Auckland Trotting Club Incorporated v Medway Limited
[2025] NZHC 572
•19 March 2025
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2022-404-1110
[2025] NZHC 572
UNDER the Companies Act 1993 BETWEEN
AUCKLAND TROTTING CLUB INCORPORATED
Plaintiff
AND
MEDWAY LIMITED
First Defendant
LOUKAS SOTERI PETROU, NICHOLAS ARTHUR PAGE and ANDREW CROSBIE CLARK
Second Defendants
Hearing: 6 November 2024 Appearances:
Z G Kennedy KC and R J Warren for the Plaintiff
D H Chisholm KC, T J Lindsay and C D Brownlee for the First Defendant and First-Named Second Defendant
K D Puddle for the Second-Named Second Defendant Appearance for the Third-Named Second Defendant excusedJudgment:
19 March 2025
JUDGMENT OF GAULT J
(Separate questions)
This judgment was delivered by me on 29 May 2025 at 3:00 pm (see paras [6]-[8]) pursuant to r 11.5 of the High Court Rules 2016.
Registrar/Deputy Registrar
……………………………………
AUCKLAND TROTTING CLUB INCORPORATED v MEDWAY LTD [2025] NZHC 572 [19 March 2025]
Introduction
[1] This dispute relates to the construction of a building on land owned by the plaintiff, Auckland Trotting Club Inc (ATC), at Alexandra Park, Greenlane. It follows an arbitration between ATC and the contractor, Canam Construction Limited (CCL),1 now in liquidation, determining disputes under the construction contract (the Contract).
[2] The first defendant in this proceeding is CCL’s parent company, Medway Ltd, formerly Canam Group Ltd (CGL). The second defendants were directors of both CCL and CGL at relevant times – including when the construction contract was executed and (at least initially) performed.
[3] ATC claims the three arbitral awards made in the arbitration before the Hon Rodney Hansen CNZM KC (the Arbitrator) form the basis of an issue estoppel between ATC and the defendants. ATC claims the defendants are privies of CCL.
[4]The proceeding has a five-week trial scheduled to commence on 3 June 2025.
[5] By consent, the following questions are to be determined separately from, and prior to, the substantive trial in this proceeding, with evidence by affidavit:2
(a)Can the awards of the Arbitrator in the arbitration between [ATC and CCL] (the Awards) form the basis of issue estoppel?
(b)Are the first and second defendants privies of CCL?
(c)Are the first and second defendants thereby bound by the issues determined in the Awards that were necessary for the adjudication of the claims and counterclaims brought by CCL and the plaintiff in the arbitration, including (without limitation) that:
1 Now named Tribola767 Ltd.
2 Minute dated 27 August 2024.
(i)CCL defaulted under the [Contract] between the parties in the respects found by the Arbitrator;
(ii)the Contract was lawfully terminated by the plaintiff in consequence;
(iii)the defects in CCL’s workmanship were as found by the Arbitrator;
(iv)CCL was liable for loss and damages arising from CCL’s defaults and defective workmanship in the sums determined in the Awards?
Settlement
[6] After finalisation of my judgment on 19 March 2025, but shortly before its distribution, counsel advised that the parties had entered a confidential deed of settlement, with a notice of discontinuance expected to follow. I withheld distribution of the judgment pending confirmation of the settlement. Following the notice of discontinuance, I enquired whether the parties preferred that the judgment be distributed or not. The responses were mixed – but even those preferring that the judgment not be published said they would abide the Court’s decision and did not actively oppose.
[7] Where a settlement occurs after the hearing, the Court has a discretion whether to deliver judgment.3 Appellate cases are more likely to involve matters of public importance affecting people other than the parties. But I consider the discretion should also be exercised in this case for the following reasons:
(a)the questions raised concerning issue estoppel involved addressing UK authorities in the group company and arbitration contexts which have not yet been considered in New Zealand and which may be of importance beyond the parties;
3 Synlait Milk Ltd v New Zealand Industrial Park Ltd [2020] 1 NZLR 6l57 (SC) at [7]-[8].
(b)the questions were fully argued; and
(c)as indicated, there was no active opposition.
[8] I confirm that this judgment does not determine the respective rights and interests of the parties in relation to the matters at issue.
Background
Contract
[9] CCL issued its tender submission for the Alexandra Park project in July 2015. It allegedly included a number of representations regarding its financial position and ability to perform the Contract:
(a)That CCL “has a strong balance sheet, healthy cash flows, and no debt”.
(b)“The company owns significant assets including construction plant in excess of $7.0m and a Joinery factory with the latest in technology”.
(c)“[CCL] will not require any capital expenditure to fulfil our obligations” for the construction of this project.
(d)That the “Canam group of companies are in an enviable secure financial position with no debt and the ability to fund operations from retained earnings”.
[10] CCL’s tender was accepted on 16 October 2015 and the Contract was executed on 23 October 2015. The Contract provided for CCL to construct a building known as Building A at Alexandra Park. The Contract was a lump sum contract.
[11] It was a term of the Contract that CCL procure from CGL a parent company guarantee. It is common ground that CGL did not provide a parent company guarantee to ATC, though the parties disagree on the reasons for this. CCL’s obligations to ATC were accordingly unsecured.
[12] During the performance of the Contract, all payments due to and payable by ATC were made through a “treasury” bank account owned and operated by CGL. CCL did not operate its own bank account. In addition, ATC alleges that CGL treated CCL’s funds as its own, including by:
(a)declaring dividends to CGL’s shareholders from the treasury account on 28 September 2016, 29 November 2016, and 30 March 2017 in the total gross amount of $9.378 million, which were funded in substantial part by CCL’s receivables;
(b)failing to consider whether it was in the best interests of CCL and its creditors for its receivables to be used in this manner;
(c)failing to consider whether CCL would have met the solvency test as at the date the dividends were declared;
(d)failing to distinguish between the interests of CCL and CGL; and
(e)grouping CCL together with CGL and other group companies for taxation purposes.
Directors and shareholders
[13] CGL owned all of the shares of CCL at all material times from CCL’s incorporation. CCL’s constitution provided that CGL was entitled to exercise any of the powers of CCL’s Board. Mr Petrou was a director of CGL and CCL at all material times. Mr Page was a director of CGL at all material times, and a director of CCL until 30 March 2017, although he said that he ceased involvement informally after June 2016. Mr Clark was appointed a director of CGL and CCL on 2 June 2015 and resigned from both positions on 3 July 2017. In June 2016, Mr Stephen Jones became a director of CCL and CGL, remaining at all material times thereafter. Mr Petrou and Mr Page have admitted that the directors of CCL did not hold formal board meetings
– although Mr Petrou said they ran the companies separately.
[14] Mr Petrou’s interests had a majority shareholding in CGL at all material times. A trust associated with Mr Page owned shares in CGL until they were sold in January 2016 to a trust associated with Mr Clark. In June/July 2016, some of the shares associated with Mr Clark were sold to a trust associated with Mr Jones. In June/July 2017, the trust associated with Mr Clark sold its remaining shares to the remaining shareholders (associated with Mr Petrou and Mr Jones).
Contract termination
[15] After concerns regarding delays and performance of the Contract, ATC terminated the Contract by letter dated 19 July 2018. CCL disputed the validity of the termination. The parties agreed to refer all matters in dispute under the Contract to arbitration.
