Investacorp Holdings Limited v Quinn [2014] NZHC 2389 (1 October 2014)

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BETWEEN	INVESTACORP HOLDINGS LIMITED Plaintiff
AND	CLIVE ANTONY QUINN and PAMELA ISABEL QUINN First Defendants QUINN CHARTERED ACCOUNTANTS LIMITED _{Second Defendant}

Hearing:	9-12 and 16 September 2013
Counsel:	D R Bigio and D Nilsson for the Plaintiff S P Bryers for the Defendants
_Judgment:	_{1 October 2014}

This judgment was delivered by me on 1 October 2014 at 3:00 p.m. pursuant to r 11.5 of the High Court Rules 1985.

Mr M Heard and Mr D Nilsson (for the plaintiff), LeeSalmonLong, Solicitors, Auckland

Mr G Baxter and Ms L Fontinha (for the defendants), McVeagh Fleming, Solicitors, Auckland

[1] The plaintiff, Investacorp, is a small, family owned, company. It has three directors: Mr Bruce Thompson, Mrs Pamela Quinn and Mr Clive Quinn. Mr Thompson and Mrs Quinn are two of three children of the founder of the company. Mr Quinn is Mrs Quinn’s husband. Mr Quinn is a chartered accountant. The second defendant, Quinn Chartered Accountants Ltd (QCAL), is a company controlled by Mr Quinn. QCAL provides accounting and other services.

[2] Investacorp has sued Mr and Mrs Quinn for breach of fiduciary duties owed by them as directors of Investacorp and pursuant to s 161 of the Companies Act

1993. It has sued all three defendants for breach of ss 131 and 133 of the Companies Act. The proceeding was brought following leave granted to Mr Thompson to commence a derivative action under s 165 of the Companies Act.¹

(a) Investacorp owns a half share in a commercial property in Kolmar Road, Papatoetoe. The other owner is a company controlled by Mr Quinn. QCAL’s offices are in this building. There is a claim that from 1998 to 2005 QCAL failed to pay any rent, from 2005 it failed to pay a market rent, and for the whole period it did not pay any operating expenses. (Kolmar rent claim.)

(b) The second claim is that from 1999 QCAL charged Investacorp excessive fees for accounting work, work carried out by Mr Quinn as an Investacorp director, and work by Mr Quinn or QCAL staff in managing Investacorp’s properties. (Professional fees claim.)

(c) The third claim is that from May 2010 Mr and Mrs Quinn, as directors of Investacorp, caused Investacorp to pay excessive interest on shareholders’ advances to Investacorp by Quinn family trusts.

[4] Investacorp was incorporated in 1947 by Mr R J Thompson, the father of Mr Bruce Thompson and Mrs Quinn (and one other child whose interests in the family assets are not relevant to this proceeding).

[5] Over the period relevant to this proceeding Investacorp had two principal assets; a commercial property in Nelson Street, Central Auckland (Nelson Street) and the 50% interest in the Kolmar Road property (Kolmar Road).

[6] All of the shares in Investacorp are owned, directly or indirectly, by family members. There are 100 voting shares: 40 are held by the trustees of the R J Thompson Trust who are Mr Quinn, Mr Thompson, and Mr Philip Wells, an Auckland solicitor; 23 are held by Mr Thompson; 25 by Mr Quinn; and 12 by Mrs Quinn. There are non-voting shares held in identical proportions by the trustees of the R J Thompson Trust and by trustees of trusts associated with Mr Thompson and Mr and Mrs Quinn.

[7] Investacorp alleges that Mr and Mrs Quinn as directors owed three fiduciary duties to Investacorp:²

Not to allow conflict to arise between their duties as directors and their own self interests; and

[9] Investacorp also alleges that QCAL, as well as Mr and Mrs Quinn, breached ss 131 and 133 of the Companies Act. The claim against QCAL is on the basis that it is, under s 126 of the Companies Act, a de facto director of QCAL.

[10] Section 131(1) imposes a duty on a director to “act in good faith and in what the director believes to be the best interests of the company”. Section 133 states that “a director must exercise a power for a proper purpose”.

[11] All three defendants are said to have breached these duties in all three claims.

[12] A further claim is made against Mr and Mrs Quinn under s 161 of the Companies Act.³Section 161 makes provision for “payment of remuneration or the provision of other benefits” by a company to a director, subject to any restrictions in the constitution of the company. There are statutory requirements to be followed. If they are not complied with then, under s 161(5), the director to “whom the payment is made or the benefit is provided” is liable to the company for the amount of the payment or the value of the benefit “except to the extent to which he or she proves that the payment or benefit ... was fair to the company”.

[13] “Director” is defined in s 126 of the Companies Act. For Investacorp, Mr Bigio submitted that two provisions in s 126 apply to QCAL to make it a de facto director, or shadow director: subsections (1)(b)(iii) and (1)(c). Subsection (1)(b)(iii), so far as relevant, refers to a person who exercises, or who controls the exercise, of powers which would fall to be exercised by the board. There is no evidence to support a conclusion to that effect in respect of QCAL. Subsection (1)(c) refers to a person “to whom a power or duty of the board has been directly delegated by the board with that person’s consent or acquiescence, or who exercises the power or duty

_{with the consent or acquiescence of the board”. The evidential
foundation for the}

³Section 161 does not apply to a de facto director: see s 126 of the Companies Act.

submission that this applied to QCAL was, primarily, the fact that work done by Mr Quinn as a director of Investacorp was charged for, on an hourly rate, by QCAL. Notwithstanding Mr Bigio’s submissions in this regard I am also satisfied that this provision does not apply to make QCAL a director of Investacorp. What occurred, in terms of the charging of Mr Quinn’s time, did not involve any element of delegation to QCAL, implied or express, nor did it involve QCAL exercising any power or duty of the board.

[14] As a consequence of this conclusion the claims against QCAL under ss 131 and 133 of the Companies Act, being the only claims advanced against QCAL, are dismissed.

[16] The first is that Mr and Mrs Quinn, as directors of Investacorp, disclosed all matters relevant to any conflict of interest and to any potential for profit arising from dealings with Investacorp. In his opening Mr Bryers noted that this defence was put forward as a defence to the allegation that Mr Quinn had breached a duty not to act in a situation of conflict of interest. It was contended that if there was proper disclosure there could be no breach of fiduciary duties.

[17] The second affirmative defence is laches. Laches, as advanced in this case, is sufficiently defined as undue delay in bringing a claim. This defence is conveniently considered in conjunction with the third affirmative defence which is that provisions of the Limitation Act 1950 apply to limit the period of the claims.⁴Laches and limitation issues do not arise with the excess interest claim. In respect of the Kolmar rent and professional fees claims the issues vary. The relevant statutory provisions and principles are dealt with when discussing the individual claims.

[18] The fourth defence is waiver (or affirmation or release). The defence is directed to part of the professional fees claim. It is based on the fact that unanimous

resolutions were passed by the directors approving the annual financial statements of Investacorp for the 2007, 2009 and 2010 years, which statements recorded the payments by Investacorp to QCAL.

[19] Kolmar Road was purchased in 1986, on Mr Quinn’s initiative. Investacorp bought a half share. The other half share was purchased by Katoria Investments Ltd, a company effectively owned by Mr Quinn and his family and controlled by Mr Quinn. There are two floors. For the first two years or so these floors were leased to third parties, with the ground floor leased to the vendor for two years.

[20] At the around the date of purchase Mr Quinn was practicing as an accountant in a partnership known as Quinn Green and Co. When the vendor’s lease expired in around 1988, new office space was created on the ground floor and Quinn Green and Co. moved in as tenant. Quinn Green and Co. occupied the ground floor from 1989 to 1998, and part of the first floor in the later period. There was a formal lease of the ground floor to the partnership for a six year term commencing in October 1989 at an annual rent of $48,000 and payment of 50% of operating expenses.

[21] Financial accounts were maintained for the two owners, as landlords, with the relationship between the owners for this purpose being described as the Kolmar Road Partnership. Mr Quinn did the accounting for the partnership.

[22] The Quinn Green and Co. partnership continued in occupation until 1998 when the partnership was dissolved. Mr Quinn’s partners vacated the premises. Mr Quinn’s evidence is that the internal fit-out of the ground floor was paid for by the partnership and he purchased the fittings from his former partners. Mr Quinn continued in practice on his own account from the ground floor under the name Quinn Green and Co. Ltd. This was later changed to QCAL.

[23] There is an issue whether Mr Quinn’s practice occupied all of the ground floor. Mr Quinn said that, following dissolution of the partnership, he had only one full-time and one part-time employee and that at the beginning his practice occupied about one-third of the ground floor. I am satisfied that it is appropriate to assess this claim on the basis that there was effective occupation of the whole of the ground floor by Mr Quinn’s practices, under different names, throughout the period in question, which is from 1998. My reasons are as follows.

[24] Mr Quinn’s evidence to the effect that QCAL did not at any time occupy more than half of the ground floor, with evidence that in the early days it was no more than one-third, is based on careful calculations of office space areas, excluding from the calculation other types of space on the ground floor such as a conference room, toilets and open areas. However, I am satisfied from the evidence as a whole, including evidence from Mr Thompson in relation to his direct observations, that occupation of offices taking up part of the ground floor by QCAL, was effective occupation of the entire ground floor.

[25] This conclusion, based on a broad assessment of the direct evidence, is consistent with contemporaneous written evidence. A report on the value of Kolmar Road from Seagar and Partners of June 2001, obtained by Mr Quinn, recorded the following:

Our information is that the ground floor is essentially owner occupied and as a consequence and in order to complete the investment approach to the valuation, we have assumed such lease terms and conditions as are appropriate to a tenancy of this nature.

This was a statement made to Mr Quinn. If it was wrong, it was not contradicted by Mr Quinn because it was repeated in a 2004 valuation from Seagar and Partners, also obtained by Mr Quinn.

2004, on instructions from Mr Wells. As earlier noted, Mr Wells is one of the trustees of the R J Thompson Trust. He is also Mr Quinn’s solicitor. This report records:

[27] There is also direct written evidence in a letter of 29 February 2000 from Mr Quinn to Mr Thompson. In this letter Mr Quinn discussed the financial statements for the Kolmar Road partnership between Investacorp and Katoria Investments for the year to 31 March 1999. It is a reasonably long and carefully thought out letter intended to persuade Mr Thompson, as a director of Investacorp, that either a substantial sum of money should be spent on upgrading the premises, or that Investacorp should sell its 50% interest to Katoria Investments. Of relevance, Mr Quinn wrote:

5. Coupled with this Quinn Green & Co. Limited occupies the ground floor of the building and pays rent to Katoria Investments Limited being its Landlord.

