ARNERICH v DHC ASSETS LTD [2021] NZCA 225

ARNERICH v DHC ASSETS LTD [2021] NZCA 225 [3 June 2021]IN THE COURT OF APPEAL OF NEW ZEALANDI TE KŌTI PĪRA O AOTEAROACA555/2019[2021] NZCA 225BETWEEN ANTONY IVO ARNERICHAppellantAND DHC ASSETS LIMITEDRespondentHearing: 4–5 November 2020Court: Goddard, Duffy and Nation JJCounsel: J D McBride, and A J Steel for AppellantF J Thorp and L J Turner for RespondentJudgment: 3 June 2021 at 10.00 amJUDGMENT OF THE COURTA Mr Arnerich's appeal is allowed in so far as it relates to the award ofinterest on the sum of $367,768.12. The award of interest in theHigh Court is set aside, and remitted back to that Court to be determinedin accordance with this judgment.B DHC's cross-appeal is allowed. The proceedings are remitted back to theHigh Court to determine the amount of any further claim DHC may haveagainst Vaco under the construction contract, and, in light of thatdetermination, to make such further orders against Mr Arnerich unders 301 of the Companies Act 1993 as may be appropriate.C Mr Arnerich must pay costs to DHC on the appeal and cross-appeal, ineach case for a standard appeal on a band A basis, with usualdisbursements. We certify for second counsel.____________________________________________________________________Table of contentsPara NoIntroduction and summary [1]Background [11]Establishment of Vaco and Vaco Trust and purchase of Lincoln Roadproperty [12]Vaco enters into construction contract with DHC [17]Financing arrangements with ANZ [19]DHC carries out the construction work — disputes develop [22]Further payment claims and disputes [35]DHCs letter to Mr Beagley (6 March 2013) enclosing extensionof time related materials and submissions [44]DHC Final Payment Claim — Payment Claim 17 [46]Vaco sale of Lincoln Road property [52]Payments made by Vaco following sale of Lincoln Road property [55]Vaco tax liability paid by other Arnerich entities [61]Final Payment Schedule No 17 [62]DHC's follow-up email on 8 August 2013 [68]Further correspondence in relation to DHC's claims [77]Liquidation of Vaco [78]Adjudication proceedings [85]DHC refers its claims to arbitration [96]DHC's proceedings against Mr Arnerich [101]DHC's allegations against Mr Arnerich [104]Mr Arnerich's defence [107]High Court judgment [109]Legal framework for the claim [110]Ability of the High Court to determine Vaco's liability to DHC [115]Findings in relation to Mr Arnerich's knowledge about DHC's claims [119]Breach of s 131 of the Companies Act [123]Relief under s 301 of the Companies Act [126]Issues on appeal [129]Principles governing DHC's s 301 claim [133]Liability under s 131 of the Companies Act [133]The implications of the trading trust structure [137]Relief under s 301 [141]Should the High Court have determined the amount of DHC'sclaim against Vaco? [145]Did Mr Arnerich breach s 131 of the Companies Act? [152]Mr Arnerich's submissions on appeal in relation to s 131 [152]DHC's submissions in relation to s 131 breach [158]Discussion [162]Liability under s 301 of the Companies Act [175]Potential liability to Vaco under s 131 [175]Liability under s 301 [177]Treatment of GST [181]Interest [182]Remittance back to High Court [187]DHC's retention claims [189]Result [190]REASONS OF THE COURT(Given by Goddard J)Introduction and summary[1] The respondent, DHC Assets Ltd (DHC), is a construction company. It is anunpaid creditor of Vaco Investments (Lincoln Road) Ltd (Vaco). Vaco was put intovoluntary liquidation on 1 July 2014. Mr Arnerich, an experienced property developer,was the sole director of Vaco. Vaco was the vehicle through which Mr Arnerich carriedout a property development at a site on Lincoln Road in Auckland.[2] The structure Mr Arnerich put in place for the Lincoln Road developmentproject also involved a trading trust: the Vaco Investments (Lincoln Road) Trust(Vaco Trust). Vaco was the sole trustee of the Vaco Trust. The discretionarybeneficiaries of the Vaco Trust were (ultimately) Mr Arnerich and members of hisfamily. Vaco acquired the property at Lincoln Road as trustee for the Vaco Trust, andcarried out the development project in that capacity.[3] DHC claims it is owed some $1,088,156 plus interest by Vaco under theconstruction contract it entered into with Vaco to design and build a commercialbuilding on the Lincoln Road property. DHC was awarded $367,768 in anadjudication under the Construction Contracts Act 2002. DHC has pursued claimsagainst Vaco for the further amounts to which it says it is entitled. Vaco cannot payDHC any part of the sum awarded in the adjudication, or the further sums DHC hasclaimed: Vaco has no assets of its own, and there are no remaining assets of theVaco Trust out of which the payment could be made by Vaco as trustee.[4] DHC brought proceedings under s 301 of the Companies Act 1993 allegingthat Mr Arnerich had breached his duty to act in the best interests of Vaco (as requiredby s 131 of the Companies Act) by causing Vaco to make substantial distributions tothe beneficiaries of the Vaco Trust before DHC's contractual claims had beenascertained and paid by Vaco. DHC sought an order under s 301 that Mr Arnerich paythe amount DHC is owed by Vaco direct to DHC.[5] DHC's claim succeeded in part in the High Court.1 Davison J found thatMr Arnerich had breached his duty to act in the best interests of Vaco.2 He madeorders requiring Mr Arnerich to pay DHC the sum of $367,768 awarded in theadjudication.3 But he declined to determine whether DHC was owed further amountsby Vaco, and declined to make any further orders against Mr Arnerich, on the basisthat the construction contract required DHC's claims against Vaco to be determinedby other mechanisms, and those claims had previously been referred to arbitration.4[6] Mr Arnerich appeals to this Court. He says that he acted throughout in goodfaith and in what he believed to be the best interests of Vaco: he did not breach s 131of the Companies Act. He genuinely believed that DHC had ceased to pursue itsclaims, and that those claims lacked any merit. He made provision for the furtherclaims that he believed might be made against Vaco by DHC and other creditors, thendistributed the balance of the Vaco Trust's assets to the beneficiaries of the Vaco Trust.[7] DHC cross appeals, seeking orders that the High Court determine the amountit is owed by Vaco, and that Mr Arnerich be required to pay the whole of that amountdirect to DHC under s 301 of the Companies Act.[8] We have concluded that Mr Arnerich breached s 131 of the Companies Act bycausing Vaco to distribute its remaining funds to his family and associated interests asbeneficiaries of the Vaco Trust, without ensuring that Vaco retained sufficient funds tomeet contingent claims by DHC. Mr Arnerich had an obvious conflict of interest inmaking these decisions, which directly benefited him and his family while deprivingVaco of access to trust funds to meet any successful claims by DHC. We doubtMr Arnerich turned his mind to the interests of Vaco as a separate entity. But in anyevent, no rational director could have considered that it was in Vaco's best interests to1 DHC Assets Ltd v Arnerich [2019] NZHC 1695 [High Court judgment].2 At [345] and [352].3 At [348]–[350] and [353].4 At [351].make those distributions, and risk having insufficient trust funds in hand to meetDHC's claims if successful.[9] We therefore uphold the High Court's order under s 301 of the Companies Actthat Mr Arnerich must pay DHC $367,768.12 plus interest, though we modify theinterest award.[10] We have also concluded that the High Court should have determined the totalamount that Vaco owed to DHC, and awarded DHC compensation from Mr Arnerichfor the full amount of Vaco's unpaid debt to DHC — a debt which Vaco would havebeen able to meet but for Mr Arnerich's breaches of s 131. We therefore refer theproceeding back to the High Court to determine the amount that DHC was owed byVaco, and to make such further orders for compensation as may be required in light ofthat finding.Background[11] The history of the dealings between DHC and Vaco is set out in considerabledetail in the High Court judgment.5 For the purposes of this appeal, a summary ofthose dealings is sufficient.Establishment of Vaco and Vaco Trust and purchase of Lincoln Road property[12] On 5 November 2010, Vaco Investments Ltd (VIL) entered into a conditionalagreement to purchase a property at Lincoln Road for the sum of $1.4 million.Mr Arnerich is the sole director and shareholder of VIL. The parties subsequentlyagreed to reduce the purchase price to $1.325 million.[13] On 15 April 2011, Mr Arnerich incorporated Vaco as his vehicle to carry outa proposed development at the Lincoln Road property. The company's initial namewas Rawhiti Property Holdings Ltd. On 16 August 2011, the name of the companywas changed to Vaco Investments (Lincoln Road) Ltd. VIL was the sole shareholderof Vaco, and Mr Arnerich was Vaco's sole director.5 At [5]–[218].[14] On 4 November 2011, Mr Arnerich executed a deed establishing theVaco Trust. The deed appointed Vaco as the sole trustee of the Vaco Trust.The discretionary beneficiaries of the Vaco Trust were (ultimately, via other trusts)Mr Arnerich and members of his family.[15] The purchase of the Lincoln Road property settled on 17 November 2011.There is a dispute between the parties about the manner in which that purchase waseffected. DHC says that Vaco had been nominated as the purchaser of the property byVIL, and purchased it for $1.325 million. Mr Arnerich says that VIL agreed to sell theproperty to another company which he controlled, VDT Securities Ltd (VDT) for$1.325 million. VDT entered into an agreement for sale and purchase with Vaco, underwhich Vaco, as trustee of the Vaco Trust, agreed to purchase Lincoln Road from VDTfor the sum of $3.2 million. However, it is common ground that Vaco only ever paid$1.325 million for the property, and that the balance of the purchase price thatMr Arnerich says was payable to VDT has never been paid. Mr Arnerich says it wasa contingent liability that VDT has never claimed. We return to this below at [174].[16] Mr Arnerich identified ASB Bank as the principal tenant for the two-storeycommercial building that he proposed to build on the Lincoln Road site. An agreementwas entered into between VIL and ASB to lease retail commercial banking premisesto be constructed on the site. The lessor was to be VIL "or an associated companyrelated to the Lessor yet to be formed". VIL also entered into an agreement to leasewith The Coffee Club Properties (NZ) Ltd for a smaller tenancy on the ground floorof the building.Vaco enters into construction contract with DHC[17] On 18 October 2011, Vaco and DHC entered into a fixed price lump sum designand build contract which provided for DHC to carry out the construction work on thedevelopment for the sum of $2,129,838. The construction contract included terms thatsignificantly limited the scope for claims by DHC for extensions of time, and foradditional payment for variations. The construction contract also set out detailedprocedures to be followed in relation to variations and extensions of time. These terms— which had been proposed by DHC — were intended to give Vaco a high degree ofconfidence that the construction work would be completed by the agreed date of27 July 2012, with liquidated damages of $600 per calendar day excluding GSTpayable from that date until practical completion.[18] The construction contract contained detailed provisions in relation todetermination of disputes between the parties. The dispute resolution mechanismscontemplated by the contract included formal engineers' reviews, mediation, andarbitration. The contract also recognised the ability of the parties to refer disputes toadjudication under the Construction Contracts Act.Financing arrangements with ANZ[19] With those agreements in place, Vaco was able to obtain financing for theproject. On 10 October 2011, ANZ National Bank Ltd (ANZ) conditionally approvedVaco's application for project finance. On 10 February 2012, Vaco entered intoa facility agreement for $5,155,000 with ANZ. The facility agreement was enteredinto by Vaco as trustee of the Vaco Trust. Vaco Investments (Basque Road) Ltd astrustee of the Vaco Investments (Basque Road) Trust and Mr Arnerich were named asguarantors. The facility was intended to fund the purchase of the site for$1.325 million, and to fund the amount payable to DHC under the constructioncontract.[20] Mr Beagley of Davis Langdon was appointed as the engineer under theconstruction contract. The construction contract described the role of the engineer asfollows:6.2 Role of Engineer6.2.1 The dual role of the Engineer in the administration of the contract is:(a) As expert adviser to and representative of the Principal, givingdirections to the Contractor on behalf of the Principal and issuingPayment Schedules on behalf of the Principal at due times; and(b) Independently of either contracting party, fairly and impartially tomake the decisions entrusted to him or her under the ContractDocuments, to value the work and to issue certificates.[21] Mr Beagley was also appointed by ANZ as the bank's quantity surveyor for thepurposes of payment arrangements in relation to the construction work. The mannerin which DHC's progress claims under the contract would be processed was set out ina letter dated 11 November 2011 from ANZ to DHC which read as follows:VACO INVESTMENTS (LINCOLN RD) LIMITED – BANKING ANDRETAIL CENTRE AT 290 LINCOLN ROAD, HENDERSONWith regard to the above project, I can confirm as follows:ANZ National Bank Limited (the "Bank") has an approved DevelopmentFacility available to Vaco Investments (Lincoln Rd) Limited that includes anallocation sufficient to meet the Construction Contract Sum of $2,129,838(excluding GST). Upon receipt of QS certification of each progress claim andsubject to there being no defaults under the Transaction Documents, the Bankwill pay the progress claim direct to the account nominated by [DHC].The Bank will retain the monthly retention sums within the DevelopmentFacility until Practical Completion has been achieved. Upon PracticalCompletion being achieved and the initial release of retentions having beencertified, the balance of the retentions will be paid to an account in the jointname of Vaco Investments (Lincoln Rd) Limited and [DHC] for subsequentpayment in accordance with the Construction Contract.If you have any queries, please let me know.Kind regardsMichael WrightManager – Property FinanceDHC carries out the construction work — disputes develop[22] DHC proceeded to carry out the construction work at the Lincoln Roadproperty. Mr Arnerich was closely involved in the construction process. So too wererepresentatives of ASB. At an early stage of the construction work, ASB notified itsrequirements for a number of variations from the original drawings for the building,on the basis of which DHC had priced the building work, and which had beensubmitted for building consent. In the course of the construction project, ASB requiredapproximately 18 contract variations, some of which were significant and resulted inadditional planning, construction work and time for DHC.66 The High Court judgment, above n 1, refers at [64] to ASB requiring approximately 80 contractvariations. This appears to be a typographical error.