Arnerich v Vaco Investments (Lincoln Road) Ltd (in liq)
[2018] NZHC 1974
•3 August 2018
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2017-404-001926
[2018] NZHC 1974
UNDER The Companies Act 1993 BETWEEN
ANTONY IVO ARNERICH
Plaintiff
AND
VACO INVESTMENTS (LINCOLN
ROAD) LIMITED (IN LIQUIDATION)
First RespondentVICTORIA TOON
Second RespondentDHC ASSETS LIMITED
Third Respondent
Hearing: 9 July 2018 Appearances:
J McBride for the Applicant
P J Davey for the First and Second Respondents F Thorp for the Third Respondent
Judgment:
3 August 2018
JUDGMENT OF ASSOCIATE JUDGE SARGISSON
This judgment was delivered by me on 3 August 2018 at 3.30 p.m. pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar Date.......................................
ARNERICH v VACO INVESTMENTS (LINCOLN ROAD) LTD (IN LIQUIDATION) [2018] NZHC 1974 [3 August 2018]
Introduction
[1] The applicant, Mr Arnerich, is the sole director and shareholder of the first respondent, Vaco Investments (Lincoln Road) Limited (in liquidation), which was placed into voluntary liquidation on 2 July 2014. He applied for leave under s 284(1)(a) Companies Act 1993 to seek directions requiring the second respondent, Victoria Toon (the liquidator of Vaco), to “file and prosecute a counterclaim” in arbitration proceedings brought by the third respondent, DHC Assets Limited, against Vaco.
[2] In my judgment dated 28 March 2018, I made orders declining leave to Mr Arnerich to seek orders directing the liquidator to pursue the proposed counterclaim in the arbitration, but I gave leave on a limited basis to seek orders requiring the liquidator to defend certain claims that have been referred to arbitration.1
[3] The applicant now seeks, in reliance on r 7.49 of the High Court Rules 2016, that the Court rescind those orders and grant the application for the leave sought, on grounds that are twofold. The first is that the applicant is a person affected by the orders. The second is that the orders were “wrong” as made on the adoption of an incorrect legal test. The applicant contends that if the “correct” legal test is applied to the exercise of the gateway discretion under s 284, the leave sought should be granted.
[4] The respondents oppose the application. They do not dispute that the applicant is a person potentially affected by my decision not to grant leave. (The proposed counterclaim, assuming its success, would be a means of protecting and preserving the applicant’s personal interests in a separate proceeding brought by the third respondent against him in this Court.) But they take a common position in opposing the second ground (and the errors said to flow from it), saying that it relies on matters that do not engage the narrow discretionary jurisdiction to vary or rescind orders conferred in r 7.49 and that are appropriately dealt with on appeal to the Court of Appeal.
1 Arnerich v Vaco Investments (Lincoln Road) Limited (In Liquidation) [2017] NZHC 560.
[5] The third respondent, while not conceding there should be a reconsideration of the leave application, also says the decision to refuse leave was not “wrong” in the respects alleged and that rescission or variation of the orders would not be justified.
[6] I have decided that this is not an appropriate occasion for the limited jurisdiction under r 7.49 to be engaged to vary or rescind the order I made in my judgment of 28 March 2018.
The proposed counterclaim
[7] The counterclaim that the applicant wants the liquidator to be directed to file and prosecute in the arbitration, is described in an originating application already filed, as follows:
… a counterclaim in the arbitration between DHC Assets Limited and [Vaco Investments (Lincoln Rd) Ltd (in liquidation)] asking the arbitrator (Mr John Walton) to review and determine the validity or otherwise of Final Payment Schedule 17 issued by Davis Langdon, certifying that DHC Assets Limited owes [Vaco Investments (Lincoln Rd) Ltd (in liquidation)] $95,728.
[Emphasis added]
The arbitration and the application for directions - the background
[8] The circumstances giving rise to the arbitration are discussed in DHC Assets Ltd v Vaco, where Lang J gave leave pursuant to s 284 to the third respondent to commence the arbitration and extended the time under Article 7(1) of Schedule 2 to the Arbitration Act 1996 to serve the required notice. 2
[9] The parties had been in dispute about payment claims issued by DHC in respect of the Vaco’s project (a commercial development with ASB as tenant) at Lincoln Road, West Auckland. The disputes continued from the commencement of the project through to 2 July 2014, when DHC served a notice advising the applicant that it wished to have the disputed claims referred to adjudication under the Construction Contracts Act 2002.
