SHEPHARD AND ANOR V ORCHARD NZ TRUSTEES LIMITED AND ANOR HC WN CIV-2008-485-197

SHEPHARD AND ANOR V ORCHARD NZ TRUSTEES LIMITED AND ANOR HC WN CIV-2008-485-197 29 February 2008IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY CIV-2008-485-197UNDER section 284 of the Companies Act 1993 IN THE MATTER OF of Dermac Investments Limited (In Liquidation) BETWEEN IAIN BRUCE SHEPHARD AND CHRISTINE MARGARET DUNPHY AS LIQUIDATORS OF DERMAC INVESTMENTS LIMITED (IN LIQUIDATION) Applicant AND ORCHARD NZ TRUSTEES LIMITED First Respondent AND DUNCAN COTTERILL Second Respondent Hearing: 28 February 2008 Appearances: K P Sullivan for the Applicants M T Davies for the First Respondent P J Connor and B Bordignon for the Second Respondent Judgment: 29 February 2008JUDGMENT OF CLIFFORD J Introduction[1] In March 2007 Dermac Investments Ltd sold the St George Hotel building in Wellington to the first respondent, Orchard NZ Trustees Ltd, for $20 million. The agreement for sale and purchase ("the ASP") provided, as relevant, that after the sale Dermac was to complete certain refurbishment works then underway on the hotel building. The parties were subsequently to enter into a development agreement ("the DA"), setting out the agreed basis upon which Dermac was to carry out those works.[2] The cost of those works was then estimated at $600,000. That amount was agreed to be included in the $20 million purchase price. It was not, however, to be paid on settlement to Dermac. Rather, that $600,000 ("the Retained Monies") was (clause 22.1(c)(ii) of the ASP) "payable on the Settlement Date to the Vendor's solicitor in escrow until such time as authorised for the release to the Vendor in accordance with the terms of the DA". [3] The DA was signed on 26 June 2007. That same day Duncan Cotterill gave Orchard an undertaking in the following terms:The sum of $1,250,000 has been agreed to be retained from the proceeds of sale of the settlement between Dermac and Orchard for the St George Hotel, 124 Willis Street, Wellington (the Retention Monies"). We undertake to act as stakeholder in respect of the Retention Monies and hold the Retention Monies in our trust account pursuant to the terms of Development Agreement between Dermac and Orchard dated 26 June 2007 (the "Development Agreement"). We further undertake that the Retention Monies shall only be released in the manner governed by the Development Agreement.[4] The purchase of the St George Hotel building by Orchard was settled in early July. The Retained Monies were paid to Duncan Cotterill the second respondent, as originally provided for in the ASP and as by then subject to the more detailed, and slightly varied, terms of the DA. [5] Dermac is now in liquidation, and the liquidators seek directions from this Court under s 284 of the Companies Act as to their entitlement to the Retained Monies. [6] The liquidators seek those directions in the alternative, namely: a) that the Retained Monies held by Duncan Cotterill as stakeholder in terms of the DA are assets of Dermac (in liquidation) and available for immediate payment to the liquidators; or b) that the Retained Monies are monies held by Duncan Cotterill as stakeholder on limited trust for the benefit of the first respondent,Orchard, subject to the terms of the DA, including the requirement to meet the legitimate claims of the contractors, sub-contractors and project managers remaining unpaid for work completed prior to the liquidation and to pay any surplus to the liquidators. [7] The liquidators also seek directions as to their entitlement to interest accruing on the Retained Monies, and an order that their costs be paid out of the Retained Monies.Relevant contractual provisions[8] Clause 3.19 of the DA records the parties' final agreement as regards the Retained Monies. [9] By the time the DA was signed, the parties estimated the costs of the refurbishment works at $1.25 million. It was therefore that amount that became the Retained Monies, which were to be retained from the purchase price on settlement and to be paid to Dermac in accordance with clause 3.19. [10] The Retained Monies were to be paid to and held by the Stakeholder. The term "Stakeholder" was defined to mean "Duncan Cotterill Lawyers or such other person who is capable of holding the Payment Monies (not a defined term, and clearly intended to be a reference to the Retained Monies) in a trust account pursuant to clause 3.19". As noted above, the parties agreed that Duncan Cotterill would, as originally anticipated, be the Stakeholder. [11] The Stakeholder was entitled, but not required, to invest the Retained Monies in an on call deposit with "any interest accruing on such investment to be payable to Dermac at the same time as the Final Payment (clause 3.19(c)). The term "Final Payment" was also not defined. I will return to the question of Dermac's entitlement to interest. [12] Clauses 3.19(d), (e) and (f) contained the key operative provisions of these arrangements. I set them out in full below:(d) Dermac (or its project manager) shall issue monthly project payment certificates supported by a report from the Quantity Surveyor in respect of each requested progress payment. Upon receipt of such certificate (and supporting report) Orchard or Orchard's Consultant shall promptly (but in any event no greater (sic) than three (3) Working Days) either by notice in writing to Dermac: (i) approve