm was solely a dairy farm, the projected revenues were not achieved.  Secondly, the spring of 2002 was the wettest in 33 years with the consequence that grass growth was very poor. Dean considered that he did not receive support from his family in this period as they refused to allow him to graze Craigadean stock at Clydevale Farm. Although the reason given was that the Clydevale Farm pastures were at capacity, Dean considered that there were a large number of calves on the farm that could have been grazing at Fairplace which was unable to be used for adult dairy cows because of the lack of a milking shed.

[60]     In around December 2002 the family asked Dean and Pamela to inject more funds into Craigadean to cover working expenses because Craigadean had reached the limits of its overdraft facility and Westpac was requiring that the facility be paid down.  Dean and Pamela sold an investment property which they owned in Invercargill and paid the proceeds of $200,000 into Craigadean as a separate interest-earning loan although it appears that the loan documentation was never completed.

[61]     In February 2003 Craigadean entered into an agreement to sell 50 hectares of  the  Edendale  Farm  property  for  $380,000  in  an  endeavour  to  reduce  the Westpac debt levels.  In reports on both Glynbrook and Craigadean in June 2003

Craig provided a detailed picture of the state of the farming operations.  With reference to Craigadean he attributed the cost overruns as having been brought about largely through a very poor season (said to be the worst in 33 years) but also due to a lack of co-operation and communication between directors.  He indicated that for the future all purchasing would be made through “one house being Clydevale”.

[62]     Westpac was becoming increasingly concerned about its exposure to what was known as the Lawrence Group and by mid 2003 Westpac requested that the

total debt level across Glynbrook, Craigadean and the other family companies be reduced.

[63]     In a letter dated 11 August 2003 it detailed four issues which it required to be addressed if the Bank was to consider an extension of facilities through to June

2004.  One issue was the provision of seasonal funding from another financier but on terms acceptable to Westpac.  Another issue was Dean’s role in the farming of Craigadean and the mechanism to have all farming decisions and financial control on a consolidated level.  Mr O’Malley advised Westpac that it was anticipated that Craig would act in the role of manager for the Group including Craigadean with sole authority for all management decisions.

[64]     On 29 August 2003 directors’ resolutions were signed appointing Craig as General Manager for each of Glynbrook, Craigadean, Fairplace and Lawrence Machinery.   Although Dean signed each of the resolutions, he was plainly displeased at being supplanted in the management of Craigadean.

[65]     On the same day Alfred, Beverly and Craig (supposedly trading as the Glynbrook Partnership No 2) signed an agreement to sell the Tong block to Glynbrook for $750,000 plus GST.  At the same time Glynbrook executed a Deed of Acknowledgement of Debt in favour of Alfred, Beverly and Craig in the sum of

$843,750.

Dean’s departure from Edendale Farm.

[66]     Statement of agreed facts:

In October 2003, Dean left Edendale Farm to farm property on the West Coast, including through a company known as Dry Ridge Ltd (now struck off).

[67]     Alfred deposed that Dean’s sudden departure caused quite a degree of turmoil in the family and that it was left to the rest of the family to try and wind up in as orderly fashion as possible the sales of Craigadean and later Fairplace and Lawrence Machinery.  He explained that Craig stepped in to manage Craigadean and that Alfred also assisted.   He described the farm as being in a mess.   He

commented that the three years which followed were some of the worst in his life and that there was considerable stress in having to essentially beg Westpac for the ability to limp on realising assets.

[68]    It was Dean’s understanding that funds would be returned to him from Craigadean after the sale of the Edendale Farm property but although he stated that he asked the family for money on several occasions no funds were ever released to him.  He also instructed his lawyer to write to Craigadean’s lawyers regarding the $200,000 loan but no response was received.

[69]     Westpac continued to be concerned about its exposure.   In a letter dated

23 February 2004  it  advised  that  its  “best  guess”  was  that  the  Group  would struggle to service the residual debt remaining after the sale of Craigadean and it gave notice that it did  not wish to continue the banking relationship  beyond

31 May 2004.

[70]    On 21 May 2004 Mr O’Malley advised Westpac that Glynbrook and Fairplace were not bankable with the current debt loading and that an orderly sell down was in the best interests of the Group.  Westpac then allowed further time until 30 November 2004 for full repayment of all debt owed by the Group.  In a letter dated 1 December 2004 Westpac advised that it would no longer provide the Group with facilities and it made formal demand for repayment.

[71]     Ultimately  as Alfred  stated  in  his  evidence,  the  Group  was  thrown  a lifeline by Mr Alan Hubbard and the Westpac debt was able to be refinanced by loans from Aorangi Securities Ltd and South Canterbury Finance Ltd.

The winding up of Craigadean – the survival of Glynbrook

[72]     In  late 2004  Dean became unable to pay his  debts and he was  made bankrupt  on  16  May  2005.    One  month  later  the  other  three  directors  of Craigadean wound up its affairs and it ceased trading.

The sale of Clydevale Farm to Marble Hill

[73]     Statement of agreed facts:

By  letter  dated  5  November  2009  from  Dean’s  solicitors  to  the

defendants, Dean notified the defendants that:

(a)       he  apprehended  Glynbrook  was  planning  to  sell  its  principal asset, Clydevale Farm; and

(b)      as a potential judgment creditor of Glynbrook, he expected that: (i) any such sale would be at market value; and

(ii)       Glynbrook’s forthcoming discovery of documents would include   documentation   in   relation   to   the   sale   and proceeds.

On or about 7 November 2009, Glynbrook publicly advertised Clydevale

Farm for sale.

An offer to purchase Clydevale Farm was made by a party who was not associated with the defendants, but that offer was not accepted.

On or about 31 March 2010, Glynbrook sold Clydevale Farm and all related assets to Marble Hill.

Following that sale, Glynbrook’s total funds employed were reduced to

$4,511, and it ceased trading.

On 2 June 2010, the defendants notified Dean of the sale.

Following that notification, Dean amended his claim to join Marble Hill as a defendant.

