Lee v Lee [2012] NZHC 3283 (6 December 2012)

Last Updated: 15 January 2013

IN THE HIGH COURT OF NEW ZEALAND ROTORUA REGISTRY

CIV 2010-463-000430 [2012] NZHC 3283

BETWEEN ROBERT LEE AND HELEN HEARD Plaintiffs

AND GREGORY LEE Defendant

Hearing: 23 November 2012

Appearances: A Webb for the Plaintiffs

J Bergseng for the Defendant

Judgment: 6 December 2012

JUDGMENT OF ASSOCIATE JUDGE CHRISTIANSEN

This judgment was delivered by me on

06.12.12 at 4:30pm, pursuant to

Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date...............

Solicitors:

A Webb, Barrister, Auckland – [e-mail]

J Bergseng, Bergseng & Co, Auckland – [e-mail]

ROBERT LEE AND HELEN HEARD V GREGORY LEE HC ROT CIV 2010-463-000430 [6 December 2012]

Background

[1] The plaintiffs filed their proceeding in the High Court on 29 September 2011. They are the executors of the Estate of their mother Joyce Gwendoline Lee (Joyce) who died on 20 June 2004. Joyce survived her husband Ray who died 18 months earlier.

[2] Ray and Joyce had been the owners of a family business called High Duty

Plastics Limited (HDP) a plastics manufacturer.

[3] The defendant (Greg), a brother of the plaintiffs, alone among his siblings

had, since 1985, worked in his parent’s business.

[4] The plaintiffs’ proceeding centres on events in connection with the execution of a Deed of Bare Trust on 6 October 1997 (the 1997 Deed), and a Deed of Agreement entered into on 4 August 2000 (the 2000 Deed). The 1997 Deed dealt with the ownership of the shares in HDP and provided that 900 “B” shares be transferred to Greg whilst the remaining 100 “A” shares owned by Ray and Joyce Lee would be held in trust by Mr Clive Smith their accountant with Greg to be the final beneficiary of same. That deed provided for those “A” shares to be transferred to Greg upon the death of both Ray and Joyce.

[5] The 2000 Deed brought forward the date on which Greg was to acquire the

100 “A” shares to give effect to that transfer at that time rather than upon the death

of both parents.

[6] The plaintiffs’ proceeding concerns the acquisition of the family business by their brother. The plaintiffs plead causes of action in equity alleging undue influence, unconscionable bargain, and breach of fiduciary duty.

[7] Greg has denied these allegations and further has raised in an affirmative defence that the proceedings are statute barred by reason of the Limitation Act 1950.

[8] Greg filed a strike out application on 23 April 2012. It is supported by affidavits from Mr Willemsen and from Clive Smith accountants who advised Ray and Joyce in connection with the 1997 and 2000 Deeds.

[9] That application was withdrawn following Greg’s discovery of a legal file in relation to the transactions that took place in 1997 and 2000. A new strike out application was filed on 13 September 2012 supported by an affidavit from Greg. Additionally Greg has given notice he relies upon those affidavits filed in respect of the earlier withdrawn strike out application.

[10] The plaintiff, Robert Lee has filed an affidavit in opposition.

Strike out application

[11] Greg’s strike out action claims the plaintiffs’ proceeding is frivolous, vexatious or is an abuse of the process of the Court because it is statute barred. Greg’s position is that the cause of action arose on 6 October 1997 when the bare trust deed was entered into and that the plaintiffs claim for a declaration setting aside the transfer of shares discloses no proper cause of action that could succeed, Joyce having disposed of her shares in HDP effective from that date.

[12] The plaintiffs’ position is that whilst s 4(3) of the Limitation Act 1950 (the Act) states that “an action upon a deed shall not be brought after the expiration of 10 years from the date on which the cause of action accrued”, their claim is based upon the 2000 Deed dated 4 August 2000 and they say that the claim is statute barred only after 4 August 2012 whereas in their proceeding the statement of claim was filed on

29 September 2011.

[13] Greg asserts the right of claim arose in relation to the 1997 Deed. The

plaintiffs’ position is that any right of action arose in connection with the 2000 Deed.

Strike out principles

[14] These are well settled. Relevantly and for our purposes they include:

(a) Pleaded facts, whether or not admitted, are assumed to be true. (b) To be struck out, a cause of action must clearly be untenable.

(c) The jurisdiction is to be exercised sparingly, and only in clear cases.