2 DHC Assets Ltd v Vaco Investments (Lincoln Rd) Ltd (in liquidation) [2017] NZHC 454.
[10] DHC soon learned however that the applicant had passed a resolution on the previous day placing Vaco into voluntary liquidation, having earlier arranged for Vaco to sell the completed development and distribute its remaining assets.
[11] Undeterred by the appointment of the liquidator, DHC set about obtaining the court’s leave to commence the adjudication. Leave was not consented to by the liquidator who was concerned that there were no funds to meet creditor claims and that an adjudication, whatever its outcome, would do nothing to change that situation.
[12] DHC however had the applicant in its sights, and the possibility that a successful outcome before the adjudicator could facilitate its separate action against the applicant. It believed the applicant was responsible for deliberately obstructing the commencement of adjudication (and the opportunity to resolve remaining disputed claims) by placing DHC into liquidation at the very point when notice of the intention to take various disputes to adjudication was to be given. It also believed Vaco had deliberately stripped itself of its remaining assets, leaving it unable to pay its remaining debts on the project. The applicant said he was simply acting on the final payment schedule (Final Payment Schedule 17) which the Engineer to the Contract had issued, and which stated that it was Vaco that was owed money on the project ($95,728) by DHC and not the other way around.
The adjudicator’s determination
[13] The adjudicator’s determination was issued on 5 October 2016. It recorded that:
The dispute concerns the value of the works certified for payment by the Engineer to the contract in the Final Payment Schedule and whether Vaco is liable to pay [DHC] the sum of $596,702.71 plus GST in respect of [DHC’s] revised Final Claim or alternatively whether … DHC is entitled to an extension of time to the completion date, whether Vaco is entitled to liquidation or other damages for delayed completion and whether the performance bond should be released.
[14] The adjudicator upheld a handful of claimed variations included in the myriad of claims dealt with by the Engineer in Final Payment Schedule 17.3 The adjudicator
3 The Engineer to the contract was Davis Langdon.
also allowed DHC’s claim for the retentions under the contract, a bond refund, and Extension of Time Claims. (There were four extension of time claims, for which the adjudicator allowed 147 days). The adjudicator disallowed the majority of claimed variations in Final Payment Schedule 17; and he disallowed claims for Time Related Costs associated with the Extension of Time Claims and claims for P & G sums on several allowed “ASB” variations.
Arbitration
[15] DHC was dissatisfied with that part of the determination that disallowed claims for Time Related Costs associated with the Extension of Time Claims and P & G sums claimed for the allowed “ASB” variations. Most recently it has begun its arbitration proceedings against Vaco in respect of its dispute about both matters, pursuant to the leave granted by Lang J.4 The disputed claims are described in the third respondent’s letter of referral, which cross-referenced the adjudication determination, and are as follows:
(a)DHC’s claims for time related costs arising out of its entitlement to extensions of time totalling 147 days, being variations 387051, 387078, and EOT4 (387000); and
(b)DHC’s claims for preliminary and general costs associated with variations generated or instructed by ASB Bank Ltd, being variations 387036, 387037, 387038, 387039, 387045, 387059, 387062, and 387066.
[16] The part of the adjudicator’s determination that the third respondent has not referred to the arbitrator concerns the monetary award of $300,763.12 (plus daily interest of $77.19 per day) allowed for the handful of variations, plus the interest and related costs, that the adjudicator determined were payable. That part of the determination now stands as a judgment of the District Court.
The application for leave
4 DHC Assets Ltd v Vaco Investments (Lincoln Rd) Ltd (in liquidation) [2017] NZHC 454.
[17] The applicant is convinced that the proper course is for Final Payment Schedule 17 in its entirety to be referred to the arbitrator for review and reconciliation of “who owes who what”.
[18] The applicant endeavoured to persuade the liquidator to pursue the proposed counterclaim to permit a review of the entirety of Final Payment Schedule 17 and to have all disputed amounts owing to and by DHC put before the arbitrator. He has been unable to persuade her (and indeed the third respondent) to see the “merits” of expanding the scope of the arbitration in the same way that he sees them. This situation has resulted in the application for leave that was dealt with in my judgment of 28 March 2018.
