AUCKLAND TROTTING CLUB INC v CANAM GROUP LTD [2023] NZHC 1685

AUCKLAND TROTTING CLUB INC v CANAM GROUP LTD [2023] NZHC 1685 [13 July 2023]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYI TE KŌTI MATUA O AOTEAROATĀMAKI MAKAURAU ROHECIV-2022-404-001110[2023] NZHC 1685BETWEEN AUCKLAND TROTTING CLUBINCORPORATEDPlaintiffAND CANAM GROUP LIMITED (a/k/a MedwayLimited)First DefendantCANAM VENTURES LIMITED, CANAMINDUSTRIAL LIMITEDSecond DefendantsLOUKAS SOTERI PETROU, NICHOLASARTHUR PAGE and ANDREW CROSBIECLARKThird DefendantsCABINETRY INVESTMENTS LIMITED,CANAM BUILDING LIMITED (now1962Trees Limited), CANAMMANAGEMENT SERVICES LIMITED,and CANAM BUILDING SOLUTIONSLIMITEDFourth DefendantsHearing: 28 March 2023Appearances: M Black / L Wallace for the PlaintiffNo appearance for the Second DefendantsD Chisholm KC / T Lindsay for the First Third DefendantNo appearance for the Fourth DefendantsJudgment: 13 July 2023JUDGMENT OF ASSOCIATE JUDGE GARDINERThis judgment was delivered by me on 13 July 2023 at 3.00 p.m.pursuant to Rule 11.5 of the High Court Rules.Registrar/Deputy RegistrarDate.......................................Introduction[1] Auckland Trotting Club (ATC) engaged Canam Construction Limited (CCL)1to build a large apartment complex on its land at the Alexandra Park horse racing venuein Green Lane West, Auckland. After three years, ATC terminated the contract forbreaches by CCL, including failing to provide a guarantee from its parent company,Canam Group Limited (CGL).2[2] ATC and CCL referred their disputes to arbitration. The arbitrator awardedATC a final award of $85,675,772.30 million (Final Award). However, by then CCLhad been placed into voluntary liquidation. The Final Award has not been recoveredfrom CCL.[3] ATC brings this proceeding against CGL (the first defendant), Canam VenturesLimited (CVL) and Canam Industrial Limited (CIL) (the second defendants), otherCanam companies (the fourth defendants),3 and current and former directors of CCL,CGL and other Canam companies: Loukas Petrou, Nicholas Page and Andrew Clark(the third defendants).[4] In its statement of claim (Statement of Claim), ATC applies for an order thatCGL and the other Canam companies contribute to its losses (the first cause of action),and for an order setting aside disposals from CGL, CVL and CIL to the fourthdefendant companies through a restructuring which ATC says was intended to defeatits claim as a creditor (the fifth cause of action).1 Now named Tribola767 Limited.2 Now named Medway Limited.3 Cabinetry Investments Limited, Canam Building Limited (now 1962Trees Limited), CanamManagement Services Limited and Canam Solutions Limited.[5] Against the directors, ATC applies:(a) for relief under s 301(1)(b)(i) of the Companies Act 1993 (the Act),being a declaration that the directors breached their duties under s 136of the Act to not allow the company to incur an obligation that it willbe unable to perform, and orders for restitution and/or compensation(the second cause of action);(b) for relief under s 301 Act, being a declaration that the directorsbreached their duties under s 135 of the Act to not permit the companyto trade recklessly, orders for restitution and/or compensation; anddeclarations that the directors breached ss 131, 137 and 194 of the Act,and an inquiry and account (the third cause of action).(c) for an award of damages against Messrs Petrou and Page for makingmisleading representations about the financial means of CCL in breachof ss 9 and 11 of the Fair Trading Act 1986 (the FTA) (the fourth causeof action).[6] Additionally, ATC seeks reimbursement from all the defendants of its costsincurred in the arbitration and awarded to ATC as part of the Final Award (the sixthcause of action).[7] In this interlocutory application, Mr Petrou applies to strike out the second,third, fourth and sixth causes of action as they relate to him, on the basis that none ofthem can succeed. If the Court accepts that none of these causes of action can succeedin respect of Mr Petrou and should be struck out, Mr Petrou asks that summaryjudgment is entered for him.[8] The issues to be determined are:(a) Are the second and third causes of action untenable because:(i) They are based on the directors' duties under ss 135 and 136being owed to ATC rather than to CCL, and on ATC's ratherthan CCL's loss.(ii) Relief under s 301(1)(b)(i) is limited to ordering repayment orrestoration of money or property to CCL (not ATC) andrecovery by a creditor under s 301(1)(c) is limited to cases ofmisappropriation of money or property.(iii) Declarations are not an available form of relief under s 301.(iv) Section 194 cannot be enforced by a creditor.(v) An account and inquiry under Part 16 of the High Court Rules2016 is an interlocutory step, not a final form of relief.(b) Is the fourth cause of action untenable because:(i) ATC claims expectation damages when the recoverable loss forbreach of the FTA is reliance damages.(ii) The cause of action is time-barred under s 43A of theFTA.(c) Is the sixth cause of action untenable because this Court does not havejurisdiction to order the defendants to pay the arbitration costs.Background facts[9] On 16 October 2015, following due diligence, ATC accepted CCL's tendersubmission for the construction of part of the apartment complex at Alexandra Park(the Project) known as "Building A". On 23 October 2015, ATC and CCL enteredinto a construction contract amended from the standard form NZS 3910:2013 (theConstruction Contract). The contract price was $78,353,000 excluding GST.Messrs Petrou, Page and Clark were directors of CCL and CGL at this time.[10] The Construction Contract provided for CCL to provide ATC with a guaranteefrom its parent company (CGL), this being the Parent Company Guarantee (the PCG),in a specified form within five working days of the date of acceptance of the tender.CCL never sought the PCG and there is no dispute it was not provided by CGL.[11] In June 2018, ATC engaged advisory firm KordaMentha to conduct anindependent financial appraisal in relation to the Project. KordaMentha issued a reportto ATC on 10 July 2018 (the Report).[12] On 19 July 2018, ATC terminated the Construction Contract for breach byCCL. ATC and CCL subsequently threatened claims against each other but agreed torefer their disputes under the Construction Contract to an arbitration before RodneyHansen KC.[13] On 18 May 2021, Mr Hansen issued an interim award in which he determinedthat ATC was entitled to terminate the Construction Contract; CCL was required toprocure and provide to ATC the PCG from CGL; and CCL was liable for loss anddamages arising from CCL's defaults and defective workmanship (to be quantified).[14] In a further interim award on 10 August 2021, Mr Hansen made an order forspecific performance that CCL procure and provide the PCG from CGL in the formprovided in sch 4 of the Construction Contract. Immediately afterwards, CCL wasplaced into voluntary liquidation.[15] On 24 March 2022, Mr Hansen issued the Final Award determining that ATCwas entitled to $85,675,772.30 from CCL. The Final Award was comprised of:(a) $12,420,000 in liquidated damages under the Construction Contract forthe delayed completion of the Project;44 Final Award of Rodney Hansen QC dated 24 March 2022, at [8] to [11].(b) ATC's recovery of its costs to complete the Project (the differencebetween the amount ATC was required to pay an alternative contractorand what it would have paid CCL) of $67,672,944;5(c) ATC's costs of the arbitration in the sum of $5,582,828.26;6[16] The parties to the arbitration and hence the Final Award were ATC and CCL.CCL took no steps to challenge or oppose the Final Award given its liquidation.[17] The Final Award has not been recovered from CCL. The liquidators of CCLhave not taken any steps against CCL's directors.Legal principlesStrike out[18] The Court's power to strike out a cause of action is provided by r 15.1(1) ofthe High Court Rules 2016:(1) The court may strike out all or part of a pleading if it—(a) discloses no reasonably arguable cause of action, defence, or caseappropriate to the nature of the pleading; or(b) is likely to cause prejudice or delay; or(c) is frivolous or vexatious; or(d) is otherwise an abuse of the process of the court.