CLARK & SON LIMITED v CLARK & ORS [2023] NZHC 957

CLARK & SON LIMITED v CLARK & ORS [2023] NZHC 957 [27 April 2023]IN THE HIGH COURT OF NEW ZEALANDHAMILTON REGISTRYI TE KŌTI MATUA O AOTEAROAKIRIKIRIROA ROHECIV-2022-419-000274[2023] NZHC 957UNDER Section 91 of the Companies Act 1993BETWEEN CLARK & SON LIMITEDApplicantAND LANCE STEPHEN CLARK as trustee ofthe Terra Firma TrustFirst RespondentAND COONEY TRUSTEES 2007 LIMITED astrustee of the Terra Firma TrustSecond RespondentAND BEVERLY PETERSEN as trustee of theTerra Firma TrustThird RespondentHearing: 19 April 2023Appearances: Murray Branch for the ApplicantNo appearances for the First and Second RespondentsMike Phillipps and Gavin Jolliffe for the Third RespondentJudgment: 27 April 2023JUDGMENT OF MOORE JThis judgment was delivered by me on 27 April 2023 at 3:00 pmpursuant to Rule 11.5 of the High Court Rules.Registrar/ Deputy RegistrarDate:Introduction[1] The applicant, Clark & Son Limited ("the Company"), seeks a declaration thata certain parcel of its shares is legally owned by the three trustees of the Terra FirmaTrust ("the TF Trust"), being the first, second and third respondents rather than byLance Stephen Clark ("Mr Clark"), the first respondent, in his personal capacity. Theapplication is opposed by the third respondent, Beverly Petersen who was formerlyMr Clark's partner.[2] On 5 October 2020, Ms Petersen commenced proceedings against Mr Clarkand the trustees of the TF Trust under the Property (Relationships) Act 1976("the PRA").1[3] It appears that in those proceedings Ms Petersen is or will be claiming that theshares in question are owned by Mr Clark personally and are relationship property forthe purposes of the PRA.Factual background[4] An understanding of the factual background is essential to the determinationof these proceedings. Except where indicated, there is no real contest as to thechronology of events and the key facts as set out below.[5] The Company is a family business based in the Waikato. It was incorporatedin 1999 by Mr Clark's parents. Since its incorporation, Mr Clark has operated thebusiness with his parents.[6] The original owners of the 1,000 shares issued in the Company were thetrustees of the Acacia Grove Properties Trust ("the AGP Trust"), being Mr Clark'sparents jointly holding 900 shares with the balance equally owned in their personalcapacities by Mr Clark (50 shares) and his parents (50 shares).[7] In 2003, there was a change to the shareholding. The Companies Officerecords were updated to record this with Mr Clark's parents, as trustees of the AGP1 Petersen v Clark FC Hamilton, FAM-2020-019-000862.Trust holding 997 shares and Mr Clark and each of his parents holding 1 share. Thereasons behind this shareholding adjustment are uncertain.[8] In February 2008, Mr Clark settled the TF Trust with his then wife. Theintention of the TF Trust was to provide for him, his wife and any children. At aboutthis time, the Company's financial affairs were taken over by a local accountant,Mr Waine. Mr Waine also looked after the affairs of the AGP Trust and the TF Trustas well as members of the Clark family.[9] In early 2007 the trustees of the AGP Trust decided they wished to make adistribution to the TF Trust as a discretionary beneficiary of the AGP Trust. They didthis by transferring 499 shares from its shareholding in the Company to the TF Trust.The resolution was formally executed and the share transfer registered with theCompanies Office noting that the AGP Trust shareholding had decreased by 499 sharesand the TF Trust shareholding had increased by 499 shares, with the owners beingrecorded as the trustees of the TF Trust, being Mr Clark and his wife.[10] In 2011, Mr Clark and his wife separated. As part of the settlement of theirrelationship property affairs, it was agreed that she would retire as a trustee of theTF Trust and would be excluded as a discretionary beneficiary. On 17 December2012, Mr Clark's mother and Mr Waine were appointed as the new trustees of theTF Trust.[11] A share transfer form was completed and the changes in ownership registeredwith the Companies Office to reflect the new shareholding ratios.[12] In May 2012, Mr Clark and Ms Petersen commenced their relationship. InMarch 2017, Mr Clark and Ms Petersen "fell out" with Mr Clark's parents andMr Waine. According to Mr Clark, this was largely due to Ms Petersen seeking greatercontrol of the TF Trust. It was subsequently agreed that Mr Clark's mother andMr Waine would be removed as trustees. In their place, Mr Clark appointedMs Peterson and Cooney Trustees (2017) Limited ("Cooney"). As before, theTF Trust held the 499 shares in the Company.