Arbitration
[16] In the arbitration, ATC and CCL brought a number of claims against each other relating to the performance and termination of the Contract.
[17] CCL’s primary claim was that ATC’s termination of the Contract was unlawful. It also brought an additional 12 causes of action:
(a)ATC repudiated the Contract by engaging in discussions with a replacement contractor earlier in 2018.
(b)ATC breached clause 6 of the Contract which required CCL and ATC to work together in an open and collaborative way.
(c)CCL and ATC agreed to “re-set” key terms of the Contract which provided for, among other things, new dates for completion of the Contract Works and the resolution of outstanding extension of time claims.
(d)CCL was entitled to an extension of time for the completion of the Contract Works.
(e)Claims for multiple variations to the Contract.
(f)Claims for disruption and loss of productivity entitling CCL to revised costings and/or damages.
(g)CCL was entitled to be indemnified under the Contract for losses arising out of disruption and loss of productivity.
(h)As a result of the actions of ATC and its consultants, time under the Contract was at large.
(i)Deductions made by ATC and the Engineer to the Contract in payment schedules preceding termination were invalid.
(j)A declaration that a subcontractor, Challenge Steel Limited, was a nominated sub-contractor under the Contract.
(k)ATC engaged in misleading and deceptive conduct in breach of the Fair Trading Act 1986.
(l)A claim to recover under the Construction Contracts Act 2002 the sum of $67,507.22 plus GST scheduled in the final payment schedule.
[18]ATC counterclaimed under five heads for:
(a)A declaration that CCL was required to procure and provide the parent company guarantee from CGL.
(b)Damages for the costs of remediating defective works. Some defects had been identified prior to termination but had not been remediated, others were discovered and remediated following termination. ATC initially sought a finding on liability with quantum to be determined at a later hearing.
(c)Liquidated damages at the contractual rate of $15,000 per day for delay in completion.
(d)A declaration that it was entitled to terminate the Contract as a result of CCL’s failure to provide the parent company guarantee, insolvency events that occurred prior to termination and the defective works the subject of the second cause of action (para (b) above).
(e)Recovery of the provisional assessment of amounts that became owing to ATC by CCL as a result of termination.
[19] After a hearing over approximately 56 sitting days, the first arbitration award was delivered on 18 May 2021 (Award 1). It is 228 pages long. The Arbitrator’s findings are summarised at paragraphs [970]-[971] of Award 1, including:
(a)In relation to CCL’s claims:
(i)ATC did not wrongfully terminate the Contract, and CCL’s claim for damages and other losses failed.
(ii)CCL was entitled to extensions of time totalling 40 working days.
(iii)CCL was entitled to certain variations (but not others).
(iv)CCL’s claim for a declaration that Challenge Steel was a nominated subcontractor and for associated relief was declined.
(v)CCL’s claim for $67,507.22 plus GST succeeded, subject to a right of setoff against any sums awarded in ATC’s favour.
(b)In relation to ATC’s claims:
(i)ATC’s claim that CCL was required to provide a parent company guarantee succeeded. The Arbitrator made a
declaration that CCL was required to procure and to provide the parent company guarantee, but declined to make an order for specific performance. The Arbitrator granted ATC leave to pursue its claim for specific performance if the parent company guarantee was not provided within five working days of the issue of Award 1.
(ii)CCL was liable for loss and damages arising from particular defective workmanship. Certain damages were apparent, but most issues in relation to quantum were reserved for future determination.
(iii)The tribunal declined to make an order for liquidated damages at that stage.
[20] CCL did not provide the parent company guarantee following Award 1. Although Mr Petrou had told the Arbitrator it would be provided if CCL was obliged to do so, he was apparently outvoted at the CGL board by Mr Page and Mr Jones.4
[21] ATC pursued its claim for specific performance, which was resisted by CCL, but ultimately awarded in the second arbitration award issued on 10 August 2021 (Award 2).
[22] Immediately following the delivery of Award 2, CCL was placed into liquidation by special resolution of its shareholder, CGL.5
[23] ATC applied to the High Court and was granted leave to enter judgment on the findings in the arbitration awards. ATC was also granted leave to apply to the tribunal for a further award in relation to the residual quantum, and interests and costs issues that remained outstanding and which were reserved by the tribunal for future determination. ATC then applied to the Arbitrator in November 2021 for orders determining the amounts owed to it.
4 Award 2 dated 10 August 2021 at 3-4.
5 This resolution was not shown to me, but Mr Puddle submitted that Mr Page was not involved in that decision despite being a director of CGL at the time.
[24] That application was served on the liquidators of CCL, who advised that they did not intend to participate in the proceedings. The lawyer acting for CCL in the arbitration, Mr Christie, indicated that CCL’s directors/ex-directors might wish to be heard.6 After an exchange, and despite the liquidators appearing to prefer that the directors/ex-directors apply for leave to be heard, Mr Christie advised that they chose not to do so. The liquidators encouraged the Arbitrator to test ATC’s claims on quantum and recorded they had no objection to the directors offering evidence to assist the arbitrator to test those claims.
[25] The Arbitrator proceeded to determine quantum based on submissions and evidence filed by ATC, as well as supplementary evidence requested by the Arbitrator. In the final arbitration award handed down on 24 March 2022 (Award 3), the Arbitrator awarded ATC $85,675,772.30 in damages comprising:
(a)liquidated damages in the sum of $12,420,000;
(b)costs of completion of Building A in the sum of $67,672,944; and
(c)costs of the arbitration in the sum of $5,582,828.26.
[26]There have been no appeals from the Awards.
[27]ATC has not recovered any amount from the liquidation of CCL.
Current proceeding
[28] ATC pleads five causes of action in its second amended statement of claim – four under the Companies Act 1993 (the Act): the first for contribution (pooling) orders (s 271) given CGL’s involvement in the management and operation of CCL; and three for breaches of directors’ duties (ss 131, 135 and 136). The fifth cause of action is for breach of the Fair Trading Act (s 9).
6 The letter referred to ex-directors. It is unclear whether this (erroneously) referred to the directors following liquidation or referred to directors who had previously resigned such as Mr Page.
[29] The s 271 claim alleges that, in addition to the operation of the unsecured treasury account into which all CCL receivables were paid, CGL treated CCL’s funds as its own, including by:
(a)declaring dividends to CGL’s shareholders from the treasury account on 28 September 2016, 29 November 2016, and 30 March 2017, in the total gross amount of $9.378 million, which dividends were funded in substantial part by CCL’s receivables;
(b)failing to consider whether it was in the best interests of CCL and its creditors for its receivables to be used in this manner;
(c)failing to consider whether CCL would have met the solvency test as at the date the dividends were declared;
(d)failing to distinguish between the interests of CCL and CGL; and
(e)grouping CCL together with CGL and other group companies for taxation purposes.
[30] ATC has two principal complaints against the directors. The first complaint is that the directors entered into obligations that they could not reasonably have believed would be performed when they fell due, in breach of s 136 of the Act (second cause of action, duty in relation to obligations). The second complaint is that they allowed the business of CCL to be carried on in a manner likely to create a substantial risk of serious loss to CCL’s creditors (namely ATC), in breach of s 135 of the Act (third cause of action, reckless trading). The fourth cause of action relates to the duty to act in good faith and in best interests of the company. It can be seen that the alleged breaches by the directors include agreeing to CCL entering the Contract.
