O'Brien v Parkinson v Ors

• Jurisdiction: New Zealand
• Judge: P J Andrew
• Judgment Date: 14 July 2020
• Neutral Citation: [2020] NZHC 1681
• Court: High Court
• Docket Number: CIV-2019-404-002814
• Date: 14 July 2020

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

[2020] NZHC 1681

JUDGE P J Andrew

CIV-2019-404-002814

IN THE HIGH COURT OF NEW ZEALAND

AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA

TĀMAKI MAKAURAU ROHE

Companies — application for leave to bring a shareholder derivative action — directors duties — prejudicial dispositions — dishonest assistance — Companies Act 1993 — Property Law Act 2007

Appearances:

J McCartney QC for Plaintiffs

Z Kennedy and S R Morris for Defendants

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

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

• (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

• (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;

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