STILWELL V ICE GROUP (NZ) LIMITED COA CA798/2010

STILWELL V ICE GROUP (NZ) LIMITED COA CA798/2010 [4 April 2012]IN THE COURT OF APPEAL OF NEW ZEALANDCA798/2010[2012] NZCA 136BETWEEN MAURICE GEORGE STILWELLFirst AppellantAND NOEL BUSSCHAU SWANSecond AppellantAND ICE GROUP (NZ) LIMITEDFirst RespondentAND ERIC THOMSONSecond RespondentAND NEW ZEALAND DATA LIMITEDThird RespondentAND NETWORK CABLING SOLUTIONSLIMITEDFourth RespondentHearing: 30 November 2011Court: Chambers, Ellen France and Arnold JJCounsel: D E Smyth for AppellantsT G Stapleton and J A Langford for First, Second and ThirdRespondentsNo appearance for Fourth RespondentJudgment: 4 April 2012 at 11.30 amJUDGMENT OF THE COURTA The appeal against the decisions of the High Court dated 28 October 2010 and 15 December 2010 is allowed.B Both decisions are quashed.C An order is made requiring the second respondent to acquire the sharesof the appellants in the first respondent.D The terms of the acquisition are as follows:(a) the shares are to be acquired at their fair market value as at 31 March 2005;(b) if the appellants and the second respondent cannot agree on the fair market value of the shares or on a non-curial method for fixing that value, any of them may apply to the High Court for an order fixingthe value ("the application");(c) how the application is dealt with is entirely a matter for the High Court;(d) the High Court may add additional terms on which the acquisition is to take place;(e) costs associated with the hearing of the application are entirely at the discretion of the High Court;(f) the second respondent must pay the appellants interest on the fair market value as agreed or fixed by the High Court from 1 May 2005 to the date of payment at the rate specified from time to time under s 87 of the Judicature Act 1908.E Nothing in order D prevents the parties from agreeing whatever terms they wish with respect to the acquisition of the shares.F Costs in this Court are reserved. If the appellants and the second respondent cannot agree on costs, the parties may file memorandums for this Court's consideration.G If the parties cannot agree costs in the High Court with respect to all matters in that Court to this date, the parties may file memorandums forthat Court's consideration. Costs will be fixed in that Court in light ofthe judgment in this Court and the reasons therefor.REASONS OF THE COURT(Given by Chambers J)Table of contentsPara NoA Defence Force contract awakens sleeping partners [1]Issues on the appeal [13]Was the Judge right in finding Mr Thomson's conduct was notunfair to Messrs Stilwell and Swan as shareholders of Ice? [21]The appellants' argument [21]The history of the men's relationship up to the Defence businessopportunity [25]The Defence business opportunity [40]The implications of these facts for the purposes of s 174 [57]What relief should the Court grant to Messrs Stilwell and Swan? [66]Result [77]A Defence Force contract awakens sleeping partners[1] In early 2001 Eric Thomson, Maurice Stilwell and Noel Swan set up a cabling company called Network Cabling Solutions Ltd. Only Mr Swan worked fulltime for the company and drew a wage from it. The other two men were employed, fulltime, by Datacraft NZ Ltd. Each of the men had a role within the company.[2] Later in 2001 Mr Thomson met Harry Robinson from Ice Group Australia. Mr Robinson had been selling in Australia, with great success, two products. One was a CCTV solution specially designed for small shops. The other product was a Beonic people-counting solution, which enabled shops electronically to count the number of people entering and leaving their shops. Mr Robinson wanted a partner in New Zealand for these products.[3] Mr Thomson discussed this business idea with Messrs Stilwell and Swan. They were keen. A joint venture was agreed with Ice Australia. A new company, Ice Group (NZ) Ltd, was incorporated on 20 November 2001. (We shall refer to it as―Ice and to the Australian company as ―Ice Australia.)[4] In January 2003 Mr Stilwell suggested that Network Cabling should merge with a maintenance company in which he had an interest, Q Ltd. Although initially Mr Thomson was not keen on the merger, he agreed to it. But the merger was not asuccess from Mr Thomson's point of view. In October 2003 he pulled out from anyrole in the Network Cabling/Q enterprise and sold his shares to Messrs Stilwell and Swan and two other men who had been on the Q side of the merger.[5] Ice continued with its business, but not very successfully. Ice Australia bailed out after it went into liquidation in July 2003. Messrs Thomson and Stilwellbought Ice Australia's shares in Ice. This meant Mr Thomson had two shares and Messrs Stilwell and Swan one each.[6] By September 2004 both Mr Stilwell and Mr Swan were no longer interested in helping to run Ice. Mr Stilwell had left Datacraft by this stage. He wanted to sell his interest in Ice. Mr Thomson was happy to buy him out. He considered the company had little value. Nothing was ever finalised about the sale of the shares. From that time on, Mr Thomson had nothing more to do with either Mr Stilwell or Mr Swan. He continued to run Ice in his spare time.[7] In January 2006 Mr Thomson, by now Sales Manager for Datacraft, won for Datacraft a large cabling contract for the New Zealand Defence Force. (We shall callthat contract ―the Defence contract.) Datacraft, as was its policy, did not want toundertake the actual cabling work itself. It was happy for Mr Thomson to subcontract that work, including to an entity in which he had an interest. Initially Mr Thomson decided to use Ice as the vehicle for the subcontract, even thoughcabling was not Ice's work. Later, in circumstances we shall discuss below in more detail, Mr Thomson decided to establish a new company, New Zealand Data Ltd, andtransferred money from Ice to it. New Zealand Data completed all Datacraft'sobligations under the Defence contract. It also finished the cabling work Ice had been doing. At the end of 2006 Ice ceased trading.