Stacey v Watson - [2016] NZHC 1891

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2015-404-525 [2016] NZHC 1891

BETWEEN
NORMAN WILLIAM STACEY

First Plaintiff

NORMAN WILLIAM STACEY, ANNE LOUISE SERRA and KERRY DALE MCINTOSH as trustees of the Stacey Family Trust

Second Plaintiffs

AND

DOROTHY VICKI WATSON First Defendant

DOROTHY VICKI WATSON and DVW TRUSTEE LIMITED as trustees of the DVW Family Trust

Second Defendants

Hearing: 11 to 18 July 2016

Counsel:

PJ Dale for plaintiffs
JQ Wilson and CM Cattin for defendants

Judgment:

16 August 2016

JUDGMENT OF FAIRE J

This judgment was delivered by me on 16 August 2016 at 12 noon, pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date……………

Solicitors: Friedlander & Co, Auckland (P Friedlander) Bell Gully, Auckland

Stacey v Watson [2016] NZHC 1891 [16 August 2016]

Contents

Introduction ............................................................................................................[1] The plaintiffs’ causes of action...............................................................................[6] The relief sought ..................................................................................................[10] Background ..........................................................................................................[15] DISL and DWML.................................................................................................[24] Regulatory issues with the FMA ..........................................................................[28] The sale process ...................................................................................................[33] The discussions with Fisher Funds ......................................................................[42] The buy-back right ...............................................................................................[82] Issues requiring determination ...........................................................................[101] Expert evidence ..................................................................................................[102] Fiduciary duty .................................................................................................... [111] Section 174 .........................................................................................................[126] Result..................................................................................................................[154]

Introduction

[1] Diversified Investments Strategies Ltd (“DISL”) is a company incorporated under the Companies Act 1993 which was formed for the purpose of providing investment strategies and advice to private clients for individually managed portfolios. All private clients were on the AEGIS administration platform. AEGIS is an electronic investment administration service. It is essentially a website that allows the directors to manage all of the DISL portfolios online and generate management reports.

[2] Diversified Wealth Management Ltd (“DWML”) is a company incorporated under the Companies Act 1993 and which was formed for the purpose of managing funds. DWML provided investment strategies described as the Law Retirement KiwiSaver Scheme (“LRKS”) and the Law Retirement Plan (“LRP”) which was a

superannuation scheme. As a result of the introduction of Portfolio Investment Entities (“PIEs”) in 2007 DWML offered managed funds to retail investors. For the purposes of this proceeding and because of the licensing requirements, the New Zealand Guardian Trust Company Ltd (“NZGT”) became the trustee with responsibility for supervision. DWML established a balanced fund in March 2008 and a dynamic fund in November 2009. Each fund was subject to various regulations and PIE taxes. A good number of DISL private clients were also investors in the DWML funds, or KiwiSaver. There were other connections between the two businesses.

[3] The first plaintiff, Mr Stacey, and the first defendant, Ms Watson, are the directors of DISL and DWML.

[4] The shares in DISL and DWML are held in equal proportions by the second plaintiffs, as trustees of the Stacey Family Trust, and the second defendants, as trustees of the DVW Family Trust.

[5] This proceeding relates to the actions of Ms Watson and Mr Stacey leading up to and including the entry into two agreements for sale and purchase, dated 4 June
2014. In the first, DISL sold the customer relationships and contracts of its private client business to Fisher Funds…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

Continue reading Stacey v Watson

Details

AGLC: Stacey v Watson [2016] NZHC 1891
Case: [2016] NZHC 1891
Decision Date: 16 August 2016

CaseChat Overview and Summary

The plaintiffs, Norman William Stacey, Anne Louise Serra, and Kerry Dale McIntosh, as trustees of the Stacey Family Trust, brought a claim against the defendants, Dorothy Vicki Watson and DVW Trustee Limited, as trustees of the DVW Family Trust, alleging that Ms Watson breached her fiduciary duties to Mr Stacey and the Stacey Family Trust. The plaintiffs claimed that Ms Watson negotiated the sale of Diversified Investment Strategies Ltd and Diversified Wealth Management Ltd to Fisher Funds Management Ltd at below market value, in return for an employment contract that included a salary and bonus package and a buy-back right. The plaintiffs sought compensation for the difference in the market value of the assets sold and the purchase price received under the sale and purchase contract. They also sought relief under s 174 of the Companies Act 1993, alleging that the defendants' conduct was oppressive, unfairly discriminatory, or unfairly prejudicial to them.

The court considered whether the circumstances of the sale to Fisher Funds gave rise to fiduciary duties owed by Ms Watson to the plaintiffs. The court found that there was no inherently fiduciary relationship between the parties, and a fiduciary duty could only arise because of the particular circumstances of the case. The court concluded that there was no basis for finding that there was a fiduciary duty on the basis of any imbalance of power, information, or commercial expertise.

The court also considered whether the defendants' conduct was oppressive, unfairly discriminatory, or unfairly prejudicial under s 174 of the Companies Act 1993. The court found that the plaintiffs had not shown that Ms Watson's conduct resulted in any corresponding loss to the shareholders or adversely affected them. The court held that the plaintiffs' claim for relief was heavily inflated and that the amount of damages awarded in relation to the sale of DWML could only be, at most, half of the difference between the amount that resulted from the sale to Fisher Funds (less the LRKS) and one per cent of the FUM at the time that the Devon offer was made.

The court found that the plaintiffs' claims failed, and judgment was entered for the defendants on the claim. The court reserved costs.

Orders