the payment sought by the certificate; or (ii) dispute the payment sought by the certificate and in which case Orchard shall at the same time provide a report by Orchard's Consultant in support of the issues disputed by Orchard. (e) Where any dispute notified under clause 3.19(d)(ii) is not resolved between Dermac and Orchard within two (2) Working Days of receipt of the notice given under clause 3.19(d)(ii) then it must be referred to the QS Expert for determination under clause 4. The QS Expert must use his/her best efforts to resolve such dispute within three (3) Working Days of referral. (f) Where Orchard or the QS Expert (as appropriate): (i) approves the requested drawdown; or (ii) the QS Expert determines a lesser or higher amount to be drawn down, (in each and every case the Drawdown Amount) the Stakeholder shall be immediately authorised by Orchard and Dermac (in writing) to pay to Dermac the Drawdown Amount from the Retained Monies. The Stakeholder will immediately pay Dermac the Drawdown Amount upon receipt of such written authorisation.[13] In other words, Dermac's entitlement to be paid from the Retained Monies what were in effect progress payments for the refurbishment works required certification and agreement as to those payments, either with or without dispute. Following the determination of the amount of its entitlement to those progress payments ("Drawdown Amounts"), Orchard and Dermac were both to authorise Duncan Cotterill, as the Stakeholder, to pay the relevant amount to Dermac. [14] Clause 3.19(k) provides a mechanism for Orchard to assume responsibility for the refurbishment works, if Dermac failed to undertake them in the manner and time contemplated by the DA. Orchard, following reasonable prior written notice to Dermac, was then entitled to undertake the refurbishment works and to make claims for payment. Clauses 3.19(d) and 3.19(e) were to apply, amended as appropriate. I think it became clear during the hearing that where Orchard was undertaking therefurbishment works clause 3.19(f), which effectively provides the payment mechanism, also needed to be applied in an appropriately modified way. There was some dispute, however, as to how that clause was to be modified. [15] Clause 3.19 also provided that the final payment of the Retained Monies, less a retention amount (held against defects and the issue of a Code compliance certificate), was to be made on practical completion of the refurbishment works. At that time, any surplus between the payments made and the Retained Monies was to be paid to Dermac, with any "shortfall" to be paid to Orchard on demand. [16] The reference to the payment of a "shortfall" is somewhat obscure. However, and on reflection, it would appear to mean that where Orchard has undertaken the refurbishment works it is entitled to claim any amount it does not recover from the Retained Monies from Dermac. [17] Responsibly, in my judgment, Mr Sullivan for the liquidators submitted that the effect of these provisions was that Dermac took the risk that the Retained Monies were sufficient to meet the costs of the refurbishment works. That is, if Dermac was able to complete the refurbishment works for less than the amount allocated, Dermac had the benefit of the surplus. If, however, Dermac was unable to complete the refurbishment for the amount of the Retained Monies, Dermac would have to fund the shortfall. [18] I agree with that submission. Furthermore, and as I have indicated, if Orchard had carried out the refurbishment works it could look to Dermac, albeit as an unsecured creditor, for any shortfall between the approved cost of those works and – putting the question of interest aside – the Retained Monies.The liquidators' concern[19] The liquidators have brought this application to seek the assistance of this Court in resolving whether they now have a claim, effectively, to the unfettered ownership of the Retained Monies, and as to the nature of their entitlement asregards any interest that accrues on the Retained Monies whilst they are held by Duncan Cotterill. [20] I accept that the Court has jurisdiction under s 284 to consider their application, and to make directions as I consider appropriate. [21] As I understood Mr Sullivan's submissions on behalf of the applicants, their concern was to ensure that the Retained Monies, apparently held by Duncan Cotterill in a trust account in the name of Dermac, were not an item of property that was properly claimable by them so as to form part of Dermac's assets available to its creditors generally. In other words, they did not want to accede to or acquiesce in a course of conduct that would improperly allow the first respondent priority to the Retained Monies over the creditors of Dermac generally. Their uncertainty as to the effect of the arrangements recorded in the DA would appear, in turn, to have been based on the considerable difficulties the Courts have from time to time had in determining questions of entitlement to trust property, or property alleged to be trust property, in the context of liquidations. [22] Although not reflected in the directions they sought, they also raised issues as to the extent to which the liquidators might, in the future, be involved in the administration and release of the Retained Monies, noting that if there was a surplus then that surplus would come to them.Factual background[23] Before considering the legal issues raised by this application, it is appropriate to record its factual context. [24] Considerable detail of the events that have occurred as regards work carried out by Dermac, problems with that work, Orchard moving to exercise its rights under clause 3.19 of the DA to take over the responsibility for carrying out those works, and Dermac's liquidation, were put before me by extensive affidavit material from Mr Shephard, one of the liquidators, and a Mr Hodge, as authorised agent of Orchard. I do not consider it is necessary to go into that material in great detail.