[74]     Alfred explained in his evidence that as a consequence of a lot of hard work the family eventually clawed Glynbrook back into a solvent position. However by 2008 he and Beverly were keen to surrender the responsibility and stress of farming and they had some discussions with Craig about the prospect of his buying out Glynbrook.  However Craig had committed himself to a property at Beaumont which was owned by the Marble Hill entity and was not in a position to entertain Glynbrook as well.

[75]     Alfred deposed that by 2009 he was ready to get out and the Glynbrook directors decided to put the Clydevale Farm on the market.  Unfortunately the market was quite flat and only one offer of $6.81 million was received.  Alfred and Beverly frankly acknowledged that they then put some pressure on Craig to

buy them out, a course which had the dual attractions of avoiding real estate agent commission and retaining the land in the family whereby he and Beverly could continue to live on the farm and near their grandchildren.

[76]     Alfred was adamant that the sale to Marble Hill at the same price as the solitary offer was not made with the intention of defeating a claim by Dean, for Alfred did not consider that Dean had any legitimate claim in any event.  He also said that the settlement date of 1 April 2010 was as a consequence of advice that it was necessary in order to avoid taxation implications.

Dean’s claim – assignment by the Official Assignee

[77]     Statement of agreed facts:

By letter dated 18 January 2010, the Official Assignee assigned to Dean

(“2010 Assignment”)

(a)      any causes of action that Dean had regarding Glynbrook and Craigadean shares that vested in the Official Assignee as a result of Dean’s bankruptcy which the Official Assignee did not pursue.

(b)       any rights or interests that Dean had at the date of his bankruptcy in, or in respect of, Craigadean and/or Glynbrook.

By a Deed of Assignment dated 22 August 2011 (“Deed of Assignment”),

the Official Assignee:

(c)       confirmed the 2010 Assignment; and

(d)      assigned to Dean (or to the extent that they had been assigned to

Dean by the 2010 Assignment, confirmed the assignment of):

(i)       all causes of action, claims, and choses in action (other than  money  and  company  shares)  relating  to  or concerning the first to seventh defendants, or any entity associated with the first to seventh defendants, whether or not known to Dean or the Official Assignee;

(ii)       that vested in, passed or transferred to, and/or made their way by any other means to, the Official Assignee as a result of the Adjudication;

(iii)     pursuant to s 42 Insolvency Act 1967 or otherwise; and

(iv)      whether vesting in the Official Assignee before or after the Adjudication.

In a decision dated 2 July 2012 in CA759/2011, the Court of Appeal upheld the validity of those assignments.

[78]   Dean was discharged from bankruptcy on 16 May 2008.   With the encouragement of friends he decided to seek legal advice with reference to his interests in Glynbrook and Craigadean.  In February 2009 his solicitors wrote to Glynbrook and Craigadean seeking copies of company records.  Eventually this proceeding was commenced on 24 August 2009.

[79]     The defendants applied for an order for security for costs and raised the issue whether Dean had standing to bring his claims given his recent bankruptcy. In light of that objection, Dean’s solicitors contacted the Official Assignee’s office which resulted in the provision of the 2010 Assignment.

[80]     Because   the   defendants   then   challenged   the   validity  of   the   2010

Assignment, Dean’s lawyers revisited the issue with the Official Assignee.  That approach culminated in the Deed of Assignment being entered into.   The defendants’ appeal against the two decisions of the Official Assignee to assign the causes of action to Dean was dismissed by the High Court12 and an appeal against that judgment was dismissed by the Court of Appeal.13

The causes of action

[81]     Although it comprises the fourth cause of action, chronologically speaking the Partnership claim is Dean’s first claim.  Reflecting the sequence of issues agreed by the parties14 I will address the Partnership claim first.

The Partnership claim

[82]     It is alleged that until his bankruptcy Dean held a 25 per cent interest in the Partnership and that the other partners, Craig, Alfred and Beverly, owed him certain fiduciary obligations.  Dean alleges that those fiduciary obligations were

breached by the other partners by:

12     Glynbrook 2001 Ltd v Official Assignee HC Greymouth CIV-2005-418-0004, 10 November

2011.

13     Glynbrook 2001 Ltd v Official Assignee [2012] NZCA 289.

14     At [87] below.

(a)       Not  allocating  or  paying  to  Dean  either  his  share  of  the Partnership capital on dissolution, or profits earned in the years that ended between 30 June 2000 and 16 May 2005, in the combined sum of $343,830.  Specifically:

(i)       In the year ended 30 June 2000, Dean received profits from the Partnership in the amount of $3,224 despite the total profits available for distribution being $240,000.

(ii)       In the years ended 30 June 2001 to 16 May 2005, Dean did not receive any profits from the Partnership despite the total profits available for distribution being $666,408.

(b)      Transferring the Partnership’s Fonterra shares to Glynbrook in January 2001  for  $552,978  less  than  the  market  value  of  the shares.

(c)       Not charging market rental from stock leased to and used by

Glynbrook between 2002 and 2005, of at least $418,360.

(d)       Not charging market rental from plant leased to Glynbrook, of at least $181,700.

(e)       Transferring cattle to Craigadean at $45,000 below agreed value. (f)         Failing   and/or   refusing   until   2010   to   provide   Dean   with

information or records of the Partnership’s activities for any year

that ended between 30 June 2002 and 30 June 2010.

[83]     Dean contends that as fiduciaries the other partners remained liable to him (or the Official Assignee upon Dean’s bankruptcy) for all funds that should have been paid to Dean and in respect of any profit made by the other partners from the use of those funds.

The Glynbrook share claim

[84]    Dean’s claimed 12.5 per cent interest in Glynbrook is pursued by three alternative causes of action seeking:

(a)       specific  performance  of  the  October Agreement:  first  cause  of action;

(b)      specific performance of the Deed: second cause of action; and

(c)       declaration of a constructive trust: third cause of action.

[85]     Equitable damages are sought from all or any of Glynbrook, Craig, Alfred, Beverly and the Trustees equivalent to the market value of the shareholding as at March 2010.

