IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE	
CIV-2019-404-002814
[2020] NZHC 1681	

UNDER	the Companies Act 1993	
IN THE MATTER OF	an application under s 165 of the Companies Act 1993	
BETWEEN	LOUISA JANE O’BRIEN on behalf of GENERAL DYNAMICS CORPORATION LIMITED
First Plaintiff

LOUISA JANE O’BRIEN
Second Plaintiff	
AND	KEVIN PARKINSON
First Defendant

KEVIN PARKINSON as trustee of KEVIN PARKINSON FAMILY TRUST
Second Defendant

ANNA VALERIENA KEDRINSKAIA and LISTON TRUSTEE SERVICES LIMITED,
trustees of a trust understood to be named ANNA KEDRINSKAIA TRUST
Third Defendants	

Hearing:	21 May 2020	
Appearances:	J McCartney QC for Plaintiffs
Z Kennedy and S R Morris for Defendants	
Judgment:	14 July 2020	

JUDGMENT OF ASSOCIATE JUDGE P J ANDREW

This judgment was delivered by Associate Judge Andrew on 14 July 2020 at 12 noon pursuant to r 11.5 of the High Court Rules Registrar / Deputy Registrar – Date……………………………….

O’BRIEN v PARKINSON v ORS [2020] NZHC 1681 [14 July 2020]

Introduction

[1]	The first plaintiff, Ms O’Brien, and the first defendant, Mr Parkinson, were in a relationship for 29 years. They married in 1994 and separated in 2013. There are related relationship property proceedings currently in the Family Court.

[2]	Ms Anna Kedrinskaia, one of the third defendant trustees, and Mr Parkinson, are in a de facto relationship.

[3]	Ms O’Brien applies for leave to bring a shareholder derivative action pursuant to s 165 of the Companies Act 1993 (the 1993 Act) on behalf of General Dynamics Corporation Ltd (GDC). Ms O’Brien and Mr Parkinson each own one shares in GDC and their respective family trusts own the balance of the shares.  Ms O’Brien and   Mr Parkinson are directors of GDC.

[4]	Ms O’Brien makes a number of claims against Mr Parkinson, both in his personal capacity and trustee capacity. She also makes claims against the third defendants, who are the trustees of a trust which holds a property in Wanaka (the Wanaka property).

[5]	Ms O’Brien claims that, following their separation in 2013, Mr Parkinson caused GDC to cease trading and incorporated another company just one month later, General Dynamics Ltd (GDL), which took over the business and trading of GDC.  Ms O’Brien claims that Mr Parkinson’s actions in transferring the property of GDC and its profits to interests associated with him is a breach of fiduciary duty. She claims that Mr Parkinson breached the 1993 Act, and that the dispositions (the transfers of the business and company property to the Wanaka property) are prejudicial dispositions under the Property Law Act 2007 (the 2007 Act). She claims a resulting trust in relation to the Wanaka property. She further claims that the third defendant trustees have received property and profits of GDC and have participated dishonestly in a breach of fiduciary duty.

[6]	Mr Parkinson opposes the application on two principal grounds:

(a)	That there is no reasonable likelihood of the proceedings succeeding; and

(b)	That the cost of the proceedings will outweigh any relief realistically obtainable.

Factual background

[7]	GDC was incorporated around 1981 by Mr Parkinson and his father. At that time, it was called Computer Aid Ltd.

[8]	Ms O’Brien and Mr Parkinson commenced their relationship in 1984.

[9]	In 1997, the Kevin Parkinson Family Trust and the Louisa Parkinson Family Trust were established. In 2003, there was a change of shareholding in GDC with 249 of the shares held by Mr Parkinson transferred to the Kevin Parkinson Family Trust, and 249 of the shares held by Ms O’Brien transferred to the Louisa Parkinson Family Trust.

[10]	The nature of the GDC business and what Ms O’Brien says are successor companies, is at issue between the parties. It was an electronic engineering company whose role, Mr Parkinson says, was predominantly to provide contractual professional engineering consultancy and electronic services. Mr Parkinson says that he solely provided those services. Ms O’Brien says that GDC was involved in the design, development, manufacture, and supply of electronic systems.

[11]	Between 2004 and 2006, Mr Parkinson obtained a Master of Engineering degree from the University of New South Wales. At about that time, Mr Parkinson created a GPS receiver unit, known as Namuru. There then followed a number of versions of the Namuru GPS receiver.

[12]	GDC operated from a purpose-built shed located at the family home. Also in the period between 2004 and 2006, a GDC website was set up and some Namuru GPS receivers were manufactured and sold.

[13]	In 2010, GDC entered into an agreement with a consortium associated with the University of New South Wales as part of an Australian space science research programme.

[14]	In 2011, the Biarri GPS receiver (sometimes called the Namuru V3) was developed by GDC for the Australian Department of Defence and the University of New South Wales.

[15]	Ms O’Brien and Mr Parkinson separated in May 2013.  The date at  which  Mr Parkinson and Ms Kedrinskaia commenced their de facto relationship is at issue, but Mr Parkinson says it was from the end of 2013.

[16]	In a minute dated 31 May 2013, Mr Parkinson recorded that he would no longer be providing professional consulting engineering services to GDC as a shareholder employee. He advised that he would remain a director of the company to continue maintaining administrative, financial and taxation functions as required.