[31] ATC’s Fair Trading Act claim alleges that CGL conducted itself in a misleading and deceptive manner, which caused ATC to reasonably believe that CGL stood behind CCL and would ensure that it met its obligations under the Contract. This cause of action was not relied on in relation to issue estoppel.
[32] ATC does not suggest that the defendants are liable to meet CCL’s unpaid liability under the Awards. ATC acknowledges that no cause of action estoppel arises from the Awards as the causes of action in the arbitration are not the same as the causes of action in this proceeding. The separate questions are concerned with issue estoppel. ATC seeks to avoid the defendants reopening issues determined in the Awards.
[33] ATC pleads issue estoppel in wide terms – that the questions of law and fact that required determination in order to enable the Arbitrator to adjudicate upon CCL’s claim and the plaintiff’s counterclaim are binding on ATC and CCL, and on the defendants as their privies. The defendants do not accept there is any issue estoppel. They plead that they were not parties to the arbitration and deny the Awards are binding on them (albeit Mr Clark’s pleading is that he apprehended he was not required to plead to whether the Awards are binding on him).
[34] As to the effect of the outcome of the separate questions on the scope of the trial, Mr Chisholm, for CGL and Mr Petrou, indicated that he did not wish to relitigate the Contract claim at trial and the outcome sought by the defendants would not cause difficulties with the time estimate. Indeed, he submitted there is no reason to suggest that granting ATC’s application (which I understood to mean answering the questions as sought by ATC) would save any time or money.
Issue estoppel – legal principles
[35] It is common ground that the starting point is s 50(1A) of the Evidence Act 2006, which provides that evidence of a decision or a finding of fact by a tribunal is not admissible in any proceeding to prove the existence of a fact that was in issue in the matter before the tribunal. However, s 50(2) provides that nothing in s 50 affects the operation of the law relating to res judicata or issue estoppel.7
[36] The rule relating to res judicata was set out by the Court of Appeal in the leading case of Shiels v Blakely:8
7 In Huata v Mangaroa 26N2 Trust [2024] NZHC 2756 at [27], La Hood J said that s 50(2) also applies to the rule in Henderson v Henderson (1843) 3 Hare 100, 67 All ER 313 (Ch) and the doctrine of abuse of process.
8 Shiels v Blakely [1986] 2 NZLR 262 (CA) at 266.
The rule is, so far as material to the present case, that where a final judicial decision has been pronounced by a New Zealand tribunal of competent jurisdiction over the parties to, and the subject-matter of, the litigation, any party or privy to such litigation, as against any other party or privy thereof, is estopped in any subsequent litigation from disputing or questioning the decision on the merits. See Spencer Bower and Turner, Res Judicata (2nd ed, 1969) para 9. The reasons for the existence of the rule are not in doubt. They were stated by Lord Blackburn in Lockyer v Ferryman (1877) 2 App Cas 519, 530:
“The object of the rule of res judicata is always put upon two grounds
— the one public policy, that it is in the interest of the State that there should be an end of litigation, and the other, the hardship on the individual, that he should be vexed twice for the same cause.”
In one branch of the law of res judicata the cause of action put in suit in the first proceeding passes into judgment so as no longer to have an independent existence. There is both a merger of the cause of action in the judgment and a cause of action estoppel. While in the case of what is commonly called issue estoppel a particular matter of fact or law in issue in the second proceeding is held to have been decided by the prior judgment but may or may not be determinative of the second proceeding. …
[37]As the Court of Appeal said in Joseph Lynch Land Co Ltd v Lynch:9
Issue estoppel is concerned with the prior resolution of issues rather than causes of action. … issue estoppel precludes a party from contending the contrary of any precise point which, having once been distinctly put in issue, has been solemnly and with certainty determined against him. …
[38] The cases indicate that the requirements for issue estoppel in New Zealand are that:
(a)there must be a final judicial decision by a New Zealand tribunal of competent jurisdiction,10 which can include the decision of an arbitrator;11
(b)that decision determines an issue as an essential and fundamental step in the logic of the decision and without which it could not stand,12
9 Joseph Lynch Land Co Ltd v Lynch [1995] 1 NZLR 37 (CA) at 41.
10 Shiels v Blakely [1986] 2 NZLR 262 (CA) at 266.
11 Victoria Street Apartments Ltd (in liq) v Sharma HC Auckland CIV-2009-404-8377, 21 September 2011 at [20], citing Fidelitas Shipping Co Ltd v V/O Exportchleb [1965] 2 All ER 4 (EWCA) at 10.
12 van Heeren v Kidd [2017] 3 NZLR 141 (CA) at [1], citing Talyancich v Index Developments Ltd [1992] 3 NZLR 28 (CA) at 37. See also PJSC National Bank Trust v Mints [2022] EWHC 871 at [45]-[46].
the subsequent litigation involves the identical issue so determined,13 and the party seeking to set up the estoppel must establish this;14 and
(c)the subsequent litigation involves the same parties or their privies – privity requires such a union or nexus, such a community or mutuality of interest, such an identity between a party to the first proceeding and the person claimed to be estopped in the subsequent proceeding, that to estop the latter will produce a fair and just result having regard to the purposes of the doctrine of estoppel and its effect on the party estopped.15
[39] In relation to privity, it is common ground that Shiels v Blakely is binding on this Court, albeit the detailed submissions for CGL and Mr Petrou referred to more recent English cases discussed in Spencer Bower and Handley: Res Judicata:16
(a)In Prest v Petrodel Resources Ltd, the UK Supreme Court re-emphasised the distinct legal personality of a company distinct from that even of a sole shareholder.17
(b)In Virgin Atlantic Airways Ltd v Zodiac Seats UK Ltd (formerly Contour Aerospace Ltd),18 Lord Sumption downplayed the relevance of Johnson v Gore Wood & Co19 for res judicata, saying:20
[T]he focus in Johnson ... was … on abuse of process because the parties to the two actions were different … (Mr Johnson’s counsel conceded that he and his company were privies, but
13 Shiels v Blakely [1986] 2 NZLR 262 (CA) at 267; van Heeren v Kidd [2017] 3 NZLR 141 (CA) at [1]. In PJSC National Bank Trust v Mints [2022] EWHC 871 at [47], this was qualified by the word “substantial”; see also P Keane Spencer Bower and Handley: Res Judicata (6th ed, LexisNexis UK, 2024) at 8.05.
14 Spencer Bower and Handley, above n 12, at 8.05.
15 Shiels v Blakely [1986] 2 NZLR 262 (CA) at 268. See also Johnson v Gore Wood & Co [2002] 2 AC 1 at 32 per Lord Bingham of Cornhill; and Resolution Chemicals Ltd v H Lundbeck A/S [2013] EWCA Civ 924 at [32].
16 Spencer Bower and Handley, above n 12, at 9.42.
17 Prest v Petrodel Resources Ltd [2013] UKSC 34; [2013] 2 AC 415.
18 Virgin Atlantic Airways Ltd v Zodiac Seats UK Ltd (formerly Contour Aerospace Ltd) [2013] UKSC 46, [2014] AC 160.
19 Johnson v Gore Wood & Co [2002] 2 AC 1.
20 Virgin Atlantic Airways Ltd v Zodiac Seats UK Ltd (formerly Contour Aerospace Ltd) [2013] UKSC 46, [2014] AC 160 at [25].