The Craigadean s 174 claim

[86]    Dean alleges that Craigadean and its directors conducted the affairs of Craigadean in a manner that was oppressive, unfairly discriminatory or unfairly prejudicial to Dean in the following respects:

(a)       Craigadean failed to repay loans it owed to Dean, and instead repaid an increased proportion of the loans it owed to Glynbrook, to the benefit of Glynbrook’s shareholders.  Specifically:

(i)	On  or  about  16  May  2005,  Dean  was  adjudicated bankrupt and could no longer act as a director of Craigadean.
(ii)	At or about 30 May 2005, Craigadean had:
(aa)     assets of approximately $1,600,000; and
(bb)     debts of approximately $4,280,000.
(iii)	Included as part of those debts, Craigadean owed Dean in excess of $1,778,000.
(iv)	In breach of its obligations, and Dean’s rights, Craigadean did not repay any of the debts that it owed Dean.
(v)	Instead,  Craigadean  used  all  available  assets  to  repay some of the debts it owed to Glynbrook.
(b)	The	net   amount   that   should   have   been   repaid   to   Dean

proportionate to his contribution to Craigadean was $436,580, or

alternatively, $367,934.

(c)       Without  Dean’s  knowledge  the  other  directors  of  Craigadean removed assets from Craigadean in order to advance their own interests:

(i)       they  recorded,  or  caused  to  be  recorded,  in  the  2004 accounts a debt  owed  by Craigadean to Glynbrook of

$946,945 in the accounts of both companies, when the

only loan money advanced by Glynbrook was $634,544;

(ii)      they transferred assets from Craigadean to Glynbrook in satisfaction of that alleged and greater debt;

(iii)     they  transferred  Fonterra  shares  from  Craigadean  to

Glynbrook for no consideration;

(iv)      they transferred $14,000 which was held back by the purchaser on settlement of the sale of Edendale Farm direct to Glynbrook when those funds were released to Craigadean in 2006.

(d)      Without Dean’s knowledge the other directors of Craigadean procured that dividends and loans due to Craigadean through its shareholding in, and lending to, other companies in the Lawrence group of companies were not paid, as follows:

(i)       Additionally,    Fairplace    Grazing    made    a    capital distribution in 2007, of $278,886, of which half should have been paid to Craigadean as a 50% shareholder in Fairplace Grazing.

(ii)       Fairplace Grazing could also have distributed a further

$100,000 to its shareholders.

(iii)      Lawrence Machinery should have, but did not, distribute

$36,000  to  each  of  its  three  shareholders,  including

Craigadean.

(e)       In  breach  of  its  statutory obligations and  Dean’s rights  under sections   178,   217   and   218   of   the   Companies  Act   1993, Craigadean also refused and/or failed to provide Dean with its full financial and company records until ordered by the Court. …

Agreed issues

[87]     By  an  exchange  of  memoranda  in  November  2012  counsel  reached agreement on the issues in dispute.  Subsequent to the completion of the evidence the parties further refined the issues in dispute which was detailed in a joint memorandum dated 18 June 2014 in the following terms:

2.        PARTNERSHIP (FOURTH CAUSE OF ACTION)

2.1On  what  date  was  the  Partnership  between  Dean  and  Craig, Alfred and Beverly dissolved?

(a)      31 January 2001? (b)      16 May 2005?

(c)       Some other date, and if so, what date?

2.2If  the  Partnership  dissolved  on  31  January  2001,  could  the Partners subsequently agree that the Partnership would continue? If so, did they so agree, and until when did it continue?

2.3      Was  Dean’s  surrender  of  all  of  his  Partnership  interest  for  a

12.5% shareholding in Glynbrook by the October Agreement in consideration for the transfer of all Partnership assets to Glynbrook?

2.4      Was the October Agreement varied by a subsequent agreement?

2.5If the October Agreement was subsequently varied, was the result of the parties varying the October Agreement that:

(a)      The  Partnership  stock  was  not  to  be  transferred  to

Glynbrook; and

(b)      Glynbrook was to have use of the Partnership stock; and

(c)       a rental was to be paid by Glynbrook to the Partnership for the stock;

and either:

(d)      the Partnership, and Dean’s interest in it, continued;

or

(e)       the Partnership continued but Dean no longer had any interest in it?

2.6      Are  the  defendants  estopped  from denying  paragraph  2.4  and

2.5(d) above?

2.7What fiduciary duties were owed by Craig, Alfred and Beverly and/or the Partnership, and were such duties breached by:

(a)      not allocating to Dean either:

–        his share of Partnership capital on dissolution; or

–by not allocating to Dean profits earned in the years ended 30 June 2000 to 30 June 2004, and the period ended 16 May 2005; and/or

(b)      failing to obtain a market rental for the Partnership stock;

and/or

(c)      failing to obtain a market rental for the Partnership plant;

and/or

(d)      transferring  the  Fonterra  shares  to  Glynbrook  at undervalue; and/or

(e)      selling  some  Partnership  stock  to  Craigadean  at undervalue; and/or

(f)       failing and/or refusing to provide Dean with information or records of the Partnership’s activities for any year that ended between 30 June 2002 and 30 June 2010.

2.8Was “Tong’s block” a Partnership asset?  If so, is it a breach of fiduciary duty for the partners to now deny that Dean had a partnership interest in it?

2.9Is  Dean  entitled  to  equitable  damages  in  the  amount  of  one quarter of all profits in the periods ended between 30 June 2000 and 16 May 2005 (inclusive), being profits:

(a)      actually earned by the Partnership; and/or

(b)       that would have been earned by the Partnership but for the alleged breaches of fiduciary duty

and if so, what is the amount of such damages?

2.10     Is the Fourth Cause of Action time barred, in particular:

(a)      When did the cause of action or causes of action accrue? (b)        For   limitation   purposes,   when   was   the   claim   first

brought?

(c)      Did the letter dated 18 January 2010 from the Official Assignee to Russell McVeagh (“the First Assignment”) have the effect of assigning to Dean such claims as Dean had at 16 May 2005 against Craig, Alfred and Beverly in respect of the Partnership?