[17]	GDL was incorporated by Mr Parkinson and his son, Mr Richard Parkinson, in June 2013. On incorporation, Mr Kevin Parkinson held 20 shares and Mr Richard Parkinson held 90 shares. Both Mr Kevin Parkinson and Mr Richard Parkinson were directors.

[18]	On 12 July 2013, Mr Kevin Parkinson’s solicitors wrote to Ms O’Brien’s solicitors advising that GDC had ceased to trade and that Mr Kevin Parkinson was no longer under its employment.

[19]	On 28 November 2013, Mr Kevin Parkinson entered into an agreement for sale and purchase to buy the land at 21 Heuchan Lane, Wanaka (the Wanaka property). The purchase price was $525,000. Mr Parkinson says that on 29 April 2014, he and Ms Kedrinskaia signed a deed of nomination whereby he assigned the benefit and obligations of the sale and purchase agreement to the trustees of the Anna Kedrinskaia Trust (the third defendants).

[20]	The settlement of the purchase of the Wanaka property took place in May 2014. The trustees of the Anna Kedrinskaia Trust are the current registered proprietors. The solicitor’s trust account ledger shows that the purchase and mortgage was in the name of Mr Kevin Parkinson.

[21]	A couple of months prior and  following  a  restructure  in  January  2014,  Mr Kevin Parkinson’s shareholding in GDL reduced to five shares and Mr Richard Parkinson held five shares in his name. Mr Richard Parkinson’s family trust held 90 shares.

[22]	Eventually, in March 2017, Mr Parkinson transferred his remaining five shares in GDL to Mr Richard Parkinson. From then onwards, Mr Kevin Parkinson had no interest in GDL.

[23]	On 21 April 2017, following his resignation from GDL, Mr Kevin Parkinson incorporated a new company, General Dynamics Corp Ltd (GD Corp). He says it was a vehicle through which he could continue to offer his professional engineering services. Mr Kevin Parkinson is the sole director and shareholder.

[24]	In December 2017, Mr Parkinson filed relationship property proceedings in the Family Court.

[25]	In June 2018, the Family Court ordered discovery from Mr Kevin Parkinson.

[26]	In an interlocutory reserved judgment of 28 September 2019, Judge Partridge of the Family Court recorded relationship property “currently identified” as available for division:1

(a)	$339,452 – being the balance of the net sale proceeds of the former family home at 159 Mahoenui Valley Road – held in the trust account of Barter Law; and

1	Parkinson v O’Brien [2018] NZFC 7101 at [43]; dealing with joinder of other parties and by Mr Parkinson for an initial distribution.

(b)	Approximately $35,000 – Westpac shares.

[27]	Judge Partridge further recorded counsel for Ms O’Brien’s submission that the following additional items of property also fall to be calculated when determining each party’s entitlement in the relationship property division:2

(a)	Balance held in the bank account of Mr Kevin Parkinson of AUS$180,649.83 (NZ$200,000);

(b)	An advance of $90,000 made to Mr Kevin Parkinson’s partner;

(c)	$150,000 paid by Mr Parkinson to GDL in the financial year ending 2014;

(d)	Plant and equipment of GDC retained by Mr Kevin Parkinson – estimated value of $100,000; and

(e)	The value of property of GDC which has been diverted or disposed of in GDL and other related companies – value estimated at $500,000.

[28]	There are further interlocutory applications  before  the  Family  Court  by  Ms O’Brien seeking to strike out Mr Parkinson’s claims on the grounds of alleged “serial breaches” of discovery orders.

Relevant legal principles

[29]	The Court may only grant leave to a shareholder or director of a company to bring proceedings in the name of the company if the requirements of s 165(3) of the 1993 Act are met:

(a)	The company or related company does not intend to bring, diligently continue or defend, or discontinue the proceedings, as the case may be; or

2	Parkinson v O’Brien, above n 1, at [44].

(b)	It is in the interests of the company or related company that the conduct of the proceedings should not be left to the directors or to the determination of the shareholders as a whole.

[30]	The defendants accept that, as the board of the company is deadlocked, the company does not intend to bring proceedings itself.

[31]	The threshold test in s 165(3) is accordingly met.

[32]	The non-exhaustive considerations under s 165(2) to determine whether to grant leave include:3

(a)	The likelihood of the proceedings succeeding;

(b)	The cost of the proceedings in relation to the relief likely to be obtained;

(c)	Any action already taken by the company or related company to obtain relief;

(d)	The interests of the company or related company in the proceedings being commenced, continued, defended, or discontinued, as the case may be.

[33]	Further considerations which have been taken into account in the assessment of the Court’s discretion under s 165 include:

(a)	Whether the company is still trading;4

(b)	Whether the issues between the parties might be better resolved through a liquidation process;5 and

(c)	The ultimate beneficiaries of the claim.6

3	Mowlen v Keach [2017] NZHC 267 at [36].
4	He v Chen [2014] NZCA 153 at [60] and [62].
5	He v Chen, above n 4, at [61].
6	Nobilo v Nobilo [2015] NZCA 54 at [22].

[34]	All the considerations are to be assessed against a standard “which would be exercised by a prudent person in the conduct of his or her own affairs when deciding to bring a claim”.7 It is not an interim trial on the merits.8

Analysis and decision

[35]	Ms O’Brien’s application under s 165 was accompanied by a statement of claim dated 19 December 2019, in the name of both Ms O’Brien and GDC as plaintiffs.