[19] The relevant principles are well established:7(a) Pleaded facts, whether or not admitted, are assumed to be true. Thisdoes not, however, extend to pleaded allegations which are entirelyspeculative and without foundation.(b) The cause of action or defence must be clearly untenable.5 At [12] to [15].6 At [16] to [24].7 A-G v Prince [1998] 1 NZLR 262 (CA) at 267; Couch v A-G [2008] NZSC 45 at [33]; and Murrayv Morel & Co Ltd [2007] 3 NZLR 721 (SC) at [33].(c) The jurisdiction is not excluded by the need to decide difficult questionsof law requiring extensive argument.(d) To succeed in striking out a cause of action as statute-barred, thedefendant must satisfy the Court that the plaintiff's cause of action isso clearly statute-barred that the plaintiff's claim can properly beregarded as frivolous, vexatious or an abuse of process.[20] The Court may have regard to whether a cause of action can be re-pleaded.However, where possible amendments would make the claim significantly different tothat as originally pleaded, the pleading should be struck out. A strike-out will beappropriate where a pleading is so deficient that it requires a de novo start rather thanamendment.8Summary judgment[21] Rule 12.2(2) of the High Court Rules 2016 provides:The court may give judgment against a plaintiff if the defendant satisfies thecourt that none of the causes of action in the plaintiff's statement of claim cansucceed.[22] Master Venning, drawing upon the commentary in McGechan on Procedure,summarised the effect of the rule in Ferrymead Tavern Ltd v Christchurch Press CoLtd:9an application for summary judgment by a defendant is similar to a striking-out application except the defendant has to show that all of the plaintiff'scauses of action cannot succeed. The major difference between an applicationfor summary judgment and a strike-out application is, of course, that adefendant making an application for summary judgment may put evidencebefore the Court by way of affidavit. If that evidence is disputed or isinsufficient to satisfy the Court then the matter will have to proceed to a fullhearing. The onus is on the defendant to satisfy the Court the plaintiff has noarguable answer to the defence raised.8 Marshall Futures Ltd v Marshall [1992] 1 NZLR 316 (HC) at 324; and Optimiser HQ Ltd v Bankof New Zealand [2020] NZHC 1253 at [36].9 Ferrymead Tavern Ltd v Christchurch Press Co Ltd (1999) 13 PRNZ 616, [1999] NZAR 529 (HC)at [11]. See also Webster Farm Management Ltd v Dargaville Farms Ltd (in liq) [2020] NZHC1477 at [32]–[35].[23] More recently, the Supreme Court has emphasised that this is a heavy onus onthe defendant, observing that a defendant should apply for summary judgment only"where there is a complete and incontrovertible answer on the facts (in which casesummary judgment can be entered for the defendant)".10[24] However, as with plaintiff applications for summary judgment,11 this Court:12will not normally resolve material conflicts of evidence of assess thecredibility of deponents. But it need not accept uncritically evidence that isinherently lacking in credibility, as for example where the evidence isinconsistent with undisputed contemporary documents or other statements bythe same deponent, or is inherently improbableAre the second and third causes of action reasonably arguable?[25] In the second and third causes of action ATC claims that the directors breachedtheir statutory duties under ss 136 and 135 of the Act (respectively).13[26] Section 136 provides:136 Duty in relation to obligationsA director of a company must not agree to the company incurring anobligation unless the director believes at that time on reasonablegrounds that the company will be able to perform the obligation whenit is required to do so.[27] Section 135 provides:135 Reckless tradingA director of a company must not—(a) agree to the business of the company being carried on in a mannerlikely to create a substantial risk of serious loss to the company'screditors; or(b) cause or allow the business of the company to be carried on in amanner likely to create a substantial risk of serious loss to thecompany's creditors.10 Body Corporate 207624 v North Shore City Council [2012] NZSC 83 at [4] as cited in WebsterFarm Management Ltd v Dargaville Farms Ltd (in liq), above n09, at [32].11 Webster Farm Management Ltd v Dargaville Farms Ltd (in liq), above n 9, at [35].12 Krukziener v Hanover Finance Ltd [2008] NZCA 187, [2010] NZAR 307 at [26].13 Statement of Claim dated 13 July 2022.[28] ATC claims relief for the alleged breaches of these duties by the directors unders 301 of the Act:301 Power of court to require persons to repay money or return property(1) If, in the course of the liquidation of a company, it appears to the courtthat a person who has taken part in the formation or promotion of thecompany, or a past or present director, manager, administrator, liquidator,or receiver of the company, has misapplied, or retained, or become liableor accountable for, money or property of the company, or been guilty ofnegligence, default, or breach of duty or trust in relation to the company,the court may, on the application of the liquidator or a creditor orshareholder, —(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 part of it withinterest at a rate the court thinks just; or(ii) to contribute such sum to the assets of the company by way ofcompensation as the court thinks just; or(c) where the application is made by a creditor, order that person to payor transfer the money or property or any part of it with interest at arate the court thinks just to the creditor.(2) This section has effect even though the conduct may constitute an offence.(3) An order for payment of money under this section is deemed to be a finaljudgment within the meaning of section 17(1)(a) of the Insolvency Act2006.(4) In making an order under subsection (1) against a past or present director,the court must, where relevant, take into account any action that persontook for the appointment of an administrator to the company under Part15A.Pleading of duties and loss[29] Mr Petrou claims that the second and third causes of action are fundamentallyflawed because ATC wrongly treats the ss 135 and 136 duties as being owed to ATCrather than CCL, and because ATC pleads its own rather than CCL's loss.Consequently, ATC fails to plead a coherent cause of action based on breach of adirector's duty and loss to the company caused by that breach.[30] ATC's response is that it needs to have discovery, and the inquiry and accountit seeks under the High Court Rules 2016, to be able to identify the losses CCL sufferedbecause of the directors' breaches. It has provided a draft amended statement of claimwith its submissions (the Draft Statement of Claim) which it says provides an'indication' of the amendments it will make to address the issues raised by Mr Petrou.[31] I accept Mr Petrou's submission that in this respect ATC's Statement of Claimdoes not disclose reasonably arguable second and third causes of action. In my viewATC wrongly conflates its own loss caused by CCL's breaches of the ConstructionContract, represented by the Final Award, with harm caused to CCL by the directors'alleged breaches of duties.[32] Director's duties owed under ss 135 or 136 are owed by the director to thecompany.14 The director does not owe the duty to individual shareholders orcreditors.15 In this case, the directors of CCL owed their duties under ss 135 and 136to CCL, not to ATC.