O'Brien v Modern Built Investments Limited
[2020] NZHC 3349
•16 December 2020
IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY
I TE KŌTI MATUA O AOTEAROA KIRIKIRIROA ROHE
CIV-2019-419-125
[2020] NZHC 3349
UNDER Sections 174 and 241 of the Companies Act 1993 BETWEEN
T A O’BRIEN AND MCCAW LEWIS
TRUSTEES (T A O’BRIEN) LIMITED AS TRUSTEES OF THE T A O’BRIEN FAMILY TRUST
First Plaintiff
AND
T A O’BRIEN
Second Plaintiff
AND
MODERN BUILT INVESTMENTS LIMITED
Defendant
Hearing: 24, 25, 26 June 2020 Appearances:
P J Morgan QC & Z T Mora for Plaintiffs
C T Gudsell QC & R J Southall for Defendant
Judgment:
16 December 2020
JUDGMENT OF PAUL DAVISON J
This judgment was delivered by me on 16 December 2020 at 3:30 pm pursuant to r 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Solicitors:
Nielsen Law, Hamilton McCaw Lewis, Hamilton
T A O’BRIEN & ORS v MODERN BUILT INVESTMENTS [2020] NZHC 3349 [16 December 2020]
Introduction
[1] In this proceeding the plaintiffs who claim to be shareholders of the defendant Modern Built Investments Limited (MBI), seek orders for the rectification of the company’s share register, and an order putting the company into liquidation on the grounds that it is just and equitable to do so by reason of the unfairly prejudicial conduct of the company by its sole director Mr Russell Spiers (Mr Spiers).
[2] The defendant and Mr Spiers deny that the plaintiffs are shareholders in MBI and say that the plaintiffs have no standing to obtain the orders they are seeking.
Background
[3] Ms Tracey O’Brien (Ms O’Brien) and Mr Russell Spiers (Mr Spiers) met in 2000 and in June 2001 they began co-habiting in a de facto relationship. They had each been previously married.
[4] Ms O’Brien and her former husband had two young children. Prior to their separation Ms O’Brien and her former husband had owned and operated a plumbing and gas fitting business in Auckland. Ms O’Brien who had an employment background in sales and office administration, managed the day to day administration of the business.
[5] Prior to meeting and commencing a relationship with Ms O’Brien, Mr Spiers and his former wife had owned and operated Modern Built Garages Limited (MBGL), which as its name suggests, manufactured garages and ancillary buildings.1 They had three children.
[6] At the time that they commenced their relationship Ms O’Brien each had assets of approximately equal value. Ms O’Brien had $261,000 in cash being the sum which she had received in April 2001 as settlement of her relationship property with her former husband, and Mr Spiers held shares in three companies which had recently
1On 14 October 2005 Modern Built Garages Limited was removed from the Companies Register. At the time of its removal Mr Spiers was the sole director of the company, and he held all 2000 shares in the company.
been collectively valued at $205,000 for the purposes of his relationship property settlement with his former wife. The three companies being: MBGL; Modern Built Investments Limited (MBI); and Modern Built Homes Limited (MBHL). In September 2000, Mr Spiers incorporated Modern Built Garages 2000 Limited, which later changed its name to Steel Building Solutions Limited (SBSL).2 Mr Spiers was the sole director and shareholder of MBGL, MBI, MBHL and SBSL (collectively the Modern Built companies).
[7] Shortly after Ms O’Brien and Mr Spiers commenced their relationship, Mr Spiers asked her to work with him at his business. Ms O’Brien agreed, and thereafter she carried out office administration for the Modern Built companies.
Purchase of Farquharson Road
[8] Ms O’Brien was keen to live in a rural setting and she and Mr Spiers started looking together for a suitable property. In March 2002 they entered into an agreement to purchase a rural property at Farquharson Road, Ararimu in South Auckland, for a total price of $470,000 (Farquharson Road). 3 The property was bare land which had been subdivided from a farm and was comprised of two separate titles (Lots 3 and 4 Farquharson Road). Deposits totalling $21,500 were paid. Mr Spiers arranged for MBI to provide the funds to pay the $10,000 deposit for Lot 3, and Ms O’Brien provided $14,000 to MBHL from which it paid the $11,500 deposit for Lot 4. The purchase price for the two properties was to be funded by Ms O’Brien providing
$207,000 from her relationship property settlement together with $10,000 from her mother. The balance was to be met with borrowed funds by way of $131,500 bank loan and vendor finance of $100,000 to be secured by mortgages. The couple planned to build a house and associated buildings to establish a rural lifestyle property for themselves and the children of their former marriages. It was their intention that Mr Spiers would use his experience and access to building resources via his businesses to enable and arrange the construction of a dwelling and ancillary buildings at a significantly reduced cost compared to what it would ordinarily cost to have the dwelling constructed by a building contractor.
2 21 August 2003.
3 Lot 3 price $240,000; Lot 4 price $230,000.
[9] Prior to commencement of his relationship with Ms O’Brien, Mr Spiers had for some years engaged Mr Douglas Lyon, of the law firm Lyon O’Neale Arnold. He and Mr Lyon were personal friends, and he and Ms O’Brien had socialised with Mr Lyon. After entering the agreement to purchase Farquharson Road, Mr Spiers sought advice from Mr Lyon regarding how he should structure the purchase so as to protect his separate property interests, and he instructed Mr Lyon to establish a family trust to purchase and hold a half-share of the property. The trustees of the trust would be Mr Spiers and Mr Lyon, and the beneficiaries would be Mr Spiers’ children and grandchildren. On 14 March 2002 Mr Lyon wrote to Mr Spiers and Ms O’Brien and regarding arrangements for the financing and settlement of their purchase. He noted that Mr Spiers had instructed him to prepare a family trust for him and he recommended that Ms O’Brien should also establish a family trust through which to purchase and hold the other half share of the property. Mr Lyon wrote:
Following on from my phone call to Russell this morning.
…
Obviously Tracey is making a much bigger contribution that Russell at this stage and I think its important that Tracey’s capital be protected. I am presuming that you want to buy these properties as equal 50/50 partners, in which case any increase in value or any loss of value is split 50/50.
We already have the vendor taking a first mortgage on one property and I presume the Bank will want a first mortgage on the other property.
I think the best solution is if Tracey lends her cash to the two family trusts and has this secured by way of a second mortgage over both titles. I presume it would be an interest free loan, but it would go a long way to protecting Tracey’s situation.
…
What I’m proposing here is a way of settling and protecting Tracey’s capital and as time goes by, you may want to vary the situation somewhat. I appreciate that Russell will be providing a house on the jointly owned property at a cost that will be less than true cost and that will be of benefit to the both of you. That really goes into the pot along with a lot of other issues of how you wish to operate as a family and how your current and future living expenses are concerned, and that can be looked at [at] some stage in the future, but we do have to act promptly now to reach a mutually acceptable and fair solution to the funding issues in respect of the purchase of the property and the initial building.
[10] Ms O’Brien accepted Mr Lyon’s advice and the T A O’Brien Family Trust (the O’Brien Trust) was established by Ms O’Brien as settlor pursuant to a deed of trust
prepared by Mr Lyon which was executed and dated 15 March 2002. The trustees of the O’Brien Trust were Ms O’Brien and D Lyon Trustee Limited. The discretionary beneficiaries of the trust were Ms O’Brien, Mr Spiers and Ms O’Brien’s children and grandchildren. The final beneficiaries of the trust are Ms O’Brien’s children and grandchildren.
[11] In accordance with Mr Lyon’s recommendation Mr Spiers also established a family trust by a Deed of Trust also dated 15 March 2002, named the R D Spiers Family Trust (the Spiers Trust). The trustees of the Spiers Trust are Mr Spiers and D Lyon Trustee Limited. The discretionary beneficiaries of the Spiers Trust were Mr Spiers, Ms O’Brien and Ms Spiers’ children and grandchildren.
[12] By resolutions recorded in minutes dated 17 April 2002, the trustees of the O’Brien Trust accepted a nomination under the purchase agreement to complete the purchase of the two Farquharson Road properties in an equal partnership with the Spiers Trust. The trustees also resolved to lend $193,659.37 to a partnership of the two trusts (the Trust Partnership) to be secured by way of a second mortgage over both Lots 3 and 4. The loan was documented by means of a Deed of Acknowledgement of Debt also dated 17 April 2002, pursuant to which the trustees of the O’Brien Trust and the trustees of the Spiers Trust acknowledged indebtedness to the O’Brien Trust for the sum of $193,659.37. On 18 April 2002 Ms O’Brien advanced the sum of $193,664 for the purchase of Farquharson Road via the O’Brien Trust which in turn provided the funds to the Trust Partnership to be used to settle the purchase.
[13] The purchase of the two Farquharson Road properties was settled on or around 22 April 2002. The transfer from the vendor, together with the mortgage to the vendor were registered on 11 June 2002. The interests of the O’Brien Trust were also secured by means of second mortgages registered on the titles of both Lots 3 and 4. On 26 April 2002 Mr Lyon wrote to Ms O’Brien regarding the O’Brien Trust. Mr Lyon noted that the O’Brien Trust had been established in time for the settlement of the purchase of Farquharson Road and he recommended that she undertake a gifting programme to gift the money she had personally provided to the O’Brien Trust and which the Trust had loaned to the Trust Partnership which had been established to purchase the property. In accordance with Mr Lyon’s advice, Ms O’Brien proceeded to execute gift
statements to effect a succession of annual gifts each of $27,000 to forgive the debt owed to her by the O’Brien Trust.
[14] Following settlement of the purchase of Farquharson Road, Ms O’Brien and Mr Spiers built a “minor dwelling” on the land and commenced residing at the property. Over time they added an extension to the dwelling and also constructed a barn. Written valuations of Lots 3 and 4 of the Farquharson Road properties were obtained from Marsh & Irwin, Registered Valuers, dated 18 May 2004. The valuations were addressed to the National Bank and were prepared for the purpose of refinancing the borrowings secured against the properties. Marsh & Irwin valued Lot 4, on which the house had been built, as having a value of $635,000, comprised of land valued at
$350,000 and improvements of $285,000. Marsh & Irwin also valued Lot 3 Farquharson Road, which was bare land and had been purchased for $240,000 in March 2002, at $350,000.
Mr Spiers transfers shares in the Modern Built companies to Ms O’Brien – October 2004
[15] On 8 August 2004 Mr Spiers and Ms O’Brien met with Mr Lyon at his home to discuss the restructuring of their personal affairs. He subsequently wrote to them by letter dated 10 August 2004 in which he addressed issues relating to the Property Relationship Act; gifting; their Wills; and enduring powers of attorney. He said:
I am writing following our meeting at my home on 8 August 2004 to summarise what we had agreed.
1. Property Relationship Act
You told me you had been living together now for three years. I explained the effect of the Property Relationship Act that applied to yourselves and that there was a general basis of equal division between people who had lived together for that long and did not have a Property Relations Agreement. You both advised that you believed that when you commenced the relationship the total assets of each of you were approximately equal and that you are happy to have them treated as equal. We have the two Ararimu properties held equally by your two Trusts. Tracey has the loan to the [Trust] Partnership of about
$200,000. Russell has the shares in the four companies, but has no value in Modern Built Garages Limited. You have instructed me to transfer half the shares in the companies to Tracey’s Trust and the loan from Tracey’s Trust to the [Trust] Partnership is to be cancelled or shared equally. I will therefore get that underway.