[36]	I accept the submission of Mr Kennedy that the statement of claim can only properly be treated as a draft pleading. Section 165(6) of the 1993 Act provides that a shareholder is not entitled to bring any proceeding in the name of, or on behalf of, a company, except as provided in s 165. Until such time leave is granted, no proceedings can be brought. That means, therefore, until leave is granted, the defendants are under no obligation to file a statement of defence to the purported statement of claim as filed.

[37]	The draft statement of claim nevertheless provides a useful guide as to the claims that Ms O’Brien seeks leave to bring.

[38]	I now turn to address, in relation to the proposed causes of action in the statement of claim, the critical issues of whether there is a reasonable likelihood of the proceedings succeeding; whether the costs of the proceedings will outweigh any relief realistically obtainable; and whether there are other considerations which tell against the grant of leave. The ultimate question to determine is whether a prudent businessman would bring the proceedings in the conduct of his/her own affairs.

Issue 1 – Likelihood of proceedings succeeding

[39]	In addressing the issues, it is important to recall that proceedings of this kind under s 165 should not become an interim trial on the merits.

[40]	There is extensive evidence before me in the form of affidavits and exhibits (five bound volumes) which include transcribed evidence of various interlocutory

7	Nobilo v Nobilo, above n 6, at [8].
8	Vrij v Boyle [1995] 3 NZLR 763 (HC) at 765.

applications in the related Family Court proceedings. There is clearly a good deal of mistrust between the parties and many of the fundamental factual matters in dispute give rise to issues of credibility. It is not my role to determine issues of credibility, although it is relevant to address whether the claims made are so implausible or unsupported by probative evidence that they are not reasonably likely to succeed.

[41]	The defendants’ submissions present a careful and wide-ranging attack on the foundations of Ms O’Brien’s proposed claims. The challenges to Ms O’Brien’s evidence and those of the experts she relies upon may ultimately prove to have merit. However, for present purposes, I accept the submission of Ms McCartney that I should not focus on the minutia of the evidence, the claims, or the counterclaim. Rather, I must form an overall assessment (a screening process) in addressing the statutory and other relevant criteria. This includes focusing on the critical documentation. I also note that Ms O’Brien’s claims are supported by independent forensic accounting evidence, which is yet to be tested.

Proposed first and second causes – breach of fiduciary duties and breach of s 131 Companies Act duties

[42]	In the draft statement of claim, Ms O’Brien alleges that Mr Parkinson diverted property, profits, and opportunities of GDC to himself and his interests in breach of the fiduciary duties that he owed to GDC. In her submissions in reply, Ms McCartney described the plaintiff’s claim as follows: The plaintiff’s claim is that Kevin Parkinson caused GDC to cease trading and took over the company’s property and business for his own personal benefit, and in so doing, exploited for his interests the business and business opportunity of GDC and the ongoing manufacture and sale of product that belonged to it, including the Namuru GPS receivers, as well as later versions of the same.

[43]	The nature of a director’s fiduciary obligations is well-settled, as are the obligations under s 131 of the 1993 Act. Ms O’Brien relies upon Pacifica Shipping Co Ltd v Anderson, which identifies the following established principles as relevant:9

9	Pacifica Shipping Co Ltd v Anderson [1982] 2 NZLR 328 at [8]–[9].

(a)	A director has an obligation not to profit personally from his position as a director, and not to allow a conflict to arise between his duty as a director and his own self-interest.

(b)	A director is disqualified from usurping, for himself or for his own benefit, a maturing business opportunity which his company is actively pursuing.

(c)	A director’s liability to account is not unlimited and must depend on the facts.

[44]	Ms O’Brien also relies upon the High Court decision Stichbury v One4All Ltd as authority for the proposition that there is a breach of fiduciary duty where a director excludes the other director from management of the company; fails to ensure the company continued to trade and leaves the company bereft of income; incorporates another company in which he/she has an interest to take over the business and to trade in the position of the original company; and misapplies company information and assets effectively for their own benefit.10

[45]	Here, Ms O’Brien says she and her family trust supported the GDC business for nearly 29 years and that according to the financial accounts for the business, and subsequent iterations, it has done very well. Ultimately, however, only one party (namely, Mr Parkinson and interests associated with him) has enjoyed the benefit. This is a case of “one party takes all”.

[46]	One of the critical and fundamental factual issues between the parties (also central to the question of breach of fiduciary duty) is the nature of the business of GDC. Mr Parkinson’s position is that GDC, through its business, did not manufacture and sell product and was never more than a consultant practice/vehicle for him, noting that he charged his time at an hourly rate.

[47]	Mr Parkinson says that GDC’s business model was predominantly the provision of contract professional engineering consultancy and electronic services,

10	Stichbury v One4All Palmerston North HC, CIV-2004-454-889, Gendall AJ, 18 April 2005 at [27].

which he provided solely. He held university-level and post-graduate qualifications in electronic engineering and GDC had no other employees. By contrast, he says that Ms O’Brien had no qualifications relevant to GDC’s business and apart from providing limited clerical assistance, was not involved in GDC’s business activities. He says that she did not hold the expertise required to conduct its business operations and was not involved in its day-to-day operations.

