Martin v Martin
[2023] NZHC 2162
•11 August 2023
IN THE HIGH COURT OF NEW ZEALAND NAPIER REGISTRY
I TE KŌTI MATUA O AOTEAROA AHURIRI ROHE
CIV 2023-441-006
[2023] NZHC 2162
UNDER Rule 5.49(5) 18 of the High Court Rules 2016 and s 174 of the Companies Act 1993 BETWEEN
ROGER WILLIAM MARTIN
Plaintiff
AND
ANN MARTIN
Defendant
Hearing: 27 July 2023 Appearances:
B Gustafson for the plaintiff
P Chisnall and D MacKenzie for the defendant
Judgment:
11 August 2023
JUDGMENT OF CAMPBELL J
This judgment was delivered by me on 11 August 2023 at 3.00 pm pursuant to Rule 11.5 of the High Court Rules
Registrar/Deputy Registrar
MARTIN v MARTIN [2023] NZHC 2162 [11 August 2023]
[1] The plaintiff, Mr Martin, and the defendant, Mrs Martin, have been married for more than fifty years. They separated three or four years ago.1 Since then, they have been in an acrimonious dispute.
[2] Mr and Mrs Martin each own shares in two companies, Martin Roofing Co. Ltd (Martin Roofing) and AR Equities Ltd (AR Equities). Martin Roofing owns and operates a successful roofing business. AR Equities owns the commercial premises from which Martin Roofing operates its business.
[3] In this proceeding, Mr Martin claims that actions and omissions of Mrs Martin with respect to the two companies are such that he has been oppressed or unfairly prejudiced as a shareholder of the companies. He seeks relief against Mrs Martin under s 174 of the Companies Act 1993.
[4] Mrs Martin filed an appearance objecting to the jurisdiction of this Court to hear and determine the proceeding. She says the Family Court has exclusive jurisdiction. In response, Mr Martin filed an application to set aside Mrs Martin’s appearance. This judgment determines that application.
Mr Martin’s claim in this proceeding
[5] Martin Roofing has two directors, Mr and Mrs Martin. Each owns one-sixth of the shares in the company. The remaining two-thirds are owned by a family trust, of which Mr and Mrs Martin are two of the three trustees.
[6] Mr and Mrs Martin are the two directors of AR Equities. Mr Martin owns two- thirds of the shares in that company, Mrs Martin owns the other third.
[7] In May 2022, after the parties had separated, Mrs Martin made two withdrawals from Martin Roofing’s bank account into her own bank account. The withdrawals totalled $620,000. Mr Martin claims that the withdrawals were unauthorised, and that Mrs Martin breached her duties as a director in making them. In a separate proceeding, Mr Martin brought a derivative action on behalf of Martin
1 The parties dispute the date of their separation. This dispute is immaterial to the present application.
Roofing against Mrs Martin in respect of the withdrawals. He obtained interim relief against Mrs Martin, following which Mrs Martin returned the $620,000 to Martin Roofing. Mr Martin’s claim that Mrs Martin breached her director’s duties in making the withdrawals forms part of his claim in this proceeding that he has been unfairly prejudiced as a shareholder of Martin Roofing.
[8] The other broad part of Mr Martin’s claim of unfair prejudice is his allegation that Mrs Martin has frustrated the trading and business of Martin Roofing by refusing to take certain steps, such as signing the company’s financial statements, agreeing to the purchase of capital equipment and agreeing to distributions. In short, he claims the management of Martin Roofing is in a state of deadlock. Mr Martin makes much the same allegation of deadlock (and, consequently, unfair prejudice) with respect to AR Equities.
[9] Mr Martin seeks, by way of relief, orders under s 174 of the Companies Act in respect of each company. First, he asks for orders that an expert be appointed to value the business of the company, that he then purchase the business, that the purchase price be used to pay the outstanding indebtedness of each company, and that the balance be held in a solicitor’s trust account pending resolution of the division of relationship property between him and Mrs Martin. Secondly, he asks for an order granting him a limited power of attorney over Mrs Martin to sign tax returns for each company that are alleged to be outstanding.
