Dold v Murphy

• Jurisdiction: New Zealand
• Judge: Clifford,Collins JJ,Kós P
• Judgment Date: 31 July 2020
• Neutral Citation: [2020] NZCA 313
• Date: 31 July 2020
• Docket Number: CA301/2019
• Court: Court of Appeal

Between

Roger Murray Lorimer Dold

First Appellant

Roger Murray Lorimer Dold, Penelope Anne Dold and Kevin David Pitfield as Trustees of The Dold Trust

Second Appellants

and

Peter James Murphy

First Respondent

Luberon Nominees Limited

Second Respondent

Siena Consultants Limited

Third Respondent

[2020] NZCA 313

Court:

Kós P, Clifford and Collins JJ

CA301/2019

IN THE COURT OF APPEAL OF NEW ZEALAND

I TE KŌTI PĪRA O AOTEAROA

Companies, Contract — appeal against a High Court decision which held that an additional sum of money requested by the respondent to sell his shares was had not breached the shareholders agreement, nor a fiduciary obligation owed by the respondent and had not amounted to duress — shareholder autonomy

Counsel:

N R Campbell QC and K B Dillon for Appellants

S O McAnally and N W Coyle for Respondents

• A Leave to amend the appellants' claim is denied.

• B The appeal is dismissed.

• C The respondents are entitled to costs for a standard appeal on a band A basis and usual disbursements.

JUDGMENT OF THE COURT

REASONS OF THE COURT

(Given by Kós P)

1 Roger Dold, Chris Jacobs and Peter Murphy owned a Queensland-based tourism company called Cruise Whitsundays Pty Ltd. Their ownership was beneficial rather than direct, but that detail need not detain us here. In effect, Mr Dold and Mr Jacobs each held 46.9 per cent; Mr Murphy, who had been their solicitor, held 6.2 per cent.

2 The three were interested in selling Cruise Whitsundays. A third party, Quadrant Private Equity, made an exceptionally lucrative offer of AUD 110 million for the whole shareholding in Cruise Whitsundays. This was far more than expected, and they were keen to sell. With encouragement from Mr Murphy, they managed to get Quadrant's offer increased to AUD 112 million.

3 But Mr Murphy then insisted he receive more for his shares. Unless he got another AUD 5 million from Mr Dold and Mr Jacobs, he would not sell his shares to Quadrant. Eventually he settled for AUD 4 million, and the sale proceeded. In effect, he insisted on being treated as if his shareholding was 9.8 per cent, rather than 6.2 per cent.

4 Now Mr Dold seeks to recover the AUD 2 million he paid Mr Murphy to get him to sell. He says Mr Murphy's demand was unlawful, either being in breach of the shareholders' agreement, in breach of fiduciary duty, or economic duress.

5 Edwards J did not agree. 1 She said Mr Murphy could keep the extra money. Mr Dold appeals.

Background

6 To begin with, Mr Dold, Mr Jacobs and a Mr Simm each owned one-third of a ferry company, Fullers Bay of Islands Ltd. Mr Murphy was a commercial lawyer who acted for them. Amongst other things he drafted a shareholders' agreement for

them, concerning Fullers. He continued to act for them when he left Chapman Tripp and went out on his own

7 In 1998 Fullers acquired 50 per cent of South Sea Cruises Ltd, a Fiji-based day cruise operator. Fullers acquired the remaining 50 per cent in 1999. In 2001 Mr Simm left the group. The shareholdings were reorganised, and Mr Murphy acquired a 6.2 per cent holding in Fullers. The other two each held 46.9 per cent. Curiously, the 1994 shareholders' agreement, to which Mr Murphy was not a party, was not updated. But it appears to have been treated as applying, de facto.

8 In 2003 a new venture was established to run ferry and day cruise services in the Whitsunday Islands off the coast of Queensland. That was Cruise Whitsundays. A new company, Marine Tourism Holdings Ltd, was formed to hold the shares in Fullers, South Sea and Cruise Whitsundays. The same proportionate holdings continued. Again, the 1994 shareholders' agreement was not updated.

9 In 2004 Marine Tourism Holdings sold Fullers to an unrelated third party. In 2005 a new shareholders' agreement was prepared. It reflected the fact that Mr Murphy was a minority, rather than equal, shareholder (as Mr Simm had been). It was drafted by Mr Murphy.

10 In 2012 Marine Tourism Holdings sold its shares in South Sea to another unrelated, third party. Its sole remaining asset was Cruise Whitsundays, the shares of which it then distributed to Messrs Dold, Jacobs and Murphy. Marine Tourism Holdings was then liquidated. Mr Dold (through the second appellant, the Dold Trust) and Mr Jacobs each held 46.9 per cent of Cruise Whitsundays' shares, and Mr Murphy held 6.2 per cent (through the second respondent, Luberon Nominees Ltd). Each was a working director, effectively paid an equal daily rate.

