HAMMOND, J.

Introduction

[1] The appellants, Latimer Holdings Limited (Latimer) and Mr John Powell, are minority shareholders in Trans Tasman Properties Limited (Trans Tasman), which is a company listed on the New Zealand Stock Exchange (NZX).

[2] The respondent, SEA Holdings New Zealand Limited (SEA) is a New Zealand registered company which is ultimately owned by SEA Holdings Limited, a Bermudan registered company which is listed on the Hong Kong Stock Exchange. SEA holds the majority of the shares in Trans Tasman which, by virtue of Trans Tasman’s constitution, gives SEA control of the company.

[3] The appellants assert that the affairs of Trans Tasman are being managed by SEA adversely to the interests of its minority shareholders. They further assert that it is unfair and prejudicial that Trans Tasman should continue to trade under the avowed policies of 'long-term capital growth with aggressive management' particularly where, as was until recently the position, a related company to SEA derived a substantial income from a listed Australian company in which Trans Tasman owns shares, for management services, whilst the minority shareholders capital position has declined.

[4] The appellants sought to persuade other shareholders, and the company itself, that Trans Tasman should be liquidated. SEA rejected that proposition.

[5] The appellants then sought relief under what is colloquially referred to as the 'oppression' provision (s174) of the Companies Act 1993. They sought an order that SEA be required to purchase their shares at what they assert to be their net asset value (NAV).

[6] Apparently the proceeding is novel, in that this is the first occasion on which an oppression proceeding has been brought against a listed company in New Zealand.

[7] SEA moved to strike out the claim; alternatively it sought summary judgment, on the ground that the claim was without any merit, having regard to the proper ambit of s174 and the manner in which the section has been approached in Anglo-New Zealand jurisprudence.

[8] The proceeding was heard by Williams J, who delivered a considered decision on 28 October 2003 (now reported at (2003) 9 NZCLC 263, 358). The Judge dismissed the strike out application but entered summary judgment against the appellants, on the basis that the oppression cause of action 'cannot succeed'.

[9] The appellants now appeal to this Court. We consider that the Judge was not in error in taking the course he did, and that the appeal must be dismissed. The burden of this judgment is therefore to explain why we take that view.

Background

[10] Trans Tasman Properties has had a colourful corporate history in New Zealand. Originally it was registered as Robt. Jones Investments Limited. The company partook of spectacular highs and lows in the 1980s, with the share price ranging from around $17 per share to as low as 2 cents per share.

[11] The recent history of the company is that Trans Tasman was formed by an amalgamation of SEABIL (NZ) Limited and Tasman Properties Limited (Robt. Jones Investments Limited), in 1995. This amalgamation was initiated by the then controlling shareholder of both companies, SEA Holdings Limited. That company is controlled by the family interests of Mr Lu Wing-Chi, which own more than 50 percent of the company.

[12] Following the amalgamation, SEA held 46.4 percent of the shares in Trans Tasman. As at the date of the hearing before Williams J, SEA held 55.16 percent of the shares in Trans Tasman.

[13] Ownership of this majority of the shares in Trans Tasman gives SEA control of the company as the constitution of Trans Tasman requires only a simple majority of shareholders to pass an ordinary resolution; directors are appointed by ordinary resolution; and decisions of directors also require only a simple majority.

[14] On any view of the matter, SEA has a significant influence over the affairs of Trans Tasman. This was explicitly recognised by Trans Tasman’s 2000 annual report, which stated:

[Trans Tasman’s] Board is mindful of the significant influence over the company by [the SEA group]. When matters relating directly to controlling entities are considered to have an influence or effect on the company in its performance, the Board is mindful to ensure the Company’s actions are in the best interests of all shareholders.

[15] There are currently five directors of Trans Tasman - Messrs Fletcher, Lu, Hodge, Ferner and Peterson.

[16] The appellants are investors who purchased 8,709,929 and 8,736,069 shares respectively in Trans Tasman between May 2001 and August 2002. This represents 2.9 percent of all the shares in Trans Tasman. The appellants claim to be 'supported' by approximately 1,300 shareholders in Trans Tasman (which would represent approximately 25 percent of all shareholders).

[17] As to investment policy, the company appears always to have emphasised capital growth. The initial investment proposal of July 1995 stated, 'increases in NTA [net tangible assets] will remain the bench mark for assessing management performance'. And, 'a property company such as Trans Tasman [will seek] to maximise returns to investors through emphasis on capital growth of the property portfolio, increasing shareholders funds and resultant improvement in the net asset backing. Returns are therefore maximised through improving the share price ...'. This contrasts with the strategy of those property companies which emphasise reliable long-term income streams to investors.

[18] The heart of the appellants’ concern is that Trans Tasman’s performance has not met the stated goal of capital growth. The NAV of Trans Tasman stood at 100.3 cents per share in November of 1995. As at 31 December 2002 it stood at 55 cents per share.

[19] Unsurprisingly, the share price has followed a roughly similar downward trend, and has traded at a significant discount to NAV. As at late 1995 the share price stood around 75 cents per share, declining to around the 30 cent mark, and even as low as 20 cents per share, in 2001 and 2002.

[20] In April 2001 Trans Tasman offered all shareholders (apart from SEA) an arrangement under which those shareholders would swap shares for debt. Essentially, shareholders would receive debt with a face value of 35 cents (payable in the future) for every ordinary share. The outcome would have been that the payment was equivalent to less than half the then stated NAV of 70 cents per share. If the proposal had been accepted, SEA would have been the sole shareholder in Trans Tasman.

[21] The independent directors, Messrs Ferner (an Auckland lawyer) and Peterson (a merchant banker) recommended the offer to shareholders as being, 'the best option Trans Tasman is able to put to you'.

[22] Functionally, this was a take-over offer by SEA, made against the context of a refusal by SEA to consider the liquidation of Trans Tasman. In the event, the affected shareholders rejected that plan. It failed to achieve the necessary majority of 75 percent of the votes.