[13] However, what happened next is central to the present application. Consistentwith past practice, the Company's share register held by Mr Waine's firm and theCompanies Office records should have been updated to reflect the change of trustees.That did not happen. Mr Waine candidly accepts that this was an oversight, althoughhe says he would have expected the discrepancy to have been picked up by the newaccountants. What does appear to have happened is that on 25 September 2017,Mr Waine's assistant updated the company records to reflect the removal of Mr Waineand Mr Clark's mother as the owners of the 499 shares but omitted to add the two newtrustees, being Ms Petersen and Cooney. Mr Waine observes that there was no needto record a change in the ownership of the shares because although the trustees hadchanged, the 499 shares still remained in the ownership of the TF Trust.[14] As a consequence of this oversight, Mr Clark was (and remains) listed in theshareholding section twice; first as to the one share he owns in his personal capacityand secondly, as a trustee of the TF Trust for the 499 shares the TR Trust owns. Sincethat time, the Company's records have remained unchanged.[15] In November 2018, Mr Clark and Ms Petersen separated.[16] It appears that the oversight incorrectly recording the shareholding was onlyrelatively recently discovered. There is some disagreement as to how and in whatcircumstances. For the purposes of the present proceedings, I do not consider this tobe material. However, it is common ground that when Ms Petersen was relativelyrecently asked to confirm that she was a joint owner of the 499 shares in the Companyby virtue of her position as a trustee of the TF Trust, she refused.Ms Petersen's position[17] Despite her refusal to accept ownership of the shares as a trustee of theTF Trust, Ms Petersen acknowledges that under the 2017 deed, she was appointed asone of the new trustees and that the 499 shares were vested in the new trustees.However, she claims that since that time both the TF Trust and the Company haveoperated as if Mr Clark was the sole trustee and owner of the 499 shares. She pointsout that the TF Trust has no current account with the Company. It has received nodividends or other income from the Company. The shares are not recorded or referredto anywhere in the Company's financial statements and Ms Petersen has not beencalled on as a trustee shareholder to do anything in respect of the Company.[18] She observes that a hotly contested issue in the Family Court proceedings iswhether the shares are relationship property. She says that Mr Clark is abusing theprocess of the Court by using the present proceedings in this Court to answer thatquestion by seeking a declaration of ownership and not merely seeking to rectify theshare register. She maintains that the shares are relationship property and thatMr Clark is the beneficial owner of the shares whether through the TF Trust or byacquisition and the acquiescence of the trustees.[19] She says that as sole beneficiary, Mr Clark may have called on the trustees todistribute the shares to himself and then done so as trustee. She says that Mr Clarkhas complete and effective control of the TF Trust. If he wished, he could remove heras a trustee at any time. She accepts that the shares vested in the current three trustees,but Mr Clark has de facto acquired them and both the TF Trust and the Company haveoperated on that basis. These are all matters currently before the Family Court.Procedural background[20] Initially, the originating application was brought under s 91 of the CompaniesAct 1993 ("the Companies Act") seeking orders to rectify the share register to reflectthat the 499 shares were owned by the trustees of the TF Trust being Mr Clark, Cooneyand Ms Petersen.[21] When the matter was first called before Associate Judge Andrew (as he thenwas), counsel for Ms Petersen raised two primary objections; first that the Companylacked standing under s 91 because it is not, for the purposes of that section, either"the person aggrieved" or "a shareholder".2 Secondly, it was submitted that theproceedings were an abuse of process because they amounted to an improper/collateralattack on the property relationship proceedings in the Family Court. His Honourgranted leave to the Company to commence the application by way of originating2 Section 91 provides that if the name of a person is wrongly entered in, or omitted from, the shareregister of a company, the person aggrieved, or a shareholder, may apply to the court forrectification of the share register and/or compensation for loss sustained.application but observed that Ms Petersen's position appeared to have "considerablemerit". He pointed out that ordinarily, the Company is the defendant/respondent in anapplication under s 91. He said that the issue of standing was relatively narrow anddiscrete and could be addressed in the context of an originating application.