Hiscock v Panmure Orchards Limited

[2021] NZHC 3020

IN THE HIGH COURT OF NEW ZEALAND DUNEDIN REGISTRY

I TE KŌTI MATUA O AOTEAROA ŌTEPOTI ROHE

CIV-2021-412-37

[2021] NZHC 3020

UNDER

the Companies Act 1993

IN THE MATTER

of an application under s 174 of the Companies Act 1993

BETWEEN

CLIFFORD MURRAY HISCOCK

First Plaintiff

AND

CLIFFORD MURRAY HISCOCK and

DOUGAL MURRAY HISCOCK as trustees of the CM Hisock Family Trust
Second Plaintiffs

AND

PANMURE ORCHARDS LIMITED

First Defendant

AND

SHIRLEY FRANCES HISCOCK

Second Defendant

AND

JEREMY CLIFFORD HISCOCK

Third Defendant

Hearing:	19 October 2021
Appearances:	M J Hammer and J W Cowan for Defendants/Applicants E D Peers and G G Dill-Russell for Plaintiffs/Respondents
Judgment:	9 November 2021

JUDGMENT OF ASSOCIATE JUDGE LESTER

HISCOCK v PANMURE ORCHARDS LIMITED [2021] NZHC 3020 [9 November 2021]

Introduction

[1]    Shareholders in a family company agree they need to go their separate ways. The plaintiffs want to sell their shares and the defendants are prepared to buy them. However, the parties cannot agree on a price or a price fixing mechanism for the shares. The plaintiffs want the price set through these proceedings.

[2]    The defendants say these proceedings are unnecessary because, prior to the issuing of these proceedings, they offered fair value for the shares or for fair value to be determined in an independent and transparent way. They seek summary judgment as defendants on that basis.

[3]    The plaintiffs resist the application and submit the claims they make for compensation alongside the sale of their shares cannot be determined by a valuer.

Background

[4]    Panmure Orchards Limited (POL), the first defendant, owns 253 hectares of land in Central Otago, part of which is irrigated and planted as cherry and nectarine orchards. The original 10 hectare block that became a cherry orchard was acquired by the father of the first plaintiff, Clifford Hiscock (Clifford), in 1952. Clifford grew up on the land and has been involved in the development and expansion of the landholdings all his life.

[5]    Dougal  Hiscock  (Dougal)  and  Jeremy  Hiscock  (Jeremy),  are  two  of   the children of Clifford and Shirley Hiscock (Shirley). Clifford and Dougal are the second plaintiffs in their capacity as trustees of the CM Hiscock Family Trust, while Shirley and Jeremy are the second and third defendants, respectively.

[6]    While Clifford and Shirley remain  married, they separated  approximately  17 years ago in 2003 or 2004. It is not necessary to recount the stages by which Clifford and Shirley built up the landholding to its present level. It is not in dispute that both Clifford and Shirley worked diligently on developing the orchards, Clifford

having had significant input into the design, development and construction of irrigation systems and undertaking substantial earthworks on the properties.

[7]    As Clifford himself recognises, a serious  head  injury  he  suffered  in  August 1999 marked a significant turning point in his life. Clifford continued to be active on the properties until sometime in 2016, and he and Shirley were directors of the company alongside an independent director, Mr Lindsay Brown (who was director from 2003 to 2016). However, Clifford’s head injury led him to become less involved in the business side of POL.

[8]    I say no more about why Clifford’s involvement in management declined, the tenor of Clifford’s  evidence is that he was sidelined, but that is not accepted by     the defendants. All of this has its origins over 20 years ago (albeit Clifford’s complaints also concern much more recent events). I expand below on some of Clifford’s concerns in respect of value, with some of his compensation claims against POL extending back to the early 2000s.

[9]    Mr Brown, who was formerly a partner at the accounting firm Deloitte, resigned as independent director of POL in 2016 and was replaced by Jeremy. Clifford was removed as a director in March 2019.