[28] As noted earlier Quinn Green and Co. Ltd is the former name of QCAL. It was incorporated by Mr Quinn in January 1999 as the vehicle for Mr Quinn’s effective sole practice as an accountant. In his evidence Mr Quinn said that the statement in point 5 about the area of occupancy was not intended to mean that QCAL occupied the entire ground floor. I am not persuaded that there is any ambiguity in what appears clear enough from what was recorded at the time. And the statement is consistent with the other contemporaneous evidence as to the effect, in practical terms, of the office space occupied by the practice.

[29] In addition to these matters, if the relationship between Mr Quinn’s accountancy practice and the owners of the building is assessed objectively, the substance of what happened is that Mr Quinn’s business effectively took over the formal lease of the ground floor entered into between the landlord and the former tenant, Quinn Green and Co. Mr Quinn continued practice using the Quinn Green and Co. name. When Mr Quinn remained in occupation, following dissolution of the partnership, no steps were taken by him to seek to negotiate a new lease with Investacorp as one of the landlords. That had not changed by the time this case was heard 14 years later.

1999, 25 June 2001 and 10 August 2004. These, and other valuation evidence, are relevant not only to assessment of market rent and other lease terms, but also to liability. All three valuations were obtained to get an assessment of the value of the property, not to obtain advice as to appropriate rent. However, each valuation contains an assessment of the rent for the ground floor, and five carparking spaces. This assessment is described as “indicated market supported rental per annum”. The figure in each of the valuations is the same – $27,700 per annum (including carparks). The rental assessment in the 2001 and 2004 valuations records that the assessment is “without carpet, partitions and air conditioning”. It is to be assumed that the assessment in 1999 was on the same basis.

[31] Each of the valuations has a section discussing “notional lease details”. This is the section which includes the statement that the ground floor is “essentially owner occupied”. The advice of conventional lease provisions was as follows:

In this location, this would involve for example, a lease of perhaps four years at most with a right of renewal for two years and with reviews at two yearly intervals. In addition to the rental, the tenant would be responsible for the payment of all outgoings including exterior and yard maintenance. We have also assumed that such a lease would incorporate standard review clauses, a ratchet clause to prevent the rental from declining and also normal arbitration and administration clauses.

This approach naturally assumes that the occupying company/individual is of sound financial stature, able to offer guarantees of substance and well able to undertake to meet all outgoings required of it under such an agreement. Having said that, we would point out that we have no specific information in this regard.

[32] The valuation from Gardner Valuations Ltd, provided on instructions from Mr Wells, is dated 18 August 2004. It also was provided for the purpose of assessing the current market value of the property. Instructions to Mr Gardner were to value the property with vacant possession and with the ground floor to be valued exclusive of “the lessee improvements”. For this purpose, Mr Gardner assessed the market

rental value for the ground floor at $22,073 per annum (plus GST) and carparks at

$10 per week (without allocating a specific number to the ground floor). Mr Gardner did not provide any opinion of appropriate lease terms related to his rental assessments, presumably because of the specific instructions he had received as to the basis of the valuation.

[33] Mr Gardner gave evidence for Investacorp. His is the only direct expert valuation evidence. He referred to his August 2004 valuation and to a further valuation he provided in September 2010 on instructions from Mr Thompson. Mr Gardner confirmed his two valuations. He also provided direct evidence of annual market rental for the ground floor of the property on a year by year basis from 1999 to 2013. In providing this evidence Mr Gardner reviewed a valuation provided by Young, Mihaljevich and Co. of December 1988, and the Seagar and Partners valuation of 10 November 1999. It is to be noted that the Young, Mihaljevich and Co. valuation was addressed to Investacorp for the attention of Mr Quinn. This was a valuation sought for an expert’s advice on appropriate rent and also obviously provided the basis upon which rent of $48,000 per annum was paid to the Kolmar Road partnership. It is unclear why the valuation was not directed to Katoria Investments as well as Investacorp. This appears to be the only valuation obtained for the purpose of assessing rent for the premises.

[34] It is unnecessary to set out the details provided by Mr Gardner for each year. I will note the figures at four yearly intervals.

(a) 1999 – $27,686 per annum including five carparks. (b) 2003 – $26,144 including five carparks.

[35] Mr Gardner’s allowance for carparking spaces in the earlier period was based on the Seagar and Partners report. When he did his valuation in 2004 he split the 14

carparking spaces equally between the two floors. The rents are assessed on the basis that the ground floor interior fit-out was owned by QCAL.

[36] Mr Gardner said that the market rents were assessed “presuming the usual requirement for a tenant to pay outgoings proportionate to the size of their tenancy”. If outgoings were not separately paid by the tenant the rent would be more. He provided a calculation of increased rent per square metre, based on information provided to him as to building related costs paid by Investacorp and Katoria Investments over the period from April 1998 to March 2012. On these figures Mr Gardner calculated that the square metre rental would have increased by $41.76 per square metre per annum on an average basis. This compares with the rent assessed

on a net basis (excluding operating expenses) of $90 m²in 1999, $80 m²in 2003,

[37] No rent was paid by QCAL for its occupancy of the ground floor following dissolution of the Quinn Green and Co. partnership. Nor did QCAL pay any proportion of the 50% of operating expenses incurred by Investacorp. It appears that Mr Thompson became aware that no rent was being paid sometime in 2000. There is a letter from Mr Thompson to Quinn Green and Co. Ltd, for the attention of Mr Quinn, dated 25 November 2000. Mr Thompson said, referring to minutes of a meeting he had just received from Mr Quinn:

For Quinn Green not to pay any rent for the lease of Kolmar Road amazed me, & whilst I agree that this has a greater bearing on the “Quinn” interests than Investacorp, such move is not in Investacorp’s best interest. I don’t really consider it is commercially sensible not to pay any rent.

[38] Mr Thompson again expressed concern about the non-payment of rent by QCAL at a directors’ meeting on 7 April 2001. Mr Quinn’s response, as recorded in minutes prepared by him, and signed by him as chairman, was as follows:

C.A.Q. advised that he had a current valuation from Seagar & Partners Registered Valuers that confirmed the current capital and rentable values and also the fact that the property was in a very difficult leasing area.

C.A.Q. repeated that Katoria Investments Limited did own 50% of the property outright and that it could do what it liked with its 50% interest.

C.A.Q. also stated that with his shareholding interests in Investacorp his family did in fact own 75% of the property. He stated that the property could continue to cause problems and may be Katoria Investments Limited should consider buying out Investacorp Holdings Limited.

There is no record of advice from Mr Quinn that Seagar and Partners had assessed the rent at $27,700 per annum plus operating expenses. At the same meeting there was also reference to the financial statements for the year to 31 March 2000. Mr Thompson stated that he would not sign the accounts as he objected to the loss from the Kolmar Road property as well as to the “Management Fees charged”, being a reference to what is now contained in the professional fees claim of Investacorp.

[39] Mr Thompson repeated his objection to non-payment of rent at a directors’

C.A.Q. replied giving the same explanation that has been given on several occasions before and referred to the ownership structure of the property.

[40] As noted, all of the valuation reports, other than the earliest one from Young Mihaljevich and Co., were obtained by Mr Quinn, or (I infer) by Mr Wells on Mr Quinn’s instructions, to assess the value of the property. Also as noted, on occasions Mr Quinn raised with Mr Thompson the possibility that Katoria Investments might purchase Investacorp’s 50% interest in Kolmar Road. This possibility was raised in

2004 in discussions between Mr Quinn and Mr Thompson after the 2004 valuations of Seagar and Partners and Mr Gardner had been provided. In discussions, towards the end of 2004, Mr Thompson sought payment of arrears of rent for the preceding period of QCAL’s occupancy.

Based on the above Katoria will offer Investacorp $264,000 for the purchase of 50% of the building.⁵

As discussed and agreed this offer is conditional on the sale of the RJT Trust Pauanui property and the distribution of 1/3 of the net proceeds to Bruce, Elizabeth and Pam.

Can you also confirm that this transaction concludes all matters you have raised to date.

[42] There was a directors’ meeting on 26 February 2005. The minutes have been signed by Mr Quinn, as chairman of the meeting. This also is an important contemporaneous document. There was a fairly lengthy discussion about Mr Quinn’s proposal to purchase Investacorp’s half share in the property. In this context the rent issue was discussed. The essence of Mr Quinn’s position, supported by Mrs Quinn, was that the offer for arrears of rent in a total sum of $14,000, was fair to Investacorp. In terms of the assessment of annual rent, Mr Quinn rejected arguments from Mr Thompson based on rents received for the neighbouring property, which Mr Quinn described as “ridiculous”.

[43] Mr Quinn justified the $11,000 annual rent on the basis that QCAL occupied half the floor and by reference to Mr Gardner’s valuation of $22,000 (in round figures) for the whole of the ground floor. The Seagar and Partners annual rent of

_{$27,700 was not taken into account. There was no reference to the fact
that both}

⁵The offer for Investacorp’s half share was $250,000. This was based on the two valuations obtained in 2004. Mr Gardner’s vacant possession valuation was $540,000 and Seagar and Partners vacant possession valuation was $465,000.

valuers assessed those rentals on the basis that the lessee – QCAL – would pay its share of operating expenses and which, as recorded above, both valuers assessed as

[44] Mr Quinn said in his prepared brief of evidence, which became his evidence- in-chief, that at the meeting on 26 February 2005 “it was resolved unanimously that QCAL was to lease ‘a portion of the ground floor premises on the terms and conditions discussed’”. It is clear from the minutes that this statement is incorrect. The minutes record that “it was resolved” but do not refer to unanimity. The next paragraph in the minute, following the record of the resolution, expressly records that Mr Thompson advised that he opposed the charging of a management fee (the

$5,000 per annum deducted from rent) and would not vote in favour of the resolution. The minute then records that the resolution was passed by a majority (being Mr and Mrs Quinn).

[45] The negotiations for sale by Investacorp to Katoria Investments fell through. Mr Quinn said that when this happened he decided “that the rental issue should be tidied up”. This was done unilaterally by Mr Quinn. A sum of $16,000 was paid by QCAL to Investacorp on 1 April 2005. Mr Quinn’s offer for arrears of rent, in the 13

December 2004 email, was $14,000. The additional $2,000 was said to be for interest in response to a claim by Mr Thompson for interest to be paid on outstanding rent.