[8] In December 2007, more than three years after Mr Stilwell had cut all ties with Ice, Mr Thomson received a letter from Ewart & Ewart, solicitors acting for Messrs Stilwell and Swan. It is clear that Messrs Stilwell and Swan had got wind ofIce having done some subcontract work under the Defence contract. Ewart & Ewartsought a large amount of information about Ice's affairs over the past couple ofyears. Although Ewart & Ewart did not specify what their clients' goal was, whatwas clear was that Messrs Stilwell and Swan were asserting a continuing interest in Ice. There was no suggestion in the letter that Messrs Stilwell and Swan had washed their hands of the company, as was in fact the case.[9] Mr Thomson was uncooperative. Some perfunctory steps were taken to resolve matters, but nothing came of them. In 2008, Network Cabling and Messrs Stilwell and Swan commenced proceedings against Ice, Mr Thomson and New Zealand Data. The claim was brought under s 174 of the Companies Act 1993. Under this section shareholders, among others, may apply to the High Court for relief if they consider the affairs of their company have been or are being conducted in a manner that is oppressive, unfairly discriminatory, or unfairly prejudicial to them. If their complaint is made out, the High Court has wide powers to rectify thesituation in a manner which is ―just and equitable. In this case, the plaintiffsalleged that Mr Thomson had conducted the affairs of Ice ―in an unlawful manner which [was] oppressive and unfairly prejudicial to the plaintiffs. The plaintiffssought orders that the defendants should have to purchase their shares in Ice. In their pleadings, the plaintiffs did not put a value on those shares, but at trial they called evidence which placed a value on the company of between $800,000 and $1.2 million. As 50 per cent shareholders, Messrs Stilwell and Swan would accordingly be entitled to half that, so they said.[10] Ronald Young J heard the proceeding. On 28 October 2010 he delivered ajudgment, effectively rejecting all the plaintiffs' complaints against Mr Thomson anddeclining them any relief under s 174.1 Subsequently the Judge ruled on costs. He ordered the plaintiffs to pay the defendants costs of more than $40,000.2[11] Messrs Stilwell and Swan (but not Network Cabling) have now appealed against both judgments. They contend the Judge was wrong to reject their claim1 Network Cabling Solutions Ltd v Ice Group (NZ) Ltd HC Wellington CIV-2008-485-1360,28 October 2010.2 Network Cabling Solutions Ltd v Ice Group (NZ) Ltd HC Wellington CIV-2008-485-1360, 15December 2010 [―the costs judgment].under s 174. They fashion the relief they seek in various ways. We do not need to go into the details, at least at this stage. Essentially Messrs Stilwell and Swan contend that all the profit from the Ice/New Zealand Data subcontract for Defence should be treated as Ice property.[12] Messrs Stilwell and Swan also assert the Judge made two errors in calculating costs, even if the substantive judgment stands.Issues on the appeal[13] Counsel were agreed on the applicable law. The classic exposition remainsRichardson J's opinion in Thomas v HW Thomas Ltd.3 He said:4In employing the words ―oppressive, unfairly discriminatory or unfairly prejudicial Parliament has afforded petitioners a wider base on which tofound a complaint. ... I do not read the subsection as referring to three distinct alternatives which are to be considered separately in watertight compartments. The three expressions overlap, each in a sense helps to explain the other, and read together they reflect the underlying concern of the subsection that conduct of the company which is unjustly detrimental to any member of the company whatever form it takes and whether it adversely affects all members alike or discriminates against some only is a legitimate foundation for a complaint under s 209 [now s 174].[14] And later he said:5It is a matter of balancing all the interests involved in terms of the policies underlying the companies legislation in general and s 209 in particular: thus to have regard to the principles concerning the duties of a director in the conduct of the affairs of a company and the rights and duties of a majority shareholder in relation to the minority; but to recognise that s 209 is a remedial provision designed to allow the Court to intervene where there is a visible departure from the standards of fair dealing; and in the light of the history and structure of the particular company and the reasonable expectations of the members to determine whether the detriment occasionedto the complaining member's interest arising from the acts or conduct of thecompany in that way is justifiable.[15] Where counsel disagreed was as to whether Mr Thomson's conduct with respect to the Defence contract was ―a visible departure from the standards of fair3 Thomas v HW Thomas Ltd [1984] 1 NZLR 686 (CA). Somers J and Sir Thaddeus McCarthyagreed with Richardson J: at 696–697 and 697 respectively.4 At 693.5 At 694–695.dealing ... in the light of the history and structure of the particular company and thereasonable expectations of the members at that time. Ronald Young J found thatMr Thomson's conduct with respect to the Defence contract was not wrongful.Mr Smyth, for Messrs Stilwell and Swan, challenged that conclusion on the facts. Mr Stapleton, for Mr Thomson and New Zealand Data, supported the Judge'sfindings of fact. The appeal turns on the facts and an evaluation of them in terms of the s 174 test.[16] Mr Smyth's major complaint concerned Mr Thomson's conduct with respectto the Defence contract. In particular, he challenged Mr Thomson's decision to switch the cabling work from Ice to his new company and Mr Thomson's conduct intransferring $252,000 from Ice to New Zealand Data.[17] He further submitted, as a subsidiary matter, that in 2005 and 2006 Mr Thomson had failed to run Ice properly. In particular, he had failed to keep Messrs Stilwell and Swan, who continued to be shareholders, informed of thecompany's progress and failed to comply with various requirements under theCompanies Act 1993.[18] The question for us is whether Mr Thomson's manner of running Ice in 2005and 2006 was unfair to Messrs Stilwell and Swan as shareholders of Ice.[19] If it was, the next issue is: should we grant relief and, if so, what relief?