[10]   Clifford’s removal as a director was not the catalyst for him wanting to sell his shares. In October 2017 the plaintiffs issued share transfer notices pursuant to POL’s constitution. The price the plaintiffs wanted for their shares was not accepted and in 2018 the parties entered discussions about the appointment of a joint expert to fix the value of the shares,  with  a  view  to  avoid  the  arbitration  process  required  by  the constitution if the parties could not agree a price.

[11]   In January 2021, the defendants offered to buy the plaintiffs’ shares at fair value and they made another offer to purchase in April 2021.

[12]These proceedings were commenced on 17 May 2021.

The law

[13]   Clifford and his Family Trust (the CM Hiscock Family Trust) bring this proceeding under s 174 of the Companies Act 1993 (the Act) – the minority oppression provision. The defendants’ application for summary judgment is based on the proposition that the relief under s 174 sought by the plaintiffs is not available where an offer is made to purchase the plaintiffs’ shares for fair value. The defendants rely on principles set out in the English authority O’Neill v Phillips, where Lord Hoffman considered that:1

… parties ought to be encouraged, where at all possible, to avoid the expense of money and spirit inevitably involved in such litigation by making an offer to purchase at an early stage.

[14]   That approach has been recognised in New Zealand. The Court of Appeal in M Yovich & Sons Ltd v Yovich stated that a reasonable offer can cure “all forms of conduct that are unfairly prejudicial”, not just those relating to exclusion of the minority from the company.2 A proposed independent valuation can account for both capital and income matters and this may involve adjustments to the valuation based on historical management and expenditure practices, including director and employee remuneration.3

[15]The Supreme Court in Fong v Wong confirmed that:4

Where relationships between shareholders have broken down, one cannot usually exclude the other from the management of the company without making an offer to acquire that other shareholder’s shares for a value which is determined on a pro rata basis, that is, without a discount for minority interest.

(footnote omitted)

[16]   The recent Court of Appeal decision in Birchfield v Birchfield provides guidance as to when summary judgment is appropriate in a case such as this.5 The Court confirmed that whether an offer to buy out a shareholder cures any unfairness

1      O’Neill v Phillips [1999] 1 WLR 1092 (HL) at 1106.

2      M Yovich & Sons Ltd v Yovich (2001) 9 NZCLC 262,490 (CA) at [48].

3      Duncan v Alan Reay Consultants Ltd, HC Christchurch CIV-2006-409-251, 1 December 2008 at [181].

4      Fong v Wong [2010] NZSC 152, (2010) 30 PRNZ-250 at [5].

5      Birchfield v Birchfield [2021] NZCA 428.

to that shareholder is ultimately a question of fact. Questions of fact capable of argument at trial will not be determined in a summary judgment context. Accordingly, a defendant’s summary judgment application in the context of a minority oppression claim is no different from any other summary application.6

[17]   The substance of the unfair prejudice allegations and the implication of those allegations for the assessment of fair value is one of the matters relevant to determining whether summary judgment is appropriate.7

[18]   Here, in resisting summary judgment, the plaintiffs accept that an expert determination/valuation will in some circumstances be appropriate but say the compensation  claims made by Clifford  under s 174(2)(b) cannot be resolved by     a valuer as they involve disputed issues of fact and law. By implication, but for those factors, the plaintiffs accept fair value could be determined by a valuation exercise outside of these proceedings.

[19]   The Court in Birchfield confirmed that whether a buy-out offer establishes that a minority oppression claim is bound to fail is highly sensitive to the facts and circumstances of the case. The Court noted the need to be cautious before entering summary judgment for a defendant which would deny the plaintiff the opportunity to obtain discovery and pursue their claims at trial.8

[20]   The  Court  confirmed  that  summary  judgment  can  only  be   sought   by   a defendant to a s 174 claim in reliance on a buy-out offer, if such an offer has been made before the summary judgment application is sought (as is the case here). However, the Court considered a defendant is permitted to make sensible minor adjustments to that buy-out offer and to respond to concerns raised by the plaintiff about the finer details of that offer.9

6      Birchfield v Birchfield, above n 5, at [36].

7      Birchfield v Birchfield, above n 5, at [39]-[40], citing Re Sprintroom Ltd [2019] EWCA Civ 932, [2019] All ER (D) 41 at [133].

