Thachankary v Rasela
[2025] NZHC 1793
•2 July 2025
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2019-404-2640
[2025] NZHC 1793
BETWEEN DR SHIGY ALEX THACHANKARY
Plaintiff
AND
ANURAG RASELA
First Defendant
DR VANDANA RASELA
Second DefendantHOWARD C TONGE
Third DefendantFLAT BUSH MEDICAL CENTRE LIMITED
Fourth Defendant
UMANGA PATEL
Fifth Defendantcontinued: …/2
Hearing: 10 December 2024 Counsel:
A Barker KC and S F W McNulty for Plaintiff
A H Waalkens KC and J G Donkin for First and Second Defendants
No appearance for Third and Fourth Defendants D G Collecutt for Fifth Defendant
Judgment:
2 July 2025
JUDGMENT (No. 2) OF HARVEY J
This judgment is delivered by me on 2 July 2025 at 11.30am pursuant to r 11.5 of the High Court Rules
………………………………
Deputy Registrar
THACHANKARY v RASELA (NO. 2) [2025] NZHC 1793 [2 July 2025]
…/2
CIV-2020-404-1327
BETWEEN DR VANDANA RASELA
Second Defendant
ANDAUCKLAND CITY MEDICAL CLINICS LIMITED
First Defendant
TABLE OF CONTENTS
Introduction[1]
Agreed payments[6]
Issues[9]
FBMC’s submissions[11]
What equitable damages are appropriate regarding FBMC? [15]
Dr Thachankary’s submissions[15]
The Raselas’ submissions[18]
FBMC’s submissions[21]
Mr Patel’s submissions[23]
Discussion[24]
The fiduciary duties[26]
Establishing loss[29]
Would FBMC have been sold anyway?[33]
Would FBMC have been liable to pay for the Murphys Road construction costs?
[47]
Would FBMC have held a lease?[53]
Would Dr Thachankary be required to equalise the shareholder current accounts?
[57]
Quantum of equitable compensation[64]
Are exemplary damages justified? [65]
Dr Thachankary’s submissions[65]
The Raselas’ submissions[66]
Dr Thachankary’s reply submissions[69]
Legal principles [73]
Discussion[75]
Who should buy the shares in ACMC and at what price?[92] Application to adduce further evidence and for discovery — the Raselas’ submissions[93]
Application to adduce further evidence and for discovery — Dr Thachankary’s submissions[97]
Discussion[98]
Legal principles[103]Purchase by Dr Thachankary — Dr Thachankary’s submissions[105] Purchase by Dr Thachankary — The Raselas’ submissions[110] Purchase by Dr Thachankary — Dr Thachankary’s reply submissions[113]
Discussion[118]
Purchase by Dr Rasela — the Raselas’ submissions[124]
Purchase by Dr Rasela — Dr Thachankary’s submissions[127]
Discussion[129]
Decision[137]
Introduction
[1] At [151] of my judgment dated 22 August 2024 (the liability judgment), I invited further submissions on remedies. This was made against the background of the decision as a whole and, in particular, [147]–[150].1 Memoranda on Dr Thachankary’s claim for additional hours were also sought at [116]. Counsel’s submissions were then considered at a hearing held on 10 December 2024.
[2]In summary, Mr Barker KC for Dr Thachankary sought orders that:
(a)The Raselas and Mr Patel pay him $275,000 with interest under the Interest on Money Claims Act 2016 (IMCA) from 31 January 2020 until payment.
(b)The Raselas and Mr Patel pay him $50,000 in exemplary damages with interest under the IMCA from the date of judgment until payment.
(c)Auckland Central Medical Clinics Ltd (ACMC) pay Dr Thachankary
$660,956.43 with interest under the IMCA from the date of judgment until payment.
(d)ACMC pay Dr Thachankary for unpaid salary hours worked and for increased hourly rates from 1 August 2024 until the transfer of ACMC shares using the formula at [116] of the liability judgment with interest under the IMCA from the due date until payment.
(e)Dr Rasela transfer her shares in ACMC to Dr Thachankary within 14 days and do all such things as are necessary to effect that sale.
(f)Dr Rasela is paid $235,600 either directly or as a set-off against the damages award.
1 Thachankary v Rasela [2024] NZHC 2371 [Liability judgment].
(g)Mr Hussey and Mr Graham are to confer regarding the final sum payable to Dr Rasela regarding any cash surplus held by ACMC.
[3] Mr Waalkens KC for the Raselas agreed that the key issues for determination are the amount of any award of damages against the Raselas and Mr Patel for breaches of the Flat Bush Medical Centre Ltd (FBMC) agreement and their fiduciary duties, the purchase of ACMC and the price, and finally payments for any additional hours that may be due to Dr Thachankary. At the outset, Mr Waalkens contended there was no basis for an award of exemplary damages since the conduct complained of is not sufficiently serious and exceptional to justify a punitive award. At the 10 December 2024 hearing, Mr Waalkens also confirmed that Dr Rasela wished to purchase Dr Thachankary’s ACMC shares at between 40 and 50 per cent of the agreed enterprise value and without conditions.
[4] Mr Collecutt for Mr Patel submitted that his client was not liable to Dr Thachankary for any of the remedies now sought, given his role as agent for the Raselas and as Mr Rasela’s employee at the relevant times.
[5] Mr Hucker for Mr Tonge and the FBMC filed detailed written submissions on the appropriate equalisation of shareholder current accounts and outlining the effects of the liability judgment on the sale of FBMC.
Agreed payments
[6]Mr Barker acknowledged that the Raselas had paid $69,690 to Ms Crasta,2 and
$219,456.62 to Dr Thachankary.3 Even so, $60,000 of the outstanding loan (plus interest) remained in dispute. Counsel confirmed Dr Thachankary will pursue payment of this amount, while noting that the Raselas have appealed this Court’s findings regarding the loan.
[7] As to unpaid salary, in accordance with the formula set out at [116] of the liability judgment, Dr Thachankary seeks orders that ACMC pay him $10,826.25 (being the GST for the increased hourly rate — the principal sum of $72,175 having
2 See Liability judgment, above n 1, at [152(d)].
3 At [152(b)].
already been paid by ACMC or Dr Rasela) and $585,787 including GST for unpaid salary hours worked. Counsel argued that interest should run on those payments from the date on which they should have been paid. Mr Barker attached a schedule setting out interest calculations which confirmed that $6,915.77 in interest was payable for the increased hourly rate, and $57,427.14 in interest was payable for unpaid salary hours worked. The total amount sought for unpaid salary hours, GST and interest is
$660,956.43. Mr Waalkens confirmed the Raselas agree this sum should be paid from ACMC.
[8] Furthermore, Mr Barker submitted that ACMC must pay Dr Thachankary for unpaid salary hours worked at an increased hourly rate from 1 August 2024 until the date of transfer of the ACMC shares using the formula at [116]. This is because Dr Thachankary has set up a payment for his actual hours worked in August 2024 at
$150 per hour but this had not been authorised by Dr Rasela. According to counsel, this too has now been agreed by the Raselas.
Issues
[9]Therefore, the three remaining issues for determination are:
(a)What equitable damages are appropriate regarding FBMC?
(b)Are exemplary damages justified?
(c)Who should buy ACMC and at what price?
[10] As Mr Barker has anticipated, costs should then be dealt with in the usual way with counsel exchanging memoranda by the end of July 2025.
FBMC’s submissions
[11] As a preliminary issue, I must address Mr Barker’s argument that the submissions filed on behalf of FBMC should not be read because neither FBMC nor Mr Tonge will be affected by any damages award and because evidence relevant to the financial position of FBMC is already on the record.
[12] At [151] of the liability judgment, I invited further submissions from “counsel”. I did not specify that only certain counsel were permitted to file submissions. Therefore, I consider that in the interests of fairness all submissions should be considered. Dr Thachankary has also had the opportunity to respond to Mr Hucker’s arguments.4
[13] That said, Mr Hucker’s submissions appear to be primarily concerned with the impact the liability judgment may have on the sale of FBMC to the third-party purchaser. Arguments on this point are somewhat misplaced because further submissions were invited on remedies rather than as an opportunity to relitigate, for example, the validity of the lease. Therefore, while I find it is appropriate for me to read and consider the submissions, I note they are not always relevant to the issues.
[14] For example, I accept counsel’s acknowledgement that the impact of the liability judgment on non-parties is an issue for the appellate court.5 While it is unclear whether the declaration had any such impacts (especially given the relevant provisions of the Companies Act 1993 and the declaration’s inter se nature) it is not necessary to address this issue when determining the appropriate award of equitable compensation. Similarly, it is unnecessary to address submissions regarding the GST implications of the declaration or the need to refund the third-party purchaser. Rather, as will be discussed below, the focus of this decision is on determining the appropriate remedies and, consequently, assessing what the position of Dr Thachankary would have been but for the defendants’ breaches.
What equitable damages are appropriate regarding FBMC?
Dr Thachankary’s submissions
[15] Mr Barker submitted that Dr Thachankary is entitled to be restored to the position he would have been in but for the defendants’ breaches of their contractual and fiduciary duties.6 Given the passage of time and the undesirability of attempting
4 See Re estate of Peter-Eggers [2024] NZHC 2502 at [27].
5 For example, whether the declaration of invalidity as between the parties meant the lease could not be assigned to the third-party purchaser.
6 In particular, Mr Barker highlighted the liability judgment’s findings that: the FBMC loan and lease arrangements were not validly executed or authorised by Dr Thachankary, these agreements
to unwind the sale of FBMC, counsel contended the Court must approach damages in the round. Put another way, the Court must stand back and make a broad assessment of the harm suffered by Dr Thachankary. Counsel underscored that the approach to equitable damages for breach of fiduciary duty is broad and flexible.7 Mr Barker also highlighted that a comparable approach can also be appropriate for breach of contract.8
[16]Counsel argued that an appropriate award of equitable compensation would be
$275,000 with interest under the IMCA from 31 January 2020, consisting of two parts:
(a)$240,500 to compensate Dr Thachankary for his loss of his half-share of FBMC, calculated by reference to FBMC’s open market sale price of
$481,000; and
(b)$34,500 to compensate Dr Thachankary for his loss of the potential future value or profits of FBMC — essentially, for his loss of a business chance.
[17] Mr Barker emphasised that this would still lead Dr Thachankary to suffer a net loss of approximately $176,216.50 because he would not recover his personal loan to FBMC of $29,800 nor his half-share of the $361,833 in advances from ACMC to FBMC. Therefore, counsel submitted that, while a higher award could be justified,
$275,000 is a fair and reasonable amount. This figure would also permit the Raselas to retain $240,500 from a transaction they completed in breach of their duties.
