Rockyana Lodge Ltd v Stenberg [1999] NZCA 294; (2000) 8 NZCLC 262,130 (8 December 1999)

Last Updated: 29 November 2011

IN THE COURT OF APPEAL OF NEW ZEALAND

CA182/99

	BETWEEN	ROCKYANA LODGE LIMITED
		Appellant

	AND	ALEXANDRA LOUISE STENBERG
		First Respondent

	AND	WYNYARD WOOD
		Second Respondent

Hearing:	24 November 1999
Coram:	Thomas J Keith J Blanchard J
Appearances:	P T Finnigan for Appellant G S Millar for First Respondent I F Williams for Second Respondent
Judgment:	8 December 1999

JUDGMENT OF THE COURT DELIVERED BY BLANCHARD J

Introduction

[1] This case involves an attempt by Mr Lionel Buckton to have set aside an agreement which he made in 1989 with Mrs Alex Stenberg, his former partner, separating their interests, and in particular partitioning a block of land at Karaka in South Auckland which was held by a company, the appellant, Rockyana Lodge Limited (Rockyana) in which they and Mr Buckton’s mother, Mrs Rewa Buckton, held all the shares. The attempt was made by a proceeding not commenced until 1995, although in March 1991 title to the portion of the land allocated by the agreement to Mrs Stenberg had been transferred to her and registered in her name under the Land Transfer Act 1952, and she had borrowed a substantial sum of money secured against her portion and had built a house and made other improvements on her property. The appeal has proceeded notwithstanding that if the claims of Mr Buckton had ever had any appearance of real merit, that disappeared once the trial Judge, Potter J, after seeing and hearing both the main protagonists, made findings that Mr Buckton’s account of events was “simply not credible” and accepted the evidence of Mrs Stenberg in all essential respects. Potter J also dismissed a separate claim by Mrs Buckton. Neither Mr Buckton nor his mother is a party to this appeal, but it is clearly being pursued in his interests in view of the shareholding position in the company.
[2] The sole appellant is the company, Rockyana, which Mr Buckton effectively controls. Through its auspices he seeks to take advantage of an alleged breach of s62 of the (former) Companies Act 1955 (the Act) in the way in which the agreement was structured and of an alleged breach by Mrs Stenberg of her fiduciary duties to the company as its then director at the time the agreement was entered into with the company as a party, and of her failure to make in respect of the agreement a declaration of interest as required by the Articles of Association of Rockyana and by s199 of the Act.
[3] Rockyana also sued its former solicitors, Wynyard Wood, who acted for it and for Mr Buckton in connection with the separation of the Buckton/ Stenberg interests, alleging breach of fiduciary duty owed to Rockyana, as well as negligence on their part. Potter J dismissed these claims and Rockyana now appeals that decision as well.