8 At [40].

9      Birchfield v Birchfield, above n 5, at [51]-[53].

[21]   The Court  went  on  to  find  that  broad  complaints  about  the  absence  of  a strategic plan or about decisions on capital expenditure are not conduct of a kind that comes within s 174. Relief is not available under s 174 in respect of differences about the appropriateness of business strategies arrived at in good faith by a company or alleged errors of judgment by management, inefficiencies or poor business management.10 Neither are disagreements over company strategy or management capable of amounting to unfairly prejudicial conduct.11 The Court said: “Because these [complaints] are not capable of amounting to unfair prejudice … the offer need not ‘cure’ them.”12

[22]   The Court of Appeal recognised that an offer to buy at fair value can lead to  a valuer determining disputes in some cases. In Birchfield, the first disputed issue was whether family members had received remuneration in excess of market rates, which was addressed by the requirement in the offer that the valuer “specifically take into account a review of the remuneration of [relevant family members] … and make such adjustments as  the valuer considers appropriate”.  The second dispute was  whether a business carried on by the companies in issue or by a shareholder for their own benefit was also able to be resolved by a valuer.

[23]   With that guidance in mind, I turn to the plaintiffs’ claim which they say cannot be addressed by a valuer.

[24]The items are as follows:

(a)discrepancies in the treatment of Clifford’s current account with POL for the period 2004-2011 which, despite requests, have not been explained;

(b)the absence of any payment to Clifford for his skilled labour and input into POL since his head injury in 1999 until he stopped work on the company’s land in 2016;

10     Birchfield v Birchfield, above n 5, at [59], citing Latimer Holdings Ltd v SEA Holdings NZ Ltd

[2005] 2 NZLR 328 (CA), (2004) 9 NZCLC 263,694 at [71].

11     Birchfield v Birchfield, above n 5, at [59], citing M Yorich & Sons, above n 2, at [31].

12     Birchfield v Birchfield, above n 5, at [60].

(c)preferential payments by POL to Shirley and Jeremy since 1999, being salaries, bonuses or accumulated shareholder current account credits; and

(d)other benefits to Shirley and Jeremy including living on the POL land without any adjustment for rent, power or other costs (including rates) up until 2017.

Summary of defendants’ position

[25]   The defendants say they can demonstrate that for the purposes of their summary judgment application there is either:

(a)insufficient evidence to make the above issues reasonably arguable; or

(b)if these issues are arguable they can be taken into account by a valuer; or

(c)the issues would not have a material effect on value in any event.

[26]   In relation to[24](a) above, I requested further submissions on the application of limitation periods which I deal with below. Clifford’s claim is advanced in two parts: he seeks that his shares be purchased at a valuation of POL’s land and machinery and, in respect of the claims in [24], that the defendants pay him compensation pursuant to s 174(2)(b) of the Act.

[27]   Mr Peers, counsel for Clifford, emphasised the family background of POL which he likened to a quasi-partnership company. From the incorporation of POL to their separation, Clifford and Shirley lived and worked on the land. The company made payments to them or on their behalf and, as is often the case in closely held companies, the declaration of salaries or dividends occurred once the profitability of the company for a financial year was known. There were lean years and profitable years but the fortunes or otherwise of POL were shared equally.

