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The High Court of New Zealand ordered a roofing company to fund a director's derivative action costs in a ruling on outstanding costs.
In Martin Roofing Co. Limited v Martin [2026] NZHC 1762, the High Court ruled on a costs dispute between Martin Roofing Co. Limited ("the company") and one of its directors, arising from a derivative action the director had brought under s. 165 of the Companies Act 1993 (the Act) against a fellow director and shareholder.
The underlying dispute arose after the fellow director transferred $620,000 from the company's bank account to her own account in May 2022. The court granted a freezing order, and the funds were later repaid. The director who brought the derivative claim, acting with leave under s. 165, brought proceedings on the company's behalf to recover the money, and separately brought his own claim under s. 174, alleging shareholder oppression. In November 2023, the parties signed a settlement deed intended to resolve both proceedings. Still, the court had not approved the settlement under s. 168, and the company's business remained unsold at the time of the hearing. The settlement deed resolved the parties' underlying dispute without a ruling on its merits.
The other director applied for leave to bring a counterclaim seeking repayment of $293,415.71 in legal fees, submitting that the expenditure benefited the applicant director rather than the company. That leave application was adjourned and remains undecided. The applicant director applied under s. 166 for an order that the company meet his reasonable costs of the derivative action.
The court held that s. 166 established a presumption that a company must meet the reasonable costs of a derivative action once leave was granted, unless bearing those costs would be unjust or inequitable. It found that the respondent director had no lawful justification for the unauthorised transfers and rejected submissions that the company's response, including obtaining the freezing order, was disproportionate. The court further found that the settlement deed had not resolved the costs question, since court approval under s. 168 remained outstanding, and that an arbiter appointed under the deed had no role in determining liability for the legal fees.
The court granted the applicant director's s. 166 application and adopted a "temporal" method of apportioning costs. It ordered that costs paid by the company up to 31 March 2023, be attributed to the company in full, costs from 1 April 2023 to 27 July 2023, be attributed to the applicant director in full, and costs from 28 July 2023 to March 2025, be split evenly between the company and the applicant director. The court adjourned the other director's leave application and scheduled a telephone conference for 16 July 2026, to address any remaining disputes. The court reserved its decision on costs of the applications themselves.