The Raselas’ submissions
[18] Mr Waalkens accepted that the agreements signed without Dr Thachankary’s consent should be disregarded when assessing damages, and submitted the sale of FBMC should be treated as an unauthorised sale in breach of the defendants’ duties.9
substantially favoured the Raselas’ interests over those of Dr Thachankary, and the Raselas relied on these invalid agreements to place FBMC into receivership and to eventually sell it.
7 Pangani Properties Ltd v Lloyd [2018] NZHC 1982 at [146]; and Lloyd v Pangani Properties Ltd [2019] NZCA 314, (2019) 21 NZCPR 266 at [31], in which the Court of Appeal did not disagree with the High Court’s approach.
8 Kempton Holdings Ltd v StraitNZ Freight Forwarding Ltd [2023] NZHC 688 at [113], [117] and [245].
9 However, he emphasised that the lease and loan agreements remain binding on FBMC — noting that Dr Thachankary has not sought relief requiring those documents be set aside, citing ss 141 and 229 of the Companies Act 1993.
[19] Nonetheless, counsel contended there is no causal link between the unauthorised sale and any real proven loss. FBMC was a failing business and would needed to have been sold regardless. Furthermore, under the FBMC partnership agreement, both doctors were required to fund FBMC in equal measure and to share in its profits and losses.10 Mr Waalkens argued this included the construction costs for FBMC’s premises (Murphys Road) alongside other shareholder contributions made by the Raselas. Accordingly, counsel submitted that once the shareholder current accounts are equalised it is clear Dr Thachankary has suffered minimal financial loss from the unauthorised sale of FBMC.
[20] Finally, Mr Waalkens contended that FBMC’s sale price of $481,000 included the company’s potential future profitability and was contingent on FBMC’s lease, specialist fit-out and related lease inducement.
FBMC’s submissions
[21] Similarly, Mr Hucker submitted that, but for the defendants’ breaches, FBMC would be “a business that is operating on a month-by-month tenancy with no certainty of tenure, shareholder disfunction and no shareholder or party prepared to continue to fund the business obligations.” Without the appointment of a receiver there were only three logical possibilities, none of which would have resulted in a better outcome than that obtained by the receiver:
(a)Shareholders would have agreed to list FBMC for sale and it would have sold for market price.
(b)FBMC would have been liquidated and the liquidator may have traded the business or sold the assets on a breakup or liquidation basis.
(c)One party may have continued to fund the ongoing losses and run FBMC themselves in an endeavour to maintain its value.
10 See Liability judgment, above n 1, at [40].
[22] Mr Hucker also challenged the sale price of $481,000 which, he submitted, was premised on the conveyance of a lease over Murphys Road to provide certainty of tenure. Dr Thachankary and other third parties made their offers to purchase FBMC conditional on entry into a lease (and on less favourable terms than the lease assigned as part of the sale transaction).
Mr Patel’s submissions
[23] Mr Collecutt for Mr Patel largely adopted the submissions for the Raselas’ and FBMC including challenging the $481,000 value of FBMC if it possessed no valid lease over Murphys Road. Counsel also highlighted there would have been no future for FBMC without the purported loan or lease, that Mr Patel was never a party to any agreement and was merely acting as Mr Rasela’s agent, and that Dr Thachankary was no longer involved in FBMC and therefore was unable to contribute to funding its ongoing losses.
Discussion
[24] Dr Thachankary is to be restored to the position he would have been in if the defendants had complied with their fiduciary duties.11 This was made clear at [127] of the liability judgment:
[127] … for breach of the FBMC agreement as set out at [28] and for breach of fiduciary duty, including the duties of loyalty, of acting in good faith, and of not favouring their individual interests, Dr Thachankary is entitled to be restored to the position he would have been in but for those breaches. …
[25] Achieving this requires an assessment of Dr Thachankary’s position had the breaches not occurred. This is an inherently imprecise exercise, and is made more imprecise by the complex and prolonged nature of this case. Inevitably, a broad-brush
11 See Geoff McLay “Equitable Damages” in Andrew S Butler (ed) Equity and Trusts in New Zealand (2nd ed, Thomson Reuters, Wellington, 2009) at [32.3.1]; Chirnside v Fay [2004] 3 NZLR 637 (CA) at [67]; Premium Real Estate Ltd v Stevens [2009] NZSC 15, [2009] 2 NZLR 384 at [99]; and Venkataswamy v Kodoor [2024] NZHC 833 at [6]. For completeness, I note that the third edition of Equity and Trusts in New Zealand is due for imminent release but was unfortunately not available in time for inclusion in this judgment.
approach is required.12 The first stage of this assessment is to reiterate the relevant fiduciary duties breached by the defendants.
The fiduciary duties
[26] As foreshadowed, Dr Rasela owed fiduciary duties to Dr Thachankary due to their partnership in ACMC and FBMC.13 Mr Patel also owed fiduciary duties to Dr Thachankary as a bare trustee of Dr Thachankary’s shares in FBMC.14
[27] Mr Waalkens submitted that Mr Rasela did not owe any fiduciary duties to Dr Thachankary prior to Mr Rasela obtaining shares in FBMC on 4 February 2019. This was based on my finding that the ACMC and FBMC partnerships were primarily between Dr Thachankary and Dr Rasela. However, I also found that Mr Patel was acting under Mr Rasela’s instructions, and that therefore Mr Rasela should indemnify Mr Patel in the context of any remedies.15 In short, although Mr Rasela may not have directly owed Dr Thachankary fiduciary obligations at that time, Mr Patel’s breaches of fiduciary duties can be attributed to Mr Rasela due to his direction of Mr Patel and their employee-employer relationship.16 For completeness, Mr Rasela subsequently owed fiduciary duties to Dr Thachankary as a bare trustee of Dr Thachankary’s shares when he acquired them from Mr Patel.17
[28] As discussed at length in the liability judgment, numerous fiduciary duties owed to Dr Thachankary were breached, including by:
(a)the unauthorised signing of the loan, lease and general security agreements;18
(b)the unauthorised transfer of Dr Thachankary’s shares in FBMC to the Raselas and their appointment as directors;19
12 Pangani Properties Ltd v Lloyd, above n 7, at [146]; and Lloyd v Pangani Properties Ltd, above n 7, at [31], in which the Court of Appeal did not disagree with the High Court’s approach.
13 Liability judgment, above n 1, at [29] and [33].
14 At [93].
15 At [95].
16 At [76], [82]–[88] and [95].
17 At [20] and [75].
18 At [74]–[78].
19 At [79].
(c)the Raselas’ failure to transfer Dr Thachankary’s shares in FBMC to him when requested;20
(d)the withholding of Dr Thachankary’s salary;21 and
(e)other various breaches as summarised at [127] of the liability judgment.
Establishing loss
[29] The next stage of the assessment is to reasonably infer from the evidence what Dr Thachankary’s position would have been had these breaches not occurred. Following the Court of Appeal’s approach in Premium Real Estate Ltd v Stevens, Dr Thachankary needed to demonstrate he has suffered a loss arising out of a transaction to which the breaches were material: the defendants may resist this claim by showing the loss would have occurred in any event and without any breach on their part.22 Much of the defendants’ submissions were devoted to this approach.
[30] As I held in the liability judgment, the lease, loan and general security agreements resulted from the defendants’ breaches and, therefore, were invalid and of no effect as between the parties.23 Those agreements should be disregarded because, but for the breaches, they would not have been executed by Mr Patel. In which case, the Raselas would not have been able to file their letter of demand and subsequently place FBMC into receivership — which eventually led to FBMC’s sale to a third party. Dr Thachankary would also have received his shares in FBMC on 2 July 2019. In other words, but for the defendants’ breaches, Dr Thachankary would still own 50 per cent of FBMC. This is the purported loss (including loss of a business chance) for which Dr Thachankary seeks $275,000 in compensation.
[31]In summary, the defendants submitted in reply that absent any breaches:
(a)FBMC would have been sold anyway because it was a failing business;
20 At [21].
21 At [138].
22 Premium Real Estate Ltd v Stevens [2008] NZCA 82, [2009] 1 NZLR 148 at [91].
23 Liability judgment, above n 1, at [152(a)].
(b)FBMC would still have been liable to pay the construction costs for Murphys Road;
(c)FBMC would have held no lease, which would have significantly reduced its value; and
(d)Dr Thachankary would have been liable to equalise shareholder current accounts.
[32] The defendants contended the relevant breaches did not cause Dr Thachankary any significant loss. These arguments are discussed below.
Would FBMC have been sold anyway?
[33] The defendants submitted that Dr Thachankary has suffered no loss due to the receiver’s sale of FBMC because it was a failing business without significant value and would have needed to be sold regardless. Mr Waalkens highlighted that FBMC had been making losses since its inception, was insolvent at the time of sale and was dependent on ongoing shareholder support.
[34] However, the evidence does not support the defendant’s position. It was never disputed by Dr Thachankary that FBMC had been incurring losses since its inception and has required ongoing support from its shareholders. Indeed, this was always the expectation during FBMC’s “start-up phase”. For example, at [47] of her brief of evidence dated 13 April 2022, Dr Rasela stated:
We were all aware that, as a new practice starting with zero patients, it would make substantial losses initially and it would be unlikely to be profitable for quite some time. We therefore agreed that … in addition to the initial capital contribution to get the practice set up, the shareholders would also need to fund the operating costs of the business until it could meet its own costs. We all discussed how long it might take before the FMBC [sic] Practice would breakeven, meaning we would no longer need to fund the FMBC Practice from our own resources. That could be 2-3 years away. Until the FMBC Practice was making a profit, it would be unable to repay any advances that had been made by us as shareholders to fund its trading losses. We all went into the venture with our eyes open and knew that we would all have to keep putting money into the FMBC Practice for some time.
[35] The understanding was that FBMC would require ongoing shareholder support until it broke even sometime in 2019–2021.24 However, due to the defendants’ breaches, the receiver was appointed in October 2019 and, following Dr Thachankary’s unsuccessful attempt to prevent its sale, FBMC was sold on 31 January 2020.25
[36] Mr Barker submitted that FBMC made a loss of $311,102 in the financial year ending (FYE) 2019 but a loss of only $89,064 in the FYE 2020, noting its sale in January 2020. This represented a net improvement of $222,038. Although the defendants raised numerous problems with this evidence, their own evidence also showed FBMC’s finances were swiftly improving.26 For example, Mr Waalkens submitted that FBMC made a loss of $362,938 in the FYE 2019 and a loss of $211,767 in the FYE 2020. This represented a net improvement of $151,171.
[37] On either party’s figures, the profitability of FBMC had significantly improved between 2019 and 2020. This supports Mr Barker’s contention that the position of FBMC was getting better.27 This is further supported by the evidence that FBMC had, on average, been acquiring around 100 patients per month prior to the receiver’s appointment.