[28]   That changed in the years following Clifford’s head injury and his separation from Shirley. Mr Peers submitted that from the early 2000s the profits of the company were diverted into income for Shirley and later Shirley and Jeremy, with Clifford receiving only $270 per week, which even then was treated as a repayment of his current account which was in credit. Mr Peers submitted Clifford continued to work in the business with an expectation of reward based on how payments had been made before his injury. In short, Mr Peers submitted that in the circumstances it is reasonably arguable that Clifford had a legitimate expectation of reward.

Unpaid work

[29]   The statement of claim alleges that since 1999, Clifford continued to work in POL’s orchard operation but has “not received shareholder’s remuneration for his work since 1999”.

[30]   One of the particulars of prejudicial conduct pleaded is: “The exclusion since 1999 of Clifford from any meaningful employment or earning opportunities associated with POL.” The substance of Clifford’s complaint is that while he continued to work on the land as best he could, including being involved in complex irrigation work, he remained  unpaid.    In  support  of  this  aspect   of  his   claim,  Clifford  relies  on   a memorandum issued to POL by Deloitte on 6 November 2015 dealing with the remuneration of directors. The report divided remuneration into directors’ fees, interest on loans the directors’ trusts had made to POL, and salary income. In relation to the last of those components the report said:

Clifford undertakes and assists with a variety of skilled tasks onsite. This reduces reliance on, and cost of, employing outside contractors. For good health reasons, Clifford is not able to be continuously involved in the company’s operations. However, his salary should reflect his skills, availability and flexibility, as well as the part time nature of his employment. We would suggest a figure of approximately $35,000 per annum.

[31]   Clifford’s reference in the statement of claim to not receiving remuneration for his work and his reliance on the Deloitte memorandum with its reference to a salary reflecting “the part-time nature of his employment”, suggests an employment relationship. This is consistent with the shareholders’ resolution signed January 2004, which refers to the “remuneration of shareholder employees”.

[32]   There is authority that an employment claim by Clifford could not be advanced under s 174 of the Act.13 The Employment Relations Authority has exclusive jurisdiction in that area. However, the short point is that, in this context, it is not possible to determine the basis upon which Clifford worked on the property. The defendants say Clifford’s work was as and when it suited him as part of his recuperation and given he received cover from ACC and with the change of circumstances (that is his head injury and separation), he cannot reasonably have expected remuneration to have continued as if nothing had changed.

[33]   However, the fact that the independent director in 2015 considered some pay to Clifford was called for is for me the telling point on this factual issue. Without more, the independent director’s suggestion set out above means I cannot find that the defendants have  established that Clifford’s  expectation  of remuneration is  without a reasonable factual basis.

[34]   Mr Peers submitted that, as Clifford had been contributing to the value of POL, it was not necessary to classify the nature of  his relationship with  POL.   Once       a reasonable expectation of remuneration for that effort was established, he argued this unmet expectation founded the claim  for  compensation  under  s 174  of  the Act. Mr Peers said it was the “something more” that made POL’s failure to compensate Clifford unfair.14

[35]   As to whether a limitation period applies to restrict Clifford’s rights, barring or reducing his compensation claims to the point that they are not material, I am satisfied that neither the Limitation Act 2010 nor the Limitation Act 1950 apply.

[36]   Associate Judge Bell considered whether s 174 of the Act was subject to limitation in Alligators Fast Food Ltd v Chen.15 Having identified two cases which suggested that limitation did apply, the Associate Judge, after reviewing authorities in

13     Francis v New Zealand Forgings Ltd (2006) 3 NZCCLR 915 (HC) at [37] – [39]; and Scott v Scott Transport Ltd HC Hamilton CIV-2005-419-395, 19 October 2005 at [54].

14     See Latimer Holdings Ltd v SEA Holdings NZ Ltd, above n 10, for the importance of “reasonable expectations” to found a claim made under s 174 of the Act.

