Vijayakumar v Manukau Family Doctors Limited [2023] NZHC 967 (28 April 2023)

	Home \| Databases \| WorldLII \| Search \| Feedback High Court of New Zealand Decisions

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2021-404-1828
[2023] NZHC 967

UNDER	Part 18 of the High Court Rules 2016
IN THE MATTER	of Section 174 of the Companies Act 1993
BETWEEN	SOTHILINGIN VIJAYAKUMAR Plaintiff/Respondent
AND	MANUKAU FAMILY DOCTORS LIMITED First Defendant SIVA VASANTHAN Second Defendant/Applicant

Hearing:	20 April 2023
Appearances:	KJ Crossland and RA Harrington for the Plaintiff/Respondent GJ Thwaite for the Second Defendant/Applicant No appearance for the First Defendant
Judgment:	28 April 2023

This judgment was delivered by me on 28 April 2023 at 2.00pm, pursuant to Rule 11.5 of the High Court Rules.

[1] This proceeding arises out of a dispute between the shareholders of Manukau Family Doctors Limited (the Company) about the management and affairs of the Company. The applicant, Dr Vasanthan, is the majority shareholder (60 percent) and sole director of the Company. The respondent, Dr Vijayakumar, is the minority shareholder (40 percent).

[2] In an earlier application, Dr Vijayakumar claimed that Dr Vasanthan had breached his duties as a director of the Company and applied under s 165 of the Companies Act 1993 to bring a derivative proceeding against Dr Vasanthan (the Derivative Proceeding). Associate Judge Bell declined that application, on the basis that Dr Vijayakumar had a more effective alternative remedy under s 174 of the Act.¹

[3] Dr Vijayakumar subsequently sought relief under s 174(2) of the Companies Act. Neither Dr Vasanthan nor the Company participated in those proceedings, and accordingly my judgment delivered on 1 June 2022 was by way of formal proof (the Formal Proof Judgment).²

[4] Dr Vasanthan now applies to have the Formal Proof Judgment set aside pursuant to r 15.10 of the High Court Rules 2016.

[5] The Company’s principal asset are premises at 9/597 Great South Road (the Premises). The Premises were purchased by the Company for the purpose of letting out as a medical practice.

[6] Around June 2005, Radius Manukau Accident and Medical Limited (Radius) leased the Premises from the Company under a written deed of lease. The Company’s annual accounts record that Radius paid rent of approximately $75,000 per annum until at least 2012. Dr Vijayakumar said that despite his repeated request, rental reviews of the property have not occurred since 2004.

²Vijayakumar v Manukau Family Doctors Ltd [2022] NZHC 1272 [Formal Proof Judgment].

[8] In or around 2011 or 2012, Dr Vasanthan bought the medical practice from Radius and renamed it Manukau Family Doctors Accident & Medical Limited (Accident & Medical).³At all relevant times, Accident & Medical has been owned in equal shares by Dr Vasanthan and his wife.

[9] Dr Vijayakumar ceased to be a director of the Company in August 2012. He claimed that between 2013 and 2020, the average annual rent paid by Accident & Medical was approximately $47,000 – that is $28,000 less per annum than Radius had been paying for the previous six years. Dr Vijayakumar also claimed that the Company continued to pay outgoings on the Premises which, under standard commercial lease terms, would have been recovered from the tenant.

[10] During its tenancy, Accident & Medical did not occupy the entire Premises. Dr Vijayakumar claimed that a smaller area to the rear of the building was being let, or sublet, to other companies associated with Dr Vasanthan and his wife.

[11] Dr Vijayakumar also suggested that whatever rent was being paid by Accident & Medical was effectively being “set off” by management fees or directors’ salaries charged by Dr Vasanthan to the Company. Meanwhile, Dr Vijayakumar deposed that he had received no actual dividends or other payments from the Company.

[12] In support of his application under s 174 of the Companies Act, DrVijayakumar relied on the following expert evidence:

[13] I was satisfied on the unchallenged evidence before me that the affairs of the Company had been managed in a way that was oppressive to Dr Vijayakumar.⁴I held that it was appropriate to make the following orders:

[14] I was not satisfied that the claim for consequential losses had been made out.⁸ At the formal proof hearing before me, Dr Vijayakumar’s counsel recognised that there were some difficulties with this claim. Ultimately, I dismissed the claim.