[46] From April 2005 QCAL began paying rent at $12,000 per annum. Mr Quinn said that this was based on the gross rental of $11,000 per annum earlier referred to “plus an additional $1,000 to cover opex” (that is, operating expenses). Again, this was done unilaterally by Mr Quinn. There is a letter from Mr Thompson to the directors of Investacorp, for the attention of Mr Quinn, dated 26 March 2006. Under the heading “Kolmar Partnership” Mr Thompson said: “Please explain why/how Rent suddenly commenced again ($12,000) & cover what area is tenanted?”; and “The Management fees have jumped by $5,000 which equates to 42% of the rental income. Please explain?”. There were some further queries.

[47] Mr and Mrs Quinn did not take any steps to put a formal lease in place between QCAL and the two owners, Investacorp and Katoria Investments. Mr Quinn’s position, in essence, was that QCAL would not have been prepared to enter into a lease for a term of years and effectively occupied the premises as a monthly tenant. This in turn was used to justify non-payment of operating expenses, notwithstanding the consistent advice in valuation reports.

[48] The rent paid by QCAL was increased in 2007. Mr Quinn said in his evidence:

The use of the first person “I” is revealing. Again, this was a unilateral decision of Mr Quinn’s. It was not a rental figure arrived at following a discussion between the directors of Investacorp and processes for effective negotiation with the tenant, QCAL, which adequately dealt with the conflict between Mr and Mr Quinn’s position as directors of Investacorp, their personal interests in QCAL as the tenant and their separate personal interests in Katoria Investments as the other owner.

[49] Mr Quinn said that the sum of $21,000 per annum was “a gross sum inclusive of opex”. He provided evidence as to why he considered that sum was reasonable. This sum is to be compared with Mr Gardner’s unchallenged evidence that market rent for the ground floor in 2007 was $28,655.50, including seven carparks. This was Mr Gardner’s assessment of market rent, on the basis that the lessee also paid

[50] The fiduciary duties of Mr and Mrs Quinn that most obviously arise for consideration are those to avoid conflict and not to profit personally from the directorship expect as properly authorised. The obligations require strict

_{compliance. Liability “does not depend on fraud, or absence of
bona fides”.}⁶

⁶Pacifica Shipping Co Ltd v Andersen [1986] 2 NZLR 328 (HC) at 335 citing Regal (Hastings) Ltd v Gulliver [1967] 2 AC 134 (HL) at 144. And see Andrew Butler et al Equity and Trusts in New Zealand, above n 2, at p 523.

[51] On the facts of this case the principles do not require further elaboration. In my judgment liability for breach of the duty to avoid conflict is established. In a negative sense it may also be said that there is breach of the duty to avoid misusing the position of director to make a personal profit. This arises because the failure to secure a proper lease from QCAL, on commercial terms and at a market rate, resulted in increased profit (or reduced loss if that were the position) for Mr and Mrs Quinn because of their interests in QCAL. The same applied in respect of their interests in Katoria Investments for reasons noted below. Although most of that evidence, in relation to the defendants, is concerned with Mr Quinn’s actions, including statements, the evidence establishes that Mrs Quinn supported her husband’s approach.

[52] Mr Quinn sought to explain the position he had adopted, both in relation to the belated payment for the 1998-2005 period and the quantification for the rent paid from 2005. However, the contemporaneous written record largely speaks for itself. There was a clear obligation on QCAL to pay rent and on Mr and Mrs Quinn, as directors of Investacorp, to ensure that QCAL did pay rent. There was also, in my judgment, a clear obligation on QCAL to pay a half share of operating expenses or, if operating expenses were not separately paid, to pay rent at a figure much higher than those assessed by Seagar and Partners and Mr Gardner. Mr Quinn’s arguments, after the event, as to why QCAL should not have to pay operating expenses, because it would never have entered into a lease for a term, are quite unpersuasive when assessing fiduciary obligations. They are also unpersuasive having regard to the simple fact that Mr Quinn caused his accountancy practice, conducted through QCAL, to actually occupy the premises uninterrupted from 1989.

[53] At least up to the end of 2004 Mr Quinn’s focus was on his personal interest in having his business occupy premises at no cost at all. There was an active dismissal of Investacorp’s interests. At one point Mr Quinn sought to justify non- payment of rent on the basis that it would have been “unfair” to QCAL because “times were tough”. Another justification was that it would be reasonable not to pay rent because QCAL was not charging a “management fee”. Mr Quinn ignored those parts of the valuation reports which did not suit him. He sought to justify the absence of conventional lease obligations on the basis that “the lessors were not in a

strong bargaining position”. He also stated to Mr Thompson that QCAL’s only landlord was Katoria Investments with a statement that rent was paid to Katoria Investments.⁷This would be an extraordinary statement even if Mr Quinn had not at the time been a director of the other owner of the property, Investacorp. Given his directorship it amounts to an explicit statement that Mr Quinn’s focus was only on his personal interest to the exclusion of obligations owed to Investacorp. The conflict between obligations to Investacorp and personal interest in QCAL was in fact compounded by the further personal interest in Katoria Investments.

[54] The exclusive focus on self interest, at least up to 2005, and the predominant focus on it from 2005, is also found in Mr Quinn’s evidence. This is contained in reasons advanced by Mr Quinn as to why he considered gross rent of $11,000 per annum, inclusive of operating expenses, was a reasonable sum for QCAL to pay. For example, Venning J, in the judgment granting leave to Mr Thompson to bring this proceeding, said that the $5,000 figure for a management fee “seems to have been

plucked from the air” and “seems arbitrary”.⁸Mr Quinn’s response sought to justify

the management fee and the amount. It is a disingenuous reconstruction after the event based on payments said to have been made by QCAL “on behalf of the landlord” in the year ended March 2011. Mr Quinn said he picked this up “upon reviewing Investacorp’s accounts for the year ended March 2011”. Payments made by QCAL in 2011 are irrelevant in relation to a purported management fee for each of the years from 1999 to 2005. The figure works out at just under 50% of the gross rent for each year.

[55] The figures provided by Mr Quinn, from the 2011 year, total $9,400. There are sums of direct expenditure totalling $2,080. The balance of $7,320 is said to be derived from the following:

⁸Thompson v Quinn HC Auckland CIV-2010-404-8457, 6 October 2011 at [38] and [42].

Those figures are said to be “an estimated value” for “non charged work on behalf of the owner”. This is quite unpersuasive.

[56] Mr Denis Lane gave expert evidence on accounting and financial matters for Investacorp. Mr Lane practiced as a chartered accountant. He retired in 1996 as senior partner of the corporate finance division of Coopers & Lybrand in Auckland after 31 years with that firm. Since then he has practiced on his own account as a business adviser, company director, valuer and expert witness. His experience as an expert witness has spanned a period of some 20 years. Mr Lane made the following observation about the “management fee”:

The inclusion of a management fee in the calculation of arrears for a property where the manager has failed to collect any rent for eight years lacks any thread of commercial logic.

[57] Having now heard the evidence I am satisfied that Venning J’s surmise about the “management fee” was entirely accurate. It was a contrived device to reduce the amount of money that should have been paid by QCAL to Investacorp and to reduce it from a rent figure which was itself too low. In addition, if it was appropriate for QCAL to be paid by Investacorp for managing the Kolmar Road property, that could only occur if the payment was properly authorised by Investacorp and it should have to have been a payment quite separate from the rent.

[58] The sum calculated by Mr Quinn for rental arrears payable to Investacorp, after deduction of the “management fee”, was $21,000. Mr Quinn was proposing to the company of which he was a director that it should receive a gross sum of $3,000 per annum for its half share of income over seven years for the ground floor of the

building; that is to say, not only before tax but also before allowing for Investacorp’s half share of all of the costs associated with the ground floor of the building. But Mr Quinn then further reduced the expense to himself, in respect of his interest in QCAL, by suggesting to Mr Thompson, as the only independent director in this respect, that tax should be deducted. Mr Lane’s evidence was that the deduction was not in Investacorp’s interests, irrespective of the validity of the preceding calculations. In essence, because of Investacorp’s tax position, a payment of the full amount, without any deduction for tax, would have been to Investacorp’s advantage.

[59] Mr Quinn did use Mr Gardner’s rent assessment for the ground floor as the basis for the rent calculation in the lump sum payment. However, Mr Quinn fixed it at 50% of Mr Gardner’s assessment of $22,000 per annum on the basis that QCAL occupied no more than half of the ground floor. For reasons earlier discussed the rent should have been for the entire ground floor. There should have been payment for carparks and 50% of the operating expenses. The obligation to pay operating expenses was also contained in the valuation report obtained by Mr Quinn from Seagar and Partners, and the rental assessment in that report for the ground floor was

$27,700 per annum. In respect of operating expenses Mr Quinn, in essence, turned the lessee’s obligation on its head by seeking to reduce QCAL’s liability by requiring Investacorp, as one of the owners, to pay 50% of a “management fee”.

[60] There was what amounts to a tacit admission of breach by Mr Quinn in respect of the failure to pay rent for seven years. In his brief of evidence he said:

28. I acknowledge that from 1999 to 2005 QCAL did not pay any rent for the little space it occupied in the building. There were various reasons why I thought that was reasonably fair at the time, but with the benefit of hindsight, I accept that it would have been prudent to have put QCAL’s occupation of the building on a more formal basis and for QCAL to have paid rent.

[61] The acknowledgement of breach was later stated more directly, although perhaps inadvertently in relation to breach, in a paragraph responding to Mr Thompson’s brief of evidence. Mr Quinn said:

[62] The affirmative defences requiring consideration under this heading are delay in terms of the Limitation Act 1950 and laches.

[63] Mr Bryers submitted that a six year limitation arose either under s 4(9) of the Limitation Act or under s 21 of that Act. Section 4 is a provision which applies limitation periods, generally of six years, to a range of causes of action. Section 4(9) provides that the preceding provisions of s 4 do not “apply to any claim for specific performance of a contract or for an injunction or for other equitable relief, except in so far as any provision [of s 4] may be applied by the Court by analogy ...”. It is unnecessary to consider the submissions in respect of this provision. If there is a limitation, it arises under s 21.

(1) No period of limitation prescribed by this Act shall apply to an action by a beneficiary under a trust, being an action—

(a) In respect of any fraud or fraudulent breach of trust to which the trustee was a party or privy; or

(b) To recover from the trustee trust property or the proceeds thereof in the possession of the trustee, or previously received by the trustee and converted to his use.