[38] For these reasons, I consider that the defendants have failed to establish that, but for the breaches, FBMC would nevertheless have needed to be sold. The FBMC partnership required the shareholders, through ACMC, to support FBMC as it moved towards breaking even and profitability, and the evidence suggests that this was on the horizon. At the risk of belabouring the point, I find that FBMC fell into receivership due to the actions of the Raselas in calling up a loan they knew FBMC was in no
24 This would be two to three years after FBMC was incorporated on 28 July 2017 or, alternatively, two to three years after it opened on 5 March 2018.
25 Although Dr Thachankary eventually consented to the making of a sale order, this was after having pursued interim injunctions to prevent such a sale. Accordingly, I do not accept that Dr Thachankary did not initially oppose the sale of FBMC. See Thachankary v Rasela HC Auckland CIV-2019-404-2640, 10 December 2019 (Minute of Edwards J) at [1].
26 For example, Mr Hucker claimed Ms Crasta failed to make appropriate allowances and erred in calculating GST.
27 Notably, if the defendants’ figures showing an annual improvement of approximately $150,000 continued, FBMC may have broken even at some point in 2021 — albeit, this is clearly a speculative simplification.
position to pay, all the while representing to Dr Thachankary that they were considering proposals for resolution of the parties’ dispute.
[39] On a related note, Mr Collecutt argued that FBMC had to be sold, liquidated, or funded and run solely by Dr Rasela or Dr Thachankary due to shareholder dysfunction. I disagree. In short, the partnership required both doctors to fund the ongoing losses of FBMC equally. As mentioned, the business was making progress towards profitability and within the expected timeline for breaking even sometime in 2019–2021. If there had been no breaches of the FBMC agreement or the parties’ fiduciary duties, it is reasonable to infer that the business would have continued despite the friction between the doctors. Importantly, the defendants cannot rely on their own breaches (such as excluding Dr Thachankary from FBMC) to argue that shareholder dysfunction was such that the parties could not have upheld their agreement or that FBMC would have needed to be sold or liquidated.
[40] For the above reasons, equitable damages must be assessed on the basis that, but for the defendants’ breaches, FBMC would not have been sold and Dr Thachankary would have owned 50 per cent of a company that, while making losses at that present moment, was making significant progress towards breaking even and profitability. This is relevant to Dr Thachankary’s claim for $240,500 based on FBMC’s sale price. However, it is also relevant to his claim of $34,500 for the loss of FBMC’s future value — his loss of a business chance. Although the ultimate success of FBMC had it not been sold cannot be certain, the courts have held that loss of a business chance, even if slim, can be compensated for through equitable damages.28
[41] The defendants submitted that any future value of FBMC was already included in its sale price of $481,000. Therefore, they argued Dr Thachankary cannot be entitled to an additional sum under this head, as it is already included in his claim for 50 per cent of the sale price ($240,500). I disagree. While the future potential of FBMC may have been considered by the receiver to fall within the sale price, it is evident that the purchaser must have considered the value (including potential future value) of the business to be underpriced. Otherwise, the purchaser would not have
28 Pangani Properties Ltd v Lloyd, above n 7, at [131]; and see McLay, above n 11, at [32.3.4].
expected to profit from their purchase and it would not have proceeded: this difference in the subjective valuation of FBMC between the seller and purchaser is what enabled the sale to occur. By adopting the purchaser’s perspective there is a chance of future value or profitability beyond that inherently included in the sale price of $481,000.
[42] However, acknowledging the uncertain and subjective nature of FBMC’s potential future value does not assist the Court in determining the precise quantum, if any, to be allocated for Dr Thachankary’s loss of a chance to derive future profits from FBMC. As noted above, the evidence suggests FBMC was on its way to breaking even and becoming profitable. Therefore, Dr Thachankary did seemingly lose a real and substantial opportunity to benefit from the potential future value of FBMC.29 That said, the only evidence that has been provided to justify the figure of $34,500 is the general evidence showing that FBMC was making progress towards profitability and would have been able to repay Dr Thachankary’s personal loan and/or the advance from ACMC.
[43] In Crown Finance Ltd v Crown Asia Pacific Group Ltd, the Court of Appeal stated that the recognised approach for assessing the value of loss of chance was described in Takaro Properties Ltd v Rowling:30
In general a calculation of damages based upon the value of a chance will involve assessment at three levels. First there is the question as to whether there is affirmative evidence from a plaintiff that in the absence of the … conduct complained of he would have had some opportunity of achieving a particular purpose. … Second, there is a need to estimate what would have been the outcome had there been complete success. And finally that outcome reduced to money terms will have to be discounted to accord with what can fairly be regarded as the actual prospect of success.
[44] Adopting this three-step approach, first, there is evidence from Dr Thachankary that, but for the defendants’ breaches, he would have had an opportunity of obtaining greater value for, and profits from, FBMC in the future. The evidence shows the business was moving towards profitability. Second, Mr Barker submitted that had FBMC continued it would have been able to repay
29 Parkhurst Corp Ltd v Bisht [2021] NZHC 2888 at [55(ii)], citing McLean v Marshall [2014] NZHC 1624, [2014] NZCCLR 31 at [47].
30 Crown Finance Ltd v Crown Asia Pacific Group Ltd [2024] NZCA 614, [2024] NZCCLR 487 at [143], quoting Takaro Properties Ltd v Rowling [1986] 1 NZLR 22 (CA) at 64.
Dr Thachankary’s personal loan ($29,800) and his portion of the ACMC advance ($180,916.50) — together totalling $210,716.50. While FBMC could have gone on to become even more valuable, or to provide shareholders with even greater profits if “completely successful”, this figure represents a conservative estimate of what complete success would mean for FBMC. In other words, complete success would mean, at the very least, that FBMC would be able to eventually pay Dr Thachankary an additional $210,716.50.
[45] Third, at this point the Court would make an appropriate discount to accord with “what can be fairly regarded as the actual prospect of success.” Here neither party has provided a detailed argument as to the likelihood of FBMC succeeding. Dr Thachankary submitted FBMC would have succeeded while the defendants claimed it would have failed. However, if this Court reverse-engineers the approach in Takaro by discounting $210,716.50 so that it results in the $34,500 sought by Dr Thachankary, this would correspond with an actual prospect of success of approximately 16 per cent. Given my findings regarding FBMC’s progress towards profitability, I consider there was at least a 16 per cent chance that, but for any breaches, FBMC would have broken even, become profitable and been able to repay Dr Thachankary’s personal loan and his portion of the ACMC advance.31
[46] Nevertheless, I note the need to avoid the illusion of mathematical certainty when applying imprecise and somewhat artificial foundations.32 In addition to the reasoning above, I consider that it would be just in the circumstances of this case, while applying a broad-brush approach to equitable damages, to grant compensation of $34,500 for Dr Thachankary’s loss of the potential future value of FBMC.33 Dr Thachankary was denied the opportunity to continue to grow and develop the business due to the defendants’ breaches of fiduciary duties, which (as will be
31 Importantly, this does not give rise to issues of double compensation. The repayment of the ACMC advance is simply used as a metric to predict the potential future profit or value of FBMC (over and above that reflected in the sale price of $481,000) which may have been achieved had the business not been sold. Accordingly, it is not a separate category of compensation: Dr Thachankary is not being permitted to claim both the loss of his investment and the proceeds of realising that investment. Rather, I refer to repayment of the loans as simply a broad-brush milestone of “complete success” to mark the potential for Dr Thachankary to obtain greater returns on his initial investment had his ownership in FBMC continued.
32 See Pangani Properties Ltd v Lloyd, above n 7, at [146].
33 See Pangani Properties Ltd v Lloyd, above n 7, at [146]; Day v Mead [1987] 2 NZLR 443 (CA) at 462; and Premium Real Estate Ltd v Stevens, above n 11, at [107].
discussed in relation to exemplary damages) involved a degree of moral turpitude.34 Therefore, given the evidence also suggests FBMC was moving towards profitability, compensation for the loss of this opportunity beyond that included in the sale price of
$481,000 would seem to do justice in the circumstances of this case.35
Would FBMC have been liable to pay for the Murphys Road construction costs?
[47] Another argument raised by the defendants is that, even without any breaches, Dr Thachankary would have been liable to contribute 50 per cent of the construction costs for Murphys Road. They base this submission on my earlier finding that both Dr Thachankary and Dr Rasela were required to fund FBMC equally.36 Mr Barker submitted that, but for the defendants’ breaches and the invalid loan and lease agreements, FBMC would not have been liable to pay for these construction costs.
[48] As discussed, if there had been no breaches, then the unauthorised loan and lease agreements would not have been entered into. The question then becomes, as raised by the defendants, whether the construction costs would have nonetheless been borne by FBMC (and therefore split between the doctors).
[49] The construction costs can be divided into renovation and fit-out costs. The bulk of the expenditure ($320,000) related to the renovations necessary to render the property suitable for a commercial lease. The remaining $120,000 related to the specialist fit out for a medical centre. I accept Mr Barker’s submission that the renovation costs ($320,000) would have been landlord costs. This was accepted by Mr Rasela during cross-examination,37 and under an orthodox approach any contribution by FBMC to construction costs would be limited to the $120,000 specialist fit-out.38 This also corresponds with the sale and purchase agreement with the third-party purchaser in respect of FBMC, in which $226,087.00 is allocated for the “Lease inducement / Fitout”, as opposed to the renovations generally.39
34 Premium Real Estate Ltd v Stevens, above n 11, at [104].
35 Premium Real Estate Ltd v Stevens, above n 11, at [107].
36 Liability judgment, above n 1, at [40].
37 Notes of Evidence dated 18 September 2023 at 417.
38 Liability judgment, above n 1, at [67].
39 Emphasis added.
[50] Furthermore, it is unclear whether FBMC would have agreed to fund the specialist fit-out if the breaches had not occurred. As held at [67] of the liability judgment, Dr Thachankary had not agreed to do so. I also note that the Raselas’ apparent efforts to deceive Dr Thachankary about the lease, as discussed in relation to exemplary damages, suggests they believed Dr Thachankary would not have agreed for FBMC to pay for the specialist fit-out or other construction costs. This leads to the finding that, but for any breaches, Dr Thachankary would not have agreed for FBMC to fund the construction costs, including the costs of the specialist fit-out.
[51] Nonetheless, there is some force in Mr Waalkens’ submission that the specialist fit-out and associated lease inducement were key assets included in FBMC’s sale price and that, therefore, Dr Thachankary must either contribute to the cost of the fit-out or forgo this portion of the sale price. In other words, Dr Thachankary cannot have it both ways: if he claims FBMC should be valued at $481,000, then he must accept FBMC’s liability for the costs of the fit-out to obtain the associated lease inducement.