[23] It was in that context of sustained poor performance that matters came to a head in April of 2002. At that time the Guinness Peat Group Limited (GPG), which held 3 percent of the shares in Trans Tasman, advanced a resolution to the annual general meeting of Trans Tasman to be held on 20 May 2002 that the company be liquidated, and that certain persons be appointed as liquidators. In promoting this liquidation, GPG suggested that the situation which had arisen needed correction. It suggested that the only viable solution was to reduce debt with a view to ultimately eliminating the valuation gap between the current share price and the stated NAV. It claimed that could only be achieved by an orderly liquidation of Trans Tasman’s assets. GPG was particularly concerned as to a highly geared balance sheet. It took the view that if there was an orderly disposal of assets there could be a potential distribution to shareholders of approximately 59 cents per share (which would have yielded more than double Trans Tasman’s then current share price (26 cents)).

[24] That resolution was defeated. It did not receive the 75 percent majority required for a special resolution (s106 Companies Act 1993). The voting was 341,207,890 'against' and 123,053,631 'for'. The 55 percent vote of SEA comprised the bulk of the vote 'against' the resolution.

[25] The Chairman, Mr Don Fletcher, said at the conclusion of that meeting that as the majority of shareholders had voted against the motion he hoped that all shareholders would now accept the result and allow the Trans Tasman Board uninterrupted time 'to move forward positively'.

[26] However, difficulties continued. A related company of SEA, AGP Management Ltd, had been deriving income from AGP, an Australian listed company in which Trans Tasman has a substantial shareholding, under a management agreement.

[27] Early in 2003 GPG, also a shareholder in AGP began calling for the termination of this agreement. It suggested AGP Management Limited had a similar 'under performance' to that of Trans Tasman, and had failed to create shareholder wealth. GPG also suggested that if there was to be a management agreement, it should be put up for competitive tender.

[28] At the annual general meeting of AGP held on 11 February 2003, GPG promoted a shareholder resolution seeking to appoint directors to AGP who intended to terminate the management agreement. This was defeated because Trans Tasman voted against it.

[29] SEA’s claim was that these were payments for services rather than a form of net profit to it; they were within market norms; and the agreement went through all the usual requirements for related party transactions under the relevant Australian legislation and listing rules.

[30] This management arrangement was in place when this proceeding went to trial before Williams J in September 2003. It was still in force down to the time that Williams J delivered his judgment. But we were advised that this agreement was terminated, as at 30 November 2003. An appropriate media announcement was made, and notice was given to the NZX.

[31] Finally, to complete the narrative, on 30 March 2004 the respondent made a formal offer for all remaining shares in Trans Tasman, at 40 cents cash per share. A copy of the Take-over Notice was given to the NZX and the Take-overs Panel.

[32] Messrs Ferner and Peterson did not recommend acceptance of this offer. They noted, drawing on the 2003 annual report, that the net asset value per share stood at 63 cents; there were cash balances of $282 million; and the net surplus attributable to shareholders for the year was $40.6 million. In their view, the offer thus made was not fair and reasonable; the offer was not designed to be a 100 percent take-over, and was targeted 'only at those shareholders who disagree with Trans Tasman’s new strategic direction'; the business strategies of the company should support a share price materially above the bid price in the offer; and 'restructuring proposals could provide ... a greater shareholder value'.

[33] This reference to 'business strategies' was to four business strategies of Trans Tasman which were formulated at the February 2004 Board meeting. These strategies were adopted as a 'high level conceptual framework' and management was instructed to work through the issues surrounding their implementation. The strategies were 'to sell investment properties where the company believed acceptable added value could not be achieved; to reinvest in the Australasian property investment and development markets as counter-cyclical and opportunistic investments arose; to invest further in real estate capital market opportunities including property mortgage financing; and to invest in Asian/Pacific property markets where counter-cyclical property investment or development opportunities might arise'.

[34] The short point is that recently, minority shareholders were given an exit opportunity at 40 cents per share. The offer does not appear to have been greeted with enthusiasm by those shareholders.

[35] The significance of these recent developments is confined, for present purposes, to two aspects. First, the management agreement which formed a substantial plank in the appellants’ arguments in the High Court is now known to us to have been discontinued. And secondly, in general terms, there remains in Trans Tasman a disaffected and vocal minority group of shareholders, of significant size.

The claim as formulated

[36] A proceeding of this kind is not a general enquiry into the affairs of a company. It is rather a claim that whatever particulars are advanced, amount to 'unlawfulness' within the terms of s174 of the Companies Act 1993. That is to say, that the particulars, if well grounded, should give rise to relief under that provision.

[37] The pleading upon which this proceeding went to trial in this instance was:

SEA by virtue of its control of [Trans Tasman] has caused and is causing the affairs of [Trans Tasman] to be conducted in a manner that has been, is, or is likely to be, oppressive, unfairly discriminatory or unfairly prejudicial to the plaintiffs in their capacity as shareholders of [Trans Tasman].

[38] That proposition was supported on three legs in the pleadings:

First, it was said that SEA was continuing with policies which erode shareholder wealth. The precise pleading was 'the plaintiffs had and continue to have a legitimate expectation that the affairs of [Trans Tasman] would be managed prudently having regard to the best interests of all shareholders and in a way that would maximise shareholder wealth'.

Second, it was said that SEA was inappropriately deriving income from Trans Tasman in the sum of $5.5 million already referred to.

Third, it was said that there had been unfair use of voting power by SEA to prevent liquidation which was, and continues to be, in the best interests of all shareholders.

[39] The relief sought was that the Court should order that 'it is just and equitable that SEA acquire the appellants’ shares at the net asset backing per share'. It was averred that these shareholders could not exit via the NZX because the share price quoted on the exchange does not reflect the fair value of the appellants’ shares, and that they were otherwise unlikely to receive any dividend income. In consequence, it was said, the appellants were locked into Trans Tasman and unable to exit at a fair price.

[40] For completeness, and in short form, the appellants’ proposal was that leave should be reserved to the parties to agree on the NAV but with leave to apply further to the High Court should the parties be unable to do so.

[41] Those being the pleadings, it is appropriate to note that there was no allegation of any unlawful conduct by the respondent, Trans Tasman or its directors. That is to say, there was no allegation of a breach of Trans Tasman’s constitution, the Companies Act 1993, or the NZX Listing Rules.

The practical effect of the claim, if successful

[42] The appellants allege that the NAV of the shares at the relevant time was around 55 cents per share. If successful in their claim, they would therefore receive $9.6 million for the shares for which they had paid $4.4 million approximately two years previously.

