Insurego Limited v Harris

[2013] NZHC 2542

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV 2012-404-003789 [2013] NZHC 2542

BETWEEN  INSUREGO LIMITED First Plaintiff

ANDPACIFIC TRUSTEES & NOMINEES LIMITED

Second Plaintiff

ANDPETER ALAN HARRIS First Defendant

ANDALISTAIR LEIGHTON HUTCHISON Second Defendant

Hearing:                   9 September and 26 Septemer 2013

Appearances:           R E Harrison QC and K J Sheehan for the Applicants

A Gilchrist for the Respondents

Judgment:                2 October 2013

JUDGMENT OF ASSOCIATE JUDGE CHRISTIANSEN

This judgment was delivered by me on

02.09.13 at 4:30pm, pursuant to

Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date……………

INSUREGO LIMITED AND PACIFIC TRUSTEES & NOMINEES LIMITED v P A HARRIS & ANOR [2013] NZHC 2542 [2 October 2013]

[1]      The first plaintiff (Insurego) is a holding company.   The second plaintiff

(Pacific Trustees) is also a holding company.

[2]      This dispute concerns shareholdings in CBL Insurance Limited (CBL) which in 2007 had a share capital of 25,000,000 shares.

The first statement of claim

[3]      The original statement of claim pleads that 32 per cent of the shares were held by the first defendant (Mr Harris) and interests associated with him.  Likewise it is pleaded that the second defendant (Mr Hutchison) and interests associated with him held 32 per cent.

[4]      Thirty  two  per  cent  was  also  held  by  Anthony  Thomas  and  interests associated with him, including Insurego and Pacific Trustees.

[5]      The balance of the shareholding of 4 per cent was held by Francken interests. Mr Francken was a director CBL from 1996 to 17 September 2008.  Mr Harris was appointed a director of CBL on 13 December 2006.  Mr Hutchison was appointed a director of CBL on 24 December 2008.

[6]      Although Mr Hutchison was not officially recorded as a director of CBL until

24 December 2008 he was, it is pleaded, from at least November 2006 a director of

CBL in terms of s 126 of the Companies Act 1993 (the Act).

[7]      The  plaintiffs’  interests  in  CBL  were  represented  by  Mr  Thomas  from November 1996 through until December 2007, but he says not thereafter except in relation to the sale and purchase of shares during 2008.

[8]      The  parties’ dispute  focuses  upon  events  in  2007  and  in  particular  with respect to negotiations in 2008 between the plaintiffs and the defendants about the plaintiffs selling their shareholdings to the defendants.

[9]      Insurego  owned  5,000,000  ordinary  shares  in  CBL and  Pacific  Trustees owned 500,000 ordinary shares in CBL.

[10]     In December 2008 Insurego agreed to sell its shares to Eurasia Investment

Limited, Mr Harris and Mr Hutchison for .23c per share or $1,150,000.

[11]     In December 2008 Pacific Eurasia agreed to sell its shares in CBL to Alliance

Investments Limited, Mr Harris and Mr Hutchison for .23c per share or $115,000. [12]       Both agreements were settled on 23 December 2008.

[13]     It is further pleaded that at the time of the settlement of the transactions Mr Harris was a director of CBL and Mr Hutchison was a deemed director of CBL in terms of s 126 of the Companies Act 1993.

[14]     It is further pleaded that at the time the agreements were signed and at the time of settlement both Mr Harris and Mr Hutchison in their capacities as directors of CBL were in possession of information which would not otherwise have been available to them and which was material to an assessment of the value of the shares.

[15]     The plaintiffs say the fair value of the shares at the time of the sale was .72c per share and that therefore and pursuant to s 149 of the Companies Act 1993 Mr Harris and Mr Hutchison are liable to the plaintiffs in the amount by which the fair value of the shares exceeds the amount paid for the shares i.e. by .49c per share. Insurego seeks judgment in the sum of $2,450,000.  Pacific Trustees seeks judgment in the sum of $245,000.

[16]     In a statement of defence filed in response to the original statement of claim the defendants admit that Mr Hutchison had so conducted himself in relation to the affairs of CBL as to come within the extended definition of “director” in s 126 of the Companies Act 1993.

The statement of defence

[17]     The defendants deny that Mr Thomas’ representation of the plaintiffs interests in CBL did not extend beyond December 2007.

[18]     The defendants say that from March 2007 until 23 December 2008 there were negotiations between the plaintiffs (represented by Mr Thomas) on the one hand and other CBL shareholders represented by Mr Harris and other shareholders represented by Mr Hutchison about the plaintiffs disposing of their shareholdings in CBL.

[19]     The defendants deny that it was ever in contemplation of those negotiations that  the  plaintiffs’ shareholdings  would  be  acquired  by either  Mr  Harris  or  Mr Hutchison personally.

[20]     The defendants plead that in addition to the two agreements for sale and purchase  agreement  of  shares  there  was  a  third  agreement,  the  “settlement agreement”  between  CBL and  certain  parties  identified  in  the  schedule  to  that agreement on the one hand and Mr Thomas and certain parties identified in the schedule to the agreement (including Insurego and Pacific Trustees), collectively referred to as the ART Group on the other hand.

[21]   The defendants plead that the share sale agreements and the settlement agreement were each expressly stated to be “completely interdependent on the contemporaneous settlement of” each other.

[22]     The defendants say that in relation to their dealings with the plaintiffs and with Mr Thomas, and regarding their involvement in those agreements, they were acting not as directors of CBL but as representatives and agents of the existing shareholders of CBL being those entities to which the shares of Mr Thomas’ entities were being sold and transferred to.

[23]     Whilst the defendants admit that at all material times they were in possession of information concerning the affairs of CBL they have no particulars from the plaintiffs regarding that information it is said was material to an assessment of the value of the shares sold by the plaintiffs.

[24]     They deny that the shares were purchased by their entities at a sum which was “not less than the fair value of the shares” in terms of s 149 (1)(a) of the Act.

[25]     In an affirmative defence and counterclaim the defendants say their share purchaser entities Eurasia and Alliance were companies which were incorporated on

10 October 2008.  Before then Mr Harris and Mr Hutchison had represented other shareholders in the share sale negotiations with the plaintiffs who were represented by Mr Thomas.

[26]    The defendants say they were not acting as directors of CBL in these negotiations but as representatives and agents of existing shareholders; that in early August 2008 there was verbal agreement of an overall buyout of the plaintiffs’ shareholdings  in  CBL;  and  that  based  on  the  audited  accounts  of  CBL for  the financial year ending 31 December 2007 (which had only then recently become available), a price of .23c per share was appropriate and agreed in principle.

[27]     Thereafter  the  negotiations  which  led  to  the  three  agreements  focussed entirely on the resolution of other aspects of the overall buyer transaction than the share purchase price.

[28]     The agreements concluded in writing on 23 December 2008 were for the purchase of Insurego’s shares by Eurasia, and Pacific Trustees shares by Alliance. The settlement agreement was documented at the same time.

[29]     The defendants say that the overall agreements and transactions completed at that time involved the sale by the plaintiffs on their joint initiative of the remainder of  minority  shareholdings  in  CBL  coupled  with  the  imposition  of  associated restraints of trade and confidentiality obligations and a full and final settlement of accounts, disputes and potential claims as between members of the ART group and members of the CBL group.

[30]     The  defendants  say  that  Eurasia  and  Alliance  and  the  first  and  second defendants would not have entered into the share sale agreements had the settlement agreement not been contemporaneously agreed and entered into.  They also say that at no time was it ever intended by Mr Harris or Mr Hutchison that either would personally acquire the plaintiffs’ shares.

[31]     By their first affirmative defence and counterclaim the defendants seek a declaration that they did not personally at any time acquire shares in CBL in terms of and in particular in contravention of s 149(1)(a) of the Act.  In a second affirmative defence and counterclaim the defendants say that because no objection was made until well after the shares were paid for, and because there was no allegation of a breach of s149 of the Act until this proceeding was filed, and because the defendants reasonably believed they would not be considered to be purchasers of the shares of Insurego or Pacific Trustee, and because the shareholder sale agreements were interdependent with the settlement agreement, the plaintiffs ought to be estopped from asserting those claims made by their proceeding.

[32]     In a third affirmative defence and counterclaim the defendants assert that by the proceeding which named them as having personally acquired the shares of the plaintiffs the plaintiffs have breached clause 17 of those share purchase agreements. The defendants seek an order or a declaration that those share sale agreements sever those  portions  of  the  agreement  which  refer  to  the  defendants  as  additional purchasers.

[33]   In a fourth affirmative defence and counterclaim the defendants seek rectification by the deletion of their names as purchaser or parties to the agreements.

Summary of first proceeding

[34]     In their first statement of claim the plaintiffs called in aid s 149 of the Act asserting that when the plaintiffs shareholdings were sold the defendants were at the time acting  as  directors  of CBL in  which  capacity they permitted  shares  to  be purchased by entities they represented at a value which was less than the fair value of those shares.

[35]     The focus of the defendants’ statement of defence was that the defendants were  not  acting  as  directors  of  CBL,  that  no  particulars  have  been  provided regarding that information it is said they ought to have been aware of; that it was never  intended  that  they  purchase  the  shares  personally;  that  the  share  sale

agreements were interdependent with the settlement agreement which resolved all issues between the respective parties.

Plaintiffs’ summary judgment application

[36]     The plaintiff applied for summary judgment upon its single cause of action brought under s 149.

[37]     I heard that application on 4 February 2013.   I dismissed it noting that the plaintiffs’ claims were contested factually and legally and that in the former respect there were many factual issues which were not resolvable on the affidavit evidence and because further evidence was required before acceptable conclusions could be made in relation to same.  I also queried whether the dispute was a likely contender for consideration by reference to s 149.