(d) A Court should be slow to strike out a claim in any developing area of law, perhaps particularly where a duty of care is alleged.

(e) An application asserting the claim is statute barred must show it is clearly so.

[15] In Matai Industries Limited v Jensen [1] Tipping J referring to the decision of the Court of Appeal in England in Ronex Properties Limited v John Laing Construction Limited, observed:

[33] I consider the proper approach, based essentially on Matai, is that in order to succeed in striking out a cause of action as statute-barred, the Defendant must satisfy the Court that the Plaintiff’s cause of action is so clearly statute-barred that the Plaintiff’s claim can properly be regarded as frivolous, vexatious or an abuse of process. If the Defendant demonstrates that the Plaintiff’s proceeding was commenced after the period allowed for, the particular cause of action by the Limitation Act, the Defendant would be entitled to an order striking out that cause of action unless the Plaintiff shows that there is an arguable case for an extension or postponement which would bring the claim back within time.

[34] In the end, the Judge must assess whether, in such a case, the Plaintiff has presented enough by way of pleadings and particulars (and evidence, if the Plaintiff elects to produce evidence), to persuade the Court that might have looked like a claim which was clearly subject to a Statute- bar is not, after all, to be viewed in that way, because of a fairly arguable claim for extension or postponement. If the Plaintiff demonstrates that to be so, the Court cannot say that the Plaintiff’s claim is frivolous, vexatious or an abuse of process. The Plaintiff must, however, produce something by way of pleadings, particulars and, if so advise, evidence, in order to give an air or reality to the contention that the Plaintiff is entitled to an extension or postponement which will bring the claim back within time. A Plaintiff cannot, as in this case, simply make an unsupported assertion in submissions that s.28 applies. A pleading of fraud should, of course, be made only if it is responsible to do so.

Purpose of the Deeds – overview of the differences

[16] It is Greg’s position that it is clear from the company minutes of 25 June

1996 and 23 April 1997, and the exchanges of correspondence between Ray and Joyce and their solicitor, Mr John Battersby and with Mr Clive Smith, their company accountant, that considerable time and effort went into the preparation of the 1997

Deed.

[17] Greg asserts that the 1997 Deed provided a full picture of the transactions that took place at the time and that by that deed Ray and Joyce entered into a series of transactions whereby they transferred ownership of the “B” shares in HDP to Greg in consideration of which was an acknowledgment of debt for the sum of $200,724 and a term loan contract of $132,174 the effect of which was to give Greg his share of his parent’s estate prior to their death; that not only did Ray and Joyce part with ownership of the “B” shares they also parted with ownership of the “A” shares to Mr Smith who was holding these pursuant to the terms of the 1997 Deed for Greg as the final beneficiary.

[18] The plaintiffs’ position is that the documents relied on by Greg are not clear and do not inevitably lead to the conclusion sought by Greg. Also, that there is scope for the Court to extend the limitation period even further pursuant to s 24 of the Act, if the person to whom the cause of action accrued was under a disability in the limitation period. The statement of claim alleges that both Ray and Joyce were under disabilities from 1994 until their deaths and so, if the Court does determine that the cause of action arose under the 1997 Deed, leave would be sought to amend the statement of claim accordingly. However, the plaintiffs’ primary argument is that the causes of action arose upon the 2000 Deed and are not statute barred. Regardless, if the Court accepts that the claim upon the 2000 Deed is not statue barred then the plaintiffs say nothing has been offered by Greg to show that the causes of action are not reasonably arguable. It is the plaintiffs’ position that it is precisely for the reasons about why and how Greg managed to get Ray and Joyce (and Mr Smith) to change the terms of the 1997 Deed which is at the core of their proceeding. The plaintiffs believe there is not enough information yet before the Court to ascertain with certainty a limitation argument based on the 1997 Deed.

[19] Inevitably both sides have offered their analysis about the effect and purpose of the 1997 Deed. A consideration of that deed and of the terms of the 2000 Deed is required.

The 1997 Deed

[20] From 1995 Ray and Joyce’s professional advice was provided by Mr Battersby, solicitor and Mr Smith, accountant. In 1995 a registered valuation was obtained in respect of the factory property owned by Ray and Joyce and upon which the original factory premises of HDP was situated. On 21 December 1995 a registered valuation was obtained over the residential home of Ray and Joyce. On

20 February 1996 a valuation of the shares in HDP was obtained from a firm of chartered accountants.

[21] On 25 June 1996 Ray and Joyce as directors of HDP met with Mr Battersby and Mr Smith to discuss proposals in relation to the transfer of assets but with the apparent purpose at that time also of identifying a basis upon which, upon their death, to share their estate with their four children.