The arguments of counsel

[43] It is convenient to summarise here, in short form, the arguments of counsel. The arguments which were run in the High Court were mirrored more or less exactly in this Court.

Plaintiffs/appellants

[44] Mr Rennie argued that s174 applies to all companies, including those which are listed, with publicly traded shares. He argued that proof of breach of some legal right is not a prerequisite to relief. One of the principal purposes of the section is to outflank majority rule where a minority shareholder can demonstrate prejudice. Section 174 is concerned with the 'effects' on minorities. The range of remedies is open-ended, and can extend as far as the compulsory purchase sought in this case. There is, Mr Rennie argued, demonstrable prejudice in this case.

Defendant/respondent

[45] Mr Latimour argued that, generally, a plaintiff alleging minority oppression must establish either that the conduct of which it complains is unlawful (in the sense of being a breach of the company’s constitution, the Companies Act 1993 or of the directors’ fiduciary duties) or, in the absence of such illegality, that there are 'special circumstances' giving the plaintiff a legitimate expectation that the affairs of the company will be conducted in a particular way.

[46] He submitted that, in the case of a listed company, minority oppression will only arise where there is 'internal' unlawful conduct. (The use of the term 'internal' is ours, and will be discussed more fully later in this judgment. For present purposes, it is sufficient to indicate that it refers generally to the documents constituting the contractual arrangements within the company.) That is because the public character of the company would generally prevent any legitimate expectation that the shareholder will be treated otherwise than in accordance with his or her strict legal rights. Effectively, he contended that, properly understood, s174 has no application to listed companies.

[47] In any event, Mr Latimour suggested, there are no 'special circumstances' in this instance which could justify the plaintiffs/appellants having any particular expectation that they would be treated otherwise than in accordance with their strict legal rights.

[48] Finally, he argued that the relief claimed was so 'unreasonable and completely inappropriate' that it should not be granted. The plaintiffs were seeking a profit of $5.2 million (or 118 percent) in a period of a little over two years since they had acquired their shares.

The High Court judgment

[49] Williams J was faced with the difficulty that there was no New Zealand authority on the application of s174 of the Companies Act 1993 to a listed company.

[50] The Judge appears to have accepted that s174 may not apply to listed companies. That is the way we read the judgment, as have some of the standard commentaries on company law in New Zealand (see Brookers, Company and Securities Law, at CA174.05).

[51] The Judge also held that, in any event, there was no unfairness, irregularity, invasion of legal rights, lack of probity or want of good faith (referring to Thomas v H W Thomas Ltd [1984] 1 NZLR 686; Re Saul D Harrison & Sons plc [1995] 1 BCLC 14; and Yovich & Sons Ltd v Yovich (2001) 9 NZCLC 262, 490).

[52] In particular, the strategic direction adopted by the company had remained constant since the minority shareholders bought their holdings, and the share prices had improved since then.

[53] There had always remained a large body of shareholders (both by number and holdings) 'insufficiently motivated by the views of the plaintiffs to exercise their vote or give support'.

[54] The Judge appears also to have regarded the proceeding as opportunistic, stating that 'these are proceedings designed to result in the plaintiffs receiving more than market value for their shares'.

[55] Further, if it was appropriate to apply certain English authorities urged on the Court by Mr Latimour, and to which we will refer later in this judgment, there was nothing here to give rise to a legitimate expectation in favour of the disaffected minority shareholders.

[56] In the result, the Judge had a sufficiently clear view of the matter that he felt able to say 'the plaintiff’s claim will fail', and that summary judgment was therefore appropriate.

The law

Evolution

[57] The oppression remedy originated in Britain in s210 of the Companies Act 1948 (UK), as an alternative to winding up on the just and equitable ground. The argument was that winding up was much too drastic a remedy to utilise in many cases, and that it would be desirable to give courts wider powers to intervene to set matters to right, whether by ordering one party to buy the other out or otherwise regulating the affairs of a company. The current UK provision is s459 of the Companies Act 1985.

[58] New Zealand adopted like reforms. The current New Zealand provision is s174 of the Companies Act 1993:

174 Prejudiced shareholders

(1) A shareholder or former shareholder of a company, or any other entitled person, who considers that the affairs of a company have been, or are being, or are likely to be, conducted in a manner that is, or any act or acts of the company have been, or are, or are likely to be, oppressive, unfairly discriminatory, or unfairly prejudicial to him or her in that capacity or in any other capacity, may apply to the Court for an order under this section.

(2) If, on an application under this section, the Court considers that it is just and equitable to do so, it may make such order as it thinks fit including, without limiting the generality of this subsection, an order -

(a) Requiring the company or any other person to acquire the shareholder's shares; or

(b) Requiring the company or any other person to pay compensation to a person; or

(c) Regulating the future conduct of the company's affairs; or

(d) Altering or adding to the company's constitution; or

(e) Appointing a receiver of the company; or

(f) Directing the rectification of the records of the company; or

(g) Putting the company into liquidation; or

(h) Setting aside action taken by the company or the board in breach of this Act or the constitution of the company.

(3) No order may be made against the company or any other person under subsection (2) of this section unless the company or that person is a party to the proceedings in which the application is made.

[59] This section has counterparts (with some local variations) not only in the United Kingdom, but in many parts of the British Commonwealth, including Australia, and Canada, and in 37 American States (see Griggs and Lowry, 'Minority Shareholder Remedies: A Comparative View' (1994) JBL 463 at 483).

The development of the legal tests for oppression

[60] The most difficult issue in relation to this important new remedy in company law was always going to be what should be sufficient to ground oppression or unfair prejudice.

[61] The early British cases took a narrow line. The remedy was confined to cover only conduct which was 'burdensome, harsh and wrongful' or showed 'a lack of probity and fair dealing' (see for instance Scottish Co-operative Wholesale Society Ltd v Meyer [1959] AC 324 at 342 and 364). From those early beginnings, the section has been applied much more widely, both in Britain, and throughout the common law world.