Second statement of claim

[38]     On 19 July 2013 the plaintiffs filed an amended statement of claim.  It adds six further or alternative causes of action.  It is largely in response to the amended statement of claim that the defendants have filed summary judgment applications.

[39]     In their amended statement of claim the plaintiffs have, in addition to the breach of s 149 allegations contained in the original statement of claim, also pleaded:

(a)       Breach of contract.

(b)      Contractual Remedies Act. (c)           Misrepresentations.

(d)      Fair Trading Act.

Section 149 breach

[40]     Under  this  heading  the  pleadings  are  much  the  same  as  in  the  original statement of claim.  It is alleged that at the time the agreements were signed and at the time of settlement the defendants in their capacities as directors of CBL were in possession of information (full particulars of which is to be provided after discovery) which would not otherwise have been available to them and which was material to an assessment of the value of the shares.

Breach of contract

[41]     The plaintiffs plead it was an implied term of the share sale agreements that the purchase consideration of .23c per share was to be the fair value for the shares at the time of sale and that the fair value of the value as at December 2008 was the same as the fair value of the shares as at the date of the 31 December 2007 audited accounts.  It is claimed the defendants had an obligation to pay fair value at the time of sale, and/or advise the plaintiffs if there was any change in fair value.

[42]     The plaintiffs plead:

(a)      The parties negotiated the sale of shares throughout 2008 continuing to rely on the audited 2007 accounts, and upon the June 2008 management accounts and using a formula set out in the letter of Fortune Manning, solicitors for the defendants.

(b)     There were changes in the company’s possession, known to the defendants and unknown to the plaintiffs during 2008.  In particular when the 2008 accounts were published, after settlement of the share sale agreements, a net profit of $4,319,000 was disclosed which indicated a stellar increase in CBL’s performance and profitability post 2007.

[43]     The  plaintiffs  plead  also  that  in  circumstances  where  the  parties  are negotiating on the basis of an agreed set of accounts at an agreed date, and on an

agreed formula, and in circumstances where management accounts were provided by the defendants to the plaintiffs in June 2008, which were consistent with the audited December 2007 accounts, that if and when there are changes to the company’s financial position known to one party and not the other, in order to give business ethnicity to the contract, the Court implies a term that is either:

(a)       Reasonable and equitable.

(b)      Necessary to give business ethnicity to the contract. (c)          A term that is so obvious, “it goes without saying”. (d)          A clause that is capable of clear expression.

(e)       Does not contradict any express terms of the contract.

(f)      Is a term which spells out in express words what the instrument, read against the relevant background, would reasonably be understood to mean.

Contractual Remedies Act

[44]     The management accounts provided to the plaintiffs in June 2008 (showing a net income of $462,105) were consistent with the audited December 2007 accounts, but greatly at variance with the published December 2008 accounts which showed a net income of $4,319,000 (before tax and subvention payments).

[45]     Based on this the defendants’ solicitors, Fortune Manning, by letter dated 28

July 2008 provided the calculation of a fair value of the shares on the basis of net profit after tax.

[46]     The plaintiffs plead that the defendants via their solicitors advised that they would use the 2007 accounts as reflecting fair value for the purposes of the share sale agreements as set out in their solicitor’s letter.

[47]     Therefore it  was  an  implied  term  of the contracts  that  the 2007  audited accounts reflected fair value and that there would be no material alteration of that figure, which induced the plaintiffs into entering into the agreements.

Misrepresentation (1)

[48]     The plaintiffs plead that each of the defendants acted throughout negotiations with the authority and on behalf of the other defendants; that the defendants knew the plaintiffs were relying on the constancy of the December 2007 audited accounts and the June 2008 management accounts in agreeing the sale price at .23c per share.

[49]     Mr Thomas identifies four occasions when he met with Mr Hutchison in the period 31 May 2008 to and including 19 November 2008 when there were relevant discussions.   Mr Thomas said all meetings and communication were verbal.   He confirms that on no occasion were the express words “the fair value of CBL shares” or words to that affect were actually used.  However he says he was informed:

(a)       In May 2008 that things within CBL were not good.

(b)      On 8 June 2008 that things within CBL were not good and that Mr Hutchison wished to push ahead with the purchase of the plaintiffs shares, but that he was having difficulty controlling Mr Harris.   He reportedly added that the offer that Mr Thomas was shortly to receive was at a good price having regard to the current fortunes of CBL.

(c)      On  3  September  2008  at  a  meeting  to  progress  the  share  sale agreements Mr Hutchison made general negative comments about the operation of CBL.

(d)      On 19 November 2008 Mr Hutchison advised Mr Thomas that .23c per share was a good price and a good deal for everyone.

[50]   The plaintiffs say these representations were made knowing that the representations were important and essential to the plaintiffs and would be relied

upon by the plaintiffs, and were made to induce the plaintiffs into entering into a sale contract at .23c per share.

Misrepresentation (2)

[51]     The plaintiff pleads that it is plain that after the release of the 31 December

2007 audited accounts and before the share sale agreements were entered into that, as a result of information available to the defendants that was not available to the plaintiffs, the defendants became aware of factors in information that established that the fair value of the shares was .72c per share.

Fair Trading Act

[52]     It is pleaded that between December 2007 and January 2009 the defendants were “in trade” when they purchased the plaintiffs shares when the one off sale of those shares was being done in trade.  The plaintiffs say that in the circumstances where contracts were entered into for the sale of shares at .23c per share when there was information available to the defendants that a fair value was .72c per share, that the defendants by continuing with the sale at .23c and not advising the plaintiffs that such was a considerable undervalue, they did engage in misleading and deceptive conduct by way of trade.

[53]     It is pleaded that Mr Thomas, in February 2011, became aware that CBL had been given a “B” rating” by Standards & Poor.  It was then Mr Thomas attained a copy  of  the  2008  accounts  showing  that  CBL  had  made  a  trading  profit  of

$6,299,000 and a net profit (after tax, expenses and payments) of $3.259M, sums being considerably in excess of those set out in the 2007 accounts and the 2008 management accounts and which was considerably in excess of the formula referred to in the Fortune Manning letter which gave rise to the share value of .23c per share.

The defendants’ summary judgment application

[54]     The defendants’ summary judgment application seeks summary judgment or in the alternative a strike out of pleaded causes of action.  The defendants plead that

none of the causes of action can succeed against them.   The defendants rely on admissions, allegations and denials contained in their first amended statement of defence and counterclaim.

[55]     As  to  the  application  for  strike  out  the  defendants  say that  none  of  the pleaded causes of action is a reasonably arguable cause of action or appropriate in this pleading.

[56]     Both defendants have sworn affidavits in support of their applications.

The defendants’ evidence

[57]     Mr Harris deposes that after the interests of the defendants and Mr Thomas purchased shares in CBL in 1996, Mr Thomas moved his legal practise into CBL’s premises where he shared CBL’s server albeit with a firewall to keep his clients business separated from that of CBL.  He said Mr Thomas had full access to every aspect of CBL’s business.

[58]     Mr Harris says throughout until his departure in 2008 Mr Thomas was in charge of finance, administration and auditing, underwriting activities in Australia, and the Home Warranty Guarantees for Builders and Owners.  The accounts staffs answered  to  him,  and  as  CBL grew,  the  appointed  financial  controller reported directly to him too.

[59]     The business of CBL had involved primarily the provision of bonds to the building and construction industry.

[60]     After 2000 a lot of CBL’s activities involved niche credit risk instruments, and were diversified as to type and country.

[61]     Much of Mr Harris’ time was spent overseas working for CBL in servicing existing clients and seeking out new business opportunities.

[62]     Mr Harris says from 2006 he and Mr Thomas became joint managers.   He was appointed a director on 13 December 2006 but Mr Thomas had never been

appointed a director despite completely administering the company throughout.  He said Mr Thomas took part in all meetings of directors and of shareholders.  Mr Harris said the share capital of CBL was owned by various companies associated with Mr Thomas, he and Mr Hutchison.  None of them had ever personally owned shares in CBL. Also he said none of them has ever owned shares in CBL beneficially.

[63]     Mr Harris rejects Mr Thomas’ suggestion that he had been involved with the financials or financial administration of CBL in the period 1996 to 2007.  Also Mr Harris rejects Mr Thomas’ claim that Mr Hutchison also assisted in all matters and with particular interests in the financials.

[64]     In March 2007 there was a meeting attended by all three.  In that outcome Mr Thomas produced a memorandum indicating Mr Thomas’ desire for reduced management responsibility and his proposal for selling the shareholdings which he represented.

[65]     The defendants believed Mr Thomas was at the time affected by a number of personal and business issues.

[66]     In May 2007 there was an email exchange wherein Mr Thomas proposed to sell 2,500,000 shares in CBL owned by the plaintiffs.  Mr Harris says Mr Thomas set an agreed price of .20c per share.  Payment of the purchase price of $500,000 was to be in five tranches of $100,000.  Mr Thomas prepared the agreement.  That share sale and purchase proceeded accordingly.

[67]     Mr Harris said issues arose in relation to a bond that was liable to be called up in respect of a Dominion Road property under construction.   Mr Thomas had arranged the bond with the developer who was a friend of his.

[68]     Mr Harris says, contrary to Mr Thomas’ claims, CBL did continue providing information and accounts to Mr Thomas throughout 2007 and well into 2008.  Mr Harris said Mr Thomas was in no way being starved of any CBL information; that indeed board meetings and board papers were always provided.

