UNITED CIVIL CONSTRUCTION LTD v HAYFIELD SHA LTD (IN LIQUIDATION) [2022] NZHC 3130 _x000b_

UNITED CIVIL CONSTRUCTION LTD v HAYFIELD SHA LTD (IN LIQUIDATION) [2022] NZHC 3130[28 November 2022]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYI TE KŌTI MATUA O AOTEAROATĀMAKI MAKAURAU ROHECIV-2021-404-001018[2022] NZHC 3130IN THE MATTER of an application for directions pursuant tosections 284 and 286 of the Companies Act1993BETWEEN UNITED CIVIL CONSTRUCTIONLIMITEDPlaintiffAND HAYFIELD SHA LIMITED (INLIQUIDATION)DefendantHearing: 5 July 2022Appearances: P F Dalkie for the PlaintiffG R Grant and M C Frogley for the DefendantJudgment: 28 November 2022JUDGMENT OF ASSOCIATE JUDGE GARDINERThis judgment was delivered by me on 28 November 2022 at 4.00 p.m.pursuant to Rule 11.5 of the High Court Rules.Registrar/Deputy RegistrarDate.......................................Solicitors:Grant & Co, AucklandP F Dalkie, AucklandIntroduction[1] The applicant asks the Court to review the decision of the liquidators of therespondent not to bring proceedings to recover debts due under contracts between therespondent and certain landowners. The applicant also applies for leave to bringproceedings against the respondent to have the debt owing under the constructioncontract between them determined by civil proceedings under the ConstructionContracts Act 2002. Additionally, the applicant applies to be permitted to inspectcertain documents held by the liquidator, including the contracts between therespondent and the landowners.[2] The respondent, through the liquidators, opposes the applications.[3] The applications raise three main issues:(a) Have the liquidators acted wrongly or unreasonably by not bringinglegal proceedings against the landowners?(b) Should the applicant be permitted to bring adjudication proceedingsagainst the respondent in liquidation?(c) Does the applicant have a good reason for inspecting the identifieddocuments?Background facts[4] Hayfield SHA Limited (Hayfield) is a special purpose vehicle incorporated toassist landowners in obtaining a zone change to permit residential development in theHayfield Special Housing Precinct in Karaka. To develop their land into residentialsections, the landowners are required to fund and construct water supply andwastewater reticulation systems. Once built, the new infrastructure will be connectedto Watercare's water supply and wastewater networks.[5] Veolia Water Services (ANZ) Pty Ltd (Veolia) manages and operates the waterand wastewater network in Karaka owned by Watercare. On 12 May 2017, Veolia,Hayfield and 14 landowners entered into an agreement setting out the terms forconnection by Veolia of the new water and wastewater infrastructure to Watercare'snetwork. The Veolia agreement reserves sufficient capacity in Watercare's existingwater supply and wastewater networks to service the land covered by the agreement,up to an agreed capacity for each piece of land. This capacity is expressed inHousehold Equivalent Units (HUEs). There are 1,188 HUEs in total allocated acrossthe 14 landowners depending on the size of their landholdings.[6] Hayfield was responsible for the construction of the water supply andwastewater infrastructure for the landowners. It entered into individual fundingagreements with 13 of the 14 landowners. One landowner, who had been allocated204 HUEs, refused to sign a landowner agreement. As a result, the planned workswere redesigned to ensure the non-paying landowner could not benefit from theinfrastructure without contributing their share of the cost. The work was split into twostages. The first stage was completing the work for paying landowners and the secondstage was postponed. This redesign caused a delay and an increase in the budget forthe works.[7] Although not all landowners had signed funding agreements, Hayfield enteredinto a construction contract with United Civil Construction Limited (United Civil) toconstruct the works. Problems arose during construction, with landownerscomplaining about poor workmanship and contract management. United Civil in turncomplained about delayed design drawings, changes to plans, and site access issuesdue to actions taken by landowners. Construction costs increased and further delaysarose.[8] The 'stage one landowners' were invoiced for the first stage of works. Someof these landowners did not pay their agreed contributions on time. Internal disputesdeveloped between landowners. Hayfield was forced to look for alternative fundingand two landowners agreed to provide secured lending on an interim basis. However,Hayfield was not able to resolve the issues with non-paying owners and could not paythe escalating costs of construction. As a result, construction work stopped inDecember 2018 and United Civil formally halted work in February 2019.[9] On 4 April 2019, receivers and managers were appointed to Hayfield. On5 April, Hayfield was placed into liquidation. By this stage, around 75% of the firststage of works had been completed.Legal principlesCourt supervision of liquidators[10] Section 284 of the Companies Act 1993 (the Act) relevantly provides:284 Court supervision of liquidation(1) On the application of the liquidator, a liquidation committee, or, with theleave of the court, a creditor, shareholder, other entitled person, or director ofa company in liquidation, the court may—(a) give directions in relation to any matter arising in connection withthe liquidation:(b) confirm, reverse, or modify an act or decision of the liquidator:(emphasis added)[11] In deciding whether to grant leave, the Court acts as gatekeeper, to ensure thatonly appropriate challenges proceed to a full hearing.1 The Court attempts to strike abalance between protecting the rights of meritorious claimants, while also ensuringthat a liquidated company's assets are not "frittered away as a result of claims that areunlikely to succeed".2[12] The application for leave is heard together with the substantive application inthe ordinary course.31 Manifest Capital Management Pty Ltd v Lawrence HC Auckland CIV 2010-404-7741, 20December 2011 at [7].2 Adaptable Solutions Ltd v Toon [2017] NZHC 753 at [17].3 Arnerich v Vaco Investments (Lincoln Road) