Parata v Kuru
[2024] NZHC 416
•1 March 2024
IN THE HIGH COURT OF NEW ZEALAND NAPIER REGISTRY
I TE KŌTI MATUA O AOTEAROA AHURIRI ROHE
CIV-2023-441-72
[2024] NZHC 416
BETWEEN TE-RANGI MATANUKU PARATA
Applicant
AND
RICKY THOMAS KURU and LEANNE SHIREE KURU
Respondents
Hearing: 27 February 2025 Appearances:
S M Lowery for Applicant
O E Jaques and O C Gascoigne for Respondents
Judgment:
1 March 2024
JUDGMENT OF CULL J
[Interim Injunction Decision]
This judgment was delivered by me on [ ] 2024 at am/pm pursuant to r 11.5 of the High Court Rules.
Registrar/Deputy Registrar
PARATA v KURU [2024] NZHC 416 [1 March 2024]
[1] Mr Parata is one of three directors of PK Crushing Ltd (PK Ltd). He seeks orders by way of interim injunction to prevent his two co-directors from entering into any related party transactions with Kuru Contracting Ltd (Kuru Ltd), of which they are the directors, unless all PK Ltd’s directors consent in writing. Mr Parata also seeks an order requiring his co-directors, Mr and Ms Kuru, to swear an affidavit identifying each transaction PK Ltd has entered into since 1 April 2023 with a related party.1
[2]The defendants, Mr and Ms Kuru, oppose the application.
Factual background
[3] PK Ltd carries on business as a rock crushing and quarrying business in the Gisborne region.2 Mr Parata and Mr and Ms Kuru are the directors of PK Ltd. They have each held 40 of PK Ltd’s 120 shares since the company’s incorporation in March 2019.
[4] PK Ltd was incorporated on the agreed understanding that Mr Parata would be given the opportunity to purchase the remaining 80 PK Ltd shares owned by Mr and Ms Kuru after PK Ltd had been operating for five years. This would have been in March 2024. In August 2020, the three entered into a shareholder agreement. Clause 4.1 of the agreement provides the following:
The Shareholders shall act so as to expand the operations of the Business and the Company without seeking short term gains for themselves. The overriding objective of the Company is to maximise the long term returns to the shareholders.
[5] Mr and Ms Kuru are also the directors of Kuru Ltd along with a third party. They individually hold 34.25% and 33.01% of Kuru Ltd’s shares respectively and hold the remaining 32.74% jointly with a third party.
[6] Mr Parata asserts that, in early 2022, the parties reached a partly oral, partly written agreement that PK Ltd would be merged with Kuru Ltd, with Mr Parata receiving 15% of the shares in the combined entity in exchange for his PK Ltd shares and his services performed for Kuru Ltd. Mr and Ms Kuru assert that while
1 “Related party” as defined in s 291A of the Companies Act 1993.
2 According to the respondents, the business also undertakes a range of other Works, including slash recovery, earthworks, civil works, forestry works and remediating slips.
possibilities of merging the two companies had been discussed, the parties did not reach the stage of documenting or agreeing terms.
[7] At a meeting on 31 March 2023, Mr Parata asserts that he sought an update on the merger agreement and Mr Kuru told him the deal was off. A heated exchange marked the complete breakdown in the commercial relationship between Mr Parata and the defendants.
[8] From 1 April 2023, Mr Parata claims he was excluded from the management of PK Ltd, with the defendants running the company without his consultation or input. He asserts that from early April 2023 until early November 2023, he did not have access to PK Ltd’s Xero account.
[9] The defendants do not agree with these assertions and say that Mr Kuru absented himself from the management of PK Ltd, that despite their proposals to hold board meetings or meet with the plaintiff on at least four separate occasions, Mr Parata has ignored those offers, and that Mr Parata was provided access to the Xero account as soon as reasonably practicable.
[10] In support of Mr Parata’s application for interim orders to prevent any future related party transactions without his written approval, substantial evidence was filed, including details of eight transactions, which Mr Parata calls the “impugned transactions”, contending that the defendants have not acted in good faith or in the best interests of PK Ltd.
[11] The issues giving rise to the substantive claim concern the way in which the defendants’ management of PK Ltd was conducted. Mr Parata claims that under the defendants’ management, PK Ltd engaged in a series of related party transactions that transferred value and cash from PK Ltd to Kuru Ltd to the benefit of Mr and Ms Kuru but to the prejudice of Mr Parata, who has no shareholding in Kuru Ltd.
[12] Mr and Ms Kuru assert that the impugned transactions are the “exercise of genuine business judgment” and emphasise that PK Ltd is profitable and there is no cause for concern.
[13] Mr Lowery for Mr Parata presented a schedule itemising eight impugned transactions, with summaries of the parties’ positions on those transactions and the evidence upon which they rely.
Legal principles
[14] Klissers Farmhouse Bakeries provides the three stages to the consideration of an application for an interim injunction.3 First, the applicant must establish that there is a serious question to be tried. Next, the balance of convenience must be considered. Finally, an assessment of the overall justice of the position is required as a check.