[48]	Mr Parkinson says he worked from the purpose-built shed located at the family home and that GDC’s customers contacted him personally, consistent with the fact that they were seeking to retain his professional skills and expertise.

[49]	Ms O’Brien’s position is that GDC carried out the business of manufacturing and selling electronic product, including the Namuru GPS receiver and associated componentry and software.

[50]	While I accept the evidence clearly establishes that GDC’s business was largely dependent upon the skill and expertise of Mr Parkinson, that does not mean that Ms O’Brien is not well placed to provide sound evidence as to the nature of the business, including whether it manufactured and sold electronic products. The parties were married for a long period of time and the business was conducted from the family home. Ms O’Brien’s claim that she had an ongoing and close understanding of the business cannot be dismissed as implausible or lacking in credibility. Also on the contrary, there is independent evidence clearly supporting Ms O’Brien’s position that GDC carried out the business of manufacturing and selling electronic product and it was not simply the consultancy vehicle for which Mr Parkinson contends.

[51]	Ms O’Brien relies on, amongst other things, the evidence Mr Parkinson gave in the Family Court affidavit of 6 September 2018, in which he deposed that in the period 2004 – 2006, GDC sold 18 Namuru GPS receivers to the University of New South Wales and a further 60 to others. The financial accounts for GDC and GDL’s financial statements for the years ending 2015 and 2017 provide clear, independent evidence supporting Ms O’Brien’s position. So, too, does the opinion evidence of  Ms O’Brien’s expert, Mr Paul Moriarty, who says a significant proportion of hardware sales by GDC is not commensurate with a consulting service. The archived versions

of the GDC websites which Mr Moriarty annexes, and GDC’s invoices, further support Ms O’Brien’s position. Those websites refer to GDC as an electronic engineering company that designs, develops, manufactures and supplies electronic systems. Some of the GDC invoices record matters such as fitting, soldering, engineering and programme set-up, assembly of components, provision of electronic componentry, and the upgrading and testing of software.

[52]	Mr Kennedy’s submission that there is no evidence that these web pages were live or that any sales were made from them misses the point. The issue is not whether the web pages were live but, rather, whether they evidence representations by the relevant companies that they were manufacturing and selling GPS receivers. In any event, this evidence all needs to be tested. And on its face, Ms O’Brien’s claims as to the nature of the business appear to have considerable merit.

[53]	I reject the submissions of Mr Kennedy that the plaintiff’s claims alleging breach of fiduciary duty are pitched at a high level of abstraction and that a careful analysis of the evidence demonstrates that the claims are weak. There is, in my view, good reason to be sceptical of some of Mr Parkinson’s critical claims and the opinions of some of his expert witnesses depend on some important factual assertions that he makes. The credibility of both parties is clearly an important issue – but, as already noted, not a matter I can determine. In my view, Ms O’Brien, and with reference to contemporary documentation, has demonstrated a proper basis for challenging a number of important claims Mr Parkinson makes. That documentation also clearly provides support for her position that Mr Parkinson did misappropriate GDC assets and diverted GDC’s business and opportunities associated with it for his own benefit. For  example,  the  contemporary  emails  between   the   parties,   together   with  Ms O’Brien’s evidence that Mr Parkinson took away with him four truckloads of plant and equipment in May 2013 (the date of separation), provides a proper evidential basis for her claims of misappropriation. I note also that in her judgment of 28 September 2018 in the Family Court, Judge Partridge (while noting she had insufficient information before her on the issue of intellectual property), considered it very likely

that property owned by GDC (which, on the face of it, would appear to be relationship property) was transferred or disposed of in GDL.11

[54]	In addition to the fundamental issue as to the nature of the GDC business, there are a number of other important factual and accounting issues between the parties. They include:

(a)	Whether the GDC business had goodwill (a brand name, a website, and hardware and software designs manifesting themselves from the profits, including the Namuru GPS receivers);

(b)	If so, whether the GDC goodwill was transferable;

(c)	The value of the goodwill at the date of separation;

(d)	Whether Mr Parkinson transferred the goodwill to entities associated with him and his interest to exploit that opportunity; and

(e)	The value of property transferred, including profits.

[55]	Mr Parkinson has responded to Ms O’Brien’s expert evidence with extensive expert opinion evidence of his own. This includes that of Mr Keith Goodall, chartered accountant; Mr Ian MacGibbon, an expert in  recruitment  and remuneration;  and  Mr Daniel Willdridge, senior electronics engineer (with two affidavits). However, I repeat that it is not my role to determine the merits of the accountancy and other issues except to determine whether the threshold of reasonable likelihood of success is made out.

[56]	A further important factual matter at issue is whether GDC had any protectable intellectual property in the Namuru GPS receivers. Mr Parkinson’s position is that GDC had no such protectable intellectual property in either the Namuru V1, V2 or V3 (Biarri) – and even if there was, there is simply no evidence that he, through GDL or otherwise, actually made use of the design elements or any other aspect of these

11	Parkinson v O’Brien, above n 1.

receivers after he left GDC. Mr Parkinson says that the Namuru V2 was obsolete in 2008 and relies on the independent expert evidence of Mr Willdridge that the electronic design of each of the GPS receivers at issue is so different that they do not contain any elements of commonality, and there is thus no basis for suggesting that specific design elements or intellectual property from one has been deployed in another.