[52] However, on this point, ultimately I agree with Mr Barker. The fit-out was seemingly not sold as tangible assets to the third-party purchaser but remained under the ownership of Rishita. Rather, I consider that the $226,087 included in the sale price (for “lease inducement/fitout”) represented the value of the lease inducement and use of the fit-out, rather than sale of the fit-out itself. Although the Raselas had structured the lease agreement such that the lease inducement was contingent on FBMC paying the fit-out costs,40 I do not consider that the sale price of $481,000 is contingent on this arrangement: similar value and security of tenure could have been held by FBMC on another basis — namely under the lease as understood by Dr Thachankary (discussed below). Therefore, provided that FBMC would have held a lease with similar benefits but for any breaches, I do not consider that Dr Thachankary is required to choose between accepting liability for the fit-out costs or forgoing the relevant portion of the sale price.
40 I also note Mr Barker’s submission that this structure is hardly surprising given the need to reflect the underlying purported loan and lease arrangements executed on behalf of FBMC without Dr Thachankary’s knowledge or consent.
Would FBMC have held a lease?
[53] The defendants submitted that if there had been no breach then both the lease between FBMC and Rishita and the lease inducement would not exist. This is confirmed, in their submission, by my finding that the lease agreement was invalid and void as between the parties. In which case, the defendants argued that the sale price of $481,000 does not represent the true value of the business, as the sale was premised on FBMC owning the lease, and having security of tenure, over Murphys Road.41
[54] Mr Barker submitted that although the Court found that the purported lease agreement relied on by the Raselas was invalid as between the parties, this does not mean there was no lease of any kind. Rather, the evidence suggests FBMC had been making rental payments of $50,000 per annum from the start,42 and would have continued on these terms if the Raselas had performed their obligations. Counsel contended this corresponds with FBMC’s sale price of $481,000 which reflected a business with the practical benefit of a $50,000 per annum lease for a fitted out medical office: it was merely structured by the Raselas to look like a $116,000 lease to ensure the transaction reflected the purported lease and loan agreements.
[55] Putting the purported loan and lease agreements to one side, I agree with Mr Barker that there was some form of lease between the parties. The contemporary correspondence confirms that rent of $50,000 per annum was understood between the parties, approved by Dr Thachankary and paid by FBMC to Rishita.43 Moreover, I agree that the existence of a lease was a key aspect of the parties’ arrangements. As to certainty of tenure, there is force in Mr Barker’s submission that, had there been no breach, it is difficult to consider that the Raselas, as the directors of Rishita, would have refused to grant their own business (FBMC) and partner (Dr Thachankary) a lease on terms at least as favourable as those set out in the unauthorised lease agreement and
41 In the absence of any lease beyond a month-by-month tenancy, Mr Collecutt argued that the only asset of FBMC was the patient list and some of the fixed assets, and that this would be insufficient to achieve or support a sale price of $481,000.
42 In particular, he referred to the communications between the parties dated 5 February, 1 March and 11 May 2018.
43 See Liability judgment, above n 1, at [42], [60]–[61] and [63].
assigned to the third-party purchaser, and on terms that reflected the parties’ understanding as evidenced in their correspondence.
[56] In short, if the breaches had not occurred, the lease as understood by Dr Thachankary would have been available to FBMC. I also note Mr Tonge’s concession in cross-examination that, putting tax implications to one side, the invalidated lease ($116,000 per annum but mitigated by the lease inducement) and the lease as understood by Dr Thachankary ($50,000 per annum) are broadly the same from an economic perspective.44 Both also included use of the specialist fit-out. Therefore, I find that the sale price of $481,000 remains a broadly accurate metric by which to assess the value of FBMC.
Would Dr Thachankary be required to equalise the shareholder current accounts?
[57] Mr Waalkens submitted that the financial losses suffered by FBMC were disproportionately borne by the Raselas. Therefore, any award of equitable compensation would have to take these unequal shareholder contributions into account because, if no breaches had occurred, the FBMC agreement would have required such costs to be borne on a 50:50 basis.
[58] The receiver’s evidence shows that, putting the personal loan and ACMC advances to one side, the Raselas introduced an additional net $561,822 into FBMC.45 From this amount, the GST exclusive construction costs for Murphys Road ($391,043.48) should be removed. This results in a difference of $170,778.52. The defendants acknowledged that a further $45,000 should be deducted for unauthorised directors’ fees as well as an additional $9,584 in disputed rent. This results in a difference of $116,194.52.
[59] Despite deducting the directors’ fee of $45,000, Mr Hucker sought to add back an “administration fee” of $1,750 per month to the Raselas for undertaking the accounting and other administrative compliance work required for FBMC. This totalled $15,750 across a period of nine months. As noted by Mr Barker, this figure
44 Notes of Evidence dated 18 September 2023 at 538–539.
45 This figure already includes a deduction of $63,000 for repayments made to the Raselas before the appointment of a receiver.
was only included in FBMC’s submissions rather than in Mr Tonge’s evidence. In fact, no evidence was provided to justify this notional figure.
[60] I am unable to see a significant difference between the former “directors’ fees” and the current “administration fee” other than in quantum. Importantly, there is no evidence provided of the hours spent by the Raselas on this work nor any detailed explanation of what it entailed. I consider there is insufficient evidence to establish this was an appropriate expense and, therefore, I do not add it back.
[61] Mr Barker then sought a further deduction of $80,748 to account for the receiver’s fees and the costs of sale. He submitted that, for the purpose of assessing damages, it is not appropriate to charge Dr Thachankary the costs of the very transaction that amounted to an unauthorised breach of duty. Put another way, but for the defendants’ breaches, these costs would not have arisen. As accepted in cross-examination by the receiver, these fees would not have arisen had the company not been placed in receivership and sold.46 This in turn would not have happened but for the breaches by the defendants. I therefore agree with Mr Barker that these sums should be deducted. This results in a difference of $35,446.52 in the Raselas’ favour.
[62] Although it is accepted that the exact amounts involved in this exercise are uncertain and imprecise, I consider there is sufficient evidence to establish that there were unequal shareholder contributions, albeit to a much lesser extent than alleged by the defendants. Mr Barker contended, however, that it is wrong to attempt to allocate these uncertain amounts to the parties and to then try to equalise the payments through artificially constructed shareholder current accounts, especially when the relevant transactions occurred after Dr Thachankary was excluded from FBMC, were not visible to him and were not authorised by him. Mr Barker stated that the circumstances in which these transactions occurred remains unclear.
[63] Even so, in contrast to the amounts deducted above, Mr Barker has been unable to demonstrate that the remaining contributions by the Raselas were not in relation to ordinary business expenses that, even without the breaches, would have been incurred: for example, general practitioner (GP) services and rental payments. For the purposes
46 Notes of Evidence dated 18 September 2023 at 529.
of assessing equitable compensation, I consider that in fulfilling the FBMC agreement, Dr Thachankary would have contributed 50 per cent of these expenses had the breaches not occurred. Given my finding above that the Raselas effectively contributed approximately $35,446.52 more than Dr Thachankary, this should be reflected by an equalisation figure of approximately $17,723.26.
Quantum of equitable compensation
[64] The discussion above has attempted to reasonably infer from the evidence what Dr Thachankary’s position would have been but for the defendants’ breaches. In summary, and taking a broad-brush approach, I have concluded that Dr Thachankary would have owned 50 per cent of a business valued at $481,000 and would have had a chance of obtaining additional future value or profits from the business. On the other hand, Dr Thachankary would also have been obligated to contribute approximately
$17,723.26 towards the operational costs of FBMC. Subtracting Dr Thachankary’s contribution to FBMC’s operating expenses ($17,723.26) from his half-share of FBMC (valued at $240,500) and his compensation for loss of a business chance ($34,500) results in an approximate estimate of loss of $257,276.74. I conclude that equitable compensation of $257,276.74 is just and reasonable on the facts of this case.
Are exemplary damages justified?
Dr Thachankary’s submissions
[65] Mr Barker submitted that the Raselas’ conduct was both outrageous and intentional. It included executing the lease and loan agreements without Dr Thachankary’s knowledge, refusing to authorise his salary for months to try and pressure him to reach agreement over ACMC and FBMC, and excluding him and his wife from FBMC. Counsel contended that this conduct was exceptional and that the egregious financial pressure forced on Dr Thachankary by the Raselas must have consequences. Moreover, the Raselas’ behaviour involved secrecy in keeping the existence of the core documents’ hidden from Dr Thachankary — assuming they were in fact genuine. Mr Barker argued that an award of $50,000 in exemplary damages
for breach of fiduciary duty would be appropriate, as occurred in Purucker v Huebler (No 3).47
The Raselas’ submissions
[66] Mr Waalkens submitted that exemplary damages can only relate to causes of action based on the defendants’ breach of their fiduciary duties, as opposed to in contract or tort.48 In addition, counsel contended that the threshold for exemplary damages is very high and that the present facts did not come close to reaching it.49
[67] Mr Waalkens argued that none of the Raselas’ conduct could properly be described as outrageous and worthy of punishment, nor did they engage in deliberate wrongdoing without regard for Dr Thachankary and his rights. The Raselas acknowledge that for the purposes of assessing damages, and pending their substantive appeal, they must accept the Court’s findings that they acted in breach of their fiduciary duties. However, counsel submitted their actions can be explained as follows:
(a)Mr Rasela prepared the December 2017 lease and loan documents in his perceived capacity as “managing director”. There was no fiduciary relationship between Mr Rasela and Dr Thachankary at this time, and there is no evidence that Dr Rasela had a role in preparing and signing the documents.
(b)Mr Rasela was not secretive. He discussed matters with Dr Thachankary, who took little interest in the detail. While the Court concluded Mr Rasela could have disclosed the existence of the documents at various points, non-disclosure in such circumstances does not amount to active dishonesty.
(c)Mr Rasela genuinely believed he was entitled to enter into the documents as managing director: acting on a mistaken but genuinely held belief cannot amount to outrageous conduct.
47 Purucker v Huebler (No 3) [2023] NZHC 2246, [2023] NZFLR 334 at [65]–[69].
48 Citing Paper Reclaim Ltd v Aotearoa International Ltd [2006] 3 NZLR 188 (CA); and Stephen Todd and Matthew Barber Burrows, Finn & Todd on the Law of Contract in New Zealand (6th ed, LexisNexis, Wellington, 2022) at [21.2.2.(h)].
49 See Kinnon v Hong [2023] NZHC 1988 at [92]; and Hong v Kinnon [2025] NZCA 117.
(d)Dr Rasela was generally excluded from the discussions between Mr Rasela and Dr Thachankary regarding “operational matters”. She merely executed these documents when asked to do so as director. There was no dishonesty or withholding of information on her part.