[69]     Mr   Harris   deposes   that   following   the   partial   sale   of   the   plaintiffs’ shareholdings in CBL in October 2007, in early 2008 Mr Thomas expressed the desire to sell out the plaintiffs shareholdings entirely.  He said he wished to give a first opportunity of purchase to existing CBL shareholders.

[70]     Mr Harris said any agreement on the sale price of those shares was not able to be achieved prior to July 2008 as the audited financial accounts for the year ended December 2007 were not then available.  It was on receipt of those accounts that a sale price for the shares on a value of .23c per share was readily agreed upon.  The agreement was based on those accounts and also the management accounts to August

2008.

[71]     Mr Harris believes .23c per share was fair and reasonable, factoring into account as well a number of off balance sheet items relating to contingent risks for CBL from other parties.  Also needing to be addressed were requests by Mr Thomas to forgive the number of debts owed by him or associated entities and to “tidy up” a number of ventures CBL had been involved with which Mr Thomas or his interests formed part of.

[72]     Mr Harris says that once the share sale and “wash up” price had been agreed in August 2008 at the outset of the negotiations, further negotiations to address and agree upon many of those additional matters dragged on and took a number of months to resolve.   Eventually all facets were incorporated into a settlement agreement.

[73]     As  for  the  share  sale  agreements  also  referring  to  the  defendants  as purchasers Mr Harris says the reason was to provide a legally binding assurance to Mr Thomas and the plaintiffs that the share sale transactions would be performed. He said neither defendant intended to acquire the shares in a personal capacity nor that it was intended upon settlement the shares would be transferred into the names of the two purchaser holding companies.  Also that is precisely what occurred upon settlement of the share transactions.   He said the defendants did not receive any benefit or interest owning any more shares than their family interests already owned.

[74]     Mr Harris says that during the period of negotiations concerning “wash up” items, neither the plaintiffs nor Mr Thomas ever asked for updated financial information in relation to the ongoing financial performance of CBL.

[75]     In the course of those negotiations Mr Harris said Mr Thomas asked CBL to take out Mr Thomas’ personal  exposure in connection with issues that  posed a financial risk to Mr Thomas.  Mr Harris said that he and Mr Hutchison reluctantly agreed to do so.

[76]     Mr Harris says that at August indeed as at December 2008 it could not have been said that CBL had a long or even an established track record of profitability.  It was a relatively small insurer underwriting credit and financial risk.  At the time of the negotiations Mr Thomas was, Mr Harris says, well aware of the risks for CBL shareholders “going forward”.  Fully cognisant of these, Mr Harris said Mr Thomas was insistent from the  moment he first offered  to sell the plaintiffs’ shares, on obtaining and receiving a total release from liability for both himself and the vendor shareholders as part of the sale.  Mr Harris said:

This  was  a  large  benefit  to  him  and  the  plaintiffs,  and  was  ultimately reflected in the agreed sale price of .23c per share.

[77]     Regarding the six causes of action contained in the amended statement of claim Mr Harris deposes:

[Regarding the s 149 claim]

(a)      That throughout, the defendants and Mr Thomas were involved in the share sale transactions but only as the representatives of the interests of  the  particular  shareholders   in   CBL  with   which   they  were associated.    The share purchase ultimately agreed upon and implemented did not involve a dealing in shares by any of them as directors  or “deemed  directors” of CBL.   The  defendants  did  not “acquire those shares” nor any beneficial interest in them.

(b)      The s 149 claim seeks to isolate and ignore the settlement agreement;

but the three agreements were completely interdependent; the two

share  sale  agreements   were  merely  part  of  the  wider  overall agreement  involving  the  complete  departure  and  indeed  legally binding release of Mr Thomas and his interests from CBL; that neither the defendants nor Mr Thomas would have proceeded on any other basis.

(c)      The overall arrangements concluded in December 2008 were in no way concerned with addressing far less achieving the “fair value” of the shares in isolation.

(d)      The figure of .72c per share was conjured up long after the event by a valuer hired for that purpose without knowledge of all the facts; and the   valuer’s   valuation   studiously  ignores   all   of   the   numerous contingent liabilities, risks and other factors which the plaintiffs through  Mr  Thomas  themselves  treated  as  highly  material  to  the overall agreement being negotiated.

[Regarding the Contractual Remedies Act claim]

(e)      Whilst conceding that the Fortune Manning letter is a matter for the Court to determine Mr Harris denies that the letter “specifically calculated fair value of the shares at .23c per share”.  Also the letter made no mention of “fair value” at all.  Rather it merely identified a price range between 15.5c and .23c per share rather than a specific price.

(f)      Mr Harris says Mr Thomas was an experienced commercial lawyer and businessman, despite which the share sale and purchase agreements contained no provision for adjustment of the agreed share price upwards in the event that the financial year ending December

2008 proved to be a better year.

(g)      Mr Harris denies there were any representations as to “fair price”.

[Regarding claims of an implied term that the December 2007 audited accounts “reflected fair value and that there would be no material alteration of the .23c per share figure”]

(h)      Mr Harris  denies  allegations  of an  implied  term  as  asserted.    He believes that it is nonsense in commercial terms.

[Regarding the claim of an implied representation as to fair value of shares]

(i)       The defendants say they did not know that the plaintiffs “were relying on the constancy (sic) of the December 2007 audited accounts and the June 2008 management accounts”.   He said the constancy of those was not an issue because the .23c per share price had been agreed from the outset and was never revisited.

(j)       Regarding Mr Thomas’ claims of representations by Mr Hutchison, Mr Harris says not until receipt of the second amended statement of claim  has  there  ever  been  any  complaint  of  such  representations. They were not referred to in letters from plaintiffs’ counsel, nor were they referred to in Mr Thomas’ affidavit in support of the plaintiffs’ unsuccessful application for summary judgment.   Nor were they referred to in Mr Thomas’ affidavit in reply sworn on 12 October

2012. Yet in that affidavit Mr Thomas specifically detailed the history of negotiations.

[Regarding the claim of a breach of alleged duty to advise of any change in fair value]

(k)      That it seems to be assumed by the plaintiffs that as at 23 December

2008 the defendants must have known of the overall outcome for CBL that was reflected in the subsequently produced audited accounts for the year ending 31 December 2008.  That was not the case because those accounts were not provided by CBL’s auditor until 27 April

2009.

(l)       Mr Harris repeats that the parties never negotiated for the sale and purchase of the plaintiffs’ shares “based on fair value” or “based on the [ongoing] accuracy [subsequent to the financial year which they addressed] of the 31 December 2007 audited accounts”.  Nor he says were they based on the absence of any “material alteration in the fair value throughout 2008”.

[Regarding the Fair Trading Act claim]

(m)     Mr Harris denies that the defendants individually or jointly were “in trade”  at  any  time  between  December  2007  and  January  2009. Neither of them ever purchased shares in CBL at any time during that period.  Neither did they sell any shares in CBL whether by way of “one off sale” or otherwise.   Neither of them owned any shares in CBL to sell because those shareholdings were held by other entities.

(n)      Mr Harris says no one was trading in CBL shares during that period or at any other time.   All that was happening was that minority shareholders from time to time willingly offered their shares for sale and in response these were acquired by various entities and in turn then retained by those entities as ongoing shareholders in CBL.

(o)      Mr Harris says it is absurd to allege that there was ever information available at the time in question to either defendant “that the fair of the shares was .72c per share”.  He says “fair value” was not a matter in issue at the time.  When the agreements were entered into the issue addressed by the parties was price not value; that this had been agreed at the very beginning of the negotiations, and then ceased to be an issue requiring the further attention of any of the negotiating or contracting parties at any time after that.

[78]     In his affidavit Mr Hutchison agrees entirely with the content of Mr Harris’

affidavit.

[79]     He says he was not involved in the financial management of CBL prior to being  appointed  a  director  in  December  2008.     He  said  Mr  Thomas  had responsibility  for  finance,  administration,  audit,  underwriting  for Australia,  and underwriting in property.   All of the staff reported to him including the financial controller.  Mr Thomas was also a member of the credit committee when it met in addition to being in-house counsel for CBL in relation to its commercial affairs in litigation.

[80]     Mr Hutchison referred to Mr Thomas’ failure to complete annual accounts in a timely way.  Also he said that Mr Thomas was given notice of the 7 October 2008 annual general meeting, but did not attend.   At that meeting the 2007 financial statements were presented and discussed.

[81]     Mr Hutchison says it was something of a personal relief to him when Mr Thomas came forward in March 2007 with a proposal to exit his full time CBL management role.

[82]     Negotiations for the sale of the plaintiffs remaining shares in CBL were not able to be advanced because of delays in producing a set of accounts for the year ending December 2007. Also it was agreed that Mr Thomas would be provided with copies of management accounts.  All of that, says Mr Hutchison, put Mr Thomas in exactly the position as the defendants were in albeit that Mr Thomas may well have understood the financial position of CBL better than they did.

[83]     The parties then engaged lawyers the correspondence of whom set some parameters within which the parties could consider negotiating the sale and purchase of the shares.  He said the price of .23c per share was “rapidly and mutually agreed” upon.  Mr Hutchison believes it was a fair price of the shares, and still does.  That price was agreed in August 2008 but it was not the only matter needing to be addressed in negotiations.  Agreement was also needed in relation to numerous other aspects of Mr Thomas and his various companies’ relationships and dealings with CBL and its affairs.

[84]     That negotiations process carried on until December 2008 and involved many meetings.   Mr Thomas wanted to be totally clear of, and released from, all the obligations and responsibilities that he and his companies owed.

[85]     Mr Hutchison says the settlement agreement provided substantial additional benefits to Mr Thomas and at least the sum of $341,963. Also CBL “became saddled with the aftermath of some of Mr Thomas’ issues”.