[15] Finally, I ordered that Dr Vasanthan pay costs to Dr Vijaykumar on a 2B basis, plus disbursements.

[16] The parties do not dispute the legal principles that are applicable to this application. I summarise those principles briefly below.

Any judgment obtained by default under rule 15.7, 15.8, or 15.9 may be set aside or varied by the court on such terms as it thinks just, if it appears to the court that there has been, or may have been, a miscarriage of justice.

[18] Under this rule a judgment obtained by formal proof may be set aside or varied by the Court if it appears there has been, or may have been, a miscarriage of justice.

[19] The Court of Appeal has accepted that there are three matters which are likely to be of central importance in this assessment. Those factors are whether:⁹

[20] Importantly, however, the Court is not limited to those factors, and it may have regard to anything else it considers relevant to the assessment.¹⁰

[21] Dr Vasanthan has applied to set aside all parts of the Formal Proof Judgment except for the order regarding the sale of Dr Vijayakumar’s shares. He does not challenge the price to be paid for the shares. He seeks, however, a variation to that order to the effect that payment for the shares be required at a reasonable time in the future, and once a share transfer document is made available. Otherwise, it is his position that the Formal Proof Judgment constitutes a miscarriage of justice.

[22] First, Mr Thwaite, counsel for Dr Vasanthan on the application, submits that Dr Vasanthan’s failure to take steps in the proceeding was excusable. Mr Thwaite draws the Court’s attention to the following matters in support of that submission:

[23] Second, Mr Thwaite submits that a reasonable defence exists in this case. He says that had Dr Vasanthan participated in the proceeding, he would have raised the following four arguments.

[24] First, Dr Vasanthan is unhappy with the fact he would be immediately required to purchase Dr Vijayakumar’s shares. Had he participated in the proceeding, he would have argued for a delayed settlement to be ordered, or the option to pay by instalments. In an affidavit filed in support of his application, Dr Vasanthan sought a “comfortable” time to raise the necessary funds to buy Dr Vijayakumar’s shares, asking for until 31 March 2023 to do so. Despite the hearing of the application taking place some three weeks after that date, Mr Thwaite confirmed at the hearing that Dr Vasanthan sought

[25] Second, Dr Vasanthan claims the amount calculated as being Dr Vijayakumar’s current account formed part of Mr Sheppard’s assessment of the share value. Therefore, its award, in addition to the amount to be paid for Dr Vijayakumar’s shares, constitutes double recovery. In support of that argument, Mr Thwaite reasoned in his written submissions that the total value of the Company’s assets is about $1,420,000 (based on the mid-point of the parties’ respective valuations of the Premises).¹²Using this figure, and at a 40 percent shareholding, the value of Dr Vijayakumar’s shares would be approximately $570,000. The Formal Proof Judgment ordered that Dr Vijayakumar be paid $667,386. Mr Thwaite’s written submissions also suggested that there was no clear evidence of how the current account amount was calculated in any event.

[26] In his oral submissions, Mr Thwaite raised a further point in relation to the current account not addressed – expressly at least – in either the application to set aside the Formal Proof Judgment or Dr Vasanthan’s written submissions. Mr Thwaite submits that the shareholder current account balance is only referable to Dr Vijayakumar in his role as shareholder, and thus upon the transfer of his shares to Dr Vasanthan, the shareholder current account will be referable to Dr Vasanthan as the owner of those shares. Mr Thwaite distinguished a shareholder with a positive shareholder current account balance from an external, third party creditor.