Mrs Martin’s objection to jurisdiction
[10] Mrs Martin filed an appearance objecting to the jurisdiction of this Court to hear and determine this proceeding. Her objection was based on these grounds:
(a)the plaintiff and the defendant are married;
(b)in this proceeding the plaintiff seeks relief for the division of property that he owns jointly with the defendant;
(c)that property falls within the definition of relationship property in section 8 of the Property (Relationships) Act 1976 (the Act);
(d)under section 22 of the Act, every application under the Act to divide relationship property (refer section 25(1)(a)(ii)) must be heard and determined in the Family Court;
(e)no order transferring the proceeding to this Court has been made under section 38A of the Act; and
(f)accordingly, this Court does not have the jurisdiction to hear and determine this proceeding.
[11] Mrs Martin’s appearance was filed under r 5.49(1) of the High Court Rules 2016. Mr Martin then applied under r 5.49(5) to set aside Mrs Martin’s appearance.
[12] Although Mr Martin has brought the application to set aside Mrs Martin’s appearance, it is clear from r 5.49(6) of the High Court Rules that the onus is on Mrs Martin to satisfy me that the Court has no jurisdiction to hear and determine this proceeding. If I am so satisfied, I must dismiss the proceeding. If I am not, I must set aside Mrs Martin’s appearance.
Other steps by Mrs Martin
[13] Mrs Martin filed a notice of opposition to Mr Martin’s application. She said that in this proceeding Mr Martin is seeking to acquire from her property that is owned jointly by them as part of their relationship property. She said she intended to file a relationship property proceeding in the Family Court to divide the entirety of their relationship property.
[14] Mrs Martin has since filed such an application in the Family Court. In that application, she said, among other things:
(a)Mr Martin brought this proceeding to acquire from her property (shares in their family roofing business) that is owned jointly by them as part of their relationship property;
(b)Mr Martin’s claim is under s 174 of the Companies Act and must be determined by the High Court;
(c)she has protested the High Court’s jurisdiction to hear and determine Mr Martin’s proceeding on the basis it is, in effect, a proceeding to divide relationship property and ought to have been commenced in the Family Court;
(d)however, the Family Court does not have jurisdiction to determine Mr Martin’s claim whereas the High Court has jurisdiction to hear and determine both Mr Martin’s and her claims; and
(e)the Family Court should therefore transfer her relationship property proceeding to the High Court, where both proceedings would then be heard together.
[15] Mrs Martin’s Family Court application — in particular, her statement that the Family Court does not have jurisdiction to determine Mr Martin’s claim in this proceeding, whereas this Court does have jurisdiction — contradicts her objection to jurisdiction in this proceeding. Nonetheless, I still must assess her objection on its merits.
Submissions for Mrs Martin
[16] Mr Chisnall, counsel for Mrs Martin, submitted that Mr Martin’s proceeding is an attempt to divide aspects of their relationship property ahead of others and without engaging the rules and principles in the Property (Relationships) Act 1976 (the PRA). He said that, by s 22 of the PRA, any application to divide relationship property must be heard and determined in the Family Court.
[17] In his written submissions, Mr Chisnall described the relief sought by Mr Martin as being orders under s 174 of the Companies Act “to acquire Mrs Martin’s shareholding in both Martin Roofing and AR Equities”. That description was incorrect. Mr Martin is not seeking to acquire Mrs Martin’s shares in the two companies. He seeks to acquire the business of each company.
[18] In his oral submissions, Mr Chisnall acknowledged that Mr Martin was not seeking to acquire Mrs Martin’s shares. But he said that, in substance, Mr Martin was seeking to achieve the same outcome. If Mr Martin obtained the orders he sought, he would be diminishing the ability of the Family Court to divide relationship property because Mr Martin would be walking off with control by purchasing the assets of the companies. Alternatively, Mr Chisnall submitted that Mr Martin could apply under the PRA for the same orders that he seeks in this proceeding.
[19] Mr Chisnall also referred me to a passage in an affidavit that Mr Martin made on 3 June 2022 in the derivative proceeding he brought on behalf of Martin Roofing. In that affidavit, Mr Martin said:
Through our marriage, we hold many assets together, including the business of Martin Roofing through the AR Trust.