(e)Dr Rasela accepted she should not have withheld salary payments from Dr Thachankary. Her explanation is that the parties were at a stalemate, and she attempted to force a resolution of the dispute. Dr Rasela acknowledged that this was not a sensible approach but, even so, it does not mean the conduct is so outrageous as to justify an exemplary damages award. She emphasised that she also did not receive salary payments during this time.
(f)Dr Thachankary’s exclusion from FBMC was a direct response to his failure to contribute to the set up and operating costs of the business. The Raselas considered that if he was not going to meet his obligations then he could not expect to enjoy the rights of an equal partner. In any case, the Raselas’ mistaken conduct in excluding Dr Thachankary does not meet the threshold for outrageous conduct.
[68] Mr Waalkens contended there is no basis for an award of exemplary damages. However, if the Court considers such an award is warranted, counsel argued the amount must be well below $50,000. In Purucker v Huebler (No 3), the conduct involved theft of over $700,000 by a bookkeeper and financial adviser, and it was described as being at the most serious end of the range of conduct and breach of fiduciary duty warranting such an award.50 Rather, the facts of the present case are more comparable with Kinnon v Hong. In that case, this Court refused an exemplary damages claim because the loss stemming from the breach did not justify such an award.51 Mr Waalkens underscored that the Raselas’ conduct is not so serious and exceptional to warrant exemplary damages and highlighted that Dr Thachankary will, in any case, receive compensation via the other remedial orders. These other remedies also already sufficiently satisfy the punitive purposes of exemplary damages.
50 Purucker v Huebler (No 3), above n 47, at [67].
51 Kinnon v Hong, above n 49, at [96].
Dr Thachankary’s reply submissions
[69] Mr Barker accepted that the conduct complained of must be extraordinary and that exemplary damages are reserved for the most serious breaches. Even so, counsel submitted that an award for exemplary damages is justified.
[70] Contrary to the Raselas’ explanation, Mr Barker contended that Dr Rasela was deeply involved in the relevant events and was well aware of what was happening. She also took the main role in withholding Dr Thachankary’s salary and in his exclusion from FBMC. Dr Thachankary’s outstanding salary payments were only authorised after a Court order was made in December 2019 — and even then Dr Rasela continued to withhold authorisation until February 2020. In addition, she told FBMC staff that they were not to engage with Dr Thachankary. Dr Rasela also executed all of the relevant lease and loan documents and was present at FBMC meetings that approved the Raselas becoming the directors and shareholders of FBMC. She also prevented Dr Thachankary accessing FBMC’s bank accounts.
[71] Counsel argued the Raselas’ claim that they did not withhold important documents is not supported by the evidence and is refuted by the parties’ correspondence. The picture of the Raselas’ holding an honest belief in their actions is contrary to their own evidence and was rejected by the Court. The Raselas’ explanations for Dr Thachankary’s exclusion from FBMC and the withholding of his salary payments also conflict with the evidence. Mr Barker submitted that ultimately none of the Raselas’ conduct can be justified on any reasonable basis in the context of their fiduciary duties.
[72] Counsel highlighted that the Court must take account of whether the behaviour was carried out with dishonest intent and underscored that Dr Rasela knew what she was doing was wrong, and that the Raselas engaged in deliberate deception regarding the appointment of the receiver.52 In this context, the equitable damages do not sufficiently punish the Raselas for their misconduct: the Raselas will walk away with almost half the value of the business. Finally, Mr Barker contended that Kinnon v
52 Purucker v Huebler (No 3) above n 47, at [66]–[67]; and see, for example, the Liability judgment, above n 1, at [70] and [138].
Hong is readily distinguishable because, in that case, there was no evidence to support a finding of conscious dishonesty or dishonest intent.
Legal principles
[73] Exemplary damages are available for breaches of fiduciary duties but the threshold is very high. As the Court stated in Cook v Evatt (No 2), three elements must be satisfied before exemplary damages will be awarded.53 First, the defendant’s conduct must have been so outrageous that punishment is called for as an end in itself: there must have been conscious wrongdoing in contumelious disregard of another's rights. Second, other remedies the defendant will have to bear must fall short of adequate punishment. Third, exemplary damages should only be awarded in serious and exceptional cases. A broader discussion of the considerations for which the Court must account when considering the quantum of exemplary damages can be found in McDermott v Wallace, which included:54
(a)The claimant must be the victim of punishable behaviour.
(b)There should be moderation in awards.
(c)The means of the parties should be considered.
(d)Awards of compensation are relevant.
(e)Regard must be had to the imposition of any relevant criminal penalty.
(f)The conduct of the parties is relevant, including that of the claimant.
[74] In summary, awards are rare and, when granted, usually moderate. For example, Equity and Trusts in New Zealand estimates that exemplary damages awards in New Zealand typically range between $15,000–$20,000.55
53 Cook v Evatt (No 2) [1992] 1 NZLR 676 (HC) at 705–706.
54 McDermott v Wallace [2005] 3 NZLR 661 (CA) at [94]–[102], affirmed in Jay v Jay [2014] NZCA 445, [2015] NZAR 861 at [105].
55 McLay, above n 11, at [32.3.3(1)].
Discussion
[75] In the liability judgment, I concluded that Dr Thachankary was not told about, nor was his permission obtained regarding, the signing of the lease, loan and general security agreements. I left it open whether or not the documents were in fact created in 2017 or had been fraudulently produced subsequently as was alleged by the plaintiff.56 This latter situation would, necessarily, be a much more serious breach of fiduciary duties — particularly when considering exemplary damages. Nonetheless, as held in the liability judgment, there is conflicting evidence on this issue.
[76] As was the case in Cook v Evatt (No 2), a “critical question in this case is whether the defendants, or any of them, set out deliberately to deceive the plaintiff.”57 I find that, although there is no direct evidence to that effect, the surrounding circumstances lead me to conclude that the Raselas had purposely concealed the existence of these documents from Dr Thachankary.58 This is supported by the Raselas’ consistent silence about their existence when dealing with Dr Thachankary,59 and the misleading statements by Mr Rasela on:60
(a)11 May 2018 — “Alex lease is $50 k plus gst per year”;
(b)11 May 2018 — “I can’t bear losses continuously and we need to have agreements in writing for 201 Murphys rd business”;
(c)4 February 2019 — “no lease agreement is in place”; and
(d)25 February 2019 — “It is our mistake that we did not charge you for the renovation of this building and offered you the partnership without any investment”.
[77] When considered cumulatively, these statements and the overall silence regarding the 2017 documents lead to the conclusion that their concealment from Dr Thachankary was deliberate: a conclusion which is underscored by the manner in
56 Liability judgment, above n 1, at [75].
57 Cook v Evatt (No 2), above n 53, at 706.
58 Assuming they had, in fact, been created in 2017.
59 See Liability judgment, above n 1, at [60]–[62] and [74]–[75].
60 Liability judgment, above n 1, at [63]–[66].
which the documents were eventually revealed — by placing FBMC into receivership (at the expense of Dr Thachankary) while misrepresenting to him and his solicitors that the Raselas were attempting to explore resolution possibilities but were experiencing delays due to events like the Diwali festival.61 This form of concealment is a principal aggravating factor when considering exemplary damages for breach of fiduciary duty.62
[78] Liability for exemplary damages must be considered in relation to the first and second defendant individually.63 However, I am unable to accept Mr Waalkens’ submission that this breach only involved Mr Rasela. Dr Rasela is a sophisticated medical professional who signed all the relevant documents. In this context, it is unrealistic to separate her liability for, and knowledge of, the concealment of the above documents from that of Mr Rasela.
[79] Dr Rasela also played a principal role in other parts of the dispute, including the withholding of salary payments to Dr Thachankary for approximately one year to pressure him into resolving the dispute. She knew this was his primary source of income and that her withholding was “wrong”.64 This was a serious breach of her fiduciary duties. Although it could be argued that this is not sufficient to warrant punishment beyond that inherent in any breach of fiduciary duty, I note the proposition in Cook v Evatt (No 2) that the emphasis that underlies much of traditional fiduciary law on the strictness of the fiduciaries’ obligations and the vulnerability of the defendant means that “the additional step of demonstrating punishable conduct may be a relatively short one compared with most other classes of action”.65
[80] Again, as above, I consider it would be artificial to separate Mr Rasela’s liability and knowledge of this withholding from that of Dr Rasela. The evidence suggests that they operated as a team, and the withholding of the payment was part of their overall attempts to obtain further contributions from Dr Thachankary or to exclude him from FBMC.
61 Liability judgment, above n 1, at [70]–[73].
62 Bevan Marten “Exemplary Damages” in Blanchard (ed) Civil Remedies in New Zealand (2nd ed, Thomson Reuters, Wellington, 2011) at [12.6.11].
63 Cook v Evatt (No 2), above n 53, at 707.
64 Liability judgment, above n 1, at [138].
65 Cook v Evatt (No 2), above n 53, at 706.
[81] Turning to the exclusion of Dr Thachankary from FBMC, this was a serious breach of fiduciary duty and was carried out because Dr Thachankary would not contribute to the fit-out and construction costs. While, in itself, the exclusion may not have been sufficiently outrageous to warrant exemplary damages, it must be placed in the context of the other breaches. Assuming that the 2017 documentation was created and executed in 2017, this means that at the same time Dr Thachankary was being excluded from FBMC for not contributing to the fit-out costs the Raselas were concealing the existence of the documents upon which their claim for such contributions was based.
[82] Dr Thachankary’s reluctance to make such contributions in these circumstances is understandable, especially in light of comments from Mr Rasela such as “[i]t is our mistake that we did not charge you for the renovation of this building and offered you the partnership without any investment”.66 I consider that, in this context, it was serious, exceptional and outrageous for the Raselas to exclude Dr Thachankary, their business partner, from FBMC for not contributing to these costs while, simultaneously, deliberately concealing the documents which provided the basis for him making any such contributions.