[23] The project encountered a number of delays as a result of the ASB variations,delays at the front end of the project affecting design work, ground conditions whichrequired piling work that had not been contemplated by the construction contract, anda number of other matters. DHC ultimately, towards the end of the project, submittedfour formal extension of time claims to the engineer under the contract. Vaco disputedDHC's entitlement to claim extensions of time under the construction contract andrejected all four of these claims.[24] Some of the contract variation instructions were dealt with in the formalmanner contemplated by the construction contract. However, in many other instances,the variation requests were made in a less formal manner, with Vaco forwardingrequests from ASB on to DHC by email. In some instances, the variation requestswere made by Mr Arnerich orally to DHC's site manager, during visits by Mr Arnerichto the site, or by telephone to the DHC project manager. These variation requests wereusually confirmed by DHC in an email to Vaco. Variations and their status were notedin construction reports prepared and distributed by DHC for the regular project controlgroup meetings attended by DHC, Vaco and Davis Langdon.[25] As the construction work progressed, DHC made monthly payment claims inaccordance with the procedure contemplated by the construction contract.DHC submitted its payment claim to Vaco and to the engineer. The engineer thenassessed the claim and issued a provisional Progress Payment Schedule to Vaco,copied to DHC. Vaco had three working days to notify the engineer of anyamendments or deductions that it required. The engineer, acting as Vaco's agent,would then issue a Progress Payment Schedule (PPS) showing the sum certified bythe engineer under the contract as the value of DHC's payment claim, taking intoaccount Vaco's amendments.[26] By September 2012, the construction work was nearing completion. ASB tookpossession of its tenancy area in the building to begin its fitout work on 7 September2012. This was later than the date contemplated by the construction contract which,as noted above, was 27 July 2012. In his email to ASB confirming that date,Mr Arnerich said:As discussed in our recent telephone conversation regarding the handover dateI have a confirmed date [from DHC] of 7 September 2012. We havecollectively tried very hard to keep as close as possible to the end of August.[DHC] realise the importance of this handover date and really put in the extraeffort to make this happen.[27] By this stage of the project, disagreements had arisen between DHC and Vacoin relation to DHC's claims for variations and for extensions of time.[28] On 20 September 2012, Mr Beagley issued PPS 11, noting the value of thework completed to 31 August 2012 was $2,134,743.00 (excluding GST) and certifyingthe value of payment under PPS 11 at $307,665.44 (excluding GST). Mr Beagley thenissued a Drawdown Valuation and Payment Schedule to ANZ to enable a drawdownof $265,439.00 (excluding GST) to be made on the Vaco Lincoln Road project financefacility.[29] On 30 September 2012, DHC issued Payment Claim 12 for $528,807.87(excluding GST). The payment claim was addressed to Vaco and copied toMr Beagley. The payment claim was to be reviewed and assessed by Mr Beagley inaccordance with the terms of the construction contract. On 2 October 2012,Mr Arnerich sent an email to Mr Beagley attaching a copy of Payment Claim 12 onwhich he had crossed out the amount claimed and written: "Crap! We need to gothrough this — fine tooth comb!" Mr Arnerich had made a series of handwrittencomments on the payment claim indicating which of the variations Vaco accepted orrejected, querying the claimed amounts, and commenting that there was a need fora number of items to be substantiated. In his email to Mr Beagley, Mr Arnerich said:Hi ScottI have attached my comments on [DHC's] claim for you to review and havecopied in Anthony Parkin though I am not sure if he will be assisting you onthis?In any event I think we are getting very close to the point of having to takethese guys to task on allot [sic] of these additional variations which are clearlynot approved or warranted.I will be away from Friday 5th till Monday 15th and will be available by phoneor email if you need to contact me to discuss. In terms of the ASB variationssome of these have almost doubled again which they will no doubt flip outover so any correspondence I receive to that regard I will copy you into.This time round the points I think need to be covered off are the Liquidateddamages which currently stand at $39,000 Plus Gst and the rejection of all ofthe [extension of time] claim based on the email below which outlines ourcontractual position on [extensions of time] for weather and time. I know thatyou though[t] it might be antagonistic last time but I think it needs to be donenow.Also I think it is important that you reiterate your comments to the contractorregarding the ground risk conditions they accepted as part of the initial review.This is getting really ridiculous now again more than doubling!!Apart from these minor technicalities the site is looking better now every dayand the ASB are make [sic] good progress on their fitout.and we shouldhave our subdivision consent [out] next week.ThanksAntony Arnerich.[30] On 11 October 2012, Mr Beagley issued provisional PPS 12. The value ofpayment certified for was $114,187.50 (excluding GST) compared with the sum of$528,807.87 (excluding GST) sought in Payment Claim 12. In his covering email of11 October 2012 sending the provisional PPS to Vaco and DHC, Mr Beagley said thatthe ASB variation payment values had not been included in the schedule, and that theywould be included once confirmation was received of agreed progress payment valuesby Vaco, ASB and DHC. The provisional PPS noted a number of other items claimedthat had not been certified for payment.[31] Mr Moore of DHC responded in an email sent to Mr Beagley and Mr Arnerichon 16 October 2012:Scott [and] AntonyPlease be advised that we are in disagreement to the attached PaymentSchedule and wish to arrange [an] urgent meeting to discuss. In particular werefer you to our emails (5 October) attached that addressed our concerns to theProvisional Payment Schedule to which we have had no response orcorrespondence in an attempt to address. We find this situation verydisappointing considering we have made concerted efforts to provide as muchinformation as possible to our entitlements with the claims we have made andall we have received in return is a Payment Schedule with minimal responseto what we believe to be demonstrated entitlements.Given the difference in claim and certification I would have thought someurgency would have been put into meeting to discuss in an attempt to at leastunderstand all parties positions and viewpoints. This level of difference isuntenable and we kindly request [an] urgent meeting before the certificate isissued.Please advise your availability.RegardsAndy[32] Mr Beagley summarised the situation as regards completion of the works andthe outstanding DHC payment claims and extension of time claims in a letter to ANZon 26 October 2012, reporting the status of the funding facility for the project for theperiod ending 30 September 2012. In his letter, Mr Beagley confirmed that handoverof the premises to the ASB to commence its fitout had occurred on 7 September 2012,and DHC had applied for practical completion on 15 October 2012 subject toconnection of the electric power supply (which was connected on 16 October 2012).[33] DHC issued Payment Claim 13 on 31 October 2012, in which it claimed$489,805.44 (excluding GST). In a covering email, DHC advised that substantiationfor any new variations or increases to existing variations would follow shortly.Mr Arnerich responded requesting invoices and information for each and everyvariation requested by ASB and Vaco. On 2 November 2012, Mr Reyneke of ASBsent an email to Mr Arnerich commenting on the variation claim, which had beenreceived by ASB the previous day. Mr Reyneke said that ASB considered the costs tobe extremely high. He set out a list of information the bank required regardingcompletion of items on ASB's defects list and other items that were yet to be completedor attended to. On 15 November 2012, Mr Beagley issued PPS 13 for an amount of$269.20 (excluding GST).[34] On 10 November 2012, prior to practical completion having been certified andwithout DHC's consent, Vaco took possession of the premises other than the ASBtenancy area. Almost a year later, on 4 October 2013, Davis Langdon, on behalf ofthe engineer to the contract, issued a certificate dated 28 June 2013 that the contractworks had reached a state of practical completion on 21 November 2012.Further payment claims and disputes[35] DHC issued Payment Claim 14 on 30 November 2012 seeking payment of$429,193.96 (excluding GST). On 13 December 2012, Mr Beagley preparedprovisional PPS 14 in which he calculated that DHC owed Vaco $41,132.77. In thisschedule, Mr Beagley disallowed the DHC variation claims for the extensions of timeand for the soft spots in the basement area, as well as disallowing the majority ofDHC's claims for variations, noting in each case that Vaco had assessed there to be noentitlement until the variation costs were substantiated. In relation to variation 38751,in which DHC claimed extension of time costs of $75,000, Mr Beagley's schedulereads:[Extension of time] Claim (received 17Sept12) has been referred to theEngineer for review. Details of $40k claim value (time?) increase in the periodto be provided by [DHC]. Time related costs to date are deemed to have beenincluded within the P&G costs associated with the respective variations[36] DHC responded to provisional PPS 14 in an email sent to Davis Langdon andMr Arnerich on 27 December 2012:Antony [and] ScottWe acknowledge receipt of your Progress Payment Certificate No.14 and thecontent and comments made, however despite our best efforts in bothmeetings, discussions and correspondence to provide additional informationand substantiation to the significant differences between claims made andcertification it appears we are no nearer in reaching any agreement. Thissituation and difference has now been ongoing for some months now and hasbecome untenable from our perspective as we believe the negotiable approachis not being reciprocated by all parties concerned.Based on the Progress Payment Certificate issued by The Engineer underClause 12.2 we wish to further formally record that we are in disagreementand see no further reason to proceed with the disputed amounts pursuant toClause 13.2 (Engineer's Review) as The Engineer has been involved in theinitial meetings, discussions and correspondence and has issued the PaymentSchedule continuing to agree with the disputed items, noting a "formaldecision" has not been stated. We therefore wish to notify of our intention toseek reimbursement of the disputed items pursuant to either Clause 13.3(Mediation) or 13.4 (Arbitration) of the Conditions of Contract.To reiterate, these disputes have been ongoing sometime now with our beliefthat no real or reasonable consideration or urgency has been shown to resolveconsidering the significant amounts involved, therefore leaving us no otheroption than to pursue the items and amounts through the disputes provision ofthe Contract.It should also be noted that we do not consider the ASB Payment Schedule(review of our variations) to be a document that can be relied on as a truereview [of] our claims pursuant to Clause 9 of the Conditions of Contract.We have no contractual relationship with the ASB (being the PrincipalsTenant), therefore any review of our variation claims should be carried out andissued under Clause 9.3, at this moment "Assessed in accordance with ASBPayment Claim attached" is contrary to the provision of the Contract.I trust you will understand our position here and advise we will be in contactin order to commence proceedings as soon as possible, noting any responsefrom yourselves in respect of this notification will be considered andreviewed.RegardsAndy[37] DHC issued Payment Claim 15 on 31 December 2012, seeking payment of$388,246.96 (excluding GST). Mr Beagley issued provisional PPS 15 on 7 January2013 in which the value of the payment was negative $12,070.00 (excluding GST).[38] DHC issued Payment Claim 16 on 31 January 2013, seeking payment of$392,582.41 plus GST.[39] On 4 February 2013, Mr Arnerich forwarded to Mr Beagley and Mr Parkin ofDavis Langdon a marked up copy of DHC's Payment Claim 16 on which he had madehandwritten comments relating to a number of contract variations for which paymentwas claimed. For example, his comment in relation to 14 of the claims was simply:"No". Other claim items were noted: "$0 - refer to Eng[ineer]." In some instances,Mr Arnerich wrote, "ASB", indicating that he considered that ASB was responsiblefor that claim. In his covering email Mr Arnerich said:Hi Scott and AnthonyPlease see my marked up version of the claim.Please accept this as notification that under no circumstances are you torelease any part of the retentions as claimed. The contractor has not made anyprogress as to making good works [on] site which are substandard mostparticular the faulty drainage resulting in water egress [through] the blockwalls and piles etc.There has been no one on site for a long time.