(d)       Did the First Assignment have the effect of assigning to Dean such claims in respect of the Partnership as might have accrued to the Official Assignee after 16 May 2005?

(e)       Was there consideration for the First Assignment, and if not can Dean claim for equitable relief in reliance on it?

(f)       Was notice of the assignment(s) required first to be given to the defendants and, if so, was it given and when?

(g)       Was  the  claim  not  brought  for  the  purposes  of  the Limitation Act [1950] or other defences leading to time barring until the fact of the assignment(s) was pleaded?

(h)       Do sections 4(1) and/or 4(2) of the Limitation Act apply directly or by analogy?

2.12     Do  the  doctrines  of  laches  and/or  acquiescence  apply  to  bar

Dean’s claims for equitable relief?

3.        GLYNBROOK SHAREHOLDING:

3.1      October Agreement (First Cause of Action):

(a)       What rights does the October Agreement give Dean in respect of a 12.5% shareholding in Glynbrook?

(b)       What obligations does the October Agreement impose on each of Glynbrook, Craig, Alfred, Beverly and the Trustees  in  respect  of  a  12.5%  shareholding  in Glynbrook?

(c)       is Dean entitled to an order of specific performance in respect of such rights as the October Agreement gave him in respect of a 12.5% shareholding in Glynbrook?  If so, what is the nature of such order and who should such order be directed to?

(d)       Is  Dean  entitled  to  equitable  damages  against  any  of Craig, Alfred, Beverly, the Trustees or Glynbrook in addition to an order for specific performance, and if so, what is the amount of such damages?

(e)      Is the First Cause of Action time barred, in particular: (i)    When did the cause of action accrue?

(ii)      For limitation purposes, when was the claim first brought?

(iii)      Did  the  First  Assignment  have  the  effect  of assigning to Dean such claims as Dean had at

16 May   2005   in    respect   of   the    October

Agreement?

(iv)      Was there consideration for the First Assignment, and if not, can Dean claim for equitable relief in reliance on it?

(v)       Was notice of the assignment(s) required first to be given to the defendants and, if so, was it given and when?

(vi)      Was the claim not brought for the purposes of the Limitation Act until the fact of the assignment(s) was pleaded?

(vii)     Does section 4(1) of the Limitation Act [1950] apply directly or by analogy to the claim for specific  performance  and/or  the  claim  for equitable damages?

(f)       Is Dean estopped from enforcing the October Agreement or seeking other relief by his conduct between 2002 and

2009?

(g)      Do the doctrines of laches and/or acquiescence apply to

bar Dean’s claims for equitable relief?

3.2      The Deed (Second Cause of Action):

(a)       If the document entitled “Deed of Family Arrangement” is binding on Craig, Alfred, Beverly, the Trustees and Glynbrook, what rights does it give Dean in respect of a

Conclusion on s 174 compensation for Dean

[387] The figure of $367,934 identified in the joint witness statement was acknowledged in the defendants’ pleading but with various qualifications.174     I have ruled against the defendants on the reductions for which they advocated in the context of Issue 4.2.

[388]   The “missing equity”, on which the accountants could not find agreement, is an item which I have held should not count against Dean’s interest.  However

the proportion of the benefit which I consider accrued to Dean personally in

174   At [355] above.

respect of the Craigadean stock supplied to Dry Ridge, and subsequently lost, should be factored into the overall assessment of Dean’s prejudice.  As it happens those two items are roughly equal.

[389]   In those circumstances I hold that the figure of $367,934, which was my provisional conclusion after considering the matters in Issues 4.1 and 4.2, is the amount of compensation to which Dean is entitled from the defendants, including Glynbrook, under the fifth cause of action.

Issue 4.4: Does Dean have standing to bring the s 174 claim?

[390]   The issue of Dean’s standing to bring the s 174 claim turns on the terms of

the 2010 Assignment and the Deed of Assignment.

[391]   In response to the s 174 cause of action the defendants plead the effect of

Dean’s bankruptcy in the following terms:

75.On 16 May 2005, Dean’s shares in Craigadean and any and all contractual, equitable, statutory and legal rights or interests in respect of those shares belonging to or vested in Dean on the bankruptcy commencement date vested in the Official Assignee.

76.On  16  May  2005,  Dean’s  capacity  to  exercise  and  to  take proceedings for exercising any powers in, over, or in respect of Craigadean shares and any and all equitable or legal rights or interests in respect of those shares which Dean had or might have exercised at the bankruptcy commencement date vested in the Official Assignee.

77.Insofar as the Fifth Cause of Action as pleaded is wider than the Fifth Cause of Action in the Third Amended Statement of Claim, the cause of action belongs to and remains vested in the Official Assignee.175

[392]  In his reply Dean admits that on 16 May 2005 his claims vested in the Official Assignee but he refers to paragraphs 50 and 51 of the sixth amended statement of claim which set out material parts of the 2010 Assignment and the

Deed of Assignment.

175   The reference in paragraph 77 to the third amended statement of claim should be a reference to the second amended statement of claim: see Issue 4.4(b) below.

(a)      Did the 2010 Assignment or the Deed of Assignment assign to Dean a chose in action in respect of conduct by the defendants during the period when all rights and interests in respect of the Craigadean shares were vested in the Official Assignee?

[393]   Dean raises an objection that, unlike Issue 4.4(b), this issue is not raised by the pleadings, there being no allegation that oppressive conduct after 16 May 2005 is not assigned to Dean.  While not pleaded explicitly, I consider that this issue is raised by the contentions that Dean’s shareholding vested in the Official Assignee no later than 16 May 2005 “and remains so vested”176 and by the subsequent assertion, which follows immediately after an admission as to sums owed by Craigadean as at 30 June 2005, that all Dean’s rights were vested in the Official Assignee.177

[394]   So far as the 2010 Assignment is concerned, I consider that the shareholder rights of action, which would have vested in the Official Assignee in respect of conduct in contravention of s 174 subsequent to 16 May 2005, were assigned to Dean under clause (a)178 as being causes of action which vested in the Official Assignee “as a result of Mr Lawrence’s bankruptcy”.  I consider that those words are apt to cover rights which vested directly in the Official Assignee during the

period of Dean’s bankruptcy.  They are to be contrasted with the use of the phrase in (b) “at the date of his bankruptcy”.

