Gross v Lumen Business Solutions Limited

[2023] NZHC 1107

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2022-404-2292

[2023] NZHC 1107

IN THE MATTER OF

Podular Housing Systems Limited (in liquidation)

BETWEEN

BENJAMIN BRIAN FRANCIS and

SIMON DALTON as liquidators of Podular Housing Systems Limited (in liquidation)

Applicants

AND

ILAN GROSS

First respondent

LUMEN BUSINESS SOLUTIONS LIMITED

Second respondent

Continued overleaf

Hearing:

4 May 2023

Appearances:

B D Gustafson and K K Kommu for applicants

R J Latton for sixth, twelfth, thirteenth, nineteenth and twenty- first respondents

L H Mau and R G Judd for eighth respondent

Fourteenth respondent abiding, granted leave not to attend H K Mackenzie for twenty-third respondent

Date of judgment:

10 May 2023

JUDGMENT OF JAGOSE J

This judgment was delivered by me on 10 May 2023 at 3.00pm.

Pursuant to Rule 11.5 of the High Court Rules.

………………………… Registrar/Deputy Registrar

FRANCIS v GROSS [2023] NZHC 1107 [10 May 2023]

ANDCOMMISSIONER OF INLAND REVENUE

Third respondent

AND  MATTHEW PASLEY and JULIE PASLEY

Fourth respondents

AND  LYNLEY ANNE OLSEN

Fifth respondent

AND  ANDREW DOUGLAS BLOOD

Sixth respondent

ANDADAM CHARLES CUNNINGHAM and KEVIN GRAEME HALES

Seventh respondents

AND  DAVID PIROTTA and KATY PERCIVAL

Eighth respondents

AND  ASHLEY JAMES RONALD HART

Ninth respondent

AND  JULIA MARY MCAULEY

Tenth respondent

ANDJEANNIE FRIEDRICH and FELIX SCHOLZ as TRUSTEES OF THE STOKEVENTURES FAMILY TRUST

Eleventh respondents

AND  LOUISE JAEGAR

Twelfth respondent

AND  ANDREW VAN STADEN

Thirteenth respondent

AND  JESU BOANIFACE

Fourteenth respondent

AND  LEIGH HUCKER

Fifteenth respondent

AND  LOUISE KELVIN and HELEN O’HARA

Sixteenth respondents

AND  ALEX WILLIAMS

Seventeenth respondent Continued overleaf

ANDGERAINT EDWARDS and KRISTINA MCCALMAN

Eighteenth respondents

AND  CONVIVIUM LIMITED

Nineteenth respondent

AND  ELI THOMAS

Twentieth respondent

ANDBRETT WATERSON, MARIE WATERSON and LEGAL BEAGLE TRUSTEES LIMITED

Twenty-first respondents

AND  LEANE WATKINS

Twenty-second respondent

AND  KAY DRADER

Twenty-third respondent

AND  MASTERTON DISTRICT COUNCIL

Twenty-fourth respondent

ANDEMPLOYEES OF PODULAR HOUSING LIMITED

Twenty-fifth respondent

[1]    The liquidators of Podular Housing Systems Limited (the company) seek directions under s 284 of the Companies Act 1993 to inform their dealings with the company’s former customers as creditors, and to obtain the liquidators’ reimbursement and remuneration from the company’s assets.

Background

[2]    The company contracted with customers to construct and install bespoke architecturally-designed modular buildings, styled ‘pods’, for residential occupation. The company’s activities were intended to be conducted first at its leased facilities in Hamilton and Christchurch and then at each customer’s identified property.

[3]    The liquidators, appointed as such by this Court on 12 December 2022,1 contend the company was “clearly insolvent”, with an estimated deficit by then approaching $5.3 million. They allege in excess of $2.0 million taken as deposits from the company’s customers “do not appear to have been spent for the purposes for which they were paid”.

[4]    I apprehend I am being asked only partially to determine the liquidators’ application, which extends to issues relating to classification of the pods as ‘inventory’ or ‘work in progress’, and the scope of each a general security granted by the company in respect of some $1.42 million advanced by the first and second respondents and statutory preferential claims by the Commissioner of Inland Revenue and the company’s employees. Those parties did not participate in the hearing before me and I do not decide any priority of their claims. The liquidators intend also to examine a company director, whose prospective evidence thus also is not before me.