[19] The liquidator’s position was based on various considerations. These included her assessment of the difficulties she foresaw in being able to pursue a counterclaim intended to “open up” the final payment schedule in its entirety for review by the arbitrator; the applicant’s own unsuccessful efforts to persuade the arbitrator to extend the scope of the arbitration; and the belief that even if a counterclaim could eventually be pursued successfully there could well be little or no benefit to creditors. She also did not agree that she was obliged to undertake a reconciliation pursuant to s 310 in the manner proposed by the applicant. As she saw it the adjudicator had already determined what was and was not payable on the project. And she considered that the advantage of arbitration as perceived by the applicant (the possibility that the quantum sought in the High Court proceeding against him would be reduced or even eliminated) though possibly beneficial for him was not sufficient to outweigh her other concerns.
[20] The applicant therefore made his leave application with the objective of being allowed to apply for orders directing the liquidator to take steps to bring the counterclaim. The application to rescind the decision disallowing that application has followed.
Application to rescind
[21] Rule 7.49 permits an affected party, if he or she considers an order or decision to be wrong, to seek that the Court vary or rescind it, instead of appealing against it.
[22] The applicant has chosen not to appeal my judgment. At the case management conference held on 20 April 2017 there was discussion about the fact that the 20- working day timeframe for applying for leave to appeal my judgment delivered on 28 March 2018 had yet to expire. The applicant’s subsequent decision was not to exercise any appeal right but to continue with the application under r 7.49.
[23] It is not in dispute that the basis relied on for saying my decision was ‘wrong’ raises questions of a kind that would generally be dealt with on appeal. The questions are whether I adopted a wrong legal test in deciding the leave application, and as a result omitted to consider two key points relied upon in support:
(a)First, that there is a credible factual basis for asking the liquidator to refer Final Payment Schedule 17 to the arbitrator for a full review and a final reconciliation as to how much if anything is owed to the third respondent, founded on:
(i)the evidence of Mr Ewen, an independent quantity surveyor, who says he has undertaken a review of Final Payment Schedule 17 and has concluded that Vaco is in fact owed
$13,082.55 ($23,695.45 when GST and interest are added), and may be entitled to liquidated damages on three extension of time claims which he would not have allowed; and
(ii)the prior decision of the Adjudicator “confirming that the ‘dispute’ concerned Payment Schedule 17”;
(b)Secondly, that there is a reasonable likelihood that a court would conclude that the liquidator’s refusal to refer Final Payment Schedule 17 to the arbitrator was unreasonable given:
(i)the liquidator’s statutory obligations under s 310 of the Act; the evidence of Mr Ewen; and the adjudicator’s view that the dispute concerned Final Payment Schedule 17; and
(ii)clause 13.4.4 of NZS 3910:2003 arguably allows the arbitrator full power to review the payment schedule.
The “wrong” legal test
[24] Counsel for the applicant submits that these alleged errors all flowed from the statement of the ‘wrong’ legal test set out at paragraphs [9] and [10] of my judgment. What I said there was:
[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:5
(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.
[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”.
[25] It is not disputed that the court can direct a liquidator in appropriate circumstances to issue proceedings against third parties, despite the liquidator’s belief that the proceedings are not justified.6 But the requirement for leave provides a “filtering mechanism” to screen out genuinely unmeritorious claims which serve only to fritter away the liquidated company’s assets. The court is also slow to intervene into the liquidator’s day-to-day administration and bona fide exercise of direction. These concerns must be balanced, however, against the imperative of preserving truly meritorious claimants’ rights of access to the court.7
5 Trinity Foundation (Services No 1) Ltd v Downey (2005) 9 NZCLC 263,917 (HC) at [21].
6 E.g. Hedley v Albany Power Centre Ltd (in liq) [2005] 2 NZLR 196 (HC).
7 Trinity Foundation (Services No 1) Ltd v Downey (2005) 9 NZCLC 263,917 (HC); Adaptable Solutions Ltd v Toon [2017] NZHC 753 at [17].
[26] However, counsel submits that my “clarification” distorts the test in Trinity in that I wrongly referred to “a credible legal basis”, when the two-pronged test of Lang J referred only to a “credible factual basis”.