15     Alligators Fast Food Ltd v Chen [2018] NZHC 587.

detail, concluded the limitation did not apply, relying in particular on the following passage from Re Grandactual Ltd, Hough v Hardcastle:16

Petitions under section [of the Companies Act 1985 (UK)]  459 are always   a very burdensome form of litigation. I understand that section 459 is not subject to any limitation period, but relief under s 461 is always within the discretion of the Court. I do not consider that the Court should countenance such proceedings in the circumstances that I have described nearly 10 years after the event.

[37]   At  first  glance,  the  above  passage  does  not  help  Clifford  because  in   Re Grandactual Ltd, the petition was struck out as it had been issued nearly 10 years after the events in issue. Clifford’s claims here go back further.

[38]   Re Grandactual Ltd has been applied in a number of English cases including Routledge v Skerritt.17 The following paragraphs from Routledge mean, in my view, that granting the defendants’ summary judgment on the basis of limitation or delay is not appropriate:

29.The Respondents rely, amongst other things, on delay and acquiescence in answer to Mr Routledge’s claim. They say that he acquiesced in the conduct complained of, made no complaint about it for more than 8 years and then, even after first making a complaint, delayed for a further 3 years before bringing proceedings. The relevant principles on delay and acquiescence are set out in Hollington at para 7-205 to 7-209.   There is no statutory time limit for issuing   a petition, nor does the equitable doctrine of laches strictly apply where the relief sought is equitable relief. In Southern Counties Fresh Foods Ltd [2008] EWHC 2810 (Ch), Mr Justice Warren, having considered what had been said by Sir Donald Rattee in Re Grandactual Ltd [2006] BCC 73 at [19] and [20], said this: “… if a course of conduct starting in the remote past has continued to the present time, I see no reason why the entire history of the conduct should not be brought into account in assessing whether the conduct as a whole has been unfairly prejudicial. Of course, the fact that it may have continued without protest for a long period may show there has been acquiescence and no unfair prejudice; but if the conduct met with regular objection, or even resignation but with clear non-acceptance, it is not to be rejected a [priori] as incapable of being entertained by the court as part of the basis for a petition.”

30.In relation to the question of delay, in Re Edwardian Group Ltd [2018] EWHC 1715 (Ch) at [571] Fancourt J said: “In my judgment, the right approach is to consider how the delay in question should affect the exercise of the court’s discretion under section 996 to make such order

16     At [45], citing Re Grandactual Ltd , Hough v Hardcastle [2005] EWHC 1415 (Comm) at [20].

17     Routledge v Skerritt [2019] EWHC 573 (Ch).

as it thinks fit … However, unjustified delay resulting in prejudice or an  irretrievable  change  of  position  (the  essential  ingredients  of  a defence of laches) are likely to be a significant factor in the exercise of the court’s discretion to grant or refuse a particular remedy.”

[39]   Whether Clifford’s delay will be such that he is denied relief or whether he can demonstrate a course of conduct starting in the remote past and continuing to the time when he issued his proceedings, can only be determined at a full hearing.

[40]   I am satisfied that Clifford’s claim for compensation to recognise his past work on POL’s properties is not one suitable for determination by a valuer as the defendants dispute that Clifford is entitled to any payment for his work. Determination of this aspect of Clifford’s claim requires factual findings about what Clifford did and whether those circumstances founded a reasonable expectation of reward, whether Clifford’s delay in commencing his proceedings will be a barrier to him recovering compensation and (if so) to what extent are questions for trial and not for a valuer.

[41]Ms Hammer, counsel for the defendants, referred to the following passage from

Hollington on Shareholders’ Rights:18

The court, in the exercise of its discretion, may in an appropriate case allow to be delegated to the valuer any subsidiary issue of law, or issue of mixed law and fact, which is relevant to the valuation. So, it may be desirable to draft an offer so as to give the valuer the express right to take legal advice on legal issues, or from an expert on other issues. If, therefore, a common obstacle to an offer of an out-of-court valuation is that there may be particular issues arising in the case which are not appropriate for determination save by the court or in the context of a court valuation, in such a case the court would have the power to reserve such issues for preliminary determination, whilst leaving the valuation to be carried out by an independent expert: see, e.g. Re Clearsprings (Management) [2003] EWHC 2516 (Ch).