[5]    At issue now is if the company owns 13 pods under construction at its Hamilton facility (and three pods at its Christchurch facility) for which customers have made staged part-payments of their purchase prices and, if so, if those customers nonetheless have an equitable lien over ‘their’ pod.2 The customers otherwise (and principally) contend title transferred to them to the extent their payments equal or exceed the value of the goods and materials comprised by the particular incomplete pod, and claim purchase money security interests (PMSI) accordingly under the Personal Property Securities Act 1999 (the PPSA). If so, again, the liquidators assert the priority of their remuneration and expenses as an equitable lien over the pods on salvage principles.3

[6]    My decision urgently is sought because the company’s lease on its Hamilton facility expires on 31 May 2023, and at least those pods’ disposition in the interest of either the liquidator or customer before then is said desirable to maintain their value.

1      Francis v Gross [2022] NZHC 3354.

2      Another 20 customers have paid deposits in relation to which no pods have begun construction.

3      In reliance on Stewart v Atco Controls Pty Ltd (in liq) [2014] HCA 15, (2014) 252 CLR 307 and Re Arcabi Pty Ltd (in liq) [2014] WASC 310, (2014) 288 FLR 236 and argued consistently with Finnigan v Yuan Fu Capital Markets Ltd (in liq) [2013] NZHC 2899.

Relevant contract provisions

[7]    Standard form contracts (styled ‘building agreements’) between the company (defined as “the Builder”) and each customer (defined as “Owner”) specified for an individualised dwelling to be erected on the particular customer’s property, from a base of one of the company’s standard module designs.

[8] The price of that base unit, and the attributed cost of specified variations from or additions to its design, were disclosed for the purposes of establishing the contract price. The contracts then established milestones for the price’s part-payments by reference to an initial deposit, subsequent inspections and local authority approvals, practical completion and finally on issue of the local authority’s (as building consent authority) code compliance certificate under s 95 of the Building Act 2004.

[9]    Two standard form contracts were in use.4 Given the liquidation, I am given no evidence for their distinctions and unable therefore to construe them in any differential context.5 The earlier specified at its cl 7.2:

The legal, equitable and beneficial ownership and title to any goods or materials brought onto the property by the Builder shall remain vested in the Builder until such time as the Owner has paid the Builder all monies due and payable to the Builder pursuant to this Agreement.

and the later specified at its cl 7.2:

The legal, equitable and beneficial ownership and title to any goods or materials used for the Works by the Builder shall remain vested in the Builder until such time as the Owner has paid the Builder all monies due and payable to the Builder pursuant to this Agreement in relation to each respective good and/or material.

(Emphases added to identify distinctions between the two cls 7.2.)

[10]The contracts’ cls 7 were titled “Materials on Site”. Both cls 7.1 read:

If any materials specified are not reasonably procurable, the Builder may substitute other materials of similar quality and nature as are reasonably practicable. the Builder will consult the Owner before making a substitution.

4      The contracts exhibited by the liquidators were incomplete. The eighth and fourteenth respondents exhibited respectively their particular earlier and later full versions.

5      Vector Gas Ltd v Bay of Plenty Energy Ltd [2010] NZSC 5, [2010] 2 NZLR 444 at [19].

Any difference in the cost of such substituted materials shall be treated as an extra or a deduction and constitute a variation to the Contract Price.

including the lower case ‘t’ commencing the second sentence.

[11]   Both contracts defined ‘Works’ as “Construction of a residential dwelling on the Site in accordance with the Plans and Specifications”.6 The earlier contract defined ‘Site’ as “The property on the Land”; the later contract as “The Land”. Both contracts defined ‘Land’ by the customer’s chosen street address.

[12]Also, the earlier contract provided:

6.  Possession and Risk

6.1  The Owner may take possession of the new dwelling on or after Practical Completion of the Work if the Owner has paid all the Progress Payments and all other amounts then due to the Builder.7

6.2  The Works will be at the risk of the Builder until the date the Owner enters into possession subject to the other provisions in this Agreement under a builder's risk insurance policy.

6.3   The Works will be at the risk of the Owner once Owner takes possession pursuant to clause 6.1

6.4   The Builder will keep and maintain Public Liability insurance in respect of the Works.

and the later contract provided:

6.  Possession and Risk

6.1  The Owner may take possession of the new dwelling when the final Code Compliance Certificate has been issued for the Works and the Owner has paid all the Progress Payments and all other amounts then due to the Builder.