[62] Categorisation is not always useful or even appropriate (because it can obscure underlying principle), but by way of a general indication it can be said that a large number of the decided cases in the British Commonwealth fall broadly into three groups. First, there are the cases in which those in control of a company have, by some means or another, treated the company’s assets as very much their own, to the detriment of other shareholders. Secondly (and in keeping with the jurisprudence under the older just and equitable ground), the oppression remedy has been used to deal with disputes within quasi-partnership companies. Then there is a third group of cases which have been primarily concerned with the abuse (in one way or another) of minority rights in the course of the restructuring or amalgamation of companies.

[63] That said, the remedy does cut across many of the older distinctions in company law, and other rules of law. Effectively, British Commonwealth courts built on the original British reform to assert a general jurisdiction to deal effectively and more cheaply with abuses of corporate power. This was thought to be appropriate because the complexity and expense of litigation attendant on the older ways of dealing with problems of that character had left too many matters, for too long, in practice irremediable. The jurisdiction has, in the main, been as beneficial as its propounders had hoped for, and that alone should caution against any undue curtailment of the breadth of the provision. That is not to say there have not been problems with these provisions, and it is to these we now turn.

[64] There was always going to be a distinct problem for courts in evolving a principled approach to this section. On the one hand, the section was of a remedial and enabling variety: the jurisdiction was deliberately designed to transcend the limitations of the former law. At the same time, it is appropriate that there be a principled approach to the section, against which the commercial world, and its advisors, can measure conduct. The evolution of such principles has proved to be an enterprise which has latterly attracted some controversy.

[65] In New Zealand, in Thomas v H W Thomas Ltd [1984] 1 NZLR 686 (CA), Richardson J made the following observations on the interpretation of s209 of the Companies Act 1955 (as the comparable New Zealand section then was):

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 s209. The statutory concern is directed to instances or courses of conduct amounting to an unjust detriment to the interests of a member or members of the company. It follows that it is not necessary for a complainant to point to any actual irregularity or to an invasion of his legal rights or to a lack of probity or want of good faith towards him on the part of those in control of the company (at 693).

[66] This Court held that fairness is not to be assessed in a vacuum, or from the point of view of one member of a company, and that all the interests involved must be balanced against each other, including the policies underlying the Act and those underlying s174. For unfairness in this broad sense to be grounded, there must be a 'visible departure' from the standards of fair dealing, 'viewed in the light of the history and structure of the particular company, and the reasonable expectations of [its] members' (at 695).

[67] Thomas was a case of an applicant shareholder who argued that he had received an unfairly low return on his investment, and that he was in a locked-in minority. The Court refused the relief sought (an order that the company or the other shareholders buy out the applicant’s shares at a fair price). Mr Thomas had not done everything possible to sell his shares in accordance with his rights under the Articles of Association. The Court also considered that the very conservative dividend policy of the company was justified, given the business conditions in which the company operated.

[68] This Court has not been alone in that kind of approach in the British Commonwealth. For instance, in Re Westfair Foods Ltd v Watt (1991) 79 DLR (4th) 48, Kerans JA said, in delivering the judgment of the Alberta Court of Appeal (on like sections under the Canada Business Corporations Act, RSC 1985, c. C-44 ss214 and 241), in a passage which is worth setting out in full:

I turn then to the substantial rights conferred by the provision. Obviously, they turn on effect not intent. Equally obviously, they govern all the activities of the corporation. The rights conferred upon shareholders are that they, at any time and in any way during their relationship with the company, are to be insulated from anything oppressive, unfairly prejudicial, or that unfairly disregards their interests. For the relations among shareholders, this is a major modification of majority rule.

In my view, the provisions were and remain a compendious way for Parliament to say to the courts that the classes mentioned in the Act are to be treated fairly in the sense of justly by corporations. For example, both parties cite and rely on Ebrahimi v Westbourne Galleries, [1973] A.C. 360. Lord Wilberforce there said at p. 379:

... there is room in company law for recognition of the fact that behind it, or amongst it, there are individuals with rights, expectations and obligations inter se which are not necessarily submerged in the company structure.

I agree with a similar sentiment by McDonald J. in First Edmonton Place v 315888 Alberta Ltd. (1988), 40 B.L.R. 28 at pp. 59-60, 60 Alta. L.R. (2d) 122, 10 A.C.W.S. (3d) 268 (Q.B.).

I cannot put elastic adjectives like 'unfair', 'oppressive' or 'prejudicial' into watertight compartments. In my view, this repetition of overlapping ideas is only an expression of anxiety by Parliament that one or the other might be given a restrictive meaning. I am grateful for the history in the First Edmonton Place case. Recent changes adding words like 'unfairly disregard' reflect just that concern: see Dickerson et al., Proposals for a New Business Corporations Law for Canada (Ottawa: Information Canada, 1971), p. 163, where the mischief was reported to be

... the self-imposed judicial qualifications that have limited the application ... and ... cast considerable doubt upon the effectiveness of the original provisions.

The irony is that too much repetition encourages rather than eliminates narrowing arguments. For example, in Peterson, Shareholder Remedies in Canada (Butterworths, 1989), para. 1860, the author contends that 'unfairly disregards' implies that some 'disregarding' is fair! I reject that kind of parsing. The original words, like the new additions, command the courts to exercise their duty 'broadly and liberally', as this court has already said about the nearly identical Alberta law in Keho Holdings Ltd. v Noble (1987), 38 D.L.R. (4th) 368, 52 Alta. L.R. (2d) 195, 78 A.R. 131 (C.A.).

Having concluded that the words charge the courts to impose the obligation of fairness on the parties, I must admit that the admonition offers little guidance to the public, and Parliament has left elucidation to us. I have elsewhere said that I take this sort of indirection as legislative delegation: see Transalta Utilities Corp. v Alberta Public Utilities Board (1986), 43 Alta. L.R. (2d) 171 at p. 180, 68 A.R. 171, 36 A.C.W.S. (2d) 376 (C.A.).

We fail in that duty of elucidation, I think, if we merely say 'this is fair' or 'that is not fair' without ever explaining why we think this or that is fair. Thus I, and I dare say others, am not much helped by cases and comments that simply announce that I am to enforce 'fair play' or 'fair dealing': see, for example, Dickerson, op. cit., para. 48.