Facts

[4] Potter J’s judgment contains a comprehensive and careful statement of the events giving rise to the litigation and, as her findings are not, and could not be, challenged on this appeal, save possibly in relation to some peripheral matters, it is fortunately unnecessary to do more than provide a summary.
[5] The property was purchased in 1977 in the name of Rockyana which was incorporated for that purpose. The shareholdings in Rockyana have remained unchanged: Mr Buckton 8,000, Mrs Stenberg (then Alex Wilson) 7,000 (of which, as the Judge found, she held 4,000 in trust for Mr Buckton’s infant son (born in 1966)), and Mrs Buckton 5,000; thus, a total of 20,000 shares. The directors were the three shareholders and Alex Wilson was the secretary. In practice, however, Mrs Buckton played no role at all in the running of the company. Directors’ meetings were never held.
[6] The property had an area of 11.7094 ha. The improvements on it consisted of a house in which Mr Buckton and Alex Wilson lived together, stables and horse shelters. The company merely held the property. It did not trade. Lionel Buckton and Alex Wilson in partnership agisted and pre-trained thoroughbred race horses on the property, for which purpose they developed a training track. The Judge found that the original purchase price of $82,000 was funded in part by Mrs Buckton – hence her shareholding. The Judge also found that both Mrs Stenberg and her father, Max Wilson, who died in 1982, contributed substantially to the funding of the development of the property, which included improvements to the house.
[7] >From May 1984 until August 1987 Mr Buckton was in prison after pleading guilty to charges of trafficking in cocaine. While he was in prison Alex Wilson formed a relationship with Mr Andrew Stenberg and married him. By the time Mr Buckton was released from prison the Stenbergs were occupying the house on the property.
[8] Shortly before Mr Buckton’s release, Mrs Stenberg caused her solicitor, Mr Carter of McElroy Milne, to write a letter to him in which she claimed that she and her late father had expended $88,000 on the property and that these moneys were paid on a “clear verbal arrangement from early 1980 onwards” that notwithstanding the shareholding division the property was in fact 50% hers. It will be observed that the amount of the claim closely approximates the original purchase price although the moneys would have been expended, in part anyway, at a somewhat later time.
[9] The letter made a proposal for dividing the property between them. Mr Buckton claimed that he did not receive that letter. The Judge did not find it necessary to resolve that issue. The importance of the letter is, rather, that it sets out the position taken by Mrs Stenberg in subsequent negotiations with Mr Buckton and evidences her claims which were intended to be settled by the agreement reached in 1989. By that time the property had a value of $360,000, according to a report of a registered valuer.
[10] The agreement was first executed on 24 July 1989. (It had to be re-executed later because it became void when the parties overlooked compliance with the Land Settlement Promotion and Land Acquisition Act 1952.) The parties were Mrs Stenberg, Mr Buckton and Rockyana. There was a recital of Rockyana’s ownership of the 11.7094 ha and then two crucial recitals which indicate what matters the parties were endeavouring to resolve:

2. Stenberg has lent money to Rockyana and has otherwise improved the farm, has 7,000 of the 20,000 shares in Rockyana: and claims to be entitled to 50% of the present value of the farm

100. The parties have agreed to subdivide the farm and transfer part of the farm to Stenberg and pay her $50,000 in cash in full and final settlement of all claims Stenberg has against Buckton or Rockyana for the farm and in full settlement of any claims Buckton and Rockyana may have against Stenberg

[11] It will be noted that Mrs Stenberg is treated as the owner of 7,000 shares as if they were all beneficially hers. However, Potter J has ordered that 4,000 shares must be transferred to Mr Buckton’s son in terms of the trust upon which those shares were held and Mrs Stenberg accepts that she must do so. (No share transfers have yet occurred.)
[12] Clause 1 of the agreement provided for Rockyana to borrow $50,000 from the Auckland Savings Bank on first mortgage of the property, to be guaranteed by Mr Buckton, and that Mrs Stenberg was to be paid $25,000 nett out of that advance. Rockyana and Mr Buckton were to assume sole responsibility for repaying the loan.
[13] Clause 2 provided for Rockyana to arrange for the property to be surveyed into two lots and the depositing of a subdivision plan. Mrs Stenberg was to be entitled to remain in “exclusive occupation” of the house until the later of 31 January 1990 or the deposit of the plan (“the settlement date”).
[14] Clause 4 provided that on the settlement date Rockyana was to transfer Lot 2 to Mrs Stenberg and she was to “transfer all her shares in Rockyana to the other shareholders pro rata or otherwise as they shall direct”. Rockyana was to execute in favour of Mrs Stenberg a registrable second mortgage for $50,000 for a two year term at 13% pa interest, with the mortgage being guaranteed by Mr Buckton.
[15] Clause 4(d) provided:

(d) The said transfers and mortgage will be accepted by the parties in full and final discharge and settlement of all claims, rights and liabilities at law or in equity which currently exist between them.

