Dold v Murphy - [2020] NZCA 313

Date of Judgment

31 July 2020


Dold v Murphy (PDF 324 KB)


Leave to amend the appellants' claim is  denied.  Appeal dismissed . Respondents entitled to costs for a standard appeal on a band A basis and usual disbursements . 

Messrs Dold, Jacobs and Murphy owned a tourism business, Cruise Whitsundays. Messrs Dold and Jacobs each owned (beneficially) 46.9 percent of the  company,  Mr  Murphy  6.2  per  cent. The three shareholders were subject to a shareholders ' agreement. 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 for more than the three shareholders expected and they were keen to sell.  They managed to increase Quadrant's offer to AUD 112 million in return for agreeing to sign a memorandum of understanding within five days . Following the meeting, Mr Murphy  told  Messrs  Dold  and  Jacobs that he would not sell his shares to Quadrant unless they  together paid him  AUD  5 million. Mr Murphy subsequently dropped his demand to a payment of AUD 2 million from each of Messrs Dold and Murphy. The day before the memorandum of understanding was to be signed, Messrs Dold and Jacobs agreed to make the payments to Mr Murphy.  The memorandum and subsequent agreement for sale and purchase of shares in Cruise Whitsundays was signed, settlement completed and the payments from Messrs Dold and Jacobs to Mr Murphy made. 

Mr Dold appeals a decision in the High Court finding the AUD 2 million payment Mr Murphy demanded was not in breach of the shareholders' agreement, not in breach of a fiduciary obligation owed by Mr Murphy to Mr Dold and did not amount to duress. 

Contract - Interpretation. Did Mr Murphy's demand breach the terms of the shareholders' agreement. 

Held: No. A bar on a minority shareholder seeking a premium for his or her shares cannot be inferred from a combination of cls 1.1.5 (singular includes plural), 3.1.1 (primary objective of company to maximise shareholders returns) and 3.3.1 (shareholders not to conduct their affairs inconsistently with operating objectives of the company). The starting point is one of shareholder autonomy and that was not constrained by any collateral agreement to sell or a promissory estoppel enforceable against Mr Murphy. Clause 3.3.1, read in the context of cl 3.3.2, serves simply to constrain conduct of a shareholder's affairs in a way that does not derogate from the activities of Cruise Whitsundays. These clauses cannot be read as a "drag-along " clause. Such clauses are relatively common, but not provided for in the shareholders ' agreement.

Leave to amend the appellants ' claim to include a claim for breach of cl 18.1 (use of confidential information) is denied. The willingness of Mr Dold to sell to Quadrant was not confidential information, and cl 18 raises questions of fact rather than simply questions of law.

Equity - Fiduciary relationship. Did the demand breach a fiduciary duty owed to Mr Dold. 

Held: No. Some fiduciary relationships are inherently fiduciary, whereas others are only likely to be inferred where the relationship between the parties involves: (1) the conferral of powers in favour of the alleged fiduciary; (2) the apparent assumption of a representative or protective responsibility by the alleged fiduciary for the beneficiary; and (3) the implied subordination of the alleged fiduciary's own self-interest. Primacy should be given to the shareholders' agreement. While the shareholders' agreement contains an obligation to maximise shareholder returns, the no partnership clause and clause requiring unanimity when selling the company's undertakings indicate an absence of fiduciary obligations. No particular power is conferred on Mr Murphy. This is not a special facts relationship which justifies the departure from the general rule that a shareholder-shareholder relationship is not inherently fiduciary. There was no assumption of fiduciary responsibilities beyond the shareholders' agreement. 

Contract - Duress. Did the demand (and payment) amount to economic duress. 

Held: No. A lawful act should not normally be converted to an unlawful act via the mechanism of duress. Caselaw hints at duress being made out where an individually lawful threat and demand become unlawful in combination but to date there appear to be no instances of this. A threat to not enter into a contract is most unlikely to be an unlawful or illegitimate act. The Times Travel (UK) Ltd v Pakistan International Airlines C01p decision may be more easily explained as an example of unlawful act duress. The genuineness of Mr Murphy's belief in his entitlement to make the demand is irrelevant, though that belief does appear to be genuine. The threat here, or pressure, was not illegitimate. It is unnecessary to consider the issue of coercion.