On the other hand, I do not understand that the delegation of this duty permits a judge to impose personal standards of fairness. Let me illustrate what is probably obvious by two extreme examples. A judge who firmly believes in the virtues of unrestricted private enterprise might say that fairness requires that people protect themselves to their best capacity, and that the courts not protect those who fail to protect themselves. On the other hand, a judge who firmly believes that private property is a trust held for the benefit of society as a whole might say that what is fair is what best benefits society.

The role of a judge in our society limits the impulses of both my mythical judges. We must not make rules unless we can tie them to values that seem to have gained wide acceptance. We do that largely by testing any proposed rule against other legal rules, which by long tradition seem accepted. In short we seek precedent, or we seek to argue from what we consider to be principles adopted in precedent. So, in Keho, this court relied upon precedent in other situations where courts were asked to decide what was 'just and equitable' (at 52-53).

[69] Those general observations aside, three principles are very well established.

[70] First, errors of judgment by management, inefficiencies, and poor business management without distinct elements of bad faith or self interest cannot amount to oppression. The cases under this head go back at least as far as Re Five Minute Car Wash Service Ltd [1996] 1 WLR 745 (Ch D).

[71] Secondly, in any event, Judges are ill-equipped to evaluate business strategies, and have accordingly exercised self restraint. See Howard Smith Ltd v Ampol Petroleum Ltd [1974] UKPC 3; [1974] AC 821 per Lord Wilberforce, '...it would be wrong for the court to substitute its opinion for that of management, or indeed to question the correctness of management’s decision, on [questions of this character] if bona fide arrived at' (at 832). And see also the case concerning the dismissal of Mr Venables as chief executive of Tottenham Hotspur (Re Tottenham Hotspur plc [1994] 1 BCLC 655) (Nicolls V-C). This is sometimes called the 'business judgment' rule. Judges, on the other hand do have training and expertise in dealing, for instance, with fraud, illegality, or conflicts of interest.

[72] Thirdly, the remedy is not (without more) appropriate for the facilitation of exit from a company where there are straight out disagreements over company strategy. This point was distinctly reinforced by this Court recently in Yovich & Sons Ltd v Yovich (2001) 9 NZCLC 262, 490 where, in delivering the judgment of this Court McGrath J said:

The statutory protection for prejudiced shareholders is not intended to facilitate exit from the company in all cases where minority shareholders differ from the majority on the policy and direction of a company which they see as being to their disadvantage (at [31]).

[73] The difficulty created by Williams J’s judgment is that the High Court appears to have questioned whether the Thomas principles should still continue to apply in a climate of what the Judge perceived to be a recent change in approach by the English courts, particularly in cases involving listed companies. At paragraph [29] of his judgment Williams J said:

The principal authority is Thomas v H W Thomas Ltd. But since it does not deal with the affairs of a public company, still less one listed on the NZX, and English precedents suggest the law in this area has moved on since Thomas and the seminal decision of the House of Lords in Ebrahimi v Westbourne Galleries Ltd relied on in Thomas it is preferable to consider British precedent first (citations omitted).

[74] Before dealing with these more recent British authorities, it is useful to note certain empirical studies as to the manner and the circumstances in which resort to this section has been had. This is because, as we will later note, the concern of United Kingdom appellate courts appears to have become that undue resort is being had to these oppression provisions, and that the legal tests to be applied are not sufficiently certain (which, it is said, has contributed to the problem of over-reaching with respect to the section).

[75] We are not aware of any empirical study of proceedings of this character in New Zealand. Leaving aside injunction applications, post-1993 there have been eight decisions of this Court (three of which are reported): Yovich (above); Cue Energy Resources Ltd & Ors v Browse Petroleum Pty Ltd (2001) 9 NZCLC 262, 526; Norager v Charles Norager & Son Ltd & Ors (2000) 8 NZCLC 262, 122; and 29 High Court decisions. Pre-1993 there is one Privy Council decision (Vujnovich v Vujnovich [1989] 3 NZLR 513); two Court of Appeal decisions; and 19 High Court decisions. In all, close to 50 decisions of our Courts since legislation of this character was created. There has been no concern expressed in those judgments as to the essential approach adopted in Thomas.

[76] In Australia, there is a very useful study by Professor Ramsay, the Director of the Centre for Corporate Law and Securities Regulation in the University of Melbourne, which has been published as 'An Empirical Study of the Use of the Oppression Remedy' (1999) 27 ABLR 23.

[77] Professor Ramsay was able to locate 115 reported and unreported oppression judgments in that jurisdiction. Some of those cases were eliminated for a variety of reasons - for instance, they went only to procedural questions. The remaining 88 judgments were then closely analysed.

[78] As to the kinds of allegations advanced in those cases, the most widely pleaded allegation of oppressive conduct was 'that of exclusion from management in the company, this was pleaded in 40.9 percent of these oppression cases' (at 28). The range of allegations pleaded is set out in Table 4 to that article.

[79] As to the types of company affected by these claims, Professor Ramsay identified 15 sets of proceedings against public companies, six of which were listed public companies.

[80] As to the tests applied by Australian courts for oppression or unfair prejudice, in almost 30 percent of these 88 judgments, courts did not specifically apply any test, other than the words of the section. Where courts did apply a test, that most utilised was found to be the approach formulated by the High Court of Australia in Wayde v New South Wales Rugby League Ltd [1985] HCA 68; (1985) 180 CLR 459 viz, whether any board of directors acting reasonably could have made the particular decision. Other tests applied in Australian courts have included, 'was there a visible departure from the standards of fair dealing, and the violation of the conditions of fair play on which every member is entitled to rely?' (Re Ingleburn Horse and Pony Club Ltd [1973] 1 NSWLR 641); 'was there a visible departure from the standards of fair dealing, and the violation of the conditions of fair play on which every member is entitled to rely?' (Morgan v 45 Flers Avenue Pty Ltd (1986) 10 ACLR 692; and the New Zealand Thomas test, above ('was the conduct in question unjustly detrimental to a member of the company?') was utilised in six (or 6.8 percent of) Australian cases.