2. Gifting
We reviewed Tracey’s gifting programme which is proceeding satisfactorily. Russell has not started a gifting programme to his Family Trust. At the time I do the change in the company shareholdings transferring half the shares into Russell’s Trust and half the shares into Tracey’s Trust, I will then start Russell’s gifting programme.
…
PS. Discharge of mortgage to Tracey’s Trust enclosed. Tracey please sign where indicated & return. Do not have your signature witnessed. We will attend to this on return to our office.
[16] The O’Brien Trust’s second mortgages on the titles of lots 3 and 4 Farquharson Road were discharged on 3 September 2004, in anticipation of the planned transfer of half of the shares in the companies to the O’Brien Trust and without any repayment of the secured debt having been effected.
[17] On 4 October 2004 Mr Lyon wrote to Mr Spiers and Ms O’Brien enclosing 19 documents related to the personal restructuring measures discussed at the 8 August meeting. They included a Deed to give effect to the parties intentions regarding the repayment of the Spiers Trust’s debt to the O’Brien Trust by means of a transfer of shares held on behalf of the Spiers Trust in the Modern Built companies. Also included with the letter were nine share transfers for signing by Mr Spiers to effect a transfer of half of the shares he held as a trustee of the Spiers Trust to Ms O’Brien as trustee of the O’Brien Trust and personally; a Deed of Acknowledgment of Debt relating to Mr Spiers’ transfer of the shares he would be transferring to the Spiers Trust; Ms O’Brien’s Will; several enduring power of attorney documents relating to property and personal care for both Mr Spiers and Ms O’Brien; and a gifting statement for Mr Spiers to sign, as well as a Memorandum of Wishes relating to Mr Spiers’ and Ms O’Brien’s respective family trusts.
[18] The effect of the nine share transfers prepared by Mr Lyon was that Mr Spiers would transfer shares he held personally in MBI, MBHL, and SBSL, to himself and to Ms O’Brien respectively as trustees of their respective family trusts (in each case together with D Lyon Trustee Limited), as well as some shares to Ms O’Brien personally, resulting in each of them holding half of the shares in those companies, either through their family trusts or personally.
The 2004 Deed
[19] The Deed forwarded by Mr Lyon to Mr Spiers and Ms O’Brien under cover of his letter of 4 October 2004, was executed by them both and by Mr Lyon as the trustees together with D Lyon Trustee Limited, of their respective trusts. The executed deed was however backdated to 15 September 2004. The recitals of the deed noted that the trustees of the Spiers Trust were indebted to the trustees of the O’Brien Trust for the sum of $200,000 being money lent for the purpose of the purchase of the Farquharson Road properties. The Deed then states:
(b)Both parties have agreed that the T A O’Brien Family Trust trustees will purchase the following shares from the R D Spiers Family Trust trustees:
(i) 980 in Modern Built Investments Limited.
(ii) 980 in Modern Built Homes Limited.
(iii) 49 in Steel Building Solutions Limited.
(c)The parties have agreed that the price for the shares is $100,000.00
(d)Payment of the sum of $100,000.00 shall be effected by the T A O’Brien Family Trust trustees transferring to the R D Spiers Family Trust trustees one half of their debt referred to in clause (a) herein.
(e)That it is the intention of the parties that the sale of the shares in the companies are at fair market value and the parties believe that the price of $100,000.00 is fair market value. Should an issue ever arise that the price of $100,000.00 was not fair market value and any gifting issues arose then the parties agree that the price will adjust to [the] amount agreed by the Inland Revenue Department to be fair market value and the adjustment would be a debt owing from one party to the other interest free repayable on demand.
NOW THIS DEED WITNESSES AS FOLLOWS:
1.That pursuant to the transactions referred to herein such debt is hereby cancelled in that the lenders and borrowers are the same.
2.It is hereby acknowledge [sic] between the parties that because of the special relationships between the vendor and the purchaser, the Inland Revenue Department may deem part of the purchase prices [sic] as a gift. In the event of the Inland Revenue Department assessing a value of the transaction different to that contained herein, the purchase price herein shall be revised to the figure assessed by the Inland Revenue Department.
3.Consideration of the purchase shall be satisfied by the purchasers executing in favour of the vendors a Deed of Acknowledgement and Forgiveness of Debt for the purchase price.
4.D Lyon Trustee Limited enters into this agreement as a trustee of the R D Spiers Family Trust and the [T] A O’Brien Family Trust and it shall have no personal liability arising out of the agreement beyond the extent of the assets of those trusts.
[20] In accordance with the agreement of the parties as recorded by Mr Lyon in his letter of 10 August 2004 regarding repayment of the debt owed by the Spiers Trust to the O’Brien Trust, by means of six share transfers dated 15 September 2004, Mr Spiers transferred shares he held as a trustee of the Spiers Trust in the three Modern Built companies to Ms O’Brien and D Lyon Trustee Limited as trustees of the O’Brien Trust and other shares he held personally to Ms O’Brien personally, with the result that they then each held an equal number of shares as trustees of their respective family trusts and personally in the three companies.4
Further personal restructuring – May 2005
[21] In May 2005 Mr Spiers and Ms O’Brien met with Mr Lyon to discuss progress with their personal restructuring measures. Mr Lyon wrote to them on 6 May 2005. He said:
It was good to catch up with you on Sunday and bring everything up to date.
Your Trusts were set up in 2002 and at that time we did up [sic] the bare essentials necessary so your Trusts could own the land. Since then we have been doing a gifting programme for Tracey but not for Russell and now we can continue with Tracey’s gifting programme and I have started Russell’s and I will keep that moving along.
…
You will need to ensure that when the next annual return is done for the three Companies the correct shareholding is recorded. Russell needs to at some stage fix the value of the shares transferred by himself to his trust. There should be an independent statement of value preferably from your accountant.
…
4 Mr Spiers transferred 1960 shares of the 2000 he held in MBI; 1960 shares of the 2000 shares he held MBHL; and 98 shares of the 100 shares in SBSL, to the trustees of the R D Spiers Family Trust. Mr Spiers also executed share transfers transferring to Ms O’Brien as trustee of the [O’Brien] Trust: 980 shares in MBI; 980 shares in MBHL and 49 shares in SBSL. And to Ms O’Brien in her personal capacity: 20 shares in MBI; 20 shares in MBHL; and one share in SBSL.
[22]On 3 November 2005 Mr Lyon wrote to Mr Spiers and Ms O’Brien saying:
Dear Russell and Tracey
SHAREHOLDINGS
Tracey called querying the shareholdings of the companies. The total shareholdings are as follows:
1. Steel Building Solutions Limited – 100 shares.
2. Modern Built Homes Limited – 2000 shares.
3. Modern Built Investments Limited – 2000 shares.
The shares are divided equally between the two Trusts with a nominal shareholding in each company held by each of you. The shareholding therefore is as follows.
1.Steel Building Solutions – Russell’s Trust 49, Tracey’s Trust 49, Russell 1 and Tracey 1.
2.Modern Built Homes Limited – Russell’s Trust 980, Tracey’s Trust 980, Russell 20 and Tracey 20.
3.Modern Built Investments Limited - Russell’s Trust 980, Tracey’s Trust 980, Russell 20 and Tracey 20.
Yours Faithfully Lyon O’Neale Arnold Doug Lyon.
[23] On 28 November 2005 Ms O’Brien updated the Companies Office Register for SBSL and MBHL to record the changes in the shareholdings. In relation to SBSL the new entry recorded the shareholders as being the “RD Spiers Family Trust” and the “T A O’Brien Family Trust” each holding 49 shares, and Ms O’Brien and Mr Spiers each holding one share. The previous shareholder was noted as being Mr Spiers holding 100 shares. In relation to MBHL the new entry also recorded the shareholders as being the “RD Spiers Family Trust” and the “T A O’Brien Family Trust” each holding 980 shares, and Ms O’Brien and Mr Spiers each holding 20 shares. The previous shareholder was noted as being Mr Spiers holding 2000 shares.
[24] On 3 February 2006 MBI settled its purchase of the property at 72 Richard Pearce Drive, Auckland (Airpark). The purchase price was $1,300,000. Mr Spiers and
Ms O’Brien agree that the purpose of purchasing the property was to replace the residential property investments with a high-quality commercial property investment. Ms O’Brien says that it was their intention to work towards having an income stream from a commercial property and future proofing their eventual retirement. She says that she and Mr Spiers put their “heart and soul into obtaining and developing Airpark,” but it was acquired at a cost as the effects of the financial crisis that followed put them under financial pressure and stress. From the proceeds of sale of one of the Farquharson Road lots, and properties at Roscommon Road and Oratu Place, owned respectively by MBI and MBHL,5 MBI constructed a commercial building on the Airpark property, which it subsequently leased to two long-term commercial tenants.
[25] In accordance with the information set out in Mr Lyon’s letter of 3 November 2005, on 7 February 2006 Ms O’Brien also updated the Companies Register for MBI to record the new shareholders as the “RD Spiers Family Trust” and the “T A O’Brien Family Trust” each holding 980 shares, and Ms O’Brien and Mr Spiers each holding 20 shares. . When making these entries in the Companies Office Register, Ms O’Brien erroneously recorded Mr Spiers as previously being the holder of 1000 shares. On 25 February 2009 the Ministry of Economic Development wrote to MBI at its Farquharson Road address to advise that it had noticed that MBI’s shareholding records in the Companies Office referred to the shareholders as being the R D Spiers Family Trust and the T A O’Brien Family Trust, contrary to s 92 of the Companies Act 1993 which prohibits trusts being noted on a company’s share register. The Ministry’s letter contained instructions for changing and correcting the information. Ms O’Brien subsequently submitted amended shareholder information on 9 March 2009, however in doing so she erroneously stated that both she and Mr Spiers each held 1000 shares and had previously held 20 shares.
[26] Sometime well after 7 February 2006 Mr Spiers made handwritten entries in MBI’s own share register erroneously noting that as at 7 February 2006 the shares of that company were held by himself (1000 shares), and Ms O’Brien (1000 shares). It
5 MBHL was subsequently removed from the Companies Office Register on 17 March 2015.
is evident that these entries in the MBI share register were not created until some years after 7 February 2006 as the residential address Mr Spiers provided for himself and Ms O’Brien as shareholders was an address at Beckside Close, Hamilton, a property which was not purchased by them until 2011, and which was sold in February 2016.
[27] Pursuant to the gifting programme proposed by Mr Lyon for Mr Spiers, on 29 March 2006 Mr Spiers and Mr Lyon signed the first of a series of annual deeds of acknowledgement of debt and related Inland Revenue gift statements in which as trustees of the R D Spiers Family Trust they acknowledged indebtedness of the trust to Mr Spiers “for certain sums as are recorded in the accounts of [the Trust]”, and whereby Mr Spiers forgave the debt in the sum of $27,000.00. Mr Spiers executed deeds of forgiveness of debt and Inland Revenue gift statements for five years commencing 2006, thereby forgiving a total of $135,000.
[28] On 23 August 2009 Mr Spiers submitted amended shareholder information to the Companies Office in respect of SBSL. In place of the information stating that the shareholders were the R D Spiers Family Trust (49 shares) and the T A O’Brien Family Trust (49 shares), he provided information stating that the shareholders were Russell David Spiers (50 shares) and Tracey Ann O’Brien (50 shares). The Companies Office register records that the amendment was made by Mr Spiers.