[86]     Referring to Mr Thomas’ claims of informal discussions on four occasions and in particular to Mr Hutchison’s reference to the financial position of CBL being “not great”, Mr Hutchison denies either “talking up” the previously agreed price of

.23c per share or “talking down” the financial fortunes of CBL at any time during the period in question.

[87]     He confirms Mr Harris’ advice that at no time have either of them held shares in CBL directly or indirectly and nor did they intend to so when entering into the two share sale agreements with the plaintiffs.  The sole reason they were named among the “purchase” parties was because Eurasia and Alliance were both newly formed companies with no assets.   Therefore the defendants were named at Mr Thomas’ insistence so as to, in effect, guarantee performance.

Mr Thomas’ evidence in response

[88]     Mr Thomas by his fourth affidavit addresses matters raised by the defendants’ summary judgment/strike out application.  He notes that by the amended statement of claim the plaintiffs’ other causes of action, which were never suitable for their summary judgment application, were now being brought; that those other causes of action were only left out in the original claim because it was accepted, at the outset, that those causes of action could not have been successful on a summary judgment basis.

[89]     Mr Thomas observes that the amended statement of claim is in near identical form to the original statement of claim to the extent it pleaded a breach of s 149 of the Act.  In relation to the balance of the second amended statement of claim he says:

(a)      The financial position of CBL was important to him throughout the negotiations; that although the price of the shares was determined on the basis of the audited December 2007 accounts (provided to him in July 2008) the sale and purchase of shares did not take place until 23

December 2008.  He says at no time was he advised either orally or by the provision of accounts or by any other information that the companies’  position  of  financial  performance  was  in  any  way different from that set out in the December 2007 accounts.

(b)      To the contrary the June 2008 management accounts (received in July

2008) were consistent with the 2007 accounts.

(c)       That the management accounts of June 2008 showed a net income of

$462,105  yet  the  published  2008  accounts  show  a  net  income  of

$4,319,000 (before tax and subvention payments).

(d)      He relies on the affidavit of Mr Anderson sworn 28 June 2013 in support of the contention that the fair value of the shares as at 23

December 2008 was .72c per share.  Mr Thomas concedes that it may be that, after discovery, and the receipt of expert evidence from the defendants, some legitimate revision of that figure is required. However, he says the claims are based on not having been paid and having received true or fair value, and that even if the fair value is reduced from .72c per share, it is still likely to be significantly more than .23c per share, meaning that the sale would still not be at fair value.

[90]     Mr Thomas says that the Fortune Manning letter specifically refers to the calculation of shares at .23c per share on the basis of average net profit over the two preceding years, less an allowance for tax, times a multiplier of four, divided by the number of shares.   This he says is how the .23c per share was calculated by the defendants.

[91]     Mr Thomas asserts that the formula was fixed by the defendants half way through 2008, and was based on the audited prior year’s results when, ultimately, profit was tenfold that of what the formula had been based upon.  Therefore he says the financial performance of CBL throughout 2008 was highly important bearing in mind that other than the 2007 audit accounts and the June 2008 management accounts, he had no access to any financial information for CBL.  He said the two defendants had access to complete financial records, including detailed monthly reports and internal management reports.

[92]     Mr Thomas asserts that at all times the accuracy and consistency of the 2007 audited accounts and the June 2008 management accounts were essential to him and the plaintiffs, and, in particular, the fair value of the shares that was discernible from the accounts, bearing in mind the formula set out in the Fortune Manning letter.  Mr Thomas says it was the value of the shares, and the fact that there was no material alteration to them that led the plaintiffs into the transactions, at .23c per share.

[93]     Mr Thomas says given that he was provided by the defendants with those June 2008 Management  accounts  at or about the same time as he received the December 2007 audited accounts, he believed it was known to the defendants that he would be relying on the accuracy of those accounts and that this was to encourage or convince him that there was no material change in CBL’s profitability, and, hence, value and share price.  He says he certainly took that to be the case.

[94]     He repeats that on no less than four separate occasions throughout 2008 Mr

Hutchison advised him that the financial position of CBL was “not great”.

[95]     Based on CBL’s performance in the year 2008 (net income of $4.319M as against net income in the preceding year of $462,105), he believes the statements made to him by Mr Hutchison were false and misleading.  He says no doubt he was intended to rely on those statements, and he did so.

[96]     Mr Thomas notes that there has not been discovery in the main proceeding and the defendants have not disclosed any of the financial information which was available to them (and not to him) throughout 2008.

[97]     Mr Thomas responds to what he considers are the personal attacks upon him by Mr Harris and Mr Hutchison.  He rejects Mr Harris’ view that nothing good came of Mr Thomas’ involvement with CBL.   He says he came to Mr Harris rescue in relation to a number of his financial problems.

[98]     Mr Thomas rejects claims that he was in charge of finance and administration of CBL.   He says in fact it was Mr Harris and Mr Hutchison who directed the financial activities of the company as that was their field of experience that Mr Harris dealt directly with the auditors on the operating figures; and that Mr Thomas’ involvement in finance was to liaise with the auditors to complete compliance issues.

[99]     Mr Thomas said he assumed responsibility for the Australian home warranty business because the main broker in Australia refused to deal with Mr Harris.

[100]   Mr  Thomas  says  that  any  connection  of  him  with  “unfortunate  and unwarranted publicity” occurred as the result of activities of the insurance clients of Mr Harris introduced to him and to CBL.

[101]   Mr Thomas said that Mr Hutchison did not wish to be recorded as a director because he had been made bankrupt a number of years earlier.

[102]   Mr Thomas concludes that there is clearly a conflict between he and Mr

Harris about the extent of his involvement with the financial affairs of CBL.

[103]   As for him being copied with all company papers including financial and management reports and financials, he said this ceased in December 2007, he having received no further accounts (other than the June 2008 management accounts) in the ensuing 12 months.   No doubt he says the defendants continued to receive that regular information.

[104]   Mr Thomas responded regarding particulars of issues raised by Mr Harris and which resulted in the involvement of the New Zealand Serious Fraud Office.   Mr Thomas notes that in that respect Dr. Harrison QC acted for Mr Harris and for him,

as  well  as  assisting CBL counsel,  and  successfully rebuffing the  Serious  Fraud

Office actions.

[105]   Mr Thomas rejects claims that he set the price of .23c per share.  He said it was agreed between them based on figures available to them all at the time, and their respective equal knowledge of the companies’ performance.

[106]   He said that one of the reasons that he insisted that both Mr Harris and Mr Hutchison be parties to the December 2008 agreement was because of the difficulty that he had had in getting payment for all of the 2007 transactions.  He says the fact that Mr Harris and Mr Hutchison were to be purchasers and the importance of that for him was set out in Fortune Manning’s letter to himself and Mr Jones dated 11

December  2008.    That  letter  referred  to  Mr  Harris  and  Mr  Hutchison  being purchasers as required by Mr Thomas and for those reasons he identified.

[107]   Mr Thomas reiterates that he received no financial information during 2008 other than the management accounts in July; that post November 2007 he no longer had any access to board meeting reports.  He said after August 2007 he had no day- to-day contact with CBL, and that the overseeing of the 2007 accounts was not his responsibility.   He said the 11 October 2007 board meeting was the last that he attended.

[108]   Mr Thomas says that until he received Fortune Manning’s letter he had no knowledge of what price would be offered, nor the method of calculation; that had the true figures been disclosed to him the same formula would have provided a much higher figure.   Mr Thomas says he does not accept Mr Harris’ statement that he readily agreed with the price proposed.  Rather the price was reached in accordance with the formula set out in the Fortune Manning letter which had been forwarded to him by the defendants’ solicitors.   Also, he says the initial price offered was not agreed as his letter to Mr Hutchison subsequently noted.  That said, the price offered was probably fair and reasonable based on the 2007 audited accounts and the June

2008 unaudited management accounts assuming that the latter in particular were correct and not misleading.

[109]   Mr Thomas says the price offered and subsequently agreed to did not factor in off balance sheet items which were dealt with in collateral agreements and had nothing to do with the balance sheet, and nothing to do with the share value.  Those other matters were also negotiated but they were not related back to price, as price, (based on the Fortune Manning formula) had already been agreed before discussion on the other matters.

[110]   Regarding the positions of Mr Harris and Mr Hutchison as purchasers, Mr Thomas said he required they be personally liable, but reserving them the ability to nominate the entity which would own the shares if they wished.  It was his position that he was dealing with Mr Harris and Mr Hutchison and that it was a transaction between them.

[111]   Mr Thomas says that on a number of occasions Mr Hutchison suggested to him that he and Mr Harris should not be personally liable.   Mr Thomas says he rebuffed those suggestions and that he was absolutely clear that the defendants were to be purchasers and that he needed to know who the plaintiffs were dealing with; that he told Mr Hutchison this and that is why the agreements were prepared as they were by the defendants’ solicitors, showing the defendants as the purchasers.   Mr Thomas said he had no knowledge of the defendants’ intentions in relation to the shares after settlement.  He assumes that the defendants on sold some of their shares and he assumes that the price of that on sale would be a relevant matter, obtainable after discovery.

[112]   Mr  Thomas  notes  that  Mr  Harris  does  not  explain  the  exact  legal  and beneficial relationship that exists between the defendants and Eurasia and Alliance, nor is there any explanation for the reason of having two companies which appear to have the same directors, the same addresses, and the same shareholder.

[113]   Mr Thomas says it appears noteworthy that the defendants (not Eurasia and Alliance) were, even then in December 2008, considering a resale.   Mr Thomas considers that that would be a matter of importance on the issue of price.