6.2  The Works will be at the risk of the Builder until the date the Owner enters into possession subject to the other provisions in this Agreement under a builder's risk insurance policy.

6.3   The Works will be at the risk of the Owner once Owner takes possession pursuant to clause 6.1.

6.4   The Builder will keep and maintain Public Liability insurance in respect of the Works. 8

6      Both contracts defined ‘Plans and Specifications’ as “The plans and specifications supplied by the Architect”. Neither contract defined ‘Architect’.

7      Both contracts defined ‘Practical Completion’ as “The Works have been completed except for minor defects and minor omissions (which do not prevent the Works being used for the intended purpose)”.

8      The contracts do not define ‘Code Compliance Certificate’ or ‘Progress Payments’ or ‘Public Liability’, which may be thought self-explanatory despite appearance as contractually-defined

(Emphases added to identify distinctions between the two cls 6.1.)

[13]Both contracts stipulated at cls 18.1:

If the Owner fails to pay the Builder by the Due Date,9 the Builder shall be entitled to retake possession of the goods and materials that the Builder has brought onto the Site until payment is made by the Owner. the Builder shall be entitled to retake possession of goods and materials whether or not those goods and materials have been fixed to or incorporated into any building on the Site.

[14]   The contracts appear drafted as standard contracts for the construction of a residential dwelling at the customer’s property, without reference to the pod’s construction at the company’s facility. Notably, the contracts’ cls 2.1 define the company’s warranties, and cls 3 and 4 the company’s commencement and completion, with reference to “the Works”; and cls 5.2’s conferral of customers’ inspection rights is confined to “the Site”. The only possible contractual acknowledgment of the pods’ construction off-site is cls 2.1 c.’s warranty by the company “[a]ll materials supplied for use in the Work [sic] … will be new”.

Discussion

—do the customers have title in their respective incomplete pod?

[15]   An initial issue is if any property in the incomplete pods has passed to the customers. Despite agreement between the liquidators and the relevant customers as to the later cl 7.2’s effectiveness in transferring “ownership in the material attached to those pods when the [customer] paid for the installation of those materials onto the partially completed [p]ods”,10 the later cl 7.2 does not provide a basis for such a contention.

[16]   That subclause plainly is intended to assert the company’s reservation of title notwithstanding bringing goods and materials onto the customer’s property. That is

terms. A “code compliance certificate” is a defined term in the Building Act 2004; “progress payment” is a defined term in the Construction Contracts Act 2002.

9      The earlier contract defined ‘Due Date’ as “The date set out for payment of Progress” [sic]; the later contract as “7 days from receipt of progress payment invoice”.

10     The eighth respondent argues its earlier contract is not materially distinguishable by the difference in wording.

evident from the clause’s title, “Materials on Site”, and the contract’s definition of ‘Works’ “on the Site”. But for an expansive reading of “goods and materials used for the Works” to incorporate the company’s construction of the pods at its facilities, the later cl 7.2 has no present application because the customers’ claims relate to incomplete pods remaining in the company’s facilities, prior to any intended transportation to the customers’ properties.

[17]   Even on that expansive reading, although each contract price was established by reference to specified variations from the modular base unit’s design, neither part-payments nor those components were specified in sufficient granularity so as to permit allocation of aspects of the price partially paid to any particular good or material. Instead, construction milestones determined partial payments of the contract price, as part-payments of the whole price rather than enabling any such allocation. Clauses 7.2’s references to “all monies due and payable” thus cannot be understood as reference only to part-payments as may have fallen due, but rather to full payment.

[18]   In the result, under either formulation of cl 7.2, title remains with the company even after transportation to the customer’s site until the customer’s full payment. That is consistent with cls 2.1 c’s warranty to supply new material for use “in the Work” [sic];11 cls 6’s provision for the customer’s possession also only on such payment, respectively after either practical completion or code completion certificate; and cls 18.1’s provision “to retake possession of goods and materials brought onto the site” on any failure to pay, irrespective of their incorporation into “any building on the Site”. Clauses 6 and 18.1’s respective references to “possession” reinforce no title is intended to be transferred until full payment, even although under the earlier cl 6 the customer may take possession after part-payment on practical completion.