Lord Millett seems to have doubted the correctness of the concession of counsel and … so do I).
(c)Then, in Standard Chartered Bank (Hong Kong) Ltd v Independent Power Tanzania Ltd, Flaux J held that a subsidiary was not bound by an issue estoppel binding on its parent, saying:21
… merely having some commercial interest in the litigation and assisting is insufficient to establish privity of interest … [T]he corporate relationship [between parent and subsidiary] and financial interest cannot be sufficient to establish privity of interest. The contrary conclusion would … lead to the piercing of the corporate veil which is not to be encouraged given its limited scope … by the Supreme Court in Prest … A mere commercial interest in the outcome is insufficient.
[40] In relation to the application of Shiels v Blakely in relation to privity, I have also derived assistance from the recent English decision of PJSC National Bank Trust v Mints (PJSC),22 to which counsel referred. In that case, Foxton J referred to the decision of Megarry VC in Gleeson v J Whippell & Co Ltd,23 which was also referred to in Shiels v Blakely:
[33] Megarry VC described the concept of privity as “protean”, and his “test” is criticised in Spencer Bower & Handley as “circular”. It is fair to say that the “test” is essentially conclusory, and that it falls to be applied in circumstances in which there are a wide variety of combinations of factors which might lead to a conclusion of privity, or be insufficient to support it, in different cases. To that extent, it is a multi-factorial rather than rule-based principle. This limits the extent of the guidance which can be obtained from cases considering particular applications of the test. Without in any way purporting to identify all relevant factors (which I suspect would be an impossible task, as well as a pointless one when it is the particular combination of factors which matters), the authorities to which I was referred provided a number of “signposts” which I have found of particular assistance in this case:
i)The starting point – or “basic rule” – is that “before a person is to be bound by a judgment of a court, fairness requires that he should be joined as a party in the proceedings, and so have the procedural protections that carries with it” (Sales J in Seven Arts Entertainments Ltd v Content Media Corp plc [2013] EWHC 588 (Ch), [73]).
21 Standard Chartered Bank (Hong Kong) Ltd & Anor v Independent Power Tanzania Ltd & Ors
[2015] EWHC 1640 (Comm) at [143]-[145].
22 PJSC National Bank Trust v Mints [2022] EWHC 871 at [33]. The case involved a summary determination as to whether the Respondents were precluded from challenging certain findings made by an LCIA arbitration tribunal in an arbitration between the Claimants and three companies alleged to be under the Respondents’ control either on grounds of issue estoppel or to prevent an abuse of process. Foxton J was unable to make a finding of privity to the summary judgment standard.
23 Gleeson v J Whippell & Co Ltd [1977] 1 WLR 510, [1977] 3 All ER 54.
As Sales J noted, “the importance of the general rule and fundamental importance of the principle of fair treatment to which it gives expression indicate the narrowness of the exception to the rule”.
ii)The test of identification is sometimes approached by asking if the party sought to be bound can be said “in reality” to be the party to the original proceedings (Resolution Chemicals, [52]24).
iii)That argument must be approached with particular caution when it is alleged that a director, shareholder or another group company is privy to a decision against a company, because it risks undermining the distinct legal personality of a company as against that of its shareholders and directors. The danger is particularly acute as the company must necessarily act through and be subject to the ultimate control of natural persons, and directors and shareholders who “control” the company in this sense will frequently have a commercial interest in the company’s success. The need for particular caution about privity arguments in this context is emphasised in Standard Chartered Bank (Hong Kong) Ltd v Independent Power Tanzania Ltd [2015] EWHC 1640, [143]-[145] and MAD Atelier International BV v Manès [2020] EWHC 1014 (Comm), [67]-[69]. Nonetheless, there are cases which, on their particular facts, have found privity between a company and a controlling director/shareholder: for example Secretary of State for Business, Innovation & Skills v Potiwal [2012] EWHC 3723, (Ch) (decision of VAT tribunal against company binding on its director, controller and significant shareholder in director’s disqualification proceedings).
[41] Foxton J considered that the following features of the arbitration process require a more restrictive approach to giving an award a preclusive effect in the context of Gleeson privies:25
i)The contractual foundation of arbitration significantly impacts the ability of third parties to the arbitration agreement to participate in the arbitration and to challenge any award. A non-party will generally have no or only a limited right of participation in the arbitration process, which of itself will weigh strongly against an award having preclusive effect … It also makes the application of any species of issue estoppel which is rationalised on the basis that a third party has “stood by” and allowed another person to “fight its battle” … much more difficult.
ii)Some arbitral rules – including the LCIA Rules which applied in this case – provision for a limited exception to this position. … While a predecessor of this provision has been held to be effective by the Commercial Court … there are other jurisdictions which view provisions which might extend the tribunal’s power to cover the involvement of non-parties to the arbitration agreement with some scepticism The status of any such award, so far as it favoured or
burdened the joined party, would appear to be an open question under
24 Resolution Chemicals Ltd v H Lundbeck A/S [2013] EWCA Civ 924.
25 PJSC National Bank Trust v Mints [2022] EWHC 871 at [27], citations omitted.
the New York Convention. Certainly, the ability of a non-party to join and participate in even LCIA proceedings is much more circumscribed, and of uncertain effect, as against the power of the court to join an interested party … or the power of a non-party affected by an order or judgment to apply to vary it or set it aside...
iii)Not only are the powers of challenge to an award heavily circumscribed … but they do not appear to extend to persons falling outside the narrow definition in s.82(2). While that definition applies to “parties to an arbitration agreement” rather than “parties to arbitral proceedings”, it is difficult to see how the latter expression can extend beyond those on whom the award has effect under s.58. If so, then a Gleeson privy could not make an application under s.24(1) to remove an arbitrator, nor challenge an award under ss.68 and 69, nor would the arbitrator’s general duty of fairness (s.33(1)(a)), the right of legal representation (s.36) or the court’s power to give effect to peremptory orders (s.42) extend to or for the benefit of such a person. This is to be contrasted with the wider powers of appeal available for court judgments, which in appropriate cases can extend to non-parties affected by a decision…
iv)The confidential nature of arbitration proceedings, as compared with the generally public nature of court proceedings. While it is clear from AEGIS that this is not an insuperable objection to a party availing itself of a substantive right to which the arbitration award (by whatever legal mechanism) has given rise, it militates against the award binding non-parties save in exceptional cases, both as a matter of practicality, and because it illustrates the difference between the private, bilateral and consensual character of arbitral proceedings, as against the public, sovereign and coercive character of court proceedings.
[42]I note that Foxton J also said:
[79] Finally, it may, in appropriate circumstances, be an abuse of process to seek to relitigate in court an issue which had already been determined in an arbitration award, even where there is no “identity of parties” for issue estoppel purposes: Hamblen J so held in Arts and Antiques Ltd v Richards [2014] Lloyd’s Rep IR 219, [20], as did Reyes J in Hong Kong in Parakou Shipping Pte Ltd v Jinhui Shipping and Transportation Ltd [2010] HKCFI 817 (Reyes J emphasising the need for caution when applying this doctrine to a prior arbitral determination ([173])). The Court of Appeal in Michael Wilson agreed ([67]26). …
…
[81] The caution which I have found is required before finding that a non- party will be bound by an arbitration award as a privy of an arbitrating party (see [27] above) also applies when an attempt is made to argue that a prior determination in an arbitration award makes it an abuse of process for the non- party to seek to raise a particular issue in subsequent litigation. Indeed, if anything, the fact that the non-party does not meet the requirements for
26 Michael Wilson & Partners Ltd v Sinclair [2017] 1 WLR 2646.
Gleeson privity would suggest that this should be an even more challenging argument. It is not surprising, therefore, that Simon LJ in Michael Wilson,
[68] suggested it would be “perhaps a very rare case, where court proceedings against a non-party to an arbitration can be said to be an abuse of process”.
