Middleton v Mana Within Ltd
[2025] NZHC 543
•18 March 2025
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2023-404-002120
[2025] NZHC 543
BETWEEN PHILIP GEORGE SAUA MIDDLETON and LEARNER FOCUSED TRAINING LTD
ApplicantsAND
MANA WITHIN LTD
First Respondent
DOUGLAS THOMAS LEEF
Second RespondentBUILDRIGHT RESIDENTIAL LTD
Third Respondent
Hearing: 20 February 2025
(further information received 13 March 2025)
Appearances:
W J Revell and V H H Hansen for Applicants N P Tetzlaff for Second Respondent
Judgment:
18 March 2025
JUDGMENT OF GARDINER J
This judgment was delivered by me on 18 March 2025 at 11 am pursuant to r 11.5 of the High Court Rules 2016.
Registrar/Deputy Registrar
…………………………………
Solicitors:
Farry Law Limited, Auckland Smith and Partners, Auckland
MIDDLETON v MANA WITHIN LTD [2025] NZHC 543 [18 March 2025]
Introduction
[1] The applicants seek to restrain dealings with funds held in the bank account of the first respondent, Mana Within Ltd (MWL). MWL is owned and operated by Philip Middleton and Douglas Leef.
[2] MWL entered into an agreement (Outcome Agreement) with the Ministry of Social Development (MSD) to provide culturally tailored pastoral care and education support to Māori apprentices in the construction industry. The contract commenced on 1 November 2021 and was for an initial term of 24 months. MWL was funded from the MSD’s Māori and Trades Training Fund. MWL anticipated providing the services to 50 individuals.
[3] MWL did not deliver the services itself. Mr Middleton and Mr Leef provided the services as ‘consultants’ through their respective companies, Learner Focused Training Ltd (LFT) and Buildright Residential Ltd (BRL). The companies rendered invoices to MWL, who paid the invoices from the MSD funding. The arrangement was documented in ‘consultancy agreements’ between MWL, LFT and BRL.
[4] Eventually, the business relationship between Mr Middleton and Mr Leef soured. On 27 February 2023, Mr Leef served Mr Middleton with a default notice under the MWL shareholders agreement, alleging various breaches which included diverting funds from MWL to LFT. Attempts to resolve the dispute were unsuccessful.
[5] In August 2023, Mr Leef told MSD that MWL held approximately $1.1 million of unused funds and that the company would be liquidated due to the disagreement between himself and Mr Middleton. This caused MSD to demand that MWL repay any unspent funds and institute an audit to gain a better understanding of the expenditure incurred in delivering the programme. The audit is ongoing.
[6] On 22 September 2023, the applicants obtained an interim freezing order over around $184,000 in MWL’s accounts to which LFT claimed to be entitled.1
1 Middleton v Mana Within Limited HC Auckland CIV-2023-2120, 22 September 2023 (Minute of Walker J).
The interim order also prevented Mr Leef from speaking to MSD without Mr Middleton.
[7] The parties conferred, and Mr Leef agreed to execute undertakings to maintain the status quo while they attempted again to resolve the dispute. They were unable to do so and, on 4 December 2023, Mr Leef applied by memorandum to be released from the undertakings. The Court refused the informal application.2
[8] Shortly thereafter, the applicants filed a further application alleging that Mr Leef had breached the undertaking not to contact MSD. Accordingly, they sought pre-commencement discovery orders. This application was resolved by consent in June 2024. The Court made discovery orders and adjourned the proceedings for six months.3
[9] On 7 October 2024, Mr Leef applied formally to be released from the undertakings. The applicants responded with the present application.
[10] The applicants seek a freezing order, preservation order, or interim injunction in respect of funds held in MWL’s bank account, the current balance of which is understood to be $1,035,468.27. This money comprises funding from MSD to deliver pastoral and education services under the Outcome Agreement that has not yet been paid to LFT or BRL.
[11] The applicants also seek an order restraining Mr Leef from communicating with MSD without Mr Middleton or as permitted by the Court.
[12] At the conclusion of the hearing, I made “interim interim” orders broadly in terms of the application with some variations agreed with counsel. These remain in force until the expiry of the period for an application for leave to appeal this decision or, if leave is sought, until that leave application is determined, subject to any further extensions by the relevant court.