[33] Where a company is in liquidation and it appears to the court that there hasbeen a breach of directors' duties, the court can order relief under s 301. An applicationfor relief under s 301 can be initiated by the liquidator, a shareholder, or a creditor.But the duties owed by directors under ss 135, 136, 131 and 137 remain duties owedto the company regardless of who subsequently initiates proceedings for breach ofthose duties and regardless of the procedural mechanism used to bring thoseproceedings.16[34] It follows that an application for relief under s 301 is for harm to the companycaused by a breach of ss 135 or 136 by the company's directors. This remains the caseeven where the application for relief is initiated by a creditor.14 Companies Act 1993, s 169(3).15 Yan v Mainzeal [2021] NZCA 99, [2021] 3 NZLR 598 at [255(a)].16 Yan v Mainzeal, above n 15, at [255(e)].[35] Comments by the Supreme Court in Madsen-Ries (as liquidators of DebutHomes Ltd (in liq)) v Cooper (Debut Homes) support this view. When considering theappropriate relief for breaches of ss 135 or 136 of the Act, the Supreme Court said:17[164] In terms of a breach of s 135, we accept that in most cases theappropriate starting point would be an amount equal to the deterioration in thecompany's financial position between the date when trading should haveceased and the date of actual liquidation (the net deficiency approach). Thisis because the section looks at the creditors and the business as a whole.[165] We do not, however, consider that the same measure of compensationwould necessarily respond adequately to breaches of s 136. The breach ofduty under s 136 is the incurring of obligations without a reasonable beliefthat they will be met. This section therefore concentrates on individualcreditors. Section 136 is, however, like s 135 and others, framed as a duty tothe company. It follows that Parliament must have considered any breach ofthe duty would harm the company. It is therefore appropriate that any reliefordered should operate to reverse that harm and thus be restitutionary innature.(citations omitted and emphasis added)[36] The Court added:18Where there have been breaches of duties, any relief ordered under s 301 mustrespond to and provide redress for the particular duty or combination of dutiesbreached. Relief can be compensatory or restitutionary in nature and must takeaccount of all of the circumstances, including the nature of the breach orbreaches, the level of culpability of the director, causation, duration of thebreach, holding the director to account and reversing the harm to the company.(emphasis added)[37] Returning to ATC's Statement of Claim, the pleaded breach of s 136 occurredwhen the directors permitted CCL to agree to the Construction Contract, allegedlywithout the resources or capability to perform the contract, and without the financialbacking of CGL through the PCG.19 ATC sets out particulars to support this allegationat [52](a) to (p) of the Statement of Claim ([52](a) to (r) of the Draft Statement ofClaim). The essential allegation is that the directors did not have reasonable groundsto believe CCL would be able to perform the contract.17 Madsen-Ries (as liquidators of Debut Homes Ltd (in liq)) v Cooper [2020] NZSC 100, [2021] 1NZLR 43 [Debut Homes].18 Debut Homes, above n 17, at [182].19 Statement of Claim dated 13 July 2022, at [52].[38] Consistent with the above framework, the relevant harm for which relief maybe sought under s 301 is the harm to CCL from this purported breach of duty.[39] Instead, ATC's seeks to recover its own loss caused by CCL's breaches of theConstruction Contract, represented by the Final Award of $85,675,772.30. At [53] and[55] of the Statement of Claim ATC says:The [directors] were in breach of their duties under s 136 and were theeffective cause of the Plaintiff's incurring a loss under this ConstructionContract.Pursuant to s 301(1)(b)(i) [ATC] is entitled to orders and directions forrestitution and/or compensation from the [directors]. This includes an orderto "repay or restore" money or property to make good a company debt forbreaches of duties owed by the directors.[40] Then the prayer for relief for:20(a) Declarations and orders pursuant to s 301 that the [directors] havebreached the duties and obligations owed by them as directors of CCLpursuant to s 136.(b) Pursuant to sections 301 and 136 orders that the [directors] are liable andaccountable to [ATC] and such other parties for compensation for$85,675,772.30 or such other sum as this Court deems just.(c) That judgment be entered against the [directors] for the sum of$85,675,772.30 or such other sum as the court deems just.(d) Such further orders and directions as may be necessary to implement anyone or all of the above declarations and orders.(emphasis in original)[41] In terms of the third cause of action for breach of s 135, ATC claims that:21The [directors] allowed CCL's business to be carried on in a manner likely tocreate a substantial risk of loss to CCL's creditors. [ATC] as a creditor, hasbeen found to incur losses of $85,675,772.30 as a result of breaches of contractby CCL whose management was the responsibility of [the directors].20 At [55].21 At [57].[42] ATC then sets out wide-ranging particulars of this alleged breach including:(a) allowing CCL to enter into the Construction Contract;(b) continuing to perform the Construction Contract without adequatecapital and resources;(c) distributing assets to other Canam companies without complying withs 52 of the Act;(d) failing to monitor CCL's performance of the Construction Contract;(e) failing to procure the PCG from CGL;(f) failing to exercise reasonable care, diligence and skill when makingfinancial representations to ATC about CCL's financial means;(g) failing to ensure that CCL kept adequate accounting records andpermitting CCL's money to be combined with other Canam companies;and(h) restructuring the Canam Group.[43] ATC concludes:22By reason of the above, [ATC] is entitled to orders and directions pursuant tosection 135 and 301 that the [directors], jointly and severally are liable andaccountable for restitution and/or compensation and damages for the sum of$85,675,772.30 or such other sum as this court deems just.[44] Nowhere does ATC plead harm to CCL caused by the directors' allegedbreaches of their ss 135 and 136 duties owed to the company.[45] In the Draft Statement of Claim provided in ATC's submissions, ATC hasinserted two new particulars of the breach of s 136 duty. These are:22 At [58].(l) The assets of CCL were applied and depleted by the [directors] inperforming the Construction Contract. This constituted a wrongful use in thisapplication of CCL's funds and property.(m) The monies obtained from ATC were in breach of fiduciary duties andought not to have been paid away by the [directors]. [ATC] seeks restorationof those monies. Further particulars will be provided following discovery.[46] These proposed new particulars only serve to confuse the s 136 cause of actionfurther. During the hearing, Mr Black mentioned that the loss to CCL flowing fromthe directors' breaches of duties might be the provable debt in the liquidation.However, this submission was not developed further.[47] I return to the consequences of this problem with the Statement of Claim afterconsidering the other issues raised by Mr Petrou with the second and third causes ofaction.Relief to creditor not available[48] Mr Petrou claims that the relief sought by ATC under s 301 of the Act is notavailable. He submits that s 301(1)(b)(i), the subs relied on by ATC in the secondcause of action, does not provide the Court with the power to allow a creditor torecover from a director. He submits that creditors have no standing under s 301(1)(b),which is limited to ordering repayment or restoration (subs (i)) or compensation (subs(ii)) to the company itself. Mr Petrou also submits that a claim for compensation forbreach of directors' duties should be brought under s 301(1)(b)(ii).[49] Mr Petrou relies on the Supreme Court's description of relief unders 301(1)(b)(i) as "restitutionary" and under s 301(1)(b)(ii) as "compensatory".23Mr Petrou submits that it was also made plain by the Court that the restitution orcompensation remedy under s 301(1)(b) is in favour of the company, not an individualcreditor.24 Mr Petrou submits that this is reinforced by the language of s 301(1)(c),which specifically empowers the Court to make a payment to a creditor, whereass 301(1)(b)(i) and (ii) do not.23 Debut Homes, above n 17, at [156]24 Citing Debut Homes, above n 17, at [157].