[42]   The defendants, while denying that Clifford’s claim for compensation has merit, submit that: “if the Court determines this is a matter which is reasonable for the independent valuer to assess, it is agreed this can be included as a term of the offer”. To, in effect, compel Clifford to have his compensation claim ruled upon by  a valuer would be to require the valuer to become an arbitrator on this issue. The remuneration claim is a cause of action owned by Clifford. If the claim is successful,

18     Robert Hollington Hollington on Shareholders’ Rights (9th ed, Sweet & Maxwell, London 2020) at 300.

it will impact on the value of POL (to some extent) as the liability will be that of POL. While there may be situations where the approach suggested in Hollington on Shareholders’ Rights at [41] above may be appropriate, namely that the offer could include the ability of the valuer to take legal advice on legal issues or expert advice on other issues in order to incorporate them into the valuation, I do not consider that appropriate here. No aspect of Clifford’s claim, other than the fact he did some work on POL’s land, is accepted by the defendants. Determination of Clifford’s remuneration claim will involve determination of disputed evidence covering 16 years or so, including determining the extent of the work, the circumstances in which it was carried out and what, if anything, was said or understood about Clifford’s expectations for reward. Then the issue of quantifying Clifford’s compensation and the effect of delay will have to be assessed. Cross-examination and legal submissions will be needed. To require this claim to go to a valuer would be, again, to convert the valuation into an arbitration on this issue.

[43]   My conclusion that Clifford has a reasonably arguable basis for his remuneration claim, which is not suitable for determination by a valuer, is sufficient to mean the  defendants’ application for summary judgment cannot succeed.  While  I will examine the other grounds for compensation, at least two of which, in my view, are suitable for resolution by a valuer, unless the defendants’ offer meets all aspects of the plaintiffs’ claim, the summary judgment application must fail. Nor is it possible to conclude that Clifford’s claim for compensation would be for an amount that would be so immaterial as to mean that these proceedings should not be permitted to proceed.

[44]   As to what might be immaterial, I note that in Birchfield, there was a dispute concerning ownership of a firewood business allegedly operated by two of the respondents from property owned by the companies,  whose annual sales were  in  the region of $45,000 in the context of a company worth $30 million. The Court concluded the value of the firewood business was immaterial – albeit the offer made by the defendants in that case permitted the valuer to examine whether the business was being operated within the company structure or not.19

19     Birchfield v Birchfield, above n 5, at [58].

[45]   Here, Mr Peers puts the potential value of Clifford’s claim at $1,544,931. That might be thought to be the absolute  maximum  but  even  if  only  50 per cent  of that amount was awarded, it could not be said to be a sum that could be disregarded as being immaterial.

Remuneration

[46]   Clifford claims that despite recent and historical poor performance, Shirley and Jeremy have received significant shareholders’ remuneration. Such is said to be excessive, having regard to POL’s poor performance. Clifford’s evidence in respect of these allegations does not rise above assertion. For example, Clifford says:

… without clear or verifiable justification Shirley and Jeremy have paid themselves significant salaries and bonuses, either as cash, payment for shares (in Jeremy’s case) or accumulated as shareholder current account credits over those years.

[47]   Clifford says “[t]here appears to be limited accountability with salaries being set without reference to the performance of the company”. While Shirley and Jeremy say that their salaries are based on a strategic pay review assessment which has been produced, Clifford complains the job sizing information in that assessment was based on information provided by Jeremy and Shirley. He says: “Dougal and I do not accept the job-sizing information as being accurate.”.