Discussion
Preliminary issue – judgment of 6 June 2024
[43] CGL and Mr Petrou first submitted that this Court has already determined, in (then) Associate Judge Gardiner’s judgment of 6 June 2024, that the form of issue estoppel now pleaded by ATC “does not identify an individual issue or issues in relation to which an estoppel might arise”.27 They submitted that, as that judgment was not appealed and ATC has not further defined the alleged issue estoppel(s) with necessary particularity, the finding in the 6 June 2024 judgment is res judicata and cannot be reopened by ATC through its new application.
[44] I do not accept this submission. The 6 June 2024 judgment was interlocutory. Relevantly, it concerned ATC’s application for pre-trial directions. ATC did seek directions that certain findings in the Awards need not be relitigated in this proceeding on issue estoppel grounds. The Judge noted the issue estoppel requirements that the parties subject to the estoppel must be parties to the final decision or their privies and that the issues in the two proceedings are identical. She then said:
[93] To ascertain whether an issue estoppel might exist in this case, the Court would need to determine whether the defendants, who were not parties to the arbitration, are CCL’s privies. Then, there would need to be a careful analysis of the individual issues disclosed from the arbitration pleadings and the awards, to determine first whether the particular finding was fundamental to the award; and secondly, whether the issue/finding in the arbitration is identical to the issue in the present proceeding.
[94] ATC’s application identifies the particular estoppel(s) that it says arise from the arbitration awards in the broadest terms. The “findings as to the defects, delays and defaults and liability of CCL under the construction contract, and the termination of the contract by ATC” and “findings as to quantum and loss incurred by ATC with CCL” does not identify an individual issue or issues in relation to which an estoppel might arise. Nor does ATC seek to establish that any individual issue is identical to an issue in the present proceeding. This point is important here because there are complexities around the nature of ATC’s losses under the construction contract, and the nature and extent of ATC’s losses under the causes of action in this proceeding.
27 Auckland Trotting Club Inc v Canam Group Ltd [2024] NZHC 1330 at [94].
[95] Furthermore, whether an issue estoppel arises in this proceeding because of the arbitration is a substantive issue for trial, not a procedural or interlocutory issue. …
[45] Thus, the Judge did not substantively determine whether issue estoppel arises. Indeed, the Judge went on to suggest determination of a separate question.28 While it is true that the claimed issue estoppel remains relatively unparticularised, it is misconceived to suggest that the 6 June 2024 interlocutory judgment itself precludes substantive determination of issue estoppel (whether as a separate question prior to trial or at the main trial).
[46] Nor do I accept that res judicata applies since this Court has already found that the Awards are not binding on Mr Petrou in the prior judgment of 13 July 2023.29 That judgment of Associate Judge Gardiner struck out a claim that Mr Petrou was liable for ATC’s costs of the arbitration on the basis that Mr Petrou was not a party, and Award 3 was not binding on him and could not be enforced against him. Privity was not addressed. Moreover, I am concerned with a different question of issue estoppel.
[47] I accept, however, that following the 6 June 2024 judgment, the defendants envisaged that ATC would provide a schedule of facts and findings determined in the arbitration which need not be proved in this proceeding. The Judge issued a minute directing such a list of issues on 26 July 2024. ATC’s list of issues dated 16 August 2024 stated that only three of the issues in the list of issues for trial in this proceeding have been determined in the arbitration. These three issues were:
(a)In relation to the s 136 claim:
7.What were the risks, costs and obligations that eventuated under the Contract?
13.What is the loss or damage that the plaintiff has suffered as a result of CCL’s default under the Contract?
(b)In relation to the s 135 claim:
28 Auckland Trotting Club Inc v Canam Group Ltd [2024] NZHC 1330 at [102].
29 Auckland Trotting Club Inc v Canam Group Ltd [2023] NZHC 1685 at [124].
19.What is the loss or damage that the plaintiff has suffered as a result of CCL’s default under the Contract?
[48] However, the cross-referencing in that list was incomplete. For example, ATC’s list also included the following issue that had been determined in the arbitration:
Was it agreed between ATC and CCL that the parent company guarantee was not required?
[49] In addition, ATC’s list of issues included the issue estoppel questions as framed in its application for determination of separate questions of the same date – set out in
[5] above. Those are the questions I must answer.
[50] In order to do so, I turn to the issue estoppel requirements in relation to the Arbitrator’s Awards.
Final judicial decision
[51] There is no dispute that the Arbitrator’s Awards (at least taken together) are final decisions by a New Zealand tribunal of competent jurisdiction. Mr Kennedy, for ATC, submitted that this is all the first question (at [5](a) above) is seeking to address.
[52] I answer the first question: yes, the Awards of the Arbitrator (taken together) are final and can form the basis of issue estoppel provided the other requirements of issue estoppel are made out.
[53] The real issues for determination are whether the defendants are privies of CCL (the second question, at [5](b) above), and whether there is sufficient issue identity between the Awards’ essential determinations and the issues in this proceeding (the third question, at [5](c) above). It is convenient to deal with issue identity before privity.
Issue identity?
[54] Mr Kennedy emphasised that ATC is not seeking to hold the defendants liable (for the Contract losses in Award 3) as if they were parties to the arbitration; it is merely seeking to stop them from challenging arbitration findings against CCL that
are relevant in this proceeding. With issue estoppel, as opposed to cause of action estoppel, the estoppel is inherently limited to findings on the same issues. But, Mr Kennedy emphasised that in most of the cases relied on, the issue(s) said to be binding would essentially be determinative of the non-party’s liability. Here, there is no dispute that the key elements of the claims in the different proceedings are quite different and the key elements of the causes of action in this proceeding are for determination by me. In any event, the question is not whether all the issues in the arbitration and in this proceeding are identical, but whether there are any identical issues to which issue estoppel applies.
[55] Mr Kennedy submitted it was not feasible to attempt to compile an exhaustive list of the issues of fact and law which cannot be challenged or reopened by the defendants because ATC did not yet know what issues the defendants seek to raise. For this reason, the separate questions for determination were intended to encompass the issues determined in the Awards that were necessary for the adjudication of the claims and counterclaims brought by CCL and ATC. Mr Kennedy submitted the Court could decide, at least, that the issues finally determined in the arbitration would be subject to issue estoppel if the defendants seek to reopen them. However, he also identified examples of relevant issues determined in the Arbitration: lawful termination of the Contract; defects; extension of time claims; and the obligation to provide a parent company guarantee.
[56] As Mr Chisholm submitted, none of ATC’s five causes of action in this proceeding plead as material facts any finding(s) made by the Arbitrator in any of the Awards. While this does not preclude issue identity, it does not assist in ascertaining it. I also accept Mr Chisholm’s submission that ATC has had plenty of opportunity to be more specific in relation to issue identity albeit I acknowledge ATC’s concern that it cannot necessarily anticipate all the issues the defendants will seek to raise.