[40] On 13 February 2013, Davis Langdon sent Mr Arnerich Provisional ProgressValuation No 16. In the covering email, Davis Langdon advised Mr Arnerich that asprincipal to the contract, Vaco had two working days after receipt of the PPS to notifythe contract engineer of any amendments or deductions that the principal required tobe made from the sum certified by the contract engineer. The schedule prepared byMr Beagley listed some 80 variations for which payment was claimed by DHC. In the"Comments/Reasons" column were notations which directly correlated toMr Arnerich's handwritten comments as previously provided to Davis Langdon.In those instances, where Mr Arnerich had noted, "No" in his handwritten note,Mr Beagley's schedule states: "Vaco do not agree this cost". In relation to theextension of time claim (item 38751) the schedule states:No Entitlement, [extension of time] Claim referred to the Engineer for review.Details of claim value to be provided by [DHC]. Time related costs to date aredeemed to have been included within the P&G costs associated with therespective variations. Further request for information submitted.[41] Mr Beagley issued provisional PPS 16 on 13 February 2013, in which hecertified the value of payment as $0.00.[42] On 5 March 2013, Mr Beagley sent Drawdown Valuation 15 to ANZ, copiedto Mr Arnerich. Mr Beagley noted that practical completion had been effectivelyachieved on 28 November 2012 with the code compliance certificate being issued byAuckland Council, although the practical completion certification was yet to beobtained. He said:.We note as previously report[ed] that significant construction variationclaims/risk ($567,000 claimed vs. cost liability provisioning of $363,000included in the current cost to complete assessment) remain, with the majordisputed claims having been recently referred for a formal Engineer's Review.VARIATIONSConstruction variations (actual and potential, although excluding ASB andCoffee Club changes) identified to date remain provisionally assessed atapproximately $160,000.We note that [DHC] have identified variation claims to date in the total amountof approximately $629,000 (including credits for works not completed andincluding unsubstantiated [extensions of time] and soft-spot claims etc.) forwhich liability of $363,000 ($174,109 paid) has been included within thecurrent budget and cost to complete provision as summarised below:Vaco / [DHC] continue to negotiate variation claims and incomplete/defectworks with a view to conclude a Final Account value. We note (as above) thatvariation claims totalling $320,000 have recently been referred fora Engineer's Review in accordance [with] the conditions of contract.ASB tenant variations (identified and noted for separate payment to Vaco fromthat ASB) [sic] remain assessed in the order of $205,000.Extension of time claims (EOT), variation claims relating to "soft spots"in the basement, time related construction expenses and credits forcontract works not completed remain identified as the remainingsignificant variation cost risk at this stage of the project.CONTINGENCYThere is effectively no remaining unallocated contingency for the project.Which whilst not ideal, we note that with the project having achieved bothPractical Completion and [Code Compliance Certificate] subject now only tosale (waiting for settlement), we do not anticipate any further significant costto complete requirements. We do however note that there remains significantconstruction variation/final account agreement risk that identifies a potentialshortfall, that would require additional equity/funding to be contributedshould [DHC] be awarded variation values as currently claimed.Negotiation and settlement of the construction variation claims,associated Final Construction Account agreement and incidentalconsultant and holding costs associated with a protracted developmentperiod are identified as the significant remaining contingent cost risk atthis stage of the project.[43] Mr Arnerich sent an email to Mr Irvine of ANZ on the same day, 5 March 2013,recording that he disputed the DHC claims:Hi Mr I[rvine]By all means give me a call to reconfirm that most of if not all of thecontractors [sic] claims are fanciful and not worth printing out and arecomprised of items clearly outside the [contract]...Also I not[e] there is nomention of the pending $72,000 + GST liquidated damages that are yet to beapplied.I am very confident regarding the entitlement to theseand [in] any event thiswill drag on way past settlement of the property and will in effect becomesolely my problem as the bank will not have any exposure.I have forwarded you a copy of the instruction to Davis Langdon to reviewthese outrageous claims.PPS[sic]-No problem for the surveySpeak to you tomorrowThanksAntony ArnerichDHCs letter to Mr Beagley (6 March 2013) enclosing extension of time relatedmaterials and submissions[44] On 6 March 2013, Mr McClatchy of DHC sent an email and letter toMr Beagley responding to requests for information to support DHC's claims forvariations and extensions of time. The email and its attachments, which includeddetailed marked-up project programme schedules, were also copied to Mr Arnerich.In the letter, Mr McClatchy set out a summary of the circumstances which had givenrise to the project time delays and the grounds upon which Extensions of Time 1, 2and 3 were based. Mr McClatchy advised that DHC would welcome the opportunityto meet with Mr Beagley to clarify any other items that he might require and to discussthe claims in more depth.[45] On 12 March 2013, Mr Parkin sent DHC a list of the variation claims that"[they were] currently reviewing". He asked if the list was complete. DHC repliedwith comments on each of the claims to be reviewed. Davis Langdon forwardedDHC's email to Mr Arnerich for his information.DHC Final Payment Claim — Payment Claim 17[46] On 15 March 2013, DHC submitted their final account, Payment Claim 17,which was sent to Vaco and copied to Mr Beagley. The payment claim was for$553,095.10 (excluding GST), which was the total calculated pursuant to theVariation Schedule listing each of the claimed contract variations. As at that dateMr Beagley was yet to issue his further formal review decision.[47] Upon receipt of Payment Claim 17, Mr Arnerich sent an email to Mr Beagley:Hi ScottPlease refer to the final account from [DHC]. There seem to be new items inthis claim please review and add those to the Engineers reviews that arecurrently underway.Also after receipt of this claim it seems an appropriate time to review andre-evaluate where everything sits.I still do not have the required documentation to get a practical completioncertificate so will need to review and re-evaluate the date of when this finallygets resolved as clearly it isn't. Also as part of this process works to becompleted to my satisfaction on site will need to be taken into account.ThanksAA[48] On 15 March 2013, Mr Arnerich sent an email to Mr Beagley and Mr Parkin,attaching a copy of Payment Claim 17 on which he had entered either "X" againstthose items that he did not accept, or "ASB" against those items which he consideredwere ASB's responsibility. Apart from marking the items in that way, he did notprovide any other comments. In his email to Mr Beagley and Mr Parkin, Mr Arnerichsaid:Hi Scott/AnthonyLooking at the final claim [from] [DHC] there seems to be more wildmovements in items [from] claim to claim. I have marked up the variationschedule as attached noting items to look at. In terms of the [practicalcompletion] date they are now technically 231 day[s] late or $138,600 plusGST. As mentioned in my previous correspondence based on the informationcontained in the claim I will now re-look at the date for [practical completion]when we get all the required information [49] On 18 March 2013, following a meeting between Mr Tim Fraser of DHC andMr Parkin to discuss the variation claims, Mr Fraser of DHC sent Mr Parkin an emailaddressing each of the claims which were to be reviewed by Davis Langdon andMr Beagley. Mr Parkin referred Mr Fraser's email to Mr Arnerich, who thenforwarded some further comments to Mr Parkin and Mr Beagley regarding thevariations which he disputed.[50] On 28 March 2013, Mr Parkin sent an email to Mr Arnerich in which he setout his assessment of the DHC variation claims. Mr Parkin explained that he was stillworking on three of the variation claims and that his assessment did not cover all ofthem. In a schedule he had prepared, Mr Parkin noted the differences in the amountsclaimed by DHC compared to the Davis Langdon assessment. The schedule recordedthat several of the items listed were being reviewed. Mr Arnerich said in his evidencethat having regard to this assessment and to DHC's late extension of time claims whichhad only been substantiated by DHC's further materials provided in March 2013, heconsidered at that time that there was no prospect of any further payments to DHCbeing certified by Davis Langdon.[51] On 3 April 2013, Mr McClatchy sent an email to Mr Beagley in which he saidhe wanted to get an update from him as to where he understood everything was atregarding the ASB project. Mr McClatchy said that DHC was keen to get some sort ofmovement on the matter, have a payment certificate issued and any outstanding moneydue to DHC paid. On the afternoon of 4 April 2013, Mr Arnerich sent an email toMr McClatchy inquiring about when some remaining work at the building would bedone. Mr McClatchy responded the same day. He said that he had been trying tocontact Mr Beagley to find out how long it would take him to provide a response toDHC on all the matters that had been referred to him for determination, and he askedMr Arnerich whether he had received any updated information on the matter.Vaco sale of Lincoln Road property[52] Meanwhile, on 7 November 2012, Vaco had entered into an agreement to sellthe Lincoln Road property for $8.4 million, with settlement in April 2013. DHC wasnot aware of this sale.[53] In an email dated 27 March 2013, ANZ advised Vaco's solicitors of the amountrequired to discharge the bank's mortgage over the property that secured the projectfinance facility. In addition to the amount required to repay the principal and accruedinterest of the project finance facility, ANZ stipulated that it would retain a total sumof $641,674 to be held on term deposit, to cover retentions and the outstanding costsof completion of the project. Of that amount, $515,076 was to be retained to coverthe construction costs to complete, and $80,559 would be retained as contractorretentions.[54] The Lincoln Road property sale settled on 3 April 2013.Payments made by Vaco following sale of Lincoln Road property[55] The Lincoln Road proceeds of sale of $8.4 million were applied to repay theANZ facility, which then totalled some $5,507,700. In addition, ANZ retained$561,115 to cover costs to complete, as contemplated by its 27 March 2013 email.The sum of $80,559 which ANZ had said would be held to cover contractor retentionswas not however retained by ANZ. Instead it was paid direct to Vaco's ANZ bankaccount. The reason for this departure from ANZ's earlier indication is unclear.[56] Over the following days, the bulk of the balance of $2,312,761 was distributedto Mr Arnerich himself, to Arnerich's family members, and to related businessinterests. On 8 April 2013, approximately $1,175,000 was paid to ASB to repayborrowings by Mr Arnerich's interests. On 9 April 2013, the sum of $1,036,131 waspaid into Mr and Mrs Arnerich's joint bank account. These payments are the primaryfocus of DHC's claims that Mr Arnerich breached s 131 of the Companies Act.[57] In May 2013, ANZ agreed to release to Vaco the full balance of the costs tocomplete amount it was holding on term deposit, on the basis that there was no"Direct Agreement" in place requiring ANZ to make payments to DHC, the propertyhad been sold and settled, the ANZ facility had been repaid, and the final account hadbeen issued with $96,000 shown as owing to Vaco. Mr Irvine of ANZ noted in anemail dated 17 May 2013 that:The Bank expects that any further payments which may become payable underthe construction contract (e.g. [extensions of time], retentions or otherwise)will be settled between the parties to the contract.[58] Over the period May 2013 to October 2013, Mr Arnerich made, or authorised,a number of payments from Vaco's bank account to creditors of Vaco out of this"cost to complete" provision. In particular, Mr Arnerich paid ASB an agreed amountfor fitout credits of $363,838.50 (excluding GST).[59] Mr Arnerich also authorised further payments to his family and businessinterests out of the funds in Vaco's bank account, including:(a) $50,000 on 11 June 2013;(b) $30,000 on 2 July 2013;(c) $30,000 on 25 July 2013;(d) $45,000 on 20 August 2013; and(e) $9,900 on 19 September 2013.[60] DHC says these further payments to the Arnerich interests also involvedbreaches by Mr Arnerich of s 131 of the Companies Act.Vaco tax liability paid by other Arnerich entities[61] It appears that Vaco incurred a liability for tax in connection with theLincoln Road development of at least $311,218. This was paid on behalf of Vaco on20 May 2014 by Mr Arnerich's solicitors, Martelli McKegg. They advised thatto "make the tax payment for Vaco Investments (Lincoln Road) Trust, we journaledfunds of $239,396.24 from Vaco Investments (Basque Road) Limited and $71,821.76from Vaco Investments Limited".Final Payment Schedule No 17[62] On 1 May 2013, Davis Langdon issued Final Payment Schedule No 17.The value assigned to the payment amount certified was $0.00, and the schedule statedthat the net position was that the Principal's Deductions totalling $95,728.00(plus GST) were payable by DHC to Vaco. Attached to the Certificate of Paymentwas a schedule on which each of the DHC variation claims was listed and in respectof which there was a brief note setting out the reason or reasons why the variation wasdisallowed. In many instances the reason given was: "Vaco do not agree ".[63] Although it was described as a "final" payment schedule, in relation to DHC'sextension of time claim for $182,462 the schedule noted:No Entitlement, [extension of time] Claim referred to the Engineer for review.Details of claim value to be provided by [DHC]. Time related costs to date aredeemed to have been included within the P&G costs associated with therespective variations. Further request for information submitted.[64] It appears that in preparing Final Payment Schedule No 17, Davis Langdon hadoverlooked the letter from DHC to Mr Beagley dated 6 March 2013 which providedadditional information requested by Mr Beagley in relation to the variation andextension of time claims. DHC says that this letter contained much of the informationthat Final Payment Schedule No 17 treated as outstanding, and as preventingcertification of further claims.[65] In his evidence, Mr Arnerich said that as he heard nothing from DHC followingreceipt of Final Payment Schedule No 17, he concluded that DHC had finally acceptedthat they had no further claims against Vaco given their delay achieving practicalcompletion and their consequential exposure to significant liquidated damages.