[22] Minutes of that meeting noted that their discussions centred on the transfer of assets to a family trust and also for the sale of shares [in HDP] to Greg.

[23] The minutes recorded that the following matters (among others) were agreed upon:

1. That Ray and Joyce’s residential property be transferred to the Trust at

valuation.

2. That the factory property be transferred to the Trust at valuation.

...

4. That the shares in HDP be allocated into “A” and “B” shares of which

100 “A” shares would be in the name of Ray (as to 49), Joyce (as to

49) and Greg (as to 2), and those shares would have full voting rights. The balance of the shares would be “B” shares and would be sold to Greg at valuation.

5. The total assets at this time were:

$ Value of shares 332,898

Factory property 275,000

_{Residential property 195,000}

_{Total 802,898}

_{Divided by one quarter (per child) 200,724}

...

[24] The minutes recorded that meant that Greg had an additional asset over and above the other three of $133,174 [$132,174] but that this amount would be cancelled due to a loan being taken out by [HDP] which would be paid by Greg through the company over a period of time.

[25] On 23 April 1997 Ray and Joyce met with Mr Smith to consider the transfer of assets. The minutes of that meeting record:

That the transfer of the residential property and the industrial property

_{to the Lee Family Trust had been completed.}

The shares were still to be transferred to Greg “but it is reiterated that the shares transferred to [him] in terms of the Family arrangement of assets is on the basis that [he] is the driving force in the company and his efforts over the previous years have been instrumental in the profits that have been returned. It is felt that it is only right that he

_{should have these shares and they are not to be part of the [Trust].}

It is recognised... if a key person owns the shares in a company then he will operate the company more effectively than he would if he was

_{only working on a wage.}

[26] On 30 September 1997 HDP acquired its shares from Ray and Joyce and issued new shares, i.e. “100A” shares and “900B” shares. Notices of acquisition recorded the purchase by HDP of Ray and Joyce’s shareholding; that consideration

was given for the issue of shares; and that Greg was being appointed as a director;

and that he consented to being a director of HDP.

[27] The following day on 1 October 1997 Greg executed a deed of acknowledgment of debt in favour of Ray and Joyce in the sum of $200,724. On that same day Ray and Joyce completed a deed of assignment of debt from HDP to themselves in the amount of $275,000, for which the residential property (owned by HDP) was transferred to them.

[28] The following day on 2 October 1997 Greg entered into a term loan contract with Ray and Joyce in the sum of $132,174. By its terms it was clearly intended to be the arrangement by which Greg repaid to Ray and Joyce the amount he received in excess of a one quarter share of Ray and Joyce’s assets at that time. Only an unsigned copy was exhibited in evidence but clearly, as other correspondence avers, that agreement was appropriately executed.

[29] Also on 2 October 1997 Ray and Joyce executed new wills taking into account the transactions being undertaken in relation to HDP. In those wills they forgave the debt due of $200,724 as recorded in the deed of acknowledgement.

[30] On 6 October 1997 Ray and Joyce executed a Memorandum of Wishes, taking into account the transactions being undertaken in relation to HDP. It explains why the estates of Ray and Joyce were to be divided equally between the three children other than Greg. It recorded that Greg was not provided for because he would receive the shares in HDP and in that way had received his inheritance earlier than the other three; that the wills would complete a transfer of all shares in HDP to Greg although most of the “B” shares had been transferred to him during Ray and Joyce’s lifetime. It states the transfer of those shares was in recognition of Greg’s contribution to the growth of the company – that Ray and Joyce, along with their solicitor and accountant had given the matter a great deal of thought over a number of years.

[31] Also on 6 October 1997 the 1997 Deed was entered into between Ray and Joyce as beneficiaries, Greg as the final beneficiary and Mr Smith as the trustee dealing with ownership of the shares in HDP.

[32] By letter dated 5 November 1997 Mr Battersby reported to Ray and Joyce. He noted with respect to asset transfers that there was a loan to Greg in the sum of

$132,174. With respect to the registration of share transfers Mr Battersby noted:

The Companies Office documents are being registered by my agents at the Companies Office. When that is completed there will be 1000 shares. One hundred of these are voting “A” shares and 900 will be non-voting “B” shares. All will be in your names. I understand that Mr Smith will shortly prepare the transfers for these shares (the “B” shares into the name of Gregory Lee and the “A” shares into Mr Smith’s name as trustee pursuant to the Bear Trust Deed) and those transfers will be held by him until the new financial year. In the unfortunate event of your death before that date Mr Smith can register those transfers to give effect to the transaction.

[33] At that time Mr Battersby attached his invoice for services in connection with

“asset transfers”.

[34] On 3 April 1998 share transfer forms were executed recording the transfer of

450 “B” shares each from Ray and Joyce to Greg.

[35] It appears clear that at that time there were also executed the undated share transfer forms recording the transfer of 50 “A” shares from each of Ray and Joyce to Mr Smith, and a share transfer form executed by Mr Smith recording the transfer of

100 “A” shares to Greg.

[36] It appears unchallenged that Mr Smith had by then retired from his accountancy practice.

[37] The 2000 Deed was executed on 4 August 2000. Its execution involves those same persons who were parties to the 1997 Deed. It notes:

Mr Smith held 100 “A” shares in trust on behalf of Ray and Joyce and

also Greg.

That the capital of HDP comprised 1000 shares of which Greg owned the 900 non-voting “B” shares.

That the shares in the company were valued at $332,898 on 20

_{February 1996.}

That Greg owed Ray and Joyce the sum of $132,174 pursuant to a term loan contract dated 2 October 1997 which was the value received over

_{and above his anticipated inheritance of $200,724.}

That the shares were not “formerly” transferred pursuant to the 1997

Deed and that it was intended that that share transfer be effected [at the

time of the 2000 Deed] “to put into effect the provisions of [the 1997

_{Deed] and the [2000 Deed]”.}

Mr Smith has agreed with Ray and Joyce and with Greg to distribute the shares forthwith, and in consideration for which:

- Mr Smith was to transfer the shares to Greg at a value of

$200,000 for which Greg was to pay Ray and Joyce the sum of

$200,000 on 19 August 2000.

- Ray and Joyce would resign as shareholders in HDP.

- The term loan contract debt would be cancelled and the debt forgiven.

[38] In effect Greg was to pay $200,000 to effect the transfer of the “A” shares (in addition to the “B” shares already transferred) to him.

[39] Therefore in effect by the 2000 Deed Greg was to pay $200,000 for all of the shares transferred to him in consideration of which the balance of the value in those shares was forgiven because by that analysis the other three Lee children would each receive one quarter of the estate as it was valued for the purpose of ensuring that each received a quarter of the value of their parent’s estate.

Limitation issues

[40] The strike out application is advanced on the basis the plaintiffs claims have been brought out of time and for this reason, the proceeding is frivolous or vexatious and an abuse of the process of Court.

[41] The application relies on s 4 of the Act.

[42] For the purpose of the hearing both counsel accepted that s 4(3) of the Act applied here and that any action upon a deed had to be brought in 12 years. There appeared no dispute between counsel that the date on which the cause of action accrued was the date upon which the deed was signed. The difference between counsel concerns whether the limitation period ran from the date of the 1997 Deed or whether it ran from the date of the 2000 Deed. Hence it has been the purpose of counsel to persuade the Court that one or other of those deeds has primacy. It explains why from Greg’s point of view it is claimed the 2000 Deed was in effect a variation of the 1997 Deed. The plaintiffs’ argument is focussed upon the fact that the 2000 Deed was in effect a substitution for the earlier deed.

[43] In support of the plaintiffs’ opposition Mr Webb’s submissions also focussed upon s 24 of the Act wherein the limitation period could be extended for any person who was acting under a disability at that time when the limitation period expired and who in that outcome was prejudiced in their ability to bring a claim within time.

[44] In the course of my discussions with counsel it was clear that the Court would benefit from counsels further research of s 24 of the Act. Therefore and following completion of counsels’ submissions I adjourned the hearing to enable counsel to deliver further brief written submissions about s 24.

[45] The statement of claim alleged that both Ray and Joyce had been under disabilities from 1994 until their deaths.

[46] In further submissions filed by Mr Webb it is conceded that s 24 enables a six year extension to operate just from the time of death, as opposed to applying to the end of the 12 year limitation period.

[47] Therefore pursuant to s 4(3) of the Act the 12 year limitation period would end in October 2009 (12 years after the 1997 Deed was executed) or if s 24(b) of the Act applied then the limitation period would end in June 2010 – six years after the death of Joyce.