Borrowing to fund MBI
[29] In September 2006, MBI required funds with which to construct the buildings on the land at Airpark. Arrangements were made for the two family trusts as joint owners of the Farquharson Road properties to borrow $650,000 from Trapski Dowd Securities Ltd which would then be applied in repaying debt owing to the National Bank, with the balance advanced to MBI to enable the company to meet the construction costs of the Airpark project. Mr Spiers, Ms O’Brien, and Mr Lyon, as trustees of the two family trusts passed and signed a resolution confirming that the trusts would borrow and secure the loan advance over Farquharson Road and advance the borrowed funds to MBI. Mr Spiers, Ms O’Brien and Mr Lyon6 as respective
6 As director of D Lyon Trustee Limited.
trustees of the two family trusts passed a resolution dated 19 October 2006 which included the following:
The Trustees believe that it is appropriate to advance funds to Modern Built Investments Limited as the trusts are principal shareholders in this company and benefit of the development should flow back to the trusts.
[30] The three trustees also signed another resolution dated 19 October 2006 in respect of the family trusts borrowing a further $100,000 from Trapski Dowd Securities Ltd also to be advanced to MBI to meet construction costs of the Airpark project. This resolution also referred to the trusts as being “the principal shareholders” of MBI.7
[31] In 2007, Ms O’Brien and Mr Lyon, as trustees of the O’Brien Trust resolved to execute a Marac Finance Limited loan and security documents as guarantor of MBI in respect of borrowings by MBI. The written resolution included the following background:
The T A O’Brien Family Trust owns 980 of 2,000 ordinary shares in Modern Built Investments Limited.
[32] On 3 February 2008 as the shareholders of MBI on behalf of the respective family trusts, Mr Spiers, Ms O’Brien and Mr Lyon signed a shareholders’ special resolution by which they resolved to authorise the execution of a loan agreement for
$2,400,000 to be borrowed to refinance the existing borrowing from Marac Finance Limited.
[33] On 14 March 2012 Mr Spiers and Ms O’Brien signed an SBSL shareholders resolution authorising the execution of documents on behalf of the company in relation to a $20,000 overdraft facility with the Bank of New Zealand.
[34] On 27 November 2012 Ms O’Brien and Mr Lyon as trustees of the O’Brien Trust, and Mr Spiers and Mr Lyon as trustees of the Spiers Trust signed resolutions recording that they had resolved to execute a Bank of New Zealand guarantee in
7 The Trustees resolution dated 19 October 2006 erroneously refers to MBI as “Modern Built Developments Limited”. This error was also made, and was corrected, in the Trustee Resolution, dated 7 September 2006.
respect of the Bank’s loan advance of $3,320,000 to MBI. And also on 27 November 2012 Mr Spiers and Ms O’Brien signed an MBI shareholders resolution authorising the execution of an agreement to purchase the property at 21-23 Grasslands Place, Hamilton (the Grasslands property) and related Bank of New Zealand loan documentation for the granting of mortgage securities over the Airpark property and the Grasslands property.
[35] Sometime during 2013 and after 31 March that year, Mr Spiers set out a summary of his and Ms O’Brien’s assets and liabilities in several pages of handwritten notes.8 In his notes Mr Spiers recorded that MBI and SBSL were owned by Ms O’Brien and himself with each holding 50 per cent. He further noted that MBI owns the Airpark and Grasslands properties, which he valued at $4 million and
$900,000 respectively, and as having respective liabilities of $2.4 million and
$850,000.
[36] Mr Spiers also prepared an Inland Revenue Statement of Assets and Liabilities as at 17 July 2014. In this document Mr Spiers stated that he held 10 shares in MBI, one share in SBSL, and 500 shares in Everyman Boats Limited being a company he had established in August 2008 to operate a boat building business from the premises at the Grasslands property.
The tax imputation credits
[37] On 28 November 2014 Mr Lyon wrote to Mr Shaenaz Azim of KPMG, Hamilton regarding MBI and the Spiers and O’Brien family trusts. He said:
I am responding to your query concerning shareholding in Modern Built Investments Limited.
The trustees of the TA O’Brien Family Trust are: Tracey Ann O’Brien and D Lyon Trustee Limited.
The trustees of the RD Spiers Family Trust are: Russell David Spiers and D Lyon Trustee Limited.
These Trusts could not purchase shares in the company without the agreement of both trustees of each Trust and share transfers and other documentation
8 The creation date is indicated by a reference to a statement from Marac Finance, as at 31 March 2013, and other notes referring to the 2012/2013 financial year.
would have been required. We have checked [our] Trust administration files for both Trusts and find no record of this happening. The writer, as the principal director of D Lyon Trustee Limited, would have been involved in this documentation if it had been completed and does not believe that such transactions did occur.
We have no knowledge of details of change of shareholding in these companies but are very confident that the shares were never transferred into or out of the above Trusts.
[38] On 1 December 2014, Mr Shaenaz Azim sent an email to Ms Angela Wynne9 who is a partner at KPMG in Hamilton attaching Mr Lyon’s letter of 28 November 2014 and advising:
I have received the attached letter from the solicitor in regard to the above client.
I have followed up the solicitor and asked whether there was any record of shareholding being transferred to Tracey. There is no record of this either.
Russell, the client does not know who changed the details at the company office. He thinks Tracey did this without knowing the consequences. Tracey only received PAYE deducted income from the company.
As a result, 100% shareholding interest is maintained with Russell Spiers being the sole shareholder in his personal name to date.
If he wishes Tracey to be a 50% shareholder now, we will need to advise him of the consequences, including loss of imputation credits.
For now, if you agree, we should be able to carry on and send the voluntary disclosure letter to the IRD.
[39] On 27 January 2015 Ms Wynne wrote to the Inland Revenue Department in Hamilton. She said:
Dear Ms [V],
Voluntary disclosure – Ref [number] Modern Built Investments Limited IRD Number [number]
On behalf of Modern Built Investments Limited (“Modern Built”), we wish to respond to your letter dated 14 January 2015 with reference number [number] in relation to the reassessment request.
9 The email was addressed to Ms Wynne and another KPMG staff member.
The letter refers to the Companies Office records showing shareholding changes in February 2006 and March 2009. However, no shareholder changes have actually occurred since incorporation of the company. Russell Spiers remains as the sole shareholder of the company to date.
Tracey O’Brien incorrectly changed the records of the Companies Office with no supporting share transfer documentation. We have also confirmed this with our client, Russell Spiers and he did not prepare/sign any share transfer documents.
Our client did consider transferring the shares to the Trusts at some stage but decided against it. Tracey O’Brien is married to Russell Spiers and has claim to 50% of the company only as Matrimonial Property. This was a case of lack of understanding and miscommunication.
Lyon O’Neale Arnold act for our client for all legal matters and he has confirmed they did not prepare any share transfer documents for Modern Built. Both share transfers recorded on the Company Office [sic] would have required approval of the trustees of TA O’Brien Family Trust and RD Spiers Family Trust. D Lyon Trustee Limited is a trustee of both Trusts.
As stated in the letter attached, Lyon O’Neale Arnold would have been involved as principal director of D Lyon Trustee Ltd but has no knowledge of any shareholding changes.
Taking into consideration the above facts, we request for you to reassess your position as, in our opinion, there have been no breaches to shareholder continuity requirements. If you have any further questions, please contact Shaenaz Azim on [number] or my direct dial number below.
[40] However, on 27 January 2015, being the same day on which Ms Wynne wrote to Inland Revenue advising that Ms O’Brien had never been a shareholder of MBI, Mr Spiers as an MBI director signed a “Resolution and Certificate of Directors as to Fair Value” under ss 52 and 161 of the Companies Act 1993 pursuant to which the board of a company may authorise the payment of remuneration or other benefits to a director of the company. Mr Spiers stated that the directors of MBI had resolved:
1.For the financial year ended 31 March 2014 shareholders/directors remuneration be paid as follows:
R D Spiers $48,000 T A O’Brien $25,000
$73,000
…
[41] On 9 February 2015, Mr Spiers made a series of handwritten entries in MBI’s own company register. On the Register of Directors Remuneration and Other Benefits,
he noted that he had received remuneration of $48,000 and Ms O’Brien had received remuneration of $25,000. On the register of Acquisition or Disposal of Shares by Directors, he noted that he had acquired 1000 ordinary shares in MBI on 17 November 1997 which the board was advised of on that date.
[42] The tax imputation credits issue was to re-emerge after Ms O’Brien and Mr Spiers had ended their relationship and Ms O’Brien’s then lawyer, Mr Simon Scott of the law firm Bogers Scott Shortland, was taking to steps to confirm his instructions regarding the shareholdings in MBI. On 16 June 2016, Ms Angela Wynne sent an email to Mr Scott regarding Everyman Boats and MBI. Ms Wynne advised:
When we took over this job we discovered that the shareholding had been changed to 50/50 at the Companies Office but there was no record of an actual share transfer ever taking place. This transfer had meant that significant imputation credits had been lost and therefore was a significant tax loss to the company. At the time there were large tax arrears as so part of [the] plan to reduce these arrears was to argue that the transfer did not actually happen. This was backed up by a letter from Russell and Tracey’s solicitor which I have attached. The IRD accepted this position and there was a significant tax savings [sic] for the company.
My understanding has always been however was [sic] that the shareholding was going to be fixed to the 50/50 ownership as that was meant to be the situation all along. My recommendation at the time was that the 50% should be moved through to Tracey under a Relationship Property Agreement which would not have the tax consequences of an ordinary share transfer. When we had a meeting with Doug Lyon in relation to the splitting of the house proceeds he also made mention of the fact that Modern Built was always 50/50 and he has been the company solicitor for many years.
The relationship ends
[43] On 26 June 2015 Ms O’Brien and Mr Spiers ended their relationship and separated. Mr Spiers initially continued to reside at the Beckside Close address in Hamilton pending it’s sale. In July Mr Spiers and Ms O’Brien met with Mr Lyon to discuss separation and how they would manage and divide their property interests. Mr Lyon subsequently wrote to them both on 14 July 2015 setting out what he understood had been agreed in relation to selling their house at Beckside Close, their various assets and liabilities, and what had been proposed during the meeting. As regards MBI he said:
Modern Built Investments. Russell wants to retain both properties long-term as he sees a lift [in] values particularly the Air Park. Russell wants Tracey to
commit long term. Tracey has three options. She can move for a sale of one or both properties now. She can leave things and see how they go. She can commit to a long-term hold. As I told you, you can expect Tracey’s feelings on this to be affected and governed by how easily you tidy up the other matters between yourselves that must be tidied.
[44] On 15 July 2015 Mr Spiers wrote to Mr Lyon and copied his email to Ms O’Brien. In his email he said:
Modern Built Investments to remain as is, with a review in say 12 months. Tracey has agreed to this. The [accounts] to be set up on Xero and overviewed by KPMG.
[45] The residence at Beckside Close in Hamilton was sold in February 2016 with the net proceeds of $381,208 being divided equally between the two family trusts. On
2 February 2016 Mr Lyon wrote to Mr Spiers and Ms O’Brien regarding the application of the proceeds of sale of Beckside Close going to the Bank of New Zealand according to the securities it held. Mr Lyon then said:
The records for each of your Trusts are not good and I have raised this over the years on a number of occasions. I am aware the problem was the accountant you used in the past was unsatisfactory. It is clear however, that each of the Trusts own a half-share in the equity in the house. By equity, I mean, the value of the sale proceeds less the debt actually owed by the Trusts for the housing loans. The situation going forward will be that each of the Trusts is owed funds by Modern Built Investments Limited, you jointly in respect of the credit card debt, Everyman Boats and the payments to the two of you.