[19]   As neither any of the subject pods were transported to the customers’ sites nor paid for in full, title in the pods has not transferred to the relevant customer. No question of any perfected PMSI arises. The liquidators’ claim for an equitable lien therefore falls away, as “fees and expenses properly incurred by the liquidator … and

11     The singular but capitalised ‘Work” presumably is intended to mean the defined “Works”.

the remuneration of the liquidator” may be paid out of “the assets of the company”,12 and the liquidator has no need to assert any lien against the customers.

—do the customers have an interest in their respective incomplete pod?

[20]   Turning to the PPSA, the Act in part enables determination of priority between interests “in personal property created or provided for by a transaction that in substance secures payment or performance of an obligation” (security interest).13 Competing interests may be assessed by consideration:14

(a)if the PPSA provides a rule to resolve the competition; or

(b)if not, if another rule affords priority; and

(c)if not, the order of attachment of the competing interests.

Here, the issue is what interests there may be in the pods. Predominantly, that is the interests of secured and preferential creditors to the company’s assets.

[21]   The liquidators and the later contract customers agree those contracts are for the sale of goods, “a contract by which the seller transfers or agrees to transfer the property in goods to the buyer for a money consideration”.15 Although property has not transferred, both standard form contracts agree to transfer property in the pods to the customers for money.

[22]   Section 53’s grant of immunity to “[a] buyer of goods sold in the ordinary course of business of the seller” from “a security interest that is given by the seller” requires goods be ‘sold’; that is, ‘transferred’, not merely agreed to be transferred: “the plain meaning of ‘sold’ and the tense used in s 53 requires completion or perfection of the sale for the section to apply”.16 Here, ‘sales’ of the pods remained incomplete and

12 Companies Act 1993, s 312(1) and sch 7, cl 1(1)(a).

13 Personal Property Securities Act 1999, ss 4 and 17.

14 Fisk v Attorney-General [2016] NZHC 479, [2016] NZAR 551 at [21], referring to Roderick J Wood and Michael I Wylie “Non-Consensual Security Interests in Personal Property” (1992) 30 Alta L Rev 1055 at 1072–1073.

15 Contract and Commercial Law Act 2017, s 120.

16 Maginness v Tiny Town Projects Ltd (in liq) [2023] NZHC 494 at [77]–[78], relying on Orix New Zealand v Milne [2007] 3 NZLR 637 at [49].

unperfected. Section 53 does not enable the customers to take the incomplete pods free of any security interest.

[23]   The reference to ‘transaction’ in the PPSA’s definition of ‘security interest’ indicates the subject security interests are founded on agreements to secure “payment or performance of an obligation”; they are ‘consensual’. Recognising the potential multiplicity of parties to such agreements, the PPSA establishes rules for determining their respective priorities. But the Act does not apply to “a lien (except as provided in Part 8), charge, or other interest in personal property created … by operation of any rule of law”,17 which is non-consensual. Part 8 includes s 93, which gives priority to “[a] lien arising out of materials or services provided in respect of goods that are subject to a security interest” over that security interest ( if “the materials or services relating to the lien were provided in the ordinary course of business” and other qualifications).

[24]   In Maginness v Tiny Town Projects Ltd (in liq) — concerning ownership of bespoke transportable residential dwellings (tiny homes), only partly-constructed on their manufacturer’s liquidation, intended for delivery to a customer’s site on full payment — Venning J explained:18

An equitable lien is an equitable right conferred by law upon the plaintiff to have resort to a specific asset to secure the discharge of a liability owed by the owner of the asset to the plaintiff. An equitable lien arises as a matter of law in respect of claims “which equity considers the other party is in conscience bound to perform in order to do justice between the parties”. It survives the intervening insolvency of the owner of the property. The equitable lien holder is deemed to have acquired property rights in the assets subject to the obligation to transfer the property. In the case of a purchaser’s lien, once the purchaser has paid the purchase price the defendant’s obligation to transfer becomes unconditional and equity will regard the transfer as having taken place at the moment of payment. A person entitled to an equitable lien is regarded by equity as a secured creditor.