[48] The statement of claim was filed in September 2011 which would be outside either limitation period in respect of the 1997 Deed.

[49] It is in that context that the previously identified difference of view regarding the effect of the 2000 Deed assumes importance.

[50] However, as Mr Webb’s further submissions noted s 4(9) of the Act in effect provides that the 12 year limit will not apply to any claim for equitable relief. Section 4(9) states:

(9) This section shall not apply to any claim for specific performance of a contract or for an injunction or for other equitable relief [emphasis added], except insofar as any provision thereof may be applied by the Court by analogy in like manner as the corresponding enactment repealed or amended by this Act, or ceasing to have effect by virtue of this Act, has heretofore been applied.

[51] As Mr Webb notes, all three causes of action pleaded in the statement of claim are equitable causes of action. Therefore he submits that according to s 4(9) of the Act no limitation period applies to these causes of action.

[52] Mr Webb submits therefore that the matter becomes a matter of discretion for the Court whether it will allow any claim to be brought in relation to the 1997 Deed. In exercising its discretion the Court would need to consider whether there has been any undue delay on the part of the plaintiffs in bringing their claim and whether that delay is actually prejudicial to Greg.

[53] Just as the plaintiffs are relying on equity to pursue their claims, Greg has at his disposal the equitable defence of Laches. Therefore, competing equities are brought into focus for the purpose of determining whether any claim upon the 1997

Deed could proceed. As Mr Webb observes it is a question of balancing those equities.

[54] It is submitted for the plaintiff that the relevant period of any delay in bringing the claim should not focus on the lapse of time between the transaction and the bringing of the action, but on the period from the date on which Joyce was first free of disability and the date action was commenced. In this case that period of delay would commence on the death of Joyce.

[55] Mr Webb mentions examples of cases where claims based on undue influence or unconscionable bargain have been allowed many years after the wrongful act and, in the two instances he cited, 13 years and 20 years respectively.

[56] Mr Webb submits that the delay in this case of 7 years and 3 months from the date of Joyce’s death until the claim was filed, has not unduly prejudiced Greg; that all of the documents that would have been available if the plaintiffs could have filed the claim as of right are still available and in any case, no evidence could have been obtained from Ray or Joyce.

[57] Mr Webb adds that if necessary Mr Robert Lee can explain the reasons for the delay which are said to relate to the administration of the estate and being able to discern what happened in the lead up to both the execution of the 1997 Deed and the

2000 Deed. However such detail and evidence will have to be compiled for presentation. Mr Webb submits the detail and extent of the evidence would be such as to make determination of the strike out question unsuitable at this time.

[58] As to the proposition that time limits may be open ended in cases where equitable relief is sought – subject of course to any restrain provided by principles of equity – Mr Bergseng draws to the Court’s attention the report of the Law Commission of October 1998 referring to “limitation defences in civil proceedings”. The report noted:

54. Under s.4(9) of the 1950 Act, claims for equitable relief (such as specific performance or an injunction) in relation to matters subject to a six year limitation period – such as, tort and contract – are expressly excluded from that period “except insofar as [it] may be applied by the Court by analogy.” This reflects the historical development of English law through two different Court systems – the courts of equity and the common law courts – and the rule that Courts exercising the equitable jurisdiction will apply limitation rules by analogy in certain cases:

... when claims are made in equity, which are not, as regards equitable proceedings, the subject of any express statutory bar, but the equitable proceedings correspond to a remedy at law in respect of the same subject matter which is subject to a statutory bar, a court of equity, in the absence of fraud or other special circumstance, adopts, by way of analogy, the same limitation for the equitable claim. (16 Halsburys Laws of England (4th ed.) para 1485.).

[59] Mr Bergseng submits that if the Court finds that the genesis of the claim in this proceeding arises out of the 1997 Deed then that Deed is analogous to a contract entered into between Greg, his parents and Mr Smith. As such, Mr Bergseng submits s 4(3) of the Act applies and no action upon a Deed shall be brought after the expiration of 12 years from the date on which the cause of action accrued, unless there is something that the plaintiffs are able to point to that would extend the limitation period beyond 12 years.

[60] The Court proposes addressing the matter by reference to when it considers pursuant to s 4(3) the cause of action arises. It will then address equitable principles to consider whether or not it would be appropriate to extend any limitation period in the circumstances of this case.