2 Middleton v Mana Within Limited HC Auckland CIV-2023-2120, 7 December 2023 (Minute of Venning J).
3 Middleton v Mana Within Limited HC Auckland CIV-2023-2120, 21 June 2024 (Minute of Muir J).
Legal principles
Freezing orders
[13] Freezing orders are governed by Pt 32 of the High Court Rules 2016. Rule 32.2 allows the Court to make a freezing order restraining a party from disposing, dealing with, or diminishing the value of assets.
[14]There are three requirements for a freezing order:
(a)There must be a good arguable case on the substantive claim. A good arguable case is established if the allegations in the proposed claim are capable of tenable argument and are supported by sufficient evidence, bearing in mind the early stage at which the application is likely to be brought.4
(b)It must be shown that there are assets to which the order can apply.
(c)The application must demonstrate that there is a real risk the respondent will dissipate or dispose of those assets. Fundamentally, “the heart of the jurisdiction” is a real risk that a judgment or award may go unsatisfied.5
[15] If these qualifying matters are established, the Court then needs to consider where the interests of justice lie.
Preservation orders
[16] Rule 7.55 of the High Court Rules empowers the Court to make any orders necessary to ensure the preservation of any property. The bare jurisdictional requirement is simply that there must be a proceeding which involves property, but it is clear from the authorities that there must be a proper basis for making an order.6
4 Dotcom v Twentieth Century Fox Film Corp [2014] NZCA 509, (2014) 22 PRNZ 479 at [18] and [31].
5 Oaks Hotels & Resorts NZ Ltd v Body Corporate 358851 [2013] NZHC 2695 at [18].
6 Helicarr Helicopters Ltd v Watts (1992) 6 PRNZ 61 (HC).
[17] As such, the threshold for a preservation order is not as difficult to meet as for a freezing order. The applicant does not need to provide proof of an attempt by the respondent to make itself judgment-proof to defeat any rightful claimants.
[18] The prevailing authority for preservation orders is Rapid Metals Development (New Zealand) Ltd v Rusher (No 2).7 The Court held:8
(a)The purpose of the rule is to facilitate the interlocutory preservation of property or a fund. The definition of a fund is not restricted to an actual stock or sum of money set apart but can extend to “a mere accountancy expression used to determine a particular category which a person uses in making up his accounts”.9
(b)The rule is not to be interpreted so as to freeze a defendant’s financial position to ensure that execution on a judgment will be successful.
(c)The property or fund to be preserved must be that which is the subject of the litigation.
Interim injunction
[19] The Court may grant an interim injunction upon application under r 7.53 of the High Court Rules. The conventional test for granting an interim injunction is:10
(a)whether there is a serious question to be tried;
(b)where the balance of convenience lies; and
(c)consideration of the overall interests of justice.
7 Rapid Metals Development (New Zealand) Ltd v Rusher (No 2) (1987) 2 PRNZ 85 (HC).
8 At 92.
9 At 93.
10 Klissers Farmhouse Bakeries Ltd v Harvest Bakeries Ltd [1985] 2 NZLR 129 (CA) at 142.
The applicants’ claims
[20] Mr Middleton claims that Mr Leef acted in bad faith towards him, deceiving him into believing that there would be no further funding from MSD once the Outcome Agreement expired, to persuade Mr Middleton to transfer his shareholding in MWL to Mr Leef at a nominal value. He claims that, when that strategy did not work, Mr Leef engaged in a course of conduct to undermine him and MWL with MSD, to bring about the termination of MWL and the diversion of MSD’s business to Mr Leef’s own enterprises.
[21] The applicants have filed a statement of claim. They plead six causes of action. All but the fifth cause of action seek relief from Mr Leef:
(a)First cause of action — that Mr Leef acted in bad faith towards Mr Middleton as a fellow shareholder in breach of cl 5.1 of the MWL shareholder agreement.
(b)Second cause of action — that Mr Leef acted against the best interests of MWL in breach of cl 20.1 of MWL’s constitution.
(c)Third cause of action — that Mr Leef acted against the best interests of MWL, in breach of his fiduciary duties owed to MWL.
(d)Fourth cause of action — that Mr Leef breached the restraint of trade provisions in MWL’s shareholder’s agreement at cl 5.8 and sch 1 cl 7.