[20] On the costs judgment, Mr Smyth raised two minor matters as to whether the Judge correctly applied the costs schedule in the High Court Rules when purporting to allow costs on a 2B basis. This question will require resolution only if the substantive appeal fails. If it succeeds, then obviously the entire question of costs in the High Court will need to be revisited.Was the Judge right in finding Mr Thomson's conduct was not unfair toMessrs Stilwell and Swan as shareholders of Ice?The appellants' argument[21] Mr Smyth's principal argument is starkly simple. Messrs Stilwell and Swanwere, at all material times, 50 per cent shareholders of Ice. Mr Thomson was, at all material times, a director of Ice. Mr Thomson secured a contract for Ice. He then in effect transferred the contract to a new company he established, New Zealand Data, and stripped out of Ice revenue it had obtained from the Defence contract.[22] Mr Smyth pitched the argument at two levels. First, he submitted that Mr Thomson breached his fiduciary duty to Ice in transferring the cabling work under the Defence contract from Ice to New Zealand Data. Mr Smyth did not address whether Mr Thomson had been duty bound to give the cabling work to Ice in the first place. Having given it to Ice, however, Mr Thomson could not transfer it toanother company with interests conflicting with Ice's.[23] Mr Smyth's fallback position was in effect this. Even if Mr Thomson waspermitted to transfer the cabling work from Ice to New Zealand Data, he acted wrongfully in stripping $252,000 out of Ice between October 2006 and January2007. That act amounted to a ―major transaction in terms of s 129 of theCompanies Act. It was not approved by special resolution, as required by s 129(1). It was accordingly, by statute, unfairly prejudicial conduct for the purposes of s 174:see s 175(1). Alternatively, even if it was not a ―major transaction as defined, theconduct was in any event unfairly prejudicial in terms of s 174.[24] Before we analyse those propositions, we need to do two things. First, wemust assess the evidence relating to ―the history and structure of [Ice] and the reasonable expectations of the members up to 2006, when the Defence business opportunity arose. Mr Smyth's submissions effectively ignored that history, but it is in our view of fundamental importance. Secondly, we must then analyse exactly what happened with respect to the Defence business opportunity.The history of the men's relationship up to the Defence business opportunity[25] At times the evidence is contradictory. Counsel did not give us all the documentary exhibits from the trial, which has meant we have been unable to check source documents on all occasions. Mind you, this is a case where one is not able to rely completely on source documents in all instances. The record-keeping of Network Cabling and Ice was abysmal.[26] When this story starts, Mr Stilwell was General Manager of the Cabling Division of Datacraft and Mr Thomson was under him as an Account Manager.[27] Although Datacraft was a cabling company, its policy was to subcontract the actual work of installing cables on large cabling contracts it won. Messrs Thomson and Stilwell noted that there was a shortage of suitable cabling labour in the Wellington region. Mr Thomson was a good friend of Noel Swan, who was an experienced cabler. The three men met to discuss whether they should try to get thecabling work as Datacraft's subcontractors. (Datacraft apparently did not mind twoof its employees taking on this work privately, as it was not interested itself in employing people who actually did cabling.) The three men brought complementary skills to the project. They agreed to utilise a company. That company was Network Cabling and was incorporated in March 2001. The evidence is conflicting as to exactly who set the company up; the conflict is unimportant as it is common ground that each of the three had a role to play in the company. Mr Stilwell, the only one of the three with business experience, was to be responsible for company paperwork, arranging bank accounts, dealing with accountants, arranging payment of tax, and overseeing the business at a high level. Mr Swan was to be the site manager on any contracts won and was to be the actual cabler or principal cabler. Mr Thomson was to be in charge of negotiating contracts for the Datacraft subcontracted work and was also to manage quality control on all jobs, ensuring they were done on time and to a high standard. Only Mr Swan was to draw a wage. Mr Swan was on paper the sole director, but the other two acted as de facto directors.[28] Later in 2001, Mr Thomson, now Business Development Manager for Datacraft, came across the Ice opportunity, as we have said. Messrs Stilwell andSwan were keen on the proposed joint venture. Network Cabling could not be used for the venture, as Mr Robinson wanted a 50 per cent share. Accordingly Ice Group (NZ) Ltd, was incorporated. There were four shares in Ice, two owned by Network Cabling and two by Ice Australia. The directors of Ice were Messrs Robinson, Thomson and Stilwell.[29] In May 2002, Network Cabling sold its two shares to Messrs Thomson and Swan for $2. Why that was done is not explained in the evidence.[30] Around this time Mr Thomson met Duncan Banks. Mr Banks had expertise in the installation of master antenna television (MATV). This system is used where there is a high concentration of television outlets in a building. Instead of installing hundreds of antennas, one master antenna is installed, the signal from which is then amplified to all outlets. Ice decided that it should add MATV installation to its product range. In addition Ice employed Mr Banks. He was the sole employee. Ice could not afford other employees as the company had a slow start.[31] From this time on, therefore, Network Cabling was proceeding with its job of installing cables and Ice was providing installations of CCTV, Beonic people-counting devices and MATV. Mr Swan was working for Network Cabling and Mr Banks for Ice. We do not want to give the impression that the work of the two companies was completely distinct. Obviously installing CCTV, Beonic people-counting devices and MATV systems could involve cabling. In general, however, Mr Banks undertook whatever cabling was required. On one occasion, before Mr Banks was on the scene, Mr Thomson did it. At times too Mr Swan helped out on Ice contract work. The evidence was contradictory as to exactly how much work Mr Swan did for Ice and in what capacity he did it. At least on one occasion, it seems that Ice subcontracted work to Network Cabling, with the consequence that Mr Swan was wearing his Network Cabling hat when he helped on that project. It is clear, however, that Mr Swan did not do much work for Ice as he was very busy on Network Cabling work. That company was doing quite well,whereas Ice's workload was light.