[22] By memorandum, the Company later responded that if a declaration as to theownership of the shares was not available under s 91, the Company should bepermitted to seek a declaration as to the ownership of the shares. Accordingly, itsought leave to amend its application by seeking, in the alternative, such a declaration.On 8 February 2023, Andrew J (as he now is) granted the application and on 6 March2023, the amended application was filed seeking an order declaring the 499 shares tobe "legally owned by Lance Stephen Clark, Cooney Trustees (2017) Limited andBeverly Petersen (as trustees of the Terra Firma Trust) ". Instead of relying on s 91,the application sought to invoke the inherent jurisdiction of the Court to make theorders.Does the Court have jurisdiction to make the orders sought?[23] It is common ground that the declaration sought does not fit within the scopeof s 3 of the Declaratory Judgments Act 1908 ("the Declaratory Judgments Act"). Thedeclaration does not concern the construction or validity of any statute, deed or otherinstrument, but rather is one as to the legal ownership of shares. It is for that reasonthat the Company relies on the inherent jurisdiction of the High Court, as recognisedin s 2 of the Declaratory Judgments Act, to grant a declaration.[24] I agree with Mr Branch, for the Company, that this Court has the jurisdictionto determine the legal ownership of the 499 shares. As he points out, share ownershipand issues relating to incorporated companies are governed by the Companies Act.Matters relating to the Companies Act are to be determined by the High Court.3 In3 Companies Act 1993, s 2.that context, Mr Branch referred me to commentary on the nature of declarations madein the context of the Court's inherent jurisdiction:4"The declaratory judgment is a judicial statement confirming or denying thelegal right to the applicant. Unlike most rulings, the declaratory judgmentmerely declares and goes no further in providing relief to the applicant thanstating [its] rights."[25] In determining whether to exercise its inherent jurisdiction, the Court appliesthe same factors as when exercising its discretion under s 10 of the DeclaratoryJudgments Act. Hammond J referred to this in Kung v Country Section NZ IndianAssociation Inc when he said:5"This kind of approach is very like the approach of a Court to equitableremedies, the broad question being whether justice requires a declaration. Awide range of factors will then be relevant: whether a plaintiff has a sufficientinterest in the proceedings; whether an issue is now moot; and the practicalutility of issuing a declaration. And I can see no reason why the so-calledtraditional equitable defences, or at least the ideas which underlie them, arenot also apposite to declarations. To take a simple example, if a plaintiff'sconduct has been itself questionable, why should (say) the clean handsdoctrine not also apply to declaratory relief?"[26] Here what is sought is a judicial statement confirming the Company's rights tocarry out its business with a legally correct register of shareholders. Section 87 of theCompanies Act requires a company to maintain a share register which records theshares issued and s 90 makes it an offence if the share register is not properly kept.[27] I am satisfied that the declaration will serve a useful purpose because, ifsuccessful, it will ensure that the Company is able to maintain an accurate record ofits shareholding and thus be compliant with its obligations under the Companies Act.It will also reflect the correct factual and legal position as to the ownership of the 499shares.[28] Furthermore, what is being sought is, as both counsel accepted in the course ofthe hearing, is effectively a rectification of the register to reflect what was intended bythe parties when the composition of the trustees changed in June 2017.4 Lazar Sarna The Law of Declaratory Judgments (2nd ed, Carswell Co Ltd, Ontario, 1908)at 1.5 Kung v Country Section NZ Indian Association Inc [1996] 1 NZLR 663 (HC) at 666.Discussion[29] In determining this matter, the Court is required to undertake two broadenquiries; first, what is the correct legal and factual position in terms of the ownershipshares and secondly, in the event it determines the shares are legally owned by thetrustees of the TF Trust, whether the Court should exercise its discretion to make adeclaration as to ownership.[30] I am easily satisfied that the 499 shares are jointly legally owned by the threetrustees of the TF Trust. My reasons follow.[31] First, Ms Petersen accepts, as she is all but bound to on the contemporarydocumentary evidence, that on 26 June 2017 when the deed recording the replacementof trustees was executed, she became a joint owner of the 499 shares.[32] In her affidavit she states:"[8] The Trust was created by a Trust Deed dated 21 February 2008. I wasappointed trustee of the Trust by deed dated 26 June 2017. I have addressedthe relevant events regarding my appointment as trustee and the subsequentrequests made to me as trustee shareholder after I filed the Family Courtproceedings, in my affidavits [9] I acknowledge that on 26 June 2017 under the deed appointing me astrustee and/or under the Trustee Act 1956, the 499 shares (the Shares) in theCompany vested in the new trustees. Despite this, the Company accountantregistered the Shares solely in the Company's Register in the name of LanceClark. Since that time, both the Trust and the Company have operated on thebasis that Lance is the owner of the Shares."