(e)Fifth cause of action — that MWL is liable in quantum meruit for services Mr Middleton and/or LFT provided to MWL.
(f)Sixth cause of action — that Mr Leef is liable in quantum meruit for services Mr Middleton and/or LFT provided to Mr Leef.
[22] At the hearing, Mr Revell clarified that the fifth and sixth causes of action are in the alternative and concern LFT’s payment of contractors for MWL during a three-month extension of the Outcome Agreement. It was said that the contractors
provided the services outside the LFT consultancy agreement, hence the claim in quantum meruit. It follows that the claim is correctly made against MWL (rather than Mr Leef).
[23] In support of an order over MWL’s bank account, Mr Revell submits that there is a real risk of dissipation of MWL’s funds. In addition to the factors considered by the Court when it made the September 2023 interim freezing order, he refers to:
(a)documentary evidence obtained through pre-commencement discovery showing unilateral actions and communications with MSD by Mr Leef;
(b)that Mr Leef has issued additional invoices to MWL, despite not having provided any additional services to MWL;
(c)Mr Leef’s unilateral attempts to liquidate MWL;
(d)evidence of Mr Leef’s poor financial position, which may be seen as a motivation for him to access the funds; and
(e)that while Mr Leef purports to seek release from the undertakings to allow him to communicate with MSD, this would also allow him to deal with MWL’s funds.
[24] Mr Revell submits there is a risk of a judgment or award going wholly or partly unsatisfied, given:
(a)Mr Leef's evidence is that he is "broke". Therefore, his only prospective source of funds to pay any award is through the unpaid invoices tendered to MWL under the consultancy agreement between MWL and BRL.
(b)Any award payable by MWL could only be met from MWL funds. If Mr Leef were to withdraw from MWL’s accounts the amounts BRL has invoiced to MWL, the remaining amount after LFT's invoices are also paid could be inadequate to meet such an award.
(c)There is also a real prospect that Mr Leef is not entitled to the outstanding amounts that he has sought against MWL by invoice.
[25] Accordingly, Mr Revell submits, the interests of justice demand the making of a freezing order or interim injunction to ensure any eventual claim made out in the applicants’ favour is not diluted because of inadequate funds held by MWL.
[26] Mr Revell raises a further, unpleaded reason for MWL’s bank account to be restrained. Mr Revell submits that there is a yet-unquantified risk that, if Mr Leef dissipates the funds, there will be insufficient funds left in MWL to satisfy any demand, or entitlement, on the part of MSD resulting from its audit.
[27] In the alternative, the applicants seek a preservation order. Mr Revell submits that the funds in the bank account meet the definition of a fund under r 7.55. Further, it is not the object of the application to freeze Mr Leef’s financial position, as the funds are not personally held by Mr Leef. Moreover, the funds sought to be preserved are the subject of the substantive proceeding.
[28] In relation to the interim injunction as to communications, Mr Revell submits that Mr Leef regularly communicates with MSD, without Mr Middleton’s participation, knowledge or input. These communications amount to misrepresentations about Mr Middleton and the financial position of MWL. This shows a real foundation for a claim of loss of further, or prospective further, contracts between MWL and MSD, as well as LFT and MSD.
[29] Further, the balance of convenience clearly lays in favour of the injunction as this is a non-financial issue — being the reputations of Mr Middleton and LFT — which is not well-suited to a remedy of damages.
[30] Mr Middleton has filed five affidavits from September 2023 when the interim orders were obtained. In his most recent affidavit, sworn on 24 January 2025, he sets out the evidence he considers supports his claims, obtained through pre-commencement discovery from Mr Leef (including discovery from the MWL server), together with documents obtained from MSD.
Mr Leef’s position
[31] Mr Leef has filed three affidavits. His counsel, Mt Tetzlaff, also made comprehensive submissions. In summary, Mr Leef’s position is that the statements he has made to MSD represent his honestly held views on two issues upon which he and Mr Middleton disagree. The first is the status of the funds held by MWL that have not been used to pay LFT or BRL for services rendered under the consultancy agreements. Mr Leef considers the funds to be unused public funds that should be returned to MSD. Mr Middleton does not agree and considers that the Outcome Agreement enables MWL to retain the funds provided it has delivered the contracted services.