[20] Mr Chisnall said this showed that Mr Martin regarded the business of Martin Roofing as being an asset that he and Mrs Martin held together.
Does the Court have no jurisdiction to hear and determine this proceeding?
[21] In Kake v Napier,2 I analysed the law governing the Family Court’s exclusive jurisdiction over relationship property matters. Mr Chisnall relied on my analysis. So did Mr Gustafson, counsel for Mr Martin. Naturally, they took different things from it. I largely repeat that analysis here, adapted to this proceeding.
[22] Section 22 of the PRA provides that “[e]very application under this Act” must be heard and determined in the Family Court. This provision is given further effect in s 11 of the Family Court Act 1980, which provides that the Family Court must hear and determine all proceedings “that are to be heard and determined by the court under or by virtue of any of the provisions of” the PRA. It follows that the High Court generally has no jurisdiction over any application under the PRA.3
[23] The Family Court therefore has exclusive jurisdiction over applications under the PRA. However, this does not mean the Family Court has exclusive jurisdiction over every type of civil proceeding between spouses or partners. Nor does it mean the Family Court has exclusive jurisdiction over every proceeding in which the PRA may have some application. There is a long line of authorities, beginning with Jew v Jew, to the effect that the exclusive jurisdiction of the Family Court applies only where a party has applied for orders under the Act.4
2 Kake v Napier [2022] NZHC 2395.
3 There is an exception in s 38A of the Property (Relationships) Act 1976, which allows a Family Court Judge to transfer a proceeding to the High Court. Section 38A is not engaged in respect of this proceeding.
4 Jew v Jew [2003] 1 NZLR 708 (HC) at [41]. See also AB v EF [2012] NZFLR 661 (HC) at [31] and [36]–[43]; Lai v Huang [2016] NZHC 2828; and Minister of Education v McCartney [2017] NZHC 47 at [14]–[21].
[24] The PRA allows applications to be brought for a range of orders. The orders are primarily to do with determining the respective shares of each spouse or partner in relationship property and dividing that property.5
[25] In Kake v Napier, Ms Kake made a claim against her former spouse for damages for breach of a building contract. I held that Ms Kake’s claim was not an application under the PRA, and so the Family Court did not have exclusive jurisdiction over it.6 My reasons were:
Ms Kake does not apply (in form or substance) for any order under the PRA. She merely claims damages for Mr Napier’s alleged breach of a building contract. This is not a claim that is, or could be, made by way of an application under the PRA.
[26] Mr Chisnall emphasised the words “in form or substance”. He also referred me to Lobb v Ryan, in which Walker J, after referring to Kake v Napier, determined an objection to jurisdiction by examining the substance of the claim that had been made.7 Mr Chisnall submitted that Mr Martin’s claim in this proceeding could, in substance, be made under the PRA. This was because Mr Martin could claim for orders under the PRA that all the shares in the two companies that he did not already own be transferred to him. Mr Chisnall said that would be no different, in substance, from the orders Mr Martin seeks in this proceeding that the businesses of the two companies be transferred to him.
[27] I do not accept that submission. It is correct that Mr Martin could seek orders under the PRA that all the shares in the companies be transferred to him. But that would not be the same, in substance, as an order that the companies’ businesses be transferred to him. A transfer of all the shares in a company and a transfer of the company’s business will often share the same general economic objective. But that does not mean they are the same in substance.
[28] Mr Chisnall submitted, alternatively, that under the PRA orders could be made for the transfer of the businesses to Mr Martin. He referred me to s 33(5), under which
5 Property (Relationships) Act 1976, s 25.
6 Kake v Napier [2022] NZHC 2395 at [24].
7 Lobb v Ryan [2023] NZHC 1297 at [39].
the court may make ancillary orders relating to an order for the sale of relationship property.