[16] Wynyard Wood were instructed by Mr Buckton to act on behalf of himself and the company in relation to the Auckland Savings Bank mortgage. But initially they were not provided with a copy of the agreement. They did not set eyes on it until Mr Carter sent them a copy when he wrote to them on 14 September 1989 advising that the agreement would have to be re-executed because the date by which application had to be made to the Land Valuation Tribunal for consent to the transaction had expired. On 25 September 1989 Mr Buckton and Mrs Stenberg re-executed the agreement at the office of McElroy Milne.
[17] In February 1990 the scheme plan of subdivision was amended after some further discussions between Mrs Stenberg and Mr Buckton. The Judge accepted the evidence of Mrs Stenberg that Mr Buckton had asked to be able to have a sufficient area of land to enable him to carve off a “retirement block” and still be left with a clear 10 acres. The new scheme plan adjusted the dividing line between the lots. The final areas became 5.0050 ha for Lot 1 (being retained by the company) and 6.7044 ha for Lot 2 (Mrs Stenberg). Those areas were subsequently adjusted again when the final plan was lodged for deposit but the further adjustment was minimal. A registered valuer’s report as at September 1989 valued Lot 1 at $250,000 and Lot 2 at $175,000. It can thus be seen that, although Mrs Stenberg got a larger area of land, the value of what was transferred to her was less than that retained by Rockyana/Buckton but, of course, she received $25,000 in cash from the proceeds of the ASB mortgage and was supposed to receive a second mortgage of $50,000. Once these adjustments are made there is apparently an equality of exchange if the matter is viewed entirely as a division between Mrs Stenberg and Mr Buckton.
[18] The borrowing from the Auckland Savings Bank occurred and Mrs Stenberg was paid $25,000, less some agreed adjustments for rates and expenses. Lot 2 was transferred to Mrs Stenberg. The Stenbergs’ home was built on it between September and December 1990.
[19] However, Mr Buckton has refused to implement the provision of the agreement which called for Rockyana to grant a second mortgage of $50,000 to Mrs Stenberg and, apparently for this reason, no share transfers have occurred.
[20] It appears that the reason for Mr Buckton’s attitude has been his discovery that it was not in fact possible to carry out the further subdivision of Rockyana’s Lot 1 to provide for a “retirement block”. This was ostensibly to be for his mother, but Mrs Stenberg said in evidence that she doubted that Mrs Buckton was anything but the means by which qualification for the retirement block in terms of the local authority’s ordinances might be achieved, and that Mr Buckton was actually going to sell it. (Mrs Buckton’s claim that there was an agreement by Mrs Stenberg to provide her with a retirement block or a house site was dismissed. She has not appealed.) Be that as it may, and it is unnecessary to form a view, it is clear that Mrs Stenberg was not to blame in any way for Mr Buckton’s problem. It seems that in making the adjustment to the internal boundary she simply accommodated his expressed desire to have 12½ acres, knowing nothing of the requirements of the ordinances.
[21] Mr Buckton came to the conclusion that the deal which he had struck with his former partner was unevenly weighted in her favour and some years after the events which have been described, and in response to a proceeding in the District Court by Mrs Stenberg seeking to enforce her right to have the second mortgage, which by then would have been long overdue for repayment, Mr Buckton commenced the present proceeding in the names of Rockyana, his mother, and his son. Mrs Stenberg joined him as a party and he counterclaimed against both her and Wynyard Wood.
[22] After a lengthy review of the evidence, the Judge concluded that it was simply not credible that Mr Buckton, who was “no stranger to property dealing”, would have abandoned all care and responsibility for his interests and those of his family to Mrs Stenberg to the extent that he entirely relied upon her to protect those interests, as he had alleged. She rejected Mr Buckton’s account of how the agreement came to be executed and found that there was nothing in the factual situation that would provide any grounds for the agreement to be set aside. A matter crucial to this appeal is the Judge’s conclusions about the fairness of the agreement as between Mr Buckton and Mrs Stenberg. There was no dispute that he, with his mother, had provided the deposit on the purchase of the property and that those initial contributions provided the capital of Rockyana. Mrs Stenberg had contributed nothing at that time, although 3000 shares out of 20,000 had been beneficially allocated to her. The Judge rejected Mr Buckton’s assertion that the costs of the purchase, renovations and improvements to the property, which he put at $150,000, had been made by him entirely to the exclusion of Mrs Stenberg.
[23] Potter J did however accept Mrs Stenberg’s evidence about the substantial contributions made by her father. She also accepted Mrs Stenberg’s evidence in relation to her own financial contributions; in particular that “Alex made a significant contribution during the period 1984 to 1987 while Lionel was in prison in running the partnership business, meeting mortgage commitments and other outgoings in respect of the property and generally sustaining the property during the absence of her partner.” During this period, the Judge found, Mrs Stenberg had also made direct financial contributions, including the repayment of the balance of a mortgage over the property. She found that Mr Buckton had entered into the agreement “with notice and knowledge of its contents”, and that when he committed Rockyana and himself to the agreement he must have considered it was a fair bargain “allowing that Alex may have been in a position of some advantage in bargaining power because of Lionel’s wish to obtain vacant possession of the house on the property.” But the Judge concluded this portion of her judgment:

By entering into the Agreement, I consider Lionel accepted that Alex made contributions to the property both herself and through her father, which the Agreement recognised. It is inconsistent with his commitment then, to now assert that these contributions were not made.

[24] The Judge obviously considered that, in the circumstances at the time, the agreement was fair as between the former partners.
[25] Potter J then turned to consider what she described as the technical grounds argued by the plaintiffs to set aside the agreement. The first of these was that the agreement was in breach of s62 of the Act which provided:

62. Prohibition of provision of financial assistance by company for purchase of or subscription for its own or its holding company’s shares – (1)Subject as provided in this section, it shall not be lawful for a company to give, whether directly or indirectly, and whether by means of a loan, guarantee, the provision of security, or otherwise, any financial assistance for the purpose of or in connection with a purchase or subscription made or to be made by any person of or for any shares in the company....

[26] The Judge recorded that, as the mortgage documentation to the Auckland Savings Bank had finally been structured, it was Mr Buckton who was the borrower of the $50,000, with Rockyana guaranteeing the loan, but the provision of that guarantee might be “financial assistance” as defined by s62. The agreement was one providing for a purchase of the shares held by Mrs Stenberg. The principal argument against the view that there had been a breach of this section was that the primary purpose of the agreement, so Mrs Stenberg’s counsel argued, was to free Rockyana from her claims against the property and that the acquisition by the other shareholders of her shareholding was not a primary nor even major purpose of the transaction.
[27] The Judge said that whether the agreement was in breach of s62 was not a question with a clear answer in the present case. She was not satisfied that it specifically allocated all the consideration other than to the shareholding, nor that there was no nexus between the participation of the company, and the guarantee and the transfer, and an acquisition by the other shareholders of the shares under the agreement. She said she might also be persuaded that Rockyana entered into the transaction in its own commercial interests and not primarily for the purpose of financially assisting purchasers to buy its shares, referring to para 13.34 of the commentary to the 1955 Act in Morison’s Company Law. However, Potter J said, looking at the end result “the logical conclusion is that financial assistance for the purchase of shares is one of the objects of the Agreement”. She did not find it necessary to resolve the doubt whether the section could be breached when the company had legitimately entered into the transaction in its own commercial interests, referring to Belmont Finance Corporation v Williams Furniture Ltd (No.2) [1980] 1 All ER 393.
[28] The Judge found it unnecessary to resolve these questions because she accepted unhesitatingly that this was a case in which the Court should, if there were a breach of s62, grant relief under s7 of the Illegal Contracts Act 1970. There was nothing in the facts of the matter which should render the agreement other than legally binding. There was nothing to indicate lack of good faith on the part of Mrs Stenberg. Potter J referred to Mr Buckton’s delay in commencing the proceeding. In the meantime Mrs Stenberg and her family had proceeding on the assumption they were entitled to make, that the agreement as partly performed gave them the right to Lot 2 and had “irretrievably altered their position in reliance on the Agreement”.
[29] The Judge considered the object of the enactment and the gravity of the penalty expressly provided for any breach of s62. Its prime purpose was to avoid unauthorised reductions in capital and to protect the proper interests of the creditors and contributories of a company. There were no significant external creditors and the subdivision generated value in Rockyana which was “more than the financial assistance.” And, at the time, other corporate structures were available which would have avoided the s62 difficulty. “In fact the Agreement amounted to a shortcut to liquidation and reconstruction, the costs of which it was in the interest of everyone to avoid.” In 1989 the penalty for breach of s62 was only $200 which had led this Court to comment in Catley v Herbert [1988] 1 NZLR 606, 616 that the breach could not be regarded as a matter of great gravity (Potter J did however note that the penalty was increased to $10,000 under the Companies Act 1993 as from 1 July 1994.)
[30] Potter J also thought it proper to take into account under s7 the fact that the Stenbergs had been in occupation of Lot 2 for over 7 years (in fact it would appear to be rather longer than that) and have “built their lives and business on that land and to avoid the Agreement now would have a severe detrimental effect on them”. She also said:

There is no reason why to grant relief would be against the public interest; this is essentially a private matter with no public interest connotations.