[32] The second is the correct end date for the contract. Mr Leef considered that the contract ended on 31 October 2023; Mr Middleton considered that it ended on 14 February 2024. Eventually, MSD acknowledged an “ambiguity” about the agreement end date and executed a variation to extend the contract to 14 February 2024.
[33] Hence, Mr Leef denies that anything he said to MSD amounted to a breach of his obligations to Mr Middleton as shareholder of MWL.
[34] Furthermore, he rejects that there is any risk of him dissipating the funds in MWL’s bank account. He has sworn an affidavit stating that he does not consider that BRL is entitled to any more than the $145,000 it has invoiced to MWL for services delivered until 31 October 2023 (when BRL ceased involvement with MWL). He also says he would never return any funds to MSD without Mr Middleton’s consent, despite him considering that to be the correct approach once all outstanding costs (including invoices tendered by BRL and LFT) are paid.
MSD’s interests
[35] At the hearing, the applicants placed considerable emphasis on the outstanding MSD audit as a ground for securing the funds in the MWL account. Mr Revell made the broad submission that there could be claims to the money in the account from MSD, LFT and BRL that exceed the balance. He is referring to unpaid invoices rendered by LFT and BRL for services under the consultancy agreements.
[36] This Court has no principled basis for making orders in relation to MWL’s bank account to protect MSD’s interests. The audit has been underway for nearly 17 months and MSD has not considered it necessary to apply to the Court for a freezing or preservation order in relation to the funds. The applicants have not put any evidence before the Court to demonstrate that MSD considers that the funds are at risk, or that it is opposed to MWL paying any legitimate outstanding costs to LFT or BRL. This application for interim orders must be considered against the applicants’ pleaded substantive claim, not some other unpleaded proposition based on the interests of a third party.
[37] Before turning to the substance of the applicants’ claim, it is instructive to examine the orders sought in relation to MWL’s bank account.
Preservation order
[38] The applicants seek a preservation order over MWL’s bank account in the alternative to a freezing order or interim injunction. However, aside from the fifth cause of action in quantum meruit against MWL, the applicants/plaintiffs do not claim to have a right to the fund itself. The plaintiffs bring claims against Mr Leef in damages for losses he is said to have caused them due to breaches of his duties.
[39] Therefore, only the fifth cause of action could conceivably support a preservation order (as opposed to a freezing or interim injunction). As the statement of claim did not specify the amount claimed, I invited the applicants to file a memorandum specifying the quantum of this claim, which they did on 13 March 2025. The amount is modest and well short of $1.1 million. I return to this cause of action later.
Freezing order or interim injunction
[40] Otherwise, the orders must be sought on the basis that they are necessary to preserve the financial position of MWL and/or Mr Leef pending the outcome of the substantive claim. That is, to ensure that there are funds available to meet any eventual award in the plaintiffs’ favour.
[41] However, aside from the relatively minor fifth cause of action against MWL, the statement of claim advances allegations against and seeks damages from Mr Leef, not MWL. So, even if the plaintiffs are successful, there will be no award against MWL for anything close to $1.1 million. Therefore, there are no grounds for an order which operates to preserve MWL’s financial position so it can meet an eventual award.
[42] It was put to me that securing MWL’s funds is necessary to ensure that Mr Leef can meet an award against him in the applicants/plaintiffs’ favour. That is because Mr Leef’s only source of funds to meet any award is from consultancy fees MWL is obliged to pay his company, BRL.
[43] I am not persuaded by this reasoning. First, and to state the obvious, the funds belong to MWL (or possibly MSD), not to BRL or Mr Leef.
[44] Second, at best, MWL is indebted to BRL in the amount of the unpaid invoices. While Mr Leef may ultimately receive some benefit through BRL, Mr Leef personally has no entitlement to MWL’s funds or to any debt owed by MWL to BRL.
[45] Third, Mr Leef has sworn an affidavit confirming that BRL does not claim to be owed any more than $145,000 plus GST for services to 31 October 2023. He does not consider that BRL is entitled to any payments beyond that date. He has explained that further, subsequent invoices issued by BRL were issued in error by MWL’s accountant without his knowledge, and they have been reversed. This debt falls well short of the $1.1 million in the bank account that the applicants seek to restrain.
[46] Therefore, in my view, and even before considering the substance of the applicants’/plaintiffs’ claim, the only arguable justification for restraining the bank account is to preserve MWL’s ability to pay any eventual award to LFT’s claim of a relatively modest sum in quantum meruit.