[57] The question at [5](c) is expressed in general terms in the opening lines before it refers to specific issues as examples. Given the onus on ATC to establish issue estoppel, it would not be appropriate to decide in the abstract that the issues finally determined in the arbitration would be subject to issue estoppel if the defendants seek to reopen them. That sidesteps the requirement to establish issue identity. However,
I do not accept the submission that the issue estoppel ATC seeks to draw is too broad to be capable of any sensible definition and must fail for that reason. Aside from the specific examples that follow, taking the opening part of the question literally, the answer (assuming privity) is that “it depends whether there is issue identity”, which has the effect of deferring issue identity until trial.
[58] In reply to the concern about the wording of the opening part of the question, Mr Kennedy offered alternative wording; that is, can the issues determined in the Awards that were necessary for the adjudication of the claims and counterclaims be challenged in this proceeding? While that formulation acknowledges the requirement for the arbitration determination to be essential, it also sidesteps issue identity such that the literal answer remains “it depends”.
[59] Such answers do not preclude ATC (assuming privity) from seeking to rely on issue estoppel at trial in respect of an issue that arises and is said to have been finally determined by the Arbitrator.
[60] I turn to the specific issues included in the remainder of question [5](c)(i)-(iv). Mr Kennedy indicated that he would confine the specific questions to those at [5](c)(i),
(ii) and (iv) plus the parent company guarantee issue, namely whether the parent company guarantee was required under the Contract and was not waived.30
[61] There is no dispute that the issues identified in [5](c)(i), (ii) and (iv) were finally determined in the arbitration. I accept that the Award(s) finally determined each of these issue as an essential and fundamental step in the logic of the decision and without which it could not stand.
[62] In relation to [5](c)(i) and (ii) (whether CCL defaulted under the Contract and whether the Contract was lawfully terminated), the Arbitrator concluded in Award 1:
341.I have found [CCL] to be in default for
· Default 1 - failing to comply with the Engineer’s direction.
30 He did not pursue the question at [5](c)(iii) above (in relation to the defects in CCL’s workmanship found in Award 1 (Part H, paragraphs 718-968)) given the lack of specificity in the question and uncertainty as to its relevance in this proceeding.
· Default 4 - failing to provide documentation.
· Default 7 - failing to regularly and diligently progress the contract Works.
· Default 9 - the Engineer certifying that [CCL] was persistently, flagrantly or wilfully neglecting to carry out its obligations under the Contract.
· Failing to provide a Parent Company Guarantee.
342.It follows that ATC lawfully terminated the Contract, both pursuant to clause 14.21 and 14.22, and under the CCLA. [CCL’s] first cause of action accordingly fails and ATC’s fourth cause of action succeeds. ATC is entitled to a declaration accordingly. Its claim for indemnity or damages, costs and interest, is deferred until it is in a position to prove quantum.
[63] Paragraph 341 includes reference to CCL’s default for failing to provide a parent company guarantee. I accept that Awards 1 and 2 finally determined that CCL was obliged under the Contract to provide a parent company guarantee and that this obligation was not waived.
[64] In relation to [5](c)(iv), I accept that the Arbitrator concluded in Award 3 that CCL was liable for loss and damages arising from CCL’s defaults and defective workmanship as follows:
28.My award is as follows:
(a)ATC is entitled to liquidated damages in the sum of
$12,420,000.00;
(b)ATC is entitled to recover costs of completion pursuant to clause 142.4 of the Contract in the sum of $67,672,944;
…
[65] Mr Chisholm accepted that the defendants cannot dispute CCL’s $85m liability (including costs) to ATC. He said that the $85m arbitration Award has been converted into an enforceable Court judgment, which he accepted is admissible irrespective of s 50 of the Evidence Act and cannot be disputed.
[66] The next requirement to address is whether these finally determined issues are also issues in this proceeding so as to give rise to issue identity. The parties talked past each other in relation to this. ATC submitted that the nature of CCL’s obligations
and liability under the Contract underpin this proceeding, whereas the defendants submitted that the arbitration issues are not at issue in this proceeding.
[67] Mr Kennedy submitted that the issue which was squarely at issue in the arbitration, and which arises in the current proceeding, can be stated as follows: what was the nature of CCL’s obligations and liability under the Contract? He submitted this incorporates multiple sub-issues, including (but not limited to): whether the Contract was lawfully terminated; whether CCL was required to procure a parent company guarantee from CGL; whether CCL was liable for specific defects; and whether CCL was entitled to extensions of time.
[68] In order to show how these issues arise in this proceeding, Mr Kennedy focused on the primary directors’ duty claims under ss 135 and 136 of the Act. But he did not accept that the arbitration Awards were irrelevant to the other causes of action. He submitted, for example, that the payment of dividends would be relevant to the pooling claim and the s 131 claim. That may be so, but issue identity requires more specificity. The Arbitrator was not considering pooling or directors’ liability.
[69] Focusing on the ss 135 and 136 claims, Mr Kennedy submitted that ascertaining whether the second defendants breached their directors’ duties in causing CCL to enter into, and to continue carrying on business under, the Contract will necessarily require the Court to have regard to CCL’s obligations and liabilities under it. In relation to the s 136 claim, he submitted that assessment of the directors’ actions will be informed by the Arbitrator’s findings as to CCL’s obligations under the Contract. He submitted the obligations go directly to the nature and legitimacy of the risks that the directors subjected CCL and its creditors to, citing the approach to directors’ duties in Yan v Mainzeal Property and Construction Ltd (In Liq),31 while acknowledging the need to avoid hindsight. He also noted that the Supreme Court said that, as against directors, relief calculated by reference to the losses to creditors is available,32 while accepting this is only a starting point given the discretion under s 301.
31 Yan v Mainzeal Property and Construction Ltd (In Liq) [2023] 1 NZLR 296 (NZSC) at [198]- [218], [244] and [270]-[273].
32 At [296].
[70] Mr Chisholm focused on the relevant time to consider the directors’ actions incurring obligations – the Contract date of 23 October 2015 and the alternative counterfactual date for s 135 of 31 March 2016 – and indicated that the defendants will be submitting at trial that the Contract Award of $85m has little or no relevance. He pointed to Mr Petrou’s defence pleading that CCL had indicated in its tender proposal that the project would be self-funding and submitted the question at trial as to whether the directors were prudent entering the Contract would largely be a matter of expert evidence. He submitted there is a mismatch between the obligations accepted under the Contract and the subsequent performance (breach of obligations) that eventuated under the Contract. He submitted the issues of breach of Contract determined in the Awards and the issues relating to directors’ liability are not identical, and this should not be a problem at trial because issues such as whether ATC lawfully terminated the contract in 2018 are far removed from the issues as to the directors’ conduct in October 2015 or March 2016. Mr Puddle, for Mr Page, also noted that a number of CCL’s breaches related to defaults by a subcontractor (particularly Challenge Steel Ltd).
[71] Accepting that the s 136 claim refers to the directors’ failure to assess the obligations that CCL was incurring under the Contract, there may be commonality in respect of issues relating to the nature or construction of the obligations incurred under the Contract but beyond that it is difficult to assess issue identity at this level of generality. The nature of the contractual obligation is only one component of the relevant assessment under s 136 and it is unclear whether that is in issue. There is also the need to avoid hindsight when considering the directors’ actions.