[31] The final matter which the Judge took into consideration in connection with validation was that the parties themselves clearly had no knowledge of the potential for breach of s62.
[32] The Judge was “unhesitatingly” of the view that this was a case in which the Court should grant relief under s7 and she exercised her discretion, and it is to be emphasised that it is a discretion, in favour of validation of the agreement and all the other contracts between the parties arising out of it, including the Auckland Savings Bank mortgage and guarantee, the second mortgage in favour of Mrs Stenberg and the transfer to her of Lot 2.
[33] The Judge had heard an argument, in the alternative, that the agreement was invalid because there had not been compliance with pre-emptive rights in the Articles of Association of the company. She quite rightly dismissed this argument because the agreement expressly provided for transfer of Mrs Stenberg’s shares “to the other shareholders pro rata or otherwise as they shall direct”. This argument was pursued on appeal, but by this time it has become even more hopeless since the only appellant is the company itself. The provision in the articles is not for its benefit and obviously it has suffered no loss in this respect.
[34] There was then an argument that the agreement was voidable at the option of Rockyana because there had been no declaration of interest by Mrs Stenberg as required by Article 22 of the company’s articles and by s199(1) of the Act. These read:

Article 22

(2) A director may contract with the Company provided however that a director who is in any way, whether directly or indirectly, interested in a contract or proposed contract with the Company shall declare the nature of his interest at a meeting of the directors of the Company in accordance with Section 199 of the Act.

(3) A director, notwithstanding his interest, may vote in respect of any contract or arrangement in which he is interested and he may be counted in the quorum present at the meeting.

199. Disclosure by directors of interests in contracts – (1)Subject to the provisions of this section, it shall be the duty of a director of a company who is in any way, whether directly or indirectly, interested in a contract or proposed contract with the company to declare the nature of his interest at a meeting of the directors of the company.

[35] The Judge accepted that Mrs Stenberg had an obligation to declare her interest to the company in relation to the agreement, and that there was no record of a meeting at which this had been done and it could be assumed there was no such meeting. However, she and Mr Buckton were two of the three directors and had the ability to convene a meeting and constitute a quorum. Potter J saw the breach as technical. Rockyana had not sought to avoid the contract for non-disclosure and it was now too late for it to do so.
[36] Responding to a further allegation that there had been a breach of fiduciary duty by Mrs Stenberg towards Rockyana, the Judge said simply that the company’s interests coincided with those of the Buckton family represented by Mr Buckton. The company, through him, had legal representation independent from Mrs Stenberg to the extent Mr Buckton chose to seek it. She concluded that Mrs Stenberg had not breached a duty of good faith to the company.