The jurisdiction under r 7.49
[27] Counsel further submits that the r 7.49 jurisdiction is a broad one and may be invoked in cases when the contention is that the wrong legal test has been adopted. He adds that the use of the word “wrong” in the rule is not qualified by any limitation, and that whatever the nature of the wrong, “wrong is wrong” and sufficient to justify reconsideration.
[28] It is implicit in counsel’s submission that I should have treated as a “given” that the case the applicant wants the liquidator to pursue is legally arguable; and from that starting point simply applied the twofold test set out in Trinity.
[29] The respondents submit that the matters relied upon by the applicant do not “engage” the narrow jurisdiction to review embodied in r 7.49 that has been consistently recognised by long established authority; that quite plainly the matters relied upon do not raise issues of the kind that are appropriately dealt with under the narrow review jurisdiction. They submit that I should resist the suggestion that a special circumstance arises that warrants reconsideration by this Court. The issues are, they submit, properly ones that ought to have been dealt with by exercising the right of appeal.
[30] For reasons I will come to, I am satisfied the matters raised by the applicant are properly ones that should be dealt with on appeal and not pursuant to the r 7.49 jurisdiction.
Rule 7.49 – the principles
[31]Rule 7.49 relevantly states:
Order may be varied or rescinded if shown to be wrong
(1) A party affected by an interlocutory order (whether made on a Judge’s own initiative or on an interlocutory application) or by a decision given on an interlocutory application may, instead of appealing against the order or decision, apply to the court to vary or rescind the order or decision, if that party considers that the order or decision is wrong.
…
(6) The Judge may,—
(a) if satisfied that the order or decision is wrong, vary or rescind the order or decision; or
(b) on the Judge’s own initiative or on the application of a party,
transfer the application to the Court of Appeal.
[32] In a recent comprehensive review of the authorities, Associate Judge Osborne in Ballantyne Trustees Ltd v Papprill Hadfield & Aldous Solicitors Nominee Company Ltd8 observed that the primary purpose of the rule (in its present and former versions, r 421 of the Code of Civil Procedure and r 264 of the High Court Rules), has long been recognised and consistently established. He said:9
[20] In Jollands, Ltd v Whitley, on a motion for review of an order of security for costs, Faire J (delivering the judgment of a Full Court of the Supreme Court) described the purpose of r 421: [17]
The primary purpose of this rule is to enable the Court to review applications heard in Chambers which, owing to oversight, belief that the order will certainly be made in the form applied for, failure to appreciate the importance of the question involved, or similar reasons, are not fully argued in Chambers. The rule is intended to give an opportunity for reconsideration upon a fuller argument.
[Emphasis added].
[33]He referred to the frequently cited decision of Graebar Holdings Ltd v Taylor,10
where the Court of Appeal considered r 264, stating:
[21] In Graebar Holdings Ltd v Taylor, the Court of Appeal considered r 264 High Court Rules, which had followed on from r 421 of the Code. In Graebar the Court of Appeal adopted the passage from Jollands, Ltd v Whitley …. Bisson J (delivering the judgment of the Court) explained:
8 Ballantyne Trustees Ltd v Papprill Hadfield & Aldous Solicitors Nominee Company Ltd [2016] NZHC 2414.
9 Jollands Ltd v Whitley [1949] NZLR 290 (SC) at [292].
10 Graebar Holdings Ltd v Taylor [1989] 2 NZLR 10 (CA), r 264 was itself subsequently replaced by r 259 and now r 7.49 of the High Court Rules.
Rule 264 is intended to provide an alternative to an appeal to this Court so that interlocutory matters may be dealt with expeditiously and less expensively in the High Court. The rule is particularly appropriate where some additional point not raised before has emerged or there are facts, whether or not arising from a change of circumstances, which were not previously before the Court and should be considered ...
[34] He also referred to Arkley v Fraser Mill Properties Ltd where Barker J said that the “classic occasion” encountered for an application to review occurs when a Judge makes an order in Chambers, following little if any argument and where judgement is given being given in a fairly summary way.11 He held it was “quite inappropriate” that the Court should be asked to relitigate an interlocutory application that had involved extensive affidavit evidence and a half day argument before the Master (who reserved the decision) “in the absence of any special circumstances such as the discovery of fresh evidence”.12
[35] A further authority he referred to was Kiwi Co-operative Dairies Ltd v Capital Dairy Products Ltd, where Grieg J noted: 13
There is a reluctance on the part of any Judge and some difficulty indeed for a Judge to rehear and reconsider his own decision particularly where that has been subject to an extended argument, with evidence, and an occasion to consider his decision even if that may be for a short period. There is a reluctance on a Judge of coordinate jurisdiction to review the decision on the facts or even the law of another Judge. There is the possibility that if the right of review was free and open-ended there could be a repeated application for reconsideration and review of any interlocutory application before all the Judges that might be available.