[57]	These are clearly complex and difficult issues but again, particularly in light of the careful evidence that Ms O’Brien has filed directly addressing Mr Parkinson’s contentions, I cannot conclude that Ms O’Brien’s claims are hopeless or lack any real merit – and again, Mr Parkinson’s claims should be treated with some scepticism. There are clearly important issues to be tested at trial. For example, the financial accounts for GDL establish that the continued business consisted of manufacturing and selling electronic componentry post-separation, and in light of the sales revenue of $228,000 in the first nine months from the formulation of GDL, it is difficult to see how  they  could  have  been  produced  from  some  very  different   product  (as   Mr Parkinson contends).

[58]	There are further documents that contradict important contentions made by Mr Parkinson. His claim that the KEA GNSS electronic design was a “clean slate” is contradicted by the following statement in the KEA GNSS website:

We invented the Namuru GPS receiver which was first released as version 1 in mid-2004. Further development has moved on to deliver the KEA receiver including a number of performance improvements.

[59]	In his evidence  in  the  Family  Court  (affidavit  of  6  September  2018),  Mr Parkinson deposed that it was in mid-2014 (i.e. post separation) that he was contacted by Dr Eamonn Glennon with the idea for the electronic design of GPS receiver electronics which would accommodate Dr Glennon’s company’s GPS software, called Aquarius. He deposed that the earlier Namuru GPS receiver was entirely unsuitable for the Aquarius software and required a fresh approach. However, those contentions are quite inconsistent with the invoice dated 31 October 2012 (from Olas Systems Pty Ltd) which shows that USNSW/Aquarius software was being tested on a further version of GDC’s GPS receiver (V3) some six-seven months before the separation. This evidence calls into question Mr Parkinson’s attempts to convey that,

prior to separation, GDC was not engaged in any project involving the manufacture, testing and commercial sale of GPS receivers incorporating the Aquarius software.

[60]	Ms O’Brien’s contention that the original technology and concepts in Namuru V1 and V2 had been built on in subsequent designs (no different to the development of Apple iPhone based on generational improvements and innovations that grew from the first model) cannot thus be dismissed as unqualified supposition – and the similar names the various companies had and the timing of their incorporation (while not in themselves decisive factors) provide further support for her claims and suggest there is a proper basis for a full investigation at trial.

[61]	As to the issue of protectable intellectual property, I note that Ms O’Brien’s claims do not depend solely on that claim (although it is obviously an issue going to the  extent  of  damages).  However,  once  again,  the  evidence  put  forward  by  Ms O’Brien does provide a sound evidential basis for challenging the contention of Mr Parkinson that all GPS products manufactured by GDC belonged to the clients. I am not in a position to make any meaningful determination on the contract between the Commonwealth in Australia and others including GDL, dated 16 September 2013, and the issue of the ownership of licensed technology under that contract. I do, however, accept the submission of Ms McCartney that it is arguable that GDL did retain some original intellectual property.

[62]	Furthermore, there is the unresolved allegation by Ms O’Brien that there has been a deliberate handwritten amendment to recital G to the Australian contract, which was intended (so Ms O’Brien says) by Mr Parkinson to conceal and change the intended meaning of the clause about intellectual property. I accept that is a very serious allegation, but in this context where Ms O’Brien has taken considerable care (supported by expert evidence) to challenge a number of critical factual assertions made by Mr Parkinson, I am not prepared to dismiss that allegation outright and conclude that it has no substance at all.

[63]	I accept Mr Kennedy’s submission that Mr Parkinson could not be compelled to work indefinitely for GDC simply because he was also a director of the company. In the absence of a restraint of trade in his employment contract, he was free to hand

in his notice at any time and take up employment elsewhere, utilising his personal skills and expertise. However, Ms O’Brien does not claim that Mr Parkinson is compelled to work indefinitely for GDC. Her case is based on Mr Parkinson taking over and/or diverting all of the property, business, and profits of GDC to himself and his interests.

[64]	I conclude, based on the documentation and the independent expert evidence, that there is a reasonable prospect of the claim of breach of fiduciary duty and breach of s 131 of the 1993 Act succeeding.

Proposed third cause of action against defendants – dishonest participation, receipt and assistance

[65]	The draft statement of claim alleges that the third defendants dishonestly participated in the breaches of fiduciary duty by Mr Parkinson as follows:

(a)	Ms Kedrinskaia, as trustee proprietor of the Wanaka property, knew that the funds paid for the purchase of the property came from GDC property and profits;

(b)	Ms Kedrinskaia purported to enter into a Deed of Acknowledgement of Debt in November 2013 in an attempt to conceal the true nature and source of the funds for the deposit for the purchase of the Wanaka property, knowing that the Deed was a sham;

(c)	Ms Kedrinskaia subsequently purported to show that the purported debt had been repaid by her, when she knew that there had been no repayment;

(d)	Ms Kedrinskaia knew at all times that the transfer of the Wanaka property to herself and Liston Trustee Services Ltd (the other third defendant) was for the purpose of concealing Mr Parkinson’s interest in the property, the source of the funds, and the breaches of fiduciary duty;

(e)	Ms Kedrinskaia, as the trustee proprietor, knew at all times that the transfer of the Wanaka property to herself and Liston Trustee Services Ltd was to defeat the claims of Ms O’Brien as shareholder in GDC.

