Bethell v Papanui Properties Limited - [2019] NZHC 3169

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE

CIV-2019-409-336

[2019] NZHC 3169

BETWEEN
ANDREW JAMES BETHELL, ANDREW JOHN McKAY and COLIN ANTHONY
GOWER as liquidators of Arrow

International (NZ) Limited (in liquidation) Applicants

AND

PAPANUI PROPERTIES LIMITED

First Respondent

AND

HAREWOOD INVESTMENTS LIMITED

Second Respondent

AND

NEW ZEALAND SKI LIMITED

Third Respondent

Hearing: 6 and 7 November 2019

Appearances:

K M Paterson and B R McKinnon for Applicants

J V Ormsby and S C Cowan for First and Second Respondents M H O Maling and J R C Addington for Third Respondent

Judgment:

4 December 2019

JUDGMENT OF ASSOCIATE JUDGE LESTER

This judgment was delivered by me on 4 December 2019 at 3.00pm pursuant to Rule 11.5 of the High Court Rules

Registrar/Deputy Registrar 4 December 2019

BETHELL v PAPANUI PROPERTIES LIMITED [2019] NZHC 3169 [4 December 2019]

Background

[1] This proceeding concerns applications for directions by the liquidators of Arrow International (NZ) Ltd (in liquidation) (“Arrow”).

[2] The application is made pursuant to s 284(1)(a) Companies Act 1993 (“the Act”) which provides:

284 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: …

[3] The directions relate to the status of funds paid to Arrow by six of its clients shortly before Arrow was placed into voluntary administration.

[4] Separate questions arise concerning the status of retentions deducted by Arrow from payments to contractors/suppliers both pre-and post-1 April 2017.

General background

[5] Mr Bethell, Mr McKay and Mr Gower were appointed administrators of Arrow on 28 February 2019 and two related companies (Arrow International Group Ltd (in liq) and Construction Labour and Resources Ltd (in liq)). At that time the companies had approximately:

(a)17 – 20 construction projects in progress;

(b)205 employees;

(c)over 700 unsecured creditors; and

(d)85 secured creditors.

When Arrow was placed in liquidation, Messrs Bethell, McKay and Gower were appointed liquidators.

[6] Arrow acted as agent for the six clients referred to above, under a form of contract known as the “PMCM Contract” standing for Project Management and Construction Management Contract.

[7] Under the PMCM Contract, Arrow acted as agent for its clients to enter contracts with Trade Contractors on behalf of the client for the provision of goods and services for the relevant building project. These were “Construction Management” contracts as opposed to traditional contracts where there is a “head contractor” who then directly engages various subcontractors. The PMCM Contract states that Arrow has no liability to Trade Contractors for amounts due from the Clients under contracts made between Clients and Trade Contractors by Arrow.

[8] The PMCM Contract that Arrow entered into with Trade Contractors reflected that Arrow’s role was as agent only.

[9] While the charging paperwork tendered by Trade Contractors was not always…

Grounds of appeal

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

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

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

Consideration

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

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

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Details

Case: [2019] NZHC 3169
Decision Date: 4 December 2019

CaseChat Overview and Summary

The applicants, liquidators of Arrow International (NZ) Ltd, sought directions concerning the status of funds paid to Arrow by six of its clients prior to Arrow entering voluntary administration. The funds in question were intended to be paid to trade contractors and consultants. The applicants sought a declaration that the funds were held on trust for the benefit of the clients. The clients argued that Arrow held the funds on trust for them until the funds were paid to the trade contractors. The Court examined the contractual relationship between the parties, the purpose for which the funds were paid, and the context of the payments. The Court concluded that the funds were held on trust for the clients. The Court found that the funds were intended to be used solely for the purpose of paying the trade contractors and consultants. The Court found that the parties did not intend for the funds to become part of Arrow's cash flow. The Court also found that the clients did not intend for Arrow to benefit from the use of the funds. The Court held that an institutional constructive trust may arise if the clients can prove that Arrow breached its fiduciary duties. The Court held that pre-1 April 2017 retentions were not held on trust and had ceased to exist as separate trust property, while post-1 April 2017 retentions were held on trust for the trade contractors or the clients if the trade contractors had been paid directly.

Orders