[36] In a more recent case, Howard v Accident Compensation Corporation Williams J said an application under r 7.49 is not itself an appeal; the rule is not intended to provide an opportunity to relitigate.14
[37] As Judge Osborne observed, this narrow approach to the r 7.49 jurisdiction reflected in the authorities is firmly established. It is designed to ensure that interlocutory matters may be dealt with expeditiously and less expensively at the
11 Arkley v Fraser Mill Properties Ltd [1989] 2NZLR 57 (HC) at 60.
12 At 61.
13 Kiwi Co-operative Dairies Ltd v Capital Dairy Products Ltd (1989) 1 PRNZ 622 (HC) at 627.
14 Howard v Accident Compensation Corporation [2013] NZHC 1004.
High Court. It is not a broad or wide-ranging jurisdiction to put right all that is “wrong”. It is constrained and stands in contrast to the appeal process which appropriately deals with challenges to decisions that are made after a full hearing. As His Honour put it:15
The approach applied in the New Zealand case law is more aptly presented in the commentary in Sim's Court Practice where it is stated, after quotation of the passage I have cited from Graebar, that “[i]t is unlikely that the High Court will vary or rescind an order made following a hearing inter parties with full argument.
[38] The review of authorities in McGechan discusses the policy considerations for the Court’s reluctance to re-hear and relitigate orders, particularly where they are made inter partes and the decision was made after extended argument with evidence. In such circumstances, the courts have consistently adopted a narrow approach to the r 7.49 jurisdiction, taking the view that reconsideration in such circumstances “runs counter to the principle that an attack upon the correctness of a decision of a Court should only be made to a Court of superior jurisdiction”. The jurisdiction to review under the rule will generally only be engaged in circumstances where:
(a)There was not full argument at the initial hearing;
(b)Some relevant point of evidence was overlooked;
(c)There has been a material change of circumstances; or
(d)Some special circumstance has arisen.16
[39] I do not overlook that in Re ProfcomSystems Ltd Tompkins J listed among the factors relevant in the exercise of the Court’s discretion under the rule, whether there are “significant or legal jurisdictional issues”, but that was with implicit approval of the established approach in Graebar and Arkley; 17 and I do not consider it can be
15 At [44].
16 See commentary in McGechan, HR 7.49.01, and Carter v Coroner’s Court at Wellington [2015] NZHC 2998 at [11].
17 Re Profcom Systems Ltd [1989] 2 NZLR 63 (HC).
treated as a dilution of the policy consideration that an attack on the correctness of a decision should be to a superior court.
Based on the authorities is a reconsideration justified in the present case?
[40] I am satisfied that there is no principled basis justifying reconsideration pursuant to a r 7.49 review:
(a)The application was the subject of extensive evidence. (The case bundle consisted of four volumes and a total of 1,094 pages, including one affidavit from Mr Arnerich, two affidavits from Mr Ewen (the quantity surveyor giving evidence on behalf of Mr Arnerich), and two further affidavits from Mr McClatchy on behalf of the third respondent).
(b)Written submissions were filed in advance by all parties and the applicant filed written submissions in reply. The hearing lasted one full day when all counsel presented submissions at length.
(c)The Court’s decision was reserved and delivered on 28 March 2018.
(d)There is no suggestion that relevant evidence was not put to the Court or that there has been any material change of circumstances since the hearing.
(e)This is not a case where typically special circumstances have arisen, or indeed where they are relied upon. The criterion of special circumstances is generally invoked by a party wishing to adduce fresh evidence, as counsel for the applicant himself acknowledged.
[41] Further, the “special circumstances” relied on by the applicant are the adoption of an allegedly incorrect legal test in exercising the Court’s “gatekeeper” jurisdiction; and from that departure point the applicant argues that other errors followed necessitating rescission (including failure to address core submissions, coupled with the erroneous pre-determination of the arbitrator’s jurisdiction). These kinds of
circumstances are precisely the kind that the Courts have consistently treated as falling outside of the review jurisdiction.
