Bennett v Ebert Construction Limited (in receivership and liquidation)

[2020] NZHC 277

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE

CIV-2018-485-792

[2020] NZHC 277

UNDER

the Receiverships Act 1993 and Part 19 of the High Court Rules 2016

BETWEEN

LARA MAREE BENNETT, JOHN HOWARD FISK and MICHAEL LONGMAN

Applicants

AND

EBERT CONSTRUCTION LIMITED

(in receivership and liquidation) Respondent

AUCKLAND VENTILATION SERVICES LIMITED

First Interested Party

TASLO STEEL SECURITY LIMITED

Second Interested Party

On the papers:

Counsel:

M G Colson and R L Pinny for Applicants No appearance for Respondent

C R Andrews for First Interested Party K Badcock for Second Interested Party

Judgment:

26 February 2020

JUDGMENT (NO. 2) OF CHURCHMAN J

BENNETT & ORS v EBERT CONSTRUCTION LIMITED [2020] NZHC 277 [26 February 2020]

Background

[1]        In November 2018, the applicants were appointed Receivers of a fund comprising of retentions held on trust for the subcontractors of the respondent (the Fund).1

[2]        The Receivers were given directions as to how to manage and distribute the Fund and the decision gave directions as to which of the various classes of subcontractors were entitled to participate in the Fund.

[3]Two issues were left to be resolved at the conclusion of the receivership:

(a)while the Receivers were entitled to deduct their fees, costs and expenses from the Fund, they were required to obtain the approval of the Court for their account; and

(b)the issue of whether interest accruing on the Fund belonged to the respondent or the subcontractors holding valid claims to the Fund was reserved for determination at a later date.

[4]        Other than the matters which are the subject of this application, the receivership has essentially been completed. In broad terms, out of the net funds available for distribution of just over $4 million, approximately 96 per cent have been, or will be, distributed to eligible subcontractors.

The application

[5]        By application dated 29 November 2019, the applicants sought the following orders:

(a)the Receivers may apply interest of $44,742.15 held in the Retention Account, together with  any interest  which accrues on the Fund from 1 November 2019, to their fees, costs and expenses;

1      Bennett & Ors v Ebert Construction Limited (in receivership and liquidation) [2018] NZHC 2934.

(b)the Receivers may make a distribution from the Fund to Ebert of

$30,253.98 (with such amount to be adjusted for the pro-rated rate) relating to defective work carried out by subcontractors identified as subcontractors A to F in the affidavit of Lara Maree Bennett sworn in these proceedings dated 29 November 2019 (the Bennett affidavit);

(c)the Receivers may apply $1,561.07 (with such amount to be adjusted for the pro-rated rate) from the Fund comprising entitlements waived by subcontractors identified in the Bennett affidavit as Subcontractors G to H to their fees, costs and expenses;

(d)the Receivers may pay $5,590.44 (with such amount to be adjusted for the pro-rated rate) to the Commissioner of Inland Revenue as unclaimed monies owing to subcontractors identified in the Bennett affidavit as Subcontractors I and J; and

(e)the Receivers’ fees, costs and expenses in the receivership of up to

$135,428 are approved.

The interested parties’ position

[6]        By memorandum dated 12 December 2019, counsel for the first interested party did not oppose the directions sought by the Receivers, indicated that it would abide the decision of the Court and did not seek to be heard.

[7]        Counsel for the second interested party, Taslo Steel Security Limited, filed a memorandum dated 13 December 2019. This memorandum contains some conflicting submissions. At [4], it said:

[4] In the interests of not incurring additional costs, that would ultimately only be a cost to the Retentions Fund (and therefore the subcontractors), Taslo does not oppose the orders sought in the Receivers’ memorandum in principle.

[8]        However, having said this, the memorandum raised concerns that the Receivers’ total costs (which in the original application costs of $79,210) had increased from an estimated $150,000 to $214,638. The memorandum said at [7]:

[7] In order for the Receivers to gain Taslo’s  approval of  the amount  sought in fees, a simple explanation needed to be provided as to how the additional $64,638 related to the asserted complex issues with defects in resolving all claims.

[9]        It was submitted that the Court should closely scrutinise the fees on the basis that they were to be paid out of the Fund that was intended to have statutory protection for the subcontractors for whom the funds were held.

[10]      The memorandum also said at [15] that Taslo took no position on the Receivers’ request that its application be dealt with on the papers but then in the same paragraph said that Taslo:

[15]   … seeks a direction from the Court that notwithstanding that Taslo   has not filed any opposition, if the application is to [sic] heard on the papers Taslo has the opportunity to file a further memorandum for the Court’s consideration, and that if the application is to be allocated a hearing, Taslo be allowed to appear and be heard.

The applicants’ response

[11]      Counsel for the Receivers filed a memorandum in response dated 17 December 2019. This memorandum dealt with the issues raised by Taslo. It specifically referred to the original affidavit of Lara Bennett dated 1 November 2018, the relevant extract of which said:

We estimate that the costs to be deducted from the Fund (being the costs of this Application and to administer and distribute the Fund) to be less than

$150,000. This estimate assumes that there are no significant disputes as to claims to the Fund, which need to be addressed.

