Viranda Partners Limited v Guest - [2023] NZHC 1185

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2021-404-2376

[2023] NZHC 1185

BETWEEN
VIRANDA PARTNERS LIMITED

Plaintiff

AND AND

AND

ANDREW JOHN DEXTER GUEST

First Defendant/Applicant

STEPHEN PATRICK DONOVAN
Second Defendant/Respondent

VERITAS CAPITAL COMPANY LIMITED

Intervening Party/ Respondent

Hearing: 8 May 2023

Appearances:

J D Ryan for Plaintiff

A S Butler KC and C W Gambrill for First Defendant Appearance excused for Second Defendant (who abides) D H McLellan KC for Veritas Capital Company Limited

Judgment:

17 May 2023

JUDGMENT OF ASSOCIATE JUDGE LESTER

(Leave to appeal)

This Judgment was delivered by me on 17 May 2023 at 12pm pursuant to Rule 11.5 of the High Court Rules

Registrar/Deputy Registrar Date 17 May 2023

VIRANDA PARTNERS LIMITED v GUEST [2023] NZHC 1185 [17 May 2023]

[1] Andrew Guest (Mr Guest) seeks leave to appeal orders granting Veritas Capital Company Limited (Veritas), a 50 per cent shareholder in the plaintiff, leave to in substance take over the running and funding of the present proceeding.1

[2] Viranda Holdings Limited (VHL), is the other equal shareholder in Viranda Partners Limited (VPL).

[3] The first defendant, Mr Guest, is a director of VHL alongside a Mr Bridgman. The other defendant, Mr Donovan, is a former director of VHL.

[4] Veritas has two directors on the Board of VPL (Mr Tim Chen and Mr Patrick Pan), the remaining two of the four directors.

[5] In this proceeding, VPL claims that Mr Guest, aided by Mr Donovan, diverted a valuable business opportunity owned by VPL to another company which in turn gave Mr Guest an interest in that business opportunity. VPL commenced its claim against Messrs Guest and Donovan in December 2021, alleging breach of directors’ and fiduciary duties. A 10-day hearing is scheduled for August 2024. Mr Butler KC, counsel for Mr Guest accepts “there is undoubtedly dysfunction between VPL’s directors and VPL’s shareholders” albeit, he observes such has not prevented this proceeding progressing to the point of being set down.

[6] Veritas has been funding the litigation, albeit informally. Mr Bridgman joined with the Veritas appointees on VPL’s Board to approve this proceeding being filed. VPL is not trading and has no independent ability to fund this claim. Veritas’ funding of the litigation occurs by it paying VPL’s legal fees directly, which it does against Mr Guest’s protest; he maintaining Veritas doing so is contrary to the shareholders agreement between Veritas and VHL.

[7] In short, orders were made granting Veritas the ability to take over the running of the proceedings because:

1 Viranda Partners Ltd v Guest [2022] NZHC 2957.

(i)it was in the interests of VPL that its ability to pursue its proceeding be put on a firm and formal basis;

(ii)the continuation of this proceeding was dependent upon Mr Bridgman’s support for the litigation which may cease at a time when it is too late for the fixture to be maintained; and

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.

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Details

Case: [2023] NZHC 1185
Decision Date: 17 May 2023

CaseChat Overview and Summary

In Viranda Partners Limited v Guest, the High Court of New Zealand was tasked with deciding whether to grant leave for an appeal against orders permitting Veritas Capital Company Limited to take over the management and funding of a litigation brought by Viranda Partners Limited (VPL) against its former director, Andrew Guest. VPL, which has been non-operational and lacks independent funding, is equally owned by Viranda Holdings Limited (VHL) and Veritas. The litigation in question alleges that Guest, along with another former director, Stephen Donovan, diverted a business opportunity from VPL to another entity, thereby breaching fiduciary and directors’ duties.

The court had to determine whether the orders allowing Veritas to formally fund and manage the litigation were justified, given the contentious relationship between VPL’s directors and shareholders. The court concluded that the orders were necessary because the continuation of the litigation was contingent on the support of VHL’s director, Mr. Bridgman, which could be withdrawn. Additionally, the court committed significant time to the case, making it prudent to secure the litigation's progression. The orders were made with conditions to prevent the introduction of unrelated claims. The decision was grounded on the principle that the litigation had merit, VPL had no other means to fund it, and it was in VPL's interest to ensure the litigation proceeded under stable management and funding.

The applicant, Guest, argued that the court erred in several respects, including the conclusion that requiring a formal funding proposal from Veritas was pointless and that Veritas would not conduct the proceedings in VPL's best interests. The court found that Guest had not presented any evidence to counter the view that he would likely oppose any formal funding proposal, given his stance against the litigation regardless of who funds it. Furthermore, the court did not find any real concern that Veritas would not act in VPL's best interests, as Veritas would only recover its costs if the litigation was successful. The court also dismissed Guest's argument that the shareholders' agreement should have been considered more thoroughly, stating that the dispute resolution provisions in the agreement did not preclude the court's jurisdiction under the Companies Act.

The court held that none of the alleged errors had a reasonably arguable basis, as the decision was rooted in the soundness of the litigation, the necessity of external funding, and the dysfunctional relationship between VPL's directors and shareholders. The court concluded that there was no downside for VPL in having Veritas manage the litigation, as any recovery would belong to VPL, and Veritas funded the litigation at its own risk. Therefore, the application for leave to appeal was declined, and Guest was ordered to pay Veritas’ costs.

Orders