[395]   The Deed of Assignment provided for the assignment, pursuant to s 50, of

the “Causes of Action” which were defined as follows:

Causes of Action means:

(i)       all  causes  of  action,  claims,  and  choses  in  action  (other  than money and company shares) relating to or concerning the Defendants or any entity associated with the Defendants, whether or not known to the Assignee or the Assignor;

(ii)       that vested in, passed or transferred to, and/or made their way by any other means to, the Assignor as a result of the Adjudication;

(iii)     pursuant to s 42 Insolvency Act 1967 or otherwise; and

176   Paragraph 66 of the statement of defence to the sixth amended statement of claim.

177   Paragraph 67(b) of the statement of defence to the sixth amended statement of claim.

178   At [205] above.

(iv)     whether vesting in the Assignor before or after the Adjudication.

For the avoidance of doubt, the Causes of Action include, but are not limited to, all of the Claims as at the date of this Deed.

[396]   Noting that the four parts to the definition are cumulative, the defendants submit that claims in relation to post 16 May 2005 conduct which occurred were not included because, in terms of item (ii), they vested in the Official Assignee “as a result of the Adjudication”.

[397]   For the same reason as my conclusion in relation to the 2010 Assignment, I do not accept the defendants’ interpretation of the phrase.   However, that point aside, I consider that both the reference in (iv) to “before or after the Adjudication”, together with the “avoidance of doubt” provision, resolves this issue in Dean’s favour.

[398]   The defendants submit that, while Dean can seek a s 174 remedy as a former shareholder, nevertheless his right to do so must relate to conduct which occurred while he was a shareholder, citing RPB Solutions Ltd v Avoca Holdings Ltd.179    However I do not consider that a former shareholder, whose shareholding vests in the Official Assignee as a consequence of his bankruptcy, is precluded from taking an assignment of a cause of action under s 174 in respect of post-

bankruptcy conduct which offends against s 174.

(b)      If so, are the Assignments limited to the cause of action as pleaded in the second amended statement of claim, such that to the extent the current claim is wider than that pleaded in the second amended statement of claim it remains vested in the Official Assignee?

[399]   This issue was raised by paragraph 77 of the defendants’ pleading.180   The contention, as I understood it, is that the assignments can only assign the claims to the extent that the claims were extant at the date of the assignments, namely those

contained in the second amended statement of claim dated 2 July 2010.

179   RPB Solutions Ltd v Avoca Holdings Ltd [2010] 2 NZLR 857 (HC) at [28].

180   At [391] above.

[400] The second amended statement of claim was limited to paragraphs (a) and (e) detailed at [86] above whereas the sixth amended statement of claim included paragraphs (b)-(d). While acknowledging that (b) is unobjectionable, since it is simply a calculation of the sum claimed, the defendants challenged (c) and (d) as being new.

[401]   Dean argues that the assignments should not be construed in that limited manner, drawing attention to the reference in clause (1)(b) of the Deed to the phrase “but are not limited to” and to recital 4 which refers to claims “presently known or unknown”.  Those points are well made.  However I rest my decision on two other reasons.

[402] First, I consider Dean’s claim is covered by clause (a)(iv) and (v) at [86] above. Secondly, both the assignments assigned causes of action. It was open to Dean to further refine the s 174 causes of action unless any amendment so changed the claim as to constitute a new cause of action.181 In my view the later amendments to the s 174 pleading did not change the essential nature of the claim.

(c)Did the 2010 Assignment have the effect of assigning to Dean such claims as he might have had at 16 May 2005 in respect of s 174 and Craigadean?

[403]   The defendants accept, insofar as at the time of his bankruptcy Dean had a proper claim under s 174 in respect of a shareholding in Craigadean, that such claim was assigned to him by the Official Assignee under paragraph (a)182  and probably also under paragraph (b) of the 2010 Assignment.

(d)      Was there consideration for the 2010 Assignment, and if not, can Dean claim for s 174 relief in reliance on it?

[404]   The defendants’ argument is the same as that advanced with reference to the fourth cause of action.  For the reasons explained in the context of that cause of action there was no requirement for consideration for the 2010 Assignment and

consequently Dean can claim for s 174 relief in reliance on it.183

181 Refer to the analysis at [201]-[203] above.

182   At [205] above.

183   At [214]-[217] above.

Issue 4.5: Is the fifth cause of action barred by s 4(1) of the Limitation Act?

[405]   The pleading of the affirmative limitation defence to the s 174 claim is as follows:

73.Insofar as the alleged unfair prejudicial and oppressive treatment of  Dean  as  a  shareholder of  Craigadean  occurred prior  to  23

September 2006, the claim cannot be brought by reason of section
4(1) Limitation act 1950.

However the date on which the defendants ultimately relied was 25 August 2005 which was six  years prior to the third amended statement of claim dated 25

August 2011.184

[406]   Section 4(1)(d) states:

Except as otherwise provided in this Act, … the following actions shall not be brought after the expiration of 6 years from the date on which the cause of action accrued, that is to say,—

…

(d)       actions  to  recover  any  sum  recoverable  by  virtue  of  any enactment, other than a penalty or forfeiture or sum by way of a penalty or forfeiture.

Is a limitation defence available to a s 174 claim?

[407]   In support of the proposition that the limitation provision applies to s 174 proceedings,  the  defendants  relied  upon  the  decision  in  McLachlan  v  MEL Network Ltd where it was common ground that s 4(1)(d) applied.185     The defendants drew attention to the fact that the judgment was appealed to the Court of Appeal contending that when reviewing Potter J’s discussion of the limitation defence, at no stage did the Court of Appeal take issue with the conclusion that s

4(1)(d) applied.  However, quite apart from the fact that that issue had not been the subject of contest, it is apparent that the Court of Appeal did not expressly

consider the current issue.

