Case in Point: Key developments in procedure, contract law and disclosure

Welcome to the second edition of our series, Case in Point, in which we highlight key case law and other developments shaping commercial litigation in New Zealand and abroad.  

In this edition we cover:

• an overview of procedural reform and disclosure expectations;
• a summary of recent appellate updates on contract law showing a clear preference for substance over form;
• a reminder of the strictness of the fiduciary duties that directors are under, the utility of a derivative action for shareholders and the strength of equitable relief; and
• a side bar on time bars for shareholder oppression claims. 

Raising the bar: procedural reform and disclosure expectations

Faster, leaner, more collaborative: High Court Rules Amendments 

Major reforms to the High Court Rules have now come into effect, marking a watershed moment for civil litigation in New Zealand. The changes to the Rules apply to all ordinary civil proceedings commenced in the High Court from 1 January 2026 and are directed at improving overall access to civil justice. The purpose of the new regime is to secure the just resolution of disputes by proportionate means, including by their speedy and inexpensive determination. That is coupled with enhanced duties on litigants and solicitors to work co-operatively to advance that objective.

The key changes include:

1. A shift to an "evidence first" model, in which parties will be required to serve factual witness statements shortly after statements of claim and defence are filed. This reverses the approach under the prior Rules, where evidence was generally not prepared until after the discovery stage later in a proceeding's life cycle. Now, by default, plaintiffs will have 25 working days after the last pleading is filed to serve their evidence, with defendants' evidence to follow 45 working days after that. The changes will require concise and focussed witness statements that do not recite documents.
2. The traditional form of discovery has been replaced by a new disclosure regime, with a more thorough initial disclosure requirement that includes disclosure of all known adverse documents. Further disclosure will only be ordered on a case-by-case basis and will ordinarily have targeted scope. Orders for further disclosure to be given before evidence is exchanged are expected to be rare.
3. The Court will take a more active role in case management of proceedings at an early stage. The centrepiece is a judicial issues conference, which will be held following the exchange of evidence. During this conference, parties will be expected to engage on the substance of the real issues in dispute, interlocutory issues requiring determination such as further disclosure (if appropriate), and readiness for trial. 

The Court's expectation is clear: parties and counsel are to work together to bring about the cultural shift envisaged by the new regime. There will be a period of adaptation, where the Court and parties will be working through the interpretation of the new Rules and the practical effects of their application. In our view, these rules should prove a positive development, in particular to encourage the focus of parties' and the Court's resources on the key issues in a dispute and steer parties towards early resolution.

Recent appellate contract law cases 

In different ways and completely different contexts, two recent appellate decisions - one of the Court of Appeal and one of the United Kingdom Supreme Court - reinforce that, when it comes to contract law, it is what the parties actually agreed that counts.

Illegal contract of no effect: Wu v Liu 

Illegal contract cases are not routine, so Wu v Liu [2025] NZCA 560 is a useful reminder of the limits of contract law and the potential application of the illegal contracts' provisions of the Contract and Commercial Law Act 2017 regardless of whether the parties have relied on them.

The case involved an employee, Mr Wu, who had taken company funds. Following an initial repayment, a principal of the company demanded a further $1.2 million from Mr Wu, against the threat of reporting Mr Wu to the police or immigration authorities for theft. Mr Wu made those payments under a deed of settlement characterising the payments as satisfaction of a personal loan. The High Court Judge found that there was never a loan, and the deed was a sham, but nevertheless dismissed Mr Wu's claims to recoup his payments. The Judge thought he had entered into the agreement under duress, but his delay in taking any action meant he could not recover the amounts.

The Court of Appeal disagreed. Its starting point was that the true agreement was for Mr Wu to pay in exchange for a promise not to pursue criminal complaints. There was no other plausible explanation for Mr Wu making the payments. That agreement amounted to blackmail, a criminal offence. The contract was therefore an illegal contract under s 71 of the Contract and Commercial Law Act. Unlike a contract voidable for duress, an illegal contract is a nullity and cannot be affirmed by delay or later conduct. Mr Wu was entitled to recover the $1.2 million despite the time taken to sue.