[32] In January 2003 Mr Stilwell suggested that Network Cabling should merge with a maintenance company in which he had an interest, Q Ltd. Although initially Mr Thomson was not keen on the merger, he agreed to it. It was not a merger in a formal sense, in that both companies continued to have separate identities and separate shareholdings. It would seem — though we cannot be sure of this — that the three men acquired shares in Q. We do not know on what basis. What we do know is that from early 2003 the two companies functioned on a day to day basis asif they were a single company. Q became Mr Swan's new employer. It is commonground that those on the Q side of the merger did not acquire any interest in Ice.[33] In July 2003 Ice Australia went into liquidation. The liquidators sold IceAustralia's two shares in Ice to Messrs Stilwell and Thomson. They did not payanything for the shares, although Ice did send some of its stock to the liquidators. The agreed value of that stock was AUD2372. As a result of this transfer, as we have said, Mr Thomson now had two shares in Ice, Mr Swan one and Mr Stilwell one.[34] Mr Thomson continued to be unhappy about the Network Cabling/Q merger. In October 2003, he pulled out from any role and sold his shares to Messrs Stilwell and Swan and two other men who had been on the Q side of the merger. From that point on, Messrs Swan and Thomson had nothing to do with each other.6 Shortlyafter Mr Thomson's departure from the Network Cabling/Q enterprise, it gave up cabling work and concentrated on the building work Q had always done.[35] In mid-2004 Mr Stilwell left Datacraft and moved into a job in a completely different field.[36] In September 2004 Messrs Stilwell and Swan met. They both wanted to get out of Ice. Mr Stilwell was also keen to recover the money he had previously lent to Ice. Mr Stilwell then arranged a meeting with Mr Thomson. Mr Swan did not bother to attend it. At their meeting, Messrs Stilwell and Thomson agreed Ice was6 Mr Stapleton, in his written submissions, said there were ―no emails, faxes or other writtencommunications from Mr Swan [after] mid-2004. He gave no references in support of thatsubmission. So far as we can see, there was no contact between Mr Thomson and Mr Swan afterOctober 2003 although, as we have said, we have not been given all the documentary exhibitsfrom the trial. In any event, it makes no difference whether the cut-off date is late 2003 ormid-2004.not performing satisfactorily; after paying overheads, the company generated only sufficient revenue to pay Mr Banks. Mr Stilwell said he was pulling out. He said he resigned as a director; he also said Mr Swan wanted to resign. In fact, however, Mr Swan had never been a director of Ice. Mr Stilwell agreed to sell his share in Ice to either Mr Thomson or Mr Banks. Mr Banks was becoming grumpy at that stage, as Mr Thomson explained to Mr Stilwell, because he thought that he and Mr Thomson were doing all the work in Ice but he did not have a shareholding. Messrs Stilwell and Thomson did not agree a price for the shares; a figure of $5,000 was mentioned. The men agreed that the sum (when fixed) would be paid off over a ten month period. Mr Stilwell was to do the calculations, but never did.[37] In January 2005, Mr Stilwell, in a letter to Messrs Thomson, Swan and Banks, confirmed the resignation of himself and Mr Swan as directors, with effect from September 2004, and looked forward to settling the sale figure ―as soon as possible and payment ―over a 10-month period as discussed. From that point on,Messrs Stilwell and Swan had no further dealings with Ice or, indeed, with Mr Thomson. Mr Thomson had severed his link with Network Cabling/Q and Mr Stilwell had by this time left Datacraft.[38] From this point on Messrs Thomson and Banks ran Ice. By this stage, Ice'swork was about 95 per cent MATV/people-counting work, the contracts all being generated by Mr Banks.[39] In November 2005 Mr Thomson contacted Mr Stilwell to try to resolve the sale of the shares in Ice. Mr Stilwell promised to get back to him on that, but did not.The Defence business opportunity[40] In January 2006 Mr Thomson, by now Sales Manager for Datacraft, won for Datacraft a large cabling contract for the New Zealand Defence Force. Datacraft, as was its policy, did not want to undertake the actual cabling work itself. It was happy for Mr Thomson to subcontract that work, including to an entity in which he had an interest. Datacraft knew exactly what the cabling labour component should be asMr Thomson had worked that out when preparing Datacraft's tender for the Defencework. So long as Mr Thomson stuck to the budgeted amounts for cabling work, Datacraft was happy.[41] Ice was struggling at this stage. Mr Thomson discussed the matter with Mr Banks. Even though Mr Banks and Ice had not previously been involved in data cabling of the scale or complexity of the Defence work, Messrs Thomson and Banks decided that Ice should take on the cabling work, employing cablers for the purpose.[42] Mr Thomson managed the Defence contract on Datacraft's behalf. He wasgiven free rein so far as the Datacraft/Ice subcontract was concerned. He ran that subcontract in the following way. As a piece of cabling work was required, Datacraft would submit to Ice a purchase order for that piece of cabling work. Ice would raise an invoice which Datacraft then paid in advance.[43] A major event occurred in May 2006. Datacraft made a commercial decision to exit the cabling business. Simon Gillespie, the National Sales Director forDatacraft and Mr Thomson's then superior, met with Mr Thomson to discuss Datacraft's decision. They talked about the redundancies that would almost certainlyfollow. At that time, Datacraft was still trying to sell its cabling arm.