[50] In the Draft Statement of Claim provided with ATC's submissions, ATCindicates that the second cause of action will be amended to rely on s 301(1)(c) in thealternative by inserting the words "and/or 301(1)(c)" in para [55]. ATC's existing thirdcause of action does not specify under which part of s 301 the relief is sought, simplyreferring to s 301. ATC has not indicated in the Draft Statement of Claim any intentto change to this.[51] Additionally, in the Draft Statement of Claim the prayer for relief for thesecond cause of action is indicatively amended to:25Pursuant to sections 301 and 136 orders that the [directors] are liable andaccountable to [ATC] and such other parties or persons as the Court may orderfor restitution and/or compensation for $85,675,772.30 or such other sum asthis court deems just.(emphasis and underlined draft amendments as in original)[52] Mr Petrou submits that ATC's claim cannot be remedied under s 301(1)(c),which limits a creditor's ability for direct recovery to circumstances where a director,or other relevant person, has misapplied or improperly obtained company money orproperty, and does not apply in circumstances where compensation is claimed due toa director's breach of statutory duty. Mr Petrou relies on a line of cases includingMitchell v Hesketh,26 General Marine Services Ltd v The Ship "Luana" (No 2)27 andmore recently Banks v Farmer & Ors.28[53] ATC submits that it is reasonably arguable that relief under s 301(1)(c) is notlimited to circumstances where a director has misappropriated money or property ofthe company, pointing to a different line of authority including Marshall Futures Ltdv Marshall,29 Re Cyona Distributors,30 and Sanders v Flay.31 ATC submits that the25 An equivalent amendment has been added to the third cause of action concerning s 135 in theDraft Statement of Claim.26 Mitchell v Hesketh (1988) 8 NZCLC 261, 599 (HC) at [4].27 General Marine Services Ltd v The Ship "Luana" HC Auckland CIV-2010-404-2435, 7 February2011 at [19].28 Banks v Farmer [2021] NZHC 1922 at [557]–[585].29 Marshall Futures Ltd v Marshall, above n 8.30 Re Cyona Distributors Ltd [1967] CH 889 (CA).31 Sanders v Flay (2005) 9 NZCLC 263,906 (HC).Supreme Court recognised the existence and credibility of their argument in DebutHomes.32[54] ATC further relies on Yan v Mainzeal,33 in which the majority of the Court ofAppeal said that the discretion conferred by s 301 is broad, to be exercised havingregard to all the circumstances of the breach, including concepts of causation,culpability, and duration of the breach.34[55] ATC respectively disagrees with the approach taken by this Court inBanks v Farmer and submits that it is inconsistent with the overall history and purposeof s 301(1)(c) which it says was intended to give the Court a discretion to make awardsdirectly to creditors, not just in cases of misappropriation of company money orproperty.[56] Having considered these submissions, I am not persuaded that the second andthird causes of action are untenable because the relief sought is not available.[57] First, in Debut Homes the Supreme Court took a broad view of the reliefavailable under s 301(b)(i). It is correct that the Court described relief unders 301(1)(b)(i) as restitutionary and relief under 301(1)(b)(ii) as compensatory. But italso said:35[157] Section 301(1)(b)(i) provides that an order can be made to "repay orrestore" money or property. The word "repay" implies that the person hasreceived company money or property and can be ordered to return it to thecompany. The word "restore" suggests rather that a person can be ordered toreturn the company to the position it would have been in absent the breach,including making good a company debt that should not have been incurred,even if the person has not received company money or property.[158] With regard to s 301(1)(b)(ii), the caselaw has identified three factors totake into account: causation, culpability and duration of any breach. (citations omitted)32 Debut Homes, above n 17, at [156], n 179.33 Yan v Mainzeal, above n 15, at [309].34 At [307].35 Debut Homes, above n 17.[58] Moreover, the Court also observed that there is not necessarily such adichotomy between compensation and restitution, saying that restitution can be seenas a type of compensation and therefore could come under s 301(1)(b)(ii), dependingon the nature of the breach or breaches involved.36 The Court emphasised that theappropriate relief must respond to the specific duty or duties breached.37 It said that:38Where there have been breaches of duties, any relief ordered under s 301 mustrespond to and provide redress for the particular duty or combination of dutiesbreached. Relief can be compensatory or restitutionary in nature, and musttake account of all the circumstances, including the nature of the breach orbreaches, the level of culpability of the director, causation, duration of thebreach, holding the director to account and reversing harm to the company.[59] Based on this authority, it is not clear that relief under s 301(b)(i) is confinedto the return of company money or property received by a director or other person andcan include restoring the company to the position it would have been in but for abreach of duty.[60] Second, insofar as ATC indicates an intention to amend the claim to apply forrelief under s 301(1)(c), I do not consider such a claim to be inarguable, as the lawconcerning s 301(1)(c) is presently unsettled.[61] As noted, Mr Petrou's argument on s 301(1)(c) is based on a line of casesbeginning with Mitchell v Hesketh. In this decision Master Venning found:39There are thus two circumstances identified in the body of s301(1) whereorders may be made. The first circumstance is where the director owes aspecific item of money or property to the company, and the secondcircumstance is where the director has breached his duties to the company andcaused loss generally to the company.It follows in my view as a matter of construction that the reference to restoringthe money or property or any part of it in s301(1)(b)(i) is a reference back tothe first circumstance. The reference to the 'money or property" and "repay orrestore" are consistent with such an interpretation. [T]he more general optionof contributing such sum to the assets of the company under s301(1)(b)(ii) isconsistent with the second circumstance where general damage has beencaused to the company. An assessment of the damage is required to be madeby the Court and an order that the director contribute such sum to compensatefor the damage can then be made. The reference to "such sum" in36 At [161].37 At [160].38 At [182].39 Mitchell v Hesketh, above n 26, at 4–5.s301(1)(b)(ii) is not to an identifiable or specific sum, but to the sum assessedby the Court by way of compensation.Against that background s301(1)(c) falls to be considered. It provides thatwhere the application to the Court is made by a creditor the Court may orderthe director to pay or transfer the money or property or any part of it to thecreditor. The irresistible inference is that the reference to "the money orproperty" is a reference back to the money or property identified in the firstcircumstance in the main body of s301(1) and repeated in s301(1)(b)(i). Noprovision is made in s301(1)(c) for the Court to order a payment by thedirector to the creditor of any part of the general damages sum that mayotherwise be ordered under s301(1)(b)(ii).[62] In General Marine Services v The Ship "Luana" (No. 2), Woodhouse J citedwith approval Mitchell v Hesketh and found that although s 301(1)(c) does makeprovision for direct payment to a creditor, the "provision does not apply in respect ofa director's breaches of statutory duty".40 I note, however, that this statement wasarguably obiter, as the plaintiff had not sought relief under s 301, but rather a claim toan institutional constructive trust over the company's property because of breaches ofdirectors' duties under ss 135 and 136 of the Act.