[27] Third, in relation to the order for compensation to Dr Vijaykumar for direct losses, Mr Thwaite submits that any such losses are also due to Dr Vijayakumar as a shareholder and not as a third party. Therefore, any damage due to him is incorporated into his current account, and thus into the value of his shares. In any event, Mr Thwaite submits that these losses are not supported because there is no evidence as to the “leasing reality”. Additionally, Mr Thwaite says that Dr Vijayakumar contributed to

[28] Fourth, as to the award for costs, Mr Thwaite says that this litigation was unnecessary. In 2021, Dr Vasanthan was willing to purchase Dr Vijayakumar’s shares. It was Dr Vijayakumar who refused. Mr Thwaite submits that any dispute about the price of the shares could have been settled by arbitration or mediation. In his oral submissions, Mr Thwaite also emphasised that a substantial aspect of Dr Vijayakumar’s claim at the formal proof hearing was dismissed by the Court, namely the claim for $610,000 in consequential losses. In these circumstances, Mr Thwaite says that Court should not have awarded costs to Dr Vijayakumar, and costs leading to and in relation to the Formal Proof Judgment ought to lie where they fall.

[29] Finally, Mr Thwaite submits that Dr Vijayakumar cannot identify any specific prejudice that he would suffer if the Formal Proof Judgment were to be set aside and the matters raised above fully ventilated in a defended hearing.

[30] Mr Crossland, counsel for Dr Vijayakumar on the application, says that on 6 October 2021, Dr Vijaykumar served both defendants with the following documents:

[31] Mr Crossland emphasises the contents of the notice of proceeding in particular, including that it contained clear information as to the potential consequences of a defendant failing to take steps in the proceeding. Mr Crossland says that contrary to Mr Thwaite’s suggestion, neither the Court nor Dr Vijayakumar was required to inform Dr Vasanthan of the scheduled hearing date.¹³

[32] Mr Crossland submits that Dr Vasanthan has not provided an adequate explanation for his failure to participate in the proceedings. Specifically, he submits that Dr Vasanthan has not provided any evidence about the effect that Covid-19 had on his ability to engage counsel. Mr Crossland notes that COVID-19 also affected Australia (where Dr Vijayakumar now lives) and that Dr Vijayakumar himself had COVID-19, but despite this and living in another jurisdiction, he was able to instruct lawyers and participate in the proceeding.

[33] Mr Crossland describes Dr Vasanthan’s contention that he thought the litigation was resolved after the Derivate Proceeding as being “inherently implausible.” Mr Crossland also highlights that during that proceeding, Associate Judge Bell indicated he might well find against Dr Vasanthan if the claim was bought under s 174 of the Companies Act.

[34] In response to Dr Vasanthan’s claim that he had been misled by an email from Dr Vijayakumar that indicated he no longer wanted to sell his shares, Mr Crossland argues that if Dr Vasanthan was under the impression the litigation was going to be discontinued, or that Dr Vijayakumar’s position had materially changed, he should have taken steps to clarify that.

[35] Mr Crossland then turns to consider Dr Vasanthan’s application to vary the order regarding the transfer of Dr Vijayakumar’s shares. Mr Crossland confirms that a signed transfer form has been available for some time, and that this was noted in the demand letter sent to Dr Vasanthan on 11 July 2022. Mr Crossland confirms, however, that Dr Vijayakumar is prepared to agree to postpone the payment date for purchase of his shares until two weeks after the Court issues its judgment in this proceeding. Mr Crossland notes that post-judgment interest would still apply.

[36] In relation to Dr Vasanthan’s application to set aside the order regarding the shareholder’s current account, Mr Crossland submits that Dr Vasanthan has not provided any alternative calculation or explanation for the underdrawn account. The unchallenged evidence of Dr Vijayakumar is that he has not received dividends or other payments from the Company. No evidence has been advanced on the current application to suggest that Dr Vijayakumar was in fact paid regular dividends or other amounts from the Company. Mr Crossland accordingly submits that the result is an underdrawn shareholder account that ought to be recoverable in the ordinary way.

[37] In response to the point raised by Mr Thwaite at the hearing and summarised at [26] above, Mr Crossland described this as a “cute” argument. He submits that Dr Vijayakumar cannot be deprived of amounts properly owed to him by the Company, calculated by reference to Mr Sheppard’s uncontested evidence, based simply upon a happenstance of the timing of the share purchase versus payment of the shareholder current account balance. If required, Mr Crossland suggests there could be an order made that the payment of the shareholder account precedes the purchase of Dr Vijayakumar’s shares in the Company.