[114]   Regarding the settlement agreement and its purpose of dealing with issues other than the share sale agreements, Mr Thomas says that there were no advances or debts forgiven or any element of gift or forgiveness involved.

[115]   Mr Thomas denies that the amended statement of claim and additional causes of action have been advanced for anything other than proper purpose.  He says the original statement of claim was pleaded for the purpose of the prospect of obtaining summary judgment based on the strict liability context of a s 149 claim.

[116]   Mr Thomas says the settlement agreement is independent of the share value that had been reached on the basis of the formula in the Fortune Manning letter and based on the December 2007 figures.   He says under the settlement agreement benefits accrued independently to other parties by virtue of the collateral agreements

– but none affected the share value.  He says as identified by Mr Harris, the share value (based on those figures) was reached quickly.  The other matters, which were subsequently concluded, did not in any way alter the share value.  He says that had the financial position, as at December 2008, been disclosed, then the amount of the share value would have been considerably higher.  It is Mr Thomas’ perception that the defendants seemed to be doing everything possible to avoid giving discovery.

[117]   Mr Thomas believes that it is clear, when viewing the published December

2008 accounts for CBL, that either the June 2008 management accounts were incorrect, or there was a huge increase in profit during the final six months of the year, which would have been obvious to the defendants (who were directors of the company receiving management information), and should have been disclosed to him as a representative of the plaintiff shareholders, or both.

[118] Mr Thomas denies not having previously identified four occasions in discussions with Mr Hutchison when he was informed that the financial position of CBL was “not great”.  He says that in an earlier affidavit, in support of the plaintiffs’ own initial summary judgment application, he referred to negative statements being made regarding the CBL business.   Besides, those statements were not, he says, relevant to the plaintiffs own summary judgment application.

Evidence for the defendants in response

[119]   In a response affidavit Mr Hutchison addresses Mr Thomas’ claims that the financial position of CBL was essential to him throughout the totality of negotiations between July 2008 and December 2008; that in fixing the price Mr Thomas relied upon the 2007 audited accounts and the July 2008 management accounts; that it is claimed he was aware of Mr Thomas’ reliance upon those; that the accuracy and consistency with those accounts were essential to Mr Thomas; that Mr Thomas received no information after July 2008 as to any changes in CBL’s financial performance; that a formula for calculating the price was fixed by the defendants in mid 2008 as set out in the Fortune Manning letter; that the net income of CBL increased nearly tenfold between the June 2008 management accounts and December

2008; and, that either of the 2008 accounts were incorrect or that there have been a huge increase in the six months subsequently which the defendants must have known of.

[120]   Mr Hutchison deposes  that the audited net profit for CBL reduced  from

$3,077,000 in 2008 to $704,000 and $503,000 in the 2009 and 2010 years respectively.

[121]   Mr Hutchison explains that a key feature in preparing the accounts was the factoring in of adequate reserves for contingent claims, particularly large claims against CBL as an insurer.  He explains because of the weakened New Zealand dollar between January and December 2008 the figure (net profit) comprised a positive adjustment of $2.4M which added to the profit.  He said this adjustment could not have been known until the audited financial accounts were in almost final form much later in 2009.

[122]  Mr Hutchison denies that Mr Thomas made known to him his claimed continuing reliance upon the December 2007 audited accounts and the June 2008 management accounts.  To the contrary, he says the share value of .23c per share was agreed to in August 2008 with very little debate.

[123]   Mr Hutchison repeats his account of meetings with Mr Thomas and denies either talking up or talking down the financial position of CBL.   He criticises Mr Thomas’ down play of his role in CBL.  He says Dr. Harrison QC did not represent Mr Thomas in relation the serious fraud matter, but rather Mr Thomas was represented by barrister, Mr Templeton.

[124]   Regarding  Mr  Thomas’ insistence  that  Mr  Harris  and  Mr  Hutchison  be involved in the share sale transaction, he says Mr Thomas’ sole concern was security of performance.  He refutes that he or Mr Harris were the purchasers of the plaintiffs’ shares.

Applicants’ submissions

[125]   Mr Harrison submits that on the one hand the plaintiffs say the shares were not transferred for fair value in terms of s 149 of the Act, but on the other hand by the new causes of action pleaded, the plaintiffs plead that there was an implied term of their value.   Therefore if s 149 applies then there is no need for reliance upon implied terms that “fair value” was involved.  That is, either considerations of fair value are a hallmark of the plaintiffs’ argument or they were not, and they cannot be implied.

[126]   It is Mr Harrison’s point that the claim as originally pleaded relied upon s

149.  He says the two written agreements for sale and purchase of shares must be read  according  to  their  terms  but  also  regard  must  be  had  for  the  settlement agreement which was an interdependent part of the whole of the parties’ arrangements.

[127]   Mr Harrison submits that it is clear that the share transactions did not involve the defendants personally acquiring the shares in CBL; that the parties always contemplated they would be acquired instead by either existing (or as it transpired) newly formed shareholder companies, namely Eurasia and Alliance.  This is clear Mr Harrison says that the defendants at no time owned shares in CBL.   It follows therefore it was never intended that they would purchase the shares of the plaintiffs.

[128]   Mr Harrison submits that a common feature of all of the new claims arising by the amended statement of claim amount to an attempt to rewrite the overall minority shareholder sell out/buyout and settlement of accounts and compromise of potential liabilities negotiated and concluded as a whole and as were recorded in the two sale and the settlement agreements executed on 23 December 2008.

[129]   The defendants’ position is that despite the clear interdependent nature of those agreements the plaintiffs now claim those can be disregarded when it comes to characterising both the nature of the transaction and the overall legal relationship between the parties to this proceeding.

[130] Mr Harrison submits the evidence for the defendants is that the three agreements taken together record an overall minority shareholder sell out/majority shareholder buyout as between CBL shareholder interests represented by the first defendant and other CLB shareholder interests represented by the second defendant on the one hand, and shareholder interests represented by Mr Thomas on the other hand, together with an overall “wash-up” of a range of shareholder advances, debts and potential liabilities.

[131]   Mr Harrison submits the clear evidence is that the defendants were at all times acting for separate entities and that their commitment to the share purchase agreements  amounted  to  no  more  than  satisfying  Mr Thomas’ requirements  for security for performance.

[132]   Mr Harrison suggests consideration of fair value or fair price never featured in the parties’ negotiations.  Rather that the plaintiffs argument for same is little more than a subsequent construct – an afterthought in an attempt to explain a perceived disappointment.

[133]   He says neither in express terms nor by way of implication can the evidence support a claim of consideration of “fair value”.  In this case there is reference to an express price but no reference to any purpose for which it should subsequently have been considered to have been subject to an implied term of adjustment if somehow it was determined that express price was not a “fair price”.

[134]   Mr Harrison submits the plaintiffs assert it is a fact, (even though it is not recorded) that an inherently fluctuating thing such as a share value should be subject to review if there is fluctuation in the future.   Of course share value is going to change year by year but in this case he says the agreement did not contemplate anything other than the price that was agreed.  To now suggest, as the plaintiffs do, that it was agreed but subject to an implication of reassessment of fair value in the future, is, he submits, completely untenable.

[135]   Mr Harrison then addresses each pleaded cause of action noting that the defendant’s strike out application is directed to individual causes of action.

Section 149

[136]   Mr Harrison submits that the key elements of s 149 must establish:

(a)      The particular impugned transaction in both substance and ultimate effect was a s 149 restricted share dealing by director’s transaction.

(b)      That the impugned transaction involved in substance and ultimate effect an “acquisition” of shares by a director.

(c)      That the director in question personally possessed information in his capacity as a director which would otherwise not have been available to him, and which was material to the assessment of the value of the shares.

(d)      That the overall consideration for the acquisition was less than the fair value.

[137]   The defendants say that the plaintiffs failed in relation to each of the four elements.  In particular the defendants focus upon the first two i.e. the substance and ultimate effect of the share dealings.   Therefore it is not so much the contractual form through which the proposed transaction is documented.   Rather the focus is upon the outcome.

[138]   Mr Harrison’s  submission  that  the defendants  contend  that  if the overall transaction agreed to and ultimately implemented by the parties is considered in terms of its substance and ultimate effect, it cannot properly be categorised as a “share dealing by directors” (and in particular an acquisition of shares by a director or directors), within the contemplation of s 149.

[139]   Mr Harrison submits that considered overall the transaction agreed to and implemented was a sale and buyout of the shares as between shareholders, that neither defendant personally “acquired” the shares in question nor was the shareholding company to which the shares were transferred a mere alter ego or agent of the defendants.

[140]   In support of these propositions Mr Harrison refers to the evidence of:

(a)      Mr Harris who denies there was a dealing in shares by the defendants as directors of CBL or that the defendants acquired any shares or any beneficial interest in them.

(b)      The  two  share  sale  agreements  in  question  cannot  be  treated  in isolation from the settlement agreement, notwithstanding Mr Thomas’ claims   to   the   contrary.      Mr   Harrison   submits   the   overall interdependent and interconnectedness of the entire transaction recorded in the three agreements is not disputed.

(c)      Mr  Harris’  claim  that  the  overall  arrangements  were  in  no  way concerned with “addressing far less achieving the ‘fair value’ of the shares, assessed in isolation.  It is Mr Harrison’s view that Mr Thomas does not respond to these contentions except by attempting to defend a .72c per share figure as fair value.

Overall transaction does not fall within s 149

[141]   Section 149 was enacted to address “the abuse of insider trading”.   It has obvious applications in relation to public or large companies where there will be

material information in the public domain and thus capable of being “otherwise available to” the director whose conduct is called into question.

[142]   Section 149 may have different application to smaller closely held private companies where as is frequently the case, shareholders are also directors.