[81] For a useful survey of the Canadian position, see Cheffins and Dine, 'Shareholder Remedies, Lessons from Canada' (1992) 13 Company Lawyer 89. On the costs associated with shareholder litigation, see also Cheffins, 'An Economic Analysis of the Oppression Remedy: Working Towards a more Coherent Picture of Corporate Law' (1990) 40 UTLJ 775. For a comprehensive, updated survey of the Canadian case law see Peterson, Shareholder Remedies in Canada (1991). A 1991 base line in that work (Appendix A) found just over a hundred post-1973 Canadian oppression decisions. And during the summer of 1998, more than 40 actions of this kind were pending in the South West judicial region in Ontario, Canada (serving approximately 750,000 people). (See Copp and McGuinness, 'Protecting Shareholder Expectations: A Comparison of UK and Canadian Approaches to Conduct Unfairly Prejudicial to Shareholders (Part 2)' (2000) 11(6) ICCLR 217). See also, in Canada, Maple Leaf Foods Inc v Schneider Corp (1998) 42 OR (3d) 177 (CA); and Cheffins, Company Law: Theory Structure, and Operation (1997).

[82] For the United Kingdom, we were able to refer to the UK Law Commission’s report on Shareholder Remedies (HMSO, Law Com 246). Appendix J of that report indicates that a total of two hundred and fifty-four s459 petitions were presented to the High Court between January 1994 and December 1996. Of those, eight (or 3.4 percent) related to public companies. There is also a useful analysis of the kinds of allegations which were raised. E J Boros has also reviewed the allegations pleaded in s459 petitions, in England, Wales and Australia - see, Shareholders Remedies (1995).

[83] The UK Law Commission identified the main problems in relation to this subject area as being the length and complexity of petitions, and the cost of these proceedings. See also Mayson, French and Ryan in Company Law (Blackstone, 1998-1999 ed) at 587, noting that s459 type cases are frequently time consuming and wasteful. The most astonishing example of the potential length and costs of the UK s459 petitions to which we have referred was an unreported case (Re Freudiana Music Company Ltd, EWHC, 24 March 1993, Jonathan Parker J) in which the hearing lasted for a year and the costs awarded in favour of the respondent stood at ₤2 million. Similarly, in Re Elgin Data Ltd [1991] BCLC 959, costs of ₤320,000 were incurred in a dispute over ₤24,600 worth of shares!

[84] Costs apart, proceedings of this kind can be 'strategic', and brought to bring pressure on a company. They can also harm the commercial reputation of a company. It has even been argued that the oppression provision can be availed of by a majority - see, Chesterman 'Oppression by the majority - or of it?' (2004) 25 ABR 103.

[85] All of that said, it is notable that the English Law Commission ultimately recommended that the wording of s459 should remain unchanged, and that the way forward was through better case management of the conduct of proceedings of this character.

[86] It was then, in a context of extensive and aggressive litigation, that English appellate courts sought to give some greater guidance. It is apparent that British judges were perfectly well aware of the difficulties which had become attendant upon proceedings of this character. In the words of Harman J in Re Unisoft Group Ltd (No 3) [1994] 1 BCLC 609:

Petitions under s459 have become notorious to the judges of this court - and I think also to the Bar - for their length, their unpredictability of management, and the enormous and appalling costs which are incurred upon them particularly by reason of the volume of documents liable to be produced (at 611).

[87] It is not necessary to rehearse all the British cases. The most important of them were recently traversed in probably the most controversial case in the United Kingdom relating to the tests for unfairly prejudicial conduct, the decision of the House of Lords in O’Neill v Phillips [1999] 1 WLR 1092.

[88] That case concerned Pectl Limited, a company concerned with providing specialist services for stripping asbestos from buildings. In 1983 Mr Phillips (an accountant) bought out another shareholder and came to own the whole of the share capital in the company. Mr O’Neill was at that time employed by Pectl Limited as a manual worker. In 1985 Mr Phillips gave Mr O’Neill a quarter of the share capital in Pectl Limited, and appointed him a director. Subsequently there was an informal discussion between them during which Mr Phillips expressed the hope that Mr O’Neill would be able to take over the day-to-day running of the business and then draw half of the company’s profits. This in fact took place. By 1990 Mr O’Neill had put some of his earnings into the capital of Pectl Limited, and provided a guarantee of its overdraft, secured over Mr O’Neill and his wife’s house. There were then discussions in which professional advisors became involved with a view to Mr O’Neill obtaining half the share capital of Pectl Limited, if certain targets were met. Apparently no agreement was concluded. An economic recession then affected Pectl Limited and in 1991 Mr Phillips assumed personal command of the business. Mr O’Neill was informed that he would no longer be paid half of the profits, but only his salary and dividends. Unsurprisingly, Mr Phillips and Mr O’Neill then fell out. Mr O’Neill severed his links with Pectl Limited and set up a competing business.

[89] Mr O’Neill petitioned under s459. He made two substantive complaints, which related to the termination of the equal profit sharing and the repudiation of the alleged agreement for allotting further shares. His petition was dismissed in the High Court but an appeal was allowed by the Court of Appeal. The Court of Appeal ordered Mr Phillips to buy Mr O’Neill’s shares. It took the view that Mr O’Neill had in effect been forced out of Pectl Limited and that Mr O’Neill had a 'legitimate expectation' both as to equal profit sharing and as to being allotted further shares when the targets were achieved.

[90] Mr Phillips appealed successfully to the House of Lords, which unanimously dismissed Mr O’Neill’s petition. The reasons for the judgment of their Lordships were delivered by Lord Hoffman, and included a wide-ranging survey of the English case law to that date.

[91] Lord Hoffman began by considering the meaning of 'fairness'. This concept is to be applied judiciously, and its content should be based upon rational principles which depended upon the context. The context of s459 included the close regulation of company affairs by rules to which the shareholders agreed, as well as its development from the law of partnership (regarded by equity as a contract of good faith). In consequence, 'unfairness' might consist of a breach of the rules or by somehow using the rules in a way which equity would regard as contrary to good faith. The way in which equitable principles operated was tolerably well settled and should not be abandoned in favour of 'some wholly indefinite notion of fairness'.