[83] Comparing the present case with those cited, I consider the seriousness of the Raselas’ conduct falls somewhere between Purucker v Huebler and Kinnon v Hong. The defendants’ breaches were less serious than those in Purucker v Huebler. In that case, over the course of six years “Ms Huebler systematically defrauded Ms Purucker
— a close friend — out of her entire life savings, all the while pretending to have her best interests at heart and providing regular assurances that everything was in order.”67 Isac J found that a judgment “which amounts to no more than a declaration of liability for money that has been stolen is inadequate, in my view, to denounce and deter the first defendant’s conscious wrongdoing.”68
[84]On the other hand, the Raselas’ breaches were more serious than in
Kinnon v Hong. The high point of Mr Hong’s conduct was that he acted without
66 See Liability judgment, above n 1, at [65].
67 Purucker v Huebler, above n 47, at [67].
68 At [67].
properly advising his clients and without the consent of his co-trustee to secure his own interests to the detriment of the trust’s interests. After ostensibly becoming frustrated by the plaintiffs, and while under financial pressure, he decided to disregard the trust’s equitable interest and present unencumbered title to ASB Bank Ltd to acquire mortgage funds which he used personally. This behaviour was rationalised by Mr Hong with reference to legal arrangements which do not appear to have been agreed but where no findings were able to be made in that limited proceeding.69 The Raselas likewise acted in their own interests to the detriment of Dr Thachankary by taking actions on behalf of FBMC without his consent. However, in addition, there was an element of real deception that makes their conduct worthy of punishment.
[85] Moreover, in Kinnon v Hong, a key fact was that the plaintiff had already obtained $8,000 in compensation following disciplinary proceedings brought in his personal capacity. He then brought essentially the same claim in his capacity as trustee, despite there being no evidence of trust losses justifying exemplary damages. This led to an issue of double recovery.70 This factor does not apply to this case.
[86] By a narrow margin, I agree that exemplary damages should be awarded for the first and second defendants’ breaches of fiduciary duties. The concealing of the existence of the lease, loan and general security agreements, and the withholding of Dr Thachankary’s salary can be categorised as outrageous. In addition, the evidence suggests these breaches were carried out with conscious and contumelious disregard for Dr Thachankary’s rights and the defendants’ fiduciary obligations. I therefore consider that the Raselas’ breaches in this case are sufficiently outrageous, serious and exceptional to be deserving of punishment — albeit to a lesser extent than in Purucker.
[87] Even so, it is necessary to consider whether the other remedies the defendants will have to bear fall short of adequate punishment. The first and second defendants are already required to pay compensation of at least $892,444.95 comprising:
(a)equitable compensation of $257,276.74;
69 Kinnon v Hong, above n 49, at [93].
70 At [96].
(b)loan repayment of $235,000 plus interest from 31 August 2018;71
(c)remuneration to Ms Crasta of $69,690; and
(d)their half-portion of $660,956.43 for Dr Thachankary’s unpaid salary hours, GST and interest.
[88] The question is whether this amount is, of itself, sufficient for the purposes of punishment and deterrence.72 With the exception of compensation for loss of a business chance, this compensation amounts to no more than a declaration of liability for money that has been improperly withheld from Dr Thachankary. I therefore consider it is insufficient to denounce, punish and deter the Raselas’ conscious wrongdoing.73 A further sum for exemplary damages is justified.
[89] That said, various contextual matters mitigate the severity of such an award. The breaches did not occur in a vacuum but amidst a breakdown in the parties’ relationship, where their behaviour was characterised by “bitterness, disharmony, intransigence and conflict”.74 Dr Thachankary was also at fault in this conflict — albeit to a lesser extent. His conduct (including the allegations of bullying which required a written response by Mr Rasela75 and his frustrating withdrawals from various commercial ventures76) is relevant to establishing the context in which these breaches occurred and to the assessment of exemplary damages.77 There is also a commonly recognised and expressed need for moderation in the quantum awarded for exemplary damages,78 and this has been incorporated into the sum below.
[90] Arguably, a sum similar to that awarded in Cook v Evatt (No 2) would be appropriate. There the defendant breached fiduciary obligations by “using a façade of disinterested professional advice in order to covertly sell his own properties at a profit
71 Liability judgment, above n 1, at [126]. Although, I note that they have disputed this amount and only paid $175,000 plus interest so far.
72 McDermott v Wallace, above n 54, at [95].
73 See Purucker v Huebler, above n 47, at [67].
74 Liability judgment, above n 1, at [139].
75 Liability judgment, above n 1, at [130], [132] and [139].
76 Liability judgment, above n 1, at [10] and [56].
77 McDermott v Wallace, above n 54, at [102]
78 See McDermott v Wallace, above n 54, at [94] and [96].
to vulnerable members of the public” — thereby obtaining secret profits.79 The Raselas were also involved in deceptive conduct and engaged in the additional serious breach of withholding Dr Thachankary’s salary — this was not present in Cook v Evatt (No 2). On the other hand, as discussed above at [89], the combative nature of the parties’ deteriorating relationship and Dr Thachankary’s own contributions to their conflict serve to mitigate some of the Raselas’ misconduct.
[91] Considering the $5,000 awarded in Cook v Evatt (No 2), I find that a similar award of exemplary damages would be appropriate in this case. After adjusting for inflation, I consider an award of $10,000 for exemplary damages is warranted. This falls well below the range of exemplary damages noted in Equity and Trusts in New Zealand, and is significantly less than sought by the plaintiff or awarded in Purucker.80 Nonetheless, while a relatively small award given the context of this case and the other remedial orders made, it serves an important function in recognising the serious, exceptional and outrageous misconduct of the defendants.
Who should buy the shares in ACMC and at what price?
[92] The final issue to be determined is who should buy the shares in ACMC and for what price. Before determining this issue, however, the interlocutory application filed by the Raselas must be addressed.
Application to adduce further evidence and for discovery — the Raselas’ submissions
[93] On 26 September 2024, the Raselas filed an interlocutory application to adduce further evidence and to compel Dr Thachankary to provide discovery of documents related to his wife’s purported acquisition of a property nearby ACMC from which to operate a competing medical practice. The Raselas alleged that Dr Thachankary must have been aware of his wife’s purchase at the time of the hearing. Mr Waalkens submitted that Dr Thachankary and Ms Crasta failed to disclose this relevant evidence to the Court by way of supplementary discovery (despite a specific request from counsel) or in evidence in chief and cross-examination. Counsel contended this
79 Cook v Evatt (No 2), above n 53, at 706–707.
80 Furthermore, it may fall even further below the range of average quantum for exemplary damages referred to in Equity and Trusts in New Zealand once the range is adjusted for inflation given that Equity and Trusts in New Zealand was published in 2009.
evidence should have been before the Court at the hearing and should be before the Court now because it addresses key issues, including:
(a)Dr Thachankary’s breach of duties owed to Dr Rasela as his partner in ACMC;
(b)Dr Thachankary’s intention to compete with ACMC and to take its clients if Dr Rasela buys his shares in ACMC;
(c)the necessity of a restraint of trade on the party selling shares in ACMC;
(d)the value of ACMC if a restraint of trade against Dr Thachankary is not imposed; and
(e)the likelihood Dr Thachankary agreed to “leave in” the personal loan of
$175,000 as his contribution to the development of a medical centre at 40–44 East Street given his demonstrated interest in the property.
[94] Mr Waalkens argued this evidence is fresh and was not reasonably discoverable at the time of the hearing. Moreover, it is in the interests of justice for the Court to consider this evidence before addressing remedies and the admission of this evidence would cause no unfairness to any other party.
[95] Regarding the discovery application, counsel submitted that any and all documents and communications relating to the acquisition of the new property, the consent to establish a medical practice there, and the intended medical practice itself are highly relevant to the proceedings. These documents should have been discovered by Dr Thachankary and they will be within his power or possession. Mr Waalkens also contended that the discovery sought is proportionate as the documents should be readily available, are directly relevant to material issues and will have a bearing on this judgment.
[96] In addition, counsel highlighted paragraph [134] of the liability judgment and emphasised that this must have been based on Dr Thachankary’s evidence that he had “made some enquiries” about establishing another clinic in the area. Yet, Mr Waalkens argued that this position is in stark contrast to the significant concrete attempts by
Dr Thachankary to secure new premises to establish a nearby practice to rival ACMC. Therefore, counsel submitted that Dr Thachankary’s evidence must be seen to be evasive and misleading. This must be taken account of when a Court assesses where the equities lie in these proceedings.
Application to adduce further evidence and for discovery — Dr Thachankary’s submissions
[97] Mr Barker submitted that Dr Thachankary already gave evidence under cross-examination that he has made inquiries about establishing another business within the area a few months before the hearing. In which case, further evidence on this issue is unnecessary, irrelevant and will not advance the determination of the limited remaining issues before the Court — being what damages the first and second defendants should pay Dr Thachankary for breaching the FBMC agreement and their fiduciary duties. Moreover, counsel contended that this evidence becomes even less relevant because Dr Thachankary is willing to acquire Dr Rasela’s interest in ACMC. Mr Barker argued there are no exceptional circumstances justifying the exercise of the Court’s discretion to adduce further evidence after the substantive judgment.
Discussion
[98] While this evidence was raised at the 10 December 2024 hearing on quantum, the interlocutory application (particularly in relation to discovery) was not especially pursued. Nevertheless, it is necessary to determine the application both for completeness and to understand the relevance and admissibility of this evidence when assessing the appropriate remedies, including who should be permitted to purchase the other party’s shares in ACMC and for what price.
[99] I agree that the evidence sought by the Raselas is fresh, credible and cogent. Further, I do not consider that its admission has caused unfairness to Dr Thachankary that cannot be remedied through costs. On the other hand, Dr Thachankary did indicate his enquiries into purchasing a nearby practice and his intention to compete with ACMC during cross-examination. He simply did not set out the precise steps he had already taken to do so. On balance, I find it is in the interests of justice in this case to admit the further evidence, especially as it appears to have taken the Raselas
by surprise. I consider there are sufficient exceptional circumstances in this case, albeit by a fine margin, to allow this evidence.
[100] In contrast, I do not consider further discovery should be ordered for three reasons.81 First, the documents sought by the Raselas, while relevant, are not especially important given that Dr Thachankary has admitted to purchasing the property with his wife for the purpose of setting up a competing medical practice. This admission already establishes the relevant fact for the issues raised at [2(m)] of the Raselas’ interlocutory application.
[101] Second, although there are strong grounds for the belief the documents sought exist, the discovery is not proportionate given the limited importance of these documents and the time and cost of discovery — although these may also be of a limited nature.
[102] Third, weighing matters together, it would be inappropriate and disproportionate to apply my discretion under r 8.19 of the High Court Rules 2016 to make the discovery orders sought. The documents have little substantial bearing on the remedial matters now before me given the admission of Dr Thachankary, and it is in the interests of justice and the parties for this issue to be concluded without further delays. Accordingly, I decline to make an order for further particular discovery.
Legal principles
[103] The prevailing consideration for the Court under s 174 of the Companies Act 1993 is whether the granting of relief is “just and equitable”.82 This Court in Jordan v Chemical Specialities Ltd set out the relevant principles:83
(a)The purpose of the relief is not punitive but remedial.
(b)Any order should be directed clearly to provide a remedy of an appropriate character.