[38] Turning to the direct losses, in his submissions, Dr Vasanthan argued that the order to compensate Dr Vijayakumar for those losses was incorrectly quantified because it assumed that the entire Premises should have been tenanted at all times. Mr Crossland argues that this submission ignores that the Court took a conservative approach in setting the award, to reflect the fact that the Premises would not always have been fully leased. Additionally, Mr Crossland urges the Court to reject Dr Vasanthan’s contention that the Court should set aside this award because it was already reflected in the purchase price of the shares. He submits that the award for compensation reflects the loss suffered by Dr Vijaykumar as a direct result of Dr Vasanthan’s action or inaction; it is unrelated to the valuation of the shares.

[39] Finally, on the issue of costs, Mr Crossland submits that Dr Vijayakumar is correctly identified as the successful party in this litigation because he succeeded on all but one of his claims.¹⁴Mr Crossland rejects Dr Vasanthan’s claim that this matter

Has Dr Vasanthan demonstrated a reasonable excuse for not participating in the proceedings?

[40] Dr Vasanthan has not advanced a reasonable explanation for his failure to participate in the proceedings.

[41] There is no doubt that COVID-19 and its associated restrictions caused disruption to many aspects of society, including to the courts and, of course, the health sector. But there is nothing specific in Dr Vasanthan’s evidence as to why COVID-19 prevented or hindered him from participating in the proceedings, engaging with Dr Vijayakumar in relation to them, or the very least, consulting a solicitor to seek advice on what to do in response to being served with formal court proceedings.

[42] Further, on his own evidence, it is clear that Dr Vasanthan was aware of the fact of the proceedings, but took a conscious decision not to participate in them, because he (wrongly) believed that Associate Judge Bell would be handling the matter and would find in his favour. Mr Thwaite accepts that in hindsight, that was unwise. I agree and am not persuaded that this provides any reasonable basis for Dr Vasanthan to, essentially, ignore formal court proceedings.

[43] Nor am I persuaded that the content of Dr Vijayakumar’s December 2021 email provides a reasonable excuse for Dr Vasanthan failing to participate in the proceeding. It is correct that Dr Vijayakumar’s email did not suggest any urgency in him being bought out of the Company. However, the email exchange was in the context of court proceedings that had been commenced by Dr Vijayakumar in which he sought, not only the purchase of his shares, but also additional compensation for the losses he said

[44] There is also nothing in the point that Dr Vasanthan ought to have been informed of the formal proof hearing date. The High Court Rules specifically provide that there is no obligation on a plaintiff (or the Court) to do so. Irrespective of the earlier Derivative Proceeding litigation, and as the Supreme Court observed in Walls v Ulsterman Holdings Ltd, “the proceeding has been conducted in accordance with the rules of the Court (contained in primary legislation) which are clear and unambiguous”.¹⁵

Has Dr Vasanthan demonstrated a substantial defence to Dr Vijayakumar’s claims?

[45] As noted, there is no challenge to the order that Dr Vasanthan buy out Dr Vijayakumar’s shares, or the price to be paid for them. Nor, was there any substantive explanation provided in the evidence filed in support of the application for the way in which the Company was run after Dr Vijayakumar ceased to be a director. That conduct formed the factual basis for my finding that it was appropriate to make orders under s 174 of the Companies Act. Indeed, Dr Vasanthan responsibly acknowledges in his affidavit in support of his application that “...[the Company] might have been run in a manner more acceptable to Dr Vijayakumar.” Dr Vasanthan then goes on to say “to that end I invited [Dr Vijayakumar] to become a director when he was in Australia. Through his solicitors he refused to accept the position.” That somewhat misses the point. There was no obligation on Dr Vijayakumar to become a director again – particularly as he was then based in Australia. Instead, it was Dr Vasanthan who had an obligation as the director to act in the best interests of the Company and through that, for the benefit of both its shareholders.

[46] In his affidavit, Dr Vasanthan states that he wants a share transfer form to be made available before he purchases Dr Vijayakumar’s shares. As noted, Mr Crossland confirmed at the hearing that he is in possession of a signed share transfer form. No doubt experienced counsel will adopt a procedure that provides each party with appropriate certainty that upon payment of the funds, the share transfer will be effected, perhaps along similar lines to the exchange of documents and undertakings in residential property transactions. The Court expects counsel to take reasonable and sensible steps to enable their respective clients to complete the sale of Dr Vijayakumar’s shares to Dr Vasanthan in an orderly and efficient way. This matter should not require further oversight from the Court.