…
[46] In October 2015 KPMG, who had been engaged by Mr Spiers to prepare MBI’s annual accounts and financial statements, prepared a Resolution of Shareholders document for MBI by which the shareholders of the company approved the payment of remuneration to Mr Spiers as an employee/shareholder. The resolution is dated 5 October 2015 and Mr Spiers is the only shareholder mentioned in the document. A similar resolution was also prepared by KPMG in October 2016, again naming only Mr Spiers as the shareholder of MBI.
[47] On 26 May 2016 Mr Lyon wrote to Ms O’Brien enclosing a Deed of Exclusion of Beneficiary the effect of which was to exclude Mr Spiers as a discretionary beneficiary of her family trust, and a notice addressed to Mr Spiers advising him that
the powers of attorney for both Ms O’Brien’s property and personal care had been cancelled. Mr Lyon concluded:
If you and Russell cannot reach agreement as to how to run Modern Built Investments Limited, then you will need to consult a lawyer as to the winding up of the company on the basis that there is a deadlock of shareholders.
Share transfers provided by Lyon O’Neale Arnold
[48] Following her separation from Mr Spiers, Ms O’Brien requested Mr Lyon and Lyon O’Neale Arnold to provide her with copies of the documents they held regarding the O’Brien Trust. Mr Lyon wrote to her on 11 August 2016 enclosing copies of what he termed the “relevant documents”. The documents provided included: the letters he had written to Ms O’Brien dated 14 March 2002 and 5 May 2005; the Deed of Acknowledgment of Debt and Trustees Minutes both dated 17 April 2002; the Deed dated 15 September 2004; correspondence sent to Ms O’Brien; and copies of six share transfers all dated 15 September 2004. The four share transfers relating to MB were:
(a)Mr Spiers’ transfer of 980 shares in MBI to Ms O’Brien and D Lyon Trustee Limited as trustees of the O’Brien Trust. This share transfer had been signed by Mr Spiers and Ms O’Brien and by Mr Lyon himself as the director of D Lyon Trustee Limited. All three signatures are witnessed by Ms Neunz, Legal Secretary, of Tauranga.
(b)Mr Spiers’ transfer of 20 shares in MBI to Ms O’Brien in her personal capacity. This had been signed by both Mr Spiers and Ms O’Brien and both of their signatures were witnessed by Mr Lyon.
(c)Mr Spiers’ transfer of 980 shares in MBHL to Ms O’Brien and D Lyon Trustee Limited as trustees of the O’Brien Trust. This share transfer had been signed by Mr Spiers and Ms O’Brien and by Mr Lyon himself as the director of D Lyon Trustee Limited. All three signatures are witnessed by Ms Neunz.
(d)Mr Spiers’ transfer of 20 shares in MBHL to Ms O’Brien in her personal capacity. This had been signed by both Mr Spiers and Ms O’Brien and both of their signatures were witnessed by Mr Lyon.
[49]The two share transfers relating to SBSL Mr Lyon sent to Ms O’Brien were:
(a)Mr Spiers’ transfer of 49 shares in SBSL to Ms O’Brien and D Lyon Trustee Limited as trustees of the O’Brien Trust. This share transfer had been signed by Mr Spiers and Ms O’Brien and by Mr Lyon himself as the director of D Lyon Trustee Limited. All three signatures are witnessed by Ms Neunz.
(b)Mr Spiers’ transfer of one share in SBSL to Ms O’Brien in her personal capacity. This had been signed by both Mr Spiers and Ms O’Brien and both of their signatures were witnessed by Mr Lyon.
[50] No doubt because they did not relate to the O’Brien Trust, Mr Lyon did not include in his letter copies of three share transfers by which Mr Spiers transferred:
(a)1960 shares in MBI he held in his own name to himself and D Lyon Trustee Limited, as trustees of the Spiers Trust. This share transfer is signed by Mr Spiers twice. Once as transferor and once as transferee. It is also signed by Mr Lyon as director of D Lyon Trustee Limited. Unlike the other transfers it is not dated “15 September 2004”, but simply “2004”, with the day and month left blank. All three signatures are witnessed by Ms Neunz.
(b)1960 shares in MBHL he held in his own name to himself and D Lyon Trustee Limited, as trustees of the Spiers Trust. This share transfer is dated 15 September 2004 and is signed by Mr Spiers twice. Once as transferor and once as transferee. It is also signed by Mr Lyon as director of D Lyon Trustee Limited. All three signatures are witnessed by Ms Neunz.
(c)98 shares in SBSL he held in his own name to himself and D Lyon Trustee Limited, as trustees of the Spiers Trust. This share transfer is dated 15 September 2004 and is signed by Mr Spiers twice. Once as transferor and once as transferee. It is also signed by Mr Lyon as director of D Lyon Trustee Limited. All three signatures are witnessed by Ms Neunz.
Meeting 8 March 2017
[51] On 8 March 2017 Mr Spiers and Ms O’Brien met with Ms Wynne of KPMG. Mr Spiers prepared a document in which he set out his position on a number of issues. Although when giving evidence Mr Spiers could not recall whether he prepared the document before or after the meeting, in my view it reads consistently with having been prepared in advance of the meeting as the means by which Mr Spiers gathered his thoughts and information, for discussion at the meeting. Mr Spiers says that he provided a copy of his memorandum to Ms O’Brien and Ms Wynne, which supports the conclusion that it had been prepared as a basis for discussion with them. In his memorandum Mr Spiers wrote:
On hooking up in 1999, Tracey had $260,000 in cash, and I had a similar amount in net physical assets (no valuation was ever undertaken, and the assets were in 3 limited liability companies – Modern Built Garages, Modern Built Homes, and Modern Built Investments ltd).
…
The natural ‘successor’ to Tracey’s interest in MBI is my new partner [name]. Unfortunately, [she] has not settled with her “ex” and hence cannot make any promises as [to] when she will be able to ‘buyout’ Tracey…
In the interim I believe we jointly continue to own the Company and enjoy the fruits of our labors [sic] …
[52] On 3 May 2017 Mr Lyon wrote to Mr Spiers and Ms O’Brien following a conversation he had with Ms O’Brien. In his letter he set out details of a proposed agreement to resolve the outstanding issues between them. He noted that Ms O’Brien had suggested to him that he work for both parties to document what had been agreed between them. He said he would be happy to prepare a draft property relationship agreement, adding that the document he drafted would need to be approved by their individual lawyers and signed in their presence.
[53] On 23 June 2017 Mr Lyon sent a first draft of a Separation and Property Relationship Agreement to Mr Spiers and Ms O’Brien, and subsequently an amended draft agreement to Mr Spiers and Ms O’Brien on 7 July 2017. As recommended by Mr Lyon, Mr Spiers and Ms O’Brien thereafter engaged separate lawyers to advise them regarding their relationship property matters. The draft agreement contained a clause which provided that:
The parties acknowledge that Russell shall retain his 1,000 shares in Modern Built Investments (“the Company”), and Tracey shall retain her 1,000 shares in the Company.
[54] Mr Scott representing Ms O’Brien sent a copy of the draft agreement to Ms Wynne at KPMG. Ms Wynne replied by email dated 24 July 2017 commenting:
Thanks for sending that agreement through. I have attached an original email which outlines discussions held in 2014 with Russell and his solicitors when we were dealing with the IRD. Based on this we currently have the shareholding of the companies as 100% being owned by Russell. This was agreed to at the time and we presented that scenario to the IRD as part of our arguments for being able to utilise profit and loss offsets between the companies.
Therefore on that basis the agreement needs to be amended to reflect that the current position is that all shares are currently owned by Russell. The agreement should then reflect the transfer of 50% of the shares in Modern Built Investments to Tracey as part of this agreement.
I know the Companies Office already shows a 50/50 split but this is not reflected in share transfers or any other documentation. Once this agreement is signed [then] there will be no requirement to change the Companies Office records but at least the documentation will now be complete and accurate.
…
[55] Although Mr Spiers, having received independent legal advice from his own solicitor, Mr John Gray, had already formally signed the agreement in which he acknowledged that Ms O’Brien would retain her 1000 shares in MBI, and Mr Gray had certified his signature pursuant to the Property (Relationships) Act 1976, as a result of the tax related issues being identified by Ms Wynne, it was then proposed by Ms O’Brien’s solicitor that the agreement be altered to document the shareholding of MBI on the basis that Mr Spiers owned all 2000 shares in the company consistently with the information previously provided to the IRD, and that pursuant to the agreement he would transfer 1000 shares to Ms O’Brien. An amended agreement was
prepared by Ms O’Brien’s solicitor, Mr Scott, and forwarded to Mr Spiers’ solicitor, Mr Gray on 7 December 2017.
[56] Mr Spiers’ acknowledgment of Ms O’Brien’s and her trust’s half interest in MBI is clearly evident from an email he sent to Mr Gray which he copied to Ms O’Brien on 20 December 2017. He said:
Hi John,
Spoke with Tracey this morning, telling her of the impass [sic] as it reads now.
Essentially, we agree that if in two years time I offer to buy her out, she is not compelled to sell – she can hold her shares as an investment -ie, there is no compulsion to sell to me or other party (parties). She can sit on the shares, and have her cash rewards.
If she agrees to sell, - then I run away and get the requisite valuations, and the framework (formula) is set in the MPA – ie new valuation, less debt, equals new equity, compared with the $1.9mill – she gets half of the increase added to her $1.9mill.
…
Finally, if no offer is made by me, and Tracey wants out, then that essentially means I can’t finance to buy her out, and therefore the building goes on the market for sale.
…
PS I have copied this to Tracey so she has some transparency as to our desire to get this wrapped up.
[57] However, by April 2018 there had been no reply from Mr Gray to Mr Scott’s letter of 7 December 2017 and no progress towards resolution was being made by the parties themselves in their direct communications. Ms O’Brien then engaged another firm of solicitors who wrote to Mr Gray advising that Ms O’Brien was withdrawing the proposed agreement. Thereafter she and Mr Spiers continued to communicate directly with one another regarding resolution of their property issues, but were unable to finalise an agreement.
[58] On 26 October 2018 Mr Spiers’ solicitors wrote to Ms O’Brien’s solicitors in response to a request for a copy of MBI’s share register. In his reply dated 23 November 2018, Mr John Gray for Mr Spiers advised:
The company does not have a share register. The Companies Office records are all that exist in respect of the shareholding of the company.
[59] However, when Mr Spiers, on behalf of the defendant, provided discovery in the proceeding by his affidavit of documents dated 19 December 2019, the defendant’s discovery included a document described as “Register of Shares and Register of Shares Issued & Issued Price Paid”. The register document comprises three pages and as I have previously said, it records the shareholders as being Mr Spiers and Ms O’Brien each with 1000 shares issued to them on 7 February 2006.