The appeal against Mrs Stenberg

[37] We propose to deal with the grounds of appeal against the judgment in favour of Mrs Stenberg without proceeding first to describe the claim against Wynyard Wood or Potter J’s reasons for dismissing it since Mr Finnigan accepted in argument before us that, if the Court were to uphold Potter J’s validation of the agreement under s7 of the Illegal Contracts Act, it would not be possible for Rockyana to show that, even if there had been negligence or a breach of fiduciary duty by the solicitors, any loss flowed from that breach. On this hypothesis, the appeal against Wynyard Wood must therefore fail.
[38] The issues on this appeal are whether Potter J erred in exercising her discretion under s7 of the Illegal Contracts Act to validate the agreement (Mrs Stenberg does not now contest that there was a breach of s62); whether there were breaches of the disclosure requirements of the Articles and s199; whether Mrs Stenberg was in breach of her fiduciary obligations to Rockyana; and the consequences of such breaches
[39] Mr Finnigan’s argument for the company concentrated upon an alleged imbalance in the contributions made to the company by way of initial capital and later funding of the development of the property. He relied upon a valuation by Mr J C Hagen, a chartered accountant expert in share valuation and well known to the Court. Mr Hagen had assessed the fair market value of all the Rockyana shares at September 1989 at $310,000 and put a value of $40,000 on Mrs Stenberg’s 15% shareholding. The latter figure was quite close to the assessment made by Mrs Stenberg’s expert, Mr P G Sargisson. Mr Finnigan compared this with the benefits taken by Mrs Stenberg under the agreement, suggesting that she received as much as $185,000 in excess of her entitlement.
[40] Recognising that Mr Hagen had worked off the company’s balance sheet, adjusted by the 1989 valuation of the land, without taking any account of Mrs Stenberg’s claims against the company for moneys paid into it, Mr Finnigan contended that, even if these claims were treated as having been made out, there had still been an overpayment in the vicinity of $100,000. He said that his client company was not seeking to set the agreement aside in its totality, but merely to recover the overpayment in the form of damages for the breaches. Rockyana was not asking for “a judgment in rem” in the form of the shifting of the internal boundary, thus disturbing the Land Transfer Act title.
[41] The appellant also pointed to the failure of Mrs Stenberg to declare her interest under the agreement and suggested that she had been disloyal to the company of which she was a director by making a profit from the agreement at its expense. If a meeting of directors had been called, Mrs Buckton would have become aware of the transaction and it might not have proceeded. Counsel submitted that it was a case in which it could be said that the company through its Board had never been informed of what was going on.
[42] We are bound to say that these arguments have an air of unreality about them in the particular circumstances of this case. The Judge obviously did not consider that there was an imbalance of any significance in what was achieved by the agreement by each of the three parties. Mr Buckton was to remain as the largest shareholder in the company. His interests in the property would be derived only through it. His interests were therefore identical with those of the company. He was experienced in land transactions. He had plenty of time to negotiate the deal and, based on Potter J’s findings of fact, it is reasonable to conclude that he considered the deal fair at the time. There was an opportunity for reconsideration when the problem with the Land Settlement Promotion and Land Acquisition Act arose, amounting in effect to a “cooling off” period. The parties had to start again, in legal terms, by re-executing the contract. Mr Buckton chose to affirm it.
[43] The agreement was after all a settlement of a rather messy domestic and business situation. Mrs Stenberg had not only made cash contributions but had also looked after the property and business for three to four years while Mr Buckton was in prison. As the schedule to Mr Sargisson’s brief of evidence demonstrates, Mrs Stenberg’s claims against the company could be put forward in a way which might lead to a greater indebtedness to her than had been mentioned in her solicitor’s letter in 1987. That was something that Mr Buckton had to take into account even if, had the matter been litigated, he might successfully have contested the quantum. No doubt, these being debts, there was also an interest factor to be considered if the matter went to court. The parties may at the time have had a different view of the values of the two lots, and thus of the shares, and of the value of the business. All these considerations must have influenced their respective decisions to settle. We consider that, looking at all factors, it cannot now be said that the Judge was bound to conclude that there was a substantial imbalance in the bargain to the disadvantage of Rockyana, and thus of the shareholders who were to acquire Mrs Stenberg’s shares and indirectly to have the benefit of the settlement by Rockyana of her claims against it.
[44] In other circumstances the failure to involve a director and shareholder might well be a reason to set aside an agreement made by a company, but in this case Mrs Buckton had never participated in the company’s affairs and left everything to do with it in the hands of her son. No argument was made to the Court that Mr Buckton had taken advantage of his mother. She seems to have regarded the property as if it were his to do with as he liked. There was uncontested evidence from Mrs Stenberg that Mrs Buckton recognised her claims against the company and was content for matters to be resolved between the two former partners and did not want to be involved. It seems very unlikely that, if she had been asked to attend a formal directors’ meeting, she would have interfered in an arrangement negotiated between them. As her son had supposed expertise in property dealings, she was unlikely to have queried figures to which he had agreed.
[45] We therefore think that Potter J was right in her view that Mrs Stenberg had not breached her fiduciary duties to the company because she was entitled, in the circumstances, to regard herself as negotiating with the company at arm’s length, with the company’s interests being represented by Mr Buckton. As far as the formal disclosure requirements were concerned, there would appear to have been technical breaches, but by the time the proceeding was brought there had been such delay, and the circumstances of Mrs Stenberg had changed to such an extent, that it would be entirely unreasonable to set the agreement aside on the basis of such technicalities. They rendered the contract voidable at the option of the company but, to quote Lord Pearson in Hely-Hutchinson v Brayhead Ltd [1968] 1 QB 549, 594, “the contract must be totally affirmed or totally avoided and the right of avoidance will be lost if such time elapses or such events occur as to prevent rescission of the contract...”. In our view rescission was precluded in this case by the time the proceeding was brought. The Court would in any event have had a discretion concerning any remedy and we would not think it appropriate now to make any adjustment in the position of the parties.
[46] It follows from all of this that Potter J’s exercise of her discretion to validate the contract, notwithstanding the breach of s62, is unchallengable. An account has been given above of the way in which she weighed the various relevant factors. It is enough to say that we are in general agreement with the approach she took and with her conclusion that it was appropriate that the Court grant relief by validating the agreement. The breach of s62, if any, was an inadvertent breach. Mrs Stenberg had acted in good faith and there was no disadvantage to any creditor. As the Judge said, the same result could have been achieved, but possibly at a greater cost to all concerned, if the company had been put into liquidation. This is the very kind of situation contemplated by Parliament when it reformed s62 in enacting the 1993 Companies Act.
[47] We dismiss Rockyana’s appeal against Mrs Stenberg.