[66] However, on 6 May 2013, Mr McClatchy sent an email to Mr Beagley whichwas copied to Mr Arnerich. He wrote:ScottFurther to our conversation last week and all my previous emails can youplease advise where we stand with the [practical completion] documentationfor this project.In the latest schedule the client has made a deduction of 118 days for[liquidated damages] that given the fact a [practical completion] date hasn'tbeen finalised and that all of the [extensions of time] have not been respondedto and also deducted off the schedule seems extremely harsh. Hence we wouldlike to have some direction on where the [practical completion] sits and alsoif we would have a response on the [extension of time] situation.RegardsStuart McClatchy[67] On 13 May 2013, Mr Fraser sent an email to Mr Parkin and copied it toMr Beagley. In his email Mr Fraser advised that DHC did not agree with theassessments which had been made in Final Payment Schedule No 17. He addresseda number of the variation claims in detail, referring to the supporting documentationthat had previously been provided by DHC.DHC's follow-up email on 8 August 2013[68] On 8 August 2013, Mr McClatchy sent an email to Mr Arnerich to inquireabout the final account. He noted that DHC had not heard anything fromDavis Langdon for a "very long time". He said that DHC was not prepared to wasteany more time with Davis Langdon, and would prefer to deal directly withMr Arnerich over the final account, if he was willing to do so. He asked if a meetingcould be arranged. Mr McClatchy received an automated reply advising thatMr Arnerich was out of his office for an extended period and would be returning toNew Zealand in mid-September 2013. The automated message advised that anyqueries should be referred to relevant staff or to Mr Arnerich's solicitor.[69] Mr Arnerich said in evidence that he was "shocked" when he receivedMr McClatchy's 8 August 2013 email, and he immediately sent an email to Mr Parkinwhich read:I have had an email from Stuart McClatchy saying they haven't heard anythingfrom [Davis Langdon] for a long time? He also says that he wants to sort outthe final account? I thought it was sorted in that they owe us almost $100k?You think they are fishing ?AA[70] Mr Parkin responded to Mr Arnerich by email that evening. He said:I wasn't aware we needed to contract [sic] [DHC], I understand we are stillwaiting on outstanding documentation in order to issue [practicalcompletion]? Final account I am not sure where we got to. I will follow upwith Scott but to the best of my knowledge we had communicated our stanceon the outstanding issues.[71] Mr Arnerich replied:Yes I thought so. Can you please check but I thought we issued the finalaccount as at minus $99k ish.If you could see where we are at with this and let me know?Once we know I will suggest to [Mr McClatchy] he contact you for an update.[72] On 19 September 2013, Mr Arnerich sent an email to Mr Beagley attachinga copy of Progress Claim No 17. He said:Hi ScottYes they did issue their final claim.I will forward the final progressvaluation to them that [Davis Langdon] sent. If you can review withMr Parkin on Monday that would be good.Looking at this though it is prettyclear what the position is ie we are owed plenty.ThanksAA[73] Shortly following this email, Mr Arnerich sent another email to Mr Beagleyattaching Final Payment Schedule 17 and commenting: "This was the final progressvaluation/payment made to them. Let's talk Monday"[74] On 24 September 2013, Mr McClatchy telephoned Mr Arnerich and asked fora meeting with him. Mr Arnerich said he would be unable to meet until after he hadseen the engineer to the contract's decision on the variations.[75] On 4 October 2013, Mr McClatchy followed up his telephone conversation byemail to Mr Arnerich asking if he could advise when he would be available to meet inorder to finalise the account. Later that same day, Mr Parkin sent an email toMr McClatchy that he copied to Mr Arnerich and Mr Beagley, attaching the certificateof practical completion for the project. The certificate was dated 28 June 2013, andcertified that practical completion was achieved on Wednesday 21 November 2012.[76] By 4 October 2013, Vaco had ceased trading. The only remaining asset of thecompany at that time was a credit balance of $6,440.25 in its ANZ cheque account.Further correspondence in relation to DHC's claims[77] It is unnecessary for us to set out in detail the extensive continuing dealingsbetween DHC and Vaco in relation to the DHC claims. Correspondence continuedinto 2014. By letter dated 24 March 2014, DHC wrote to Vaco and Mr Arnerich toadvise that as their attempts at negotiating a resolution had failed, DHC were givingformal notice that DHC was in dispute under the contract. On 2 April 2014, Vaco'slawyers wrote to DHC denying any further liability.Liquidation of Vaco[78] On 1 July 2014, Mr Arnerich, acting in his capacity as the sole director of VIL,passed a shareholder's resolution appointing Victoria Toon, a chartered accountant, asliquidator of Vaco. In his evidence, Mr Arnerich said that by that point he had hadenough. The Vaco Trust had been wound up, and Vaco had no assets.[79] On 2 July 2014, a lawyer acting for DHC sent an email to Mr McBride,attaching by way of service a notice of adjudication. Mr McBride replied stating thathe was "instructed to respond as follows:"1. Neither DHC Assets Ltd nor Vaco Investments Limited were partiesto the construction contract, which was between ClearwaterConstruction Ltd and Vaco Investments (Lincoln Rd) Limited. YourNotice of Adjudication is of no effect.2. Vaco Investments (Lincoln Rd) Limited was placed into liquidationon 1 July 2014. If Clearwater Construction Ltd wishes to commenceany adjudication claim against it, it will first need to seek the leave ofthe court: Companies Act 1993, s 248(1)(c)(i).[80] On 4 July 2014, DHC lodged a proof of debt with the liquidator claiming thatas at the date Vaco was placed into liquidation it was indebted to DHC in the sum of$703,731.68.[81] DHC's Proof of Debt was noted by the liquidator, and DHC was included inthe list of Vaco's creditors prepared under s 255(2)(c)(ii) of the Companies Act andattached to the liquidator's first report dated 8 July 2014. In her report, the liquidatorsaid:4. Events Leading to AppointmentThe liquidator has been informed by the Director that the companyceased trading last year as the purpose for which the company wasincorporated is no longer applicable. We have been advised that thecompany has no known assets.[82] On 10 July 2014, DHC filed an amended proof of debt in which the debtclaimed was increased to $809,291.[83] By notice of rejection dated 31 July 2015, the liquidator rejected DHC's claimto be a creditor on the basis that the DHC debt included claims for variations to thebuilding contract which had been the subject of formal reviews by the engineer, andthe decisions made by the engineer had not been challenged under the disputesprocedure in the contract. The liquidator's notice of rejection stated that the engineerhad decided in the final Payment Schedule that DHC was not a creditor of Vaco, buta debtor owing the company $95,728 plus GST, and Davis Langdon had advised thatthe time limit for challenging the engineer's decisions under the disputes procedure inthe contract had expired.[84] At a meeting of creditors on 1 August 2014, the liquidator informed thecreditors that Vaco was a corporate trustee which had no assets and which had held theland at Lincoln Road as a trustee only.Adjudication proceedings[85] In February and March 2015, DHC, through its solicitors, requested theliquidator to take steps to investigate the distribution of funds by Vaco following thesale of the Lincoln Road Property in April 2013, and to pursue recovery of those funds.DHC contended that the distributions were effected by Mr Arnerich in breach of hisduties as a director, as he was aware of DHC's claim to be a creditor of Vaco at thetime he arranged the distributions. In its correspondence with the liquidator, DHCalso maintained that the engineer's review was fundamentally flawed and could notbe relied upon. DHC asked the liquidator to ascertain the value of DHC's claim byeither consenting to proceedings being commenced by DHC against Vaco, or directingthe engineer or another expert to consider and advise on the claim. However, theliquidator responded that she was not prepared to have the validity and quantum ofDHC's claim against Vaco determined by means of an adjudication.[86] In May 2015, DHC applied to the High Court for an order granting it leave tocommence adjudication proceedings against Vaco (in liquidation). The applicationwas opposed by the liquidator on several grounds. Duffy J heard the application on2 September 2015 and 3 February 2016. In a judgment delivered on 12 February 2016,Duffy J granted leave to DHC under s 248(1)(c)(i) of the Companies Act to commenceadjudication proceedings under the Construction Contracts Act againstVaco (in liquidation).7[87] In October 2015, Mr Arnerich executed a deed of indemnity under which heindemnified the liquidator in respect of all the liquidator's costs, expenses anddisbursements in relation to the liquidation of Vaco. The terms of the deed includedan acknowledgment that Vaco had insufficient funds to pay the indemnified sums, andprovided for the liquidator to render invoices to Mr Arnerich for all indemnified sums.The recitals to the deed recorded that the liquidation had been presented to theliquidator on the basis that the company was solvent at the time of liquidation on1 July 2014. The recitals also recorded that a third party had issued proceedingsagainst the liquidator, claiming to be a creditor of Vaco, and that the indemnifier hadagreed to indemnify the liquidator against potential costs arising from the liquidationof Vaco, and in particular against the costs of defending the litigation.[88] After leave had been granted by the High Court, DHC commenced theadjudication proceedings. Although he was not a party to the adjudication,Mr Arnerich participated in the proceedings. He funded the liquidator's participationin the adjudication, and also made his own submissions.[89] The Adjudicator's determination was dated 5 October 2016, and was releasedto the parties on 12 October 2016.8 The Adjudicator, Mr John Green, recorded thatDHC sought the following determinations:a [Vaco (in liquidation)] is liable to pay [DHC] the sum of $686,208.11including GST or any other sum the Adjudicator may determine; andb [Vaco (in liquidation)] is liable to pay interest on the above sum at thecontractual rate of 12.4%;c [Vaco (in liquidation)] is liable to pay [DHC]'s legal costs;d [Vaco (in liquidation)] is liable to pay the whole of the adjudicator'sfees and expenses in accordance with section 57 of the Act;7 DHC Assets Ltd v Toon [2016] NZHC 140 at [35].8 DHC Assets Ltd t/a Clearwater Construction v Vaco Investments (Lincoln Road) Ltd (in liq)BDT2016-08744, 5 October 2016.e a determination in respect of [DHC]'s entitlement to an extension oftime under the Contract; andf a determination regarding the release of the Performance Bond.[90] The Adjudicator rejected Vaco's submission that the engineer's reviewdecisions were an effective bar to the DHC claims because those claims were madeout of time. He noted that under the relevant general conditions of contract, anydecision by the engineer to reject a late claim is discretionary, as there may be validreasons for delay and the lateness may not prevent a proper investigation. He furthernoted that the relevant guideline in the construction contract provides that an engineershould not refuse to grant an extension of time on the ground of late application unlessthe lateness is such as to cause real difficulty in making a proper assessment.He concluded:64 Contrary to Vaco's submission, it is clear that under the Contract, anEngineer, in the proper exercise of his or her duties under the Contract,should investigate, and where appropriate, grant an extension of timewhere the Contractor is properly entitled to the same in circumstanceswhere the contractor fails to give adequate and timely notice in termsof GC10.3.1, unless the lateness is such as to cause real difficulty inthe making of a proper assessment.65 There is no evidence in this case that the lateness of [DHC]'sapplications for [extensions of time] caused the Engineer anydifficulty investigating and assessing those claims. In fact, by letterdated 20 December 2012, the Engineer expressly invited [DHC] toprovide further information in support of claims for [Extensions ofTime] 1, 2, and 3. [DHC] responded substantively by letter dated6 March 2013. The Engineer then dallied and delayed for some sevenmonths before ruling on [DHC]'s [extension of time] claims, even ifhis assertion that he made and posted his Engineers Review 2 on[21] October 2013 were accepted, which it is not.66 Rather, I have found it more likely that the Engineer's Review 2 wasprovided to [DHC] on 20 January 2014 for the first time, irrespectiveof when it was actually made, and that such review did not take intoaccount the further information provided by [DHC] on 6 March 2013when rejecting [DHC]'s [extension of time] claims.67 Taken overall, I reject any suggestion by Vaco that delay on the partof [DHC] making applications for [extension of time] caused anydifficulty for the Engineer in making a proper assessment of thoseclaims, such that the Engineer had any basis for rejecting theapplications on that ground alone.[91] The Adjudicator upheld all four of DHC's extension of time claims totalling147 calendar days.9 As a consequence, the Adjudicator also upheld DHC's claim thatVaco was wrong to deduct $70,800 from the Final Payment Schedule as liquidateddamages for a period of 118 days from 28 July 2012 to the date of practical completionon 21 November 2012.10[92] The Adjudicator also determined that Vaco was required to pay DHC the sumof $300,763.12 together with interest at a daily rate until payment. Included withinthat sum was an amount of $131,909.15 for contract variations.11[93] However, the Adjudicator disallowed DHC's claim for time-related costsrelated to extensions of time to the due date for completion totalling approximately$200,000.12 The Adjudicator found that the insuperable difficulty for DHC was thatthe time-related costs it had claimed related to P&G costs, which were precluded bythe terms of cl 4.4 of the Contract Performance Agreement.13[94] The Adjudicator considered that the merits of the parties' cases should bereflected in the costs awards. He said:278 [DHC] has clearly been the successful party in this adjudication. Eachparty took the risk that its stance on the matters at issue would bevindicated in an adjudication and, on that point, it is [DHC]'s view asto its entitlement to extensions of time, release of the bond andpayment for improper deductions in respect of liquidated damages,variations and Principal's deductions that has prevailed substantially.