[42] Whether counsel is right or not that I made such errors, errors of this kind relate to the correctness of the decision and what the applicant is seeking to pursue is (to use Williams J’s term in Howard) an “appeal in disguise” and to relitigate the Court’s “core conclusions”. Appeal is the appropriate course in such circumstances.
[43]I therefore decline the application on this basis.
[44] However, given the degree of concern the applicant has expressed at his failure to obtain leave, in circumstances where his counsel submits that he had a degree of judicial encouragement for the course he has taken,18 and because the appeal period has well and truly expired, I will consider whether there is some merit in the argument that the wrong legal test has been applied to the r 7.49 jurisdiction. In doing so I do not wish to be taken as detracting from my finding that this is a case that is appropriately dealt with on appeal, not by review.
Was the wrong legal test applied to the request for leave?
[45]The answer in my assessment, is no.
[46]Section 284(1) of the Companies Act provides as follows:
Court supervision of liquidation
(1) On the application of the liquidator, a liquidation committee, or, with the leave of the court, a creditor, shareholder, other entitled person, or director of a company in liquidation, the court may—
(a) give directions in relation to any matter arising in connection with the liquidation …
[Emphasis added]
18 Counsel for the applicant makes much of the fact that Lang J, in granting leave to refer specific matters to arbitration, noted that applicant was being sued by the third respondent in a personal capacity but did not wish to participate in the adjudication proceeding to which he was not in fact a party, preferring instead to await a resumption of the contractual disputes procedure in an anticipated arbitration. Counsel also referred to a minute issued by Associate Judge Bell in the High Court proceedings against the applicant which raises the question whether all outstanding disputes might be conveniently dealt with at arbitration.
[47] A director (or shareholder) requires leave to seek the Court’s supervision. In the ordinary course, an application for leave is heard together with the substantive application. Here the application was confined to the issue of leave only.
[48] Counsel argued that my “clarification” of the test set out in Trinity, whereby I stated that the claim also needed to have a “credible legal basis”, was in fact an extension of the test and therefore wrong.
[49] On the contrary, the statement of the test in fact acknowledges the test set out in Trinity, where Lang J said: 19
The creditor (or in this case, the shareholder) needs to show that the case it wants the liquidator to pursue is arguable. Whether or not it is arguable of course allows consideration of whether it is legally arguable, but usually that is a given and the questions become twofold:
(a)Does the claim have a credible factual basis?
(b)Is there a reasonable likelihood that the Court will disturb the act or decision of the liquidator in question? In this case the question has got to be ‘no’.
[50] In that context, His Honour mentioned with approval Fisher v Isbey,20 where Master Faire observed:
[23] …the Court should decline to grant leave to a creditor to bring proceedings that are clearly not sustainable. That threshold was recognised by Lang J in CWF Holdings Ltd (in liquidation) v Trinity Foundation Services
…
[51] Justice Lang also made the following observations about the threshold in his judgment:
[17] In considering the threshold postulated by Master Faire, I accept that the Court would generally decline an application for leave to commence or continue proceedings under s 248 in circumstances where, for example, the proposed claim was clearly statute barred by virtue of the provisions of the Limitation Act 1950 or where it would not survive a strike out application…
19 At [67].
20 Fisher v Isbey (1999) 13 PRNZ 182 at [23].
[52]He went on to add that:
In the absence of circumstances of that type, however, the merits of the claim should not generally be the subject of consideration in an application for leave under s 248. Instead, the focus will generally be upon the most convenient and cost effective way in which the creditor's claim can be established.
[53] The “clarification” in my judgment is therefore consistent with the test in Trinity; it is appropriate to consider whether the case the liquidator is asked to pursue is legally credible, or alternatively, whether in the particular case it is a “given”. In this substantive proceeding, I declined to treat the threshold test of legal credibility or viability as a given. Rather, I regarded the question of the legal viability of the counterclaim as one that cannot simply be assumed.