[47] I am not satisfied that Dr Vasanthan has a substantial defence in respect of the shareholder current account.

[48] First, and as all parties agreed at the hearing, the shareholder current account is an obligation due from the Company to Dr Vijayakumar, not from Dr Vasanthan personally. The Company itself has not applied to set aside this aspect of the Formal Proof Judgment.

[49] Second and in any event, I do not accept the submission that to award Dr Vijayakumar the balance of the shareholder current account would amount to “double recovery” because it is already reflected in the share price. As Mr Sheppard’s valuation evidence makes clear, the shareholder current accounts (or what Mr Sheppard refers to as the “shareholder loan accounts”) are each a current liability of the Company, which reduce the value of the Company and thereby the value of Dr Vijayakumar’s shares.¹⁶The point remains, however, that irrespective of the equity value of the Company (and thus Dr Vijayakumar’s shares), the current account reflects

¹⁶The Company balance sheet for 2020, as set out in Mr Sheppard’s evidence, shows a total for both shareholder current accounts of $717,561 (made up of Dr Vasanthan’s account of $495,252 plus Dr Vijayakumar’s account of $222,309). These are current liabilities of the Company, and indeed make up the majority of its liabilities. Taking into account those liabilities, Mr Sheppard assessed the Company’s total net assets for 2020 as $739,099. That in turn forms part of Mr Sheppard’s equity valuation set out at [7.6.7] of his evidence. Had Dr Vijayakumar’s current account been overdrawn (and thus an asset of the Company), the equity value of the Company would be higher, as would the value of his shares.

[50] Third, I also reject the submission that there is no clarity or evidence as to how the current account balance was arrived at. Mr Sheppard set out quite detailed calculations in his evidence of how he determined both Dr Vasanthan and Dr Vijayakumar’s current account balances.¹⁸Importantly, there is nothing before the Court on the present application to suggest that Mr Sheppard’s calculations are or might be in error, or which otherwise suggests a miscarriage of justice will arise if these calculations are not revisited. In particular, it was open to Mr Vasanthan to advance at least some accounting evidence on his application, but he did not do so.

[51] Finally on this aspect of the application, I do not accept Mr Thwaite’s argument that the current account is only referable to Dr Vijayakumar in his role as shareholder, and thus the current account will not be payable to him once his shares are sold.

[52] If that were the case, then Dr Vijayakumar would effectively be prejudiced twice for having a positive current account balance with the Company. First, the value of his shares is lower given the current account is a liability of the Company. Second, he would receive no benefit from his positive current account balance in circumstances where there is no dispute he has not been paid any dividends, salary or other amounts from the Company. In contrast, if I accepted this argument, Dr Vasanthan would receive a windfall. He would pay to Dr Vijayakumar the (lower) share value and then, as the new owner of those shares, he would become entitled to the balance of Dr Vijayakumar’s current account, despite that account not reflecting any amounts advanced by Dr Vasanthan to the Company, or any profits due to Dr Vasanthan over the course of the Company’s operations.¹⁹

¹⁷In effect, his share of the profits of the Company over time, which have been credited to the shareholder current accounts, pro-rated to the parties respective shareholding.

¹⁸Addressed at [8.7] to [8.13] of Mr Sheppard’s evidence, and the Shareholder Current Accounts table included therein.

¹⁹Mr Sheppard’s evidence was that his analysis of the Company’s financial statements confirmed that profits since March 2012 had been distributed as salaries pro rata with shareholding. These are the amounts credited to Dr Vasanthan and Dr Vijaykumar’s respective shareholder current

[53] Ultimately, the total amount awarded to Dr Vijayakumar in the Formal Proof Judgment reflected the overall value of his interest in the Company. The award was for the total sum that would be fairly and appropriately paid to him upon his exit from the Company and Dr Vasanthan taking full ownership. There is no evidence before the Court, and in particular, evidence of a suitably qualified expert, to suggest that it is wrong for Dr Vijayakumar to receive both aspects of his total interest in the Company.