[47] Despite that conclusion, I now consider the substance of the applicants’/plaintiffs’ claims against Mr Leef to assess whether there is a good arguable case, or a serious question to be tried, in interim injunction terms.
Breach of shareholder duty to act in good faith
[48] The plaintiffs’ claim is that Mr Leef breached this duty to act in good faith in the following ways:
(a)Mr Leef refused to agree to MWL hiring additional personnel, requiring Mr Middleton to resign as director of LFT to focus on MWL, working excessive hours for MWL, and using an LFT contractor to provide services to MWL.
(b)Mr Leef corresponded and met with MSD between December 2022 and October 2023 without Mr Middleton’s knowledge or consent.
(c)Mr Leef took steps to exclude Mr Middleton from MWL and future income through MWL by:
(i)engaging with MSD between December 2022 and April 2023 to obtain further funding for a second term of the Outcome Agreement, while informing Mr Middleton in January 2023 that MSD had refused MWL’s application for further funding;
(ii)improperly serving a default notice on Mr Middleton in February 2023 and demanding that Mr Middleton transfer his shares in MWL to Mr Leef, with the intention of obtaining Mr Middleton’s shareholding in MWL at a nominal value; and
(iii)“engineering” a request from MSD for repayment of the funds held by MWL by advising MSD, on or around 18 August 2023, that MWL held $1.1 million of unspent funds, that Mr Middleton had sold his shareholding in MWL, that MWL would be liquidated, and proposing that MSD redirect the funds to a new venture to be established by Mr Leef.
(d)Mr Leef made disparaging comments about Mr Middleton to MSD in an email dated 21 August 2023.
(e)In a letter to MSD dated 4 September 2023, Mr Leef stated that MWL was going to be liquidated.
(f)On 11 October 2023, Mr Leef stated (through his lawyers) that he had provided Mr Middleton with the full record of his communications with MSD when he had not.
(g)On 12 October 2023, Mr Leef breached his undertaking — not to correspond with MSD without the prior consent of Mr Middleton or the Court — by filing a quarterly report with MSD.
(h)Mr Leef acted consistently with the Outcome Agreement ending on 14 February 2024. However, from late 2023, he asserted that the Outcome Agreement ended on 31 October 2023 in order to be released from his obligations to MWL.
[49] The applicants have obtained pre-commencement discovery of communications between Mr Leef and MSD. They put forward this evidence:
(a)Mr Leef asked for a face-to-face meeting with his MSD contact on 18 August 2023.
(b)An email from Amy Henare of MSD to Mr Leef dated 18 August 2023 recorded that Mr Leef had informed her that day that MWL had “underspent” around $1.1 million, and that Mr Middleton had sold his shareholding in MWL.
However, Mr Leef responded to MSD back five minutes later to say that MSD had misunderstood, and Mr Middleton still owned 50 per cent of MWL which was his “bargaining tool” to stop Mr Leef from proceeding with further opportunities. Also, Mr Middleton claimed 50 per cent of the residual funds at the end of the contract.
In response, MSD wrote that it would seek to recover the unspent funds and confirmed that the contract would end on 31 October 2023 as per cl 2.1 of the Outcome Agreement.
(c)In an internal MSD email dated 18 August 2023, Ms Henare told her superiors that Mr Leef had informed her his business partnership had become “toxic” and that Mr Middleton’s lawyers had requested half of the $1 million in unspent funds be paid to him, in exchange for him transferring his shares in MWL to Mr Leef, which Mr Leef considered to be misuse of public money.
(d)On 21 August 2023, Mr Leef forwarded to MSD a “without prejudice save as to costs” letter dated 18 August 2023, sent by Mr Middleton’s lawyers to his lawyers. He noted that the letter outlines their “directive with regards to returning funds to MSD” and commented, “I think it is clear to see what the motivation is”.
(e)In a letter dated 4 September 2023, Mr Leef informed MSD that MWL would be liquidated.
[50] As noted, Mr Leef’s defence is that he was the designated Relationship Manager with MSD (a fact that Mr Middleton does not deny) and that role required him to deal with MSD in the usual course of business. He says that the statements he made to MSD about the unused funds and contract end date were his honestly held views. He denies any sinister motive.