[54] In doing so, I acknowledged it is not the Court’s place to determine the jurisdiction of the arbitrator. But in the Court’s role as “gatekeeper” under s 284, the Court is entitled to consider whether the case the applicant wants the liquidator to bring is viable. Indeed, the court is obliged to do so where the issue is squarely raised as it was in this case. In my view, the approach I adopted is consistent with the threshold postulated by Master Faire, and accepted by Lang J when he said the Court would generally decline an application for leave to commence or continue proceedings under s 284 in circumstances where, for example, the proposed claim was clearly statute barred by virtue of the provisions of the Limitation Act 1950 or where it would not survive a strike out application.
[55] I am wary of repeating or reaffirming the reasons for my decision finding that the Trinity test was not satisfied. However, it will suffice to note that I am not moved by the submissions of counsel to the following effect:
(a)That the need for an extension of time, or the need for referral to the engineer for a formal review, before a matter can proceed to arbitration is trivial. Counsel argued this is because of the wide-ranging discretion that the arbitrator has under clause 13.4.4 of the contract which should be exercised in his favour as a sort of ‘quid pro quo’, to recognise irregularities in DHC’s referral to arbitration;
(b)Clause 13.4.4 is in fact intended to allow a wide-ranging review and reconciliation of claims at arbitration, provided a claim, no matter how small, has been referred to the arbitrator within the time frame. (I put the question to counsel that if a small claim of $10,000 was referred to the arbitrator on a $2 million contract, would that mean the mean the entire $2 million contract is up for dispute. He answered “yes”). I take a less expansive view of cl 13.4.4. As I indicated in my judgment:
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.
(c)Winkelmann J’s decision in Downer Construction (New Zealand) Ltd v Silverfield Developments Ltd is distinguishable.21 Counsel argued that it was decided on the terms of the particular agreement entered into by the parties in that case for their referral to arbitration. It will suffice to point out that the clauses Winkelmann J based her decision on in Downer are in almost all respects identical to the clauses in the contract in dispute in the substantive proceeding, being merely an earlier version of the same standard conditions.
[56] Ultimately, none of the foregoing is relevant to the determination of the current matter, since I have decided to refuse to rescind or vary my judgment on the basis that the issues raised by the applicant are unsuitable for the limited review jurisdiction. However, to do justice to the submissions put to me by counsel, it is prudent to give some further voice to the arguments made before me by counsel.
[57] As to the arguments raised by counsel, which he considered flowed on from the adoption and application of an incorrect legal test, these matters were fully argued at the hearing and full submissions were submitted on them. I pause to note that they were in the end unnecessary for me to decide, having found that in any event the test in Trinity could not be satisfied.
21 Downer Construction (New Zealand) Ltd v Silverfield Developments Ltd HC Auckland CIV-2004- 404-4488, 8 October 2004.
[58] Those arguments were to the effect that there was a credible factual basis, as the evidence of Mr Ewan suggested that Vaco is in fact owed money by DHC, not the other way around and the decision of the Adjudicator confirming that the dispute concerned Payment Schedule 17, arguably set the parameters of the entirety of the dispute, including what could and should be referred to the arbitrator.
[59] They also concerned whether there was a reasonable likelihood the Court would have concluded that the liquidator’s refusal to refer the matter to arbitration was unreasonable, had the Court turned its mind to it. This was on the basis that the liquidator has a statutory obligation to account for set off. It was also argued, in this vein, that clause 13.4.4 allowed the arbitrator the power to open up and review the entirety of Payment Schedule 17. I note that when I decided that there was no “credible legal basis” on which it could be contended that the case was reasonably arguable, clause 13.4.4 was relied upon in reaching that conclusion.
[60] As with the other matters raised by counsel these are not matters which it is appropriate for me to rule on in an application for review. Quite plainly, on the basis of the limited jurisdiction, these points can only be properly dealt with on appeal.
Conclusion
[61] I agree with counsel for the first and second respondents, and counsel for the third respondents that the grounds relied upon by the applicant are not appropriate for an application under r 7.49. The Court is effectively being asked to relitigate the application for leave. Moreover, the decision is not demonstrably wrong.
[62]The application is accordingly dismissed.
[63] As costs follow the event under the statutory costs regime, the respondents are entitled to their costs on a 2B basis plus disbursements as fixed by the Registrar.
Associate Judge Sargisson
Solicitors:
Doug Cowan Barristers & Solicitors, Auckland Christopher Taylor Lawyers, Auckland
Duthie White, Auckland
J McBride, Auckland P Davey, Auckland
F Thorpe, Auckland
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