[25]   After hearing comprehensive argument — while acknowledging the issue was difficult, and there was force in dissenting views articulated in the principal authority

17     Personal Property Securities Act, s 23(b).

18     Maginness v Tiny Town Projects Ltd (in liq), above n 16, at [107] (footnotes omitted).

relied on for imposition of an equitable lien in such circumstances19 — his Honour concluded:20

In the present case, an important feature is that the partly constructed tiny homes are readily identifiable as having been applied to the separate contracts with the individual purchasers they relate to. While they remain the property of the company, in the normal course of its business and absent default by the purchasers, the company could not, in any sensible commercial sense, have sold the tiny homes to anyone other than the identified purchasers. The individual purchasers, both fully paid and partly paid, have paid moneys towards the purchase of those specific and identifiable (but not yet completed) tiny homes. There exists readily identifiable subject matter to which the liens can attach. In those circumstances I consider equity’s response should be to support an equitable lien over the partly completed homes in favour of the purchasers to the extent of the value of the purchase moneys paid by the individual purchasers.

The important features of the present case are the ability to precisely identify the tiny homes and that they have been appropriated to the contract. …

and held:21

[T]he individual purchasers are entitled to equitable liens for the extent of the value of the purchase moneys paid by them and that their equitable liens sit outside and are not affected by the provisions of the PPSA.

[26]   The customers here, being without possession,22 claim accordingly. The liquidators resist, on grounds the Judge erred in not having regard for (or not had brought to his Honour’s attention) policy arguments against conferral of an equitable lien in such circumstances, fundamentally as indeterminately elevating unsecured creditors’ interests above the security interests protected by PPSA priorities and accordingly rendering those security interests less certain (and therefore of less utility in obtaining and maintaining security over a borrower’s assets).

[27]   But that is the objection to any non-consensual lien.23 Equitable liens, “better analysed as a form of equitable charge”:24

19     At [108], referring to Hewett v Court (1983) 149 CLR 639 (HCA).

20     At [110]–[111], citing Palette Shoes Pty Ltd v Krohn (1937) 58 CLR 1 (HCA) at 27.

21 At [119].

22   Trustee of the property of F Lord (a bankrupt) v Great Eastern Railway Co [1908] 2 KB 54 (CA) at 60, citing Morris v Delobbel-Flipo [1892] 2 Ch 352, and 74.

23 Re Spotten & Co, ex parte Provincial Bank [1877] 11 Ir Eq 412 (Ch).

24 Gavin Edmondson Solicitors Ltd v Haven Insurance Co Ltd [2018] UKSC 21, [2018] 1 WLR 2052 at [3] and [4]; similarly, In re Peak Hotels and Resorts Ltd (in liq); Candey Ltd v Crumpler [2022] UKSC 35, [2023] 1 WLR 342 at [2]. See also Lord Napier and Ettrick v Hunter [1993] AC 713 (HL) at 723–724 and Equity Trust (Jersey) Ltd v Halabi (Investec Trust (Guernsey) Ltd v Fort

… [arise] naturally from the application of equitable principles, in which equitable interests may be enforced in personam against anyone whose conscience is affected by having notice of them, either to prevent him dealing inconsistently with them, or by holding him to account if he does.

And, if “something of a themeless rag-bag”,25 equitable liens nonetheless are “a dynamic legal concept, not one which is hard-edged, circumscribed by immutable rules and incapable of further development”,26 but “only if there is a coherent principle which justifies that development”.27 Thus focus must be on the particular circumstances in which they may arise.

[28]I am directed to take a “cautious approach” in recognising any lien arising:28

[A]n expansive approach to the recognition of liens would be inconsistent with the intentions of Parliament in enacting the PPSA. The Select Committee reported that the Bill was needed because the existing law relating to personal property securities was “overly complex, inconsistent and inaccessible”. The law was not integrated nor was there a comprehensive single register. In response, the proposed Act was designed to create certainty and thereby reduce commercial costs. This objective was to be achieved “by setting out priority rules for determining disputes between holders of competing interests and creating a single register of security interests in personal property.” Section 93 of the PPSA may be viewed as a limited exception to the broad intention to codify the law of security interests in personal property. While the existence of common law liens was accepted by s 93 as an exception to this general intention, anything other than a cautious approach to the recognition of common law liens is not justified.

But that s 93 is not an exclusive exception is made out by s 23(b).29

[29]   A primary plank of the liquidators’ opposition was the unfairness they perceived in any equitable lien afforded to customers under the earlier contract compared to the possessory interest obtained by contended transfer of title to those under  the  later  contract.  That  concern  is  rendered  moot  by  my  finding  no title

Trustees Ltd) [2022] UKPC 36; [2023] 2 WLR 133 at [72]–[77], citing Hewett v Court, above n

19, at [9].