[54] I also agree with Mr Crossland’s submission that it cannot be the case that a happenstance of timing of the transfer of the shares versus the payment of the current account balance ought to deprive Dr Vijayakumar of an amount due to him from the Company.²⁰

[55] Further and in any event, if Dr Vasanthan had participated in the proceedings, and the argument advanced on his behalf had been accepted, with the result that upon acquiring Dr Vijayakumar’s shares, he obtained the full benefit of Dr Vijayakumar’s shareholder current account balance, it is likely this would have been reflected in commensurate compensation being ordered to be paid by Dr Vasanthan to Dr Vijayakumar. As matters stand, the position reached is more beneficial to Dr Vasanthan, given the current account balance is due to Dr Vijayakumar from the Company, rather than from Dr Vasanthan personally.

[56] I am again unpersuaded that a miscarriage of justice arises if this aspect of the Formal Proof Judgment is not set aside.

[57] For the purposes of the Formal Proof Judgment, I was satisfied on the basis of Mr Smithies’ and Mr Sheppard’s expert evidence that there had been, among other

accounts. Mr Sheppard described this as “common practice”, as is the practice of showing any distributions made to the shareholders as “repayments of the shareholder loan accounts”. (See [5.7] and [5.8] of Mr Sheppard’s evidence.)

²⁰The flipside would be that, in the hypothetical scenario of Dr Vijayakumar’s shareholder current account being overdrawn, Dr Vasanthan would have to pay Dr Vijayakumar a higher amount for his shares (the overdrawn account being an asset of the Company), and upon acquiring the shares, become responsible for repayment of that overdrawn current account to the Company – despite it not reflecting any drawings or other amounts that had earlier been paid to Dr Vasanthan. It is unlikely Dr Vasanthan would accept that as a correct outcome.

The receivables seem to represent the sum of all income receivable by the company in the years from 31 March 2017 to 31 March 2020, including the prior period adjustment. This would reflect the case of not one single dollar of income being collected for 4 years, nor the rates or water adjustments due to the tenant.

The Accounts Receivable recorded in 2020 matches the Rental income over the preceding 4 years (from 2017 – 2020), which supports the suggestion that [Dr Vasanthan] uses the business as a personal bank account.

[59] There is nothing in Dr Vasanthan’s evidence filed in support of the present application to challenge this aspect of Mr Sheppard’s evidence. Rather, Dr Vasanthan makes a generalised complainant that Dr Vijayakumar effectively left him to run the Company on his own after he left New Zealand in 2006, not taking up the opportunity to lease a part of the Premises, and ceasing to be a director in 2012. Irrespective of whether there is any validity in that complaint – and I express no view on it – as the remaining director of the Company, Dr Vasanthan had duties to the Company to act in its best interests. Those obligations were ultimately aimed at maximising, or at least preserving, the value of the Company for the benefit of both its shareholders.

[60] Dr Vasanthan’s general complaint about Dr Vijayakumar does not give rise to a substantial defence to the claim of under-recovery of rent (and those more minor matters that made up Mr Sheppard’s assessment of direct losses). There is no evidence to suggest that it had been agreed that Dr Vijayakumar was to take prime responsibility for arranging the letting of the Premises if he was not to work from it himself. Further, if the Premises were too big for Dr Vasanthan to use on his own, then as director, he

[61] As to the quantum of compensation, there is no evidence to seriously challenge the amount assessed by Mr Smithies, Mr Sheppard and ordered by the Court. Mr Smithies gave expert evidence as to the expected market rental returns for the Premises, which Mr Sheppard relied on in calculating the quantum of Dr Vijayakumar’s direct losses. Dr Vasanthan says that the quantum arrived at is incorrect because it is based on an assumption that the Premises could be fully let at all times. However, the quantum set in the Formal Proof Judgment reflected that concern. As noted earlier, I adopted Mr Sheppard’s mid-range assessment of damages and then discounted that by a further 30 percent to specifically reflect that it might not have been possible to fully let the Premises at all times. I acknowledged in the Formal Proof Judgment that this was a broad-brush approach, but no information was available from Dr Vasanthan as to the steps taken to lease the remainder of the Premises, given the matter proceeded by way of formal proof. Dr Vasanthan did not offer any such evidence on the present application.