[66]	On this basis Ms O’Brien alleges that the third defendants hold the Wanaka property on a constructive trust by which they are trustees and the beneficiaries are GDC or, at the Court’s discretion, Ms O’Brien, in proportion to their contribution to the purchase price.

[67]	There are four essential elements that must be established for a cause of action for dishonest assistance. They are as follows:12

(a)	The existence of a trust or fiduciary duty;

(b)	A breach of that trust or fiduciary duty by a trustee or fiduciary that results in loss;

(c)	Participation by a defendant third party (a stranger to the trust) by assisting in the breach of trust of fiduciary duty; and

(d)	Dishonesty on the part of the defendant.

[68]	I acknowledge that the issue of the type of breach required, specifically, whether a breach of trust is required or whether a breach of fiduciary duty is sufficient, remains unsettled. Likewise, the nature of the fault/dishonesty required.

[69]	All members of the Supreme Court in Sandman v McKay, agreed that it is not settled on the authorities whether liability for dishonest assistance arises on the basis of a breach of fiduciary duties, or whether it is confined to claims by beneficiaries of trusts where trust property has been disposed of in breach of trust.13 However, the Court did not express a view either way since it held that it would be inappropriate to do so in the context of a strike-out appeal. The Supreme Court proceeded on the basis

12	McKay v Sandman [2018] NZCA 103 at [22].
13	Sandman v McKay [2019] NZSC 41 at [163].

that, for the purpose of a strike-out, it would assume that participation in a breach of fiduciary duty is a sufficient foundation for a claim of dishonest assistance.14 I proceed on the same basis where the issue before me is whether there is an arguable case for a cause of action in dishonest assistance.

[70]	In relation to the level of dishonesty required, I merely note that there were different views expressed in the Supreme Court in Sandman v McKay.

[71]	Mr Parkinson says that the purchase of the Wanaka property for $525,000 was paid as follows:

(a)	A loan advance of $90,000 from the Kevin Parkinson Family Trust to Ms Kedrinskaia in November 2013. This was formally recorded, Mr Parkinson says, in a term loan agreement.

(b)	A loan advance of $140,000 from the third defendants.

(c)	A mortgage advance from the ASB Bank of $295,000 to Ms Kedrinskaia.

[72]	The origin of the $90,000 advance from the Kevin Parkinson Family Trust is explained by Mr Parkinson as follows:

(a)	$30,000 was received by him as a distribution of relationship property in September 2013.

(b)	The remaining $60,000 he took in drawings from GDL. The revenue was generated by consultancy work undertaken by him after he had left GDC.

[73]	Mr Kennedy submitted that the third cause of action is misconceived and cannot succeed for three main reasons:

14	Sandman v McKay, above n 13, at [163].

(a)	It proceeds on the erroneous allegation that the third defendants did not contribute, materially or at all, to the purchase price of the Wanaka property. That claim is said to be “demonstrably untrue”.

(b)	It at least requires that her claim for breach of fiduciary duty against Mr Parkinson succeeds (but that claim is itself misconceived).

(c)	No evidential foundation whatsoever is laid by Ms O’Brien which would support the allegation of objective dishonesty against Ms Kedrinskaia. There is no evidence suggesting that Ms Kedrinskaia knew or suspected that the funds loaned to the third defendants represented the property of GDC.

[74]	There are again critical issues of credibility in relation to these claims of dishonest receipt. Again, however, I accept the submission of Ms McCartney that for the purposes of the present applications I should focus on documentation and the independent expert evidence. The solicitor’s trust ledger in the name of Mr Parkinson does provide support for Ms O’Brien’s claims that the trustees of the Anna Kedrinskaia Trust did not contribute materially to the purchase price of the Wanaka property. The plaintiff can also point to documentary evidence that profits from the business carried on by GDL and now GD Corp are being paid to Ms Kedrinskaia. I note also the independent expert evidence of Mr Moriarty that the source of the funds withdrawn ($60,000) was derived from GDC’s transferred business activity and is thus arguably, the property of GDC.

[75]	There is a proper basis for being sceptical about some of the claims that      Mr Parkinson makes, and I note as well there appears to be some critical discovery yet to be obtained by the plaintiff. This includes bank statements for the accounts into which GD Corp’s profits appear to be being paid into.

[76]	For the reasons submitted  by  Mr  Kennedy,  it  may  be  that,  ultimately,  Ms O’Brien will have difficulty in establishing the necessary element of objective dishonesty, but that is a matter for trial. However, I do not accept there is no evidential foundation “whatsoever” to support the allegation of objective dishonesty against

Ms Kedrinskaia. She was in a relationship with  Mr  Parkinson  by at  least  2013 (Ms O’Brien says earlier) and was arguably aware the business of GDC belonged to the relationship of Ms O’Brien and Mr Parkinson. Ms McCartney referred me  to  Ms Kedrinskaia’s evidence in the Family Court where she says she provided financial support to the new company GDL and that she started receiving a regular reimbursement. That appears to be in explanation, as Ms McCartney submitted, of the
$102,000 profits paid into her account. However, it does not account for the ongoing payment of profits from GDL and GD Corp.