184 See [191]-[192].

185   McLachlan v MEL Network Ltd HC Auckland CIV-1998-404-510, 9 December 2004 at [44].

[408]   The defendants also relied upon Scott v Scott Transport Ltd.186    However while Williams J noted the submission and the decision in McLachlan his Honour appears to have assumed that the limitation defence was available.

[409]   In  response  Dean  cited  Holden  v  Theatrelight  Electronic  and  Audio Systems Ltd where Heath J concluded that s 4(1)(d) does not apply to s 174 claims.  His Honour said:187

[22]     While there are certain similarities between claims that can be brought by liquidators under the Companies Act (the provisions of which provide for discretionary relief), the particular issue in this case does not appear to have been addressed specifically in any New Zealand authority. There is no more than a suggestion in Scott v Scott Transport Ltd that the limitation period might apply in certain circumstances.  In McLachlan v MEL  Network  Ltd,  Potter J  acted  on  the  basis  of  an  uncontested proposition that s 4(1)(d) applied.   Similarly, in Re Network Agencies International Ltd, the focus was on whether s 4(5) of the Limitation Act applied to reduce the limitation period to two years, in respect of a claim based on a director’s alleged failure to keep proper accounting records. No issue arose in that case about whether s 4(1)(d) specifically applied.

[23]      Section 174 is a section of general application to the multitude of circumstances  that  could  give  rise  to  a  particular  shareholder  of  a company being prejudiced by oppressive, unfairly discriminatory or unfairly prejudicial conduct, by others on behalf of the company.  The remedies contemplated by s 174(2) go beyond claims for the payment of money, the specific focus of s 4(1)(d).

[24]      The primary claim in this case is for an order that Mr Gilfillan pay a sum of money to Mr Holden to acquire the latter’s shares.  A claim for compensation or damages is put in the alternative.  Nevertheless, it is clear that if, after hearing evidence, the Court considered it was just and equitable for some other order under s 174(2) to be made, it could do so. In  that  context,  the  section  must  be  seen  as  creating  a  general discretionary remedy going well beyond the boundaries of a simple claim for money.

[25]      I do not consider that the words of s 4(1)(b) naturally attach to a claim of that nature.  The section speaks of actions “to recover any sum recoverable by virtue of enactment”.  Such a provision is not readily capable of being applied to an order that requires a sum of money to be paid in exchange for property.  Nor certainly does it apply naturally to orders regulating the future conduct of the company’s affairs or putting the  company  into  liquidation,  to  use  two  of  the  examples  set  out  in s 174(2).

186   Scott v Scott Transport Ltd HC Hamilton CIV-2005-419-395, 25 November 2008.

187   Holden v Theatrelight Electronic and Audio Systems Ltd HC Auckland CIV-2006-404-3782,

1 April 2009 at [22]-[26].

[26]     In addition, there is the point that claims of this nature will necessarily rely on behaviour over a significant period of time.  Some of the acts or omissions alleged can be seen as the narrative which contextualises the claim.  It would be difficult to separate out aspects of the narrative from the bases of the claims, in some cases.

[410]   The defendants  suggest  that  little weight  should  be placed  on  Holden because it was an oral decision which, in their words, was made without consideration.  They also draw attention to Heath J’s comment that his views on the limitation issue needed to be read in the context of the need to determine the application that day.

[411]   While the exigencies of time plainly influenced the timing of the decision, I find the reasoning compelling.  In my view an application under s 174 is not an action of the kind described in s 4(1)(d).  Consequently I do not consider that the defendants can avail themselves of a limitation defence in response to the fifth cause of action.  Nevertheless I proceed to address the four agreed sub-issues.

(a)      When did the alleged cause(s) of action accrue?

[412]  The cause of action with reference to the loan repayments arose when, subsequent to the settlement of the sale of Craigadean in June 2004, a repayment was made to Glynbrook.  The evidence did not permit that date to be identified precisely but it must have occurred subsequent to 30 June 2004 and prior to Craigadean’s wind down in 2005.188

[413]  The cause of action so far as it concerns the refusal to provide records occurred consequent upon the failure to respond to Dean’s various requests for information commencing on 3 February 2009.

(b)      For limitation purposes, when was the claim first brought?

[414]   The  claim  was  first  brought  on  2  July  2010  in  the  second  amended statement of claim.

188   At [58] above.

(c)Was notice of the assignment(s) required first to be given to the defendants and, if so, was it given and when?

[415]   The answer is “no” for the same reasons stated in the context of the fourth

cause of action.189

(d)      Was the claim not brought until the fact of the assignment(s) was pleaded?

[416]   The answer is “no” for the same reasons stated in the context of the fourth cause of action.190

Estoppel, laches and acquiescence

[417] While recognising that these defences involve distinct concepts, the defendants addressed estoppel,191 laches192 and acquiescence193 together given that the factual basis for each of the defences was essentially the same.  I also address them in a composite manner.

[418]   In their pleading the defendants rely on the following matters:

(a)       Dean’s failure in June 2002 to 2009 to inform the defendants or

their solicitors or accountants that he had executed the Deed;

(b)      Dean’s  departure  from  Edendale  Farm  in  2003  to  pursue  other

business interests; and

(c)       Dean’s bankruptcy on 16 May 2005.

[419]   They contend that Dean thereby represented that the Deed and the October Agreement were not  binding on him or any of the defendants.  They say that they reasonably acted upon that representation and on his silence and inaction by:

(a)       Continuing to farm from 2003 to 2009 in difficult conditions;

189   At [218]-[220] above.

190   At [221]-[223] above.

191   Issues 3.1(f), 3.2(h), 3.3(d) and 4.6.

192   Issues 2.12, 3.1(g) and 3.3(e).

193   Issues 2.12, 3.1(g) and 3.3(e).

(b)      Craig, Alfred and Beverly not taking steps to have dissolution accounts prepared for the partnership of Dean, Craig, Alfred and Beverly;

(c)       The defendants not claiming from Dean and/or Dean and his wife and not proving in Dean’s bankruptcy for amounts owing to them by Dean and/or Dean and his wife for accounts paid on behalf of Dean, amounts received by Dean for which he failed to properly account to the defendants, the value of items removed by Dean from the Edendale property, the amount which would have been payable by Dean on dissolution accounts for the partnership, and contributions for amounts paid pursuant to guarantees for which Dean was a co-guarantor;

(d)       Craigadean not proving in Dean’s bankruptcy for the value of 160 cows belonging to Craigadean that Dean took to the West Coast. (Dean took 406 cows of which 246 were returned); and

(e)       Glynbrook not paying appropriate salaries to Craig, Alfred and Craig’s wife and Craig and Alfred not insisting on such salaries being paid, thereby increasing the shareholders’ funds in Glynbrook.