The respondent Mr Liu has been granted leave to appeal to the Supreme Court on the questions of whether the July 2018 deed was void for illegality or merely voidable for duress, and if voidable, whether it was subsequently affirmed. Leave was not granted on the issue of limitation. We'll be watching this space.

No more "deemed fulfilment" of contractual conditions in the United Kingdom: King Crude Carriers SA v Ridgebury November

What happens when a party wrongfully prevents fulfilment of a condition precedent to that party's debt obligation (for example, the duty to pay for goods being bought)? For a long time, though controversially, many English courts had held that, in such cases, the condition precedent was deemed to have been fulfilled. This is known as the "Mackay v Dick principle", named after a 19th century case.

In King Crude Carriers SA v Ridgebury November LLC [2025] UKSC 39, the United Kingdom Supreme Court has done away with this principle. It has held that any such wrongdoing can and should be addressed in the usual way through a claim for damages for breach of contract based on the terms of the contract, rather than by adopting a fictional fulfilment of the condition precedent. 

King Crude concerned the purchase of three oil tankers. Under the sale and purchase agreements, the buyers had to deposit 10% of the purchase price with a deposit holder within three days of the deposit holder confirming that the deposit account had been opened. In breach of the contract, the buyers never provided the necessary documentation for the deposit account to be opened. In response, the sellers claimed the deposits in debt, relying on the Mackay v Dick principle and arguing that the buyers' preventing the opening of the accounts meant the pre-condition should be deemed to be fulfilled. The 10% deposit was now a debt. In contrast, the buyers maintained that the sellers' sole remedy was in damages, and that they had suffered no loss.

The Supreme Court found in favour of the buyers, holding that English contract law should not proceed on the basis of a fictional declaration of performance of a condition precedent. Rather, contract law was grounded in the terms of the contract and its proper interpretation. On the facts of the case, the Court held that the buyers were not liable for the deposits, and the seller's claims in debt failed.
 
The United Kingdom Supreme Court's decision is not binding on New Zealand courts but is persuasive authority and there has been only limited recognition of the Mackay v Dick principle in New Zealand. In our view, the decision is consistent with the New Zealand courts' renewed emphasis on ascertaining the terms of the contract and analysing what has occurred between the parties in light of those terms, rather than having resort to legal fictions such as "deemed fulfilment". The contract itself, interpreted according to its expressed and implied terms, is the touchstone of contract law and fundamental to understanding whether a party has fulfilled its legal obligations.

Holding directors to account 

Drylandcarbon GP One Ltd v Leckie

We have seen a steady increase in shareholder disputes over the last few years. These arise in a range of contexts, including financial distress putting pressure on the company's funding arrangements, clashes between founders and investors, and (especially in closely held companies) breakdowns in personal relationships.

In many of these disputes, the only real resolution is a separation of the shareholders' interests. In Drylandcarbon GP One Ltd v Leckie [2025] NZHC 2915, the defendants' exit strategy involved excluding one of the founders and establishing a new business substantially replicating the original joint venture. The High Court found this was in breach of their fiduciary duties as directors and amounted to oppression of their counterparty shareholders in that original venture. The directors were required to account for their profits on the new venture (subject to a 15% allowance for time and effort setting up the new venture and for the value of the defendants' brand to that new venture), reminding us of the strict consequences for breach of the duty of loyalty.

Background

Drylandcarbon was a limited partnership set up to earn carbon credits on the New Zealand Emissions Trading Scheme through afforestation, and to make those credits available for use by limited partners, primarily emitters. Mr Beverley, a shareholding founder and plaintiff, along with his spouse (also a shareholder), contributed the concept and modelling expertise. The other founders brought investment banking expertise. The fund was very successful and attracted major emitters as investors.

