Arnerich v Vaco Investments (Lincoln Road) Limited (in liquidation)

[2018] NZHC 560

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2017-404-001926

[2018] NZHC 560

UNDER

the Companies Act 1993

BETWEEN

ANTONY IVO ARNERICH

Plaintiff

AND

VACO INVESTMENTS (LINCOLN

ROAD) LIMITED (IN LIQUIDATION)
First Respondent

AND

DHC ASSETS LIMITED

Second Respondent

Hearing:

28 November 2017

Appearances:

J McBride for the Applicant

P J Davey for the First Respondent F Thorp for the Second Respondent

Judgment:

28 March 2018

JUDGMENT OF ASSOCIATE JUDGE SARGISSON

This judgment was delivered by me on 28 March 2018 at 3.30 p.m. pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar Date.......................................

Solicitors:

Doug Cowan Barristers & Solicitors, Auckland Christopher Taylor Lawyers, Auckland

Duthie White, Auckland J McBride, Auckland

ARNERICH v VACO INVESTMENTS (LINCOLN ROAD) LTD (IN LIQUIDATION) [2018] NZHC 560

[28 March 2018]

P Davey, Auckland F Thorpe, Auckland

Introduction

[1]    Mr Arnerich applies to this Court in an interlocutory application for leave to seek orders under s 284(1)(a) of the Companies Act 1993 (the Act) directing the second respondent, Ms Toon, as liquidator of the first respondent, Vaco Investments (Lincoln Road) Limited, to defend against a referral to arbitration made by the third respondent, DHC Assets Limited, and to prosecute a counterclaim in the arbitration.

[2]    Mr Arnerich is the sole director and shareholder of Vaco. The present interlocutory application he makes is solely concerned with the issue of leave. No substantive orders are currently being sought.

[3]The relevant facts are the following.

[4]    Vaco, as principal and DHC, as the builder, contracted together for the development of a commercial property at Lincoln Road, Henderson. The parties’ contract comprised two intertwined agreements, the construction contract and the Standard Conditions NZS 3910:2003.

[5]    Issues arose as to payment under the contract. This set in motion an array of litigation and dispute resolution processes under the Act, the Construction Contracts Act 2002 and the Standard Conditions, which remain ongoing.

[6]    Most recently, DHC has begun arbitral proceedings against Vaco for disputed claims that were rejected by the Adjudicator in October 2016 under the disputes procedure set out in the Construction Contracts Act.

[7]    The matters put before the Adjudicator for determination included disputes DHC had with Vaco over the Final Payment Schedule 17. Of the myriad claims included in Final Payment Schedule 17, only six had been before the Engineer to the contract for a formal review and decision under the dispute resolution procedure contained in the Standard Conditions. Of those six, two claims that were rejected by the Adjudicator, being claims 387051 and 387078, both relating to costs associated

with extensions of time claims, have been referred to arbitration. Nine other rejected claims, which the Engineer has not considered in a formal decision, have also been referred by DHC to arbitration. These other claims are  for provisional and general  (P & G) and extension of time.

[8]    Mr Arnerich is quite frank about his reason for seeking leave. Currently, there are  separate  proceedings  afoot  in   the   High   Court   where   DHC   is   suing   Mr Arnerich personally in his capacity as director of Vaco, for breaches of duties he owed to the Company. In particular, DHC suggests impropriety in the transfer of the proceeds from the sale of the Lincoln Road property to a family trust associated with Mr Arnerich. The amount Vaco is found liable for in front of the Arbitrator will determine the quantum which DHC seeks against Mr Arnerich personally in the High Court. For this reason, Mr Arnerich seeks to have the entirety of the Final Payment Schedule 17 put in front of the Arbitrator, so that a final reconciliation of who owes what to whom can be determined.

Law

[9]    In order for Mr Arnerich to convince this Court that leave should be granted, he must satisfy the requirement of showing that there is an arguable case. Following Trinity Foundation (Services No 1) Ltd v Downey an arguable case translates into the following:1

(a)The case must be, at first blush, reasonably arguable. This requires “a credible factual basis”.

(b)Even if this first condition is met, the Court retains a discretion. In order to engage this discretion, there must be a reasonable likelihood that, in all the circumstances, the Court will consider the liquidator’s act or decision sufficiently unreasonable such that judicial intervention is appropriate.

1      Trinity Foundation (Services No 1) Ltd v Downey HC Auckland CIV-2005-404-3180, 18 August 2005 at [21].

[10]   In terms of Trinity, I am of the opinion that the plaintiff must be able to show a credible legal basis on the facts in order to convince a court to grant leave. I do not intend this to be an extension of the legal test laid down in Trinity. I merely consider it to be a clarification of what Lang J intended by the phrase “credible factual basis”.

Analysis

[11]   Though it is not this Court’s place to determine the jurisdiction of the Arbitrator in the present instant, still I must make some comments regarding jurisdiction in considering whether leave should be granted.

[12]   I consider that the only matters that the Arbitrator may consider and award upon are those that have been referred to the Arbitrator within the relevant timeframe. I predicate this reasoning on the submissions of the respondent and the wording of clauses 13.4.1 and 13.4.4 of NZS 3910:2003, which state:

13.4.1 If …

(a) the Principal or the Contractor is dissatisfied with the Engineer’s decision under 13.2.4; …

Then either the Principal or the Contractor may by notice require that the matter in dispute be referred to arbitration.