25 Bott & Co Solicitors Ltd v Ryanair DAC [2022] UKSC 8, [2022] 2 WLR 634 at [78], citing Donovan Waters, “Where is Equity Going? Remedying Unconscionable Conduct” (1988) 18 University of Western Australia Law Review 3 at 24, and referring also to John Phillips, “Equitable Liens—A Search for Unifying Principle” in Norman Palmer and Ewan McKendrick (eds), Interests in Goods (1993) 635 at 637, reprinted in 2nd ed (1998) 975 at 977.

26 At [104].

27 At [104].

28 Toll Logistics (NZ) Ltd v McKay [2011] NZCA 188, [2011] 2 NZLR 601 at [60] (footnotes omitted), cited also in Maginness v Tiny Town Projects Ltd (in liq), above n 16, at [104].

29 See [23] above at n 17.

transferred. No relevant distinction is open to being drawn between customers under the earlier or later contracts and no inequity therefore arises.30

[30]   The other policy concerns are as applicable to s 93’s conferral of priority to a lien arising out of provision of material or services in respect of secured goods, as to which the Judge reasoned:31

The equitable liens in the present case are in some ways, the other side of the same coin of the lien for materials or services provided in respect of goods which s 93 relates to. The purchasers have supplied money to the company in the ordinary course of the company’s business. There is no evidence they were aware of any security interest provided by the company. The tiny homes the money was provided for have either been largely, or at least partially, completed and in all cases can be identified as having been appropriated to the respective contracts. While the equitable liens fall outside the process of the PPSA by reason of s 23(b), and to that extent could be said to have priority over security interests under the PPSA, any such priority is consistent with or analogous to the priority provided the other types of non-consensual lien by  s 93.

[31]   There are distinctions to be drawn between the facts before Venning J and those before me. The ‘tiny homes’ in issue before Venning J were wholly to be constructed at the company’s facility and only delivered to the customer’s site on payment in full,32 which three of the six customers had paid for tiny homes then 95 per cent complete (and the other three partly-paid customers’ 40 to 50 percent complete).33 Conversely, while the pods here also are in various degrees of incomplete construction at the company’s facilities, the contracts include the company’s substantial works to transport and install them at the customer’s site, and none of the customers had paid anything like the full purchase price.

[32]   Indeed, to the extent the evidence permits my assessment, the company’s costing supporting the eighth respondents’ $777,433 purchase price suggests roughly one-third of that purchase price was made up of the cost of each the standard unit design (and possibly initial feasibility work), its bespoke construction at the company’s facility ($243,941) and works at the customer’s site ($242,567), in respect

30     Re Gold Exchange Ltd (in rec): Kensington v Liggett [1994] 3 NZLR 385 (PC) at 409, referring to Space Investments Ltd v Canadian Imperial Bank of Commerce Trust Co (Bahamas) Ltd [1986] 1 WLR 1072 (PC).

31     Maginness v Tiny Town Projects Ltd (in liq), above n 16, at [118].

32 At [44].

33     At [8]–[9].

of which the eighth respondents had paid $557,626 as the first three of six payments due under the contract. Quantity surveyors engaged by the liquidators assess that pod only partially is constructed at the company’s facility where it remains:

… in its 2 separate sections. The units are structural[ly] complete with RAB board and cavity battens installed. Window joinery is installed but some units require g[l]azing. Roofing is assumed complete as preline inspection was due. External wall cladding is in progress. Internally internal framing is complete, ceiling and wall insulation is installed. Electrical first fix and internal linings are in progress. All other works to be commenced. Note there is a large quantity of materials stored in these units.

and requires further construction work valued at $273,033 prior to transportation to the customer’s site. (All figures include GST.)

[33]   The company’s costing supporting the 14th respondent’s $192,149 purchase price is differently allocated between ‘pre-build’ costs of consents, research and engineering ($14,704) and ‘build’ costs indistinguishably between the company’s facility and the customer’s site ($177,445), in respect of which the liquidators calculate the 14th respondent had paid $96,111 (but the 14th respondent contends to have paid

$137,432 as the first three of six payments due under the contract).34 The quantity surveyors assess that pod “is complete externally less rainwater goods. Internal floor finishes are to [be] installed along with plumbing fixtures”, and requires further construction work valued at $27,600 prior to transportation to the customer’s site. (All figures include GST.) Perhaps notably,35 the company’s costing allocates the 14th respondent’s part-payments to aspects of works at both its facility and the customer’s site, meaning some costs seemingly incurred with respect to the base unit’s construction remain to be recovered and costs anticipated in site works already are accrued (excluding the cost of transportation to the customer’s site).