Unfortunately, working relationships between the parties broke down. Mediated buy-out was agreed in principle but could not be finalised. Messrs Leckie and Morrison unilaterally arranged for Mr Beverley to be removed as a director, in breach of the Drylandcarbon operational companies' constitutions and the Companies Act 1993.

At the same time, Mr Leckie and Mr Morrison were establishing a second fund, the Forest Partners fund, based on the same concept and model as Drylandcarbon.

The Beverley's brought two claims: a derivative action under s 165 of the Companies Act on behalf of the general partner for diversion of a corporate opportunity and misuse of corporate information, and a shareholder oppression claim under s 174 of the Companies Act, focussed principally on Mr Beverley's exclusion from the business.

Key findings

Diversion of corporate opportunity

The Court's starting point was the fundamental principle that directors' fiduciary duties to the companies they direct should not divert to themselves or a third party a business opportunity of the company. They can pursue that opportunity only for the company. If they divert the corporate opportunity, they are typically required to account for any profits made in breach of duty. That can happen in different ways but, in this case, the Court found that the defendant directors leveraged Drylandcarbon relationships, personnel, marketing materials, financial models and methods in pursuit of the new opportunity. They knew of and exploited interest in a future fund by virtue of their role in, and the success of, the Drylandcarbon fund. They also substantially copied the Drylandcarbon company structure which they knew to be successful.

Shareholder oppression 

The defendant directors' diversion of the corporate opportunity, and the breaches of duty inherent in it, also amounted to oppressive, unfairly discriminatory, and unfairly prejudicial behaviour towards Mr and Mrs Beverley as shareholders of the holding company. The Court also held that the unilateral removal of Mr Beverley as director was oppressive, unfairly discriminatory and unfairly prejudicial to Mr and Mrs Beverley as shareholders, and to Mr Beverley in his capacity as a director of the holding company. Although the defendant directors' conduct towards Mr Beverley prior to that date could be regarded as "sharp practice", their unilateral removal of him was clearly in breach.

The Court ordered a buyout of the Beverleys' shareholding in Drylandcarbon, adopting the defendant's expert evidence as to valuation to determine the price. 

Time bar on shareholder oppression claims?

THG Plc (Respondent) v Zedra Trust Company (Jersey) Ltd (Appellant)

The United Kingdom Supreme Court in THG Plc (Respondent) v Zedra Trust Company (Jersey) Ltd (Appellant) [2026] UKSC 6 has confirmed that unfair prejudice petitions are not caught by the United Kingdom's general statutory limitation period. The case concerned whether a shareholder's unfair prejudice claim - including one seeking compensation - must be commenced with a fixed period after the claimed oppression. The relevant limitation provisions require that a claim be "an action upon a specialty" or an "action to recover any sum recoverable by virtue of an enactment" in order to be covered by the statutory limitation period.

The Supreme Court found that, because relief for a claim for unfair prejudice is discretionary, it is not "an action upon a specialty". Further, because the relief available to the Court is very wide and not confined to damages, a claim for unfair prejudice is not an "action to recover any sum recoverable by virtue of an enactment".

Why it is relevant in New Zealand

New Zealand and the United Kingdom share similar statutory schemes to deal for shareholder claims of unfair prejudice. As we have seen, s 174 of New Zealand's Companies Act provides for shareholder oppression claims. New Zealand courts have taken differing views as to whether claims under s 174 can be time-barred under New Zealand's general limitation legislation. The High Court in Cooper v Cooper & Co Real Estate Albany Ltd [2025] NZHC 478 held that monetary claims under s 174 are subject to limitation periods. New Zealand's conflicting authority may be revisited in light of the United Kingdom Supreme Court's decision.

This content is intended only to provide a summary of the subject covered. It does not purport to be comprehensive or to provide legal advice. No person should act in reliance on any statement contained in this publication without first obtaining specific professional advice. If you require any advice or further information on the subject matter, please contact a Russell McVeagh partner/solicitor.