DHC ASSETS LTD v VACO INVESTMENTS (LINCOLN ROAD) LTD (IN LIQUIDATION) [2017] NZHC 454

DHC ASSETS LTD v VACO INVESTMENTS (LINCOLN ROAD) LTD (IN LIQUIDATION) [2017] NZHC 454 [15 March 2017]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYCIV-2017-404-183[2017] NZHC 454UNDER the Arbitration Act 1996 and theCompanies Act 1993IN THE MATTER of applications for leave to commencearbitral proceedingsAND an application to apply for entry of anAdjudicator's determination as a judgmentBETWEEN DHC ASSETS LIMITEDPlaintiffAND VACO INVESTMENTS (LINCOLNROAD) LIMITED (IN LIQUIDATION)DefendantHearing: 15 March 2017Appearances: F Thorp for PlaintiffP Davey for Defendant (abides decision of Court)Judgment: 15 March 2017JUDGMENT OF LANG J[on application for leave to commence arbitral proceeding]This judgment was delivered by me on 15 March 2017 at 3.30 pm,pursuant to Rule 11.5 of the High Court Rules.Registrar/Deputy RegistrarDate[1] This proceeding is the result of disputes arising out of a construction contract under which the applicant, DHC Assets Limited (DHC), agreed to construct a commercial building for the defendant, Vaco Investments (Lincoln Road) Limited (Vaco). DHC wishes to have the disputes determined by arbitration in accordance with dispute resolution provisions contained within the contract. Vaco is now in liquidation, and for that reason DHC requires the consent of the liquidator or leave of the Court to commence the arbitral process.1[2] Vaco's liquidator has not consented to DHC commencing the arbitral processand it is therefore necessary for DHC to obtain the leave of the Court to undertake that step. The liquidator abides the decision of the Court in relation to the application.Background[3] At all material times the controlling force behind Vaco and entities associated with it was Mr Antony Arnerich. He was the sole director and shareholder of Vaco Investments Limited, the company that owned all of the shares in Vaco. As such hadthe unfettered ability to make decisions on Vaco's behalf.[4] Disputes arising out of payment claims issued by DHC in respect of the project continued through to 2 July 2014, when DHC served a notice advising Vaco that it wished to have the disputed claims referred to adjudication under the contract. At that point DHC discovered that Mr Arnerich had passed a resolution the previous day placing the company in voluntary liquidation. Furthermore, DHC believes he had earlier arranged for Vaco to transfer its remaining assets, worth approximately $800,000, to other entities that he controlled or with which he was associated.[5] DHC sought to lodge a creditor's claim in the liquidation in respect of theamounts it contended were outstanding, but the liquidator refused to accept those claims. DHC then sought to invoke the adjudication provisions of the contract in accordance with the notice it had given on 2 July 2014. In order to commence this process DHC required the consent of the liquidator or leave of this Court. The1 Companies Act 1993, s 248(1)(c)(i).liquidator refused to give consent, and DHC was therefore required to apply to this Court for leave to commence the adjudication process. In a judgment delivered on12 February 2016, Duffy J granted DHC leave over the liquidator's opposition.2[6] The adjudicator has now released his report, in which he found in favour of DHC in respect of several items. As part of the present application, DHC seeks leave to apply to the District Court to enforce as a judgment of that Court thoseaspects of the adjudicator's decision in which the adjudicator found in favour ofDHC.[7] The adjudicator found against DHC, however, in respect of claims having a value as at 17 February 2017 of $573,468.06. The contract provides DHC with the right to proceed from adjudication to arbitration, and DHC has given the liquidator notice of its intention to have the remaining disputed items determined at arbitration. The liquidator has not consented to this occurring, and DHC is accordingly again required to seek leave from this Court to exercise its contractual right to have the remaining disputes determined by arbitration.Decision[8] As the learned authors of Whale and Heath on Insolvency opine, the key question in the present context is whether there are any circumstances that render it necessary for litigation against the company to commence or continue given the fact that the company is in liquidation.3[9] Many disputes are more readily dealt with within the context of a liquidation rather than through continued litigation. The liquidator has the power to admit