[29] I also reject that submission. Section 33(5) only empowers the court to make ancillary orders for the sale of “relationship property”. Under s 8 of the PRA, property is “relationship property” only if (subject to exceptions which do not apply here) the property is owned by one or more of the spouses or partners. The businesses in question are not owned by Mr Martin or Mrs Martin. They are owned by the respective companies. The definition of relationship property in the PRA does not allow a court to disregard the separate legal entity of a company and treat its assets as the assets of its shareholders.8 Mr Chisnall placed some emphasis on Mr Martin’s reference, in his affidavit in the derivative action proceeding, to the business of Martin Roofing as an asset that “we hold … together”. That one-off reference does not provide a basis for treating Martin Roofing’s assets as assets of Mr Martin and Mrs Martin.9 Therefore, an order could not be made under the PRA that the businesses be transferred to Mr Martin.
[30] In my view, the position is plain. Mr Martin is seeking orders under s 174 of the Companies Act that the businesses be transferred to him. He has not made an application under the PRA for these orders, nor could he. First, the orders he seeks are not for the determination of the respective shares of Mr and Mrs Martin in any relationship property or for the division of any relationship property. Secondly, none of the provisions of the PRA empower a court to make orders of this sort.
[31] This is not surprising. Section 174 of the Companies Act responds to claims of shareholder oppression or unfair prejudice. A claim under s 174 raises issues that neither the PRA nor the Family Court is designed to deal with. Only the High Court has jurisdiction to hear claims under s 174.10
8 Hedley v Hedley (1980) 4 NZFLR 33 (CA) at 35; and Country Land Ltd v Blackley [2012] NZHC 898 at [23].
9 The balance of the affidavit evidence from both parties correctly reflected that the businesses are assets of the respective companies.
10 See the definition of “court” in s 2 of the Companies Act 1993; and Chen v Chen [2014] NZHC 2788 at [16].
[32] This conclusion is consistent with two other decisions. First, in Country Land Ltd v Blackley, Mr and Mrs Blackley had separated.11 Mrs Blackley owned all but one of the shares in the plaintiff company, which owned and operated a farm. A neighbouring farm was owned and operated by the second defendant company, of which Mr Blackley was the sole director. The plaintiff company alleged that the second defendant company, on the direction of Mr Blackley, had removed stock and equipment owned by the plaintiff company. The plaintiff company sued for conversion and trespass to goods. The defendants protested jurisdiction, submitting that Mrs Blackley was effectively seeking orders for the division of stock and equipment, that this was an application that ought to be made under s 25 of the PRA to the Family Court, and that the proceeding was concerned with control of the plaintiff company and its assets pending final orders for classification and division of all relationship property.12 Gilbert J rejected the defendants’ submission, reasoning that:13
(a)The shares in the plaintiff company might be relationship property but the assets owned by the company were not.
(b)The proceeding did not relate to the classification and division of relationship property (as it did not involve the classification and division of shares in the plaintiff company).
(c)The proceeding did not relate to the control of the plaintiff company. There was no doubt that Mrs Blackley controlled the company as she owned all but one of its shares.
[33] Mr Chisnall sought to distinguish Country Land. He submitted that the present proceeding did relate to control of Martin Roofing and AR Equities. I disagree. The control of those companies depends primarily on who holds the shares in those companies. No orders are sought in respect of those shares. This proceeding might be characterised as relating to control of the companies’ assets. But that does not distinguish it from Country Land.
11 Country Land Ltd v Blackley [2012] NZHC 898.
12 At [21].
13 At [23]–[25].
[34] Secondly, in AB v EF,14 the plaintiffs applied for orders in this court under s 174 of the Companies Act. The defendants protested jurisdiction, submitting that the substance of the dispute concerned the division of relationship property and so the Family Court had exclusive jurisdiction. Andrews J rejected that protest. Her Honour followed Jew v Jew and held that the plaintiffs’ claims were not brought under s 25 of the PRA but instead relied on s 174 of the Companies Act.15
[35] Finally, I note that Mr Chisnall submitted that, for various reasons, the orders sought by Mr Martin were inappropriate. Those submissions do not go to jurisdiction. They may, of course, be for determination in the substantive proceeding.
Result
[36]I set aside Mrs Martin’s appearance objecting to jurisdiction.
[37] Mr Martin is entitled to costs. I encourage counsel to agree quantum. If agreement cannot be reached, brief memoranda (no more than two pages, excluding relevant annexures) may be filed, Mr Martin to go first.
Campbell J
14 AB v EF [2012] NZHC 722.
15 At [31].
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