81 See Assa Abloy New Zealand Ltd v Allegion (New Zealand) Ltd [2015] NZHC 2760, [2018] NZAR 600 at [14].
82 Companies Act 1993, s 174(2).
83 Jordan v Chemical Specialties Ltd (1999) 8 NZCLC 261,839 (HC) at 17–18.
(c)The Court should be wary of intervening in the management of the company to any extent greater than is strictly necessary to provide the appropriate remedy.
(d)The Court has a very broad discretion to select the remedy appropriate to the situation before it and to not hesitate to be creative and flexible in fashioning a remedy to fit the case.
[104] Importantly, the Court “assesses oppression by reference to shareholders’ reasonable expectations and interests, which may dictate that they should not continue in business together.”84 In rare cases, liquidation will be the appropriate remedy where there has been an irretrievable breakdown in the relations between the parties and where one or both parties were at fault.85 The most common form of relief is the compulsory purchase of shares, which is what is the primary remedy sought in this case. In assessing the value of shares, the Court of Appeal underscored:86
[35] … there is an overriding principle that the price to be fixed by the Court on an order for the acquisition of shares under what is now s 174 is to be a fair price in all the circumstances of the case.
Purchase by Dr Thachankary — Dr Thachankary’s submissions
[105] Dr Thachankary has reviewed his position following the liability judgment and decided to purchase Dr Rasela’s shares in ACMC. Mr Barker submitted that it is Dr Thachankary who has grown ACMC and maintained and enhanced the patient relationships. Dr Rasela does not have those connections. It would therefore be just and equitable for Dr Thachankary to purchase the shares and remain at ACMC.
[106] Moreover, counsel contended that a purchase by Dr Thachankary would be the usual approach in actions under s 174 of the Companies Act and would avoid the issue of a restraint of trade condition which can be particularly difficult when dealing with the personal health relationship between doctors and patients. A purchase by
84 Sturgess v Dunphy [2014] NZCA 266 at [172].
85 See Jenkins v Supscaf Ltd [2006] 3 NZLR 264 (HC); Kim v Pink Nails Ltd HC Hamilton CIV-2009-419-1472, 11 August 2010; and Strachan v Denbigh Property Ltd HC Palmerston North CIV-2010-454-232, 17 December 2010.
86 M Yovich & Sons Ltd v Yovich (2001) 9 NZCLC 262,490 (CA).
Dr Thachankary would also avoid the issue of re-determining the enterprise value of ACMC, as Dr Thachankary is prepared to proceed using the value of $1.178 million.
[107] However, Mr Barker argued that ACMC’s value has been the result of Dr Thachankary’s ongoing efforts in spite of Dr Rasela’s conduct. Therefore, counsel submitted that Dr Thachankary should be permitted to purchase Dr Rasela’s shares at an 80:20 split in his favour (in other words, for $235,600).
[108] In addition, Mr Barker submitted that ACMC has generated significant additional cashflow — effectively retained profits — and that any cash surplus after clearing liabilities was agreed to be shared on an equal basis by the partners. Once this cash component is factored into the equation, the effective payment to Dr Rasela for her ownership of 50 per cent of the shares will significantly exceed 20 per cent. Counsel also noted Dr Rasela’s response in cross-examination when asked whether a fairer resolution would be a greater share of the profit for Dr Thachankary, to which she responded, “maybe that would be right”.87
[109] Even so, Mr Barker acknowledged that the value of the cash surplus is presently unknown because the annual accounts for ACMC for the financial years ending 2022, 2023 and 2024 have not been completed. As a result, both doctors had agreed to the appointment of a new accountant who at the time of the hearing was presently undertaking completion of those accounts. Counsel contended that once the accounts are complete, then the final amounts to be paid will need to be confirmed by the parties’ experts. However, Dr Thachankary’s purchase of Dr Rasela’s ACMC shares should not be contingent on the distribution of the cash surplus, which is a matter to be left for the experts to determine.
Purchase by Dr Thachankary — The Raselas’ submissions
[110] Mr Waalkens argued that Dr Thachankary should be held to his previous position of selling his shares to Dr Rasela. However, if the Court orders Dr Thachankary to purchase Dr Rasela’s shares, then this should be for 50 per cent of the agreed enterprise value (in other words, for $589,000).
87 Notes of Evidence dated 18 September 2023 at 360.
[111] Counsel contended the original basis for the 80:20 split, as argued at the liability hearing, was that Dr Thachankary would be selling his shares, leaving ACMC and providing a restraint of trade. As these factors no longer apply, logically the 80:20 split is no longer warranted. In determining the appropriate split, Mr Waalkens noted:
(a)Dr Rasela purchased ACMC in 2016 for $225,000. She invested much time and effort before ceasing practice in 2021. If Dr Thachankary purchases her shares, she will have gone from a co-owner of two medical practices to the owner of none. She is entitled to 50 per cent of ACMC and this is consistent with Dr Thachankary’s assertion that he was entitled to 50 per cent of FBMC.
(b)There was no intention that Dr Thachankary would be left as the sole GP at ACMC. He resisted requests from Dr Rasela to engage a locum. Instead, he has been able to run ACMC with his wife as they see fit. Therefore, the Court should give little weight to complaints that Dr Thachankary has been left on his own.
(c)A claim of excess profits being generated by Dr Thachankary as sole GP is not supported by the evidence. A logical conclusion could be made that reducing expenses will mean increased profits. However, the Court should proceed cautiously before arriving at that conclusion in the absence of relevant accounting evidence.
(d)ACMC’s profit is not solely because of Dr Thachankary. It would be incorrect to assume that the surplus available has been generated by him alone. Profits may have accumulated between 2016 and 2021. Further, she has continued to be involved in her capacity as director. Dr Rasela’s role in helping establish the business must be properly acknowledged.
(e)Dr Thachankary claims an entitlement to 50 per cent of the value of FBMC by virtue of his 50 per cent shareholding, despite never practicing as a GP at FBMC. In contrast, he seeks to deny Dr Rasela from receiving 50 per cent of the value of ACMC even though she worked there as a GP from 2016–2021. These positions are logically inconsistent.
(f)Dr Thachankary’s extra workload at ACMC has already been recognised via the Court’s order that he be compensated an additional 20 per cent for his hours during the period February 2019 to February 2021 and an additional 40 per cent since February 2021. That order already compensates Dr Thachankary for his additional contributions to ACMC.
(g)ACMC has paid almost $70,000 to Ms Crasta and will pay Dr Thachankary
$660,956.43. ACMC’s cash reserves will be depleted by those payments before any shareholder distributions. As a result, it is difficult to assess Dr Thachankary’s argument that Dr Rasela will receive a payment that will greatly exceed 20 per cent of the value of ACMC once the cash component is calculated.
(h)Dr Thachankary’s conduct also engaged s 174 of the Companies Act,88 breached his obligations towards Dr Rasela and caused her to leave ACMC in 2021.
(i)Dr Thachankary has been actively breaching the ACMC agreement and his fiduciary obligations by seeking to establish a medical practice in competition with ACMC since at least August 2023.
[112] Taking account of the above factors, Mr Waalkens submitted that if Dr Thachankary purchases Dr Rasela’s shares in ACMC, it should be on a 50:50 basis. The final amount to be paid should be confirmed by the experts once ACMC’s accounts are completed. The shares in ACMC can then be transferred on receipt of any payment due to Dr Rasela. Any sale should not include any further conditions.
Purchase by Dr Thachankary — Dr Thachankary’s reply submissions
[113] Dr Thachankary accepted he has changed his position since the liability hearing. Yet in doing so, according to Mr Barker, he has not prejudiced Dr Rasela. Dr Rasela’s prior position was that if she was unable to acquire Dr Thachankary’s shares in ACMC with a restraint of trade condition attached, then the only alternative
88 Liability judgment, above n 1, at [140].
was the liquidation of ACMC. The Court rejected imposing a restraint of trade, and so from Dr Rasela’s perspective liquidation was the only remaining alternative.
[114] Counsel submitted that in the year that has passed since trial, Dr Thachankary has continued to build ACMC. He is prepared to purchase the practice on the basis of the agreed enterprise value as adjusted by the Court in recognition of the breaches of the ACMC agreement by Dr Rasela. Mr Barker contended that this is a better outcome than liquidation. Taking account of the circumstances, an 80:20 split of the enterprise value of ACMC in Dr Thachankary’s favour is a just and appropriate outcome.
[115] Counsel further argued that the restraint of trade clause was only one factor in favour of the proposed 80:20 split. The most important remained that Dr Thachankary was the person who built the business and generated its profit. His willingness to purchase at the agreed enterprise value despite a lack of restraint of trade condition should also be considered when determining the appropriate proportion.
[116] Mr Barker submitted that Dr Rasela was not “forced out” of ACMC but that she chose to leave in breach of the ACMC agreement. There is no equivalence between the ACMC and FBMC situations as the former involved Dr Rasela leaving it entirely for Dr Thachankary to run while simultaneously refusing to authorise his salary. The latter involved Dr Rasela excluding Dr Thachankary from FBMC. Accordingly, the similarity between the situations is simply that they both involved Dr Rasela breaching the relevant agreements.
[117] Counsel further contended that the evidence showed it was Dr Rasela who imposed unreasonable terms that prevented a locum from being appointed, not Dr Thachankary. In any case, if a locum had been employed it would have reduced the profit earned. Therefore, the lack of a locum did not change the extent to which Dr Thachankary created value in the business. Crucially, Mr Barker confirmed that Dr Thachankary is not prepared to purchase ACMC at the agreed value at anything other than an 80:20 split. Otherwise, Dr Rasela would need to purchase the business at the share of the agreed value proposed by the Court (without any restraint of trade) or the company would need to be put into liquidation.
Discussion
[118] It is well settled that the Court has considerable discretion under s 174 to select an appropriate remedy. Although Dr Rasela contributed to building the ACMC practice from 2016, this was only in 0.7 FTE as opposed to Dr Thachankary’s 1 FTE, and this reduced from 1 February 2019, before ceasing in February 2021 (apart from occasional locum work). From that point, it was Dr Thachankary who ran the ACMC practice and who continues to do so. He has therefore made the greater contributions to the business. It also means that he is best placed to continue its operation should he be permitted to purchase the remaining shares.
[119] I acknowledge Mr Waalkens’ submission that Dr Thachankary’s purchase of the ACMC shares would force Dr Rasela “to exit a business that she purchased in 2016 for $225,000 and then invested much time and effort into before ceasing practicing at the clinic in 2021”. Even so, I must also recognise that Dr Thachankary was an equal partner and contributor to the purchase of ACMC in 2016 and has invested even greater time and effort into the business, and for a longer and ongoing period. Moreover, my findings at [138]–[140] of the liability decision confirmed that Dr Rasela’s conduct was oppressive and prejudicial to Dr Thachankary and was far more serious than his misconduct in the context of seeking s 174 relief.