[33] Ms Cooney, a director and shareholder of Cooney has made an affidavit insupport of the Company's application. Ms Cooney confirms that when Cooney wasappointed a trustee of the TF Trust with Ms Petersen in June 2017, one of the assetsof the TF Trust was the 499 shares. She confirms that those shares continue to be heldby the trustees of the TF Trust, including Ms Petersen. Ms Cooney observes that theissue of ownership needs to be resolved so that the trustees have certainty and are ableto deal with the assets of the TF Trust and to act collectively as shareholders in theCompany in respect of its operations.[34] Furthermore, there is no evidence that the composition of the trustees of theTF Trust has in any way changed since the deed was executed. Nor is there anyevidence that the trustees have acquiesced in such a way or to such an extent that thelegal ownership of the shares now vests solely in Mr Clark.[35] Ms Petersen is correct that the TF Trust has no current account with theCompany, has received no dividends or other income from the Company and theshares are not recorded or referred to anywhere in the financial statements. She is alsocorrect that her name does not appear in any of the Company's financial statementsand I accept that she has never been called on as a trustee shareholder to do anythingin relation to the Company. However, as Mr Waine points out, the TF Trust has nocurrent account with the Company and has not received dividends from the Companybecause current accounts are used to show funds introduced and paid out byshareholders. The TF Trust has not advanced any funds to the Company and has notborrowed from the Company. As for why the trustees' names are not recorded in theCompany's financial statements, as Mr Waine records, there is no legal requirement torecord the shareholders. As I read the evidence, the Company has been able to conductits affairs to date without requiring any active steps to be taken by the trustees of theTF Trust.[36] There is some dispute on the evidence as to when the error in the Company'srecords was first discovered; whether it was to obtain shareholder approval to purchasemachinery when the bank sought details of the TF Trust deed and deed of appointmentand retirement as I understood Ms Petersen claims or, as Mr Waine deposes, in 2021when the Company was seeking finance from ASB and the AGP and TF Trusts (asshareholders) were required to give security. According to Mr Waine, becauseMs Petersen did not accept she was a shareholder, the application for further financecould not be progressed. In my view, to the extent the time the omission was firstdiscovered is, indeed, a contested fact, it is not material to my determination in thismatter.[37] The fact of the matter is that there is an uncontradicted factual narrative whichsupports the Company's claim that the three trustees of the TF Trust are the legalowners of the 499 shares in the Company and thus a declaration to that effect may bemade. The situation would be different if, for example, the making of a declarationrequired the determination of contested facts.6 Here, the factual basis on which thedeclaration is sought is clear and, I am satisfied, borne out on the evidence.[38] Having made that finding the next question is whether I should exercise mydiscretion to make the declaration sought. I am satisfied that I should exercise mydiscretion in the way sought for the reasons which follow.[39] First, the Court is simply being asked to make a declaration which is consistentwith the deed of 26 June 2017. Ms Petersen was a party and signatory to that deed.[40] Secondly, there are several reasons why, despite the submissions of Mr Jolliffe,for Ms Petersen to the contrary, there is a sound purpose and utility in making theorders sought. The Company must be able to conduct its affairs by dealing with thelegal owners of the shares. There is some evidence that Ms Petersen's intransigencemay be having the effect of frustrating aspects of the Company's affairs. Furthermore,the Companies Act requires its share register to be correct. At present, its recordingof the shareholders of the 499 shares is incorrect.[41] Thirdly, the Company is not seeking orders to amend the share register. It issimply seeking a declaration as to the legal ownership of the shares. If the declarationis made, the Company can confidently accept that the respondents are the legal ownersand amend the share register to reflect the true and correct legal position. For as longas one of the trustees does not accept that she is, in fact, a legal owner of the shares,there can be no such confidence.