[48]   A similar claim of excessive salaries arose in Birchfield, where the appellants sought compensation which was to include an account of profits for inappropriate remuneration or other benefits received by the defendants, directors and/or shareholders. The Court of Appeal noted no evidence had been provided to support the allegation that family members were receiving remuneration in excess of market rates.20 However, the offer to buy at fair value in that case provided for an appropriate adjustment to be made in respect of the claim of excessive salaries in the assessment of fair value. The Court considered the offer provided sufficient guidance to the valuer in relation to that issue and provided for the parties to have an opportunity to make submissions to the valuer generally.21

20     Birchfield v Birchfield, above n 5, at [64].

21 At [64].

[49]   Accordingly, to the extent that the appellants’ claim in Birchfield raised matters capable of amounting to unfairly prejudicial conduct that might have a material effect on the value of the company, these matters were addressed by the offer in a manner that ensured that any arguably unfair prejudice arising out of them was cured.

[50]   Here, the defendants say that, in any event, after this allegation was raised in Clifford’s evidence, they confirmed that the offer could include a term that the claims for excessive remuneration could be taken into account by the valuer. Thus, the defendants say this claim is one that can be dealt with through the valuation exercise as was recognised in Birchfield. I agree.

[51]   Clifford further says that, to the best of his knowledge, Jeremy and Shirley, who lived on the POL land, did not pay any rent, power or other costs (including rates) until 2018, at which point the issue was raised and rent was included and backdated in the accounts for the year ended 2017.

[52]   For the 2018 financial year, the financial statements show that Jeremy and Shirley received rent as part of their remuneration arrangements. Accordingly, the value of those benefits can be taken into account as part of the expert’s determination of the value of the full remuneration package received by Jeremy and Shirley.

[53]   As to rental and electricity costs met by POL prior to the accounts for 2017, there  is  no  evidence  such  were  not  taken  into  account.   In  an  email  dated    30 November 2011, Clifford asked the independent director, Mr Brown, what the arrangements were in relation to Shirley’s house expenses. Mr Brown referred the request to POL’s accountant who replied that the current account held by Shirley’s Trust was debited with a figure for rent and power, stating the figure and explaining its GST treatment. There is no evidence that this arrangement came to an end until the change in 2018 or that the figures used were inappropriate.

[54]   The short point is that if Shirley and Jeremy have received benefits which would be recoverable by POL, then the value of that recovery is an asset to be assessed by the valuer. Hence, the framing of a claim for compensation is not determinative – the issue is whether in the circumstances a valuer can assess the value of the claim as

part of arriving at fair value. The issue of the benefits received by Shirley and Jeremy is in the same category as excess remuneration. There is no need for it to be treated as a standalone compensation claim when it can be determined by a valuer. There is no dispute that the defendants’ remuneration must be reasonable and they must account for other benefits received. The valuation exercise therefore only requires an assessment of whether the remuneration was reasonable and whether the benefits received have been accounted for on a proper basis.

Historical Current Account Issues

[55]   Clifford claims that between 2004 and 2011 his shareholder current account was reduced by $341,043 for which Clifford has sought an explanation, but says he has never been provided with one. While details of the drawings for the period 2011-2019 have been provided, Mr Peers says that despite requests relating to specific items (such as the treatment of a motor vehicle and  questions  in  relation  to  specific invoices which Clifford says has nothing to do with him), no further information has been provided.

[56]   Mr Peers points out that if the 2004-2011period is compared to the 2011-2019 period, then Clifford’s current account was reduced in the earlier period by $156,000, which begs the question of what the remaining $185,000 for the latter period could be, particularly when Clifford’s weekly drawings went from $100 per week during the earlier period to $270 per week for the latter period. Mr Peers submits it is not enough for the defendants to assert, without more, that explanations have been given in the past.

[57]   Clifford’s relationship with POL in relation to his current account is one of debtor/creditor. If Clifford were to issue proceedings to recover his shareholder current account then his claim in relation to the 2004-2011 period would almost certainly be statute-barred. The onus would be on him to prove that he was owed money for that period, albeit he would have the benefit of discovery subject to limitation issues. Framing this claim as compensation under s 174 avoids that limitation issue but again, Clifford’s delay in bringing his compensation claim will be a factor in considering whether relief is granted.