[92] Lord Hoffman then turned to the concept of 'legitimate expectations' which he himself had a distinct hand in striking in earlier cases (by analogy with public law). However, His Lordship recognised that the term is not entirely apt for this subject area, notwithstanding the significant attention which had been devoted to it in the English case law. He said:

In Re Saul D Harrison & Sons plc [1995] 1 BCLC 14 at 19 I used the term 'legitimate expectation' borrowed from public law, as a label for the ‘correlative right’ to which a relationship between company members may give rise in a case when, on equitable principles, it would regarded as unfair for a majority to exercise a power conferred upon them by the articles due to prejudice of another member ... it was probably a mistake to use this term, as it usually is when one introduces a new label to describe a concept which is already sufficiently defined in other terms. In saying that it was ‘correlative’ to the equitable restraint, I meant that it could exist only when equitable principles of the kind I have been describing would make it unfair for a party to exercise rights under the article. It is a consequence, not a cause, of the equitable restraint. The concept of a legitimate expectation should not be allowed to lead a life of its own, capable of giving rise to equitable restraints in circumstances to which the traditional equitable principles have no application (at 1102).

[93] As to legal policy, Lord Hoffman said that a balance has to be struck between the breadth of the discretion given to the Court and the principle of legal certainty.

[94] There has since been a good deal of debate as to whether the House of Lords did indeed strike the right balance. On the one hand, there was His Lordship’s emphasis on contract or agreement and the application of traditional equitable principles, which might give greater certainty as to the scope of the remedy. On the other hand, the danger is that the remedy may be unduly constrained by such considerations (particularly where what is at issue is a claim that the applicant’s shares should be purchased).

[95] The House of Lords must be right that there should not be a right to exit at will. But in economic terms, the danger is that a restrictive approach may involve senior executives and directors avoiding smaller companies out of a fear of being unduly locked in. And the same issue arises in relation to listed company investment. What is ultimately raised here are significant economic questions, such as the desirability or otherwise of leveraged buy-outs; the proper extent of reasonable shareholder expectations in a given jurisdiction; and the degree to which courts should today review a company’s business decisions (when, as noted, historically courts have taken the view that unless an egregious situation presents itself with no other alternative to granting a remedy, there should be none).

[96] Quite apart from these economic concerns, there is a doctrinal danger in the adoption of a relatively stiff 'legitimate expectations' test, as opposed to a 'reasonable expectations' test (which is itself part of the unjust detriment principle set out at [66] above). One danger of a stricter 'legitimate expectations' test is that it can be pressed too far, as Mr Latimour sought to do in this case, in that the analysis then narrows down to legitimacy as defined by pre-existing formal 'arrangements'. Although this comports with much economic analysis (which rests upon economists’ understandings of the theory of the firm as a nexus of agreements), the reasonable expectations test espoused in this jurisdiction as part of the Thomas principles, certainly in Canada, and to a large extent in Australia and in many American jurisdictions, is more appropriate. This is because something may be lawful and 'expected', but still unduly prejudicial.

[97] Finally, it appears that the 'shot across the bows' of excessive s459 litigation by the House of Lords in O’Neill v Phillips (above) has not produced the (apparently) desired effect in the United Kingdom - see the survey of post-O’Neill case-law by Professor Milman in 'Unfair prejudice: the litigation goes on, and on ...' (2004) Issue 13 Sweet & Maxwell’s Company Law Newsletter 1.

The special problems associated with listed companies

[98] If Mr Latimour was contending (and at one point of the argument he appeared to us to be distinctly contending for this proposition) that listed companies are not subject to the s174 remedy, then we do not agree.

[99] The first and most obvious point to be made is that there is no limitation on the face of s174 itself precluding resort to this section in the case of a listed company.

[100] Second, given that this provision has proved to be a beneficial one in the commercial life of the common law world (it is worth recalling that the empirical studies show that approximately one third of the actions have been successful) it should not be unnecessarily read down.

[101] Thirdly, there are a number of reported decisions in the United Kingdom, Canada and Australia in which proceedings of this character have been brought with respect to listed companies with publicly traded shares, and we are not aware of a jurisdictional objection having been taken, let alone succeeding. Relief has on occasion been granted against such companies. (See as only some examples: Re Westfair Foods (above; Canada); Re Spargos Mining NL (1990) 3 ACSR 1 (Australia); Re Blue Arrow plc [1987] BCLC 585 (UK)). It would be incongruous if New Zealand law was to be put on a different footing (particularly as between Australia and New Zealand).

[102] That said, there are considerations which may well make it more difficult for plaintiffs to succeed in the case of listed companies.

[103] The first and most obvious point is that the exit strategy for an investor in a listed company (as an alternative to litigation) is to sell his or her shares. There is a continuous market in the shares of listed companies, save in extraordinary circumstances which create an illiquid market. This exit strategy is more cost effective than litigation. However it must be said - and it is part of what Mr Rennie said in this case - that a shareholder may, in a company which is being run in a manner that is prejudicial to members, face a share price which has fallen before the shareholder decides to, or can, liquidate his or her investment.

[104] Then too there is distinct force in Mr Latimour’s submission that there is a need for certainty in promoting the orderly trading of shares on stock markets.

[105] There was also force in Mr Latimour’s submission that the interests of minority shareholders are to some extent protected by what Mr Latimour termed 'the added layer of regulation' provided by the NZX Listing Rules.

[106] The more difficult problems in the area of listed companies arise in the area of what are, or can be, the relevant 'reasonable expectations'. Jonathan Parker J observed in Re Astec (BSR) plc [1998] 2 BCLC 556 at 589 that the introduction of what that Judge termed 'equitable considerations' in relation to the business of listed companies 'would ... in all probability prove to be a recipe for chaos'. Notwithstanding that that decision was approved of by the House of Lords in O’Neill v Phillips (above), these concerns appear to be distinctly overdrawn.

[107] In settling expectations and understandings for the purpose of this section Judges will necessarily have to focus on the formal nexus of understandings in the firm which the parties have themselves established. These might be termed the 'formal' or 'internal' understandings. But sometimes courts (in our view legitimately) focus also on external standards in identifying reasonable expectations and understandings (see, for instance, Re A Company [1986] BCLC 382 (Ch D) at 389 (per Hoffman J); and, Re A Company, ex parte Burr [1992] BCLC 724 (Ch D) at 727 (per Vinelott J)). However in settling reasonable expectations, Chancery Judges have not strayed into the quagmire of attempting to imply terms into more formal expectations.