[63] Recently, Moore J upheld the same position in Banks v Farmer.41 Mr Banks,a creditor, alleged that the directors of Mako breached s 136 of the Act by allowingMako to enter into contractual obligations when, at each time, they had no reasonablegrounds to believe that Mako could repay Mr Banks. No misappropriation of companyassets was alleged. Mr Banks sought relief under s 301(1)(c) based on allegedbreaches of s 136.[64] Moore J considered the line of High Court authority discussed abovedetermining that s 301 has no application where a creditor claims a remedy for breachof a director's duty.42 He then considered the line of authority relied on by ATC whichconsiders that s 301(1)(c) permits creditors to recover directly for breaches ofdirectors' duties, supporting Tipping J's endorsement of the following passage by LordDenning MR in Re Cyona Distributors Ltd:43An order can be made either at the suit of the liquidator, etc., or of acreditor. The sum may be compensatory. Or it may be punitive. The court has40 General Marine Services v The Ship "Luana" (No. 2), above n 7, at [19].41 Banks v Farmer, above n 28, at [557]–[585].42 At [562], [565] and [574].43 Re Cyona Distributors Ltd, above n 30, at 902.full power to direct its destination. The words are quite general: "all or any ofthe debts or other liabilities of the company as the court shall direct." By virtueof these words the court can order the sum to go in discharge of the debt ofany particular creditor; or that it shall go to a particular class of creditors; orto the liquidator so as to go into the general assets of the company, so long asit does not exceed the total of the debts or liabilities. Of course, when anapplication is made by a liquidator, the court will usually order the sum to gointo the general assets, as Eve J. did in In re William C. Leitch Bros. Ltd. (No.2), but I do not think it is bound to do so. Certainly when an application ismade by a creditor who has been defrauded, the court has power, I think, toorder the sum to be paid to that creditor. In short, I think the words of thesection are to be given their full width.(emphasis in original and footnotes removed)[65] Moore J further endorsed Tipping J's adoption of the reasoning of DanckwertsLJ, who said:44The situation seems to me to be quite different where a creditor beginsproceedings at his own expense under the section. The creditor should beentitled to his reward. I do not think that he is acting as a trustee for the generalbody of creditors. In any case, the court would appear to have a wide discretionunder the section.[66] Moore J concluded:[575] To the extent that Marshall Futures suggests the Court has a widerdiscretion to order that a creditor recover directly, I note that such a power wasexpressly limited by the requirement that the liquidator must be notified of theclaim. The liquidator was not notified of the plaintiff's claim in the presentcase.[576] I also note that Marshall Futures was decided under ss 319 and 320of the Companies Act 1955, with reference to the Companies Act 1948 (UK).The wording of both statutes is materially different to s 301(1)(c). Section319 governed a director's failure to keep proper books of account. Section320 governed a director carrying on the business of the company with theintention of defrauding creditors. Neither is sufficiently similar to s 301 to beof real assistance to the present issue. It follows I am satisfied that MarshallFutures is not authority for the proposition that s 301 permits personalrecovery by Mr Banks.[67] Moore J did not consider that Sanders v Flay supported the view that a creditoris entitled to claim under s 301(1)(c) for compensation for breach of a director's duty.The director in Sanders misappropriated specific and identifiable company funds, andthe Judge concluded that it was this misappropriation which Heath J determined44 At 904.provided a basis to order the director to pay money directly to the creditor unders 301(1)(c).[68] Moore J concluded that a creditor claiming a breach of director's duty mayonly receive personal compensation to the extent that the conduct complained of alsorepresents a misappropriation of company funds.45[69] It must be acknowledged however that there is no appellate authority on thispoint. Moreover, the appeal courts have explicitly noted the issue and left it open. InDebut Homes the Supreme Court commented in a footnote that:46We have not been asked to decide how any relief ordered [under s 301] wouldbe distributed amongst creditors We also note that s 301(1)(c) provides that,where an application is made by a creditor, the court may order a director topay or transfer money or property to the creditor. It has been suggested thatunder s 301(1)(c), at least in cases where the liquidator takes no steps, theCourt can order all restitution or compensation to go to the particular creditor:Marshall Futures Ltd v Marshall [1992] 1 NZLR 316 (HC) (Tipping J) at 332–333; and Sanders v Flay (2005) 9 NZCLC 96-989 (HC) (Heath J) at [18]–[19].Note that Marshall Futures was decided under the 1955 Act, and Sanders wasdecided under the 1993 Act. We leave consideration of creditors' rights unders 301(1)(c) to a case where it arises and has been fully argued.[70] In Yan v Mainzeal the Court of Appeal said:47Section 301(1)(c) does provide for an application under s 301 to be made bya creditor of the company. Where the application is made by a creditor, thecourt can order the defendant to pay or transfer money or property to thecreditor under s 301(1)(c). It has been held in the High Court that this poweris available where the defendant has misapplied or retained or become liableor accountable for money or property of the company, but not in relation tocompensation for breaches of a duty owed by a director to the company.However, in [Debut Homes] the Supreme Court expressly left the question ofwhen an award can be made to a creditor for decision in a case where the issuearises directly. As the present proceedings were brought by the liquidators ofMainzeal, not by creditors, we also need not decide that issue.(footnotes omitted)[71] I also note the following points. First, Banks v Farmer is distinguishablebecause in the present situation the liquidator was given notice of ATC's claim, andthe Statement of Claim was served on the liquidators. The liquidators have not taken45 Banks v Farmer, above n 28, at [577].46 Debut Homes, above n 17, at [156], n 179.47 Yan v Mainzeal, above n 15, at [309].any steps in the proceeding and have not otherwise brought proceedings against thedirectors of CCL.[72] Second, a Department of Justice report on which ATC relies does not appear tohave been before the Court in Banks v Farmer. Arguably this report provides relevantcontext for the interpretation of s 301. The Companies Bill 1990, which precedes theCompanies Act 1993, did not contain a mechanism for awards to be made directly tocreditors.48 At the Select Committee stage, s 301(1)(c) was added.49 While the changewas not specifically referred to in the Select Committee Report, the rationale fors 301(1)(c) is explained in the report prepared by the Department of Justice:50There are English cases indicating that in such circumstances the courts canaward the compensation to the creditor. There is no direct authority on thepoint in New Zealand because, as noted by Tipping J in Marshall FuturesLimited v Marshall [1992] 1 NZLR 316, all the cases brought under thepresent sections 319 and 320 are brought by the company's liquidator. It issuggested that this matter be put beyond doubt by giving the court a discretionto award the compensation wholly or in part to a creditor bringing a recoveryaction.(emphasis added)[73] The changes proposed by the Department of Justice were unanimously adoptedby the Select Committee, and the provision was passed without further change.