[77]	I accept there is no clear and unequivocal evidence of objective dishonesty, but in cases of this kind, and particularly in determining the matter on the papers alone, that is probably unlikely. It is a matter of inference from all the evidence. This includes the very real questions arising from the documentation that the profits from the original GDC business were applied “to Anna”, with her knowledge and available to repay the mortgage.

[78]	In relation to the proposed third cause of action of dishonest participation, I conclude that there is a reasonable prospect of success.

Proposed fourth cause of action – setting aside prejudicial dispositions under s 348 of the Property Law Act 2007

[79]	I accept the submission of Mr Kennedy that this proposed cause of action is likely to be misconceived. That is because:

(a)	A claim under subpart 6 of the 2007 Act can only be brought by the liquidator or a creditor of the relevant company. It cannot be brought by the company itself.15

(b)	The disposition must also be made at a time when the company was insolvent or its solvency was doubtful as a consequence of engaging in a transaction or incurring a debt.16

15	Property Law Act 2007, s 347(1).
16	Property Law Act 2007, s 346(2).

[80]	On the evidence before me, neither of those criteria are made out.

Proposed fifth cause of action – resulting trust

[81]	The plaintiff alleges that the Wanaka property is held in a resulting trust for GDC because of the failure by  the  third  defendants  to  account  to  GDC  or  to  Ms O’Brien for the use of GDC property and profits.

[82]	For the same reasons given above, I reject Mr Kennedy’s submission that this cause of action must fail because there is no evidence suggesting that GDC profits contributed to the acquisition of the Wanaka property.

[83]	I find that there is an arguable case for a resulting trust.

Issue 2 – Do the costs of the proceedings outweigh any relief realistically obtainable?

[84]	Mr Parkinson contends that irrespective of the absence of merit in the proposed claims, the costs of pursuing High Court trial proceedings would be so out of all proportion to any realistic assessment of the damages GDC could legitimately claim. Mr Kennedy submitted that the Family Court proceedings have now been in train for some three years and it would appear necessary to call extensive evidence on a vast range of issues. There are also likely to be significant ongoing interlocutory disputes.

[85]	Mr Kennedy further submitted that a reasonable estimate of costs, assuming one or two defended interlocutory hearings in a trial of at least one week, would be
$200,000 plus GST. In addition, there would be experts’ costs (approximately $50,000 plus GST) and those sums do not of course allow for the “inevitable appeals”.

[86]	Against that, Mr Moriarty, Ms O’Brien’s independent expert accountant, calculates GDC’s losses to be:

(a)	$298,000, being the enterprise value of the business that has been transferred from GDC to the successor entities; and

(b)	$210,000  being  post-separation  profits  after  an   allowance   for  Mr Parkinson’s market remuneration from March 2014 to March 2019.

[87]	In addition to those sums, Ms O’Brien claims other working capital of $10,000; surplus cash of $92,000; and shareholder loan accounts of $147,000.

[88]	Mr  Kennedy  also  claimed  that  the  valuation  exercise  undertaken  by   Mr Moriarty in respect of the enterprise value of GDC’s business (based on a capitalisation of earnings approach as is prime methodology) has a number of obvious, critical, shortcomings. Those include:

(a)	An assumption that future maintainable earnings can be predicted with a reasonable degree of confidence, notwithstanding GDC’s total reliance on Mr Parkinson’s reputation and endeavours.

(b)	An assumption Mr Parkinson’s salary of $70,000 represented his market remuneration irrespective of the additional amounts taken by Mr  Parkinson  through   his   GDC   shareholder   drawings.   Even Ms O’Brien’s expert evidence was that Mr Parkinson could command a salary of more than double that.

[89]	In reliance on the Court of Appeal decision Nobilo v Nobilo, Mr Kennedy submitted that Mr Moriarty’s calculations of future maintainable earnings/post- separation profits have “a complete air of unreality”.17 He argued that it is unrealistic to suggest that the company could continue its trading activities for any length of time given the parties could not work together, and any recoverable damages would have to be limited by that factor.

[90]	I accept that if I grant Ms O’Brien’s applications, the litigation will be hard- fought, lengthy, and complex. However, as Ms McCartney submitted, experts’ costs have already largely been incurred and Ms O’Brien, who says she has the means to fund the proceedings, is willing to do so. Ms McCartney has estimated costs of between $80–$100,000 (not $200,000).

17	Nobilo v Nobilo, above n 6.

[91]	Even if the costs will be significantly high, as Mr Kennedy submitted, it is a troubling and unattractive proposition that the Court should place weight on that factor when the party raising the issue appears to be conducting his defence (at least on the material made available to me) by taking issue with virtually every point and thereby adding significantly to those costs. That is not to say that Mr Parkinson’s defence lacks merit, but the history of the proceedings in the Family Court and the approach taken to the applications in the present case do provide some reason for concern. The allegation of “scorched earth” litigation cannot be said to be the sole responsibility of Ms O’Brien.

[92]	In the absence of any testing of the disputed accountancy evidence before me, and that of the remuneration experts, it is difficult to make any meaningful assessment of a realistic quantum of damages that the company might obtain in the event that leave was granted and it was successful with the proposed proceedings. However, there is independent expert evidence from Mr Moriarty (including evidence in reply from him responding to the experts of the defendants) which provides support for a total claim (that Ms O’Brien contends for) of $747,000. Ms McCartney appeared to accept that because Mr Parkinson’s family trust would own half the shares, they will share in the recovery in the proposed proceedings. I accept her submission that on that basis, half the amount (namely, $373,500) is still a substantial amount and notably, more than the otherwise available relationship property pool of $342,853.