(2) Subject as aforesaid, an action by a beneficiary to recover trust property or in respect of any breach of trust, not being an action for which a period of limitation is prescribed by any other provision of this Act, shall not be brought after the expiration of 6 years from the date on which the right of action accrued:

Provided that the right of action shall not be deemed to have accrued to any beneficiary entitled to a future interest in the trust property until the interest fell into possession.

[65] Section 21 applies to claims against company directors for breaches of fiduciary duty.⁹

[66] There will be a six year limit unless subsection (1) applies.¹⁰I am satisfied that subsection (1)(a) does apply given my conclusion that Mr and Mrs Quinn breached their fiduciary duties as directors. This turns on the meaning of the word “fraud”. The Court of Appeal has held that “fraud” in the Limitation Act includes equitable fraud.¹¹The Court was considering the word “fraud” in s 28 of the Limitation Act, not s 21. There does not appear to be any principled basis for concluding that it has a different meaning in s 21.

[67] “Equitable fraud”, means something quite different from “fraud” as generally understood. Equitable fraud does not require dishonesty. It is important to emphasise that point because in this case there was no allegation or evidence that Mr and Mrs Quinn were in any way fraudulent in the ordinary sense of the word. In respect of fiduciary duties, equitable fraud will occur simply where there is breach of one of the specific fiduciary duties earlier discussed. Equitable fraud refers to conduct falling below the standards expected of equity, such as fiduciary duties, even

[68] For these reasons, pursuant to s 21(1)(a), there is no limitation period prescribed by the Limitation Act in relation to the breach of fiduciary duties by Mr and Mrs Quinn in the Kolmar rent claim.

[69] If I am wrong in relation to s 21(1)(a), there would be a six year limitation pursuant to s 21(2) unless s 25(4) of the Limitation Act applies. Section 25(4)

¹²Nocton v Lord Ashburton [1914] AC 932 (HL) at 952-955, 963 per Viscount Haldane LC and Lord Dunedin. Generally see Andrew Butler et al Equity and Trusts in New Zealand, above n 2, at p 1046 and notes at p 1046.

(4) Where any right of action has accrued to recover any debt or other liquidated pecuniary claim, or any claim to the personal estate of a deceased person or to any share or interest therein, and the person liable or accountable therefor acknowledges the claim or makes any payment in respect thereof, the right shall be deemed to have accrued on and not before the date of the acknowledgment or the last payment:

Provided that a payment of a part of the rent or interest due at any time shall not extend the period for claiming the remainder then due, but any payment of interest shall be treated as a payment in respect of the principal debt.

[70] In this case there have been both acknowledgements of the claim and a payment. The payment, in respect of an otherwise statute barred period, was the payment of $16,000 on 1 April 2005, $14,000 of which was purportedly for rent. This, however, was a payment by QCAL. It does not apply to Mr Quinn, or Mrs Quinn, in respect of liability as fiduciaries. There has been more than one acknowledgement by Mr Quinn. The first acknowledgement is contained in the minutes of the directors’ meeting of 26 February 2005. It is an acknowledgement in the form prescribed by s 26 of the Limitation Act because the minutes are in writing and are signed by Mr Quinn. I am satisfied this should be treated as an acknowledgement by Mr Quinn of his obligation as a director of Investacorp to have ensured that QCAL did pay rent to Investacorp. Any ambiguity as to the substance of what Mr Quinn was acknowledging is removed by his signed brief of evidence at

paragraphs 28 and, in particular, 104.¹³I am satisfied that this acknowledgement is

[71] The proviso to s 25(4) states that there is no fresh accrual of a right of action arising from a part payment of overdue rent. This does not apply in respect of an acknowledgement relating to arrears of rent. In other words, if there was a part payment only, and it related to rent “due at any time”, there would not be a fresh

acknowledgement I can see no reason why the fresh accrual would not apply in respect of the acknowledgement.

[72] There is also a question whether the $14,000 was part payment of arrears of rent or payment of damages for a failure to enter a lease. Because of my conclusion on acknowledgement it is not necessary to consider this further.

[73] On this alternative basis I am satisfied that there is no period of limitation preventing Investacorp pursuing its Kolmar rent claim for the whole of the period from 1999

[74] The other affirmative defence is laches. A recent and authoritative discussion of laches is the Supreme Courts decision in Eastern Services Ltd v No 68 Ltd.¹⁴In the discussion which follows I have had regard to the relevant principles outlined in that case. These do not require elaboration in the circumstances of the present case.¹⁵

[75] Mr Bryers referred, first, to s 31 of the Limitation Act. This provides that nothing in that Act affects any equitable jurisdiction to refuse relief on the ground of acquiescence or otherwise. The defence of laches is preserved notwithstanding any prescribed limitation or, as I have held, any provision that there is no limitation.

[76] Mr Bryers developed his submission by reference to the professional fees claim as well as the Kolmar rent claim. For reasons discussed below, laches does not arise for consideration on the professional fees claim. The following summary of Mr Bryers’ submissions is therefore limited to matters relevant to the Kolmar rent claim.

13 years. It was submitted that the defendants had been encouraged to remain at Kolmar Road on the basis that they would only have to pay

¹⁵In general, see the discussion in Andrew Butler et al Equity and Trusts in New Zealand, above n

rent for the space they occupied. This submission is not borne out by the evidence.

(b) The second point was that Mr and Mrs Quinn “are the persons most affected” by Investacorp’s financial position because they are major shareholders. That is not a point in support of the equitable defence of laches to liability for breach of fiduciary duties.

If in fact the fees are now considered to be excessive or the rent paid inadequate, the defendants would undoubtedly have taken a different course; for example by reviving the payment regime that existed before 2000 and/or by leaving the Kolmar Road building.

This submission does not provide an answer to a claim for breach of one or more of the fiduciary duties owed by Mr and Mrs Quinn to Investacorp because the substance of the claim is that they actively worked to secure a position in their own self interest. For these reasons I am satisfied that the argument that they and QCAL would have taken a different course, which in any event is not demonstrably correct, would not amount to relevant prejudice in support of the laches defence. In relation to Kolmar Road, the Court’s task is to deal with what actually happened. What actually happened is that QCAL remained in occupation of the ground floor.

(d) It was submitted that “the arrangements under attack are arrangements made between family members of a small family company” and that in such cases the Court will not disturb the arrangement “unless it is founded upon ‘falsehood and misrepresentation’”. In support of this submission Mr Bryers referred to a decision of the Court of Appeal in McCaul v Fraser.¹⁶That case was not concerned with family shareholdings in a company, or with directors’ duties, and the facts are

(e) The final submission was that the length of the delay in commencement of the claim was “chronic”, at least in respect of the claim for the years 1999 to 2005. I do accept that the delay, if it is considered to be delay on the part of Mr Thompson, was not inconsiderable. However, delay without prejudice is insufficient to

in respect of the period 1999 to 2005, can properly be described as “chronic”, given the circumstances of this case, because the board was controlled by Mr and Mrs Quinn. Any question of “chronic” or “inordinate” delay would need to be directed to Mr Thompson, but I do not consider that either of those adjectives are applicable in his case.

[78] Laches is an equitable defence. Overall, I am satisfied that this is not a case where such a defence should be applied.

[79] Investacorp has established breach by Mr and Mrs Quinn of fiduciary duties. On the face of it, for reasons already outlined, and based on the unchallenged evidence in the valuation reports and from Mr Gardner, the measure of loss is the market rent that should have been paid, and the operating expenses that should have been paid, less the payment of $14,000 that was made.¹⁸Where there is “a normal or prima facie measure of loss, the fiduciary must positively show that it is not an appropriate measure”.¹⁹

[80] Mr Lane provided a summary of the quantification for rent and operating expenses based on the expert valuation evidence and on the relevant financial records. I am satisfied that Mr Lane’s approach adopted the “normal or prima facie

_{measure of loss”. There was a challenge to some of the particular
figures brought}

¹⁷_{Eastern Services Ltd v No 68 Ltd [2006] NZSC 42,
[2006] 3 NZLR 335 at [37].}

¹⁸The total payment in April 2005 was $16,000. However, as earlier recorded, $2,000 of that was purportedly for interest. In assessing quantum the interest component should be set to one side. That $2,000 for interest should be brought into account in calculating interest on the damages.

¹⁹Premium Real Estate Ltd v Stevens [2009] NZSC 15, [2009] 2 NZLR 384 at [85] per Blanchard

Compensation for the rent after deducting the April 2005 payment of $14,000:	126,553
Operating expenses:	79,894
	_$206,447

[82] There was a challenge to the quantification of the rent, in addition to the need to bring into account the payment in April 2005. The points were that the $5,000 per annum “management fee” should be deducted for each year and the rent should have been assessed for only half of the ground floor. For reasons already recorded neither adjustment is justified.

[83] There was evidence that Mr Lane brought into account as operating expenses payable by QCAL items that did not apply to the ground floor, or which were not operating expenses, or were not otherwise expenses recoverable from a tenant. These are matters of precise quantification, rather than as to the method for calculating damages. Mr Lane accepted that if a particular item he had identified as an expense to be brought into account was not an operating expense that would be payable by QCAL, then it should be deducted from his calculation. I am satisfied that the items identified by Mr Bryers in his closing submissions for the defendant

[85] There is also a claim for interest on the rent and operating expenses that should have been paid each year, with interest calculated annually at the rate applying from time to time under the Judicature Act 1908. There were calculations

_{in Mr Lane’s evidence, but these are no longer applicable because
of the adjustments}

made. I am satisfied that Investacorp is entitled to interest calculated annually on the same basis as was calculated by Mr Lane, with appropriate adjustments for the amount due at the end of each of the financial years.²¹

[86] Mr Quinn, directly or through his accountancy firms, had done all the accounting work for Investacorp for 30 years or more. He charged at an hourly rate, being the basis on which he charged third party clients.

[87] Up to 2000, directors’ fees or “salaries” were paid to Mr Thompson and Mr and Mrs Quinn, even though, the defendants say, Mr Thompson did not do any work in managing the company and its properties. At a directors meeting in April 2001, Mr Quinn proposed that payment of fixed directors’ fees should cease and that QCAL would charge for all directorial, property management and related work undertaken by him, or his staff, during business hours, in addition to continued charging for accounting work. Mr Thompson objected. By a majority, consisting of Mr and Mrs Quinn, the arrangement was put in place.