[74] Third, in another recent High Court decision, Dempsey Wood Civil Ltd vGapes, Fitzgerald J gave a preliminary view that it might be appropriate to awarddamages for breach of the director's duties to the company arising out of ss 135 and136 to the creditor who had initiated the s 301 proceeding.51 Her Honour did not needto reach a concluded view, as the creditor confirmed that the award should be paid tothe company.[75] In these circumstances, I do not consider a claim by ATC under s 301(1)(c) forpayment of compensation by the directors for their breaches of statutory duties to beinarguable.48 Companies Bill 1990 (50–1), cl 264.49 Companies Bill 1990 (50-20), cl 264(c).50 Secretary for Justice Companies Bill – Liquidations (Department of Justice, 8 September 1992) at10.51 Dempsey Wood Civil Ltd v Gapes [2021] NZHC 2362 at [235].Declarations not available under s 301[76] Mr Petrou also claims that the third cause of action should be struck out insofaras it seeks declarations that the directors breached ss 131, 137 and 194 of the Act.[77] I accept that in this respect the Statement of Claim is untenable. Section 301does not give a creditor the ability to apply for declarations that a director/the boardof directors has breached duties owed to the company. The relief available unders 301 is limited to an inquiry into conduct; an order for restitution or compensation tothe company; or a transfer of money or property to the creditor.Creditor cannot enforce s 194[78] Additionally, Mr Petrou submits that a creditor cannot enforce the s 194 dutyon a board of a company to ensure that correct accounting records are kept, throughs 301 or otherwise.[79] I accept that submission. Under s 164 of the Act, the company, a director, ashareholder, or entitled person may apply for an injunction to restrain the company ordirector from breaching s 194. A creditor is not given standing to apply for aninjunction.[80] When a company is in liquidation, a liquidator may apply to the Court unders 300 for a declaration that the directors are personally responsible for all or any of thedebts and other liabilities of the company if the company's failure to comply withs 194 has contributed to the company's inability to pay its debt, resulted in substantialuncertainty as to the assets and liabilities of the company, or has substantially impededthe orderly liquidation of the company. Section 300 of the Act does not permit acreditor to apply for relief in respect of breaches of s 194.Account and inquiry not appropriate[81] ATC's prayer for relief includes:As required to implement any of the above orders, the taking of accounts andinquiries pursuant to Part 16 of the High Court Rules from the Defendants.[82] Mr Petrou submits that this part of ATC's claim should be struck out as anaccount and inquiry is an interlocutory procedure, not a final form of relief. Hesubmits that any damages claim must be quantified and pleaded. He says that in anyevent, a standalone inquiry directed at the directors would be irrelevant to quantifyingdamages suffered by CCL.[83] Rule 16.2 of the High Court Rules 2016 provides that the court may, on theapplication of any party, before or after the trial of a proceeding, order an account orinquiry. An order for an account or an inquiry has been held to be interlocutory innature.52 However, McGechan notes that the traditional course is to seek within theprayer for relief orders for accounts and/or inquiries.53[84] The jurisdiction is not to be used as a method of gaining a separate hearing onliability and damages.54 Nor does the prospect of an inquiry permit a plaintiff to avoidparticularly a claim for damages.55[85] It would be premature to strike out this part of the claim. Rather, anyapplication will need to be assessed when it is made.Conclusion on second and third causes of action[86] I have concluded that the second and third causes of action in the Statement ofClaim are not reasonably arguable because ATC does not claim relief to restore orcompensate CCL for harm caused to CCL by the directors' alleged breaches of duties.However, I decline to strike out these causes of action. I am not persuaded that ATC'sclaim is hopeless in this respect; it is simply poorly pleaded. It is appropriate that ATCis given the opportunity to amend its Statement of Claim.[87] In doing so, ATC must identify the specific breaches of duties it bases its claimfor relief on. As currently pleaded, the s 135 cause of action contains a range ofallegations spanning different statutory duties and points in time. This results in an52 King v Lewis [1949] NZLR 52 (HC) at 55.53 Jessica Gorman and others McGechan on Procedure (online ed, Thomson Reuters) at[HR.16.2.02].54 Rod Milner Motors Ltd v A-Co [1999] 2 NZLR 568 (CA) at 581.55 Cross Fit Inc v Exercise Industry Association Ltd [2016] NZHC 1028 (HC) at [130].incoherent cause of action both in terms of the alleged breach and the consequencessaid to flow from that breach.[88] I do not consider ATC's claim to relief to be inarguable, mainly because of theappellate authority I have cited. However, this part of the claim also needs amendmentto clarify the relief ATC claims and on what basis. ATC's indicated amendments donot achieve that goal and in fact confuse the claim further. ATC must specify whetherit seeks an award of damages to compensate the company for harm caused to thecompany by the alleged breaches of directors' duties or seeks the restoration ofcompany money or property. ATC should also specify whether it asks for thedamages, money or property to be paid to CCL (in liq) under s 301(1)(b) for the benefitof all creditors; or to itself under s 301(1)(c).[89] I have found that insofar as ATC applies for declarations, this is not a form ofrelief available under s 301. These parts of the Statement of Claim must be struck out.Is the fourth cause of action reasonably arguable?Expectation damages not available[90] In its fourth cause of action, ATC alleges that CGL and the directors breachedss 9 and 11 of the FTA. It is alleged that Mr Petrou made representations as a "servant"or "agent" of CLL and "on behalf of" CGL.56 Again, ATC seeks to recover itscontractual damages and costs of $85,675,772.30 awarded against CCL in the FinalAward.[91] Mr Petrou submits that by claiming expectation damages (damages to put ATCin the position it would have been in if CCL had properly performed the ConstructionContract) ATC ignores settled law that damages under the FTA are restricted toreliance damages only (damages that put a plaintiff in the same position as if an allegedmisrepresentation was not made).5756 Statement of Claim, dated 13 July 2022, at [59]–[60].57 Cox & Coxon Ltd v Leipst [1999] 2 NZLR 15 (CA); Gavigan v Eichelbaum [2018] 2 NZLR530 (CA) at [39]; and Shabor Ltd v Graham [2021] NZCA 448, (2021) 22 NZCPR 466 (CA) at[64]– [66].[92] Mr Petrou does not, however, seek to strike out the fourth cause of action onthat basis. Rather, his application focuses on a limitation defence.Claim is time-barred[93] Section 43A of the FTA provides that proceedings must be brought within threeyears of the date on which the loss or damage, or the likelihood of loss or damage, wasdiscovered or ought reasonably to have been discovered.58[94] ATC's Statement of Claim was filed on 13 July 2022. The loss or damage, orthe likelihood of loss or damage, must therefore have been discovered or oughtreasonably to have been discovered no earlier than 13 July 2019.