[60] On 22 January 2019 Ms Wynne wrote to Mr Gray with a request that he communicate with Ms O’Brien’s solicitors regarding the approach to be taken with the MBI financial statements for the year ending 31 March 2018 that she was preparing. Ms Wynne advised that Mr Spiers had requested she make some “financial adjustments” but as ownership of the company remained in dispute she considered it appropriate to ascertain whether Ms O’Brien would agree to the proposed adjustments. One of the proposed adjustments was to do a loss offset between MBI and Everyman Boats Ltd for approximately $236,000 which would reduce the taxable income of MBI to nil and accordingly save the company $66,000 in income tax for that year. She advised that if the proposal was not acceptable to Ms O’Brien, Mr Spiers proposed to reverse the accrual of rent due by Everyman Boats Ltd to MBI, amounting to $82,000, thereby reducing MBI’s income. Ms Wynne expressed her concern at what Mr Spiers was proposing as it would mean that Everyman Boats Ltd would be paying no rent to MBI for the year for the premises it occupies.
[61] On 14 May 2020 Mr Spiers removed Ms O’Brien’s name from the Companies Office register as a shareholder holding 1000 shares in MBI and allocated the shares to himself with the result that the register presently records him as being the sole shareholder with 2000 shares.
[62] The principal assets of MBI are the Airpark and Grasslands properties. Mr Spiers has produced the executive summary of a valuation of the Airpark property prepared by the Registered Valuers, Seagars, dated 12 February 2019, which values the property at $7,350,000.00. Mr Spiers has also produced the executive summary
of a valuation of the Grasslands property prepared by Colliers International dated 19 February 2019 which values the property at $1,375,000.00.
A matter of credibility
The events related to the tax imputation credits
[63] The events which led to MBI persuading the IRD that it was entitled to tax imputation credits by reason of Mr Spiers being the sole shareholder in MBI and the other Modern Built companies during the relevant financial years for which the imputation credits were claimed is of significance so far as Mr Spiers’ case and credibility is concerned.
[64] In his affidavit evidence Mr Spiers said that when the issue of the correct share ownership was raised by the Inland Revenue Department, he had relied on Lyon O’Neale Arnold and KPMG to correctly ascertain the shareholding position, on the basis of the available documentation. He said:10
17. It is unclear to me whether, in sending his email/letter of 24 May 2019, Mr Lyon had in fact reviewed all available documentation on his files. As referred to above, I have not had the opportunity to do that myself. On the basis of the material I have reviewed to date, the shareholding position is far from clear and as such my position remains that advised to the IRD.
…
30. By way of conclusion on the shareholding issue, I consider that the documents addressed above illustrate the confusion and uncertainty as to the shareholding position. To resolve this it will be necessary to comprehensively review all available documentation. As matters presently stand, for the reasons set out above, I maintain that I am the sole shareholder in MBI.
[65] However the position regarding the shareholding of MBI as advised to the IRD, and the fact that the IRD accepted the explanations given by Ms Wynne of KPMG, and indirectly by Mr Lyon in his letter of 28 November 2014, provides no support whatsoever for the proposition that Mr Spiers in fact remained the owner of all 2000 shares as at November 2014 when the IRD were making their inquiries. The information contained in Mr Lyon’s letter of 28 November 2014 to KPMG is obviously incorrect, and inconsistent with his close involvement in the restructuring
10 Affidavit of Russell David Spiers, dated 17 June 2019.
of Mr Spiers’ and Ms O’Brien’s affairs in relation their real estate and shareholding assets that he had guided them through, and in respect of which he had prepared an extensive amount of documentation, including the very same share transfers of which he said he had no knowledge.
[66] Although some ten years had elapsed since Mr Lyon had forwarded the share transfers to Mr Spiers and Ms O’Brien with his letter of 4 October 2004, he had on a number of occasions since then proceeded on the basis that the share transfers had been executed and implemented resulting in Ms O’Brien’s Trust and her personally holding half the shares in MBI. When Mr Lyon sent the share transfers to Mr Spiers and Ms O’Brien with his letter of 4 October, they had obviously had not yet been signed, as he instructed them in his letter to sign, and return them to him, and he would arrange for their signatures to be witnessed back at his office. As Mr Lyon himself had to sign the share transfers in his capacity as director of D Lyon Trustee Limited, and as the share transfers produced in evidence are all signed by Mr Spiers, Ms O’Brien, and Mr Lyon and witnessed by a legal secretary from Mr Lyon’s law firm, he could have been in no doubt that they had all been duly and properly executed.
[67] Moreover, Mr Lyon had thereafter proceeded to prepare a series of further documents and correspondence in which he repeatedly referred to Mr Spiers and Ms O’Brien as each owning half of the shares in the company. In his letter to Mr Spiers and Ms O’Brien of 6 May 2005 he told them to ensure that when the next annual return for the three companies was done that they recorded the correct shareholding. This statement clearly shows that he knew that the share transfers, including those relating to MBI, had been executed and that the share transfers had been implemented. The advice he gave them to ensure that the Companies Office records were updated when the next annual return was filed is unequivocal confirmation that the share transfers had been implemented. This is further confirmed by his letter to Mr Spiers and Ms O’Brien of 3 November 2005 in which he confirmed that the shares in the three companies were divided equally between their two trusts, with a nominal shareholding in each company being held by each of them personally. In this letter he even specified the number of shares held by each trust and by Mr Spiers and Ms O’Brien individually in each of the three companies.
[68] Subsequently when MBI undertook refinancing and borrowing, Mr Lyon in his capacity as a trustee (through D Lyon Trustee Limited) of the two trusts signed trustee resolutions by which the trustees of the trusts approved MBI entering into loan agreements for the finance. In November 2012 Mr Lyon signed a resolution of the trustees of the O’Brien Trust and the Spiers Trust confirming authority to the trustees to execute a guarantee of a Bank of New Zealand loan to MBI of $3,320,000.00. In my view it is highly unlikely that Mr Lyon would have had no recollection of those matters when he wrote his letter of 28 November 2014 to KPMG. I note also that Mr Lyon said in his letter that “We have checked [our] Trust administration files for both Trusts and find no record of this happening.”
[69] As Mr Lyon was not called as a witness in this proceeding I make no finding regarding his providing what was clearly incorrect information in his letter of 28 November 2014 to KPMG, other than to observe that without that information MBI was most unlikely to obtain the benefit of the tax imputation credits it was seeking. I also note that it appears Mr Lyon now accepts that the information in his letter of 28 November 2014 was incorrect. He wrote to Ms O’Brien’s solicitor on 24 May 2019 saying:
I have reviewed my letter to KPMG of 28 November 2014 and it appears the information in that letter is incorrect. I would never deliberately send such an incorrect letter. The explanation for this is my failure to properly go back and review records of the two Trusts and the company.
[70] With her letter to the Inland Revenue Department of 27 January 2015, Ms Wynne attached a copy of Mr Lyon’s letter of 28 November 2014. While Ms Wynne principally relied on the information provided by Mr Lyon, it appears that she also relied on information provided by Mr Spiers to Mr Azim regarding share transfers. Saying:
Tracey O’Brien incorrectly changed the records of the Companies Office with no supporting share transfer documentation. We have also confirmed this with our client, Russell Spiers and he did not prepare/sign any share transfer documents.
[71] While Mr Spiers now says he cannot recall talking to Ms Wynne about that matter, it is clear from Mr Azim’s email to Ms Wynne that before Ms Wynne wrote her letter to the Inland Revenue Department of 27 January 2015, Mr Spiers had spoken
to Mr Azim and had told him that he did not know who had changed the shareholding details at the Companies Office, but that he thought that Ms O’Brien may have done so without knowing the consequences. Accordingly, the only possible source of Ms Wynne’s statement saying that KPMG had confirmed with their client Mr Spiers, that he did not prepare or sign any share transfer documents, could have been Mr Spiers himself.
[72] In my view, Mr Spiers could not possibly have forgotten about the share transfers he had previously signed and he could not possibly have understood there to have been no supporting share transfer documentation for Ms O’Brien’s actions of recording shareholding changes on the Companies Office register.
[73] Furthermore, I also note that when cross-examined, Mr Spiers accepted that between 2004 and 2015 he had believed Ms O’Brien or her trust to be the holder of half the shares in MBI, adding that “we were acting on the instructions of Doug Lyon and those instructions emanate from the transactions that transpired in August and September and October of 2004 and those instructions were clearly incorrect.” Irrespective of whether or not Mr Lyons’ “instructions” were correct or not, it remains the position that at the time when Mr Spiers confirmed to KPMG that Ms O’Brien had changed the shareholding records in the Companies Office without having any supporting share transfer documentation, and that he did not prepare or sign any share transfer documents, those statements were contrary to what he then understood to be the correct position.
[74] In my view the incorrect information regarding the share transfers and shareholding by Ms O’Brien in MBI was provided by Mr Spiers to KPMG so that the company would not lose the benefit of the significant tax imputation credits that it would obtain provided it could persuade the Inland Revenue Department that there had been no change in the shareholding. The information provided by both Mr Lyon and Mr Spiers was obviously not correct. The fact that the Inland Revenue Department was persuaded to accept that there had been no change to the shareholding of MBI and that Ms O’Brien had made the changes to the Companies Office records without supporting share transfer documentation, and as a consequence allowed the claimed
tax imputation credits, provides no support for Mr Spiers’ claim that he remained the owner of all of the shares in MBI.
[75] In fact, to the contrary, Mr Spiers’ conduct in relation to the tax imputation credits and the provision of misinformation regarding the share transfer documents, informs my assessment of his credibility, and demonstrates that when motivated by financial advantage he is prepared to provide whatever version of events he thinks will best suit his objectives.
[76] As I shall explain, this assessment of Mr Spiers’ reliability in the context of providing information via his accountants to the Inland Revenue Department also informs my assessment of the reliability of his evidence as a witness as regards some of the key disputed issues in this proceeding.
The Register of Shares
[77] Ms O’Brien says that having been in a relationship with Mr Spiers for 15 years, and having witnessed him filling out numerous documents during that time, she is familiar with his handwriting. Ms O’Brien says that the handwritten entries on the Register of Shares (the Register) are made in Mr Spiers’ handwriting. She says that Mr Spiers has a particular way of writing his surname evident by his placement of the ‘dot’ of the letter ‘i’. The plaintiffs point to a large number of examples of Mr Spiers’ handwriting on other documents where he has written his own name including the handwritten entries on the Register of Director’s Remuneration document, and Acquisition or Disposal of Shares document both dated 9 February 2015 prepared for MBI which have the same appearance and characteristic.
[78] Mr Spiers “categorically” denies that he made the handwritten entries in the Register. He also denies that he wrote the handwritten entries on the Directors Remuneration document. He says that the Register was “written up” by KPMG. He suggests that the explanation for the Register recording that he and Ms O’Brien each held 1000 shares in MBI goes back to Mr Lyon’s letter sent to himself and Ms O’Brien of 6 May 2005 in which he told them to ensure that the correct shareholding was recorded when the next annual return for the three companies were filed, and Mr Lyon’s subsequent letter to them of 3 November 2005, in which he advised them
that the shareholding of MBI was held equally by their two trusts. Mr Spiers says that, following receipt of those letters, Ms O’Brien:
… dutifully changed the share register at the Companies Office to reflect the details that were contained in that letter of the 3rd of November. Then within the next 12 months the Companies Office writes a letter to Modern Built Investments and says, “You’ve done that incorrectly. Please alter.” So in 2009 again on the basis of an annual return Tracey alters it again but she makes another error. She records the shares as 1000 shares to me and 1000 shares to herself, which is not correct. Then, when KPMG are engaged what do they do? They look up the Companies Office Share Register and the errors just keep perpetuating.