[72] One part of CCL’s alleged default is the Arbitrator’s finding that CCL was required under the Contract to provide a parent company guarantee and this was not waived. As Mr Puddle submitted, a s 136 claim in relation to incurring company obligations involves assessing whether the director believed at the time on reasonable grounds that the company will be able to perform the obligation when it is required to do so.33 Insofar as the directors seek to address that issue, there is no issue identity.
33 Yan v Mainzeal Property and Construction Ltd (In Liq) [2023] 1 NZLR 296 (NZSC) at [243].
[73] However, despite the concession in relation to CCL’s Contract liability, the defendants do seek to contest whether it was agreed between ATC and CCL that the parent company guarantee was not required. That contractual issue was determined by the Arbitrator. Mr Petrou gave evidence on it. Mr Page, who gave evidence for CCL, was not asked to give evidence about the parent company guarantee, now says there was an agreement it need not be provided, thus taking issue with the Arbitrator’s finding based on the evidence that was adduced by CCL. There is issue identity insofar as the directors seek to contest that CCL was required under the Contract to provide a parent company guarantee and this was not waived (as the Arbitrator found). But this issue identity does not extend to the directors’ respective beliefs in relation to the parent company guarantee and the context for those beliefs.
[74] The s 136 claim includes a further or alternative pleading that the directors caused CCL to accept an obligation under the Contract to procure a parent company guarantee which they, in their capacity as directors of CGL, had no intention of providing. There is no issue identity in relation to such an intention at the time they caused CCL to accept the obligation.
[75] Apart from the limited issue identity in relation to the parent company guarantee, I do not consider that the Contract issues in questions [5](c)(i)-(ii) (Contract defaults and the lawfulness of the Contract termination) are specifically in issue in this proceeding. However, the Contract defaults and resulting termination form the basis of the Arbitrator’s loss determination (the issue in question [5](c)(iv)). Mr Chisholm acknowledges the Contract loss determination is not disputed. While the Contract loss (some of which comprises global expectation damages) is in no way determinative and hindsight must be avoided, I accept that the losses to creditors are relevant to assessment of the quantum of directors’ liability in the event of breach, as a starting point under s 136 and to the net deterioration assessment under s 135. Thus, there is also issue identity to that limited extent. This is not to conflate in any way breaches of Contract with breaches of directors’ duties. That CCL’s liquidators did not participate to contest the quantum determination in Award 3 may be relevant to the value of the starting point but does not affect issue identity. That the directors did not participate may be relevant to privity but also does not affect issue identity.
Privies?
[76] In the privity context also, Mr Kennedy emphasised that ATC is not seeking to hold the defendants liable for the Contract losses, but merely seeking to stop them from challenging the arbitration findings against CCL. As indicated, that is inherently the case with issue estoppel, but here there is no dispute that the key elements of the causes of action in this proceeding are for determination by me. Mr Kennedy submitted there is sufficient mutuality of interest given the defendants’ connection with CCL and CCL’s substantial undertaking in the arbitration that it is not unjust to prevent them from challenging the arbitration findings against CCL.
[77] It is necessary to consider the privity position of each defendant individually although I acknowledge there would be limited utility at trial if issue estoppel only applied against some of the defendants. Before considering whether each defendant was a privy, I address two preliminary points.
[78] First, I accept that particular caution is required in the context of a prior arbitration where the alleged privy was not a party to the arbitration agreement and so had no right to appear at the arbitration. Here consideration is somewhat complicated by the issue about the parent company guarantee and the possibility of director representation following CCL’s liquidation. Each counsel relied on those circumstances to support their position (addressed below).
[79] Secondly, Mr Kennedy acknowledged that he has to accept the defendants’ affidavit evidence in the context of determining these separate questions. As Mr Chisholm submitted, this is a substantive determination of the separate questions, the onus is on ATC as plaintiff to establish issue estoppel as an exception to the evidential bar in s 50, and cross-examination would have been necessary if ATC sought to challenge the directors’ factual evidence.
[80]Addressing first whether CGL is a privy, ATC relies on the following factors:
(a)CGL owned all of the shares in CCL at all material times;
(b)the extent of common directors;
(c)CCL’s constitution provides that CGL may exercise the powers of CCL’s board and the lack of formal board meetings;
(d)the treasury account and counterparty transactions;
(e)CCL did not have staff of its own or any tangible or intangible assets;
(f)the consolidated tax position;
(g)CGL paid dividends to its shareholders;
(h)CGL would have been the direct beneficiary of any arbitration award in favour CCL, and advanced funds to CCL for the arbitration; and
(i)CGL lacks standing to contest the proper interpretation and application of the Contract.
[81] The starting point is that CGL was not a party to the Contract or the arbitration. But I accept there was some mutuality of interest. CCL was CGL’s wholly owned subsidiary throughout, there were common directors (above at [13]) and the companies did not have formal board meetings. However, Mr Kennedy accepted that he could not challenge Mr Petrou’s affidavit evidence that they ran the companies separately. The provision in CCL’s constitution enabling CGL to exercise CCL’s board powers does not change this since Mr Petrou said that CGL never exercised this power.
[82] CCL was funded through CGL’s treasury bank account. Mr Kennedy relied on Mr Beylefeld’s expert evidence addressing ownership, the treasury account, counterparty transactions, tax consolidation, and that CGL seemed to have provided services to CCL such that CCL operated with no apparent tangible or intangible assets of its own, or any apparent staff of its own, and had to pay CGL for the provision of such services. Mr Chisholm described that evidence as quite “vanilla”, and relied on Mr Moore’s expert evidence indicating there was nothing unusual in the way this parent company and wholly owned subsidiary structured their affairs. As Mr Lindsay submitted for CGL and Mr Petrou, when addressing this evidence, there is nothing suggesting abuse of the corporate form.
[83] CGL’s funding extended to funding CCL’s participation in the arbitration voluntarily and by inference because it was in CGL’s interests. That also indicates some mutuality of interest. Mr Petrou and Mr Page gave evidence for CCL in the arbitration although that is hardly surprising given their roles for CCL. That they also had ongoing roles for CGL does not mean they gave evidence in that capacity. I acknowledge that, following Award 2 ordering the parent company guarantee, CGL immediately placed CCL into liquidation.
[84]I do not treat issue identity as relevant to privity (as CGL submitted).
[85] Taking these factors together, and observing the appropriate caution, I do not consider there is a sufficient community or mutuality of interest between CCL and CGL such that it is fair and just, having regard to the purposes of the doctrine of estoppel and its effect on CGL, for CGL to be treated as a privy of CCL in relation to determination of issues in the arbitration that also arise in this proceeding. CGL was a parent company, with a majority of common directors, received dividends and funded CCL’s arbitration dispute but CGL was not, in reality, a party to the arbitration.
[86] As Mr Chisholm submitted, a feature of this case is that there is considerable overlap between the factors relevant to whether CGL is a privy of CCL and those relevant to the substantive pooling cause of action. That could give rise to a difficulty as to the implications of a finding of no privity on the pooling claim at trial. However, given the scope of the separate privity question and the untested evidence at this stage, my finding does not preclude ATC from contesting how CCL and CGL operated together at trial. Otherwise, I would have reconsidered the appropriateness of determining this separate question since it is straying into an issue that I have to determine at trial.