The plaintiffs’ opposition to strikeout

[61] The evidence has been provided from Robert Lee. In his first affidavit dated

22 May 2012 Mr Lee provided copies of documents obtained from the Companies Office records concerning HDP. Those showed that Greg was appointed director in September 1997; that Greg was not registered as a shareholder in HDP before 2000; and Mr Smith was never a shareholder in HDP.

[62] By his second affidavit dated 13 November 2012 Mr Lee provided a copy of the 1997 Deed, an employment law opinion obtained from Olphert Sandford

solicitors dated 24 May 2000; a copy of the letter from Reeder Smith & Co solicitors to Ray and Joyce dated 27 July 2000; and a copy of the 2000 Deed.

[63] The plaintiffs’ position is that whatever the purpose of the 1997 Deed was, it did not divest control of HDP away from Ray and Joyce at that time. The plaintiffs say that the 2000 Deed changed whatever arrangements were put in place by the

1997 Deed; that only by the 2000 Deed was control transferred to Greg and this occurred prior to the death of Ray and Joyce. The consequence was that by the 2000

Deed Ray and Joyce and their estate missed out on the profits from HDP from 2000 until their deaths. This, the plaintiffs say calls into question whether Greg paid a fair price in 2000.

[64] The plaintiffs say that there are critical internal inconsistencies between the documents that are not easily explained; that if the 1997 Deed was not given effect to (because share transfers were not registered), then the claim on the 2000 Deed is even stronger – it was more than just a variation of the 1997 Deed because it provided an entirely new set of arrangements in particular with respect to the transfer of control of HDP.

[65] The plaintiffs claim that a forensic analysis of events and associated documents is required; that it is not a situation concerning the extension of the statutory time limit in relation to the 1997 Deed because the plaintiffs claim is based on the 2000 Deed which is not statute barred at first instance.

[66] In relation to the plaintiffs’ evidence it is contended that the 1997 Deed was not effective to transfer the interests therein because control was retained with Ray and Joyce. Besides there was no effective transfer of shares because registration of those was not completed until 2000; indeed contrary to the scheme of the 1997 Deed there was never at all a registered transfer of shares to Mr Smith whose position in the arrangement appears to have been pivotal.

[67] The plaintiffs claim that the events leading to the exclusion of the 2000 Deed need to be considered against a background of:

(a) Assertions of ill health and disability.

(b) An apparent dispute between Greg and his parents in or about May

2000 which preceded the making of the 2000 Deed in August of that year.

[68] As to claims of ill health and disability the statement of claim asserts:

From 1994 until their death Ray and Joyce’s health and mental capacity deteriorated significantly. It is said both consumed excessive amounts of alcohol; that Joyce’s was hospitalised in December 1994 “as having a hypo manic episode, bipolar mood disorder and alcohol abuse; that Joyce suffered a mini stroke in 1998 and a heart attack in 1999 with attendant medical complications; that early in 2000 Ray had his driver’s licence removed and was in fulltime care at an old people’s home and hospital.

[69] Concerning employment issues raised in May 2000 the letter from Olphert Sandford provided an opinion “on the continued employment of Greg Lee with HDP”.

[70] That letter was written to Joyce and notes that it attaches an opinion for Joyce and Robert (not Ray) Lee. The opinion recorded that Greg had approached Ray and Joyce with an offer to buy HDP for $200,000. According to the writer of the opinion “this offer does not accurately reflect the market value of HDP”. The writer does not indicate from what source this assumption is drawn but likely it was a statement provided by either Joyce or Robert Lee. It is also from that source that it is claimed Greg asserted that a failure to accept his offer would leave him no option but to leave HDP and set up an opposition; that he would take three employees and three major existing clients of HDP with him when he left.

[71] The opinion contained a number of recommendations for a resolution of issues between the parties including the option of dismissing Greg or, if he left and set up an opposition to obtain an injunction restraining him from doing so.

[72] The importance of this evidence is to raise the claim that issues between Greg and his parents involving the running of the company have forced upon them a resolution which was unfair or unconscionable and in circumstances where he was in

breach of his duty as a person to whom fiduciary control was vested by virtue of his position as the person in charge of the business of his parents whose control of that business required him to respect their interests.

[73] The plaintiffs do not accept that the 1997 Deed provided anything more than a proposal because:

(a) Ray and Joyce remained in control.

(b) Registration has not given effect to any transfer as it should have been if indeed rights in those shares were transferred to Mr Smith and to Greg.