[79] Mr Robert Braithwaite, who is a Chartered Accountant and director of the accounting firm Braithwaite and Pearks Limited, was called as a witness by the defendant to give evidence regarding the financial statements of MBI which his firm prepared. He suggested in evidence that the three Share Register documents were most likely prepared by KPMG. He said that prior to 2014 he was a partner at KPMG and that it was common practice in the firm for KPMG staff to prepare the statutory records for their clients, particularly when they inherited a client and there were no statutory records. Mr Braithwaite said that he thinks that one of the clerks within the KPMG accounting team prepared the document.
[80] Despite Mr Spiers’ denial of authorship, I am satisfied on the balance of probabilities that he was the author of the handwritten entries on the Register. I have reached this conclusion for a number of reasons.
[81] Firstly, the obvious consistency and appearance of the handwriting on the Register, and particularly the handwriting of Mr Spiers’ surname, compared with Mr Spiers’ handwriting of his name on the many other documents produced in evidence on which his handwriting appears including his handwritten surname with the characteristic placement of the “dot” for the letter “i” above the letter “e” in his surname. Although Mr Spiers denies that he handwrote the entries on the Directors’ Remuneration and Acquisition/Disposal of Shares documents, I find that he was also the author of those entries. Significantly, the handwritten entries on the Directors’ Remuneration and the Acquisition/Disposal of Share documents dated 9 February 2015 are in the same handwriting as appears on the Register dated 7 February 2006,
meaning that the same person made the handwritten entries on the Register and the Director’s Remuneration and Acquisition/Disposal of Shares documents.
[82] Secondly, the suggestion made by Mr Spiers that a member of the KPMG staff was responsible for the handwritten entries on the Register is in my view quite implausible. It would mean that a KPMG staff member having a handwriting style closely similar to Mr Spiers, who also possessed the unusual handwriting characteristic relating to the placement of a “dot” for the letter “i”, made the entries on the three documents comprising the Register and the Director’s Remuneration and Acquisition/Disposal of Shares documents, at an interval of some nine years. I consider that possibility to be remote in the extreme. Mr Braithwaite’s suggestion that the Register could have been completed by a KPMG staff member is speculative, and does not provide any significant support for Mr Spiers’ claim that he was not the author.
[83] Thirdly, at the time of the preparation of the Register, Mr Spiers accepts that it was his understanding and belief that Ms O’Brien did own half of the shares in MBI. As I have noted, under cross-examination Mr Spiers accepted that during the ten years between 2004 and 2015 he believed that Ms O’Brien held half the shares in MBI. During that period he had signed a number of documents in which Ms O’Brien was recorded as being a shareholder of MBI. Although the date 7 February 2006 appears on the Register the actual date on which it was prepared must have been sometime between September 2011 and February 2016, as the address given for Mr Spiers and Ms O’Brien in the Register documents is their Beckside Close residence which they purchased in September 2011 and sold in February 2016. Having regard to Mr Spiers’ understanding that Ms O’Brien was the owner of half the shares at the time when the handwritten entries were made on the Register, it follows, that despite what he is now saying regarding ownership of the shareholding, at the time when the entries were written into the Register, Mr Spiers would have believed that he and Ms O’Brien each held half of the shares in the company and so that is what he recorded.
[84] Fourthly, I find Mr Spiers to be an unreliable witness and I reject his evidence in which he denies being responsible for the handwriting in the Register. In an attempt to dissociate himself from the handwritten entries on the Register, Mr Spiers has
adopted Mr Braithwaite’s suggestion that someone at KPMG was likely to be responsible. Once that possibility is discounted as implausible, the other factors all point to Mr Spiers’ authorship as being the only sensible explanation.
[85] My finding that Mr Spiers was the author of the entries on the Register is significant in terms of the dispute in this proceeding. I note that the Register of Shares document that he used to record that he and Ms O’Brien each held 1000 shares in MBI was written below the following:
Register of Shares
The share register is divided into three parts:
A: The Register of shares issued and issue price paid should be kept up to date to show the details of all shares issued by the Company.
B: The Register of share transactions should be kept up to date to show details of all transactions between shareholders.
C: Each shareholder has a page to record details of his/her shareholding.
As soon as a shareholder presents a valid share transfer form to the Company the details should be entered on the Register of Share transactions (Register
B) and on the individual shareholders’ pages. The transfer of a share from one person to another is completed when the transaction is entered on the share register. The Company and each director have an obligation to ensure that each transfer is promptly and accurately recorded.
[86] Beneath those explanatory notes, Mr Spiers has recorded 1000 shares as having been issued to himself and 1000 shares as having been issued to Ms O’Brien on 7 February 2006. He has also recorded for both of them that the amount paid per share was $1.00, and that payment for the shares was made on 7 February 2006. The Register produced on discovery by the defendant and as an exhibit comprises two further pages, each of which are part C documents on which to record individual shareholders’ details. One of the documents records Mr Spiers’ name and address, and repeats the information that he acquired his 1000 shares on 7 February 2006. The second part C document records Ms O’Brien’s name and address and that she too acquired 1000 shares on 7 February 2006. I note that the Register produced by the defendant does not include the Part B section on which transactions between shareholders are to be recorded. Had a Part B section been completed it would have noted a transfer between Mr Spiers and Ms O’Brien.
[87] I accordingly find as a fact that following the steps taken to implement the Deed and share transfers executed in or around October 2004, Ms O’Brien was properly recorded as being a shareholder of 1000 shares on the MBI share register, which continued until Mr Spiers unilaterally removed her name as being a shareholder from the Companies Office Register on 14 May 2020, and allocated her 1000 shares to himself.
The issues in dispute
[88]The two principal issues in dispute are:
(a)Are the plaintiffs shareholders of MBI?
(b)If the plaintiffs are shareholders of MBI, have they been subject to prejudicial conduct by MBI?
[89] To determine the first issue, of whether the plaintiffs are shareholders of MBI, I will address the following sub-issues:
(a)Did Mr Spiers transfer half his shares in MBI, MBHL and SBSL to Ms O’Brien in 2004?
(b)Was the Trust Partnership indebted to the O’Brien Trust for $200,000? (the first alleged mistake)
(i)Did the O’Brien Trust make contributions to the Trust Partnership totalling $259,664?
(ii)Has the Trust Partnership made payments to the O’Brien Trust totalling $68,730?
(iii)Has the Spiers Trust, through companies owned and controlled by Mr Spiers, made contributions to the Trust Partnership totalling $247,025?
(c)What was the fair market value of the shares acquired by the O’Brien Trust? (the second alleged mistake)
(d)Was the transfer of shares voidable for want of consideration?
[90] I shall find that Ms O’Brien is not only recorded as a shareholder on MBI’s share register, but also that she, as a trustee of the O’Brien Trust and personally, holds half of the shares of MBI. I will then proceed to determine the second issue, of whether the plaintiffs have, as shareholders of MBI, been subject to prejudicial conduct by MBI.
First issue: the shareholding of MBI
Submissions
[91] The first and second plaintiffs allege that they lawfully own 50 per cent of the shares of MBI. Specifically, they allege that the first plaintiff owns 980 shares and the second plaintiff owns 20 shares. The plaintiffs say that of the other 50 per cent of the MBI shares, 980 are held on trust for the Spiers Trust, and 20 shares are held by Mr Spiers personally.
[92] The plaintiffs say that it is clear from the contemporaneously created documents and the conduct of the parties over an extensive period that the plaintiffs are shareholders in MBI. They say that their position as shareholders is evident and confirmed by MBI’s share register which records Ms O’Brien as being the holder of 1000 shares, being half of the 2000 shares in the company.
[93] Mr Spiers, who is the sole director of MBI, denies the plaintiffs are shareholders in MBI. He says that he either personally owns the 2000 shares in the company, or alternatively that he personally owns 40 shares, and that he and D Lyon Trustee Limited, as trustees of the Spiers Trust, own the other 1960 shares. Mr Spiers says that the trustees of the O’Brien Trust did not acquire 980 shares in MBI pursuant to the Deed dated 15 September 2004, or pursuant to a share transfer, or share transfers, from him dated 15 September 2004.
[94] Mr Spiers says that notwithstanding that during the period between 2004 and 2015 he had believed and proceeded on the basis that Ms O’Brien held half the shares in MBI, nevertheless at all times the correct position was that he was and is the sole shareholder of MBI and that he holds all of the 2000 shares in the company.
[95] In support of its case regarding the shareholding in MBI, the defendant says that the O’Brien Trust did not provide any consideration for the 980 shares it claims to have acquired in MBI. The defendant also relies on the affirmative defence of mistake. The defendant says that the 15 September 2004 Deed incorrectly records that the Trust Partnership was indebted to the O’Brien Trust trustees for $200,000. The defendant says that should the Court find that Mr Spiers transferred the shares to Ms O’Brien then he did so after the trustees of the Spiers Trust and the O’Brien Trust had been influenced in their respective decisions to enter into the Deed pursuant to which he transferred the shares, by mistakes of fact. The first mistake being the mistaken belief that the Spiers Trust and the O’Brien Trust were at the time still indebted to the Trustees of the O’Brien Trust in the sum of $200,000. The second mistake being that the sum of $100,000 represented fair market value for 980 shares in MBI, 980 shares in MBKL, and 49 shares in SBSL.
(a)Did Mr Spiers transfer half of his shares in MBI, MBHL and SBSL to Ms O’Brien in 2004?
[96] Ms O’Brien and Mr Spiers commenced their de facto relationship in June 2001. They had both been previously married, and Ms O’Brien had in April that year settled her relationship property issues with her former husband. Mr Spiers was in the process of finalising a settlement with his former wife. It is clear from the evidence that they had each committed themselves to what they planned would be a life-time relationship together, and they had set about establishing themselves and their respective children as a family unit. Mr Spiers was conducting his business interests through Modern Built Garages 2000 Limited which he had incorporated in September 2000, Modern Built Homes and MBI. At an early stage in their relationship Ms O’Brien had commenced working in the businesses carrying out administration while also being responsible for much of the day to day care of their children of their previous marriages. They were keen to establish themselves on a rural life-style property and in March 2002 they entered into agreements to purchase the two adjoining properties in Farquharson Road,
Ararimu. As Ms O’Brien had already received her relationship property settlement of approximately $260,000 and Mr Spiers was yet to finalise his relationship property issues with his former wife and had no liquid assets available to him at that time, it was Ms O’Brien who was to provide the bulk of the cash required for the purchase. For his part Mr Spiers arranged for the payment of the deposits totalling $21,500 for the two properties from funds advanced by his companies which included MBHL using $11,500 of a total sum of $14,000 paid by Ms O’Brien to be applied to the Farquharson Road deposit for Lot 4. Prior to settlement of the purchase Mr Lyon established a family trust for each of them as a means of protecting their respective separate assets. On settlement Ms O’Brien contributed approximately $194,000 by way of a loan to the two trusts which became the owners of Farquharson Road in equal shares. The money was in the first instance advanced by Ms O’Brien to her Trust and then in turn advanced on loan by her Trust to a partnership comprised of her Trust and Mr Spiers’ Trust. These loans being recorded in Minutes of the O’Brien Trust resolving to lend the funds to the Trust Partnership, and a Deed of Acknowledgment of Debt signed by the trustees of the two trusts.
[97] Having settled the purchase, they set about building a modest dwelling and associated buildings to occupy until they could build a more substantial house on the property. A friend and neighbour at Ararimu during their years there described the couple as being a very united team who were working towards the same goals and were working really hard together. Once the Farquharson Road property was purchased both Mr Spiers and Ms O’Brien worked energetically at developing and maintaining it. In April 2002 Mr Spiers and Ms O’Brien applied for building consent to construct a loft style barn/shed on Lot 4 of the Farquharson Road the property to be constructed by Mr Spiers and Modern Built Garages. By May 2004 the construction work was completed.