[88] At various meetings, and in correspondence to Mr Quinn and to Mr Wells, Mr Thompson expressed concerns about, amongst other things, the level of charges by QCAL. In 2004 Mr Thompson filed an application in the High Court for the appointment of an investigator into Investacorp’s affairs under s 179 of the Companies Act. The proceeding was discontinued because of serious ill health of Mr Thompson’s wife. Mr Thompson’s complaints continued. He also declined to sign resolutions approving the annual financial statements for the company, other than for the 2007, 2009 and 2010 years (and Mr Thompson explained why he felt compelled to sign those resolutions). Mr Thompson’s application for leave to commence the derivative action was filed in December 2010. Judgment granting

_{leave was delivered in October 2011 and this proceeding was filed in
October 2011.}

[89] The substance of this claim is quite different from the Kolmar rent claim. This has a marked bearing on issues of liability under the various causes of action. There are, perhaps, four essential facts underpinning that observation. The first is that Investacorp accepts that all of the work for which fees were charged was in fact undertaken by Mr Quinn or by staff of QCAL. The second is that s 161 of the Companies Act and provisions of Investacorp’s constitution permitted the board to make the payments notwithstanding the relationship of Mr and Mrs Quinn to the recipient of the payments, QCAL. The third is that the arrangements which are now challenged, to the extent that there were excessive fees, were fully outlined at a directors’ meeting and the arrangements resulting in the fees being paid were approved by the board, albeit a majority. The fourth is that the claim was not that fees should not have been charged at all, but that the fees were excessive. The matters of fact just referred to are not in issue.

[90] The complaint, when assessed in relation to its substance, and facts that are not in issue, does not readily indicate the basis upon which there was breach of fiduciary duties, or of s 131, or s 133, of the Companies Act. For these reasons, and because there is the alternative and quite different claim pursuant to s 161 of the Companies Act, it is appropriate to note s 161 and the most relevant provisions of the constitution, and to discuss the claim as pleaded and argued, before outlining the facts.

(1) The board of a company may, subject to any restrictions contained in the constitution of the company, authorise—

(a) The payment of remuneration or the provision of other benefits by the company to a director for services as a director or in any other capacity:

(e) The entering into of a contract to do any of the things set out in paragraphs (a), (b), (c), and (d) of this subsection,—

(2) The board must ensure that forthwith after authorising the making of the payment or the provision of the benefit or the making of the loan or the giving of the guarantee or the entering into of the contract, as the case may be, particulars of the payment or benefit or loan or guarantee or contract are entered in the interests register.

(a) The provisions of subsections (1) and (4) of this section have not been complied with; or

(b) Reasonable grounds did not exist for the opinion set out in the certificate given under subsection (4) of this section,—

the director or former director to whom the payment is made or the benefit is provided, or in respect of whom the guarantee is given, as the case may be, is personally liable to the company for the amount of the payment, or the monetary value of the benefit, or any amount paid by the company under the guarantee, except to the extent to which he or she proves that the payment or benefit or guarantee was fair to the company at the time it was made, provided, or given.

[92] Section 161 does not apply to a de facto director and therefore would not apply to QCAL even if it was a de facto director.²²

[93] Mr Bryers submitted that s 161 could not apply to the claim against Mr and Mrs Quinn because it is a claim relating to payments, and the payments were not to Mr and Mrs Quinn but to QCAL. I am satisfied that that is an unduly restrictive interpretation of s 161. Section 161(1)(a) refers to the provision of benefits to a director as well as the payment of remuneration to a director. Payment of invoices rendered by QCAL in respect of work undertaken personally by Mr Quinn, or by

indirectly, because of Mr Quinn’s interests in QCAL both as a shareholder and director. The same applies to Mrs Quinn as a shareholder.²³I agree with Mr Bigio’s submission that an unduly literal interpretation of s 161(1) would readily enable circumvention of the statutory provision. This would be inconsistent with the purpose of the provision as well as its broad wording.

Any director may act by himself or herself or his or her firm in a professional capacity for the company, and a director or firm shall be entitled to remuneration for professional services as if he or she were not a director provided that nothing herein contained shall authorise a director or his or her firm to act as auditor to the company.

(a) the payment of remuneration or the provision of other benefits by the company to a director for services as a director or in any other capacity;

(e) the entering into of a contract to do any of the things set out in paragraphs (a), (b), (c) and (d) of this subclause.

[95] Investacorp relied on clause 23.2, submitting that it extended to the payments to QCAL, at least in respect of Mr Quinn’s director’s work. The point does not require consideration because clause 23.2, as Mr Bigio observed, effectively mirrors part of s 161. The more important consideration is that clause 23.2 does not restrict the scope of the power to the board contained in s 161.

[96] The defendants relied on clause 20.3 as providing authority for the arrangements that were put in place with QCAL. Mr Bigio submitted that clause

20.3 is narrow in its scope and, in Mr Quinn’s case, could only apply to work undertaken by Mr Quinn as an accountant, which would be work by his firm “in a professional capacity”. This difference as to the scope of clause 20.3 does not need

_{to be resolved in this case because the important question is whether
clause 20.3}

restricts the power otherwise provided by s 161. I am satisfied that it does not. Should it be necessary to decide the question I am also satisfied that clause 20.3 can be interpreted to provide authority for the arrangements that were put in place.

[97] I am satisfied that s 161 does apply to the arrangements in question. In consequence, if subsections (1) and (4) have not been complied with, subsection (5) may be invoked by reference of the issue of fairness to the Court.

[98] The statement of claim is clear as to the true scope, or substance, of the professional fees claim. The primary pleading, in Investacorp’s third amended statement of claim, is as follows:

11. Between January 1999 and the date of this claim, QCA charged Investacorp and the Kolmar Road Partnership for accounting and property management services it provided and for the time spent by Mr and Mrs Quinn in discharging their obligations as directors of Investacorp (Professional Fees).

12. The Professional Fees charged by QCA exceeded market rates and were disproportionate to the income that Investacorp and the Kolmar Road Partnership received.

13. Mr and Mrs Quinn were aware at all material times that the Professional Fees exceeded market rates / were disproportionate to the income received by Investacorp and the Kolmar Road Partnership.

[99] The allegation that Mrs Quinn charged for work in her capacity as a director can be disposed of at the outset. The unchallenged evidence is that Mrs Quinn did not charge for any of the work she did for Investacorp, whether as a director or otherwise. There is no basis for a claim against Mrs Quinn dependent on an allegation that she charged through QCAL for any of her work.

[100] There are two important aspects to the pleading in paragraphs 11-13. The first is that the complaint is that the charges for directors’ work and the other types of work were excessive and were disproportionate to income which, in the context, means much the same thing. It is not a complaint that the fees could not be charged

at all. The second point arises from the definition “Professional Fees” adopted in the statement of claim and applied throughout the case; it applies to all three of the broad categories of fees now challenged as excessive: fees for accounting work; fees for property management; and fees for time spent by Mr and Mrs Quinn on work in their capacity as directors of Investacorp. Subsequent pleadings were to the same effect. And the pleadings relating to the “Professional Fees” are to be contrasted with a separate claim, no longer pursued, of “Fees improperly charged”. The improper fees allegation was that particular sums should not have been charged to Investacorp at all and none of these sums included any of the “Professional Fees” pleaded at paragraphs 11-13.

[101] Mr Bigio’s opening on Investacorp’s professional fees claim and, with one exception, his closing, followed a common theme: the complaint was that fees were overcharged.²⁴That is consistent with the pleadings. The one exception relates to charges for Mr Quinn’s time on director’s work. I discuss that later. I am satisfied that the scope of the enquiry on the professional fees claim is whether the fees charged were excessive. I am also satisfied that the enquiry is equivalent to that under s 161(5) as to whether the fee payments were fair to Investacorp.

[102] The claim is directed in large measure to decisions and activities of Mr Quinn from around 2000. Investacorp’s focus, and the focus of Mr Thompson in his evidence, was on the period from 2000. However, Mr Quinn, and Mrs Quinn, had undertaken work for Investacorp over an extended period before 2000. In this earlier period there had been charges by Mr Quinn for fees and, separately, lump sum payments to all three directors of what were variously described as directors’ fees or

_{directors’ salaries. There is important evidence relating to the
period before 2000,}

²⁴For example, it is alleged that Investacorp’s loss was a “minimum of $375,916 in overcharged Professional Fees paid to [QCAL] to March 2011” (emphasis added). The particulars relating to fees charged to the Kolmar Road partnership are in identical terms – overcharging. Particulars of breach of s 131 of the Companies Act (being the first cause of action pleaded) are to similar effect. It is alleged that Mr and Mrs Quinn authorised QCAL “to charge Professional Fees that were known to exceed market rates and to be disproportionate to the income that Investacorp received”, and similarly for the Kolmar Road partnership. Those particulars are repeated as the basis for liability for breach of fiduciary duties, and breach of ss 133 and 161 of the Companies Act.

and in particular evidence of work done by Mr and Mrs Quinn and the way in which payments were made. It is necessary to set out the background in some detail.

[103] The following outline comes from Mr Quinn’s evidence. There was no material challenge to his evidence in this regard. It was supported by Mrs Quinn.

[104] Mr Quinn has been involved with Investacorp since the 1970s. He was asked by the company’s founder, Mr R J Thompson, to become a trustee of the R J Thompson Trust. He was appointed a trustee in May 1974. Mr R J Thompson also asked Mr Quinn to act as Investacorp’s accountant. Mr Quinn’s recollection is that he started doing the accounting at around the same time. Mr Quinn, directly or through QCAL, has been Investacorp’s accountant ever since.

[105] Mr R J Thompson died in 1977. After his death Mr Bruce Thompson and Mr Wells were appointed to join Mr Quinn as trustees of the R J Thompson Trust. The principal beneficiaries of the trust are Mr R J Thompson’s widow and his three children.

[106] The heart of Mr Quinn’s evidence about the management of Investacorp was as follows:

I have managed the affairs of Investacorp for more than 30 years, virtually single-handed, except for the valuable assistance I get from my wife. Bruce, on the other hand, has never taken any interest in Investacorp and refuses to help run the company.

[107] Mr Quinn’s evidence, supported by evidence from Mrs Quinn, was that he did a lot of work for Investacorp. This was work in the three categories identified in the statement of claim: accounting, property management in connection with Nelson Street and Kolmar Road (using the word “management” to cover a wide range of activities), and work as an Investacorp director. Although this part of the claim is almost entirely concerned with management of a single property – Nelson Street – the evidence establishes that a lot of work, of different types, was required from time to time.