[25] By way of background, I think the factual context for this explanation can be summarised as follows. [26] Following the settlement of the sale and purchase of the St George Hotel building, and the execution of DA, Dermac continued the refurbishment works. Between July and November three claims for payment from the Retained Monies were made by Dermac, and paid to it. [27] In November and December of 2007 Dermac encountered difficulties. Orchard became concerned with progress with the refurbishment works, and with Dermac's financial position. [28] On 3 December Orchard gave notice under clause 3.19(k) that Dermac had failed to undertake the refurbishment works as required by the DA. It sought confirmation that a reputable building contractor was in place to continue those works. Some few days later, on 7 December and not having received that confirmation, Dermac gave notice that it would undertake the balance of the refurbishment works itself. [29] Discussions would have appeared to have continued, but by 18 December advice was received that Dermac was not in a position to progress the works. [30] On 21 December Dermac was placed in liquidation. On the same day Orchard's solicitors wrote to Duncan Cotterill, putting them on notice that Orchard had exercised its rights under clause 3.19(k) and that they were not to pay any Retained Monies otherwise than in accordance with the DA. [31] Following the appointment of the liquidators, and in anticipation of this directions hearing, agreement was reached between Orchard and the liquidators for the payment to Orchard of two progress payments. The liquidators would not, however, consent to a third progress payment, which I was told was due to be paid nine days prior to yesterday's hearing. [32] That is, therefore, where matters stood when I heard this application.Discussion[33] Mr Sullivan, in his submissions for the liquidators, acknowledged that given the Retained Monies were being held by Duncan Cotterill in its trust account , those monies were being held on trust. The question was therefore the terms of that trust – see Twin Sectra Limited v Yardley and Ors [2002] 2 AC 164. Mr Sullivan further submitted that it was not disputed that the terms of that trust were to hold the monies for the express purpose of carrying out the refurbishment works. The difficulty, Mr Sullivan said, was whether the nature of the trust was in favour of Orchard such that it gave Orchard a proprietary interest in the Retained Monies so that "they sit outside the liquidation". [34] In a number of cases cited to me, and in particular the Quistclose decision (Barclays Bank Ltd v Quistclose Investments Limited [1968] 3 All ER 651, Judges have faced issues of some considerable complexity where monies have been lent, for a specific purpose, to a company which is subsequently put into liquidation before those monies have been applied to the stipulated purpose. Are those monies the property of the company in question, and available to its creditors generally, or is there an interest (for example by way of the doctrine of trust) that the lender can call in their aid? That difficult issue does not arise directly in this case. [35] In my judgment, and acknowledging the very helpful submissions I received from both Mr Sullivan and Mr Davies on these matters, I think that the question raised by this application can be answered in a reasonably straight forward manner. [36] Having regard to the terms of the DA, and as relevant the earlier provisions of the ASP, in my view Duncan Cotterill is holding the Retained Monies on trust for each of Orchard and Dermac in accordance with their respective interests and entitlements under the DA. Both Orchard and Dermac are beneficiaries of the trusts upon which Duncan Cotterill hold the Retained Monies. It is abundantly clear, however, that the terms of those trusts do not give Dermac an interest in the Retained Monies that would entitle the liquidators to now make a claim for those monies against Duncan Cotterill.[37] In my view, what might be called – somewhat inaccurately perhaps but I trust sufficiently accurately for the purposes of this urgent application upon which a prompt decision was desired – the "priority" of the beneficiaries' interests, may be described as follows. [38] Orchard - pending Dermac carrying out refurbishment works and in that way becoming entitled to payment from the Retained Monies –initially has first interest as a beneficiary to the Retained Monies. If, for example, Dermac failed entirely to carry out the refurbishment works, there can be little doubt that Orchard would be entitled to the return of the Retained Monies. At the same time, however, for so long as the refurbishment works have not reached practical completion, the Retained Monies are also to be held by Duncan Cotterill on