[62] Finally on this aspect of the application, I do not accept the submission that any damages due to Dr Vijayakumar are already reflected in the purchase price of his shares. The award of compensation arising from actions or inactions by Dr Vasanthan which have lowered the value of the Company is a matter distinct from the value of the shares. I refer to the Court of Appeal’s recent observations in Birchfield v Birchfield Holdings that:²⁴

...if a claimant has an arguable case that the value of the company has been impaired by the alleged unfairly prejudicial conduct, an offer to buy the complainant out at a fair value for their shares to be assessed by a valuer will not provide a complete response to the unfair prejudice claim.

²⁴Birchfield v Birchfield Holdings [2021] NZCA 428, [2022] 2 NZLR 123 at [55].

[63] I discussed with Mr Thwaites at the hearing an – admittedly more extreme – example which further demonstrates the point; namely a majority shareholder who mismanages a company so badly as to run it into the ground. If Dr Vasanthan’s approach were correct, the minority shareholder, if bought out, would be paid the much lower value of his or her shares, with no basis for compensation for those shares having an inappropriately low value. That cannot be right. Section 174 is a broad and remedial provision; the purchase of a claimant’s shares is only one aspect of the relief that may be granted in these situations.

[64] Accordingly, I am not persuaded that a miscarriage of justice arises if this aspect of the Formal Proof Judgment is not set aside. Importantly, the issue raised in relation to under-recovery of rent is not a de minimus matter that would otherwise be compensated for within a buy-out offer at fair value.

[65] The starting principle is that the successful party is entitled to an award of costs in the ordinary way. This is so even though there has only been partial, and indeed relatively modest, success. As the Court of Appeal stated in Weaver v Auckland Council, success on more limited terms is still success.²⁵The Court also noted:²⁶

[21] Recourse may then be had in search of such reasons to r 14.7(d) of the High Court Rules, which gives the Court discretion “despite rr 14.2 to 14.5” to refuse to award costs to the successful party if, notwithstanding overall success, “that party has failed in relation to a cause of action or issue which significantly increased the costs of the party opposing costs.” The same rule also empowers the Court to reduce costs in such circumstances.

[66] In Water Guard NZ Ltd v Midgen Enterprises Ltd, the plaintiff’s had succeeded on only 25 percent of their claim, and the case settled for approximately $67,500 on the eve of the damages quantum hearing.²⁷That was against an original claim of

[67] On appeal, the Court of Appeal quashed the award of costs in favour of the defendant, on the basis that the award was contrary to the principle that costs follow the event.²⁸It held that the defendant was properly characterised as the unsuccessful party, “that is, the party which was adjudged liable to pay money to the other”.²⁹The Court went on to state that:³⁰

We disagree with the Judge that WGL lost [its status as successful party] because it failed on most of its claims which in turn occupied most of the trial. That factor can be properly recognised in other ways, such as reducing costs otherwise payable or ordering costs to lie where they fall.

[68] Applying these principles to this case, there is no doubt that Dr Vijayakumar was the successful party in the s 174 proceedings. He was successful on his substantive (and not insubstantial) claims that Dr Vasanthan purchase his shares, that the Company pay to him his current account balance and that Dr Vasanthan pay additional compensation to him. It is not appropriate to take into account, as Mr Thwaite appeared to suggest at the hearing, that Dr Vijayakumar was unsuccessful in the application for leave to bring the Derivative Proceedings or to withdraw the bankruptcy notice. Those are separate proceedings which have their own cost consequences.³¹

[69] I do not consider a miscarriage of justice would arise if this aspect of the Formal Proof Judgment were not set aside on the ground that Dr Vasanthan was willing to purchase Dr Vijayakumar’s shares and offered to do so. I refer to Dr Vasanthan’s email of December 2021 (after these proceedings were commenced) in which he said “you need to formally instruct your solicitor to initiate the sale and purchase process. I can engage with him thereafter.” That is far removed from a quantified offer capable of acceptance which might be taken into account to reduce an otherwise successful

³¹Mr Crossland advised at the hearing that a costs award was made against Dr Vijayakumar in the Derivative Proceedings and Dr Vijayakumar has paid those costs. I am not aware of the costs outcome in the bankruptcy proceedings.