[108] There was evidence from Mr Thompson of some work he did at Nelson Street, but that does not appear to have been extensive and appears to have been well before the present issues arose. It also has no bearing on the basic issue as to whether the fees charged by QCAL were excessive, or not fair to Investacorp. Apart from Mr Thompson’s evidence of the work he had done much earlier, there was no material challenge to Mr Quinn’s evidence that all of the work required to be done for Investacorp was done by him and Mrs Quinn. I accept Mr Quinn’s evidence and that of Mrs Quinn. It is borne out by minutes of directors’ meetings. In relation to those minutes it is relevant to record that I have read them conscious of the fact that Mr Thompson has suggested that the minutes do not fully record his observations.

[109] Mr Thompson and Mr and Mrs Quinn were the three directors of Investacorp at least from 1990. Up to and including the financial year ending March 1999, directors’ fees, or salaries, were paid to Mr Thompson and Mr and Mrs Quinn, or in some cases to Mr Thompson and Mrs Quinn only (with the payment to Mrs Quinn being more than the payment to Mr Thompson). Where there were payments only to Mr Thompson and Mrs Quinn it is clear enough that the payment to Mrs Quinn was intended to incorporate what would otherwise have been paid separately to Mr Quinn. In addition, Investacorp paid what were described as management fees, generally of a round sum, in addition to fees charged by Mr Quinn for accountancy. The directors’ fees varied from a low of $34,000 (1995) to a high of $85,000 (1992). The average was $48,050. Mr Thompson was receiving one-third of that; an average of about $18,500 per annum. Fuller details of these payments, on a year by year

basis, are contained in a schedule prepared by Mr Quinn which is recorded below.²⁵

[110] Mr Quinn said that he and Mrs Quinn decided that the arrangement was unfair, and possibly illegal, as they were doing all the work to run the company. He said that he thought the proper course was to abolish the directors’ salaries and to formalise the arrangements between him and Investacorp for the work he was doing on the same basis as he would for QCAL’s other clients. The proposal was that his firm would charge Investacorp for all work done by Mr Quinn, or QCAL staff, for Investacorp during office hours at the usual charge out rates. This was on the same

_{basis that he had been charging for work as an accountant for many
years. It was}

also proposed that any work he did outside office hours would be done without charge and that all work done by Mrs Quinn, whenever it was done, would be without charge.

[111] Mr Quinn said that they decided in 2001 that a change was appropriate. The exact timing is a little unclear from the evidence. The precise timing is not determinative of any material issues. The new arrangements appear to have been implemented in full in the year ending 31 March 2002, although the last directors’ fees or directors’ salaries had been paid in 1999. ($60,000, being $22,000 to Mr Thompson and $38,000 to Mrs Quinn).²⁶

[112] The fullest record of a discussion between the directors about the new arrangements appears to be the minutes of a directors’ meeting on 7 April 2001. A number of topics were discussed. The discussion of present relevance, which was fairly lengthy, concerned governance, management, and payment for various types of work done for Investacorp by Mr Quinn and (implicit in the discussion) the staff of QCAL.

[113] The arrangements fully implemented in the year to 31 March 2002 were clearly outlined at the meeting. The essence of the record in this regard is as follows:

(b) There was a unanimous resolution that Mr Quinn be appointed managing director for a fixed period of 12 months with the appointment to be reviewed annually.

C.A.Q. raised the matter of remuneration. He advised that he would claim no personal salary or commission. His firm Quinn Chartered Accountants Limited would continue to bill professional time during business hours when engaged on the Company’s affairs.

²⁶Details of the implementation, including cessation of directors’ salaries, can be seen in Mr

(d) Mr Quinn noted that his firm had always charged for its professional services as if Investacorp was an unrelated client. There was to be no charging for time outside “normal professional hours”.

(e) Mrs Quinn explained in detail the amount of time she as well as Mr Quinn spent on company affairs. She stated that she never charged any of her personal time to the company.

(f) The minutes do not record, in any direct sense, opposition from Mr Thompson to the arrangements outlined by Mr Quinn. What the minutes do record, so far as Mr Thompson is concerned, is the essence of what is now contained in the professional fees claim; a complaint that the level of fees was excessive. This was directed to fees charged by QCAL recorded in the Investacorp financial statements for the year to 31 March 2000. There had been a directors’ meeting in November 2000 where the financial statements for the preceding year had been discussed. This was a meeting also attended by Mr Wells. At the April 2001 meeting now being discussed, the minutes were tabled and there was the following exchange:

BJT advised that whilst all his questions had been answered [at the 16 November meeting] he did not agree with the fact that management fees had been paid to Quinn Chartered Accountants Limited for their professional services.

C.A.Q. asked if he expected professional services to be rendered free of charge and if so why.

BJT advised that he considered the fees to be excessive compared to what he paid his accountant to prepare his tax return.

C.A.Q. advised that the professional fees were not merely for the completion of accounting and taxation matters but were for the total management of the company including a variety of matters that were discussed in detail.

C.A.Q. stated that he was grossly concerned with the comments and innuendos made by BJT relating to his involvement with the Company.

C.A.Q. questioned BJT as to the validity of his comments and suggestions and asked if he had any factual evidence to support his allegations.

C.A.Q. also asked BJT what value he had brought to the company over the last 25 years and if he wished to resign as a Director.

[114] Mr Quinn then tabled all of the company’s statutory records including directors’ and shareholders’ resolutions. He asked Mr Thompson if there were any particular documents Mr Thompson wished to see. Mr Thompson said there were not. The Investacorp financial statements for the year to 31 March 2000 were then tabled and the directors asked to adopt them. Mr Thompson stated that “he was not in agreement with the financial statements owing to the fact that he did not agree with the Management Fees paid”.

[115] The evidence sufficiently establishes that the arrangements now challenged were authorised by Investacorp’s board in terms of s 161. However, there is no evidence that the certificates required by s 161(4) were provided by Mr and Mrs Quinn as the directors who voted in favour of the various payments to QCAL.

[116] The arrangements as outlined by Mr Quinn at that meeting are the arrangements that continued through to the date of issue of this proceeding.

[117] Mr Quinn prepared a schedule of all fee payments by Investacorp from 1990 to 2012. This is an important analysis when related to the substance of Investacorp’s claim that it was charged excessive fees and, underlying that, in terms of s 161(5) of the Companies Act, that the fees were not fair to Investacorp. The schedule is as follows:

	1990	1991	1992	1993	1994	1995	1996	1997	1998	1999
Rent	238,000	234,000	227,000	149,000	133,000	147,000	186,056	184,277	204,130	204,415
Director salaries	40,000	60,000	85,000	50,000	34,000	34,000	34,000	37,500	46,000	60,000
Management fees	9,500	10,222	11,000	11,000	11,000	11,000	11,000	11,000	9,000	6,000
Professional fees	8,493	6,628	4,820	3,298	3,509	2,600	3,639	2,869	2,416	2,092
Total Fees	57,993	76,850	100,820	64,298	48,509	47,600	48,639	51,369	57,416	68,092
% Revenue	24%	33%	44%	43%	36%	32%	26%	28%	28%	33%

	2000	2001	2002	2003	2004	2005	2006	2007	2008	2009	2010	2011	2012
Rent	170,437	147,454	79,730	154,112	186,637	232,247	293,326	331,891	325,883	185,479	138,193	107,330	41,160
Director salaries
Management fees	7,500											37,868	49,891
Professional fees	3,581	15,882	54,404	58,705	59,377	51,608	42,813	45,642	39,553	31,269	59,803	4,755	7,152
Total Fees	11,081	15,882	54,404	58,705	59,377	51,608	42,813	45,642	39,553	31,269	59,803	42,623	57,043
% Revenue	7%	11%	68%	38%	32%	22%	15%	14%	12%	17%	43%	40%	139%

[118] The claim proceeded on the basis of a third amended statement of claim. Before this, the causes of action for recovery of excess fees from Mr and Mrs Quinn were breaches of fiduciary duties and ss 131 and 133 of the Companies Act.

[119] The fiduciary duty most obviously arising for consideration on the facts is the duty, as earlier summarised, not to profit personally from the position as a director.²⁷

The duty is not as unqualified as the summary of it indicates. The duty of a director not to profit from the position is subject to the Companies Act and the constitution of the company.

[120] In my judgment, given the nature of the professional fees claim and the evidence, there was no breach of the fiduciary duty not to profit personally. This is because authority was given by the board, albeit by a majority, and there is provision in s 161 of the Companies Act, not overridden by anything in the constitution, authorising what was done. Applying s 161, given the failure to provide the certificate under s 161(4), the real issue comes back to the earlier discussion of the substance of the claim – to what extent, if any, were the fees excessive? Under s 161(5): were the payments fair to the company? If it is established that the fees were excessive, the remedy is judgment for the amount of the excess. That is what is required by s 161(5). In determining whether the payments were fair, the onus is on Mr and Mrs Quinn. Any amount paid by Investacorp to QCAL is recoverable from Mr and Mrs Quinn except to the extent that they prove that the payment was fair to

[121] There are the other fiduciary duties not to allow a conflict to arise and to use powers in the company’s best interest. I am satisfied that the facts of this case, coupled with the provisions of the constitution and s 161, do not provide a foundation for a claim for breach of those duties. I am also satisfied that breach by Mr and Mrs Quinn of ss 131 and 133 of the Companies Act is not established, and essentially for the reasons recorded to this point.

[122] The claim against Mr and Mrs Quinn is a statutory claim under s 161(5). A six year limitation period is prescribed s 4(1)(d) of the Limitation Act 1950 because this is an action “to recover any sum recoverable by virtue of any enactment”.

[124] The defence of waiver (or affirmation, or release) was invoked because Mr Thompson joined with the other directors in approving Investacorp’s annual financial statements for the years ended March 2007, March 2009 and March 2010. I am satisfied that that does not mean that Investacorp is unable to invoke s 161. “Approval” of the financial statements by Mr Thompson went no further than confirmation that the statements of income and expenditure accurately recorded the figures. He was not approving the level of charges by QCAL, but the fact of those charges. In any event, this act by Mr Thompson could not constitute waiver of Investacorp’s rights and director’s duties and obligations under s 161.

[125] Disclosure, being the remaining affirmative defence, does not provide a defence in terms of s 161. Section 161(5) is engaged because of a failure to comply with all of the provisions in the preceding subsections. Disclosure was in substance one of those requirements, under s 161(1), and this requirement was met.