[95] To succeed on the limitation defence, Mr Petrou must show that prior to13 July 2019 ATC had actual or constructive knowledge of:(a) the facts and circumstances giving rise to a tenable cause of action forcontravention of the FTA;59 and(b) it being more likely than not that more than minimal loss had been orwould be caused by that potential contravention.60[96] The following points from Tipping J's judgment in the Supreme Court inCommission v Carter Holt Harvey Ltd provide guidance on how s 43A of the FTA isapplied:(a) "[T]ime starts running from when the applicant discovers or ought tohave discovered that loss or damage has already occurred or is likely to58 Fair Trading Act 1986, s 43A.59 Commerce Commission v Carter Holt Harvey Ltd [2009] NZSC 120, [2010] 1 NZLR 379 at [31];Houghton v Saunders [2014] NZHC 2229, [2015] 2 NZLR 74 at [659]–[660]; and Red StagTimber Ltd v Juken New Zealand Ltd [2021] NZHC 2662 at [43]–[45] and [50].60 Commerce Commission v Carter Holt Harvey Ltd, above n 59, at [22]–[27]; and Red Stag TimberLtd v Juken New Zealand Ltd, above n 59, at [43]–[45].occur in the future".61 It is the knowledge of the applicant that isrelevant as to when the time begins.62(b) The concept of discovering something means to become aware of it; itis not a matter of extent or degree as the applicant either will or will notbe aware of the loss or damage, or likelihood of the same.63(c) The test for "ought reasonably to have been discovered" requires thecourt to consider whether a reasonable person situated as the claimantwas ought to have known that the loss had occurred.64(d) For the purposes of the s 43A test, likelihood means that it needs to bemore probable than not.65 The majority considered that the standardshould be the same for past or future loss.66 The applicant wouldtherefore need to know that it is more probable than not that loss ordamage had occurred or would occur.(e) It is not necessary for the applicant to become aware of the actualloss/damage that is ultimately established. Rather, it is sufficient thatthey become aware that some more than minimal loss or damage islikely to occur.67[97] In this case, the alleged misrepresentation is a statement made by CCL on 24July 2015 in its tender to ATC for the Construction Contract:68Canam has a strong balance sheet, healthy cashflows, and no debt. Thecompany owns significant assets, including construction plant in excess of$7.0 m and a joinery factory.61 At [27].62 At [17].63 At [29].64 At [29].65 At [30]. See also McKeon Group v Russell (2010) 13 TCLR 1, 9 NZBLC 103,068 (HC).66 At [30].67 At [32]–[34].68 Statement of Claim, dated 13 July 2022, at [28].[98] ATC identifies further representations in sch 2 to the tender documentincluding:69(e) For the construction of this project, Canam will not require any capitalexpenditure to fulfil our obligations.(f) CCL already owns the construction plant required to fulfil [Canam's]obligations on the project.(g) CCL "expects to have cash flow and manage the construction costsfor the first two months of the project and until the first payment isreceived."(h) [Canam] has more than sufficient cash to internally manage this initialexpenditure until the first payment is received.[99] Further, under the heading "Financial capability":70The Canam group of companies are in an enviable secure financial positionwith no debt and the ability to fund operations from retained earnings.[100] ATC pleads that these words were meant, and were intended to mean, that CCLand the Canam Group had the financial means, resources, property, value and worthto support the Construction Contract with ATC.71[101] ATC claims that these financial representations were false and misleading:7232. The financial representations provided by CCL referred to above wereincorrect, false and misleading, including CCL's statements andassurances that it was financially viable, had a strong balance sheet,healthy cashflow, and had no debt.33. Following the liquidator's first report (and thereafter) it then becameapparent that, CCL was not financially viable throughout the term ofthe contract and did not have the means, assets and resources toperform the Construction Contract.(emphasis in original)[102] ATC pleads that it did not become apparent until the liquidator's first reportdated 16 August 2021 that these statements were false.69 At [29].70 At [30].71 At [31].72 Statement of Claim, dated 13 July 2022.[103] Mr Petrou claims that prior to 13 July 2019, ATC had discovered, or oughtreasonably to have discovered, facts and circumstances giving rise to a cause of actionfor contravention of the FTA. He says that on at least three occasions ATC becameaware of, or ought reasonably to have been aware of, CCL's resources, property, value,worth and means to perform the Construction Contract; whether it was financiallyviable, had a strong balance sheet, healthy cashflow, and no debt; and therefore,whether its statements to that effect were true or not. I address each of these in turn.Pre-construction contract due diligence in September 2015.[104] Mr Petrou claims that ATC was made aware of CCL's financial position duringthe due diligence process. However, as there is a factual dispute about what financialinformation was provided to ATC's CFO, Mr Petrou does not rely on thepre-construction contract due diligence for his strike-out application.KordaMentha report in July 2018[105] ATC engaged KordaMentha to investigate the Project in June 2018. The scopeof work included to review the current status of the Project and progress to date againstexpectations; analyse the reasons for timing delays and resolutions taken to date;assess Canam's new target programme and supporting cashflows, with any additionalbank borrowing requirements to be identified; and undertake a risk assessment.73KordaMentha subsequently issued the Report to ATC dated 10 July 2018.[106] Mr Petrou highlights the following passages of the Report and submits that itplainly gave ATC the information to assess whether CCL and the Canam group ofcompanies had the financial means to complete the Project, that being the report's verypurpose:74Canam group's consolidated balance sheet at March 2017 reflectedshareholders' funds of $1 million (rounded). Canam assesses itself still asprofitable.73 Affidavit of Lokas Soteri Petrou, affirmed 17 October 2022 at LSP-01-643. The Letter ofInstruction is dated 18 June 2018.74 Affidavit of Lokas Soteri Petrou, affirmed 17 October 2022 at LSP-01-623, at 4–15.. .On this basis, without a renegotiation of terms, we estimate Canam faces aloss of up to $14.822 million on the contract.In this case, Canam's assessed loss reduces to $7.532 million (or, in reality,the factual extent of Trade price validity risk and remediation costs it isobliged to bear). Neither outcome seems particularly attractive for Canam.We have received, on a confidential basis, the Canam group consolidatedbalance sheet as at March 2017. Shareholders' funds were reported at that timeat $1 million (rounded). The profit and loss statement recorded profitability,and we understand the group continues to assess itself as profitable. Canam'simplied loss on the contract in this case reduces to $5.638 million on ouranalysis as set out below A loss of $5.638 million on a contract could be a significant impact on Canam.It would be prudent for the Club to seek further information from Canam asto its cashflows and financial position and prospects, including shareholdersupport, in the context of any renegotiation.[107] Mr Petrou says that the Report was clear – CCL did not have the means tocomplete the project. He says consistent with that, ATC terminated the ConstructionContract a little over a week later.[108] To strike out the fourth cause of action, I must be satisfied that it is beyondreasonable argument that through the Report ATC became aware, or ought reasonablyto have become aware, that the representations CCL had made in the tender documentwere false, and that ATC was more likely than not to sustain a more than minimal lossbecause of its reliance on those false representations.[109] I do not consider that this threshold is met. The allegedly misleading financialrepresentations were made before the Construction Contract was entered into, inJuly 2015. The Report was issued in July 2018, by which time the Project had beenunderway for three years. It is apparent from the Report that the Project had beenplagued by a variety of construction delays attributable to ground conditions, weather,and performance issues on the behalf of the consultants and Canam.75 The relationshipbetween ATC, the consultants, and Canam had broken down.75 Affidavit of Lokas Soteri Petrou, affirmed 17 October 2022 at LSP-01-623, at 11.