[51] To the extent that Mr Leef was expressing his honestly held views about the correct interpretation of the Outcome Agreement it is difficult to see how that could amount to acting in bad faith in breach of the MWL shareholders agreement. The Framework Terms and Conditions that applied to the Outcome Agreement included relationship principles that obliged MWL and MSD to act honestly and in good faith and to communicate openly with each other. Moreover, Mr Leef immediately corrected the misunderstanding about Mr Middleton’s shareholding.
[52] However, other comments about Mr Middleton were undoubtedly unwise — whether they amount to a breach of his duty to act in good faith, considering all the circumstances, including that he and Mr Middleton were in a dispute, is another issue. For present purposes, I accept that the plaintiffs have a good arguable case that Mr Leef breached his duty to act in good faith towards Mr Middleton by making these statements to MSD.
[53] However, the plaintiffs’ case is flawed when it comes to the loss they claim to have suffered because of this breach. At [5(a)], (b) and (c) of the prayer for relief, the plaintiffs claim for any loss they have suffered because of Mr Leef’s alleged misrepresentation to MSD (that MWL is holding $1.1 million of unspent funds and that Mr Middleton had sold his shareholding), from MSD’s request for the return of
$1.1 million from MWL, and from the MSD audit including declinature of any invoices issued by LFT to MWL.
[54] I understand the plaintiffs to be alleging that if, following its audit, MSD determines that MWL is required to return all or some of the funding, or rejects some of LFT or BRL’s invoices, then the plaintiffs are entitled to be compensated by Mr Leef because he alerted MSD to the fact that MWL held unspent funds and caused MSD to undertake the audit. I find that a staggering claim.
[55] The other head of loss claimed at [5(d)] is for loss of chance damages because of Mr Leef’s alleged “disparagement” of MWL and Mr Middleton, including but not limited to loss of funding for MWL to perform a second term of the Outcome Agreement in the amount that LFT would have been able to invoice MWL.
[56] That is a more orthodox claim, but that loss of chance is sustained by MWL or LFT, as the statement of claim pleads at [5(d)]. LFT has no standing to bring a claim against Mr Leef for breach of his shareholder duties. LFT is not a party to the shareholder agreement.
[57] It is to Mr Middleton that Mr Leef owed the duty to act in good faith under the shareholder agreement. Yet Mr Middleton has not pleaded any specific loss he sustained in his capacity as a shareholder of MWL.
Breach of constitution
[58] Furthermore, Mr Middleton and LFT do not have standing to bring the second cause of action: that Mr Leef acted against the best interests of MWL, in breach of cl 20.1 of MWL’s constitution.
[59] Clause 20.1 of the constitution refers to the directors’ statutory duty to act in good faith and in what the directors believes to be in the best interests of the company.11 A constitution is a document that is adopted by the company pursuant to the Companies Act 1993 and, as stated on the front sheet of MWL’s constitution, must be read in conjunction with that Act. Section 169 of the Companies Act states that a shareholder or former shareholder may bring an action against a director for a breach of duty owed to him or her as a shareholder. A director’s duty to act in good faith and in what the directors believes to be in the best interests of the company is owed to the company and not to shareholders.12 Section 31 of the Companies Act confirms that the constitution of a company is of no effect if it contravenes or is inconsistent with the Act.
[60] Accordingly, Mr Middleton would need leave to bring a derivative action on behalf of MWL against Mr Leef for breach of this directors’ duty to MWL.
[61]LFT, as a mere consultant/contractor, cannot bring such a claim.
Breach of fiduciary duty
[62] Nor does the statement of claim disclose a good arguable case that Mr Leef acted against the best interests of Mr Middleton or LFT (the third cause of action).
[63] Directors owe fiduciary duties to the company and not to individual shareholders,13except in special circumstances.14 A fiduciary duty to shareholders has been found to arise where directors of a closely-held family company making a
11 Companies Act 1993, s 131.
12 Section 169(3).
13 Percival v Wright [1902] 2 Ch 421 (Ch).
14 Coleman v Myers [1977] 2 NZLR 225 (CA).
takeover encouraged shareholders to accept their offer;15 and where a director purchased shares from a minority shareholder without informing them of a highly lucrative deal that would significantly affect the value of the shares.16 There must be special facts that give rise to the fiduciary relationship, such as dependence upon information and advice and the existence of a relationship of confidence.17 The special facts must be pleaded.18
[64] Here, the plaintiffs have not pleaded special facts giving rise to a fiduciary relationship between Mr Leef as director and Mr Middleton as shareholder. To the contrary, the statement of claim pleads that Mr Leef owed fiduciary duties to MWL, including to act in good faith, not profit from his office, not put himself in a position where his duty and interests would conflict, and not act for his own benefit or the benefit of a third person. And that Mr Leef acted against the best interests of MWL, in breach of his fiduciary duties owed to MWL.