[95] The Adjudicator allocated responsibility for paying his fees and expensesbetween DHC and Vaco at 25 per cent and 75 per cent respectively. He directed thatVaco pay 75 per cent of DHC's costs and expenses, and directed Vaco to pay costs toDHC of $29,775 together with a further $7,590 as part reimbursement for the paymentDHC had made of $20,000 as security for the Adjudicator's fees and expenses.149 At [107].10 At [108]–[110].11 At [268].12 At [176]–[180].13 At [142]–[146].14 At [283]–[286].The Adjudicator also directed that DHC was entitled to release of the performancebond it had provided under the terms of the contract.15DHC refers its claims to arbitration[96] Following receipt of the Adjudicator's determination on 12 October 2016,DHC sought the liquidator's consent to refer the DHC claims which the Adjudicatorhad disallowed to arbitration pursuant to cl 13.4.2 of the General Conditions of theContract. The liquidator declined to consent to the commencement of arbitrationproceedings.[97] On 15 March 2017, following a formal proof hearing in the High Court, Lang Jmade orders granting DHC leave under s 248(1)(c) of the Companies Act tocommence arbitration proceedings against Vaco (in liquidation), and to apply to theDistrict Court pursuant to s 73(2) of the Construction Contracts Act for theAdjudicator's determination to be enforced by entry as a judgment.16 On 26 April2017, DHC applied to the District Court at North Shore for the Adjudicator'sdetermination dated 5 October 2016 to be enforced by entry as a judgment. Vaco wasserved but took no steps. On 11 May 2017, the District Court entered thedetermination as a judgment of the District Court in favour of DHC against Vaco inthe sum of $367,768.12 (including GST).17[98] DHC then proceeded to refer to arbitration the claims in relation to time-relatedcosts and P&G costs that had been disallowed by the Adjudicator. Mr John Waltonwas appointed as the arbitrator.[99] In August 2017, Mr Arnerich commenced a separate proceeding in theHigh Court against Vaco (in liquidation), the liquidator, and DHC, seeking ordersdirecting the liquidator to bring a counterclaim in the arbitration, or in the alternativethat he be given leave pursuant to s 165 of the Companies Act to bring a counterclaimin Vaco's name in the arbitration as a derivative action. All three defendants opposed15 At [262] and [292(b)].16 DHC Assets Ltd v Vaco Investments (Lincoln Road) Ltd (in liq) [2017] NZHC 454.17 DHC Assets Ltd v Vaco Investments (Lincoln Road) Ltd (in liq) DC North ShoreCIV-2017-044-546, 11 May 2017.Mr Arnerich's application. On 28 March 2018, Associate Judge Sargisson declined togrant Mr Arnerich leave to seek an order that the liquidator be directed to filea counter-claim in the arbitration.18 Mr Arnerich's application to rescind that orderwas dismissed by Associate Judge Sargisson on 3 August 2018.19 The application forleave to bring a derivative action was subsequently discontinued.[100] The arbitration has not proceeded to a hearing. It appears the parties saw it assuperseded by the proceedings brought by DHC against Mr Arnerich which are thesubject of this appeal.DHC's proceedings against Mr Arnerich[101] In March 2017, DHC brought proceedings against Mr Arnerich under s 301 ofthe Companies Act. DHC applied for summary judgment. The application wasunsuccessful.20[102] Following the refusal of summary judgment, DHC re-pleaded its claim andproposed that the liquidator be joined as a party in the proceeding. However, thatapplication was made at a late stage, and by minute dated 26 July 2018Associate Judge Bell ruled that the proceeding should continue without the liquidatorbeing joined, on the basis that any judgment in the decision would be binding on bothDHC and Mr Arnerich in relation to the standing of DHC as a creditor of Vaco, and inrelation to the amount of any liability of Vaco to DHC. In response to that minute, theliquidator filed a memorandum dated 17 August 2018 in which she noted, among otherthings, that the liquidator had previously advised the Court by memorandum dated3 November 2017 that she was willing to abide the decision of the Court on the amountthat is found to be due under the construction contract in the proceedings betweenDHC and Mr Arnerich, and that remained her position.[103] From this point onwards all parties proceeded on the basis that the amount(if any) owed by Vaco to DHC, over and above the amount awarded in the18 Arnerich v Vaco Investments (Lincoln Road) Ltd (in liq) [2018] NZHC 560 at [22(d)].19 Arnerich v Vaco Investments (Lincoln Road) Ltd (in liq) [2018] NZHC 1974 at [40]–[43].20 DHC Assets Ltd v Arnerich [2017] NZHC 1460.adjudication, would be determined in these proceedings. Hence their decision not toprogress the arbitration before Mr Walton.DHC's allegations against Mr Arnerich[104] The proceedings went to trial on the basis of DHC's third amended statementof claim dated 2 August 2018, in which DHC pleaded two causes of action. DHC'spleading set out its claims against Vaco under the construction contract. The pleadingalleged that with full knowledge of those outstanding claims by DHC as a creditor ofVaco, Mr Arnerich procured Vaco to make distributions out of the proceeds of sale ofthe Lincoln Road property to himself and his family interests.[105] The first cause of action alleged that by distributing Vaco's assets to himselfand his family interests Mr Arnerich had breached his fiduciary duties and his dutyunder s 131 of the Companies Act. DHC sought orders under s 301 of theCompanies Act that Mr Arnerich pay DHC $1,088,156.17 plus contractual interest.Alternatively, DHC sought an order requiring Mr Arnerich to contribute such sum tothe assets of Vaco by way of compensation as would serve to cover all monies owingby Vaco to DHC, including GST and contractual interest, taking into account anyliquidator's fees and any claims that might be lodged by other creditors.[106] The second cause of action was concerned with alleged misapplication of theretention monies. DHC claimed that retention monies of approximately $80,559should have been paid to DHC in May 2013. DHC alleged that Mr Arnerich breacheds 131 of the Companies Act by procuring payment by ANZ to Vaco of the retentionmonies held by ANZ, and paying those retention monies out to third parties rather thanto DHC. DHC sought orders under s 301 of the Companies Act that Mr Arnerich payto DHC the amount of the retention monies plus contractual interest.Mr Arnerich's defence[107] Mr Arnerich denied that he had breached s 131 of the Companies Act.In his defence to the third amended statement of claim, he denied that any further sumswere owed by Vaco to DHC. He denied that DHC was entitled to payment of theretentions under the construction contract. He said that while he was aware that DHCwas unhappy with some of the engineer's decisions under the construction contract,DHC never took any steps to formally challenge those decisions within the timeframesrequired by the construction contract. At the time he authorised distributions tohimself and his interests from Vaco's ANZ Bank account, DHC had taken no steps toformally challenge any of the engineer's decisions, and had not commenced orthreatened to commence any mediation or arbitration process. He had proceeded onthe basis that DHC had no valid claims against Vaco, and DHC was not taking anyformal steps to pursue the claims it had raised in correspondence.[108] Mr Arnerich pleaded by way of affirmative defence that no further monies wereowing to DHC under the construction contract. As a second affirmative defence, hepleaded that he had relied on the advice given by Mr Beagley to ANZ about theappropriate amounts to be retained on term deposit to meet the forecast cost tocomplete the development, including an allowance for possible claims for additionalvariations by DHC. He had acted in good faith and reasonably in relying on thatadvice.High Court judgment[109] The trial took place before Davison J in late 2018, with two further hearingdays in March 2019. Davison J delivered his judgment on 27 September 2019.The judgment was re-issued on 2 October 2019.21Legal framework for the claim[110] As the Judge noted, both causes of action were founded on an alleged breachby Mr Arnerich of s 131 of the Companies Act, which as relevant provides:131 Duty of directors to act in good faith and in best interests ofcompany(1) Subject to this section, a director of a company, when exercisingpowers or performing duties, must act in good faith and in what thedirector believes to be the best interests of the company.21 High Court judgment, above n 1.[111] After referring to relevant authorities and texts, the Judge summarised thequestion he was required to decide as follows:22 if it appears that when [Mr Arnerich] authorised the payments from Vaco'sbank account in order to distribute all its assets to [the Vaco] Trust and whichprogressively reduced and ultimately exhausted the assets of the companythereby rendering it insolvent, he was not acting bona fide and in good faithby failing to have proper regard to [DHC] and its claims asserting that it wasa creditor of [Vaco], he will have breached the duty in s 131 of the CompaniesAct 1993, and will accordingly be liable.[112] As the Judge noted, a director's duty under s 131 of the Companies Act is owedto the company, not to creditors of the company.23 DHC was able to bring its claim inrelation to alleged breach of s 131 by virtue of s 301 of the Companies Act, which asrelevant provides:301 Power of court to require persons to repay money or returnproperty(1) If, in the course of the liquidation of a company, it appears to the courtthat a past or present director of the company, has misapplied,or retained, or become liable or accountable for, money or property ofthe company, or been guilty of negligence, default, or breach of dutyor trust in relation to the company, the court may, on the applicationof the liquidator or a creditor or shareholder,—(a) inquire into the conduct of the promoter, director, manager,administrator, liquidator, or receiver; and(b) order that person—(i) to repay or restore the money or property or any partof it with interest at a rate the court thinks just; or(ii) to contribute such sum to the assets of the companyby way of compensation as the court thinks just; or(c) where the application is made by a creditor, order that personto pay or transfer the money or property or any part of it withinterest at a rate the court thinks just to the creditor.[113] The Judge proceeded on the basis that it was open to him to awardcompensation direct to DHC under s 301(1)(c), if a breach of s 131 was established.2422 At [244].23 At [242], quoting Nicholson v Permakraft (NZ) Ltd [1985] 1 NZLR 242 (CA) at 249.24 At [249], quoting Sanders v Flay (2005) 9 NZCLC 263,906 (HC) at [18]–[19].[114] The Judge briefly touched on the relationship between Mr Arnerich's duties asa director of Vaco, and Vaco's role as trustee of the Vaco Trust.25 The Judge referredwith approval to the observation of Associate Judge Bell, in an earlier judgment in theproceeding dealing with an interlocutory application, to the effect that the trusteeshipwas irrelevant to DHC's claim against Mr Arnerich.26 A director of a corporate trusteemay come under duties to have regard to the interests of creditors in the same way asthe director of any other company. Whether or not Vaco owned the Lincoln Roadproperty as trustee, Mr Arnerich arguably breached his duties as director if he disposedof company assets without providing for the alleged creditor, DHC.27Ability of the High Court to determine Vaco's liability to DHC[115] The Judge then addressed what he saw as the preliminary question of whetherhe was able to determine the liability of Vaco to DHC for the purpose of assessing thecompensation that might be awarded against Mr Arnerich, independently of theAdjudicator's determination and in spite of the contractual disputes procedure set outin the construction contract.28[116] The Judge concluded that the High Court did not have jurisdiction to determineVaco's contractual liability to DHC.29 He considered that the contractual disputeprocedure agreed by DHC and Vaco required disputes under the construction contractto be addressed by prescribed processes, which could include adjudication, formalreview by the engineer, mediation and arbitration.30 The contract did not anticipateeither party bringing court proceedings in relation to a dispute arising under thecontract.31[117] The Judge considered that in the proceedings before him, Mr Arnerich couldnot challenge the existence of the debt found owing by Vaco to DHC by the25 At [250]–[253].26 At [252].27 At [252], quoting DHC Assets Ltd v Arnerich [2018] NZHC 1865 at [28].28 At [256].29 At [259].30 At [260].31 At [261].Adjudicator. Accordingly, the Judge proceeded on the basis that DHC had establishedthe debt owed to it by Vaco as determined by the Adjudicator.32[118] However, as regards the parts of DHC's contractual claim that had beendisallowed by the Adjudicator, and subsequently referred to arbitration, the Judgefound that the dispute provisions of the contract were engaged and underway, but wereyet to be completed. The Judge could not determine whether Vaco was liable to meetthe DHC claims that had been rejected by the Adjudicator. The process fordetermining those issues under the contract was by arbitration.33Findings in relation to Mr Arnerich's knowledge about DHC's claims[119] The Judge considered that at all relevant times Mr Arnerich was aware thatDHC had not given up on its claims, and was still pursuing those claims.34 DHC wasasserting those claims in correspondence with the engineer and with Vaco.Contemporaneous documents prepared by Davis Langdon referred to outstanding andunresolved claims by DHC. In the Drawdown Valuation 15 dated 5 March 2013 thatMr Beagley had prepared for ANZ, (and copied to Mr Arnerich), Mr Beagley advisedthat significant construction variation claims, and risk, remained "with the majordisputed claims having been recently referred for a formal Engineer's Review".Mr Beagley's report to ANZ concluded by commenting that negotiation and settlementof the construction variation claims were identified as the significant remainingcontingent cost risk at that stage. Although Mr Arnerich dismissed DHC's claims as"fanciful" and "not worth printing out", he was well aware that DHC was pursuingthem.35[120] The Judge found that DHC's claims, and their yet to be determined status,meant that DHC was a contingent creditor of Vaco. Mr Arnerich's duties as a directorrequired him to have proper regard to DHC's interests as a contingent creditor whenmaking decisions about distributing Vaco's assets.3632 At [268].33 At [269].34 At [293]–[298].35 At [310].36 At [314].