[44] In September 2006 Messrs Gillespie and Thomson met again. Datacraft had not been successful in finding a buyer for its cabling arm. Datacraft wanted now to get out of cabling as quickly as possible. Mr Gillespie wanted Mr Thomson to takeover Datacraft's obligations under the Defence contract. He suggested thatMr Thomson should start a cabling company of his own. That new company would be responsible for not only supplying cabling labour (as Ice had been doing) but also non-cabling labour, materials and everything else required for completion of the Defence contract.[45] Mr Thomson discussed this new turn of events with Mr Banks. The two men decided to go their separate ways. Mr Banks decided to set up his own new company, DB Cabling Ltd. It would undertake the sort of work Ice was originallydoing, namely MATV, CCTV and Beonic people-counting installations. They were,of course, Mr Banks's specialities.[46] For his part, Mr Thomson took up Mr Gillespie's suggestion and formed hisown new company. He established New Zealand Data Ltd in October 2006. New Zealand Data started doing all the work Datacraft had been doing on theDefence contract (under Mr Thomson's management) other than work which had already been given to Ice by purchase orders. Mr Thomson decided to keep Ice running just to the end of the year. It was clear Ice would not have completed all the purchase orders by the end of the year. Mr Thomson decided New Zealand Data would have to complete that work.[47] In October and November 2006 Mr Thomson transferred, in three tranches, about $224,000 from Ice to New Zealand Data. He has, over the years, given several explanations for that transfer. The details surrounding that transfer were a major focus at the trial. For the moment, we need say no more about it.[48] Another event may have occurred about this time. There is no dispute that at some time Messrs Thomson and Swan met by chance at a shopping mall in Johnsonville. Among the topics they discussed was Ice. Each told the other a little about what he had been doing since they had last seen each other in 2003. Mr Thomson said this meeting was in November 2007. His recollection in that respect was supported by a friend of his, Ross Walker. Mr Swan puts this meeting asbeing ―in about November 2006. Mr Stilwell said that Mr Swan told him about the meeting ―around Christmas 2006. He also said he had a telephone conversationwith Mr Thomson in November 2006 in which Mr Thomson told him he hadrecently ―bumped into Swanny at the mall.[49] The Judge decided that the conversation took place in late 2007.7 Heplumped for that date on the basis of Mr Walker's evidence and the fact that ―he hadpreviously been a police officer and had likely had some training in accuraterecollection of events. Although the date of this meeting may not matter much, we do not accept the Judge's analysis on this point. We think it more likely that the7 At [49(a)].recollection of Messrs Swan and Stilwell is accurate. We conclude that the meeting was probably in November 2006 for the following reasons.[50] First, the subject matter of the conversation, as recollected by Mr Swan, would indicate a conversation in late 2006, not late 2007. Mr Swan said in evidence:He [Mr Thomson] told me that things had gone very quiet for Ice and work had dried up and that he was winding the company down. I asked how Mr Banks was and he said he was still selling but keen to move on. Mr Thomson told me that after everything was paid off, the three of us (meaning Mr Thomson, Mr Stilwell and I) should get 10 to 15000.[51] Mr Langford, who cross-examined Mr Swan, challenged him on the date of the conversation but did not challenge him on the content.[52] Secondly, Mr Swan's recollection of what Mr Thomson said accords closely with what Mr Stilwell said Mr Swan relayed to him around Christmas 2006. Mr Stilwell also gave evidence of the telephone conversation with Mr Thomson in about November 2006, in which Mr Thomson said he had recently met Mr Stilwell atthe mall. Mr Thomson had also said to Mr Stilwell that, ―after collecting debtors andpaying accounts and the IRD ... Swanny and I should get about $10,000 back, giveor take. Mr Thomson said he and Mr Banks had decided to wind Ice up. Aconversation to that effect was very unlikely to have taken place in late 2007.[53] Thirdly, there is documentary evidence showing that Mr Swan wasinvestigating Ice's affairs during 2007. It was presumably the mall meeting whichhad prodded his interest after so long of showing no interest whatever in Ice.[54] Fourthly, while Mr Walker may have been a police officer once, he gave no basis for being able to pinpoint on 8 October 2010 (the date of his brief) when this chance meeting had been. The meeting would have meant nothing to him. How could he be so certain this short meeting had been three years before rather than four?[55] At the end of 2006, Messrs Thomson and Banks called it quits. All Ice employees were made redundant. New Zealand Data then took on the cablers as its employees. New Zealand Data then effectively completed the Defence contract for Datacraft. Ice thereafter ceased trading.[56] In January 2007, Mr Thomson transferred a further $28,000 from Ice to New Zealand Data. This meant a total of $252,000 was transferred over a three month period.The implications of these facts for the purposes of s 174[57] For the most part, our findings are not contentious. The real point of contention at the trial, so far as divergent evidence is concerned, was Mr Thomson'sconduct in late 2006 in setting up New Zealand Data, closing down Ice and transferring money and work from Ice to New Zealand Data. Ronald Young J gave Mr Thomson a clean bill of health with respect to that conduct. Mr Smyth strenuously challenged the Judge's approbation of that conduct. For reasons we areabout to give, we find it unnecessary to reach any view on that.[58] As we have said, the principal focus of Mr Smyth's submissions wasMr Thomson's conduct with respect to the Defence contract. Mr Smyth also complained generally about the way in which Mr Thomson had run Ice after January 2005, and in particular his failure to keep proper accounts and records, his failure to hold annual general meetings of shareholders and his failing to file annual returns — but these were secondary complaints. We quite understand why Mr Smyth focused the case as he did. No doubt he hoped that, if the predominant focus was on the Defence contract and if he could establish Mr Thomson had acted wrongfully with respect to it, then it was more likely that any relief under s 174 would factor in compensation for that wrongful conduct.