[65] LFT has no claim of this nature against Mr Leef. Mr Leef did not owe fiduciary duties towards LFT, a mere contractor.
Breach of non-compete clause
[66] The fourth cause of action is against Mr Leef for breaching cl 5.8 of the shareholders agreement (which prohibits shareholders from competing with the company). The plaintiffs seek, amongst other things, 50 per cent of any revenue earned by Mr Leef in a competing business venture.
[67] However, the plaintiffs have not pleaded that Mr Leef has engaged in any competing business. The closest the claim gets to this is an allegation that, on or around 13 August 2023, Mr Leef met with MSD and proposed that any unspent funds sitting with MWL would be returned to MSD and paid to a new, similar business venture to be controlled by Mr Leef. This falls well short of a claim that Mr Leef engaged in a competing business to MWL.
15 Coleman v Myers, above n 14.
16 Holmes v Kiriwai Consultants Ltd [2015] NZCA 149, (2015) 11 NZCLC 98-032.
17 Coleman v Myers, above n 14, at 325.
18 Holmes v Kiriwai Consultants Ltd, above n 16, at [72].
[68] In addition to the evidence set out at [48] above, the applicants point to the following evidence in support of this cause of action:
(a)Mr Leef reserved a company name Mana Within Auckland Ltd in March 2023.
(b)In an email from Mr Leef to a relative and contractor to MWL on 14 August 2023, Mr Leef said:
I’ll need to get a game plan together and run through my approach before we head to Wellington.
Mana Within will need to be liquidated to get a clean break from Phil and further legal implications.
Starting a new entity with more Te Ao Maori influence/Matauranga Maori will be our point of difference.
[69] There is no evidence of Mr Leef suggesting to MSD that a new venture was going to be established by Mr Leef to receive the unspent MWL funds. There is no evidence that Mr Leef went any further than thinking about establishing a new business. The fact that he was, by August 2023, considering having liquidators appointed to MWL is unsurprising when the directors were in a deadlock and the contract would soon come to an end (as he understood it).
[70] Mr Middleton and LFT are not required to prove their substantive claim at this stage. However, they must present some evidence to demonstrate that they have a good arguable case.
[71] Moreover, the claim is not tenable unless Mr Middleton suffered some loss. Mr Middleton does not claim to have suffered any specific loss.
[72] LFT is not a party to the shareholders agreement or owed any duties by Mr Leef, so LFT has no claim of this kind.
Quantum meruit
[73] LFT claims against MWL for the contractor invoices it paid during the three-month extension of the Outcome Agreement. After the hearing, counsel filed a
memorandum attaching invoices issued to LFT from contractors for services provided between August 2022 and July 2024 totalling $51,199.
[74] The memorandum also attaches an invoice, apparently not yet issued, from Mr Middleton’s wife, Rajal Middleton, to LFT for $66,300 plus GST for services between March 2023 and January 2024. Mrs Middleton is the sole director of LFT, and a shareholder with Mr Middleton.
[75] It is unclear why LFT has not passed these subcontractor costs through to MWL for payment in the usual way. In any event, while LFT may have a good arguable case for reimbursement of the value of the contractor invoices it has paid, I am not persuaded that there is a risk of Mr Leef dissipating MWL’s funds below this value. Again, Mr Leef’s evidence is that he will not unilaterally return any of MWL’s funds to MSD; and BRL does not claim to be owed any more than $145,000. There is no proper basis for a freezing order or preservation order over MWL’s bank account to preserve MWL’s ability to pay these modest costs.