[110] In that context, the Report was a forward-looking assessment of the additionalfunding required to complete the Project, the likely "implied loss" to CCL if itcontinued the Project under three different scenarios; and an assessment of whetherCCL could sustain such a loss. KordaMentha did not assess the financial means,capability, and resourcing of CCL at the date of the pre-contract representations atissue.[111] The observation that CCL might not be able to sustain the implied loss wasbased on KordaMentha's review of the group consolidated balance sheet as at March2017 which reported shareholders' funds of $1 million.76 KordaMentha does notreport on any other financial metrics for CCL or the Canam group or record that it hadreviewed any other financial information beyond this single balance sheet.Significantly, KordaMentha reported that the Canam group, presumably through itsdirectors, continued to describe the group as profitable.[112] Therefore, I do not accept that it would necessarily have been apparent to ATCfrom the Report, nor ought to have been reasonably apparent, that CCL hadmisrepresented its financial position some three years prior in the way now claimed.Notice of claim to project manager in February 2019[113] In February 2019, ATC put its project manager N-Compass on notice of apotential claim against it, on the basis that N-Compass had failed to procure the PCGfrom CGL. This evidence is not disputed by ATC.[114] Furthermore, on 21 February 2019 the engineer to the Construction Contractprovisionally assessed ATC's loss on the contract at $45,082,196.85.77[115] Mr Petrou argues that at this point ATC discovered, or ought reasonably to havediscovered, that it had suffered a more than minimal loss caused by CCL's potentialcontravention of the FTA. Furthermore, that it was clear to ATC that it would not be76 Affidavit of Lokas Soteri Petrou, affirmed 17 October 2022 at LSP-01-623, at 15.77 Affidavit of Liam Gordon Campbell, affirmed 24 February 2023 at LC-001.able to rely on the PCG from CGL to shield it from any losses carried by CCL becauseof its potential breaches of the FTA.[116] I accept that by this stage it would have been apparent to ATC that it was likelyto suffer material losses caused by CCL's defaults of the Construction Contract andATC's consequent termination. It must also have been apparent that there was a riskthat ATC would not be able to rely on the PCG to recover any shortfall between asubsequent damages award and CCL's assets.[117] But CCL has not presented any evidence to establish that it would have beenapparent to ATC, or should have been apparent, that CCL had made false andmisleading pre-contract representations about its financial viability and means toperform the Construction Contract. There is nothing in the engineer's provisionalassessment to indicate that the directors of CCL had misrepresented CCL's financialposition pre-contract. There is no evidence of any information about CCL's financialposition being made available to ATC at this time. From what I can discern, the onlyfinancial information ATC had at this point was the limited information about theCanam Group's balance sheet as at March 2017, conveyed by KordaMentha. Asnoted, this was conveyed with assurances that CCL remained profitable.[118] For this reason, I find that the fourth cause of action is not so obviously time-barred that it ought to be struck out.[119] The issue concerning the damages pleaded by ATC remains. The law is clearthat the remedy for a breach of ss 9 and 11 of the FTA is reliance damages, notexpectation damages. As Kos P noted in Gavigan v Eichelbaum:78As a related point, a majority of a Full Court of this Court in Cox & Coxon Ltdv Leipst stated expectation damages are not recoverable under the FTA as theymay be in contract. The FTA's remedial provisions make available a remedyfor loss occasioned by the representation, but not for loss of the expectedposition had the misrepresentation been true. The measure of the loss relatesto harm caused by engaging in misleading conduct rather than requiring adefendant to honour an expectation or promise made to a plaintiff But thatis an expectation loss and Mr Eichelbaum is not entitled to it under ss 9 and43 of the FTA simply on the basis that he expected to share in the ProjectManagement Fee in that way. Instead, he must point to and prove the particular78 Gavigan v Eichelbaum, above n 57, at [39].loss that he has suffered by reason of the misrepresentations both pleaded andproved on the evidence.[120] ATC must amend its Statement of Claim to address this issue.Is the sixth cause of action reasonably arguable?[121] In the sixth cause of action ATC seeks to recover from Mr Petrou costs of thearbitration of $5,582,828.26. Specifically:79[ATC] claims from the First to Fourth Defendants being non-parties to thearbitration reimbursement of [ATC's] costs incurred in the arbitration andawarded to [ATC] in the sum of $5,582,828.26.[122] ATC also seeks an order for discovery against these parties for documentsidentifying how CCL funded the costs of the arbitration.[123] ATC submits that with the arbitration proceeding already closed, and as allthree arbitral awards have been registered as sealed judgments of the High Court, thisCourt is now "seized with jurisdiction of the arbitration outcome". ATC submits thatas such, pursuant to its inherent jurisdiction it has jurisdiction to order any relatedparty/non-party who funded the arbitration to pay ATC's costs. ATC relies on adecision of this Court where Downs J ordered a defendant to disclose its fundingarrangement.80[124] This cause of action cannot succeed. Mr Petrou was not a party to thearbitration between ATC and CCL, or the Final Award in which Mr Hansen KCawarded ATC the costs of the arbitration. The Final Award is not binding on Mr Petrouand cannot be enforced against him.[125] While the High Court has powers to support an arbitration, including in relationto issues of costs,81 such steps needed to be taken as part of the arbitration itself (or, atleast, proceedings under the Arbitration Act). The Court does not have the power in79 Statement of Claim, dated 13 July 2022 at [96].80 Minister of Education v H Construction North Island Ltd (in rec and liq) [2019] NZHC 1459 at[43] and [71].81 Arbitration Act 1996, sch 2 art 6.these proceedings to make orders in relation to the costs component of the FinalAward.[126] ATC had the ability to challenge the costs award through art 6(3) of sch 2 ofthe Arbitration Act 1996. The right to challenge the award expired within three monthsof the award being made.82[127] Accordingly, I find that the sixth cause of action does not disclose a cause ofaction against Mr Petrou and must be struck out.Conclusion and result[128] I order:(a) The claim to declarations in the second and third causes of action isstruck out.(b) The sixth cause of action is struck out.[129] Otherwise, the application to strike out is dismissed.[130] The application for summary judgment is dismissed.[131] I direct ATC to file an amended statement of claim addressing the issuesidentified in this judgment within 25 working days.[132] As to costs, Mr Petrou has identified significant issues with the Statement ofClaim that require attention. I have, for the most part, declined to strike out the causesof action, but only because ATC will be given an opportunity to amend its statementof claim. My preliminary view is therefore that ATC should pay Mr Petrou's costs, ona 2B basis. I invite the parties to agree costs on that basis.82 Arbitration Act 1996, sch 2 art 6(5).[133] If agreement cannot be reached, Mr Petrou may file submissions of not morethan four pages within 20 working days and ATC may file submissions of not morethan four pages within a further 10 working days._______________________________Associate Judge GardinerSolicitors:Dawson Harford, AucklandLindsay & Francis, AucklandM Black, AucklandD Chisholm KC, Auckland