[143]   Section 149 creates a form of strict liability which is incapable of being deflected even if the plaintiff also possessed the “private” material information in question.   In this case it is argued by the plaintiffs that s 149 enables them to overturn   a   transaction   to   which   they   willingly   and   knowingly   agreed, notwithstanding.

[144]   At the core of considerations is the identification of a transaction that can be characterised as an abuse of share dealings, involving directors as the acquiring or disposing party to the share dealing in question.  Arguably it should not be readily concluded that common commercial transactions such as a share buy-out by one shareholder in a closely-held private company of another shareholder, particularly one involving associated obligations and exchanges of other benefits, fall within the section.

[145]   In this case the defendants contend that the plaintiffs focus is solely upon the two agreements for sale and purchase agreement, and ignores the settlement agreement executed on the same day.  This approach enables the plaintiffs to point to the fact that the defendants were each named along with either Alliance or Eurasia as “purchaser”, and by that means to contend that the stated “share purchase price” for the share parcel in question was the sole consideration for a transaction properly characterised, the defendants submit, as an acquisition of shares in CBL, nothing more, or less.

[146]   The defendants say the plaintiffs ignore the reality of the situation; that each agreement recited that it was contemporaneous with and “inter-dependent on the contemporaneous settlement of” the others.

[147]   Counsel agree that the Court cannot resolve material disputes of fact on the present applications.  Mr Harrison submits that what the Court can act on, however, are plausible statements of fact advanced by the defendants which are uncontradicted by the plaintiffs. Those include:

(a)      None of Messrs, Harris, Hutchison and Thomas personally own shares in CBL.   Mr Thomas acknowledged that interests associated with those three ended up owning the majority of the shares in CBL, and that the involvement of three of them was as representatives for the shareholders.

(b)      It is accepted by all that the three of them were directors within the

Companies Act extended definition of “director”.

[148]   Mr Harrison submits that the dealings of the three throughout 2007 and 2008 were in relation to the purchase of the plaintiffs’ minority shareholdings in the capacity of “representatives for” the interests associated with each of them.

[149]   It is not in dispute that the withdrawal of the plaintiffs and Mr Thomas was initiated  and  proposed  by  them,  not  the  defendants.    The  fact  that  the  “share dealings” were initiated by the plaintiffs through Mr Thomas, is of relevance to the question whether the impugned transaction should inevitably be characterised as part of a series of share dealings between shareholders rather than an isolated “share dealing” involving the defendants as directors of CBL.

[150]   The defendants say it is common ground that the plaintiffs’ shares, the subject of the impugned transactions, were intended to be and were in fact transferred by the plaintiffs direct to Eurasia and Alliance.  The defendants say the intention from the outset  was  that  the  plaintiffs’ shares  when  sold  would  not  be  acquired  by  the defendants personally, as emerged from the Fortune Manning letter of 28 July 2008. Also the Fortune Manning letter dated 11 December 2008 notes that the defendants are “on the restraint [of trade] as they are purchasers under the agreement as required by you. They are not on the share transfer as they will not be the shareholder”.

[151]  In the overview of things the defendants say this material confirms the inevitable  conclusion  that  these  were  share  sale  transactions  between  departing vendor shareholders and incoming purchaser shareholders who were separate legal entities to the defendants.

[152] The defendants say they were parties to the purchase in circumstances consistent with the desire to include them as guarantors – this notwithstanding that Mr Thomas stated he required the defendants to be purchasers and to be personally liable there under, with the ability to nominate the entity which would own the shares if they wished.

[153]   The defendants overall position is that it is plain that the naming of them among the purchase parties does not establish that they “acquired” the shares in any capacity and that the overall impugned transaction was not one in which the defendants participated as directors of CBL.

[154]   The defendants reject any proposition that the share price was not agreed throughout.   Likewise they reject suggestions that the share sale agreements (including price) were effectively being negotiated and concluded separately from the matters raised in the settlement agreement.

Implied term: That .23c per share was fair value

[155]   This cause of action has two parts.  The first is that .23c per share was the fair value at the time of the sale.  The second was that the fair value of .23c per share as at December 2008 was the same as the fair value of the shares as at the date of the December 2007 audited accounts with the requirement for an adjustment if between December 2007 and December 2008 there was any change in fair value.

[156]   The plaintiffs rely heavily on the Fortune Manning letter.   They plead that letter specifically calculated fair value at .23c per share.  This notwithstanding the defendants say that neither the Fortune Manning letter nor any of the financial material provided to Mr Thomas referred to either “fair value” or “fair price”.  They

say the words  “fair value” were never expressly used  during the course of the negotiations.  Further they say that Mr Thomas does not claim they were.

[157]   Mr Harrison submits it is a matter to be considered by reference to both express terms of contract and any implied terms that do not contradict those.  The two written agreements contain clauses which identify the purchase price and obligations including the transfer of shares in settlement at the agreed purchase price.

[158]   The agreements themselves make no reference to “fair value” or “fair price”, or even to a sale price of .23c per share.

[159]   The defendants contend the plaintiffs cannot have it both ways and cannot insist on provision for an adjustment where the agreements did not contain those.

[160]   The defendants say the share price was agreed in principle as at August 2008 and was at no time thereafter revisited and that when the two share agreements were executed on 23 December 2008 the parties were proceeding on the basis of the audited CBL accounts for December 2007 and management accounts for June 2008 both of which have been provided to the plaintiffs prior to the Fortune Manning letter.

[161]   The defendants do not accept that identified price provisions could permit implication of considerations of “fair value” or “fair price” when they were not referred to or negotiated on that basis; that the plaintiffs made no attempt to secure any more financial information than was available through the 2007 annual accounts and  June  2008  management  accounts.     Moreover  the  agreements  contain  no provision for adjustment of the agreed share sale price in the event that the audited accounts for December 2008 revealed a material change in the financial performance or position of CBL.

[162]   Mr Harrison put it this way:

It is totally impermissible to imply into a contract which states a fixed price and contains no provision for adjustment of that price, a term of the ultimate price would instead be some other (unstated) price entirely.   That is so whether the other price is based on some unnegotiated and nebulous concept

of “fair value” or “fair price”, or on a future set of accounts for CBL, which the parties at no time referred to or indeed even had in contemplation during the course of their negotiations.

[163]   It is submitted that propositions of implied terms must be rejected because they will contradict the express provisions in the share sale agreement in relation to the stipulated purchase price.  Also the agreements expressly deal with the issue of purchase price in a commercial setting.  Clearly in Dysart Timbers v Nielsen1, and in Chesham Investments Limited v Robertson2 the Courts have rejected consideration of

implied terms not contemplated by the language of the parties’ contract.

Implied term: That the December 2007 audited accounts reflected fair value

[164]   The second implied term pleading relies upon claims that the December 2007 audited accounts induced the plaintiffs into entering into the agreements for the sale and purchase of shares.  Therefore, that the price agreed was subject to overturn if it was not a fact that the audited accounts represented fair value.

[165]   The defendants say that there is no suggestion that those accounts were in fact inaccurate and therefore did not “reflect fair value”.   Therefore the pleading appears to rely upon claims that sale and purchase negotiations were based upon the fact that there would be no material alteration to the value of CBL between the December 2007 audited accounts and the date when the sale share agreements were executed.  The defendants say these claims are not tenable and to the extent that they may have been articulated at all, they may be rejected as lacking in logic or credibility.

[166]   The defendants’ position relies in part again upon the absence of an express statement or agreement that there would be consideration for a reassessment of share value.   Also, they say, commonsense and basic knowledge of business operations will always point to a strong likelihood of some material alteration occurring in a

company’s position, for better or for worse, from one financial year to the next.

1 [2009] 3 NZLR 160 [62].

2 (1992) 14 NZTC 9, 105 [26].

Misrepresentation

[167]   This pleading relates to alleged statements made on four occasions by Mr

Hutchison throughout 2008.

[168]   The defendants concede for the purpose of their summary judgment/strike out applications that the Court can assume those statements are capable of proof.

[169]   Mr Harrison questions whether the alleged express statements are as a matter of law capable of being construed as giving rise to an implied representation in the terms  pleaded.     He  considers  the  timing  of  those  statements  of  particular significance.  Of the two the first was made at the end of May, and the second on 8

June 2008.   Therefore they predated the completion of the 2007 audited accounts which were not provided to Mr Thomas until June 2008.  They could not therefore as such have provided a basis for a “fair value” approach because they were made prior to the provision of the financial information.

[170]   The  third  and  fourth  alleged  statements  were  made  in  September  and November 2009.  It is the defendants’ viewpoint that those comments cannot amount to implied representations because they did not comment about CBL’s  financial performance because they could just as easily have been a comment about the way CBL was being managed.

[171]   Reported claims from Mr Hutchison that the share sale transactions were a good  deal  for  everyone,  Mr  Harrison  submits  could  have  been  regarded  as  a statement of opinion rather than a representation of fact.  Overall, it is the defendants position that whether they be regarded as arguable representations of fact or not there is no link or connection between them and considerations as to “fair value”.

[172]   Indeed, clause 13 of the share sale agreements provided:

This agreement constitutes the entire agreement between the parties and supersedes  all  prior  agreements,  understanding,  negotiations, representations, and discussions, whether oral or written, of the parties.

[173]   Whilst the Contractual Remedies Act 1979 is available and is able to deal with implied representations, the defendants contend that clause 13 of their agreements should be conclusive as between the parties.

Misrepresentation by silence

[174]   This pleading is also based on the circumstances in which the parties were negotiating for a sale and purchase of shares i.e. on “fair value”, and/or based on the accuracy of the December 2007 audited accounts, and that there was no material alteration to the fair value throughout 2008.