[59] We see the case rather differently and more simply. There is no doubt that in September 2004 Mr Stilwell made it clear that he wanted nothing further to do with Ice, either as a director or as a shareholder. He was completely cutting his ties. Indeed, in his January 2005 letter, in which he summarised the September 2004meeting, he asserted an agreement had been reached whereby his share in Ice would be sold to either Mr Thomson or Mr Banks. Interestingly, when he prepared his brief of evidence in this proceeding, he purported to soft-pedal on ―the agreement to which his letter had referred. It became now simply ―an offer ... to sell. That change is disingenuous.[60] Mr Thomson was quite happy for Mr Stilwell to go. Mr Thomson said that Mr Stilwell was to go away and do the exact figures. Mr Thomson said he had mentioned the figure of $5,000. He was not cross-examined on that. Although there is no expert evidence as to the value of the shares as at September 2004, it is a fair inference that $5,000 for a 25 per cent shareholding would not have been wide of themark. We know Ice Australia's liquidators took just a little over AUD2000 for their 50 per cent shareholding the previous year — and even that sum was paid in stock,not cash. Ice's fortunes had not improved since then.[61] Mr Stilwell never came back to Mr Thomson with the precise figure. Mr Thomson in his evidence surmised this may have been because Mr Stilwell'scurrent account was at the time overdrawn by $12,000. Again, Mr Smyth did not cross-examine Mr Thomson on that evidence. It is possible therefore that Mr Stilwell chose not to pursue the calculation because it might have shown he owed the company more than the shares were worth.[62] But what of Mr Thomson's conduct after January 2005? It is all very well forhim to complain that Mr Stilwell did not follow up on the agreement, but what did he do? He simply let the matter drift. He acted after January 2005 as if Mr Stilwell was no longer a shareholder. But he did nothing to formalise the transfer of shares. We know he said he tried to telephone Mr Stilwell but got no reply. Even if that is the case, why did he not send a letter or an email so as to bring matters to a head? Heknew that neither he nor Mr Banks had paid for Mr Stilwell's share, yet he ignored Mr Stilwell's interests thereafter. It can be fairly said Mr Thomson attempted to havehis cake and eat it. He treated Mr Stilwell as if he were not a shareholder, but took no effective steps to bring that state of affairs about.[63] He treated Mr Swan in a similar way. He did not know what Mr Swan wanted to do with his share. Mr Swan, at the trial, asserted he had not moved to sell his share in September 2004 because he wanted to remain a sleeping partner. We find it very hard to accept that evidence. But, in any event, it behoved Mr Thomson, as the remaining director, to find out whether Mr Swan did want to sell or remain as a shareholder. Mr Thomson was not entitled simply to run the company thereafter as if he were the only shareholder.[64] Mr Thomson's failure to complete the share transaction with Mr Stilwell andhis failure to clarify matters with Mr Swan lead to an inevitable finding that the way he ran Ice after 2005 was inappropriate. Given that Messrs Stilwell and Swan remained as shareholders, he was duty bound to keep them properly informed about how he was running the company. He should have ensured that proper accounts and records were kept. He should have ensured that the annual returns required under the Companies Act were filed. Most importantly, he should have ensured that annual general meetings were held. Had he taken those steps, we have no doubt whatever that the sale agreement with Mr Stilwell would have been finalised. Almost certainly Mr Swan would also have sold.[65] We accordingly find Mr Thomson's overall conduct was unfairly prejudicialto Messrs Stilwell and Swan as shareholders. They were right to complain under s 174.What relief should the Court grant to Messrs Stilwell and Swan?[66] If the Court finds that a shareholder has been unfairly prejudiced by the way in which his or her company has been run, the Court may grant relief. We emphasise―may as the Court has a discretion whether to grant relief. If the Court ―considersthat it is just and equitable to do so, it may make ―such order as it thinks fit. Again, the Court's powers as to what orders are appropriate are discretionary and very broad. In this case, we have no doubt that we should grant relief. And the nature of the appropriate relief is clear: Mr Thomson must be required to acquire the shares of Messrs Stilwell and Swan. The High Court decision has, with respect, left matters in a quite unsatisfactory state. All three men remain as shareholders. Eachcamp holds 50 per cent of the shares. Messrs Stilwell and Swan are stuck in acompany that, on anyone's reckoning, was poorly run in 2005 and 2006 before itceased trading.[67] At what date, however, should the shares be valued? At trial Messrs Stilwell and Swan plumped for a valuation of the shares effectively as at the date of trial.The valuation purported to include everything ―Mr Thomson (whether wearing hisIce hat or his New Zealand Data hat) had made on the Defence contract. That was quite unrealistic and would be completely unfair. We think the fair date to value the shares is 31 March 2005. We pick that date as it comes just two months after Mr Stilwell's confirmatory letter that he had resigned as a director and had agreed tosell his share. The company's business year concluded on 31 March. Had Mr Stilwell and Mr Thomson not been able to agree ―the figures for the purposes ofthe sale agreement and had they called in an expert to fix a fair value, that expert almost certainly would have used as his or her starting point the financial statements for the year ended 31 March 2005. That is exactly what we think should happen now. In effect we are completing the agreement the parties themselves reached. Of course, had the parties completed the agreement when they should have — a failure for which they both share responsibility — Mr Stilwell might have received something during 2005.8 We can compensate him for the delay in receiving fair value for his share by providing Mr Thomson should pay interest on the sale price as fixed from an appropriate date in 2005.