Arnerich v DHC Assets Limited - [2021] NZSC 121

IN THE SUPREME COURT OF NEW ZEALAND

I TE KŌTI MANA NUI

SC 76/2021
[2021] NZSC 121

BETWEEN	ANTONY IVO ARNERICH Applicant
AND	DHC ASSETS LIMITED Respondent

Court:	William Young, O’Regan and Ellen France JJ
Counsel:	J D McBride and A J Steel for Applicant F J Thorp and L J Turner for Respondent
Judgment:	20 September 2021

JUDGMENT OF THE COURT

AThe application for leave to appeal is dismissed.

BThe applicant must pay the respondent costs of $2,500.

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REASONS

The application

In the High Court, Paul Davison J found the applicant, Antony Arnerich, liable to DHC Assets Ltd (DHC) under ss 131 and 301 of the Companies Act 1993.[1] On appeal and cross-appeal to the Court of Appeal, Mr Arnerich was substantially unsuccessful.[2] He now seeks leave to appeal to this Court against the judgment of the Court of Appeal.

Background

[1]DHC Assets Ltd v Arnerich [2019] NZHC 1695 [HC judgment].

[2]Arnerich v DHC Assets Ltd [2021] NZCA 225 (Goddard, Duffy and Nation JJ) [CA judgment].

Vaco Investments (Lincoln Road) Ltd (Vaco), as trustee for Vaco Investments (Lincoln Road) Trust, developed a property on Lincoln Road, Auckland. This involved the construction of a commercial building. Vaco Investments (Lincoln Road) Trust is a discretionary trust, the beneficiaries of which are (ultimately) Mr Arnerich and members of his family. Mr Arnerich was the only director of Vaco and controlled its sole shareholder. The respondent, DHC, was the builder. The development was funded by ANZ Bank.
The building was substantially completed in late 2012, with practical completion as at 21 November 2012 later being certified on behalf of the engineer to the contract. By this stage there were disputes between DHC and Vaco in respect of a significant number of issues. As well, and unknown to DHC, Vaco had entered into an agreement on 7 November 2012 to sell the building for $8.4 million with settlement in April 2013.
The sale was completed on 3 April 2013. Within days of the settlement, the bulk of the difference between the sale price and what was required to discharge the amount owing to ANZ Bank was paid out to Mr Arnerich, his family members or related family interests in two payments: one $1,175,000 (on 8 April) and the other $1,036,131 (on 9 April). And between May and October 2013, virtually all remaining funds of Vaco were paid out; this to meet obligations or for the benefit of Mr Arnerich, his family or family interests.
On 1 July 2014, a shareholder’s resolution of Vaco appointed a liquidator.
The procedural history of what followed is convoluted but the key elements are as follows:
(a)In adjudication proceedings under the Construction Contracts Act 2002, the adjudicator:
(i)determined that Vaco was required to pay DHC $300,763.12 together with interest at a daily rate until payment; but
(ii)rejected claims for approximately $200,000 for time-related and P&G costs, and
(iii)after all other allowances, including for costs, held that DHC was entitled to a total of $367,768.12.
(b)Judgment for…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

Continue reading Arnerich v DHC Assets Limited

Details

AGLC: Arnerich v DHC Assets Limited [2021] NZSC 121
Case: [2021] NZSC 121
Decision Date: 20 September 2021

CaseChat Overview and Summary

The Supreme Court of New Zealand recently dismissed an application for leave to appeal from Antony Arnerich against the judgment of the Court of Appeal in relation to his liability under sections 131 and 301 of the Companies Act 1993. The respondent, DHC Assets Limited, was a builder engaged in a property development project managed by Vaco Investments (Lincoln Road) Limited, of which Mr Arnerich was the sole director and controlling shareholder. Disputes arose between DHC and Vaco over the completion of the project, leading to adjudication, arbitration, and litigation. The High Court found Mr Arnerich liable to DHC under sections 131 and 301 of the Companies Act, and the Court of Appeal largely upheld this decision but made some adjustments regarding interest and the assessment of Vaco's liability to DHC.

Mr Arnerich's application for leave to appeal to the Supreme Court was based on several arguments. He contended that the Court of Appeal incorrectly applied an "entity primacy" model and imposed a duty to provide for "maximum conceivable liabilities". He also argued that the Court of Appeal wrongly applied the "riders" from Madsen-Ries v Cooper (Debut Homes), claiming that he was entitled to consider his own interests and that the test should focus on whether DHC's claims could objectively be regarded as being without merit. Furthermore, he argued that the liability should have been based on an assessment of how much should have been retained to cover the claim and that the High Court should not have accepted the adjudication and District Court judgment as establishing Vaco's liability to DHC.

The Supreme Court found that the proposed appeal did not raise any issue of general or public importance and did not indicate a miscarriage of justice. The Court concluded that Vaco, as a trustee holding assets, had no reason to distribute its funds without resolving the claim by DHC or obtaining an indemnity from Mr Arnerich. The Court also found that Mr Arnerich's decisions did not involve a balancing of risk and reward for Vaco, as the only upside was for him and his family. Given these findings, the Court found no error in concluding that Mr Arnerich did not make an honest attempt to consider Vaco's best interests and was in breach of section 131. Regarding quantum, the Court noted that Mr Arnerich did not establish what an appropriate provision for claims should be, and the favorable adjudication and District Court judgment left little room for a successful challenge. Therefore, the application for leave to appeal was dismissed, and Mr Arnerich was ordered to pay DHC costs of $2,500.

Orders