[34]   The quantity surveyors’ assessment is all the pods at least partially are complete, and two almost are complete. They also assess customers’ part-payments vary between being less and more than is required to complete the pod’s construction works at the company’s facilities. The liquidators provide no assessment of the

34     Proof of payment appears inadvertently omitted from the copy of the 14th respondent’s affidavit handed up during the hearing.

35 See [17] above.

remaining cost for transportation and installation at the customer’s site. But no customer has come close to fully paying their purchase price.

[35]   Nonetheless, there is no room for distinction in the “important features” of the cases respectively before Venning J and me: the ability precisely to identify the buildings at issue and appropriation to the respective customer’s contract.36 If anything, the contractual scope, if only for ‘Works’ on the customer’s ‘Site’, makes such identification and appropriation of even more materiality in the case before me. Ultimately, I am drawn to the coherence of Venning J’s characterisation of the lien as the obverse of s 93’s exception. The customer’s payment, in whole or part, is not of itself a sufficient basis on which to attach a lien over any of the company’s assets. Rather the lien only is to the extent of payments attributable to identified goods appropriated to the contract in question, as a charge against those particular goods. Whether it is so in any circumstance likely will be a question of fact and degree.

[36]   Deposit alone does not suffice,37 which addresses the liquidators’ other concern for unfairness in an equitable lien’s attachment to incomplete pods (although no construction commenced for those 20 deposit-payers).38 Key is the degree to which the specific (and not unascertained or future) good, whether complete or incomplete, may be thought excluded from any ‘commercially sensible’ sale to another customer. Where payments in the ordinary course of business directly obtain the company’s developed manufacture of goods custom-made for the customer, without the customer’s knowledge of an existing competing interest (of which no knowledge here is evidenced), equity can and should fasten on the goods in manufacture themselves to the extent of the customer’s payments.

[37]   The relevant customers all have paid money to the company attributable directly to identified goods appropriated to their respective contracts. Equitable liens attach accordingly, here subject only to a ‘first in time’ priority rule (although, if other

36     Maginness v Tiny Town Projects Ltd (in liq), above n 16, at [111].

37     Hewett v Court, above n 19, at 648.

38     See n 2 above.

circumstances required it, potentially “worthy of a carefully worked-out priority rule of [their] own”),39 to which there is no other claimant.

—may the liquidators have their claimed remuneration and reimbursement?

[38]   Given my conclusions, I am not prepared here to determine the contended reasonableness of the liquidators’ claimed remuneration and reimbursement. The claim was raised principally on the basis the liquidators had an equitable ‘salvage’ lien against the pods contended transferred to the customers, and opposed by the customers on the basis the liquidators’ activities were not reasonable. Given I find no such transfer to have occurred, the liquidators’ usual statutory indemnity suffices, subject to the customers’ equitable liens. Customers’ opposition now may not be maintained or material, but I have nothing from other respondents.

Result

[39]   Under s 284(1)(a) of the Companies Act 1993, I direct each relevant respondent has an equitable lien, over the partly-constructed pod relating to their respective contract for its construction and installation, to the extent of the purchase moneys (including deposit) paid by them.

Costs

[40]   I reserve costs for determination on short memoranda each of no more than five pages — annexing a single-page table setting out any contended allowable steps, time allocation and daily recovery rate — to be filed and served by the active respondents (desirably jointly, and perhaps for a single set of hearing costs given the respondents’ allocation or adoption of argument between them) within ten working days of the date of this judgment, with any response or reply to be filed within five working day intervals after service.

—Jagose J

39     Equity Trust (Jersey) Ltd v Halabi (Investec Trust (Guernsey) Ltd v Fort Trustees Ltd), above n 24, at [250].

Counsel/Solicitors:

Bret Gustafson Barrister, Auckland Sean McAnally Barrister, Auckland Rob Latton Barrister, Auckland

Chris Patterson Barrister Ltd, Auckland Crimson Legal, Auckland

Keegan Alexander, Auckland

Mac & Co Lawyers Ltd, Auckland Russell McVeagh, Auckland

Robertsons, Auckland

Lateral Lawyers Ltd, Auckland