[121] The Judge did not accept Mr Arnerich's evidence that he had concluded thatDHC must have accepted that it had no further claims against Vaco. The Judge said:37Despite his assertions to that effect, I do not consider that Mr Arnerich couldhave actually held that subjective belief, as no sensible basis existed for himto reach such a conclusion. Moreover, and without taking any steps toascertain whether his belief that [DHC] had abandoned its claims against Vacowas indeed correct, he proceeded with energy and haste to secure release ofthe retention funds held by the ANZ. All of this occurred while disputeresolution mechanisms for establishing its claim were still available to [DHC]under the contract.[122] The Judge was satisfied that throughout the relevant period, Mr Arnerich didnot genuinely believe that DHC had abandoned its claims.38 He found that DHC wasasserting itself as a creditor, and Mr Arnerich was aware that there was a real disputebetween the parties. The Judge found that Mr Arnerich did not believe that DHC'sclaims had been finally determined by Final Payment Schedule No 17.39Breach of s 131 of the Companies Act[123] The Judge then went on to consider whether Mr Arnerich had breached hisduties under s 131 of the Companies Act when he authorised the payments to himselfand his family interests. Mr Arnerich gave evidence that he was comfortable withmaking those payments for five reasons:(a) the payments were made by the Vaco Trust, to its creditor, ANZ, and toits beneficiaries.(b) DHC had contracted with Vaco and not the Vaco Trust.(c) DHC had acknowledged that Mr Arnerich had no personal liability andtheir recourse for payment pursuant to the contract was with ANZ, whowould pay on receipt of a certificate issued by the engineer.37 At [317].38 At [320].39 At [327].(d) DHC's work at Lincoln Road had concluded, and there were nooutstanding monies owing as had been determined by the engineer.Despite threatening to commence legal proceedings in an email of27 December 2012, DHC had not taken any steps.(e) ANZ had retained $561,115 to be held on term deposit to cover coststo complete should the engineer decide to approve some of the DHCclaims in Payment Claim 17 or any future claims relating to the project.[124] The Judge considered each of these five reasons and rejected them as groundson which Mr Arnerich could have considered that it was in Vaco's best interests todistribute funds to himself and his interests.40[125] The Judge held that at the time Mr Arnerich made those distributions, he wasnot acting in good faith, as he was not having sufficient regard to the interests of DHCas an unpaid creditor of Vaco.41Relief under s 301 of the Companies Act[126] The Judge considered that this was a case where it was appropriate forMr Arnerich to compensate DHC directly.42 He directed Mr Arnerich to pay DHC theamount found owing in the adjudication: $367,768.12.43 The Judge considered thatDHC was entitled to interest on that sum from the date of the adjudicator'sdetermination at the contractual rate of 12.4 per cent compounding monthly.44[127] The Judge said that because the final amount of Vaco's indebtedness to DHCwas yet to be determined, and could not be determined other than by means of thearbitration which was adjourned, DHC could not recover any further sum found owingby Vaco directly from Mr Arnerich under s 301 of the Companies Act other than bymeans of a further proceeding. The Judge considered that this situation was40 At [331]–[344].41 At [345].42 At [347].43 At [348]–[349].44 At [350].unfortunate, but was the consequence of DHC having chosen to pursue the s 301proceeding before concluding the arbitration with Vaco.45[128] The Judge made an order under s 301(1)(c) of the Companies Act thatMr Arnerich pay directly to DHC the sum of $367,768.12, with interest on that amountfrom the date of adjudication compounding monthly at the contractual rate of12.4 per cent per annum. DHC was awarded costs.46Issues on appeal[129] The central issue raised by the appeal is whether the Judge was right to findthat Mr Arnerich breached s 131 of the Companies Act by authorising distributions tohimself and his family interests in the period April to September 2013.[130] The appeal also raises the following issues:(a) Did the High Court err in declining to determine the amount of DHC'sclaims against Vaco?(b) Did the High Court err by treating the adjudication as determining the(minimum) amount of Vaco's liability to DHC?(c) Did the High Court err in its approach to compensation under s 301 ofthe Companies Act? In particular, should the High Court haveidentified which (if any) of the payments made by Vaco breached s 131,and why, and whether these had to be repaid to Vaco?(d) Did the High Court err in awarding compensation on a basis thatincluded the GST payable by Vaco to DHC?(e) Did the High Court err in awarding interest on the whole of theadjudication award, including GST and costs components, at thecontractual rate of 12.4 per cent?45 At [351].46 At [353]–[354].[131] Mr Arnerich sought orders allowing his appeal and setting aside the judgmentagainst him.[132] The central issue raised by the cross-appeal was the same as the first issueraised by the appeal: whether the High Court erred in declining to determine theamount owing by Vaco to DHC. DHC sought orders remitting that issue, and theaward of relief against Mr Arnerich under s 301 in respect of any further amount owingby Vaco, to the High Court. DHC also sought, in the alternative, orders that wouldenable the amount of DHC's claims against Vaco to be determined by the arbitrator,with the question of relief against Mr Arnerich under s 301 to be addressed by theHigh Court following the arbitration.Principles governing DHC's s 301 claimLiability under s 131 of the Companies Act[133] As noted above, DHC brought its claim under s 301 of the Companies Act,which permits a creditor of a company in liquidation to apply to the court for relief inconnection with breaches of duty by a director of that company. The breach allegedin this case is a breach of Mr Arnerich's duties under s 131 of the Companies Act toact in good faith and in what he believed to be the best interests of that company.[134] The Supreme Court has recently confirmed in Madsen-Ries v Cooper(Debut Homes) that the test under s 131 is subjective:47[112] The test is subjective. This follows from the wording of s 131(expressed subjectively) and the legislative history (the fact that theLaw Commission's reasonableness requirement was not enacted). This alignswith the common law test and policy considerations. Courts are not wellequipped, even with the benefit of expert evidence, to second-guess thebusiness decisions made by directors in what they honestly believed to be inthe best interests of the company. The courts would also be judging directors'decisions with all the dangers of judging with the benefit of hindsight.A subjective test is consistent with English authority. Further, there is alsoalready an objectively-judged statutory duty of care in s 137.47 Madsen-Ries v Cooper [2020] NZSC 100, (2020) 29 NZTC 24-088 [Debut Homes] (footnotesomitted).[113] Commentary and caselaw suggest that there are, however, a numberof exceptions and qualifications to the subjective test:(a) where there is no evidence of actual consideration of the bestinterests of the company;(b) where, in an insolvency or near-insolvency situation, there isa failure to consider the interests of creditors;(c) where there is a conflict of interest or where the action wasone no director with any understanding of fiduciary dutiescould have taken (although some would suggest these mayrather be treated as breaches of the duty of good faith (as theHigh Court did in this case) or of s 133 (powers must beexercised for a proper purpose)); and(d) where a director's decisions are irrational.[135] As the Supreme Court went on to explain, factors (a) and (b) are not in factexceptions or qualifications to the subjective test:48The point is that directors cannot subjectively believe they are acting in thebest interests of the company if they have failed to consider the interests ofthe company or, where required, the interests of all the creditors, includingprospective creditors.[136] The Court did not need to decide whether factors (c) and (d) are qualificationsor exceptions to the subjective test. The Court noted that in an insolvency situationwhere the interests of creditors have not been considered, a conflict of interest maywell exacerbate the breach.49The implications of the trading trust structure[137] In determining whether Mr Arnerich failed to comply with s 131 whenauthorising the payments to himself and his interests, it is important to bear in mindthe "trading trust" structure he put in place to carry out the Lincoln Road development.Vaco was the sole trustee of the Vaco Trust. It purchased the Lincoln Road propertyin that capacity. It entered into the project finance agreement with ANZ in thatcapacity. Although the construction contract was entered into by Vaco shortly beforethe trust was settled, it is clear that the development of the property was undertakenby Vaco in its capacity as trustee of, and for the benefit of, the Vaco Trust.48 At [114].49 At [115].The construction work took place on land that was held by Vaco in that capacity, andwas paid for by funds borrowed by Vaco in that capacity. The proceeds of sale of thecompleted development were treated by Vaco as funds held pursuant to the Vaco Trust,and were distributed for the benefit of the beneficiaries of that trust.[138] At an earlier point in the proceedings, Mr Arnerich appears to have argued thatthe construction contract was entered into by Vaco for its own benefit, and not astrustee of the Vaco Trust.50 But it was not suggested before us that the obligationsincurred by Vaco to DHC for work performed under the construction contract wereincurred other than in Vaco's capacity as a trustee of the Vaco Trust, or that expenditureby Vaco on the construction work that DHC performed on the property was notproperly payable out of the assets of the Vaco Trust. An argument to that effect wouldhave had no prospect of success, on the facts of this case.[139] It follows that:(a) Vaco incurred liabilities as work progressed under the constructioncontract to make payments to DHC as and when they fell due under thatcontract.(b) Those liabilities were incurred by Vaco in its capacity as trustee of theVaco Trust.(c) Vaco was entitled to meet those liabilities directly from the trustproperty. Alternatively, if Vaco paid amounts due under theconstruction contract out of its own funds, Vaco was entitled toreimbursement from the trust property.51(d) Vaco as trustee was entitled to a lien over the trust property to protectits right of indemnity in respect of existing and future liabilities(including contingent liabilities) to which it was exposed as a trustee.50 It appears this argument was advanced in opposition to DHC's summary judgment application:see DHC Assets Ltd v Arnerich, above n 20, in particular at [26]–[30].51 Compare s 81 of the Trusts Act 2019, which reflects the pre-existing law.This lien arises by operation of law and can be asserted even againstabsolutely entitled beneficiaries.52[140] When Vaco made distributions of trust funds to discretionary beneficiaries ofthe Vaco Trust, Vaco was not paying away money that Vaco owned beneficially.These were not Vaco's own funds. But by making those payments, Vaco lost its abilityto meet liabilities it incurred in its capacity as trustee out of those trust funds, lost theability to reimburse itself out of those funds, and lost its lien over those funds.When considering whether Mr Arnerich breached s 131, the focus must therefore beon whether he acted in the best interests of Vaco in deciding that Vaco should makethose distributions at the relevant time and, as a consequence, lose its ability to haverecourse to those funds in the event that an existing or future claim by DHC (or anyother creditor of Vaco in its capacity as trustee) was made out.Relief under s 301[141] As this Court recently observed in Yan v Mainzeal Property and ConstructionLtd (in liq), s 301 is essentially procedural in nature.53 Where a claim is brought unders 301 in respect of a breach of duty by a director, the plaintiff must establish all theelements of a cause of action for breach of that duty. Directors cannot be required topay more under s 301 than could have been awarded against them in a direct claim bythe company for breach of that duty.54 The court has a discretion to award less unders 301 than would be awarded in a direct claim for breach of duty brought in the nameof a company. There remains some uncertainty about the extent of the s 301discretion.55[142] Section 301(1)(c) expressly provides for an application under s 301 to be madeby a creditor of the company. As this Court observed in Mainzeal, where theapplication is made by a creditor, the court can order the defendant to pay or transfermoney or property to the creditor under s 301(1)(c).56 It has been held in the52 Andrew Butler (ed) Equity and Trusts in New Zealand (2nd ed, Thomson Reuters, Wellington,2009) at [16.6.6]; In Re Pauling's Settlement Trusts (No 2) [1963] Ch 576; and X v A [2000] 1 AllER 490 (Ch) at 493–494.53 Yan v Mainzeal Property and Construction Ltd (in liq) [2021] NZCA 99 at [299].54 At [301].55 At [303]–[307].56 At [309].High Court that this power is available where the defendant has misapplied or retainedor become liable or accountable for money or property of the company, but not inrelation to compensation for breaches of a duty owed by a director to the company.57However, in Debut Homes, the Supreme Court expressly left the question of when anaward can be made to a creditor for decision in a case where the issue arises directly.58We do not consider that the issue needs to be resolved in the present case, incircumstances where:(a) The liquidator was aware of the proceedings and advised the Court thatshe abided by the Court's decision.