Diversified Investment Strategies Limited (DISL) shut up shop in 2014, after one of its two directors, Vicky Watson, took up a job with Fisher Funds Management.

Watson’s move came out of negotiations with Fisher Funds to buy Diversified Wealth Management Limited (DWML) and, ultimately, led to the dissolution of the financial advice firm.

Diversified embarked on the negotiations after they came under pressure from the Financial Markets Authority to close or merge the distressed KiwiSaver fund they managed (as part of DWML).

However, Diversified’s other director, Norman Stacey, was dissatisfied with the outcome of the negotiations and the final agreement, which meant the end of DISL, and initiated legal action.

The case has now reached the High Court in Auckland and is being heard by Justice John Faire over the next week.

Kicking off the case on Monday, Stacey’s lawyer, Paul Dale said his client was pressured into selling the fund significantly under market value and under terms not acceptable to him.

He also said the sale occurred under circumstances where information, which benefitted Watson, was withheld from Stacey.

This situation occurred after Stacey approached Fisher Funds, he said at the suggestion of the FMA, about the sale of Diversified’s KiwiSaver funds.

Dale said that, while Stacey did not think Fisher Funds’ offer was competitive and tried to explore approaches from other interested parties, Watson continued to negotiate with Fisher Funds.

After meeting with Fisher Funds, Watson agreed to what Dale said was a non-binding set of terms, which included the sale of DISL and a job offer for Watson.

The job offer included payment of a high salary above market rate and a buy back clause for the client list she bought with her.

Dale said that neither the salary offered to Watson nor the client list buy back clause were disclosed to Stacey.

When Stacey objected to the agreement, Watson told him she would not agree to selling to a party other than Fisher Funds, despite other, potentially more favourable offers.

Dale said Stacey was put under pressure to agree to the sale and that he eventually gave in, although he remained unaware of the salary offer and client list buy back clause offered to Watson.

“He felt he had no choice. So he sold significantly under value in circumstances where information was withheld from him.

“That means one shareholder of a 50/50 company was put under pressure to sell against his best judgment, while unaware of secret negotiations and of benefits being offered to the other.”

In Dale’s view, the case, comes down to the issues of non-disclosure, unfair behaviour of one shareholder to another, and whether it constituted a breach of fiduciary duty.

He said Justice Faire needs to determine whether there was a fiduciary duty between the two shareholders and, if so, whether it was breached by Watson’s actions.

Evidence supporting Stacey’s argument is still being heard, while evidence for the defendant, Watson, is to be heard later in the week.