[58]   The onus is on the defendants applying for summary judgment to demonstrate that this aspect of prejudicial conduct relied on by Clifford is not arguable.

[59]   In respect of this issue, the defendants submitted that the drawings are arguably immaterial in the context of the offer to purchase the shares at fair value. They submitted that a line-by-line audit of current account drawings will not materially affect POL’s value. Further, the defendants say that the allegation would only have negatively affected POL’s valuation, that is, the fair value of the plaintiffs’ shareholdings would be less because POL would owe a greater liability to them.

[60]   It is in this context that the structure of Clifford’s claim as a share price based on net assets, with the balance of his claim based on compensation, is of significance. The defendants say fair value, that is, one that takes into account all matters, is capable of addressing this issue, but that, in any event, there is nothing irregular in relation to Clifford’s current account.

[61]   In my view, the plaintiffs cannot seek to avoid the possibility that an offer at fair value will bring their proceeding to an end by describing some aspects of their claim as relating purely to share valuation issues while framing others as compensation. If what is framed as a compensation claim can be properly addressed through a valuation exercise, then an offer to buy at fair value that takes that compensation claim into account may be sufficient. The rationale behind permitting an offer at fair value to bring a minority oppression claim to an end would be frustrated if plaintiffs could, as here, divide their claim into seeking a share price based only on net tangible assets with the remainder of their issues framed as compensation.

[62]   Here, the defendants’ last word on the current account issue is that if the Court is satisfied this is a matter that needs to be taken into account in determining value, the defendants’ offer nonetheless includes a term that would allow the independent valuer to take this into account. In effect, the independent valuer would scrutinise the debits of concern to Clifford, provided the records were available to allow that to happen. That must be the outcome most favourable to Clifford as it removes any element of discretion in relation to relief. The offer is that the debits of concern would be reviewed and factored into the determination of fair value.

[63]   The submissions filed on behalf of the defendants suggest that records are not available prior to June 2011.

[64]   Accordingly, I would have concluded that this aspect of Clifford’s claim was one that needed to be addressed, or at least for the purposes of summary judgment, the defendants have not demonstrated it was wholly without merit. However I would have concluded it was one capable of being examined by an independent valuer as offered. Clifford’s current account claim should be a matter of record, assuming always the records remain available.

Conclusion

[65]   It follows from what I have said above in relation to Clifford’s remuneration claim that the defendants’ application for summary judgment is dismissed.

Observation

[66]   Does my conclusion that Clifford’s remuneration claim is able to proceed mean all other aspects of his claim should also go to hearing? The price Clifford seeks for his shares is based on the value of the key assets. There is no reason why the valuation of Clifford’s shares cannot occur separately from the compensation issues. Even if Clifford’s shares were purchased based on the value of the assets, he would be able to maintain his claim for compensation because relief under s 174 of the Act is available to a former shareholder. Such, however, is a matter for the parties.

[67]   In relation to the last aspect of Clifford’s claim (namely, the historical current account concerns) this seems to be based as much on an information vacuum as anything else. Focused disclosure of material on this issue may provide an answer in respect of the claim one way or the other. If available, this material will have to be discovered in any event. Equally, a wholly independent review of remuneration or an agreement that this aspect of Clifford’s claim can be included in the share valuation would remove that issue.

[68] There is no application for Clifford’s remuneration to be determined on a preliminary issue as contemplated in the passage set out at [41] above. Counsel

should reflect on practical ways to address Clifford’s remuneration claim given the remaining issues can be addressed by a valuer. Dealing with the remuneration claim separately would seem an obvious answer.

Costs

[69]Costs are reserved.

Associate Judge Lester

Solicitors:

Anderson Lloyd, Dunedin (for Second and Third Defendants) Buddle Findlay, Christchurch (for the Plaintiffs)