[126] I will consider first the claim in respect of the fees charged by QCAL to the

[127] Before a meeting of experts the claim relating to the Kolmar Road partnership was for a sum of $44,499. This was for the financial years ending 31

March 2000 to 31 March 2012, a total of 13 years. Shortly before the hearing commenced, there were meetings of property management experts, and then of accounting experts, all of whom were to give, and did give, evidence for Investacorp or for the defendants. These meetings resulted in a measure of agreement. Following these meetings the claim of overcharging the Kolmar Road partnership was reduced to $4,946, as recorded in a supplementary brief of evidence from Mr Lane.

[128] The Kolmar Road partnership claim now amounts to a contention that there was overcharging of an average of $380 per annum for the 13 year period. This sum cannot reasonably be said to be excessive, or unfair to Investacorp. I am satisfied that this claim does not require further consideration. To the extent that additional reasons are required, they are implicit in the following discussion of the claim for the fees charged by QCAL directly to Investacorp.

[129] In respect of the fees charged directly to Investacorp, mainly for Nelson Street, Investacorp claims that over a 13 year period it was overcharged $429,220. This is the sum claimed from Mr and Mrs Quinn and QCAL.²⁸

[130] This total is contained in an analysis for Investacorp by Mr Lane. It incorporates matters agreed between the accounting experts and property management experts. The defendants relied on two accounting experts; Mr Donald Walker and Mr John Hagen. Mr Walker is a principal of WHK Auckland, a division of WHK (NZ) Ltd. Mr Walker was called to give evidence on, amongst other things, the fees that his firm would have charged for the accounting work done by QCAL. WHK has a substantial practice in accounting work for owner operated businesses

_{including many similar in general type and size to Investacorp’s
business. Mr Hagen}

²⁸The total claimed under this heading, as recorded in Mr Lane’s supplementary brief of evidence,

provided following agreement between experts on some issues, was $542,098. This included

$155,895 for the items which had been pleaded separately as fees improperly charged by QCAL and further potential fees recorded as work in progress. This part of the claim, in the end, was not pursued. It is apparent that this occurred because of a repayment made by QCAL and Mr Bryers’ acknowledgement, on behalf of the defendants, that the sum in question would not be claimed back and that work in progress would not be converted into charges to QCAL.

provided expert evidence on broader accounting and company issues and, as with Mr Lane for Investacorp, drew the figures together for the defendants. There were two property management experts, Mr Stephen Sampson for Investacorp and Mr Zane McAlpine for the defendants. Messrs Sampson and McAlpine had a conference, which Mr Lane and Mr Hagen attended, and reached a substantial measure of agreement as to the appropriate level of fees for the property management work, and work of a related nature.

[131] Although there was a measure of agreement, issues remained. The evidence of both groups of experts was focussed on the fees actually charged from around

2000, and in particular from around 2004 because QCAL had disposed of its detailed records for the period before 2004. The analyses compared QCAL’s actual charges with charges that, in the opinions of the experts, would have been made by third party accountants, property managers and directors over the period in question.

[132] The Companies Act does not define what is meant by the expression “fair to the company”, as used in s 161(5), and I was not referred to any cases discussing the expression as used in that section. Section 161 itself prescribes a subjective test for the board on the point, recorded at the end of s 161(1) – “... if the board is satisfied that [the payment or other provision] is fair to the company”. Clearly Mr and Mrs Quinn were of that opinion. The Act does not require a unanimous resolution of a board under s 161. Section 161(4) expressly contemplates that the payment, or provision of the benefit, may be implemented by a majority because s 161(4) refers to “directors who vote in favour of authorising a payment ... or contract”. However, as earlier discussed, if s 161(1) or s 161(4) is not complied with and there is a challenge, s 161 requires review by the Court.

[133] I have therefore reviewed the issue of fairness to Investacorp in the light of the evidence. In particular, the unchallenged evidence of Mr and Mrs Quinn, which I accept was that they were doing all the work. Further the arrangements they put in place reduced the cost to the company from an average of $62,158 per annum before

2000 to $43,831 after 2000. These averages come from the figures contained in Mr

Quinn’s detailed schedule, reproduced above at [117]. I am satisfied that in large

measure they have met the onus on them under s 161(5) to establish that the payments when made were fair to Investacorp.

[134] I say “in large measure” because there is need to assess the conclusion based on the figures overall – based in effect on the bottom line – against the more detailed figures for the different categories of work charged by QCAL when compared with the assessments of the experts. These are the three categories of work identified in the statement of claim: accounting, property management for the Nelson Street property, and director’s work.

2012, a more detailed analysis of QCAL charges for different types of work for the years ending March 2004 to March 2012. There was no analysis for earlier years because QCAL’s detailed records were no longer available. Mr Quinn’s analysis broke the charges down into six categories. He described these as: accounting, management fees, director’s fees, property capital development, lease negotiation and renewal, and other additional services. Accounting and director’s fees correspond to two of the three categories identified in the professional fees claim. The remaining categories in Mr Quinn’s analysis all relate to what may be described broadly as property management, with all of this being work of different sorts relating to the Nelson Street property.

[136] Mr Bryers provided a table which helpfully summarised the sums contained in Mr Quinn’s schedule for the different categories of work, and the comparable figures contained in the evidence for Investacorp, as summarised by Mr Lane, and the evidence for the defendants, as summarised by Mr Hagen. The summary is confined to the financial years ending March 2004 to March 2012, for the reason just noted. In consequence the figures in Mr Lane’s evidence, which included the years

²⁹March 2004 is in fact earlier than the start date of the six year limit under the Limitation Act.

[137] Mr Bryers’ table is set out below.³⁰One category described as “Marketing” was for work by Mr Quinn, or QCAL staff, for a range of activities in seeking to secure tenants for Nelson Street and other marketing activities relating to Nelson Street. I consider it appropriate to treat this as part of what I have described as “property management”. There are two other sub-categories described in Mr Bryers’ table as “Property Management Core Services” and “Property Management Additional Services”. The reason for the distinction is discussed below.

Professional fee category	Mr Lane	Actual charges by QCAL (Mr Quinn’s schedule)	Mr Hagen
Property Management Core Services	$108,000	$90,547	$107,985
Property Management Additional Services	Nil	$156,198	$93,221
Sub Total	$108,000	$246,745	$201,206
Marketing	Nil	$68,471	$68,471
Sub Total	$108,000	$315,216	$269,677
Directors Work	Nil	$59,285	$112,500
Accounting	$21,600	$50,717	$52,589
Total	$129,600	$425,218	$434,766

[138] As can be seen, the defence expert evidence at the bottom line indicates that the total actually charged by QCAL was not excessive. This could be taken to indicate that the payments were fair to Investacorp. But the evidence for Investacorp suggests that the payments were decidedly excessive. However, as also can be seen, the main reason for this significant difference between the experts is that there are no figures from Mr Lane for property management additional services, marketing or director’s work. The reasons for these omissions, and my conclusions on the

_{individual categories of work, are discussed in the following
paragraphs. It is}

³⁰I have modified Mr Bryers’ headings and rearranged the order in which he set out the categories

appropriate to discuss these items in an order different from the sequence in which I

[139] In relation to the difference in the accounting fees as assessed by the experts, I am satisfied that it is appropriate to adopt the figure based on the expert evidence of Mr Walker and Mr Hagen. Mr Lane’s calculation was based on his own approach to charging for accounting services provided to small companies like Investacorp. Mr Lane considered that it was appropriate to charge a fixed fee each year and in his opinion an appropriate fixed fee, from 2004, would be $2,400 per annum. The figure recorded by Mr Hagen is derived from detailed evidence from Mr Walker along the lines explained above. I am satisfied that Mr Walker’s evidence is the appropriate basis for comparison of QCAL’s actual charges for three essential reasons. First, in determining whether the payments made to QCAL for accounting were fair to Investacorp, the question is whether, in the market, the fees would have been substantially less. Mr Walker’s evidence is directed to the “market” of relevance in this case. Second, Mr Walker’s method of assessing fees on an arm’s length basis was essentially the method QCAL used to charge fees over the period from 2004. Third, the method of assessment by Mr Walker, using the same method of charging as QCAL from 2004, is consistent with the way in which QCAL had charged for very many years. Investacorp was not treated differently from any other client.

[140] There is one other point. This is that Mr Lane’s total of $21,600 involved a reduction of 20% in the annual fee he would otherwise have allowed because the core services provided by property managers include some basic accounting work. Mr Quinn’s unchallenged evidence was that QCAL’s accounting fees did not include time for that type of accounting work; it was included in the assessment of fees for property management. On that basis Mr Lane’s assessment for the 2004-2012 period would be $27,000.

[141] Mr Lane has no figure for directors’ work. This is consistent with an argument for Investacorp that resolutions of Investacorp’s board that there be no

_{directors’ fees meant that there could be no charge for this work
undertaken by Mr}

³¹Mr Bryers had accounting as the first item and this is the first item appropriately to be considered. I rearranged the sequence to provide sub-totals for the different types of property management work.

Quinn. Mr Lane expressed no opinion on the point: he did not include a figure because of Investacorp’s position. Mr Lane said in cross-examination that if fees could be charged by QCAL for time spent by Mr Quinn on director’s work, an appropriate figure would be $6,000 per annum. That is a total of $54,000 for the nine years covered by Mr Bryers’ table. Over a nine year period this is not materially different from QCAL’s actual total of $59,285.

[142] There is, in any event, an issue as to whether Mr Quinn could charge for his time spent on director’s work. There are two aspects to this issue. The first is whether Investacorp was entitled to raise this issue at all given the way it pleaded its claim. The second is whether the company resolutions that no directors’ fees be paid meant that Mr Quinn was not entitled to charge for his time on director’s work in the way that he did.

[143] I have concluded that Investacorp was not entitled to raise the argument of basic entitlement and, in any event, Mr Quinn was not disentitled as a consequence of the resolutions. My reasons follow.

[144] An argument that there was no entitlement to charge for director’s work was not explicitly advanced until Mr Bigio’s closing for Investacorp. The argument was inconsistent with the pleadings, as will be apparent from the earlier discussion of the pleadings. It was contrary to the opening submissions for Investacorp. This was

For the past 13 years, Mr Thompson ... has sought to resolve with the defendants concerns regarding the way in which [Investacorp] has been managed, including the use of [QCAL] as a service provider where other providers could provide more cost efficient services.