[175]  The defendants reject allegations of negotiations based on any of these considerations.  The defendants say Mr Thomas does not respond to the contrary and therefore it is untenable for the plaintiffs to assert that the negotiation proceeded on any such basis in particular when there was no explicit reference at all to “fair value”.

[176]   Mr Harrison submits that as a general rule in contract mere silence is not misrepresentation  and  that  a contracting party is  under no  duty to  disclose and request material information.   Also he submits there is nothing in the plaintiffs pleading to suggest the plaintiffs can avail themselves of some principle identifying a duty to disclose unrequested information in this case.

[177]   In this case there was no discussion about “fair value”.  There has been no challenge to the accuracy of the December 2007 audited accounts.   Also the defendants claim that assertions that the parties’ negotiated on the basis that there would  be  no  material  alteration  to  fair  value  throughout  2008  is  “absurd”  and entirely unsupported by credible evidence.

Breach of Fair Trading Act 1986

[178]   The defendants say that the difficulty for the plaintiffs with this pleading is proof that the defendants were purchasing shares in CBL with the one-off sale of those shares being “in trade”.  They say neither they nor their interests engaged in

the sale of CBL shares (one-off) or otherwise.   Furthermore, their protestations to that effect they say were not challenged by Mr Thomas.

Conclusions

[179]   Mr Harrison  submits  the defendants  have  demonstrated  that  none of  the plaintiffs pleaded claims can succeed and therefore summary judgment should be granted.  Alternatively if one or more of those claims was held to be arguable or viable then the others should be struck out this having no reasonable prospects of success.

Summary judgment principles

[180]   If the defendants’ summary judgment application is to succeed then none of the plaintiffs’ causes of action can succeed.   If there are material disputes of fact which cannot be resolved on affidavit, then summary judgment will be refused.

[181]   Whilst the Court is entitled to act robustly summary judgment is unlikely to be granted if there are important factual disputes requiring trial for resolution.

Strike out application principles

[182]   It was recently stated by Heath J in Mangawhai Ratepayer’s and Residence

Association Inc. v Kaipara District Council 3:

In Couch v Attorney General the Supreme Court emphasised the need for a Court to act cautiously in striking out a proceeding without a full hearing. That confirmed the orthodox approach; namely that the power to strikeout a proceeding must be exercised “sparingly”, and only “where the cause of action is so clearly untenable that it cannot possibly succeed”.   The facts pleaded must be taken as capable of proof, unless there is compelling evidence to the contrary.

[183]   In appropriate instances care needs to be taken where the law is confused or developing.   Arguably it is so here and this is evident from the defendants’ submissions in their case upon s 149 of the Act, namely that the shares were not

being purchased by the directors but by corporate entities set up by them.

3 [2013] NZHC 2220 at [33].

[184]   A strike out may be appropriate where a pleading “is a total write-off”.  Such is to be distinguished from a pleading “which is deficient, but is capable of efficient repair”. 4

[185]   Usually a Court will permit amendment rather than striking a pleading out.

Discussion/considerations

Section 149 of the Companies Act 1993

[186]   Section  149  is  designed  to  prevent  directors  taking  advantage  of  their superior knowledge of a company’s performance to the detriment of those who do not have such knowledge.

[187]  In this case each defendant has given evidence suggesting Mr Thomas’ involvement with the financial affairs of the company was to a much greater extent than Mr Thomas has been prepared to acknowledge.  Mr Thomas deposed he was not involved in the company throughout 2008 and the only financial information he received was the December 2007 audited accounts and the June 2008 management accounts.   The evidence suggests that substantial monthly Board papers were regularly received by the directors.  Copies of those have been requested but have not been provided.  The provision of that information may be of assistance to the Court in providing factual context to the parties’ issues.

[188]   In this case information which was about a year old was used for the purpose of fixing the share value in the share sale agreements.  An available inference from the plaintiffs’ expert evidence is that the value of the shares in December 2008 was considerably greater than in December 2007.

[189]   It is arguable that s 149 should apply whether a director himself acquires shares or whether it is done by an entity associated or connected with him.  In either

case a benefit can be obtained by one or for another associated with him. 5   In case

4 Marshall Futures Ltd v Marshall [1992] 1 NZLR 316, Tipping J.

5 Wong v Fong [2010] NZCA 301.

the Court did not accept that s 149 was awarded because shares were acquired by a related trust, and not by the director personally.

[190]   The defendants’ position is that the share sale agreements were arms-length transactions  affecting  a  sale  of  shares  i.e.  that  it  was  not  a  transaction  which proceeded on any other basis than a buyout of a minority share holding by majority shareholders.  Although the defendants were noted as purchasers in the share sale agreements it was clearly understood, they say, that their involvement was in the capacity of guarantors, and because it was always known by Mr Thomas that the acquiring shareholders would be corporate entities.  The defendants’ position is that the transactions were truly “arms-length” transactions.

[191]   The evidence is that the purchasing entities Eurasia and Alliance have as their directors, the two defendants.   The shareholder of those companies, Sunshine Nominees Limited has one director and shareholder being a chartered accountant.

[192] Mr Gilchrist submits and it is available for the Court to infer that the shareholdings of the purchasing entities are controlled by the defendants personally.

[193]   It is clear that even if the defendants and Mr Thomas had access to the same confidential information s 149 may still apply 6

[194]   The defendants say it was known by Mr Thomas that they were never to acquire the shares personally.  However it is clear that they were purchasers under the agreements.   The fact that the shares were never recorded in their names as having been immediately transferred to them or on transferred to companies that were associated with them does not, arguably, alter the fact that they acquired the shares as purchasers.  It seems that little purpose would be served by s 149 if it did not provide a review as well of sales at undervalue between trusts or companies associated with directors even though those trusts and companies paid the purchase

price.

6 Thexton v Thexton [2002] 1 NZLR 780.

[195]   As earlier noted s 149 will apply even when both purchaser and seller have the  same  information.    That  may  be  distinguished  in  this  case  if  Mr  Thomas’ evidence that he had less information than the defendants is accepted.  Mr Harrison submitted s 149 was intended to apply to larger corporations.  The fact is the s 149 does apply to small private companies but does not apply to listed companies which are precluded by the Security Markets Act 1988.

[196]   The  purpose  of  this  section  is  that  it  is  geared  to  issues  involving  an inequality of information and it does not involve the personal acquisition of shares by a director but may also involve acquisitions by entities or trusts in the control of a director.

[197]   Mr Harris confirmed the shares were to be held in Eurasia and Alliance “for our respective family interests, but, more particularly, for the purposes of transferring them to a third party once a suitable buyer could be found for them in the future”.

[198]   The  defendants’ claim  that  the  issue  of  fair  value  was  never  discussed between the parties.   That, with respect, is irrelevant.   If there is an inequality of knowledge then fair value must be paid.  The extent of that knowledge needs to be objectively determined.   Section 149 creates a form of strict liability.   Arguably therefore its operation is not precluded by considerations that the vendor agreed to the share value on the basis of an identifiable source of information.  Particularly so when there may exist other information undisclosed which may subvert the value of the information the seller agreed to adopt.

[199]   Much is made by the defendants of the interdependence of the agreements. Clearly they have their separate parts.   In respect of the share sale agreements the evidence is of a transfer of shares at a price determined long before the settlement agreement was signed.   That does not mean the settlement agreement ought to be ignored in the consideration of the share price.  The extent to which it is part of the consideration may well, as Mr Gilchrist submits, go to the quantum of what fair value actually was at the time of sale.

[200]   Much was made on behalf of the defendants regarding claims of matters which were unchallenged on behalf of the plaintiffs. Addressing those briefly:

(a)      There  is  no  argument  that  in  the  share  sale  transactions  that  the defendants represented their entities.  However, to the extent arguably that they did not pay the fair value price, they then obtained a benefit for themselves.

(b)      Although in some particular Mr Thomas has not addressed assertions of the defendants it does not necessarily mean he accepts what they say.  On the other hand the defendants were directors and had access to knowledge that Mr Thomas did not in circumstances where it appears there were significant improvements in the company’s performance in the six months before the agreements were signed. The details of which improvements were, it appears, not advised to Mr Thomas.

(c)      Although Mr Thomas was aware the defendants were purchasing the shares for their entities, the agreements and associated correspondence shows the defendants were to be purchasers and the ultimate disposition of those shares were within the benefit or control of the defendants.  As Mr Gilchrist puts it, the defendants were purchasers, both in fact and in substance and they had participated as directors of CBL  and  in  that  capacity  had  access  to  knowledge  that  was unavailable to Mr Thomas. Arguably that is so.

(d)      Although  a  share  price  value  was  quickly  reached  the  binding agreement was not concluded until four months later when the sale was effected.   If there were changes in the financial position then arguably these ought to have been disclosed.

(e)    Section  149  applies  notwithstanding  the  agreements  were interdependent.   If in their position as directors they had access to knowledge which affected the value of the shares at the time of sale in

circumstances where there was a requirement to pay fair value then arguably alterations in the financial position of CBL should have been

advised to the plaintiffs.

Implied term

[201]   The submissions for the defendants query the availability of an implied term in circumstances where the express terms agree a price without qualification or reassessment.

[202]   The plaintiffs’ position is that if s 149 applies then all negotiations leading up to a calculation of price were on the basis of what the defendants believed fair value to be.  The Fortune Manning letter provided an offer.  The plaintiffs say given the obligation of the directors only to sell at fair value then the Fortune Manning letter must be taken to discuss fair value.  With respect, it seems to follow.  The plaintiffs say that given the basis of fair value was assessed on accounts which were dated 12 months earlier than the date when a commitment to pay the price was made then there may be scope to argue a fair price has not been reached because there is reason to reconsider what fair value was.