[42] Fourthly, I cannot accept Ms Petersen's submission that the applicationamounts to an abuse of process designed to collaterally attack her interests in theFamily Court proceedings. By way of background, the three respondents wereoriginally included by Ms Petersen as parties to the Family Court proceedings but werestruck out in a decision of that Court on 6 May 2021.7 The Judge determined that s 37of the PRA provides the mechanism by which trustees may be included as parties to6 Mandic v The Cornwall Park Trust Board (Inc) [2011] NZSC 135.7 Petersen v Clark [2021] NZFC 4070.proceedings. However, if the trustees do not elect to be parties or actively opposebeing included, there is no power to require them to be joined. He thus struck outMr Clark, Ms Petersen and Cooney as respondent trustees.[43] As I understood Mr Jolliffe's submission, this step has the potential tosomehow adversely affect Ms Petersen's ability to obtain relationship property ordersagainst the trustees of the TF Trust. I struggle to see how the effect of the FamilyCourt's decision is logically connected to the present application and how it mightsomehow operate to defeat any beneficial interest Ms Petersen might have in the assetsof the TF Trust and the Company. In the context of this case, legal and beneficialinterests may prove to be quite different. Whether Ms Petersen can make a claim inrespect of any beneficial interest she might have relative to the 499 shares involves aseparate and quite different determination to legal ownership . The former will beresolved in the Family Court. The latter, as already discussed, is properly a matter forthis Court. I cannot accept that somehow the determination I am asked to make willhave an effect on the Family Court's determination as to Ms Petersen's relationshipproperty rights. For that reason, I was surprised to learn from counsel that while theFamily Court proceedings are well advanced, they have been put on hold pending theoutcome of these proceedings.[44] Mr Jolliffe referred me to the decision of this Court in Yeoman v Public Trust.8As I understood his submission, Yeoman stands as authority for the proposition thatthis Court should not determine matters which are also the subject of proceedings inthe Family Court. However, Yeoman is a very different case and is readilydistinguishable on its facts. There, in the context of family protection and relationshipproperty proceedings brought in the Family Court, one of the parties broughtproceedings in this Court claiming that the Family Court could not determine theownership of assets held by a family trust. Only the High Court had that power. Asin the present case, the proceedings in the Family Court were put on hold pending theHigh Court's determination. Associate Judge Bell stayed the High Court proceedingsobserving that in the circumstances, it was preferable to deal with all matters within asingle jurisdiction if possible. He determined that the Family Court was capable of8 Yeoman v Public Trust Limited [2011] NZFLR 753 (FC).determining whether or not the trust comprised relationship property and, as such, fellwithin the estate. Leave was reserved to have the stay removed if the Family Courtdetermined it was unable to decide the matter. Plainly, that is not the case here. Asalready noted, there is no bar to the Family Court determining whether the TF Trust'sshareholding in the Company is relationship property.[45] Finally, Mr Jolliffe took me through various pieces of correspondence betweenthe legal advisers for the Company and Ms Petersen during 2021 and 2022. Iapprehend that the purpose of this exercise was to demonstrate a lack of good faith onbehalf of the Company. Nothing in the correspondence referred to me supports sucha contention. To the contrary, read as a whole, the narrative reflects an unremarkableexchange between professional advisors in contemplation of proceedings which mightbe initiated at some point in the future.Conclusion[46] For these reasons it follows I am satisfied that the orders sought should bemade.Result[47] The application is granted. Orders are made declaring that Allocation One ofthe Company's shares (being 499 shares) are legally owned by Lance Stephen Clark,Cooney Trustees (2017) Limited and Beverly Petersen (as trustees of the Terra FirmaTrust).Costs[48] The Company, being the successful party, is entitled to costs. I direct that ifthe parties are unable to agree as to costs:(a) the applicant is file and serve its memorandum no later than 5:00 pmon Thursday, 25 May 2023; and(b) the third respondent is to file and serve her memorandum as to costs nolater than 5:00 pm on Friday, 9 June 2023.[49] No memorandum is to exceed three pages in length (excluding appendices). Ishall then determine the question of costs on the papers.Moore JSolicitors:Harkness Henry, HamiltonVicki Ammundsen Trust Law, Auckland