Francis v Gross - [2024] NZCA 528

IN THE COURT OF APPEAL OF NEW ZEALAND

I TE KŌTI PĪRA O AOTEAROA

CA303/2023
[2024] NZCA 528

BETWEEN

BENJAMIN BRIAN FRANCIS AND SIMON DALTON AS LIQUIDATORS OF PODULAR HOUSING SYSTEMS LIMITED (IN LIQUIDATION)
Appellants

AND

ILAN GROSS
First Respondent

LUMEN BUSINESS SOLUTIONS LIMITED
Second Respondent

COMMISSIONER OF INLAND REVENUE
Third Respondent

ANDREW DOUGLAS BLOOD
Fourth Respondent

DAVID PIROTTA AND KATY PERCIVAL
Fifth Respondents

LOUISE JAEGER
Sixth Respondent

ANDREW VAN STADEN
Seventh Respondent

JESU BOANIFACE
Eighth Respondent

LEIGH HUCKER
Ninth Respondent

LOUISE KELVIN AND HELEN O’HARA
Tenth Respondent

ALEX WILLIAMS
Eleventh Respondent

CONVIVIUM LIMITED
Twelfth Respondent

BRETT WATERSON, MARIE WATERSON AND LEGAL BEAGLE TRUSTEES LIMITED
Thirteenth Respondents

EMPLOYEES OF PODULAR HOUSING SYSTEMS LIMITED
Fourteenth Respondent

Hearing:	16 November 2023
Court:	Gilbert, Goddard and Katz JJ
Counsel:	B D Gustafson and K K Kommu for Appellants C T Patterson for Eighth Respondent R L Pinny for RITANZ as Intervenor N W Taefi as Counsel to Assist the Court
Judgment:	17 October 2024 at 11.00 am

JUDGMENT OF THE COURT

AThe appeal is allowed.
BThe directions given to the liquidators in the High Court are set aside.
CThis Court gives the directions to the liquidators set out at [158].
DThe proceeding is referred back to the High Court to deal with any matters of detail that may arise in connection with implementing this Court’s directions.

____________________________________________________________________

REASONS OF THE COURT

(Given by Goddard J)

Table of contents

Para no

Overview

The issue: what rights do purchasers of partly-completed pods have in those pods?

High Court judgment

The liquidators’ appeal

Summary of outcome on appeal

Background

Podular’s business

Podular’s standard form contracts

The application for directions

High Court judgment

The appeal to this Court

The nature of the contracts with purchasers of pods

The effect of cl 7.2 of the Convivium agreement

Did a purchaser have an equitable lien over a partly-completed pod?

Equitable liens — overview

The liquidators’ argument that equitable liens cannot arise in the context of contracts for the sale of goods

Authorities on equitable liens over partly-built homes

Tiny Town

Did equitable liens arise in the present case?

The relative priority of an equitable lien and PPSA security interests

Priority in relation to preferential creditors

Reprise: should New Zealand law recognise equitable liens over the pods?

Rights conferred by an equitable lien

Costs

Directions

Result

Overview

The issue: what rights do purchasers of partly-completed pods have in those pods?

Podular Housing Systems Ltd (Podular) carried on business constructing and installing modular residential buildings, which it called “pods”. The pods were constructed at Podular’s facilities in Hamilton and Christchurch. They were then trucked to the customer’s property. Podular contracted to carry out earthworks at the purchaser’s property, to construct foundations, and to install the pod on those foundations.
The appellants (the liquidators) were appointed as liquidators of Podular on 12 December 2022. At that time Podular was clearly insolvent.
When Podular was placed in liquidation there were 15 partly-completed pods at Podular’s Hamilton facility, and three partly-completed pods at…

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 Francis v Gross

Details

AGLC: Francis v Gross [2024] NZCA 528
Case: [2024] NZCA 528
Decision Date: 17 October 2024 at 11.00 am

CaseChat Overview and Summary

The appeal was brought by the liquidators of Podular Housing Systems Ltd, who challenged the High Court's finding that purchasers of partly-completed pods had an equitable lien over those pods. The liquidators argued that the purchasers did not have an equitable lien, and that if they did, the lien should not take priority over the claims of preferential creditors or creditors with Personal Property Securities Act (PPSA) security interests. The Court of Appeal found in favour of the liquidators, concluding that purchasers of partly-completed pods did not have an equitable lien over those pods. The Court held that recognising such a lien would alter priorities between different categories of unsecured creditors without a principled reason, and could create difficulties in applying statutory priority regimes. The Court also held that if there were equitable liens over the pods, the liquidators would be entitled to deduct their costs from the proceeds of sale of the pods before meeting the purchasers' claims. The appeal was allowed, and the directions given to the liquidators in the High Court were set aside. The proceeding was referred back to the High Court to deal with any matters of detail in connection with implementing the Court of Appeal's directions.

Orders