[68] It would not be just to allow Mr Stilwell to claim a share of post-2005 profits when he contributed absolutely nothing to them. Mr Stilwell, in some email correspondence which passed between him and Mr Thomson in August 2009, recognised this. In the emails, Mr Stilwell was at pains to tell Mr Thomson that hewas not ―leading this [the litigation]. On the contrary, he said, ―it's Swanny and hislawyer/advisers (two of them) who are leading this and someone is paying the billsas well. He said that he ―was a reluctant party to open this can of worms. Headded:8 We say ―might have received as there is an unresolved issue as to whether Mr Stilwell's currentaccount with Ice was overdrawn. It is possible he owed the company more than his share wasworth.Personally all I have ever wanted to get back - if reasonable - was the $'s Iput into cabling [Network Cabling] that then went to ICE. Noel put no $ in –he ―contributed by graft and you won all the business etc etc as yourcontribution – and all fair enough.IF ICE is/was indeed worth anything or you made some $'s out of Defence or whatever (and let's got [not?] go there – I know your view on that) thenactually I say good on you and fair enough, Noel and I had ―moved on and getting our input back would be a fair outcome. I'll personally stick by that.I suspect that it's just not worth anything like the figure bandied about andeven if it was I would only want my $ back anyway.[69] Mr Stilwell's stance in that email was fair. Mr Thomson's stance at trial wasnot essentially different from that. He reiterated that he had ―always been amenable to getting this matter resolved, but not at the ―massive valuation that the appellants' expert, Keith Goodall, had put on Ice on the basis that the Defence contract was to be treated as Ice's. Mr Goodall never attempted a valuation based onMr Stilwell's email stance.[70] We turn now to Mr Swan's position. Unlike Mr Stilwell, Mr Swan did notarticulate his desire to sell his share in Ice. But we think he can be treated in the same way as Mr Stilwell because we have little doubt that, had Mr Thomson gone to him in early 2005 and offered to buy his share in Ice, he, like Mr Stilwell, would have wanted to sell. Mr Thomson should have taken that step before he proceeded to run the company as if he (Mr Thomson) were the only shareholder.[71] To give Mr Swan any more than the value of his share as at March 2005 would be to give him a windfall. He was never a director of Ice. That was presumably for good reason: he never worked for Ice. We know he helped on some cabling work on Ice installations, but that was effectively in his capacity as an employee — the only paid employee — of Network Cabling. He never did anything for Ice after he became a Q employee in 2003. All Ice work up to September 2004 was done by Mr Thomson, Mr Stilwell or Mr Banks (apart from the work for which Mr Swan was being paid).[72] We acknowledge Mr Swan did acquire a share in Ice in May 2002. He paidnothing for it. The evidence does not disclose why Network Cabling's two shares inIce were transferred, effectively for no consideration, to Messrs Thomson and Swan.It seems entirely fortuitous that Mr Swan got a share. Notwithstanding that, Mr Thomson has never sought to deny Mr Swan's entitlement to something for hisshare either as at September 2004 or, at least, pre-Defence. The problem is he hasnever formally made an offer for Mr Swan's share.[73] Mr Swan, at the trial, asserted he had not moved to sell his share in September 2004 because he wanted to remain a sleeping partner. Like Ronald Young J, we do not accept that evidence. Had that been his intention, he would undoubtedly have told Mr Stilwell to make it clear at the meeting and in his January 2005 letter (which Mr Swan saw before it went) that Mr Swan intended to keep his share and to remain as a sleeping partner. Further, if that had been his intention, one would have expected him to be checking with Mr Thomson, from timeto time, as to what was happening with his ―investment in Ice. He did absolutelynothing until by chance he found out about the Defence contract.[74] Mr Swan did not dispute what Mr Stilwell had said in his August 2009 emails.9[75] The solution we are imposing is effectively very close to what the parties themselves appear to have considered a fair outcome. For whatever reason, they were not able to close the deal themselves. We now do it for them.[76] It will now be apparent why we do not need to resolve Mr Smyth'spropositions set out above at [21]–[23] with respect to the Defence business opportunity. It is irrelevant whether Mr Thomson acted strictly in accordance with the law at that time as it would not be fair for Messrs Stilwell and Swan to share in the profits arising from the Defence business opportunity. Even if Mr Thomson should have kept Ice running longer and even if he should not have transferred the $252,000 from Ice to New Zealand Data, both propositions on which we express no view, it would nonetheless be inappropriate in the circumstances for Messrs Stilwell and Swan to partake of the consequences. They were both well out of the company for all practical purposes long before the Defence business opportunity arose. Had Mr Thomson flicked the work to a new company right from the start, Messrs Stilwell9 See at [68] above.and Swan would have had no cause for complaint. They will be fairly compensated if they receive for their shares their value as at 31 March 2005.Result[77] We now set out our reasons for the orders we are making.A The appeal against the decisions of the High Court dated 28 October 2010 and 15 December 2010 is allowed.