13.4.4 The arbitrator shall have full power to open up, review and revise any decision, opinion, instruction, direction, certificate, valuation of the Engineer or any Payment Schedule and to award upon all questions referred to him or her…

[13]   The reference to arbitration defines the dispute and determines the awards that the Arbitrator may make. Therefore, if Mr Arnerich wished to convince this Court that he should be granted leave to seek orders directing Ms Toon to pursue a counterclaim at arbitration, then he needed to sufficiently define the counterclaim which Vaco has and how that counterclaim fits within the dispute already referred to arbitration. He has failed to do so. Instead, Mr Arnerich has attempted to persuade this Court that the

entirety of Final Payment Schedule 17 should be put before the Arbitrator for a final reconciliation. I do not consider that the Arbitrator’s jurisdiction, in the present instance, is anywhere near as expansive as Mr Arnerich hopes and contends.

[14]   I predicate my reasoning on the judgment of Winkelman J in Downer Construction (New Zealand) Limited v Silverfield Developments Limited.2 Her Honour determined that the disputes referred to arbitration, within the timeframe allowed, set the boundaries of what the Arbitrator was entitled to rule upon.3 A counterclaim may be brought in respect of that dispute provided that it falls within the boundaries of what the Arbitrator has jurisdiction to consider. A counterclaim, therefore, may not be put before the Arbitrator if it implicates a separate dispute between the parties that has not been referred by either of them.

[15]   In any event, considering the matters which DHC has referred to arbitration, being claims for costs for extension of time, P & G, and a further extension of time claim, it is hard to see how any counterclaim could be made.

[16]   A defence against these claims is, however, a different matter. A defence is inherently bound up with the dispute. Vaco is undoubtedly entitled to challenge the legitimacy of the disputed claims DHC intends to put before the Arbitrator.

[17]   The claims for costs for extension of time have been rejected by both the Engineer and  the  Adjudicator.  Moreover,  based  on  the  affidavit  evidence  of  Mr John Ewen, there is a case for arguing that these claims are baseless. For that reason I would grant Mr Arnerich leave to seek orders directing Ms Toon to defend against the claims for costs for extension of time.

[18]   I do not consider that there is a reasonably arguable case, however, that Vaco should be directed to defend against the P & G and extension of time claims referred to the Arbitrator. This is because I am not convinced it is arguable that the Arbitrator has jurisdiction to consider these matters.

2      Downer Construction (New Zealand) Limited v Silverfield Developments Limited HC Auckland CIV 2004-404-4488, 8 October 2004.

3 At [58].

[19]   As noted above, those claims have not been before the Engineer for a formal decision under 13.2.4, a prerequisite for bringing a dispute to arbitration under 13.4.1. Though I accept that clause 13.4.2(c) of the standard conditions envisages a matter proceeding from adjudication to arbitration, I consider that this is only where the disputes have previously been before the Engineer for a formal review. The clause refers to an Engineer’s formal decision and a relevant Adjudicator’s Determination, which can only be taken to mean that the determination must be in respect of those matters already considered by the Engineer. If those disputes have not been before the Engineer for a formal review, there is purview for the parties to refer the matter back to the Engineer under clause 13.2.1 within one month of the determination, after which the matter may proceed to arbitration under 13.4.1.

[20]   It does not seem permissible in terms of the dispute resolution procedure under the Standard Conditions for adjudication to expand the scope of the disputes arising from the formal decision, such that they may be considered at arbitration without first going before the Engineer.

[21]   I accept that Lang J, in his judgment of 15 March 2017, granted leave to DHC to bring arbitral proceedings in respect of disputes between the two parties.4 It would appear that DHC has taken this grant of leave as an endorsement for them to place, carte blanche, whatever they wish before the Arbitrator. But just as I may only offer an opinion on the jurisdiction of the Arbitrator, His Honour’s decision does not serve (nor do I believe that it purports to so do) to define the boundaries of what the Arbitrator can and cannot consider.5

Result

[22]I make the following orders:

4      DHC Assets Ltd v Vaco Investments (Lincoln Road) Ltd (in liquidation) [2017] NZHC 454.

5      I note that Lang J, at [7] said “The contract provides DHC with the right to proceed from adjudication to arbitration”, which is correct, provided the matter in dispute is first referred, either before or after adjudication, to the Engineer for a formal review.

(a)I grant leave to Mr Arnerich to seek orders directing that Ms Toon defend the disputes concerning the costs for extension of time claims, referred to arbitration by DHC.

(b)Mr Arnerich is refused leave to seek orders directing Ms Toon to defend against the other claims for P & G and extension of time.

(c)If the Arbitrator determines that he or she does in fact have jurisdiction to determine those claims concerning P & G costs and extension of time, then I reserve leave to Mr Arnerich to return to this Court to seek further leave for orders directing Ms Toon to defend against those claims also.

(d)I deny leave to Mr Arnerich to seek orders directing that Ms Toon prosecute a counterclaim in the arbitration against any of the matters in dispute referred by DHC.

[23]   As each side has had a measure of success, my immediate impression is that costs should lie where they fall. If there is any dispute in regard to that, counsel may file memorandum within five working days.

Associate Judge Sargisson