[145] The focus of Investacorp’s closing was also that QCAL’s fees were excessive. The essence of the professional fees claim was stated to be that Mr and Mrs Quinn had used their majority on Investacorp’s board to “cause/allow [QCAL] to charge

_{excessive fees to [Investacorp] for a variety of services
provided”; and that QCAL}

“used its blank cheque. It charged excessive fees to [Investacorp’s and the Kolmar

[146] However, in closing there was also a submission from Mr Bigio that Mr Quinn was not entitled to charge, through QCAL, for any time spent by him on work in his capacity as an Investacorp director. Mr Bryers objected to that argument being raised in closing. Mr Bigio responded by pointing to cross-examination of Mr Quinn relating to these fees. Mr Bigio also submitted that it had only become apparent that there were charges for directors’ fees when Mr Quinn’s brief of evidence was served. This contained Mr Quinn’s detailed schedules, including the one which had a section for work charged through QCAL and labelled “directors’ fees”.

[147] The fact that there was cross-examination of Mr Quinn on the charging for director’s work would not in itself justify what would amount to a significant shift in the case in the course of closing submissions. Mr Quinn’s responses do not justify a different conclusion; they are consistent with the overall case for the defendants advanced in the light of the pleadings and with what is recorded in the contemporaneous minutes. Mr Quinn’s brief of evidence with the schedule appears to have been served on Investacorp’s solicitors at least six weeks before service of the third amended statement of claim and this contains the express pleadings already recorded.

[148] The pleading point, in this case, is important, although it is not the only reason the claim fails. The charging by Mr Quinn, through QCAL, for time spent by him on director’s work during business hours, was not contrary to resolutions of directors and it was not otherwise improper, in terms of the clear disclosure made by Mr Quinn, and in particular in the directors’ meeting on 7 April 2001. The label “director fees” in Mr Quinn’s schedule cannot provide a basis for the belated argument that, in effect, the charges were improper. The directors’ resolutions that

_{no directors’ remuneration was to be paid do not provide a
foundation for the claim.}

[149] Given Mr Lane’s figure of $54,000 if fees for director’s work were chargeable, and the defence expert evidence that appropriate fees for the whole period would be $112,500, I am satisfied that the actual charges of $59,285 were fair to Investacorp.

[150] The remaining category is property management. Mr Lane’s and Mr Hagen’s figures for property management core services are in substance the same, $108,000 in round figures.³⁴The figure comes from the agreement between the two property management experts, Mr Sampson and Mr McAlpine, as to the sum they would charge on an annual basis for what were called “core services” provided by a property manager. However, differences remained between Mr Sampson and Mr McAlpine on a number of matters which have a bearing on the overall property management charges by QCAL. An example was as to the range of work that would

be included in the annual charge for core services. Another was that, although Mr Sampson and Mr McAlpine agreed that anything outside core services would be charged for separately, there were differences as to the method or rate of charging. Mr Sampson did not calculate what he would have charged for additional services related to the work done and charged for by Mr Quinn. This, it appears, is the reason that there was no figure recorded by Mr Lane. There is the figure of $93,221 recorded by Mr Hagen. This comes from Mr McAlpine’s evidence and is the only evidence available on the point, other than what is contained in the column for QCAL’s actual charges. The figure calculated by Mr Quinn for actual charges under the broad category of “property management additional services” is just under

$63,000 more than Mr McAlpine’s calculation. That is just under $7,000 per annum. Standing alone this is a substantial difference. I come back to this point shortly.

[151] The remaining item in the broad property management category is marketing. Again, Mr Lane did not record a figure. There was an argument for Investacorp that charges by Mr Quinn for activities of that nature were not appropriate because Mr Quinn did not have professional expertise in marketing (or property management). I am satisfied that there is no basis for excluding a proper allowance in favour of QCAL for this item. A sufficient reason is Investacorp’s acknowledgement that all

_{of the items for which QCAL charged do represent work actually
undertaken by Mr}

Quinn. In any event, there is defence evidence that the sort of work that was being done by Mr Quinn in this area does not require specialist qualifications and Mr Quinn’s own essentially unchallenged evidence is that he has a good deal of experience in a range of property management and related work.

[152] Under the broad property management heading, with the three sub-categories in Mr Bryers’ table, there is the ultimate question whether the defendants have established that the total of the payments by Investacorp were fair to Investacorp when the payments were made. There is the difference of $63,000 between Mr Quinn’s calculation of QCAL’s figure and Mr Hagen’s figure derived from Mr McAlpine’s evidence. The difference, standing alone, suggests the payments were excessive. When the three property management sub-categories are totalled, the difference is reduced to around $45,500, but in relation to the size of Investacorp’s business that is not an insignificant difference.

[153] The onus is on Mr and Mrs Quinn to establish that the charges were not excessive; that the payments were fair to Investacorp. I have concluded that Mr and Mrs Quinn have met the onus on them, notwithstanding the difference in the property management figures between the actual charges and the lesser sums established through the independent evidence. This is for the following reasons:

(a) The total paid by Investacorp under the arrangement introduced by Mr Quinn, and now under challenge, is materially less than what in the past had been paid by Investacorp for the same work.

(b) In relation to the actual payments in question, the total paid by Investacorp to QCAL is less than what expert evidence indicates would have been paid by QCAL if all of the work had gone to service providers other than QCAL. It is not to be overlooked that Mr Thompson, in directors’ meetings, had urged Mr Quinn to engage other service providers, including for accounting services.

inevitable, that two or three different organisations would have been engaged to do the different types of work. That would be likely to have increased overall cost even if some of the individual work might have been done for less.

(d) If third party service providers had been engaged, there would still have been need for Mr Quinn to spend time in dealing with the independent service providers and overseeing their activities. It is sufficiently clear on the evidence that there would have been no-one else who would have done these things for Investacorp. That would have been in the nature of management work. On top of that, work that could only be done by a director would be unlikely to have been delegated to a third party, and again this is work that would in my judgment have ended up being done by Mr Quinn.

(e) The work required to be done for Investacorp in relation to Nelson Street varied in nature and frequency. Particular problems emerged intermittently. Large amounts of work were required from time to time. This is perhaps amply illustrated by figures for fees recorded by Mr Quinn under one of his sub-headings for property management – “property capital development”. The total for the nine years from

2004 to 2012 was $57,219. However, all of that was incurred in only three years – $31,691 in 2004, $10,894 in 2006 and $15,634 in 2007. The fluctuating demands indicate that there were benefits to Investacorp in Mr Quinn’s turning his attention to Nelson Street when required, rather than having a property manager engaged on a full time basis for an annual fee for core services, with the amount of core work varying over time, and then charging for additional work outside core services.

(f) There is the substantial difference between the recorded figure for QCAL’s charges for additional services and Mr McAlpine’s calculation. I agree with the submission from Mr Bryers that allowance needs to be made for the fact that Mr Quinn’s total of

$156,198 was a reconstruction from records over nine years, with the detail for particular items not having been recorded in ways that would fit neatly into the analysis of the experts, let alone in anticipation that the figures would be scrutinised in a courtroom. The point cannot be given undue weight, but I accept that some allowance needs to be given for the likelihood that some figures included by Mr Quinn under this heading might more appropriately fit under a different heading. That approach also brings the matter back to the earlier point; overall – the bottom line – the payments by Investacorp over this period, were materially less than what they had been. And these are nominal figures; if allowance is made for inflation the benefit to Investacorp – the fairness to Investacorp – increases.

(g) The work charged through QCAL has provided benefit to Investacorp in addition to reduced cost. Mr Quinn provided evidence in this regard relating to an increase in value of Investacorp’s assets and production of income.

(h) There is also a fairly fundamental point that what Mr Quinn did over this period is what he had been doing for many years and for which he and Mrs Quinn had been paid. Leaving aside the precise figures, the only change that occurred is that a fixed director’s fee did not go to Mr Thompson. But Mr Thompson did not argue that, over the period in question, he did any particular work for which he should have been paid.

[154] For all of these reasons I am satisfied that the professional fees claim should be dismissed.

[155] At a directors’ meeting on 13 May 2010, with Mr Wells present in addition to the three directors, it was resolved, with Mr Thompson abstaining, that a mortgage be granted to the C A and P I Quinn trusts to secure shareholders’ loans of some

$500,000, with interest to be paid on the loans at a rate of 12% per annum. These

were the only shareholders’ loans at that date. Over preceding years priority had been given to repaying loans from the other shareholders. It was suggested at that meeting that if Mr Thompson advanced $250,000 to enable some of the money advanced by the Quinn trusts to be repaid, the advance from Mr Thompson would be secured on the same basis and at the same rate of interest.

[156] There was a challenge to the circumstances in which the mortgage was granted as well as a challenge to the rate of interest. The issues relating to the mortgage fell away and no longer require consideration. The issue is whether the rate of interest was reasonable and in accordance with earlier resolutions.

[157] Investacorp did not contend that interest should not be paid on shareholders’ advances. In the past it had unanimously been agreed that interest should be paid. It seems that, when this claim was advanced, there was an error as to the applicable board resolution. Investacorp advanced the claim on the basis that interest was to be at the rate payable on an investment for three years. This was referred to in minutes of a directors’ meeting. However, the resolutions regularly passed by the board, before the May 2010 resolution, were that “interest is to be paid at a rate that, in the opinion of the directors, is fair to the company and also reflects the risks to the lenders” (emphasis added).

[158] I am satisfied that the 12% rate was a rate fixed in accordance with board resolutions and consistent with rates paid in the past. It was an appropriate rate to a lender having regard to the circumstances of QCAL as at May 2010. A rate of 12% per annum is supported by unchallenged evidence from two independent experts, Mr Hagen and Mr Timothy Jones, a solicitor called as an expert, as well as evidence from Mr Wells, based on his experience as a solicitor, and Mr Quinn based on his experience as an accountant. Mr Lane accepted that a rate of 12% per annum was a reasonable lending rate as at May 2010.

[160] There is judgment against Mr and Mrs Quinn on the Kolmar rent claim in a total sum of $167,002, together with interest to be calculated on the basis recorded at [85].

[162] My provisional view is that there should be no order for costs, for or against, any party, meaning Investacorp, Mr and Mrs Quinn and QCAL, or any other person, and in particular Mr Thompson. However, if any party, or Mr Thompson, seeks costs a memorandum is to be filed and served within four weeks and a response is to be filed and served within another two weeks. If there are submissions on costs they should also address any points on costs arising from the judgment granting leave to

High Court of New Zealand Decisions

Investacorp Holdings Limited v Quinn [2014] NZHC 2389 (1 October 2014)