account of Dermac's prospective entitlements. [39] Subsequently, Dermac becomes entitled to the Retained Monies, and with a better claim to them than Orchard, as and when it carries out the refurbishment works, and makes approved claims against the Retained Monies. Subject to making such claims, as beneficiary of the trusts upon which Duncan Cotterill holds the Retained Monies, Dermac then becomes entitled to payment of the relevant parts of those monies free of those trusts, i.e. in that sense "beneficially". [40] Now, and as matters transpired, Orchard having under the DA given notice to Dermac, and having taken over the carrying out of the refurbishment works, Orchard became entitled in the first instance to make claims for progress payments against the Retained Monies. [41] In terms of the DA, however, Dermac continues to have an interest in the Retained Monies, to the extent of any surplus available when the refurbishment works have reached practical completion. Any such surplus is payable to Dermac. Therefore, its interest currently, as the beneficiary of the trusts upon which Duncan Cotterill hold the Retained Monies, is in those terms. [42] As can be seen, therefore, the difficult issue which cases such as Quistcloseand others deal with, namely that of monies lent by one entity to another, does notarise. This situation here is, at the end of the day, more straight forward. Monies retained by Orchard have, by agreement, been paid to Duncan Cotterill to be held by Duncan Cotterill in its trust account, and therefore on trust, as regards the interests each of Orchard and Dermac have under the relevant provisions of clause 3.19 of the DA. [43] In terms of the liquidators' application, the appropriate direction is therefore that the Retained Monies are monies now held by Duncan Cotterill as Stakeholder on trust for the benefit of the first respondent and, in terms of any surplus that may in the future be available, also Dermac on the terms set out in the DA and further that those monies are not an asset of Dermac available to its creditors generally. [44] Mr Sullivan did raise, during his submissions, a question as to whether or not there was an issue, as between the liquidators and Orchard, with respect to the date upon which Orchard was properly to be regarded as having exercised its rights under clause 3.19. [45] As I understood Mr Sullivan's submissions, his concern was that if Orchard was properly to be regarded as having exercised those rights after the appointment of the liquidators, then in some way the property rights of Dermac to the Retained Monies may, from the liquidators' perspective, have been improved. It seems to me reasonably clear that Orchard in fact exercised its rights under clause 3.19 some time before the appointment of the liquidators. I therefore do not think the timing issue arises. Moreover, in my judgment even if Orchard had not given notice and moved to exercise its rights under clause 3.19 until after the appointment of the liquidators, that in and of itself would not have improved the liquidators' position. If Orchard was in a position after the commencement of the liquidation to give notice under clause 3.19(k), and thereafter exercise its right to perform the refurbishment works and to make claims for progress payments against the Retained Monies, it would have those rights irrespective of the liquidators' appointment. Of course, if the liquidators had elected to adopt the DA, and to carry out the refurbishment works, then as a matter of contract some question of Orchard's entitlement to carry out the refurbishment works itself may have arisen. That is, however, not the case. Itherefore do not think considerations of when Orchard exercised its rights affect the conclusion I have reached, or the direction to be given. [46] I turn now to deal with the other issues this application raised.Legitimate claims of contractors, sub-contractors and project managers[47] Although this matter was not dealt with in great detail at the hearing, the alternative direction sought by the liquidators asked me to direct that, in terms of the DA, the Retained Monies were available to meet the legitimate claims of the contractors, sub-contractors and project managers remaining unpaid for work completed prior to the liquidation. [48] In my view that is not an appropriate direction. [49] If Dermac has a claim under the DA for work it undertook, through such persons but in respect of which it has not yet submitted a progress claim, then it is entitled to make that claim. The DA itself contains a mechanism for any dispute as to the amount of that claim. Further, if a dispute arises as to whether or not that was work properly carried out by Dermac, in terms of Orchard having taken over the right and responsibility to perform the refurbishment works, then that would also appear to give rise to a dispute under the DA itself, to which the more general dispute resolution provisions of that agreement will apply. [50] I therefore decline, to that extent, to make the alternative declaration sought as regard the Retained Monies.Section 248 of the Companies Act[51] Mr Sullivan also raised the question of whether there was an issue under s 248(1) of the Companies Act, in particular as regards the provision in subs (c) that provide, with effect from the commencement of the liquidation of a company:Unless the liquidator agrees or the Court orders otherwise, a company must not – (ii) exercise or enforce, or continue to exercise or enforce, a right or remedy over or against property of the company.