Estoppel

[420]   Although there is said to be a tendency to depart from strict criteria and to direct attention to overall unconscionable behaviour,194 Equity in Trusts New Zealand states that it is clear that a party alleging an estoppel must show:195

(a)      A belief or expectation has been created or encouraged through some action, representation or omission to act by the party against whom the estoppel is alleged;

(b)The belief or expectation has been reasonably relied on by the party alleging the estoppel;

(c)      Detriment will be suffered if the belief or expectation is departed from; and

(d)It would be unconscionable for the party against whom the estoppel is alleged to depart from the belief or expectation.

194   Gold Star Insurance Co Ltd v Gaunt [1998] 3 NZLR 80 (CA) at 86.

195   Equity and Trusts in New Zealand, above n 83, at 613-614.

[421]  In view of my rejection of the second cause of action I confine my consideration of this issue to the October Agreement.   I agree that Dean had carried out all the steps he was required to take under the October Agreement.  I also agree that he was led by the defendants to believe that they would carry out the steps required of them concerning the transfer of the shareholding, he having been asked to complete the share transfer document and the loan documentation for Glynbrook.  Given that Edendale Farm was contracted to be sold it was inevitable that he would leave Edendale Farm.  I do not consider that there was any representation that his legal rights would not be enforced either by the fact of his departure or by the fact of his bankruptcy.

[422]  Dean submits that the evidence does not show that the steps which the defendants say they took or chose not to take196  were as a result of reliance by them on any representation by Dean.  He also makes the point that the defendants did not have any entitlement to recover anything from his bankruptcy and that, in any event, there would have been no funds available for distribution.  However, even if there was any genuine detriment, it was his submission that that had been

undone by the adjustments made by the accountants in the workings resulting in the joint witness statement.

[423]   I agree with Dean’s submissions on this issue.  In my view the defence of estoppel is not available to the defendants on the facts of this case.   There is nothing unconscionable about Dean enforcing his rights under the October Agreement or as a shareholder in Craigadean.  Indeed for the reasons recorded in my consideration of Issues 3.1(c) and 3.3(b) I consider that it would be unconscionable for the defendants not to transfer to Dean the shareholding in Glynbrook which they agreed he should have.

Laches

[424]   Laches is a general equitable defence that is not affected by the Limitation

Act.   The doctrine is discussed in some detail in the decision of the Supreme

196   At [419] above.

Court in Eastern Services Ltd v No 68 Ltd.197   It is convenient to refer to the head note:

The doctrine of laches required a balancing of the equities in relation to the facts and the weight to be given to them which in abstract were infinitely variable.  While the length of delay and the nature of acts done during the interval were always relevant, and while in some cases an inference could be drawn as a matter of common sense that delay had prejudiced the defendants, there could be no unqualified principle that lapse of time is itself a bar without prejudice being shown. …

[425]   The defendants emphasise the lack of urgency on Dean’s part to have his position rectified and, specifically with reference to the claim to the Glynbrook shareholding, they argue that where a material contract concerns a disposition of an interest in property of a fluctuating nature such as shares, then greater expedition is appropriate than might otherwise have been the case.

[426]   I  do  not  consider  that  the  period  of  “delay”  in  the  present  case  is particularly prolonged but, in any event, much of the period can be explained by the  fact  of  Dean’s  bankruptcy  and  the  difficulty  which  he  subsequently encountered in obtaining reliable information about Glynbrook and Craigadean. In that respect I have held in the context of the fourth cause of action that there was substance in Dean’s contention that the defendants’ conduct had contributed

to the delay.198

[427]   The defendants also placed emphasis on the extent to which their ability to defend the claim had been prejudiced, in particular with reference to the difficulty for witnesses in their recollection of events.  I consider that the difficulties in recollection were in a substantial part ameliorated by the documentary record and the evidence of Mr Smaill.   The defendants’ particulars of prejudice repeat the particulars of detriment alleged in support of the estoppel defence but, as with that defence, I do not consider that the prejudice is established so as to sustain a laches

defence.

197   Eastern Services Ltd v No 68 Ltd [2006] NZSC 42, [2006] 3 NZLR 335.

198   At [235] above.

Acquiescence

[428]   The defendants plead that the matters in [418] and [419] above amounted to a deliberate and informed course of action undertaken by Dean which had encouraged the defendants to believe that he did not assert any rights to any interest in any company or farm property or other assets whether pursuant to any agreement or the Deed or otherwise.  They contend that, as a direct consequence of such encouragement, they reasonably formed the view that all their actions since  Dean  left  Edendale  Farm  in  2003,  including,  but  not  limited  to,  their exercise of rights as shareholders and owners of assets, were acceptable to Dean and not opposed or challenged by him in any way.

[429]  Dean submits that all forms of acquiescence depend upon his having knowledge of his rights, not in a sense of the legal conclusions to be drawn from the facts, but of the facts from which those rights arise.199    He contends that he clearly did not stand by in knowledge of the wrongs committed against him in relation to Glynbrook and that he had no practical way to unravel the truth about the financial position of Craigadean.  Furthermore, he was powerless to enforce

his own interests during his bankruptcy.   The Official Assignee did not pursue claims against Craigadean because it was told that the company was insolvent, or against Glynbrook because the register showed that Dean was not a shareholder.