[108] Taken to its logical conclusion, given that reviewing courts are not restricted to internal expectations, there may (consistent with efficiency principles) be some room for a hypothetical bargaining approach to be resorted to even in listed company litigation. This would involve focusing on the position of the litigants, and giving effect to what amounts to a best estimate of what the parties would have agreed to, had they turned their minds to the issue in question. In a 1985 judgment, the UK Court of Appeal approached a case in just such a manner (Tett v Phoenix Property and Investment Company Limited [1986] BCLC 149).

[109] The short point is that, even in a listed company, a corporate constitution and the related nexus of agreements may not address all pertinent issues. There may be considerations that give rise to reasonable expectations that are not reflected in strict legal documentation. However, clearly the forensic burden on an applicant will be considerably more difficult in the case of a listed company.

[110] This consideration shades into another, and more recent, development in company law. For a number of reasons which it is unnecessary to traverse here, there is increasing recognition of the very real difficulties of this kind of litigation, and a greater recognition of shareholder rights. This has led to greater recognition by companies of Shareholder Committees, the purpose of which is to give shareholders (and particularly minority shareholders) a greater voice in the corporation’s affairs (see for instance McConvill and Bagaric, 'Towards Mandatory Shareholder Committees in Australian Companies' [2004] MelbULawRw 4; (2004) 28 Melbourne U L R 125). Alternative dispute resolution is another option which ought to hold real attraction in this subject area.

[111] In our view, s174 can and does apply to listed companies with tradeable shares, but the considerations which will apply to them will not necessarily be the same as obtain with respect to closely held companies. But it would be quite wrong for the New Zealand corporate community to think that the activities of listed companies are beyond the reach of this

provision. The law: a summary [112] In summary, we are not persuaded that the judicial approach to this important provision in New Zealand company law should be judicially recast in a more restrictive mode at this time. Twenty years after Thomas, in our view the general approach laid down by this Court is still appropriate in New Zealand. [113] The operative words of the provision express a general principle which is directed to 'an unjust detriment to the interests of a member of the company' (Thomas at 693). That test is an objective one. The provision may be prayed in aid even if the conduct accords with the company’s constitution, because even then inappropriate prejudice may still arise. Relief can be given even if the conduct complained of does not involve a want of good faith or a lack of probity. The fact that all members are treated uniformly as members will not necessarily make conduct fair. The reasonable expectations of members are distinctly relevant - though this factor is not in and of itself necessarily determinative - and those expectations are not necessarily restricted to purely 'internal', or 'formal' expectations. There are no fixed categories of cases to which s174 apply. The provision is one of general application. Relief may be sought even with respect to a listed company. This case [114] In our view Williams J was correct to hold that no relief should be afforded to the plaintiffs in this instance. [115] We begin with the character of the appellants. Between them they have a substantial number of shares, although their total holdings are apparently only 2.9 percent of all the shares in Trans Tasman. About half were bought in mid-2001 and the other half in the third quarter of 2002. As to the other 1,300 shareholders who claim to 'support' this action, they are not parties, and we do not have any particulars as to when those shares were purchased, or as to the character of the particular shareholders. We can only proceed on the basis that it is the two appellants we are considering. [116] On that footing, these are very recent shareholders - they have not been long-term holders of shares - and their motivations for purchase could even have been strategic, or opportunistic behaviour on their part, in the expectation there might well be a buy out of which they could take advantage. [117] As to the character of the respondent, effectively it is in the control of Mr Lu. His personal interests are for all practical purposes in control of Trans Tasman. It is obvious - and this is borne out by the most recent take-over offer by SEA - that Mr Lu’s interests want to hold all the shares, but only at their price. [118] As to the strategic direction of the respondent, Trans Tasman appears always to have emphasised capital growth. The initial investment policy of July 1995 so stated, and the most recent pronouncements are simply a variation of that theme. In this instance, the appellants knowingly bought into the very situation they now complain of and the company has consistently been proceeding in a particular direction from an investment point of view. [119] In the result, that direction has proved to be adverse to shareholders, and the share price has sagged. The appellants at least have the advantage, which would not be so in a private company that they can exit, via the exchange. In that sense, the appellants are not in anything like as bad a situation as entirely locked-in minorities in a private company. But the situation in which the appellants find themselves is recent, and was known to them from the outset. [120] Even if that were not so, as this Court was at pains to emphasise in Thomas (696), it is very difficult to get within the oppression remedy by showing that, differently managed, a company might do better by minority shareholders. We entirely agree with Williams J that as a general proposition courts cannot appropriately be involved in second-guessing decisions by boards and shareholders as to the more appropriate direction and management of a company. This Court cannot correct poor strategic decisions, if such they be. [121] We cannot ignore the reality that the management agreement which was said to be advantaging SEA has been terminated. However, even if that were not so, the management agreement was with an Australian partly owned listed company. It was an agreement at some remove from Trans Tasman. Then too, the agreement had gone through the normal channels for related party transactions. In such circumstances, it would be unlikely that the Thomas formula could be met when there are rules specifically to deal with the situation that have been complied with. [122] Finally, there is the extraordinary feature of this case that the appellants seek not just exit, but exit conferring upon them a handsome profit (in a relatively short time) for their investment. What they are really seeking, is to achieve through the Court what they cannot achieve through the market. Such a remedy under s174 against a listed company is not only unprecedented, but entirely inappropriate. [123] Unfair detriment has not been demonstrated by these appellants. They entered into their position with their eyes wide open. They cannot legitimately look to this Court to generate their profit for them. We are not unsympathetic to the plight of the unspecified minority shareholders - most likely in the small investor class - who have been locked in for a long time. But we are in no position, in this proceeding, to consider their interests. And even if this Court were so placed, there is still the formidable difficulty that they too were aware of the direction this Company proposed to take. Shareholding involves risk, and the market must be allowed to reflect that risk. Conclusion [124] In our view the Judge was correct to take the view of the case he did, and to enter summary judgment for the respondent. [125] The appeal will therefore be dismissed. [126] The respondent will have costs of $6,000 against the appellants (jointly and severally) together with its reasonable disbursements. If the disbursements cannot be agreed, they are to be fixed by the Registrar.