[93]	I do not accept Mr Kennedy’s submission that I can determine at this interim stage that any claim by GDC cannot both seek the loss of enterprise value and the post- separation profits which have been separately calculated. That is said to be “double counting”. It therefore follows, Mr Kennedy submitted, that the most that can be claimed by GDC is $298,000, even on Mr Moriarty’s approach.

[94]	In my view, these claims are all matters for trial. The reference to “post- separation profits” (albeit unclear) seems to refer to relationship property law, whereas the claim here is for breach of fiduciary duties and a potential remedy of equitable compensation. On the basis of the evidence before me, there is an arguable substantial claim for equitable compensation.

[95]	In assessing overall these various factors, I acknowledge that there may be some force in the collective impact of the various weaknesses Mr Kennedy has identified in the plaintiffs’ claim. In particular, the approach of the Court of Appeal in Nobilo v Nobilo suggests that the extent of damages recoverable may present challenges for the plaintiff.18 However, it is important to record this is not a mini-trial. In the circumstances here, where the experts’ costs appear to have largely been already incurred; where Ms O’Brien’s claims are supported by independent expert evidence; and where she is prepared and willing to fund the proceedings; I find that the costs of such proceedings would not outweigh any relief realistically obtainable. The hearing of a s 165 derivative proceeding with the related Family Court relationship property proceedings in this Court would also likely result in some cost efficiency. I also note that the cause of action against the third defendants includes by way of relief a claim against the Wanaka property (i.e. an asset of value).

Other considerations

[96]	It is necessary to address further considerations relevant to the exercise of discretion under s 165.

[97]	The fact that GDC has ceased trading is clearly a relevant factor. However, in my view, it is not decisive as to whether leave should be granted here. In Stichbury v One4All, that was not a factor that precluded the grant of leave.19 Also, I view this as a different factual situation from He v Chen, where the company was also the subject of an application for liquidation which the Court of Appeal concluded should be allowed to proceed.

[98]	As to the length of time since the company ceased trading (it is has not traded since May 2013), that is a factor of some concern. However, the delay appears to be clearly attributable to Ms O’Brien’s very poor health. The substantial expert evidence filed to date, and the fact that the Family Court proceedings remain unresolved, also suggest that there will not be any real prejudice resulting from such delay.

18	Nobilo v Nobilo, above n 6.
19	Stichbury v One4All, above n 10.

[99]	I do not accept the submission of Mr Kennedy that the dispute would be better resolved through the liquidation process and/or that the Family Court is the appropriate forum for the complaints raised by Ms O’Brien. GDC has allegedly been stripped of assets and a liquidator, without apparent funds to carry on the liquidation, would be at a substantial disadvantage compared to Ms O’Brien, who has clearly already invested substantial resource into this litigation.

[100]	I accept that at the heart of the dispute between the parties is the relationship property one, but the causes of action in the proposed proceeding, including breach of fiduciary duty and claims against third party trustees, present real jurisdictional challenges and difficulties in the Family Court. The complaints that Ms O’Brien makes in this proceeding may have been formally raised before the Family Court, but that is hardly surprising and cannot be decisive.

[101]	As to Mr Kennedy’s claim that there are limitation hurdles, that is again, in my view, a matter for trial. Ms O’Brien claims that this is not a money claim and that s 11 of the Limitation Act 2010 accordingly does not apply. She also contends that the causes of action were concealed from her.

Conclusion

[102]	I find that there is a reasonable likelihood of the proposed proceedings succeeding, and that the costs of the proceedings will not outweigh any relief realistically obtainable. There are no other considerations which suggest that I should decline to grant the leave sought.

[103]	The claim of a breach of fiduciary duty, in particular, appears to have real merit and gives rise to important issues of accountability. The expert evidence suggests the amount at issue is substantial and Ms O’Brien’s claim is of course that Mr Parkinson (and interests associated with him) have enjoyed all the benefit of company property, goodwill, and intellectual property.

[104]	In all the circumstances, I find that a prudent businessman would bring the proceedings in the conduct of his/her own affairs and that the application should thus be granted.

Result

[105]	I grant leave to the applicant pursuant to ss 165 and 167 of the Companies Act 1993 to bring and control proceedings, in the name of and on behalf of the company, against the first, second, and third defendants.

[106]	I decline to make an order under s 166 of the Companies Act 1993 that the costs of the derivative action be met by the company. In the circumstances here, it would be unjust and inequitable for the company to bear those costs.20  Furthermore, I understand Ms O’Brien’s position to be that she has the means and is prepared to fund the proceedings.

[107]	Leave is reserved to Ms O’Brien to apply for such further or other directions in relation to prosecution of the claim as she may think appropriate.

[108]	As to costs on the present applications, I am of the preliminary view that having succeeded, Ms O’Brien is entitled to costs and disbursements, on a 2B basis. If the parties cannot agree, memoranda (no more than three pages) are to be filed and served within 14 days.

Associate Judge P J Andrew

20	Frykberg v Heaven (2002) 9 NZCLC 262,966 (HC).