[87] Turning to the directors, the tender referred to the directors being involved in the day-to-day running and operations of the CCL businesses. ATC submitted the directors were closely involved in the business. Mr Petrou was managing director of CCL. Mr Page was project director. Mr Clark was general manager until succeeded by Mr Jones. They were involved in the Alexandra Park project (but so were many other employees – assigned to CCL from another group company – and a number of
subcontractors). They were not parties to the Contract, nor were they parties to the arbitration. There was always more than one director of each company. It is common ground that this is not an alter ego case where it may be appropriate to pierce the corporate veil.34 There is no allegation of fraud or like impropriety. As Mr Kennedy submitted, this is not a requirement for privity. But caution is required, as indicated in PJSC. It is not unusual for a director to be involved in company management. That is common particularly with private, closely-held companies. In such cases, it is common for a director to be acting on behalf of the company in operational matters since a company can only act through natural persons. Yet, the corporate form is respected unless there are unusual circumstances.
[88] An unusual feature of this case in respect of the claims against the directors is that the statutory duties alleged to have been breached are duties owed to the company (CCL), of which the directors are claimed to be privies, although I do not accept the submission that an alleged conflict of interest (part of the s 131 claim) rules out privity since that would also apply in the alter ego abuse cases.
[89] Turning to each director individually, Mr Petrou was managing director as indicated. He was a director of CCL and CGL at all material times, and his interests owned a majority shareholding. However, he was never a sole director of either company. On behalf of CCL, he gave instructions to CCL’s lawyers during the arbitration. None of this was unusual. He gave extensive evidence in the arbitration. Again, giving evidence is neither surprising or unusual (as Foxton J said in Mints). Mr Petrou described in detail his role in relation to the Contract, and Mr Page described Mr Petrou as always the principal CCL director involved in the ATC project, although Mr Petrou’s evidence in this proceeding is that he was not involved in the day-to-day performance of the Contract. Mr Lindsay submitted that Mr Petrou and Mr Page were not CCL’s primary witnesses in relation to the defects, but acknowledged this was of marginal relevance to the privity issue.
[90] Mr Petrou’s evidence in the arbitration included evidence relating to CCL’s position that ATC had waived the requirement that it provide a parent company
34 Compare Laughland v Stevenson [1995] 2 NZLR 474 (HC); 34 Victoria Street Apartments Ltd (in liq) v Sharma HC Auckland CIV-2009-404-8377, 21 September 2011, reasons 14 October 2011.
guarantee, which is in issue in this proceeding. At least in this respect, Mr Petrou gave evidence in his capacity as director of both CCL and CGL. In cross-examination, he confirmed that if CCL was found to be obliged to provide the parent company guarantee, then CGL would do that (being something he had discussed with the other directors of CGL). However, CGL ultimately declined to provide it.
[91] As mentioned, following CCL’s liquidation there was a suggestion by counsel for CCL that the directors/ex-directors might apply to be heard in the arbitration hearing on quantum, but that did not happen. I do not consider that is significant as they did not do so and it is unclear whether it would have been consented to by ATC or permitted by the Arbitrator. On the other hand, the directors’ characterisation of Award 3 as effectively a default award adds nothing given Mr Chisholm accepted that the $85m arbitration Award cannot be disputed, so this is not a case where the directors can dispute CCL’s liability to ATC.
[92] The shareholder interests associated with Mr Petrou received substantial dividends from the treasury account during the relevant period. Mr Petrou’s interests also made advances back to the treasury account from time to time – amounting to
$4,350,000 between 2019 and 2021 (corresponding with the dates CCL was incurring costs associated with the arbitration), plus $3 million that was paid directly to the bank in payment of the performance bond. I infer that Mr Petrou’s interests had a strong financial interest in the outcome of the arbitration.
[93] Even so, taking these factors together, and observing the appropriate caution, I do not consider there is a sufficient community or mutuality of interest between CCL and Mr Petrou such that it is fair and just, having regard to the purposes of the doctrine of estoppel and its effect on him, for him to be treated as a privy of CCL in relation to determination of issues in the arbitration that also arise in this proceeding. Mr Petrou was not, in reality, a party to the arbitration.
[94] Mr Page was “Project Director” of the Alexandra Park project. He also gave evidence in the arbitration. He explained in his brief of evidence that, although Mr Petrou was always the principal CCL director involved in the ATC project, he also became involved in some aspects, including buildability input, work on CCL’s tender
and management of the early stages of the project (site establishment and excavation). He was involved in detail in the early work on site but reduced his involvement over time until finishing work in June 2016 albeit continuing to receive verbal updates in his capacity as director of CGL. He had no (indirect) shareholding interest after January 2016. Well before termination of the Contract and the arbitration, he had resigned as a director of CCL but he remained a director of CGL. He had no role in relation to the arbitration other than as a fact witness in respect of the period to June 2016. As one of three directors of CGL, he had no personal control over CCL, no financial interest in the arbitration outcome, and was not in reality a party to it.
[95] Mr Clark was CCL’s general manager, responsible for the day-to-day management and activities of CCL until succeeded by Mr Jones. He reported to Mr Page and was responsible for overseeing the construction manager and operations manager who were responsible for the day-to-day performance of CCL’s projects, including the Building A Project. The shareholder interests associated with Mr Clark (after purchase of the shares associated with Mr Page) also received dividends from the treasury account during the relevant period. However, by the time of the arbitration, Mr Clark had resigned as a director of both CCL and CGL. He no longer had any shareholding. He did not give evidence in the arbitration. He was in no sense a party.
Conclusion
[96] Accordingly, in the absence of privity, the defendants are not bound in this proceeding by the issues determined in the Awards.
[97] Nevertheless, given the limited issue identity referred to, I expect the parties to confer and avoid relitigating the Contract claim at trial.
Result
[98]I answer the questions to be determined separately as follows:
(a)Can the awards of the Arbitrator in the arbitration between [ATC and CCL] (the Awards) form the basis of issue estoppel?
Yes, the Awards of the Arbitrator (taken together) are final and can form the basis of issue estoppel provided the other requirements of issue estoppel are made out.
(b)Are the first and second defendants privies of CCL?
No.
(c)Are the first and second defendants thereby bound by the issues determined in the Awards that were necessary for the adjudication of the claims and counterclaims brought by CCL and the plaintiff in the arbitration, including (without limitation) that:
(i)CCL defaulted under the [Contract] between the parties in the respects found by the Arbitrator;
(ii)the Contract was lawfully terminated by the plaintiff in consequence;
(iii)the defects in CCL’s workmanship were as found by the Arbitrator;
(iv)CCL was liable for loss and damages arising from CCL’s defaults and defective workmanship in the sums determined in the Awards?
No.
Gault J
Solicitors / Counsel:
Mr Z G Kennedy KC and Ms R J Warren, Barristers, Auckland
Mr G Harford (plaintiff’s instructing solicitor), Dawson Harford, Auckland Mr D H Chisholm KC, Barrister Auckland
Mr T J Lindsay, and Ms C D Brownlee (first defendant and first-named second defendants’ instructing solicitor), Lindsay Francis & Mangan, Auckland
Mr M J Whale and Mr K D Puddle, TWA Legal Ltd, Auckland Mr D A Cowan and J San Diego, Cowan Law, Auckland
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