[74] Besides, the essence of the 1997 Deed was that Ray and Joyce were to remain in control until the survivor of them died and it was only then that control would pass to Greg and only in that event would his term loan debt be forgiven.

[75] The 1997 Deed contained the provision:

That trustee [Mr Smith] may not accept any instruction or direction from final beneficiary [Greg].

[76] Before then Mr Battersby’s letter to Ray and Joyce dated 9 December 1997

recorded Ray and Joyce’s intentions that:

2. Control of the company must lie with you both, or the survivor, with control only passing to Greg upon the survivor of you.

3. Upon the death of the first of you, the dead person’s shares will be transferred to Greg without the survivor losing the control of the Company.

4. You are concerned that Greg does not have any control over either of you.

...

[77] The plaintiffs say that the 1997 Deed did not give effect to a change of ownership or control of HDP because it was only the registration of shares which would have perfected the transfer – not the 1997 Deed and that is why the 2000

Deed is critical because only it paved the way for registration of Greg as the new shareholder of HDP.

[78] The letter from Reeder Smith Accountants [of which Mr Clive Smith was a partner but from which apparently, soon after the events of 1997, he resigned] did not refer to any distinction between “A” and “B” shares. That letter noted that Greg wished to contribute $200,000 towards the cost of the business; that all shares in HDP were to be sold to Greg for that same price identified in the events three years earlier in 1997.

[79] The plaintiffs believed this letter fundamentally changed the arrangements of the 1997 Deed because it authorised the sale of all shares to Greg; that it meant that Greg could now be registered as a shareholder; and that Ray and Joyce were divesting their interests to Greg.

Discussion/conclusions

[80] If Greg is to succeed with his strike out application he must satisfy the Court that the plaintiffs’ cause of action is so clearly statute barred that their claim can properly be considered as frivolous, vexatious or an abuse of process. Murray v Morel & Co Ltd. [2]

[81] It is the Courts view that the 2000 Deed provided a variation of a commitment concluded in 1997 by which property and control of the HDP shares was or was to be transferred. The fact that a registration of transfers to Mr Smith or Greg did not occur at that time does not affect the lawfulness of those arrangements or the purpose for which they were concluded.

[82] It is not clear for what reason control was in 1997 retained by Ray and Joyce. Apparently it was not for the purpose of receiving any income from the company’s business. There is no evidence available to show receipt by them of income since

1997. Perhaps control was maintained to ensure Greg delivered on his undertaking

_{to repay the value of the shares in excess of his quarter interest in his parent’s estate.}

[83] Importantly however those 1997 arrangements did not require Greg to provide any funding for those shares he acquired. Instead he covenanted to pay on a date seven years after the death of the survivor of his parents, that amount which he received in excess of his quarter share of his parents estate upon his acquisition of those shares, or entitlement to those shares, in 1997.

[84] The 2000 Deed did not change anything about the price for which those shares were to be transferred or the basis upon which Greg’s commitment was to be assessed by reference to his expectation of a quarter share in his parent’s estates.

[85] The change that was effected by the 2000 Deed was to enable Greg to take at that time and not later, control of HDP but it also provided that he would then have to pay for those shares to an amount for which his quarter share in his parent’s estates had been valued.

[86] The plaintiffs complain that those shares were transferred to him at undervalue but there is no evidence in support of this nor can issues of undervalue be assumed. Instead the minutes of 23 April 1997 confirm he was the driving force and the reason for HDP’s profitability. Also the valuation details were contemporary at the time the 1997 Deed was struck and were fixed in consideration of the expectation that through Greg’s input and management the Company would likely flourish, the benefit of which should go to Greg. If between 1997 and 2000 the business increased in value then it was likely to have done so for those same reasons that were anticipated at the time the shares were transferred to Greg.

[87] The fact that Ray and Joyce retained control in 1997 did not alter in due course their obligation to the transfer of their shares to Greg i.e. that control did not include preventing Greg from receiving those shares in due course.

[88] The plaintiffs assert illness and disability affected the decisions of Ray and

Joyce in 2000.

[89] No evidence has been provided regarding these but if such was available there is nothing in that from which incapacity can be assumed or from which any

element of undue influence arose. To the contrary in all of the arrangements the input of professional advisors is significant. The structure and process by which the events in the 1997 were marshalled indicate a careful and deliberate outcome for all four children of Ray and Joyce.