[52] On the basis of the analysis set out above regarding the nature and terms of the trust arrangements established, in my view an issue does not arise under s 248(1)(c). Orchard, by exercising its rights under the DA, is not enforcing a right or remedy over or against property of Dermac's. Dermac has its own rights and entitlements under the DA. They remain. Therefore in my view Orchard claiming and receiving payment for Retained Monies in the manner contemplated by clause 3.19 does not raise issues under s 248.Interest[53] If I declined, as I have done, to make a direction that the Retained Monies were available for immediate payment to the liquidators, then the liquidators sought a further direction that they were entitled "to be paid out all interest accrued and accruing on the Retained Monies in accordance with clause 3.19(c) of the DA meaning only the principal Retained Monies were available to be used to pay for the refurbishment works in accordance with clause 3.19". [54] Mr Davies submitted that it was not necessary for me to make that direction at the present time. Mr Sullivan pointed to the benefit for the liquidation generally of this matter being clarified now. He said that I was in a position now to clarify this matter and it would be useful for it to be so dealt with. [55] On reflection, and although I have some sympathy with the position the liquidators find themselves in as regards their entitlement to interest, I think that the issues raised by this requested direction relate not so much to the status of the Retained Monies, and whether or not they constitute an asset of Dermac properly claimable by the liquidators, but rather raise issues of interpretation of the DA itself. [56] There is, to my mind, at least some degree of ambiguity in the provisions of clause 3.19 as regards interest. I do not wish in any to prejudge those issues. Rather, in my judgment it would not be appropriate for me in this judgment to attempt to resolve what I anticipate may be a contractual dispute as between Orchard andDermac (albeit in liquidation) as regards the meaning of clause 3.19. Again, the DA contains its own dispute resolution provisions. [57] What I think is clear is that any entitlement of Dermac's to be paid interest will not arise until the final payment, as that term is provided for in clause 3.19, is made. What I therefore can say is that the liquidators do not have any entitlement now to claim for the payment to them of interest accruing. Issues as regards interest will, essentially as Mr Davies submitted, need to be dealt with between Dermac (in liquidation) and Orchard when the final payment is made. Interest, however, should be accrued in Duncan Cotterill's trust account separately from the Retained Monies themselves.Costs[58] The liquidators' proposition was that their costs should be met from the Retained Monies. [59] Orchard seeks indemnity costs from the liquidators and from Duncan Cotterill. [60] Duncan Cotterill seeks costs, as I understand it, from the Retained Monies or, failing that, from the liquidators. It makes no applications for costs against Orchard. [61] As regards the liquidators, I do not consider that I have jurisdiction to make an order for payment of the liquidators' costs from the Retained Monies. The Retained Monies are held by Duncan Cotterill on trust, as I have set out in this decision. It would be inappropriate to override the provisions of that trust to provide for the liquidators' costs to be paid from those monies. [62] The liquidators must be responsible for their own costs. [63] Orchard sought indemnity costs from the liquidators and Duncan Cotterill on the following bases:a) As regards the liquidators, and in terms of r 48C, their actions (particularly in "blocking" Orchard's third progress payment) were sufficiently unreasonable, and this application was sufficiently without merit, to mean that it was appropriate that indemnity costs be ordered. b) As regards Duncan Cotterill, in failing to make the third progress payment claimed by Orchard, Duncan Cotterill had acted in breach of their trust. It was therefore appropriate, in light of the commercial difficulties and additional costs faced by Orchard, that an order for indemnity costs, or some other form of compensation, was ordered by this Court. [64] I do note that, in making those submissions, Mr Davies said he did so with some reluctance but that, in the circumstances, that was the legal reality of Duncan Cotterill's position that had to be faced. [65] Generally, and whilst the Court's equitable jurisdiction is wide, and there is considerable discretion on the question of costs, I do not think orders for costs are the appropriate vehicle to recompense a party for breaches of equitable duty. [66] More specifically, in terms of r 48C as relevant, the Court may order a party to pay indemnity costs if the party has acted vexatiously, frivolously, improperly or unnecessarily in commencing a proceeding. [67] In my view, the liquidators' actions cannot be characterised in that way, and I accept Mr Sullivan's submissions that it would not be appropriate to order indemnity costs in this instance. The liquidators sought directions in the alternative, and although in the interests