Conclusion
[76] Drawing these strands together, the starting point is the disconnect between the pleadings and the present application for freezing and other orders. Mr Middleton and LFT plead various claims primarily against Mr Leef, with a singular claim against MWL for quantum meruit. However, the freezing, preservation and injunctive orders sought are against MWL’s funds which do not belong to Mr Leef. Moreover, the $1.1 million held in MWL’s accounts is not proportional to the relatively modest sum LFT seeks in in quantum meruit for the contractor costs.
[77] I am also not persuaded that the claims against Mr Leef are of a nature which meet the relevant thresholds for the orders sought. Mr Middleton and LFT’s claim for losses as a result of a breach of the constitution, a breach of fiduciary duty and a breach of a non-compete clause are all brought either without standing or with insufficient evidence to make out the claim, even at this preliminary stage.
[78] It is also untenable for the applicants to rely on the interests of any third party in the funds, such as MSD, to make out their case for the orders sought. The present
application must be considered against the substantive claim, rather than some unpleaded position. In any event, the plaintiffs/applicants have not provided me with any evidence to find a good arguable case in this respect.
[79] The weakness of the claims must also be considered against Mr Leef’s position he will not unilaterally dissipate the funds. Ultimately, I find no proper basis to make the orders sought.
Interim injunction in relation to communications
[80] The applicants also seek an interim order restraining Mr Leef from communicating with MSD without Mr Middleton present, or as permitted by the Court. The applicants argue that this restriction is necessary given the previous, prejudicial representations Mr Leef has made to MSD about MWL and Mr Middleton. They say that Mr Middleton needs a proper opportunity to give MSD an appropriate response to whatever Mr Leef might represent.
[81] In my view, an injunction of this nature would be wholly improper. In circumstances where MSD is conducting an audit of MWL and its use of public funding, Mr Leef must be able to be freely and frankly communicate with MSD. I refer again to the Framework Terms and Conditions that oblige MWL and MSD to act honestly and in good faith and to communicate openly with each other. Naturally, Mr Leef must not make defamatory or disparaging statements about Mr Middleton. But an injunction requiring Mr Middleton to be involved in every conversation between Mr Leef and MSD unless the Court gives permission is neither warranted nor appropriate.
Existing interim orders
[82] Currently, MWL’s bank account is subject to interim freezing orders granted by Walker J in September 2023. These were pursuant to a without notice application for a freezing order, preservation order or interim injunction filed by Mr Middleton and LFT in relation to MWL’s bank account. The application was made on the basis that LFT had a contractual cause of action against MWL for approximately
$194,129.80 for unpaid invoices relating to work performed by Mr Middleton for
MWL pursuant to the consultancy agreement. LFT estimated that it would in due course issue further invoices to MWL for services yet to be rendered in the amount of
$225,657.86. At that time, the bank balance stood at around $1,075,000.
[83] Walker J held that LFT had a good arguable case in respect of the claim to unpaid invoices in the sum of $194,129.80. However, she was not satisfied that a future claim to damages in respect of an anticipated breach of the consultancy agreement proved a basis for interim orders. She held “by a fine margin” that there was evidence of risk of dissipation that could leave LFT unable to recover full payment of invoices rendered. She inferred this risk from Mr Leef’s unilateral actions with respect to MSD. She granted a freezing order over MWL’s bank account up to the value of $194,129.80 and directed the plaintiffs to file and serve a statement of claim. That interim order remains in force.
[84] Mr Middleton and LFT have now filed their statement of claim. LFT does not make a claim against MWL for breach of contract for non-payment of invoices rendered to MWL.
[85] Furthermore, it is Mr Middleton who is refusing to pay the invoices rendered by LFT and BRL, until the MSD audit is complete.
[86] As LFT does not advance a claim against MWL for breach of contract, or in debt for the services provided under the consultancy agreement, the interim order cannot be maintained.
Result
[87] The application for a freezing order, preservation order, interim injunction restraining a fund and interim injunction restraining communications, is dismissed.
[88]The interim orders made by Walker J on 22 September 2023 are discharged.
Costs
[89] The parties are invited to file submissions on costs (of no more than five pages) within 15 working days.
Observation
[90] Mr Leef and Mr Middleton are in deadlock. MWL cannot continue in its current form — either one party needs to exit the company, or it must be wound up. At the hearing, I encouraged Mr Leef and Mr Middleton, through their counsel, to try to find a solution to this impasse outside of Court, to avoid further wasted costs. I repeat that encouragement now.
Gardiner J
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