[98] Accordingly, by 8 August 2004 when they both met with Mr Lyon at his home to discuss how they proposed to organise and manage their assets, they had been together for over three years and during that period they had made substantial progress as a family unit and towards achieving their goals as regards their rural property. It was in this context that they proceeded to instruct Mr Lyon as regards the Farquharson Road properties and Mr Spiers’ shareholdings in the companies that he had become
the sole owner of following his relationship property settlement with his former wife. As noted by Mr Lyon in his letter to them both of 10 August 2004, they had both told him that they believed that when they commenced their relationship they each had assets of approximately equal value, and were happy to have their respective assets treated as equal.
including as I have found, entering Ms O’Brien’s name as a holder of 1000 shares in MBI in the company’s share register.
[177] Section 24(1) of the Contract and Commercial Law Act 2017 (the Act) provides:
24Relief may be granted if mistake by one party is known to another party or is common or mutual
(1)A court may grant relief under section 28 to a party to a contract if,–
(a)in entering into the contract,–
(i)the party was influenced in the party’s decision to enter into the contract by a mistake that was material to that party, and the existence of the mistake was known to the other party or to 1 or more of the other parties to the contract; or
(ii)all the parties to the contract were influenced in their respective decisions to enter into the contract by the same mistake; or
(iii)the party and at least 1 other party were each influenced in their respective decisions to enter into the contract by a different mistake about the same matter of fact or law; and
(b)the mistake or mistakes resulted, at the time of the contract,–
(i)in a substantially unequal exchange of values; or
(ii)in a benefit being conferred, or an obligation being imposed or included, that was, in all the circumstances, a benefit or an obligation substantially disproportionate to the consideration for the benefit or obligation; and
(c)in a case where the contract expressly or by implication provides for the risk of mistakes, the party seeking relief ( or the party through or under whom relief is sought) is not obliged by a term of the contract to assume the risk that that party’s belief about the matter in question might be mistaken.
[178] Here the defendant and Mr Spiers rely on s 24(1)(a)(ii) and submit that all the parties to the Deed were influenced in their respective decisions to enter into the
contract evidenced in the Deed.16 The defendant alleges that the parties to the Deed made a mistake as to the fair market value of the shares to be acquired by the O’Brien Trust pursuant to the contract contained in the Deed, resulting in substantially unequal exchange of values and benefit being exchanged.
[179] I find that the defendant and Mr Spiers have failed to prove on the balance of probabilities that the trustees of the Spiers Trust and the trustees of the O’Brien Trust were influenced in their respective decisions to enter into the contract evidenced in the Deed by the same mistake as to the fair market value of the shares to be acquired by the O’Brien Trust. I have rejected Mr Spiers’ evidence that he proceeded to execute the Deed (as a trustee of the Spiers Trust) while influenced by a mistake regarding the value of the shares to be transferred under the Deed. In her evidence Ms O’Brien said that when she and Mr Spiers entered into the Deed and executed the various share transfers to give effect to their intentions as described by Mr Lyon in his 10 August letter, “We all entered into the Deed knowing exactly what we were doing”.17 I accept Ms O’Brien’s evidence, and note that Mr Lyon was not called to give evidence and accordingly there is no evidence that he proceeded to execute the Deed while under a mistaken belief or misunderstanding regarding the fair market value of the shares. Accordingly, I find that the defendant has failed to satisfy the requisite criteria for relief under s 24(1)(a)(ii) and does not qualify for a grant of relief under s 28 of the Act.
[180] I also find that the defendant has failed to prove that the alleged mistake that it relied on resulted in a substantially unequal exchange of values as required by s 24(1)(b)(i). Having regard to the context in which the contract contained in the Deed was entered into by the trustee parties to the Deed, and specifically the objective of Mr Spiers and Ms O’Brien of achieving an equalisation of their assets by means of the share transfers, the contract did not involve an unequal exchange of values. Both Mr Spiers and Ms O’Brien had agreed with one another that after three years of living together they wished their collective assets to be held by them equally. That agreement was based upon their recognition of their respective contributions to their relationship
16 Walters v Icon Central Ltd HC Auckland CIV-2010-404-4877, 7 March 2011; Shen v Ossyanin
[2019] NZHC 2430, (2019) 20 NZCPR 590 at [19].
17 Reply Affidavit of Tracey Ann O’Brien, dated 12 June 2020.
and the increased value of the assets derived from their joint efforts and contributions financial and otherwise.
[181] The contract was not, as Mr Spiers claimed, a purely commercial transaction, but one entered into to achieve the objective of an equality of assets for Ms O’Brien and Mr Spiers personally and through their respective Trusts. I consider that the provisions in the Deed by which provision was made for revision of the purchase price in the event of the IRD assessing a value of the transaction different to that provided for, was a recognition of the fact that while the parties to the Deed had determined the purchase price for the shares as being their ‘fair market value’, in the event that the issue of whether the stipulated price was the fair market value arose, the price would be adjusted or revised to the amount assessed by the IRD. However, notwithstanding the inclusion of this mechanism for adjustment of the purchase price, no steps were taken by the Spiers Trust to seek an adjustment, which is consistent with the trustees of the Spiers Trust having been satisfied that the amount they had received in exchange for the transfer of the shares represented, so far as they were concerned, fair market value for the shares.
(d)Failure to provide consideration
[182] My earlier findings, in which I have rejected the defendant’s claims of contributions having been made that should be treated as having extinguished the Trust Partnership’s indebtedness to the O’Brien Trust, and my findings rejecting the defendant’s pleading of mistake warranting the Court to exercise the power conferred by s 28 of the Act to grant relief, also determine the defendant’s allegation that no consideration was given or provided by the O’Brien Trust for the shares transferred to it by the Spiers Trust. Consideration for the transfer of the shares was given by the forgiveness or cancellation of the Trust Partnership’s indebtedness to the O’Brien Trust, and for which the Spiers Trust was equally responsible by having an equal share of the Trust Partnership.
[183] The defendant further says that Ms O’Brien was not herself a party to the Deed, and she did not provide any consideration for the shares transferred by Mr Spiers to
her personally.18 The transfer of those shares to Ms O’Brien left Mr Spiers retaining the same number of shares in the three companies in his personal capacity, and thereby achieving the object of overall equality between him and Ms O’Brien.
[184] While no specific consideration was expressed as relating to the transfer of shares made to Ms O’Brien in her personal capacity, it is clear that the transfers were made as part of the agreement made between Ms O’Brien and Mr Spiers for the equalisation of their assets. Accordingly, although the transfer of these shares to Ms O’Brien was not made pursuant to the terms of the Deed, the transfers were nevertheless effected by Mr Spiers in order to achieve the objective of equalisation of assets without him requiring any separate or additional consideration other than that relating to the parcels of shares which were transferred to the O’Brien Trust. The reasons for the transfer of the small number of shares in the three companies to Ms O’Brien and the retention of an equivalent number of shares by Mr Spiers has not been addressed or explained in the evidence. Mr Spiers is not himself a party to this proceeding, and the defendant has failed to establish any basis on which it is entitled to relief in relation to those shares.
[185] Ms O’Brien is accordingly entitled to be treated as being the lawful holder of those shares transferred to her and which she holds in her personal capacity.
Second issue: were the plaintiffs, as shareholders of MBI, subject to prejudicial conduct by MBI?
Submissions
[186] The plaintiffs allege that the affairs and acts of MBI have been, are being, and are likely to be conducted in a manner that is oppressive, unfairly discriminatory, or unfairly prejudicial to, the trustees of the O’Brien Trust as shareholders in the company, and to Ms O’Brien in her personal capacity as a shareholder (the oppressive conduct).
18 Being 20 shares in MBI, 20 shares in MBHL, and one share in SBSL.
[187] The plaintiffs say that the oppressive conduct is manifest by the past and continuing actions of Mr Spiers as sole director of MBI by denying that the plaintiffs are shareholders in the company. The plaintiffs allege that they are being excluded from any involvement in the affairs or running of MBI, and despite collectively holding 50 per cent of the shares in the company, they have received no dividends or distributions from the company since April 2018. They further allege that, as sole director, Mr Spiers has denied them any access to MBI’s records and that he has conducted the affairs of the company with total disregard for their interests. The plaintiffs say that the personal relationship that existed between Ms O’Brien and Mr Spiers has irretrievably broken down and has led to Mr Spiers behaving in an antagonistic and acrimonious manner towards Ms O’Brien, and they have no confidence that he will act in good faith towards them. They say that they are locked into MBI as shareholders, with no means to realise their assets or to be involved in the management of the company in order to protect their assets.
[188] The plaintiffs further say that MBI’s share register is incorrect as it does not record them as being shareholders of the company.
[189] The plaintiffs submit that it is just and equitable for the Court to grant relief pursuant to s 174 of the Companies Act 1993 in the form of orders directing rectification of the company’s share register to record them as shareholders and putting MBI into liquidation. In the alternative, the plaintiffs submit that should the Court not find that the affairs of MBI have been conducted in an oppressive manner, then the Court should nevertheless exercise the power contained in s 241 of the Companies Act 1993, to order the liquidation of the company on the grounds that it is just and equitable to do so.
[190] Mr Gudsell, for the defendant, denies that the affairs of the company are being conducted in an oppressive manner. He says that the issue of the correct shareholding of MBI was reviewed by KPMG and Mr Lyon in 2014-2015, and the conclusion reached was that Mr Spiers owned all the shares in MBI. He says that the relationship property negotiations between Ms O’Brien and Mr Spiers proceeded on the basis that Mr Spiers owned all the shares and any entitlement that Ms O’Brien had to the shares
would be the result of a transfer of the shares to her pursuant to the Property (Relationships) Act 1976.
[191] Mr Gudsell submits that, in the event that the Court finds that the plaintiffs did validly acquire shareholdings in MBI in 2004, Mr Spiers was entitled to rely on the conclusion reached by his professional advisers in January 2015 to the effect that he was the lawful holder of all of the shares in the company, and consequently entitled to treat the company as his. Mr Gudsell says that, by denying the plaintiffs’ claim to be shareholders in the company and having that issue determined in court proceedings, Mr Spiers has not acted oppressively towards the plaintiffs. Furthermore, he says that the plaintiffs have not been excluded from the management of the company and even if shareholders, they have no right to be involved in the running or management of the company. He says that, although by agreement Ms O’Brien received weekly payments of $1,000 prior them being terminated in April 2018, they were payments in the nature of an interim arrangement pending resolution of relationship property issues, and were not made in recognitions of her having a shareholding.
[192] Mr Gudsell acknowledges that the plaintiffs have not been given access to the company’s business records, but says that once this proceeding was commenced the defendant complied with its discovery obligations and thereby provided transparency as to its affairs. He says as regards the plaintiffs’ allegation that Mr Spiers has conducted the business with total disregard for their interests, that as owner of all the shares, that Mr Spiers was entitled to treat the company as his own, and in any event, the plaintiffs have not shown that they have suffered any prejudice. He submits that the breakdown of the de facto relationship does not amount to prejudicial conduct, and that the acrimonious conduct of Mr Spiers complained of by the plaintiffs, should be seen as arising in the course of lengthy negotiations over relationship property matters following the separation of the parties, and as such they do not amount to prejudicial conduct.