[90] The letter from Reeder & Co in July 2000 does not even address the events that occurred in 1997 even though Mr Clive Smith (whom by then had retired from Reeder & Co) was appointed trustee for those 1997 arrangements which in 2000 were to be the subject of variation.

[91] The events raised by the legal opinion of Olphert and Sanford in May 2000 are a matter of speculation only. At that time it was not Ray but the plaintiff Robert who accompanied his mother for the purpose of providing instructions. It is on behalf of the plaintiffs Robert has asserted health issues and disabilities at the time when in 2000 control of HDP was vested in Greg. One assumes therefore that it is Robert through whom claims of employment issues were advanced. But it was not through Robert but rather through professional advisors that the arrangements by the

2000 Deed were concluded.

[92] It is the case that following the deaths of Ray and Joyce their estates have been divided equally between Greg’s three siblings. Greg did not benefit in that outcome except to the extent that was finalised by the 2000 Deed and otherwise determined by the 1997 Deed.

[93] Although the share transfer forms concerning the “A” shares are undated the Court is satisfied that those confirm that full effect has been given to the 1997 Deed and therefore as at 3 April 1998 the transfer of the “B” shares had been completed, but not those of the “A” shares. However, the fact that the shares were not registered does not mean that there was no commitment to effect same. Ray and Joyce had parted with legal ownership even though in terms of clause 11.1 Ray and Joyce have retained control over the voting shares and thereby retained all of the rights of ownership of those. However, and as clause 11.1 notes, Ray and Joyce’s control is subject to the authority of the trust deed if Ray and Joyce failed to carry out or to perform matters in the interest, ultimately, of Greg.

[94] Mr Webb submitted that Robert Lee ought to be given an opportunity to provide the detail and evidence that would be required in support of a claim that Ray and Joyce suffered from disabilities at the time the Deeds were completed – to the extent they were unduly influenced by Greg, and in that context that the delay which has occurred since Joyce’s death has not unduly prejudiced Greg.

[95] The Court does not accept that position. The plaintiffs have been the executors of Joyce’s estate since her death and have had the ability throughout to source information including from doctors for the purpose of demonstrating the existence of disabilities of the kind to found claims of undue influence and breach of fiduciary duty. Yet, nothing more is provided than is detailed by the plaintiff’s statement of claim. There is no reference to reports or specialist opinion. To the contrary during those same periods of time it is said there were those disabilities, Ray and Joyce were receiving and were adopting the advice given by their professional consultants.

[96] The plaintiffs have had plenty of opportunity, in terms of their own pleading but also by way of response, to provide evidence in support of their claims. They have not done this.

[97] There can be no quarrel with the arithmetic and the calculations behind the

1997 Deed. If there was any increase in the value of HDP as at 2000, likely it was due to those reasons that Ray and Joyce agreed to transfer the HDP shares in 1997 i.e. because he “was the driving force in the company” and had been “instrumental in the profits that had been returned”. If 12 years later that business has considerable additional value then that has probably occurred for those same reasons for which it was decided to transfer the shares to Greg in the first place.

[98] Does the plaintiffs’ proceeding seek to obtain a share in the value of HDP as it is presently valued? Can such an exercise be undertaken without consideration of Greg’s influence and input? Conceivably it would be a very difficult task. Contrary to Mr Webb’s submission, any outcome would likely and duly prejudice Greg. Too much time has passed since any right of action arose. The Court does not accept that a period of 7 years and 3 months is within that period of time within which the

plaintiffs claim should have been brought. Even if the plaintiffs claim is not statute barred (because of s 4(9)) of the Act, it has been brought too late.

[99] There is no reason to entertain an extension of time beyond that date which applied in terms of s 4(3) of the Act.

[100] No new cause of action arises in 2000 for what occurred then was just a variation of what occurred in 1997 and it was at that time that the plaintiffs’ right of action accrued.

[101] The plaintiffs proceeding can properly be regarded as being frivolous, vexatious and an abuse of process.

Judgment

[102] The plaintiffs’ proceeding is struck out.

[103] The plaintiffs in their personal capacity shall be jointly and severally liable to pay the defendant’s costs calculated on a 2B basis together with disbursements as approved by the Registrar.

[104] This case has not addressed the defendant’s counterclaim. To the extent the

_{defendant requires it then this proceeding will remain active.}

Associate Judge Christiansen

---

[1] Matai Industries Limited v Jensen [1989] 1NZLR 525.

[2] Murray v Morel & Co Ltd [2008] NZCA 124