[70] I have given consideration to whether a substantive defence to at least a part the costs award might arise on the basis that Dr Vijayakumar was unsuccessful on his claim for consequential losses. At least in terms of quantum, that claim was significant, yet it was dismissed in its entirety.

[71] On reflection, however, I have concluded that it would not be appropriate to set aside this aspect of the Formal Proof Judgment. While the claim for consequential losses was large, it occupied a very small proportion of the evidence, the submissions and the hearing time. For example, Mr Smithies’ affidavit filed in support of the s 174 application contained a very brief, desk top valuation only of the (then) market value of Dr Vijayakumar’s property.³³Similarly, Mr Sheppard’s evidence on this aspect of the claim was a very brief discussion at the conclusion of his otherwise detailed affidavit evidence.³⁴In a similar way, the claim for consequential losses was the subject of only four short paragraphs of Dr Vijayakumar’s written submissions in support of the s 174 claim. And this aspect of the claim occupied minimal time at the hearing, and would not have altered the time allocation claimed for the costs of counsel’s appearance at the hearing (measured in quarter days).

[72] Accordingly, if Dr Vasanthan had appeared at the hearing, and the outcome had been the same as in the Formal Proof Judgment, it is very likely that the costs award against him would have been the same. And in any event, I certainly would not have

³²It is also far removed from the “reasonable offer” which might cure oppressive conduct under s 174; see for example, O’Neill v Phillips [1999] UKHL 24; [1999] 2 All ER 961, [1999] 1 WLR 1092 (HL); Birchfield v Birchfield Holdings, above n [24].

[73] The application to set aside the Formal Proof Judgment is dismissed. I do so, however, on the basis that it was agreed that Dr Vasanthan should have some further time following judgment to arrange for the purchase of Dr Vijayakumar’s shares. Dr Vijayakumar suggested two weeks following judgment; as noted, Mr Thwaite suggested a further three months.

[74] I dismiss the application, but on the condition that Dr Vasanthan have four weeks from the date of this judgment to purchase Dr Vijayakumar’s shares in the Company. I consider this period of time sufficient given Dr Vasanthan described a period to the end of March 2023 as “comfortable”, and there is no evidence as to why further significant time is required.

[75] As to costs, there would appear to be no reason why costs on the application ought not to follow the event in the ordinary way. My preliminary and non-binding view is that costs ought to be paid by Dr Vasanthan on a 2B basis, and that there is no justification for a 50 percent uplift as Mr Crossland raised at the hearing. Dr Vasanthan was entitled to apply to set aside the Formal Proof Judgment, and as far as I am aware, there is nothing in the way he progressed the application which would warrant significantly increased costs. Further, I note that while costs are likely to be awarded on a scale 2B basis, the matters arising were relatively straightforward and dealt with in relatively brief written and oral submissions.

³⁵Noting that under High Court Rule 14.7(d), failure on an issue or cause of action may only justify reducing or refusing a costs award to an otherwise successful party if the party opposing costs has incurred “significantly increased” costs as a result of the unsuccessful issue or claim.

[76] If the parties cannot agree on costs, Dr Vijayakumar may file a costs memorandum within 15 working days of this judgment. Dr Vasanthan may file a response within a further five working days. No memorandum is to be longer than three pages in length. I will thereafter determine costs on the papers.

[77] I offer some concluding observations. These proceedings have already occupied considerable time and cost for both parties. These matters ought now to be able to be resolved promptly. I would encourage both parties, and their lawyers, to ensure there is no unnecessary “heat” in the discussions regarding the arrangements to be put in place to implement the terms of this judgment. A reasonable and pragmatic approach will be required to ensure the parties do not need to incur unnecessary further legal costs in bringing their relationship, and Dr Vijayakumar’s interests in the Company, to an end.

High Court of New Zealand Decisions

Vijayakumar v Manukau Family Doctors Limited [2023] NZHC 967 (28 April 2023)