Fairway Holdings Ltd v McCullagh - [2019] NZCA 353

IN THE COURT OF APPEAL OF NEW ZEALAND

I TE KŌTI PĪRA O AOTEAROA

CA443/2018
[2019] NZCA 353

BETWEEN	FAIRWAY HOLDINGS LIMITED AND QUEST PROJECTS LIMITED Appellants
AND	CHRISTOPHER CAREY McCULLAGH AND STEPHEN MARK LAWRENCE, INSOLVENCY PRACTITIONERS IN THEIR CAPACITIES AS LIQUIDATORS OF HAMILTON STREET INVESTMENTS LIMITED (IN LIQUIDATION) Respondents

Hearing:	12 June 2019
Court:	Brown, Venning and Whata JJ
Counsel:	G Brittain QC for Appellants B J Burt and J R F Cochrane for Respondents
Judgment:	9 August 2019 at 3.30 pm

JUDGMENT OF THE COURT

AThe appeal is dismissed.
BThe respondents are entitled to costs against the appellants for a standard appeal on a band A basis and usual disbursements.

____________________________________________________________________

REASONS OF THE COURT

(Given by Whata J)

Hamilton Street Investments Ltd (Hamilton) oversaw the construction of the Cayman Apartments in Mount Maunganui in 2006 by CBC Construction Ltd (now known as XMP & D Ltd). From 2008 to 2014 defects emerged in the Cayman Apartments (the Apartments). Hamilton and another company, CBC Construction Ltd 2010 (CBC 2010) attempted to remedy them without apparent success. Mr Peter Cooney, a then-director of Hamilton, CBC 2010 and XMP & D Ltd, met with a subcommittee of the Apartments’ Body Corporate in January 2014 following which verbal agreements were reached, he says, between Hamilton, CBC 2010 and XMP & D Ltd to repair the defects. The Apartments’ owners have since sued, among others, Mr Cooney, CBC 2010 and the directors of CBC 2010 (Messrs Beekie and Lagerberg) for their losses on the defects.
In March 2014 Hamilton declared a gross dividend of $513,899 to its shareholders Fairway Holdings Ltd (Fairway) and Quest Projects Ltd (Quest) by crediting their current accounts. It also entered into transactions that resulted in the reduction of $2,177,935 in shareholder debt owed to Fairway and Quest. We refer to these as the March dividend and transactions. Following payment of the dividend, Hamlton’s net assets according to the insolvency test were $2,045. That figure did not take into account any liability in respect of the defects in the Apartments. Hamilton was then liquidated in July 2014. The March dividend and transactions are now impugned by the liquidators of Hamilton as, among other things, voidable.
This is an appeal against the decision of Associate Judge Andrew[1] to decline to consolidate proceedings about:
(a)Liability for the claimed defects; and
(b)Whether Hamilton could meet the solvency test when it made the March dividend; and
(c)Whether the March transactions were impugnable under the Companies Act 1993 because no provision had been made for the contingent defects liability.
[1]McCullagh v Fairway Holdings Ltd [2018] NZHC 1084. Leave to appeal under s 56(3) of the Senior Courts Act 2016 was refused in the High Court: McCullagh v Fairway Holdings Ltd [2018] NZHC 1883. Leave to appeal was granted by this Court under s 56(5): Fairway Holdings Ltd v McCullagh and Lawrence [2018] NZCA 605. It was common ground that the Senior Courts Act applied because the application for consolidation…

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] NZCA 353
Decision Date: 9 August 2019 at 3.30 pm

CaseChat Overview and Summary

Fairway Holdings Ltd and Quest Projects Ltd appealed against the decision of the Associate Judge not to consolidate three separate proceedings involving the Cayman Apartments. The first proceeding was brought by the liquidators of Hamilton Street Investments Ltd against the appellants, seeking to set aside insolvent transactions. The second was an action by Hamilton and its liquidators against Fairway, Quest and Hamilton's directors, seeking to recover distributions under the Companies Act. The third proceeding was by the Body Corporate and unit owners of the Apartments against 21 entities alleging negligence and estoppel in relation to defects in construction and design. The primary legal issue was whether the three proceedings should be consolidated. The Court held that there were no real common issues of law and fact, and that consolidation was not required in the interests of justice. The Court also found that there was minimal risk of inconsistent findings, and that consolidation would not be necessary to avoid an invidious position for Fairway and Quest. The appeal was dismissed, and the respondents were entitled to costs.

Orders