(b) Mr Arnerich did not oppose an order that any amount found to bepayable be paid direct to DHC. In response to a minute issued bythis Court on 2 November 2020, before the hearing of the appeal,Mr Arnerich filed a memorandum submitting that an order could not bemade for payment direct to a creditor under s 301(1)(c) in respect ofa claim for breach of a director's duties owed to the company. But inthe course of the hearing, Mr McBride, counsel for Mr Arnerich,confirmed that there had been no argument in the High Court about theappropriateness of a direct payment to DHC. In response to questionsfrom the Court about whether it was too late to take the issue now,Mr McBride indicated that the issue had no practical significancebecause DHC is the only remaining creditor in the liquidation. In thosecircumstances, the issue was not pursued further before us.[143] Thus if Mr Arnerich breached s 131, the starting point for determining theappropriate relief under s 301 is the compensation that Vaco could have recoveredfrom Mr Arnerich if it had brought a direct claim for breach of that duty.59 That setsa ceiling on the amount that could be awarded under s 301. It is then necessary to goon and consider whether there is good reason to award a lesser amount.57 Mitchell v Hesketh (1998) 8 NZCLC 261,559 (HC) at 261,562.58 Debut Homes, above n 47, at nn 179 and 191.59 Yan v Mainzeal Property and Construction Ltd (In Liq), above n 53, at [301].[144] The approach to awarding relief for breach of a duty owed by a director toa company, where that claim is brought by the company, depends on the provisionbreached and on the nature of the breach. If a director breaches the fiduciaryobligations set out in s 131, the remedy will be assessed in accordance with theprinciples governing claims for breaches of fiduciary duty.60Should the High Court have determined the amount of DHC's claim againstVaco?[145] We begin by considering whether the High Court should have determined theamount (if any) that DHC was owed by Vaco under the construction contract.[146] Before this Court, both DHC and Mr Arnerich submitted that the High Courterred in failing to determine whether DHC had valid claims against Vaco for paymentsin respect of variations and extensions of time. We accept that submission. As weexplain below, the High Court had jurisdiction to determine this issue and needed todo so in order to determine DHC's claim.[147] It was an integral element of DHC's claim that it was owed further amounts byVaco, and had been denied payment of those further amounts as a result ofMr Arnerich's breaches of s 131 of the Companies Act. In order to determine theamount that DHC could have recovered from Vaco but for the alleged breaches, it wasnecessary for the High Court to determine what amount, if any, DHC was contractuallyentitled to claim from Vaco.[148] At the risk of stating the obvious, the High Court had jurisdiction to hear anddetermine DHC's claim against Mr Arnerich. It necessarily had jurisdiction todetermine any question of fact or law relevant to that claim, absent some limit on itsjurisdiction established by statute or by common law. In this case, there was norelevant limit on the High Court's jurisdiction. There was no arbitration agreementbetween DHC and Mr Arnerich referring a dispute between them to arbitration.And even where parties have agreed to arbitration of their dispute, that does notdeprive the court of jurisdiction. Rather, where parties to proceedings before the court60 At [288].have agreed to refer that dispute to arbitration, the court will at the request of a partydecline to exercise its jurisdiction, and stay the proceedings as required by theArbitration Act 1996, unless one of the exceptions set out in that Act applies.61 One ofthose exceptions is where a stay is requested by a party after submitting their "firststatement on the substance of the dispute". Thus, for example, if one party bringsproceedings before the court and the other party does not seek a stay, or takesa substantive step in the proceedings before requesting a stay, the court has jurisdictionto hear the claim and will proceed to do so.[149] The court may also, in the exercise of its inherent jurisdiction, grant a staywhere essentially the same issue has been referred to arbitration by related parties.62But the court will do so only in rare and compelling circumstances.63 And of courseit will do so only if a party seeks a stay.[150] In this case, neither party sought a stay at any point in the proceedings beforethe High Court. Both parties agreed that the issue of DHC's contractual entitlementagainst Vaco should be determined by the Court. Vaco also agreed to this approach,through its liquidator. The Court had jurisdiction to determine that issue and shouldhave done so.[151] We accept DHC's submission that in these circumstances, the proceedingshould be remitted back to the High Court to determine the question of what, ifanything, Vaco owes to DHC over and above the amount determined by theadjudication process, if that issue is relevant to the award of relief under s 301 of theCompanies Act in this proceeding. We return to the question of relief below.61 See Arbitration Act 1996, cl 8(1) of sch 1.62 See for example Danone Asia Pacific Holdings Pty Ltd v Fonterra Co-operative Group Ltd[2014] NZHC 1681 at [33]–[39].63 At [55], citing Reichhold Norway ASA v Goldman Sachs International [2000] 1 WLR 173 (CA)at 186.Did Mr Arnerich breach s 131 of the Companies Act?Mr Arnerich's submissions on appeal in relation to s 131[152] Mr Arnerich submitted that the High Court Judge erred in finding thatMr Arnerich had failed to act in what he believed — subjectively — to be the bestinterests of Vaco. He says that at the time the Lincoln Road property was sold, andthe trust funds distributed, he genuinely believed that DHC had no further valid claimsunder the construction contract. He knew that DHC was unhappy with Vaco's refusalto pay any further amounts, and with the decisions made by the engineer to issuepayment schedules denying their claims. But he considered that DHC had, albeitreluctantly, decided not to take any formal steps to pursue those claims. And in anyevent, even if DHC did pursue its claims further, he saw those claims as hopeless.So there was no need to retain funds to meet such claims.[153] In support of that proposition, Mr Arnerich pointed to his correspondence withMr Beagley, in which he consistently expressed a firm view that DHC had no furtherclaim. When DHC sent an email to Mr Arnerich on 8 August 2013 inquiring aboutthe final account, Mr Arnerich's email to Mr Parkin recorded that he thought the claimwas "sorted in that they owe us almost $100K". Mr Arnerich asked if Mr Parkinthought they were "fishing". His views as recorded in other correspondence at therelevant time were that the claims by DHC were "fanciful", "outside the contract","outrageous", and that he was "very confident" that they had no basis.[154] Mr Arnerich also emphasised that following the sale of the Lincoln Roadproperty, Vaco set aside a provision of $561,115 at the instigation of ANZ, to covercosts to complete the project. Mr Arnerich submitted that he genuinely believed inApril 2013 that this provision was adequate to meet any further claims from DHC orothers. He says he relied on the fact that this amount was seen by ANZ as an adequateprovision, based on advice from Mr Beagley (the engineer under the constructioncontract and the quantity surveyor advising ANZ). The figure recommended byMr Beagley included $197,161 for claims by DHC and $317,915 for ASB's tenantfitout contribution.[155] That provision was progressively depleted by Mr Arnerich over the balance of2013, by way of payments to Vaco's creditors. Some payments were also made to hisinterests, but these were of relatively modest amounts. Throughout this period, DHCfailed to take any formal steps to pursue its foreshadowed claims.[156] By retaining this provision, Mr Arnerich submitted, he had acted in good faithin the best interests of Vaco. Even if it was subsequently established that DHC hadfurther claims against Vaco, that did not cast doubt on whether Mr Arnerich had actedin good faith when authorising payments in 2013.[157] In those circumstances, Mr Arnerich submitted, it was not open to theHigh Court Judge to make adverse findings about Mr Arnerich's conduct.In particular, it was not open to the Judge to find that he did not genuinely believe thatDHC was not likely to take any further formal steps to pursue its claims. And theJudge failed to address his argument that having regard to his genuine view of themerits of those claims, he had made adequate provision for any such claims at the timethe Lincoln Road property was sold. In the absence of any further steps by DHC topursue its claims, he then acted in good faith in paying away that provision overa period of months. The Judge was wrong to suggest that he had done so with"haste".64DHC's submissions in relation to s 131 breach[158] DHC sought to uphold the Judge's findings. Mr Thorp, counsel for DHC,emphasised that DHC had consistently advanced its claims for further payment.The Judge was right to find that Mr Arnerich could not have genuinely believed thatDHC had abandoned the pursuit of those claims.[159] Mr Thorp emphasised that the letter dated 4 March 2013 from Davis Langdonto ANZ, which was copied to Mr Arnerich, was the source of the figures on which the64 High Court judgment, above n 1, at [317].$561,115 provision was based. But in that same letter Davis Langdon advised ANZthat:(a) Significant construction variation claims/risk ($567,000 claimed versuscost liability provision of $363,000 included in the current cost tocomplete assessment) remained, with the major disputed claims havingrecently been referred for a formal engineer's review.(b) DHC had identified variation claims to date amounting toapproximately $629,000, of which $363,000 had been included withinthe current budget and cost to complete provision.(c) Extension of time claims, variation claims relating to "soft spots" in thebasement, time-related construction expenses and credits for contractworks not completed were the remaining significant variation cost risksat this stage of the project.(d) There was effectively no remaining unallocated contingency for theproject.(e) There remained "significant construction/final account agreement riskthat identifies a potential shortfall, that would require additionalequity/funding to be contributed should [DHC] be awarded variationvalues as currently claimed".(f) Negotiation and settlement of the construction variation claims,associated Final Construction Account agreement and incidentalconsultant and holding costs associated with a protracted developmentperiod were the significant remaining contingent cost risks at this stageof the project.[160] Mr Thorp drew our attention to the email Mr Arnerich sent to ANZ on 5 March2013, in which he emphasised that he was "very confident" in relation to the DHCclaims, and added that "in any event this will drag on way past settlement of theproperty and will in effect become solely my problem as the bank will not have anyexposure". Mr Thorp submitted that this was an acknowledgement that the disputewas likely to continue, with the risk of liability to be borne by Vaco.[161] Mr Thorp also emphasised that DHC's final account, Payment Claim 17, wassent to Vaco on 15 March 2013 after the correspondence between Mr Beagley andANZ and Mr Arnerich earlier that month. So it would have been obvious toMr Arnerich that the views expressed in Davis Langdon's 4 March 2013 letter did nottake into account the additional claims made by DHC in Payment Claim 17. Uponreceipt of that payment claim, Mr Arnerich sent an email to Mr Beagley asking him toreview the claims, and add them to the engineer's reviews that are currently underway.This was a further acknowledgement that the claims had not been finally resolved.Discussion[162] We consider that it was open to the Judge to find that Mr Arnerich did not(subjectively) believe that DHC had abandoned its claims. Just a matter of weeksbefore the sale of the Lincoln Road property, DHC submitted its Payment Claim 17.DHC had been rather disorganised and desultory in pursuing its claims, and had beenreluctant to escalate those claims to formal dispute resolution procedures. But itremained open to DHC to do so. It was implausible that DHC would fail to take furthersteps to pursue the very substantial amounts that it claimed were owing to it, if anagreed resolution could not be achieved. Similarly, it is implausible that Mr Arnerichbelieved that DHC would take no further steps to pursue its claims.[163] The Judge did not make a finding on whether Mr Arnerich believed that theclaims were so lacking in merit that there was no need to retain funds to cover them.There is considerable force in Mr Arnerich's submission that the contemporaneouscorrespondence confirms that this was indeed his view. We accept that he believedthat the risk of a successful claim by DHC was very low.[164] Thus if the s 131 test were purely subjective, Mr Arnerich would havea respectable argument that in making decisions about dealings with funds held byVaco, he could disregard the risk of claims by Vaco in excess of the amount set asideby way of provision when the Lincoln Road property was sold.[165] That is not the end of the matter, however, as it remains necessary to considerwhether any of the four riders in relation to the subjective approach to s 131 recognisedby the Supreme Court in Debut Homes applies. We set them out again for ease ofreference:65(a) where there is no evidence of actual consideration of the best interestsof the company;(b) where, in an insolvency or near-insolvency situation, there is a failureto consider the interests of creditors;(c) where there is a conflict of interest or where the action was one nodirector with any understanding of fiduciary duties could have taken(although some would suggest these may rather be treated as breachesof the duty of good faith (as the High Court did in this case) or of s 133(powers must be exercised for a proper purpose)); and(d) where a director's decisions are irrational.[166] We consider that in this case, a number of the four riders do apply.