or reject claims in whole or in part.4 The Court then has the power to modify or reverse2 DHC Assets Ltd v Toon [2016] NZHC 140.3 Paul Heath and Michael Whale (eds) Heath and Whale on Insolvency (online looseleaf ed, LexisNexis) at [21.4(e)]; citing Hook v Gulf Harbour Development (in liq) HC Auckland CIV- 2002-404-1931, 23 November 2005 at [56]-[60], citing Clarence Holdings Ltd v Mt Albert TV (1993) Ltd (1999) 8 NZCLC 262,072; Satara Co-operative Group Ltd v Fus Ltd (formerly Apollo Fruit Ltd) HC Napier CIV-2008-441-856, 28 January 2010 at [5].4 Companies Act 1993, s 304(3).the liquidator's decision.5 This provides a convenient means of dealing with many disputed claims by creditors.[10] The present case does not fall within that category because the disputed claims are complex and cannot be readily determined by the liquidator or by the Court. Rather, they are more appropriately dealt with by a suitably qualified arbitrator. For that reason alone it is appropriate that leave be given.[11] The Court is not required to enquire into the merits of the proposed claim. However, it would be wrong in principle for leave to be granted in circumstances where the proposed claim is clearly not tenable. That would lead to wastedexpenditure by all parties. Mr Thorp on DHC's behalf has outlined in considerable detail the nature of the issues arising out of the remaining claims. It is not necessary for present purposes to outline these in this judgment. It suffices to say that I am satisfied that they are more than arguable. Perhaps the most powerful evidence of that fact comes from the adjudicator, who has acknowledged in his determinationthat one aspect of his decision "makes no commercial sense" and that it was "commercially improbable" that DHC would have agreed to absorb costs relating tocertain variations with no further allowances to be made.[12] The only real issue is whether the proposed arbitration would have any utility given the fact that Vaco has no assets. To that extent a favourable outcome to the arbitration would be meaningless so far as a claim in the liquidation would be concerned. That issue fades away to a large extent, however, because DHC has now commenced a separate proceeding in this Court seeking recovery from Mr Arnerich of the amounts that Vaco owes DHC. As I understand the position, DHC bases its claim at least in part on the fact that Mr Arnerich arranged for Vaco's assets to betransferred to an associated entity shortly before Vaco went into liquidation and at atime when he knew of DHC's claims. DHC has included within this claim theamounts that the adjudicator found to be owing by Vaco under the contract. DHC intends to include within the claim any further amounts that the arbitrator may find to be owing. That being the case, the proposed arbitral proceeding may obviously be of some utility to DHC.5 Companies Act 1993, s 284(1)(b).[13] Furthermore, I note that Mr Arnerich has also expressed the view that the disputes between DHC and Vaco would best be determined within the context of an arbitration. On 19 August 2016 his solicitors wrote to the adjudicator to advise him that Mr Arnerich did not wish to fund the company through the adjudicative process. The solicitors said that Mr Arnerich preferred to have all outstanding disputes resolved at a full hearing before an arbitrator.[14] All of these factors demonstrate that it is appropriate to make the order that DHC seeks. It is in fact a logical extension of the approach that the Court took when it granted DHC leave to commence the adjudication process.Result[15] The application is granted. DHC has leave to commence the arbitral process.[16] Mr Thorp expressed a concern during the hearing that s 248(1)(c)(i) of the Companies Act might have the effect of preventing a party to a construction contract from issuing a valid notice of its intention to proceed to arbitration under the contract. If that is the case, the notice that DHC has already served on the liquidator would be rendered ineffectual. To guard against that possibility I make an order under Article 7(1) of Schedule 2 to the Arbitration Act extending until 22 March 2017 the time within which DHC may serve notice of its intention to proceed to arbitration.[17] In addition, I grant DHC leave to apply to the District Court for an orderunder s 73(2) of the Construction Contracts Act 2002 that the adjudicator'sdetermination be enforced by entry as a judgment of that Court.Lang JSolicitors:Duthie Whyte, AucklandChristopher Taylor Lawyers, AucklandCounsel:D Grove, AucklandP Davey, Auckland