[203]   Clearly an agreement in principle was based on the state of the company as set out in the December 2007 accounts.  Meanwhile Mr Thomas says he was given ongoing advice about CBL’s poor performance.  Had he been aware of changes in CBL’s financial position (as it may be inferred there was) then, as there was no completed agreement as to price until the agreement was signed, the figure, arguably, could have been revisited.

[204]   In this perspective of things and where an implied term does not contradict any express term of a contract, but is reasonable and so obvious that it should be acceptable, then it may reasonably be implied.  It does not add to anything so much as it forms part of that which is understood. As the authorities make clear it’s merely an assessment about what a reasonable person would consider both parties meant to

happen in circumstances expressly addressed by the contract7.

7 Neilsen v Dysart Timbers Ltd at [25].

[205]  It follows that because a purchase price has been stipulated it does not necessarily mean that an implied term contradicts this.   It is, the Court thinks, a matter of considering the background of the circumstances of the express words used if in those there has been agreement regarding the information that was utilised for the purpose of adopting those express words.   Where circumstances justify an investigation of the background then those become matters in due course for trial.

Implied term: that there would be no material alteration of the value of CBL to the dates of the agreements

[206]   Specifically this cause of action addressed claims of misrepresentation given in statements by Mr Hutchison to Mr Thomas.

[207]   Against a background of a price being agreed on a particular set of values well  before  the  agreement  was  signed  and  there  is  a  significant  change  in  the position of value one year and where there is not access to all parties of the same information that gives access to value throughout, then in that context of matters considerations of statements made by company directors regarding the company’s performance might appropriately be considered.   A factual inquiry may assist in deciding whether the statements in question provide facts which may be implied into the contract.

Misrepresentation

[208]   It is in the context of statements allegedly made regarding the company’s ongoing performance that measure may be given by figures that were relied upon in the company’s audited 2007 accounts and the contemporaneously released June 2008 management accounts.   Again, it appears to the Court it is a matter for factual enquiry before any assessment is made regarding the value or otherwise of the asserted statements.

[209]   It is a matter for evidence at trial for a proper assessment of those statements of opinion and whether a reasonable person in the position Mr Thomas could have regarded them as he says he did.

[210]   The defendants contend the share value is part of an entire agreement clause. Nevertheless such are subject to s 4 of the Contractual Remedies Act 1979 and Courts are not precluded from enquiring into and determining the value of other considerations including other statements made unless the Court considers it fair and reasonable that an entire agreement clause should be conclusive between the parties, having regard to all the circumstances of the case.   Ultimately it involves considerations of fact better left for determination at trial.

Fifth pleaded claim

[211]   This pleaded cause investigates claims of reliance upon the accuracy and constancy of the December 2007 audited accounts.   It investigates claims of responsibilities by the defendants to review what information they had regarding the position as at December 2008 which was significantly different and improved from that in December 2007.  Whilst there may be no general obligation to provide detail at all that situation may be different where the parties are in a fiduciary relationship and where they are all directors of the company concerned.  In those circumstances to say nothing at all might itself give rise to a representation being made.  A factual enquiry may determine whether in the circumstances considerations of change affected value which ought to have been advised to the plaintiffs.

Fair Trading Act claim

[212]   The defendants refer to a single transaction as opposed to an engagement in trade.  However they were personally involved, as they were purchasers under the agreement and the transaction involved the purchase of a block of shares.

[213]   Trade can involve a one-off transaction in particular when a commercial aspect is involved.  It depends on the facts and this is an issue for trial.  Moreover in this case the transaction in question was not the first between the parties because there had been an earlier share transaction from Mr Thomas to the defendants.  Also and in this case the defendants confirmed that the shares being purchased were to be held  in  Eurasia  and  Alliance  “for  our  respective  family  interests,  but,  more

particularly for the purposes of transferring them to a third party once a suitable buyer could be found for them in the future”.

[214]   Mr Gilchrist submits, and the Court agrees that it is at least arguable Mr Harris’ acknowledgement provides a clear statement the defendants were in trade or commerce.  Even though the defendants may not have personally owned the shares in CBL, they were purchasers under the agreements for sale and purchase of shares. Also the fact that the defendants were purchasers and not buyers does not mean the Fair Trading Act provisions may not apply, as both counsel agree.

Conclusions

[215]   Mr Thomas and the defendants were co-directors of a company in which their corporate entities owned most of the shareholdings.   There is a dispute about the extent to which each of the three persons involved contributed to or controlled the financial management of the company.  Issues interceded affecting the relationship between the individuals.   Evidence suggests they affected Mr Thomas more than they did Mr Harris or Mr Hutchison.  Whether by force or circumstance Mr Thomas and through him the plaintiff companies discussed the sale of their minority interest in the company.  Evidence suggests that whilst Mr Thomas on behalf of the plaintiffs retained the confidence and trust of Mr Hutchison, the same relationship was not shared between Mr Thomas and Mr Harris.  There is a divergence of views regarding issues which affected the viability of the company which in turn led to discussions regarding a share buyout of Mr Thomas’ entities.

[216]   It seems clear that by the end of 2007 Mr Thomas had retreated from most of the aspects of his active management and participation in the company affairs.  Each side has its own view about the extent of those issues affecting Mr Thomas’ commitment to the company’s operations.

[217]   There were discussions regarding director entity share buyout.  A letter from Fortune  Manning,  solicitors  for  the  defendants  provided  information  for  that purpose.  A share price was mentioned by reference to the December 2007 audited

accounts and the June 2008 management accounts.  They showed a net income of

$462,105.

[218]   It is the position of the defendants that the share sale agreements did not involve transactions between defendants but in essence was an agreement between shareholders.  Further that a share price was readily agreed and was fixed and it was not subject to any consideration for adjustment and therefore implied considerations of review are not available.  The Court does not accept those fundamental premises of the defendants position is arguable.   The Court considers the Fortune Manning letter  is  important  to  its  perspective  of  matters.    Before  Mr  Thomas’ solicitor received the Fortune Manning letter Mr Thomas had been advised by or on behalf of the defendants that the defendants offer for the purchase of Mr Thomas’ shares would shortly be forthcoming.

[219]   The Fortune Manning letter stated it was provided “in an effort to produce an outcome satisfactory to all parties”.   It mentioned that CBL had been unable to provide audited accounts as at 31 December 2007, prior to then.  The purpose of the letter was clear i.e. to provide to Mr Thomas the best information then available regarding CBL’s financial position.  It provided certain calculations based on average profit over preceding years.  By its calculations and using the net profit from 2006 –

2007 it provided an estimate of share value at .23c per share.

[220]   Those representations contained in the letter were made on behalf of the other directors of CBL i.e. the defendants.  They were intended to provide reasons for the valuation of shares and were based on the best available information to identify that share value as at the end of July 2008.  Management accounts which followed very shortly after provided information supporting the accuracy of that information contained in the December 2007 audited accounts.

[221]   If Mr Thomas did not have access to other information then that could have been supplied on behalf of the defendant directors of CBL and if there is good reason which indicates that information was not correct as the audited 2008 accounts appeared to show, then there may be a basis for challenging the integrity of the information provided for the purpose of setting a value on the shares.  This, even so

the defendants may have intended that those Thomas interest shares not be purchased by the defendants themselves but by entities they intended to create for that purpose.

[222]   It is in that perspective of things that the Court is weary of claims that s 149 does not apply when it was the defendants in their capacity as directors, through their solicitors, provided information that was clearly intended to influence discussions regarding share values.  It is for that reason the Court is hesitant to accept claims that the Court should be persuaded not to permit further enquiry because the shares in question were not purchased or were not intended to be purchased by the defendants personally.

[223]   If the Fortune Manning information was intended to enable the parties to settle on the value of the shares then arguably it is implicit that the information given by that letter was meant to identify a fair value.  If that is so then arguably the price fixed was intended to represent fair value and in that case it may be arguable that as much was represented by the parties’ agreement.  If that was so then notwithstanding a share price was fixed and that there was no express contractual provision for its review, the right of review might be implicit because of the very purpose for which the defendants’ solicitors submitted their calculations for consideration.

[224]   The  fact  is  that  post-settlement  the  published  December  2008  accounts revealed a huge increase in profit.  If so then the June 2008 management accounts may have been incorrect or there was a huge increase in profit during the last six months of that year which the defendants may have or should have known about in their position as directors of CBL.  Expert evidence suggests the fair value of those shares may have been well in excess of .24c.

[225]   Many of the issues affecting a proper consideration of share value would better be served by full discovery.  There is sufficient basis from which to conclude presently  that  there  has  been  an  inequality  of  information  sharing  between  the parties.   There are disputed positions regarding verbal representations and advice about the company’s performance.

[226]   There has not been full discovery in this case.   Instead, there have been requests by the defendants for further particulars, and likewise requests from the plaintiffs for further discovery.   These requests have been absorbed and overtaken somewhat by summary judgment/strike out applications.  It seems that the more the respective parties plead for resolution without recourse to discovery, the more it seems that discovery will serve the purpose of resolution.

[227]   To a significant degree there are factual disputes that cannot be resolved upon the affidavit evidence.  Claims that factual allegations on behalf of one side have not been adequately answered by the other side are really no more than an invitation for a full enquiry rather than to invite speculation about any conclusions to be drawn.

[228]   The application for summary judgment fails.  The application for strike out also fails, because the Court does not accept that any of the causes of action cannot succeed.

Judgment

[229]   The summary judgment and in the alternative the strike out applications are dismissed.

Associate Judge Christiansen