The appeal against Wynyard Wood

[48] As indicated earlier in this judgment, counsel for the appellant has accepted that the appeal against Wynyard Wood must fail because there can be no provable loss arising from any misconduct by the solicitors in circumstances where the 1989 agreement has been validated by the Court.
[49] We would in any event have found that the solicitors did not act in breach of their fiduciary duties or negligently. Although there were shortcomings in the way in which the transaction was implemented on behalf of Rockyana and Mr Buckton by Wynyard Wood, it would be a counsel of perfection to suggest that they should have appreciated the existence of a conflict of interest between Mr Buckton and the company. Indeed, it follows from what we have said earlier about the identity of interests between those two parties, that we do not perceive there to have been in fact any conflict at all in their interests. Nor is it realistic to assert that if Mrs Buckton had been brought into the picture the company would not have been committed to the transaction in the form which it took in September 1989.
[50] So far as the alleged negligence in failing to detect the breach of s62 is concerned, we consider that the solicitors had two valid responses. The first was that because the agreement was expressed to be in settlement of claims by Mrs Stenberg against the company but the detail of those claims, and particularly the amounts involved, did not appear in the document, it did not necessarily follow that the company was giving a greater consideration in the form of assistance with the purchase of its shares than it was receiving from Mrs Stenberg by way of settlement of her claims. It has to be remembered that the solicitors had nothing to do with the negotiation and preparation of the agreement. They did not see it until the Land Settlement Promotion Act problem arose and they were asked to arrange re-execution.
[51] That leads to the second response, which is that it appears that Wynyard Wood were never asked to advise upon the wisdom of the transaction; that their instructions related to its implementation only. They therefore had no reason to make inquiry of their clients about the particular way in which the transaction had been structured and the underlying financial calculations. Arguably, therefore, they were not negligent in failing to pick up the fact that there might be a breach of s62. We use the word “might” in the preceding sentence because, although the respondents were content to argue their cases on the basis that a breach of s62 was assumed, it cannot be overlooked that the trial Judge felt that she could not categorically say that a breach had actually occurred. Even in hindsight, therefore, a doubt existed on this point, and there must accordingly be a difficulty in the way of an argument that Wynyard Wood’s performance of its professional functions fell below the standards ordinarily to be expected of a legal advisor.
[52] The appeal against Wynyard Wood also fails.

Result

[53] The appeals are dismissed with costs of $5,000 to the first respondent and $3,000 to the second respondent together with their respective reasonable expenses, including travel and accommodation costs of counsel, as fixed by the Registrar if the parties are unable to agree.

Solicitors
Foley & Hughes, Auckland for appellant
Castle Brown, Auckland for first respondent
Wynyard Wood, Auckland for second respondent