11 In 2012 Cruise Whitsundays purchased its principal competitor, Fantasea Cruises Pty Ltd, which substantially improved its profitability. In 2014, it began the development of a new maritime passenger terminal at Airlie, in Queensland. The plan was to build and sell it, and lease it back. Mr Jacobs was to have managed the project, but he fell ill and Mr Murphy took it over. This led to a serious disagreement in October 2014, Mr Murphy feeling underappreciated, underpaid and over in Australia all the time. Mr Dold suggested any profit from the terminal sale might be split equally three ways. Mr Murphy rejected the suggestion and ceased work on the project for a period of six months. During that time Mr Dold took sole responsibility for preparing the terminal for sale. Mr Murphy came back on board in April 2015 and managed the legal side of the terminal sale. 2

12 The long-term plan was to sell or float Cruise Whitsundays. Initial discussions about a possible sale began in November 2014. In December 2014 Sealink Travel Group made what Mr Dold called a “cheeky” offer of AUD 35.75 million. The offer was rejected, as was a second offer in January 2015. Mr Dold (with authority from other shareholders) indicated an expectation of AUD 60.5 million. A year later, and after some further analysis, the shareholders valued Cruise Whitsundays at up to AUD 75 million. Negotiations with Sealink stalled, and the shareholders appointed Deloitte to handle the sale in June 2016.

13 On 27 July 2016 an indicative offer of AUD 110 million was received from Quadrant. This was well beyond any of the shareholders' expectations. As Mr Dold put it, “our highest anticipated sale price was [AUD] 75 million and neither Chris, Peter or I ever dreamt of getting an offer of [AUD] 110 million”. Quadrant would however require 20 to 40 per cent of the purchase price to be reinvested into the new entity.

14 The shareholders met with Deloitte on 3 August 2016. Mr Dold said in evidence, “We were obviously going to accept the offer”. But Mr Murphy argued Quadrant would not have put its very best offer forward first. Deloitte was asked to call Quadrant to see if it would raise its offer by AUD 2 million. Quadrant duly raised its offer to AUD 112 million, but required a memorandum of understanding to be signed on 8 August 2016.

15 Immediately after that meeting, Mr Murphy told Mr Dold that he would not sign the memorandum of understanding unless Messrs Dold and Jacobs paid him

a further AUD 5 million between them from their sale proceeds. Later that day, the three shareholders met at an airport. Mr Dold said Mr Murphy was holding a pistol to their heads, holding them to ransom and blackmailing them. Mr Murphy acknowledged doing that

16 In evidence, Mr Murphy justified his actions in these terms:

Once the Quadrant figure was known Roger raised the question of bonuses for staff and, at that point, I said I was holding my hand up also for [I], as I had flagged previously, believed that I had contributed significantly more than my 6.2% share to the increase in value that the shareholders now stood to obtain. I referred back to my emails of October 2014.

In my mind was the fact that, up until 2012 when I got involved extensively in Cruise Whitsundays' business, that business had accumulated losses of over $20m and over the next four years, starting with buying out our competitor Fantasea Cruises, the business had built up to its apparent sale for $112m. Given the shareholders had also taken out $12m in share buy backs in the prior 12 months the value to shareholders was actually $124m.

Mr Murphy elaborated that he was happy otherwise to “sit tight” and share in the projected increase in the company's value.

17 On 5 August Mr Murphy emailed the other shareholders saying, “Can I be clear that this deal will not proceed if my position is not resolved”. The following day he reduced his demand to AUD 4 million. Mr Dold acquiesced on 7 August. He wrote to Mr Murphy in these terms:

Peter,

I don't condone your approach to this issue for one moment and I'd have to say that I am doing this under a lot of duress, but in the end you are correct — as you said, you are holding me to ransom and there is not much that I can do about [it]. So reluctantly I will agree to your claim of $2m from Chris and myself each.

18 The memorandum of understanding was signed on 8 August 2016. The share sale and purchase agreement with Quadrant was signed on 15 September 2016. Mr Murphy was designated the sellers' representative in that agreement. The sale (which was of the shares in Cruise Whitsundays) was completed, and distributions made to shareholders, on 31 October 2016.

19 Mr Dold commenced this proceeding in December 2016.

Issues on appeal

20 We need in this judgment deal with only three issues: 3

• (a) Issue one: Did Mr Murphy's demand breach the terms of the shareholders' agreement of January 2005?

• (b) Issue two: Did the demand breach a fiduciary duty owed to Mr Dold?

• (c) Issue three: Did the demand (and payment) amount to economic duress?

21 We observe that Mr Campbell QC — who did not appear below for the appellants — preferred to start with fiduciary duty. We prefer to start, as the Judge did, with the agreement the parties made, and then look to whether contractual obligations ought to be supplemented by fiduciary ones.

22 We will address the terms of the judgment as we address each issue.

Issue...