[78] We allow the appeal against the substantive judgment because, unlike Ronald Young J, we find Mr Thomson's general conduct was, in all thecircumstances, unfairly prejudicial to Messrs Stilwell and Swan. It follows from that finding that we must also allow the appeal against the costs judgment. The costs judgment was predicated on Mr Thomson having been completely successful. We do not need to deal with the two errors Mr Smyth submitted the Judge had made when calculating costs. A consequential effect of allowing the appeal is that both those decisions are quashed (order B).C An order is made requiring the second respondent to acquire the shares of the appellants in the first respondent.[79] For the reasons given, it is appropriate that Mr Thomson should have to buy the shares of Messrs Stilwell and Swan. An order of this kind is one of the orders particularly set out in s 174(2)(a). It is the order both Mr Stilwell and Mr Swan sought.D The terms of the acquisition are as follows:(a) the shares are to be acquired at their fair market value as at 31 March 2005;(b) if the appellants and the second respondent cannot agree on the fair market value of the shares or on a non-curial method for fixing that value, any of them may apply to the High Court for an order fixing thevalue ("the application");(c) how the application is dealt with is entirely a matter for the High Court;(d) the High Court may add additional terms on which the acquisition is to take place;(e) costs associated with the hearing of the application are entirely at the discretion of the High Court;(f) the second respondent must pay the appellants interest on the fair market value as agreed or fixed by the High Court from 1 May 2005 to the date of payment at the rate specified from time to time under s 87 of the Judicature Act 1908.[80] We have already explained why we have picked 31 March 2005 as the date at which the shares should be valued. We have also explained why Mr Thomson should have to pay interest from 2005 on the value as agreed or fixed. We have chosen the date of 1 May 2005 as the starting point for the interest calculation on the basis that, had Messrs Stilwell and Thomson finalised the agreement, Mr Stilwell could have expected to be about halfway through the ten monthly instalments by that date. The remaining terms are inserted to make it clear the High Court has a wide discretion as to how it will fix the value in the event the parties cannot agree it.[81] There is a particular problem with respect to loans to and from Ice. It is unclear on the evidence before us whether any of the three shareholders owed Ice money as at 31 March 2005 or whether Ice owed one or more of the shareholders money. We did not have submissions from counsel as to how debts should be treated for valuation purposes. If the parties cannot agree on methodology in this respect, the High Court will have to resolve the matter. We are keen, however, to give as much assistance as we can to the parties so that this dispute can be concluded as quickly and cheaply as possible.[82] It seems to us the parties should work on the following basis. If Mr Thomson owed Ice money at 31 March 2005, the valuer (whether that be the parties themselves or an independent expert) should include the value of the loan as an asset of the company. The value of the loan will then be reflected in the value of Ice and in the sum Mr Thomson will have to pay for acquiring the shares of Messrs Stilwell and Swan.[83] If, on the other hand, Ice owed Mr Thomson money at 31 March 2005, then the valuer should deduct the amount of the loan from the value of the company. That will flow through then into a lower share price.[84] If Mr Stilwell owed Ice money ($X) at 31 March 2005, the valuer, in valuing the company and its shares, should assume Mr Stilwell settled the debt on 31 March2005. Mr Thomson will then be required to pay for Mr Stilwell's share the value ofthe shareholding as fixed less $X.[85] If, on the other hand, Ice owed Mr Stilwell money ($Y) at 31 March 2005, the valuer, when valuing the company and its shares, should assume Ice settled the debt on 31 March 2005. This will result, of course, in a drop in the value of Ice (its assets being notionally reduced by $Y) and a consequential reduction in the value of the shares. Mr Thomson would now be required to pay to Mr Stilwell the value of his shareholding as fixed plus $Y.[86] The previous two paragraphs apply equally to Mr Swan if he owed money to Ice or Ice owed money to him.[87] We stress this methodology is not compulsory but, on sample calculations we have done (and which we do not include in these reasons), the end result appears to be fair.E Nothing in order D prevents the parties from agreeing whatever terms they wish with respect to the acquisition of the shares.[88] The point of this order is to make it clear that Messrs Stilwell, Swan and Thomson have a free hand as to the terms on which Mr Thomson is to acquire theothers' shares. Order D is the default position which comes into play if they cannot agree. We would strongly urge the parties to attempt to reach agreement as the value of the shares at 31 March 2005 is likely to be small. We very much doubt the cost of further litigation is warranted.F Costs in this Court are reserved. If the appellants and the second respondent cannot agree on costs, the parties may file memorandumsfor this Court's consideration[89] We are reserving costs in the Court of Appeal. We do not have enough information at the moment to know what a just costs order in this Court would be. Technically Messrs Stilwell and Swan have won, but what they will eventuallyreceive by way of compensation will be a mile away from Mr Goodall's valuation,which was based on a premise we have soundly rejected. Again, we hope that the parties will be able to resolve costs in this Court without incurring further expenditure. If they cannot, however, then we will resolve costs on the papers.G If the parties cannot agree costs in the High Court with respect to all matters in that Court to this date, the parties may file memorandumsfor that Court's consideration. Costs will be fixed in that Court in lightof the judgment in this Court and the reasons therefor.[90] Obviously costs need to be revisited in the High Court as well. Again, we hope the parties will be able to agree those costs. If they cannot, then the High Court will presumably reassess costs in that Court after it has fixed the value of the shares.Solicitors:Kapiti Law, Waikanae for AppellantsLangford Law, Wellington for First, Second and Third Respondents