[430]   The observations of Cooke P in Wellington City Council v New Zealand Law Society200 are apt in the present case: acquiescence, like laches and estoppel, essentially requires consideration of the equities and can be summed up in the question whether it would be unconscionable to grant relief in the light of the reasonable expectations of the parties.

[431]   I accept that Dean did not undertake a deliberate and informed course of action of the nature alleged.  For the reasons previously referred to I do not consider that it would be unconscionable to grant relief in the circumstances of

this case.

199   Re Howlett [1949] Ch 767 (Ch) at 775.

200   Wellington City Council v New Zealand Law Society [1990] 2 NZLR 22 (CA) at 26.

Claim against Marble Hill under s 348: the sixth cause of action

[432]   Dean  alleges  that  when  Glynbrook  sold  all  of  its  assets  including Clydevale Farm to Marble Hill and distributed the net proceeds of the sale to Glynbrook’s shareholders, it intended to prejudice and did prejudice Dean as a creditor of Glynbrook.  He seeks an order under s 348 of the Property Law Act

2007 that Marble Hill, Craig, Alfred, Beverly and the trustees pay compensation in the amount of any judgment debt that the Court orders payable by Glynbrook.

[433]   In their statement of defence to the sixth amended statement of claim the defendants consented to an order under s 348 for the payment of compensation to Dean in the amount of any judgment debt that the Court orders payable by Glynbrook and which, due to the dispositions, Glynbrook cannot pay.

Issue 5.1: what sums, if any, should Marble Hill and/or any or all of Craig, Alfred, Beverly, the Trustees and Glynbrook pay Dean because they are sums that Glynbrook has been ordered to pay Dean but cannot pay by reason of the dispositions?

[434]  The sum which Marble Hill should pay to Dean is $367,934 being the amount awarded by way of compensation under the fifth cause of action.

Summary of findings

[435]   Given the number of issues which were raised in the various causes of action, I summarise my key findings on the three broad claims.201

The Partnership claim: the fourth cause of action

[436]   Breaches of fiduciary duty are established in respect of the non-allocation to Dean of partnership profits202 and the failure to recognise his interest in Tong’s block. 203

[437]   Dean  is  entitled  to  an  award  of  equitable  damages  in  the  sum  of

$94,745.25.204    Although the 2010 Assignment was not effective to assign that

201   At [5] and [81]-[86].

202   At [158] above.

203   At [180] above.

claim, the Official Assignee did assign the claim to Dean by the Deed of Assignment.  There was no requirement either to give notice of205  or to plead206 the Deed of Assignment.

[438]   Although Dean’s claim would not have been time barred, unless his claim was not validly commenced until the filing of the third amended statement of claim subsequent to the Deed of Assignment (a point which did not appear to be taken by the defendants),207  in any event s 4(1) did not apply directly or by analogy to the Partnership claim.

The Glynbrook share claim

(a)      The October Agreement: the first cause of action

[439]   There was no requirement for consideration, notice or pleading of the 2010

Assignment which, it was accepted, was effective to assign this claim to Dean. Dean is entitled to an order for specific performance in respect of his claim for a

12.5 per cent shareholding in Glynbrook.   However the claim for equitable damages is time barred by s 4(1) by analogy.208

(b)      The Deed: the second cause of action

[440]   The claim based on the Deed fails because the Deed was not executed by Dean, nor were the conditions, on which the Deed was delivered, performed or fulfilled.

(c)      Constructive Trust: the third cause of action

[441]   Dean is entitled to a declaration that the trustees hold on constructive trust for Dean a 12.5 per cent shareholding in Glynbrook.209

204   At [190] above.

205   At [220] above.

206   At [223] above.

207   At [209] above.

208   At [287] above.

209   At [330]-[332] above.

The Craigadean s 174 claim: the fifth cause of action

[442]   By the repayment of loans to Glynbrook after the sale of Edendale Farm and the failure to make any repayment to Dean, the affairs of Craigadean were conducted in an unfairly discriminatory manner which was unfairly prejudicial to Dean.210    Dean  is  entitled  to  compensation  under  s  174(2)  in  the  sum  of

$367,934.211

[443]   Dean had standing to bring the s 174 claim212 which is not a claim within the ambit of s 4(1)(d) of the Limitation Act.213

Interest

[444]   Dean seeks interest under s 87 of the Judicature Act 1908 and under the Court’s equitable jurisdiction to award interest distinct from the s 87 power.214   He recognises that the Court has a discretion as to the rate of interest payable (subject to the statutory ceiling) and that interest may be ordered for the whole or part of the period between the date the cause of action arose and the date of judgment and on all or part of any damages.  He contends that in respect of both the Partnership claim and the s 174 claim it would be appropriate to award interest for the period May 2005 to April 2014.215

[445]   While  I  accept  that  that  is  an  appropriate  period  in  respect  of  the Partnership claim, I consider that the starting point for interest in the s 174 claim should be 1 July 2005.  I recognise that during those periods three different rates of interest were prescribed.   However, having regard to the time which elapsed before a proceeding was commenced and  to the entire history of this family dispute including the matters noted at [67] and [358]-[359] above, I consider that an award of interest of 5 per cent throughout  the entire period appropriately

reflects the justice of the case.216

210   At [360] above.

211   At [389] above.

212   At [394] and [397] above.

213   At [411] above.

214   Rama v Millar [1996] 1 NZLR 257 (PC).

215   A shorter period was suggested in relation to the Glynbrook shareholding claim.

216   Day v Mead, above n 119, at 463.

Costs

[446]  While Dean has had a substantial measure of success in the proceeding, nevertheless there have been findings for the defendants on a number of issues including the second cause of action on the Deed and the claim for equitable compensation in the first cause of action.   If the parties are unable to agree on costs, then Dean is to file a costs memorandum by 22 December 2014.  The defendants are to file a costs memorandum in response by 11 February 2015.

Formal order

[447] Leave is reserved to Dean in accordance with [260] above to file a memorandum within fifteen working days recording his election on the issue of relief on the first cause of action.  At the same time it would be convenient if, preferably after consultation with the defendants, Dean were to submit a draft

form of order reflecting the various findings in this judgment.

Brown J