Analysis
Serious question to be tried
[15] Mr Parata seeks the interim injunction orders under s 165(5) of the Companies Act 1993, which provides that a court may order injunctive relief where a company or a director of a company proposes to engage in conduct that would contravene the constitution of the company of the Act.
[16] Mr Jaques for the defendants submits that the threshold for granting an injunction under s 164(5) of the Companies Act is not met for two reasons. First, PK Ltd’s Constitution allows resolutions to be passed if the majority of directors vote in favour of it and directors are allowed to vote on transactions in which they have an interest. Second, injunctive relief cannot be based on past allegations but must relate to proposed conduct and Mr Parata’s allegations about future conduct is speculative and not specific.
[17] Mr Parata has made serious allegations in relation to the eight particularised “impugned transactions”. Those must be finally determined at the substantive hearing. On an interim basis however, two of those transactions have been acknowledged by the defendants as being in error. The defendants have properly taken steps to withdraw one of the affected invoices and the other conceded transaction has been and is being
3 Klissers Farmhouse Bakeries Ltd [1985] 2 NZLR 129 (HC).
rectified by the appropriate payment to PK Ltd and a recalculation of the relevant invoices.
[18] While I accept that s 164 is engaged only in relation to prospective conduct, I am satisfied that the threshold for injunctive relief, namely a serious question to be tried, has been met here on the basis of the evidence traversing the past conduct from 1 April 2023 to the present.
[19] As I advised Counsel during the hearing, I do not propose to traverse the evidence relating to these transactions because in the latter part of the hearing, Counsel sought time to obtain instructions to resolve this dispute by a mutually agreed commercial mechanism for dealing with prospective related party transactions.
[20] Accordingly, I record that I am satisfied that there is a serious question to be tried, which requires either determination by the Court or mutual resolution.
Balance of convenience
[21] The next question is whether interim orders are required to preserve PK Ltd’s position and value pending determination of the substantive hearing.
[22] The defendants submit that the interim orders sought by the plaintiff are not workable because disputes as to the future business of PK Ltd are inevitable. The concern expressed by the defendants is that if Mr Parata withholds his consent to all related party transactions or any in particular, the only recourse is to the High Court.
[23] Although the intended orders would require that Mr Parata is not to unreasonably withhold his consent, the inevitability of disputes over future transactions presents difficulties for the company. The company would be deadlocked, further recourse to the court would be required, and such a process would take significant time and resources, materially affecting the ability of the company to conduct its business. The Courts have held that orders requiring ongoing supervision
by the court are not appropriate and there is a judicial reluctance to review decisions of directors.4
[24] Just prior to the commencement of the hearing, the defendants through their Counsel made a written offer to provide comfort to the plaintiff regarding PK Ltd’s future affairs and provide steps towards a broader resolution of the matters in dispute. This was done on the basis that Mr Parata withdrew his application for interim relief. Mr Parata declined that offer and the hearing proceeded.
[25] During the hearing, I indicated to Counsel that I considered preservation of the interim position was warranted but the default position that the High Court should adjudicate on any disputed related party transactions at short notice was not practicable.
[26] After conferring with their respective clients, Counsel agreed that the following orders could be made by consent, subject to leave being granted to the parties to amend the wording if necessary. I considered that the parties’ agreement was an appropriate commercial solution and the preferable way to resolve the interim position until final resolution.
[27]Accordingly, by consent, I make the following orders:
(a)An interim injunction to 8 April 2024 preventing Ricky Kuru and Leanne Kuru from causing PK Crushing Ltd (PK Ltd) to enter into any related party transactions, including with Kuru Contracting Ltd (Kuru Ltd), unless all PK Ltd directors consent in writing (such consent not to be unreasonably withheld if the transaction is in PK Ltd’s best interests).
(b)An order that the parties file a joint memorandum by 5.00 pm, 28 March 2024 to advise of the appointment of an independent director
4 Goldridge Estate Vineyards 3552 Ltd v Kakara Estate Ltd BC201063514 at [89]; City Mart Ltd v Properties & Pleasurecraft Ltd [2015] NZHC 1160; BC201561545 at [30] and [31].
to PK Ltd, or an agreed mechanism for an independent veto or approval of any future related party transactions between PK Ltd and Kuru Ltd.
(c)An order requiring Ricky Kuru and Leanne Kuru to swear an affidavit by 28 March 2024 identifying:
(i)each transaction PK Ltd has entered into since 1 April 2023 with a related party (as defined in s 291A of the Companies Act 1993);
(ii)the consideration exchanged in each transaction, when that consideration was exchanged, and to whom;
(iii)if no consideration was exchanged, why not;
(d)Costs on this application is reserved;
(e)Leave is granted to the parties to seek to amend the wording of the above orders by agreement, if required;
(f)This matter is to be called in the Judicial Chambers List on Monday, 8 April 2024 unless agreement has been reached between the parties. Counsel are to advise.
Cull J
Solicitors:
Hornabrook Macdonald Lawyers, Auckland for Plaintiff Mallett Partners, Wellington for Respondents
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