Dalton v Mico Development Limited - [2022] NZHC 1913

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2021-404-2139

[2022] NZHC 1913

UNDER the Companies Act 1993

IN THE MATTER

of an application for Orders under section 295 of the Companies Act 1993

AND

IN THE MATTER

of the liquidation of Acium Construction Limited (in liquidation)

BETWEEN

SIMON DALTON AND MATTHEW PETER KEMP

Applicants

AND

MICO DEVELOPMENT LIMITED

Respondent

Hearing: 13 July 2022

Appearances:

P C Murray for Applicants (by AVL) A Davison for Respondent (by AVL)

Judgment:

4 August 2022

JUDGMENT OF ASSOCIATE JUDGE LESTER

(Voidable Transactions)

DALTON AND KEMP v MICO DEVELOPMENT LIMITED [2022] NZHC 1913 [4 August 2022]

Introduction

[1] The applicants are the liquidators of Acium Construction Limited (in liquidation) (Acium).

[2] The applicants seek an order that the respondent, Mico Development Limited (Mico), pay to Acium $1,348,666.27 (the sum). The sum is made up of several deductions made by Mico pursuant to a construction contract with Acium under which Acium was to build an apartment complex in Queenstown. The sum was subject to a voidable transaction notice served by the liquidators on Mico on 15 November 2021. Mico, if it was to object to the voidable transaction notice, had to do so by 13 December 2021. No objection was made.

[3] Accordingly, the liquidators say that the deductions, subject to the voidable transaction notice, were automatically set aside under s 294(3) of the Companies Act 1993 (the Act). This application is pursuant to s 295 of the Act.

[4] Mico opposes the application on the grounds the deductions detailed in the notice to set aside voidable transactions were not “transactions” by Acium under s 292(3) of the Act. No other challenge is made save that Mico relies on the good faith defence under s 296(3) of the Act.

[5] It is common ground that unless the deductions are transactions under s 292(3) they cannot be subject to the voidable transaction regime, albeit Acium may have other avenues of recovery.

Background

[6] The contract under which Acium agreed to build the apartment complex for Mico was a fixed price contract — the contract sum being $10,482,306.12 plus GST. The contract was under NZS3910:2013 with a number of modifications. Mico had pre-sold apartments in the project with a sunset clause in respect of those sales of 10 December 2020.

[7] For various reasons, the construction project did not run smoothly. COVID lockdowns intervened. Acium considered there were variations to the contract which Mico had either without justification failed to accept or ignored. Mico considered there were works included in the contract that were disputed by Acium. Acium declined to complete the disputed areas of work. As a result, Mico concluded Acium was in breach of contract and made deductions in respect of the passive fire protection works and an aspect of the cladding. As will be detailed below, deductions for these “descoped” items are included in the sum.

[8] Further, due to cashflow issues at Acium, Mico…

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.

Continue reading Dalton v Mico Development Limited

Details

AGLC: Dalton v Mico Development Limited [2022] NZHC 1913
Case: [2022] NZHC 1913
Decision Date: 4 August 2022

CaseChat Overview and Summary

Simon Dalton and Matthew Peter Kemp, the liquidators of Acium Construction Limited, sought an order from the High Court of New Zealand that Mico Development Limited repay $1,348,666.27, which represented deductions Mico had made from Acium's final payments under a construction contract. The sum was subject to a voidable transaction notice served on Mico, which Mico did not object to within the specified timeframe. Mico opposed the application on the grounds that the deductions were not transactions by Acium under the Companies Act 1993 and that Mico had a good faith defence under s 296(3) of the Act.

The court found that Mico's deductions could be divided into three categories: payments made by Mico to suppliers and sub-contractors directly, descoped items, and defects liability period retentions. The court found that the payments made by Mico to suppliers and sub-contractors directly were transactions by Acium under the Act, as they were agreed set-offs of liquidated amounts. The court found that the descoped deductions were not transactions by Acium, as they were not agreed set-offs and were in the nature of damages for alleged breaches. The court found that the defects liability period retentions were not transactions by Acium, as they were based on a claim for damages which was of dubious merit.

The court found that Mico's good faith defence under s 296(3) of the Act was not satisfied, as Mico had reasonable grounds for suspecting that Acium was, or would become, insolvent. The court found that Mico's refusal to approve claimed variations, the timing of the deductions for descoped items, and Mico's retention of retentions based on a claim relating to the rectification of defects all indicated that Mico had reasonable grounds for suspecting that Acium was, or would become, insolvent.

The court ordered that Mico Development Ltd pay to the applicants the sum of $505,813.02, being the amount of the agreed set-offs of liquidated amounts, and that Mico pay the applicants' costs on a 2B basis together with disbursements as fixed by the Registrar.

Orders