[120] I acknowledge that Dr Thachankary has changed his position about the purchase of ACMC shares. Mr Waalkens contended this was because the Raselas had uncovered Dr Thachankary’s plan to purchase a nearby medical practice and compete with ACMC. However, I agree with Mr Barker that there has been little prejudice to Dr Rasela by Dr Thachankary’s change, given her earlier position that liquidation was the sole option if a restraint of trade condition was not ordered by the Court. In this context, I note that Dr Rasela has also changed her position and is now willing to purchase ACMC without a restraint of trade condition, albeit at an adjusted price. Given the change in both parties’ positions, I do not consider these issues significantly alter the assessment of where the justice falls in this case.
[121] In short, for the reasons outlined above, I find it would be just and equitable in the circumstances of this case for Dr Thachankary to purchase Dr Rasela’s ACMC
shares. However, determining the appropriate price for these shares is crucial as Mr Barker has submitted that Dr Thachankary is only willing to purchase Dr Rasela’s shares at the agreed value on the basis of an 80:20 split. Otherwise, Dr Rasela would need to purchase the shares or the company would need to be put into liquidation.
[122] Dr Thachankary’s proposed 80:20 split is not justified. The primary point raised by Dr Thachankary, being his additional time and effort invested into ACMC, has largely been already addressed by the amounts provided for his additional hours worked. A further 30 per cent discount is not needed to meet the remedial purposes of an order under s 174. In addition, as a shareholder, Dr Thachankary does not necessarily have a reasonable expectation to obtain the discount claimed. The original expectation of the ACMC agreement was that both parties would be equal partners.
[123] In addition, the discussion of any shortfall made upon the sale of Dr Rasela’s shares being compensated for by a proportion of the cash surplus is largely irrelevant. The parties had agreed, and had reasonable expectations, of sharing in these jointly. In the circumstances, the evidence as to the extent of these surpluses is also speculative given that the accounts are incomplete and they will undoubtedly be affected by the payments made from ACMC to Dr Thachankary and his wife. As I find that a sale of Dr Rasela’s shares in ACMC to Dr Thachankary on an 80:20 basis is not justified and Mr Barker confirmed Dr Thachankary is only willing to purchase them on that basis, I turn to consider a sale of Dr Thachankary’s shares to Dr Rasela.
Purchase by Dr Rasela — the Raselas’ submissions
[124] Mr Waalkens submitted that if a restraint of trade condition is not imposed, then the agreed enterprise value of ACMC ($1.178 million) would be undermined and of limited use. This is because, as foreshadowed, Dr Thachankary intends to immediately compete with ACMC by establishing a nearby medical practice. Counsel contended further evidence was required on this point as well as an update of the expert evidence as to ACMC’s enterprise value.
[125] Nonetheless, if further evidence on the impact of a restraint of trade condition is not sought by this Court, Mr Waalkens confirmed Dr Rasela’s willingness to purchase ACMC without a restraint of trade clause, albeit at a reduced price — for
example, 40 per cent of the agreed enterprise value (being $471,200). Counsel highlighted that Dr Rasela would be taking all the risk because any such proposed purchase would not include a restraint of trade or non-solicitation condition.
[126] Mr Waalkens also argued that the Court should take account of the fact the profits from ACMC were never paid out to the partners between 2016 and 2021. Dr Rasela devoted herself to that practice and assisted in generating those profits. As to Dr Thachankary’s alternative — liquidation of ACMC — such an outcome was not in the interests of either partner.
Purchase by Dr Rasela — Dr Thachankary’s submissions
[127] Mr Barker contended that Dr Thachankary is the natural purchaser as he has run the practice for the last three years and has the relationships with the patients. Dr Thachankary is also prepared to pay on the basis of the agreed enterprise value. Counsel emphasised the Court’s finding that Dr Thachankary was the oppressed party and argued that it would, therefore, not be an appropriate exercise of the Court’s discretion to force Dr Thachankary to sell the business to Dr Rasela at a reduced price when the only reason for the sale are the breaches by Dr Rasela and her husband.
[128] Mr Barker submitted that the agreed enterprise value was not conditional on any restraint of trade. Dr Rasela, knowing Dr Thachankary was considering competing with ACMC, did not seek to make the agreement on enterprise value conditional on the imposition of a restraint of trade. Counsel contended it would therefore be inappropriate to allow Dr Rasela to resile from that agreement when the relevant circumstances were well known to her at the time.
Discussion
[129] From the outset of this analysis, I acknowledge that no formula applied by the Court will find favour with either of the parties given their respective submissions. I also accept that determining an appropriate set of remedies will not be a precise exercise down to the last cent. As Mr Barker submitted, in the circumstances, the Court can only consider remedies in the round, given that the approach taken to
equitable damages is broad and flexible.89 The short point is that, the agreed payments aside, a broad-brush approach to the remaining remedies is also necessary to take account of the circumstances of this case.90
[130] Despite Mr Waalkens’ submissions, I still consider that the most appropriate remedy is for Dr Thachankary to become the sole owner of ACMC. First, it makes little practical sense for Dr Rasela to buy his shares given it is Dr Thachankary who has maintained the patient relationships and the business of ACMC overall. Dr Rasela has not preserved these connections and she would effectively be purchasing the business as a completely new owner-operator with few existing patient relationships. While that is not a fatal position to be in, it makes more practical sense for Dr Thachankary to secure sole ownership of ACMC.
[131] This is only compounded by the fact that Dr Thachankary appears to be in the process of setting up a competing medical practice some 130 metres away from ACMC. Whether this is a breach of Dr Thachankary’s obligations of good faith and loyalty under the ACMC agreement, it affects the practicality and desirability of Dr Rasela becoming the sole owner of ACMC. Notably, Mr Waalkens accepted that if Dr Thachankary purchased the shares, this issue would become moot and ACMC’s agreed enterprise value could remain unchanged.
[132] Second, and as discussed above at [118]–[120], it is more just and equitable for Dr Thachankary to purchase Dr Rasela’s shares. He has contributed more to the business, especially in recent years, and he is the primary oppressed party.
[133] Nonetheless, for the reasons set out above at [122]–[123], an 80:20 split is not justified. Taking account of the circumstances and other remedial orders set out in this judgment, the appropriate division between the parties is a 60:40 split in Dr Thachankary’s favour. This recognises, inter alia, the fact that Dr Thachankary has continued to grow the ACMC business during the intervening period without much assistance from Dr Rasela. At the same time its relatively moderate amount recognises that Dr Thachankary has largely been compensated for his additional hours at ACMC,
89 Pangani Properties Ltd v Lloyd, above n 7, at [146].
90 See above at [103(d)], citing Jordan v Chemical Specialties Ltd, above n 83, at 17–18.
that the opportunity for Dr Rasela to obtain significant cash surpluses is unclear, and that the original intention was for both doctors to remain equal partners in the business.
[134] If Dr Thachankary is unwilling to purchase the shares without an 80:20 split, it is appropriate that Dr Rasela be given the opportunity to purchase his shares, as advocated for by both counsel. As to the appropriate price to be paid, the agreed enterprise value was not conditional on a restraint of trade requirement being included. Nevertheless, it is evident that Dr Thachankary’s plans to open a competing medical practice nearby and to likely solicit ACMC’s patients would reduce the value of ACMC. This was raised in cross-examination, although not in detail.
[135] Stepping back, I consider that a shareholder would reasonably expect other shareholders and directors not to engage in direct competition. Even so, Dr Rasela has offered to purchase Dr Thachankary’s shares without a restraint of trade. Although as mentioned Dr Thachankary is the primary oppressed party for the purpose of s 174, it is just and equitable in these circumstances to adjust the price if Dr Thachankary declines to purchase the shares of Dr Rasela and instead she agrees to purchase the shares. In which case, I find that a 50:50 split would be appropriate.
[136] Therefore, the appropriate remedy under s 174 of the Companies Act is an order for either Dr Thachankary to purchase Dr Rasela’s shares for 40 per cent of the agreed value ($471,200) or, failing that, for Dr Rasela to purchase Dr Thachankary’s shares for 50 per cent of the agreed enterprise value ($589,000). If Dr Rasela also elects not to purchase the shares, then the only remaining option will be for ACMC to be liquidated as set out below at [140].
Decision
[137]Mr Rasela and Dr Rasela are jointly and severally liable to pay Dr Thachankary
$257,276.74 in equitable damages, with interest under the IMCA from 31 January 2020 until payment).
[138]Mr Rasela and Dr Rasela are jointly and severally liable to pay Dr Thachankary
$10,000 in exemplary damages, with interest under the IMCA from the date of this judgment until payment.
[139] Dr Thachankary has 20 working days from the date of this judgment to elect to purchase Dr Rasela’s shares in ACMC for 40 per cent of the agreed enterprise value ($471,200). If he declines to do so within the 20 working days, Dr Rasela will have an additional 10 working days to elect to purchase Dr Thachankary’s shares in ACMC for 50 per cent of the agreed enterprise value ($589,000). The parties are to co-operate to do all things necessary to effect either sale, including determining final sums payable for any cash surpluses held by ACMC.
[140] Unless either Dr Thachankary or Dr Rasela purchase the other’s shares in ACMC within the periods outlined in [139] above, ACMC must be placed into liquidation. In that event, counsel will be consulted about the names of suitable liquidators.
[141]As to the agreed salary payments addressed above at [7]–[8]:
(i)ACMC is to pay Dr Thachankary $660,956.43 for his unpaid salary payments before 1 August 2024, plus interest under the IMCA from the date of this judgment until payment.
(ii)ACMC is to pay Dr Thachankary at a rate of $150 plus GST per hour, at the additional loading in paragraph [116] of the liability judgment, for attendances after 1 August 2024.
(iii)Dr Rasela is to authorise all the above ACMC payments.
(iv)These orders are without prejudice to any claim Dr Thachankary may have as to increases in rates to be paid.
[142] Leave is reserved for the parties to seek further orders or assistance from the Court as to the implementation of these orders.
[143] If costs cannot be agreed, Dr Thachankary has 20 working days from the date of this judgment to submit a memorandum. The Raselas will then have a further 10 working days to submit their memorandum. Memoranda are not to exceed eight pages.
Harvey J
Solicitors:
Jackson Russell, Auckland (S McNulty) Skeates Law Ltd, Mt Eden, Auckland Simpson Dowsett Meggitt, Auckland Molloy Hucker, Auckland (R B Hucker)
Counsel:
A R B Barker KC, Auckland A H Waalkens KC, Auckland
D G Collecutt, Barrister, Auckland
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