[193] Mr Gudsell concludes by submitting that even if the requirements of s 174(1) are met, it would not be ‘just and equitable’ for MBI to be placed into liquidation. He notes that MBI is a solvent company which owns leased commercial properties in Auckland and Hamilton, and should the Court conclude that an order for liquidation
of the company should be made, he asks that the parties be given a period of 20 working days to endeavour to reach agreement as to the way forward before the order for liquidation takes effect.
Discussion
[194]Section 174(1) of the Companies Act 1993 provides:
174 Prejudiced shareholders
(1) A shareholder or former shareholder of a company, or any other entitled person, who considers that the affairs of a company have been, or are being, or are likely to be, conducted in a manner that is, or any act or acts of the company have been, or are, or are likely to be, oppressive, unfairly discriminatory, or unfairly prejudicial to him or her in that capacity or in any other capacity, may apply to the court for an order under this section.
[195] The phrase “oppressive, unfairly discriminatory or unfairly prejudicial” was considered by Richardson J in Thomas v H W Thomas Ltd in relation to the former s 209 of the Companies Act 1955, which used the same language. He said:19
I do not read the subsection as referring to three distinct alternatives which are to be considered separately in watertight compartments. The three expressions overlap, each in a sense helps to explain the other, and read together they reflect the underlying concern of the subsection that conduct of the company which is unjustly detrimental to any member of the company whatever form it takes and whether it adversely affects all members alike or discriminates against some only is a legitimate foundation for a complaint under s 209. The statutory concern is directed to instances or courses of conduct amounting to an unjust detriment to the interests of a member or members of the company. It follows that it is not necessary for a complainant to point to any actual irregularity or to an invasion of his legal rights or to a lack of probity or want of good faith towards him on the part of those in control of the company.
…
In the same way it is the unfairly detrimental effect of the conduct of the company on the interests of the complaining member which brings into play the just and equitable subs (2) of s 209. That detriment may be to the financial interests of the member as a member or it may be conduct which is adverse to his interests in other capacities, as where, for example, he is excluded from management participation in the company. Where the member is adversely affected in that sense, the determination as to whether it is unjustly so within subs (1) calling for the granting of relief under subs (2) must turn on an overall
19 Thomas v H W Thomas Ltd [1984] 1 NZLR 686 at 17 – 19.
assessment of the position in the company. Fairness cannot be assessed in a vacuum or simply from one member’s point of view.
[196] Justice Richardson further explained the scope of ‘oppressive conduct’ by reference to the often cited statement of Lord Wilberforce in Re Westbourne Galleries Ltd as being equally apt when considering the court’s power under 209(2) to order the winding-up of a company where it considers it “just and equitable” to do so.20 Lord Wilberforce said:21
The words are a recognition of the fact that a limited company is more than a mere legal entity, with a personality in law of its own: that there is room in company law for recognition of the fact that behind it, or amongst it, there are individuals, with rights, expectations and obligations inter se which are not necessarily submerged in the company structure. That structure is defined by the Companies Act and by the articles of association by which shareholders agree to be bound. In most companies and in most contexts, this definition is sufficient and exhaustive, equally so whether the company is large or small. The ‘just and equitable’ provision does not, as the respondents suggest, entitle one party to disregard the obligation he assumes by entering a company, nor the court to dispense him from it. It does, as equity always does, enable the court to subject the exercise of legal rights to equitable considerations; considerations, that is, of a personal character arising between one individual and another, which may make it unjust, or inequitable, to insist on legal rights, or to exercise them in a particular way.
[197] In the period following the execution of the Deed and share transfers in 2004, Mr Spiers and Ms O’Brien proceeded on the basis that Ms O’Brien, through the O’Brien Trust and personally, held 1,000 shares in MBI. Their shareholdings were appropriately recognised by being entered on the company’s share register and in the Companies Office records. However, when the issue arose in late 2014 as to whether certain tax imputation credits available would be affected by the changes to MBI’s shareholding and the matter was investigated by the company’s accountants and Mr Lyon, Mr Spiers falsely claimed that the transfers had not occurred and the shareholding registered in Ms O’Brien’s name was a mistake in order to ensure that the imputation credits were retained. I find however that Mr Spiers was well aware that he had transferred the shares to the O’Brien Trust and to Ms O’Brien, and he could not have genuinely believed that the conclusion, reached by KPMG and Mr Lyon at that time that he owned all of the shares in MBI was correct, when he knew it was based on the incorrect information that he had provided, and he knew that Mr Lyon’s
20 Thomas v H W Thomas Ltd [1984] 1 NZLR 686 at 18.
21 Re Westbourne Galleries Ltd [1973] AC 360, [1972] 2 WLR 1289 at 379.
letter of 28 November 2014 to KPMG in which he said that that no shares in MBI had been transferred to the O’Brien Trust and the Spiers Trust was also incorrect.
[198] The division of MBI was the subject of ongoing negotiations that extended over several years prior to the commencement of this proceeding in May 2019. Until Ms Wynne of KPMG in July 2017 raised the issue of the basis on which the MBI had resolved the tax imputation credits issue with the Inland Revenue Department in January 2015, the negotiations had proceeded on the basis of both parties accepting that the shares in MBI were held equally by Mr Spiers and Ms O’Brien and their respective trusts.
[199] Having regard to that background, I consider that Mr Spiers’ assertion to be the sole shareholder of MBI on the strength of the 2015 KPMG conclusion, and his denying of the validity of the shareholdings of the plaintiffs was an opportunistic and cynical adoption of that conclusion in order to suit his own interests and which has since resulted in significant prejudice to the plaintiffs as shareholders in MBI. The fact that Mr Spiers has continued to maintain his reliance on KPMG’s conclusion regarding the MBI shareholding despite Mr Lyon himself subsequently acknowledging that the information he provided to KPMG was incorrect, further illustrates the untenable nature of Mr Spiers’ position, and demonstrates the nature and extent of the prejudicial conduct of Mr Spiers as sole director of MBI that the plaintiffs’ claim for relief is founded on. Mr Spiers’ sustained denial that the plaintiffs are shareholders in MBI is a fundamental breach of his obligations to them as the sole director of the company and by proceeding on that basis the plaintiffs have been denied access to information regarding the company and any shareholder involvement in the company whatsoever.
[200] It is abundantly clear that the relationship between Ms O’Brien and Mr Spiers has irretrievably broken down and that any joint involvement and participation as equal shareholders in MBI would be simply unworkable. The transfer of shares to Ms O’Brien and her Trust in 2004 that brought about the equal shareholding she and Mr Spiers now hold in MBI was founded on their expectation that their de facto relationship would continue, and MBI would be a vehicle for their joint efforts to grow the value of their assets. Now that the relationship is at an end, and events since have shown the impossibility of them maintaining even a business relationship that would
enable them to carry on as equal shareholders, it is not just and equitable that Ms O’Brien and her O’Brien Trust should be locked into what has become, and would continue to be, a clearly unworkable relationship.
[201] MBI is essentially a property owner and its value is represented by its ownership of two significant commercial properties. There is no suggestion that one or other of the shareholders would purchase the shares of the other as the means by which they could be free to go their separate ways.
[202] I am accordingly satisfied that the plaintiffs have established pursuant to s 174(1) that the affairs of MBI have been, are being, and are likely to be conducted in a manner that is oppressive, unfairly discriminatory, and unfairly prejudicial to them warranting the Court exercising the powers contained in s 174(2) on the grounds that it is just and equitable to make: an order pursuant to s 174(2)(f) directing the rectification of the company’s share register and the Companies Office records to record the plaintiffs as shareholders of the company; and an order pursuant to s 174(2)(g) putting the company into liquidation.
[203] The plaintiffs seek the appointment by the Court of Iain McLennan and Colin Sanderson, Accredited Insolvency Practitioners of Auckland as joint and several liquidators of MBI, and for orders approving the hourly rates of remuneration for the liquidators and their staff. As the defendant has not been heard on the issue of the appointment of liquidators,22 I propose to appoint Messrs McLennan and Sanderson as provisional liquidators pending further order of the Court confirming their appointment, or alternatively appointing another person or persons as liquidator, having first heard from the defendants’ counsel by memorandum before making a final order.
[204] As no prejudice to the parties would be caused by a short deferral of the coming into effect of an order for liquidation of MBI, I consider it appropriate to defer the order coming into effect until 2 February 2021 to enable Mr Spiers and Ms O’Brien
22 The plaintiffs have filed a consent by Mr McLennan and Mr Sanderson to being appointed as liquidators of MBI.
and the trustees of the O’Brien Trust and the Spiers Trust to endeavour to resolve an alternative basis of separating their respective interests in the company.
Result and Orders
[205] I have found, in relation to the first issue, of whether the plaintiffs are shareholders of MBI, that:
(a)Mr Spiers did transfer half of his shares in MBI, MBHL and SBSL to Ms O’Brien in 2004.
(b)The Trust Partnership was indebted to the O’Brien Trust for $200,000, because:
(i)the O’Brien Trust did not make contributions to the Trust Partnership totalling $259,664; and
(ii)nor did the Trust Partnership make payments to the O’Brien Trust totalling $68,730; and
(iii)nor did the Spiers Trust, through companies owned and controlled by Mr Spiers, make contributions to the Trust Partnership totalling $247,025.
(c)The fair market value of the shares acquired by the O’Brien Trust in 2004 was $200,000.
(d)The transfer of shares was not voidable for want of consideration.
[206] Finding that the plaintiffs are shareholders of MBI, I determined the second issue, holding that the plaintiffs have been subject to prejudicial conduct by Mr Spiers as the sole director of MBI.
[207]Accordingly, I make the following orders:
(a)An order pursuant to s 174(2)(f) of the Companies Act 1993 directing Mr Russell Spiers as the sole director of Modern Built Investments Limited (MBI) to forthwith rectify the share register of the company to record the current trustees of the T A O’Brien Family Trust as holders of 980 shares in MBI, and to record Tracey Ann O’Brien as the holder of 20 shares in MBI.
(b)An order pursuant to s 174(2)(g) putting Modern Built Investments Limited into liquidation. The order for liquidation of the company shall become effective on 2 February 2021.
(c)An order appointing Iain McLennan and Colin Sanderson, Accredited Insolvency Practitioners of Auckland as provisional joint and several liquidators of MBI pending further order of the Court confirming their appointment and approving the rates of remuneration of the liquidators.
(d)The defendant is to file a memorandum by 5 pm 25 January 2021 as to whether it consents to or opposes the appointment of Messrs McLennan and Sanderson as liquidators or as to whether it proposes some other person or persons as liquidator/s of MBI. The plaintiffs are to file a memorandum in reply by 5 pm 29 January 2021. Their respective memoranda are not to exceed three pages in length. In the event of disagreement as to who should be appointed as liquidator/s, upon the filing of the memoranda, I shall determine the issue of the appointment of a liquidator/s on the papers.
Costs
[208] The plaintiffs, having succeeded, are entitled to an award of costs. I direct the plaintiffs to file and serve their costs memorandum on or before 5 pm 25 January 2021. And I direct the defendant to file and serve its memorandum in reply as to costs, by 5 pm on or before 5 February 2021. The memoranda are not to exceed three pages in length excluding the title page and any annexed schedules or attachments relating to disbursements.
[209] Upon receipt by the Registrar of the costs memoranda filed pursuant to these directions, I shall determine the award of costs on the papers.
Paul Davison J
2