of delivering this judgment in timely fashion I have not gone in great detail into the difficult concepts of trust law that these applications can give rise to, it is sufficient to say that I agree with Mr Sullivan's submission that this matter was not sufficiently clear at the outset to mean that the liquidators acted in such a way as to make it appropriate for an order of indemnity costs to be made against them. I think, however, it is appropriate that costs on a 2B basis be awardedin favour of Orchard as against the liquidators, and I so order. I make it clear, however, that those are properly costs of the liquidators in the liquidation, rather than being an award against them personally. [68] As regards Orchard's claim against Duncan Cotterill, I have already indicated that I do not consider an application for costs to be an appropriate way to seek compensation for a breach of duty. Having said that, I think it is appropriate to note that I do not consider Duncan Cotterill breached equitable duties it owed to Orchard. [69] The allegation was that, by failing to make the third progress payment claimed by Orchard, Duncan Cotterill had acted in breach of the terms of the trust on which they held the Retained Monies, and their undertaking. [70] Duncan Cotterill's position was that, faced with this imminent hearing, and with the liquidators' decision to oppose the making of the third progress payment, they were entitled to act as they did. Strictly in terms of the DA, Orchard – where Dermac, through the liquidators, had disputed the payment – were required to refer the matter to the QS Expert for determination. They failed to do so. On that basis alone Orchard were not entitled to payment. I think this was a reasonable position to take. [71] Orchard's response to that was to argue that once Dermac had "defaulted", in effect the payment mechanisms of clause 3.19(k) no longer applied and Orchard was entitled to make demand directly on Duncan Cotterill. Duncan Cotterill had, therefore, breached their undertaking. [72] In my view, that submission also fails. Clause 3.19(f) requires, after a claim has been made and any dispute resolved by the QS Expert, that both Dermac and Orchard give written authorisation to Duncan Cotterill for the payment then to be made. In my view, that provision applies, irrespective of whether or not the claim has been made by Dermac, or by Orchard when it has stepped into Dermac's shoes as it has now done and as it was entitled to do. I think the reason for that conclusion is that, whilst Duncan Cotterill holds the Retained Monies on trust, it is not itself directly involved in the process whereby an entitlement to be paid monies free of thetrusts of that trust arises. That process essentially involves the two contractual counterparties, and the QS Expert. In my view, therefore, the need for both parties to authorise Duncan Cotterill is a protection for both of them, in light of the interests they both have in the Retained Monies. Furthermore, that requirement can be seen as also protecting Duncan Cotterill, in its capacity as a Stakeholder, from being caught between conflicting views of Dermac and Orchard as to entitlements to be paid sums from the Retained Monies. If one of them fails to authorise Duncan Cotterill as required under clause 3.19(f), contractual rights would arise, [73] There is, therefore, in my view no basis upon which to make an order for costs, or any other order, in favour of Orchard against Duncan Cotterill. [74] I note at this point, for the sake of completeness, that as matters now stand and subject to any disputes being resolved as to the quantum of claims made by Orchard, there should be no reason for the liquidators not to authorise payment to Orchard. Furthermore I anticipate that, to the extent relevant, that should be able to be done without the liquidators, were this otherwise to be a concern, adopting any liability under the DA. [75] That leaves the question of Duncan Cotterill's application for costs. As I have said, I do not consider it appropriate that an order be made for costs to be paid out of these trust monies. Furthermore, Duncan Cotterill appeared in this proceedings effectively to defend themselves against allegations made by the first respondent, rather than in response to the liquidators' application. They did not, however, seek costs against the first respondent. Duncan Cotterill's costs will, therefore, lie where they fall. [76] Accordingly, and in terms of the originating application, an order for directions in the following terms is made: The Retained Monies are monies now held by Duncan Cotterill as Stakeholder on trust for the benefit of the first respondent and, in terms of any surplus that may in the future be available, also Dermacon the terms set out in the DA and further that those monies are not an asset of Dermac available to its creditors generally. [77] If any issues of finalisation of the terms of that order arise, I reserve leave to apply. [78] In terms of that direction, I consider it would be appropriate for Duncan Cotterill's trust account records to show the trust account comprising the Retained Monies is one held on account of both of Orchard and Dermac. ______________________Clifford JSolicitors: Phillips Fox, Wellington for the Applicants. Meredith Connell, Auckland for the First Respondent Duncan Cotterill, Wellington, the Second Respondent