[167] In early April 2013, Vaco had a choice: it could pay out the funds asdistributions to beneficiaries of the Vaco Trust, or it could retain sufficient funds tomeet any possible DHC claims until such time as those claims were finally resolved.Vaco had no obligation as trustee of the Vaco Trust to make any distributions to thetrust's discretionary beneficiaries at that time. Vaco had a lien over the Vaco Trust'sfunds to protect it from any contingent liability in respect of DHC's potential claims,and Vaco was entitled to rely on, and exercise, that lien.[168] Making substantial distributions before all claims arising out of thedevelopment project had been ascertained, and paid or provided for, conferred nobenefit of any kind on Vaco as a separate entity. Vaco's interests were not advancedin any way by making distributions at that time.[169] Conversely, there was a clear disadvantage to Vaco as a separate entity inmaking those distributions: it lost the ability to have recourse to the trust assets to meetany liabilities that might subsequently be established. Making distributions that leftVaco exposed to any (non-negligible) risk of liability to DHC or other claimants,65 Debut Homes, above n 47, at [113] (footnotes omitted). As the Supreme Court noted, not all ofthese are truly exceptions to a subjective approach: see [135] above.without the ability to resort to trust funds to meet those claims, was self-evidentlycontrary to Vaco's interests as a separate entity.[170] A rational director who turned their mind to the best interests of Vaco wouldtake steps to identify all (non-negligible) risks Vaco faced, and the amounts that Vaconeeded to retain to protect itself from those risks. A rational director would notdisregard the possibility that their personal assessment of the risk — without thebenefit of legal advice — might be proved wrong. At the very least, before taking theirreversible step of paying away all or almost all of the trust funds, a rational directorwho was considering whether payment was in the best interests of Vaco would identifyall potential liabilities that Vaco might face in its capacity as trustee of the Vaco Trust,including the maximum conceivable liability to DHC, and ensure that Vaco retainedaccess to funds sufficient to meet that maximum liability if it materialised.66[171] It seems clear from the reasons Mr Arnerich put forward to explain why he feltcomfortable with making the distributions that he did not in fact understand, or giveconsideration to, the interests of Vaco as a separate entity during the period when hewas approving substantial distributions to himself and to his interests. There was noevidence that he actually turned his mind to Vaco's best interests. He did not seek anyformal advice on Vaco's exposure to DHC. He did not prepare, or ask anyone else toprepare, a schedule of Vaco's potential future liabilities to DHC, the IRD and othercreditors. This was not mere carelessness: rather, the interests of Vaco as distinct fromthe Vaco Trust and his family simply were not on his radar.[172] The reason for Mr Arnerich's lack of concern about Vaco's interests appears tohave been the result of two factors: his failure to understand the implications of thelegal structure he had put in place, and his obvious conflict of interest in relation tothe payments to his interests. The irresistible inference is that Mr Arnerich was actingthroughout in the best interests of himself and his family, and did not genuinely turnhis mind to the interests of Vaco as a separate entity, or seek to pursue those interests.66 Either by actually retaining the funds, or (depending on the circumstances) by retaining the abilityto have recourse to the funds, for example by providing them to beneficiaries as advances ratherthan outright distributions, or by making distributions subject to indemnities from thebeneficiaires.[173] In these circumstances, riders (a), (c) and (d) apply in relation to all thepayments made to Mr Arnerich and his interests, from April 2013 onwards. It is inour view clear that Mr Arnerich did not actually consider the best interests of Vaco asa separate entity before authorising these payments. He had an obvious conflict ofinterest. No director with any understanding of fiduciary duties could have acted ashe did. It would be irrational for a director who understood their fiduciary duties, andwas seeking to act in Vaco's best interests, to act in that way.[174] There is also a strong argument that rider (b) applies. The effect of thedistributions was that Vaco became insolvent or near-insolvent as it progressively lostthe ability to resort to trust assets to meet claims. Indeed one of the puzzling featuresof this case is that on Mr Arnerich's evidence, Vaco (in its capacity as trustee of theVaco Trust) was substantially indebted throughout the relevant period to VDT for thebalance of the purchase price of the Lincoln Road property. And Vaco had a contingenttax liability in connection with the profit it made on the project, which as noted at [61]above resulted in a payment of $311,218 in May 2014. Taking into account the unpaidpurchase price that Mr Arnerich said was owed to VDT, and contingent tax liabilities,it appears Vaco was seriously insolvent as a result of the distributions made in earlyApril 2013. The financial statements for the Vaco Trust as at 31 March 2014 recorda balance sheet deficit of $2,269,280 even without taking into account DHC's claims.If Mr Arnerich genuinely believed that Vaco owed $1.875 million to VDT, it is difficultto see how the distributions made in 2013 could have been made after taking intoaccount the interests of creditors. But we put this to one side, as it is not essential toour conclusion, and DHC did not plead the case on the basis that Vaco was insolventor near-insolvent because of liabilities to third parties.Liability under s 301 of the Companies ActPotential liability to Vaco under s 131[175] If Vaco had brought proceedings against Mr Arnerich for breach of fiduciaryduty in authorising the 2013 distributions for the benefit of himself and his family,without turning his mind to whether Vaco retained access to sufficient trust funds tomeet any claims that might be made against it in connection with the development,Vaco would have been entitled to recover the lesser of the value of the distributionsmade from 3 April 2013 onwards, and the amount of the indemnity of which it hadbeen deprived as a result of those actions. If Mr Arnerich could show that somedistributions could properly have been made, consistent with his fiduciary duties, thenthat would in principle reduce his liability. But Mr Arnerich did not make any attemptto establish an amount that could have been distributed while still retaining sufficientfunds to protect Vaco as trustee in respect of all the claims that a trustee acting properlywould have taken into account. So we need not consider that possibility.[176] It follows that Vaco could have recovered from Mr Arnerich the full amount ofany liability it had to DHC in respect of the claims advanced by DHC, which aresubstantially less than the amount of the distributions authorised in breach of s 131.Liability under s 301[177] If a liquidator of Vaco had brought a claim against Mr Arnerich under s 301 ofthe Companies Act in respect of these breaches of s 131, there would be no goodreason to award less than the amount required to enable the liquidator to meetcreditors' claims in full. These were clear breaches of fiduciary duty by Mr Arnerichfor his own personal benefit, and for the benefit of his associated interests. There isno conceivable justification for exercising a discretion to reduce the amount ofcompensation awarded.[178] Essentially the same reasoning applies in relation to the present claim by DHCas a creditor of Vaco. There is no good reason to deny DHC the full recovery that itwould have obtained in the absence of Mr Arnerich's breaches, or to allowMr Arnerich and his interests to retain any part of the proceeds of those breaches atthe expense of DHC.[179] Vaco took no steps to challenge the determination by the Adjudicator in respectof the claims on which DHC was successful at adjudication. We consider that theJudge was right to direct that Mr Arnerich pay the amount awarded by the Adjudicatorto DHC immediately. But for Mr Arnerich's breaches, Vaco would have been able topay the whole of this debt, which became enforceable as a judgment against Vaco.[180] However, the Judge erred in declining to determine DHC's claims foradditional payments. The Judge also erred in proceeding on the basis that DHC couldbring a further s 301 claim in respect of any additional amounts to which it might befound to be entitled. Quite apart from any limitation issues that might arise in respectof a further s 301 claim, a creditor must bring all its claims under s 301 in oneproceeding. It would be an abuse of process to seek to bring successive s 301 claims.Treatment of GST[181] We consider that the Judge was right to make an award against Mr Arnerichthat included the GST claimed by DHC and awarded in the adjudication. DHC's claimis in effect a claim for payment for services that it supplied to Vaco. We are notpersuaded that DHC will avoid liability for GST merely because the award ismade against Mr Arnerich, a director of Vaco, and requires direct payment fromMr Arnerich to DHC rather than payment via Vaco. It is still a payment in respect ofservices provided by DHC, even if it is made by a person other than the person towhom the services were provided. The GST difficulties that this may give rise to forMr Arnerich are of his own creation, and should not result in DHC beingunder-compensated.Interest[182] Mr Arnerich submitted that interest should not have been awarded by theHigh Court from the date of liquidation onwards. He submitted that s 311 of theCompanies Act prevents the payment of contractual interest post-liquidation.[183] Section 311 provides:311 Interest on claims(1) The amount of a claim may include interest up to the date ofcommencement of the liquidation—(a) at such rate as may be specified or contained in any contractthat makes provision for the payment of interest on thatamount; or(b) in the case of a judgment debt, of the amount that is payableon the judgment debt.(2) If any surplus assets remain after the payment of all admitted claims,the specified interest must be paid on those claims from the date ofcommencement of the liquidation to the date on which each claim ispaid, and if the amount of the surplus assets is insufficient to payinterest in full on all claims, payment shall abate rateably among allclaims.(3) If any surplus assets remain after the payment of specified interest inaccordance with subsection (2), interest must be paid, on all admittedclaims referred to in subsection (1)(a), of an amount equal to thedifference between the specified interest paid under subclause (2) andthe interest that would have been payable under the contract for thatperiod and, if the amount of the surplus assets is insufficient to payinterest in full on all those claims, payment must abate rateably amongthem.(4) For the purpose of subsection (2), specified interest means interestcalculated in accordance with Schedule 2 of the Interest on MoneyClaims Act 2016.[184] We do not accept this submission. Section 311(3) expressly provides forpayment of the full contractual rate of interest applicable to any debt, if the company'sassets are sufficient to meet all claims. In this case, the assets are insufficient only asa result of the breaches of duty by Mr Arnerich. The compensation he pays to DHCshould be assessed on the basis that his breaches did not occur, and thus on the basisthat if Vaco had been placed in liquidation on 1 July 2014, it would have retainedaccess to sufficient trust funds to meet the whole of the debt to DHC.[185] Mr Arnerich is on surer ground in relation to his challenge to the award ofcontractual penalty interest at a rate of 12.4 per cent per annum, compoundingmonthly, in respect of the whole of the sum awarded by the adjudicator. Contractualinterest should be confined to the items in respect of which it is properly payable underthe construction contract, and should not include the amounts which the adjudicatorheld should not attract penalty interest, or the amounts awarded in respect of GST andthe costs of the adjudication. Interest in respect of those components of thedetermination — which was entered as a judgment — is recoverable in the samemanner as interest on any other judgment.[186] We allow Mr Arnerich's appeal against the award of interest in the High Court,and remit that issue back to the High Court for determination (if the parties cannotreach agreement).Remittance back to High Court[187] The proceeding should be remitted back to the High Court to determine theamount which Vaco owes to DHC, and to make any further order for compensation tobe paid by Mr Arnerich to DHC in light of that finding.[188] We note that this staged approach is consistent with the approach adopted bythe High Court in Debut Homes, where leave was granted to the liquidators to re-applyto the High Court for an increase in compensation in certain circumstances. The ordersmade in the High Court were restored by the Supreme Court on appeal.67DHC's retention claims[189] In light of our findings set out above, we need not address DHC's claims inrelation to payment of the retentions to Vaco. These claims add nothing to DHC'ssuccessful claims in relation to the distributions made to beneficiaries of theVaco Trust. However, we note that we have real difficulty in seeing how steps takenby Mr Arnerich to procure payment to Vaco of sums held by ANZ could be contraryto the best interests of Vaco. Mr Arnerich did not owe any duty to DHC to ensure thatVaco (or ANZ) complied with their contractual obligations to DHC in relation toretentions.Result[190] Mr Arnerich's appeal is allowed in so far as it relates to the award of intereston the sum of $367,768.12. The award of interest in the High Court is set aside, andremitted back to that Court to be determined in accordance with this judgment.Mr Arnerich's appeal is otherwise dismissed.[191] DHC's cross-appeal is allowed. The proceedings are remitted back to theHigh Court to determine the amount of any further claim DHC may have against Vacounder the construction contract and, in light of that determination, to make such furtherorders against Mr Arnerich under s 301 of the Companies Act as may be appropriate.67 See Debut Homes, above n 47, at [4] and [190].[192] Costs should follow the event in the usual way. Mr Arnerich must pay costs toDHC on the appeal and cross-appeal, in each case for a standard appeal on a band Abasis, with usual disbursements. We certify for second counsel.Solicitors:Doug Cowan, Auckland for AppellantDuthie Whyte, Auckland for Respondent