(Bolding in memorandum, not in original affidavit.)

[12]      The memorandum also referred to those parts of the Bennett affidavit which detailed that there had been over 60 claims by principals for defects in the subcontracted work and that resolving these claims took time and in some instances were of quite a detailed nature. This work was said to fall outside the $150,000 estimate of costs given initially.

[13]      The memorandum records that Taslo had sought from the Receivers a detailed breakdown of the time spent by the Receivers on each of the more than 60 defects

claims, including the value of the defect, the amount of time spent on the defect, and the key tasks relating to the defect acknowledging that the need for confidentiality would require the anonymisation of the names of the relevant subcontractors.

[14]      The Receivers’ memorandum pointed out that this level of information would require significant additional work including requiring the Receivers and all of their relevant staff to review their time records going back some 12 months, together with their electronic files such as emails. This would impose additional significant costs to the receivership beyond those included in the claim for $214,638.

[15]      The memorandum referred to the fact that only one of the 130 eligible subcontractors had raised any query about the quantum of the Receivers’ fees, or the information provided in respect of them.

The 12 November 2018 decision

[16]      In the 12 November 2018 decision, the Court indicated a preference to deal with the approval of costs on the papers in order to minimise the legal costs associated with that.2

[17]      The Court directed that any subcontractor wishing to respond to the Receivers’ application for approval of their costs was to file a memorandum in response within 14 days of service of the application. Taslo filed such a memorandum. However, it now seeks to file a further memorandum.

[18]      The Receivers have suggested that if they are to be obliged to incur the costs involved in providing the detail breakdown of time incurred by the Receivers in relation to each of the 60 disputed claims, that Taslo should be directed to pay the Receivers’ costs in producing that information rather than those costs being inflicted on the other 129 subcontractors who have raised no issue with the quantum of the Receivers’ accounts.

2      Bennett & Ors v Ebert Construction Limited (in receivership and liquidation), above n 1, at [105] and [106].

[19]      However, before I would consider that course, I would have to be satisfied that there is a sound basis for incurring those additional costs. For the reasons that I can shortly state, I believe that the Court has sufficient information now to determine whether or not the Receivers’ costs are appropriate.

Are the Receivers’ costs fair and reasonable?

[20]      There is no doubt that the initial costs estimate of $150,000 was expressly predicated on the assumption that there would be no significant disputes as to claims to the Fund. It is clear from the Bennett affidavit that some 60 claims in respect of defects were received and had to be investigated. Most appear to have been rejected by the Receivers but six claims with remedial deductions of $30,253.98 were agreed by the Receivers. Of those six claims, four (for sums of $11,500, $2,645, $3,297.50 and $1,783.55 – all including GST) were ultimately agreed to by the relevant subcontractor.

[21]      Two further claims for defects, one for $9,647.93 and the other for $1,380 were notified to the subcontractors but, despite attempts of follow-up, the subcontractors made no response. That is why the Receivers seek directions that they be authorised to deduct from the payments to the six eligible contractors, the sums that they have calculated were appropriately deducted on the basis of defects.

[22]      In relation to the reasonableness of the Receivers’ fees generally, I note that the Receivers have adopted fees at the lower level of the Consented Rates.

[23]      The  Receivers  produced  three  six-monthly   reports   respectively   dated 28 January 2019, 22 July 2019 and 22 January 2020. These reports detail the work that the Receivers had undertaken over the relevant periods including the work on resolving defects claims. These reports are consistent with the contents of the Bennett affidavit and provide confirmation as to the work, including work in relation to defects claims that the Receivers were required to undertake.

[24]      Having reviewed this material, I am satisfied that the result of the receivership which will see some 96 cents in the dollar returned to eligible subcontractors indicate that the Receivers have acted effectively and economically.

[25]      I accept that it is appropriate for the Court to carefully scrutinise the accounts of the Receivers to ensure that they are fair and reasonable.

[26]      I am satisfied that they are, and that all that requiring the Receivers to provide the level of detail sought by Taslo would do, is to incur additional unnecessary costs. That is not in Taslo’s interests or the interests of the 129 other eligible subcontractors.

Outcome

[27]      Accordingly, I approve the Receivers’ fees, costs and expenses in the receivership of up to $135,428, which is in addition to the original application costs of $79,210, making total costs of $214,638.

[28]      The only aspect of the orders sought by the Receivers that was contested by Taslo was the approval of the Receivers’ fees. The first four of the directions sought were uncontested.

[29]      Having reviewed the affidavit evidence dealing with each of them, I am satisfied that there is a sound basis for each of the other four directions sought, and I make directions one to four (both inclusive) as set out in Schedule 1 of the memorandum of counsel for the Receivers dated 29 November 2019.

Churchman J

Solicitors:

Simpson Grierson, Wellington for Applicants

McVeagh Fleming Lawyers, Auckland for First Interested Party K A Badcock, Rotorua for Second Interested Party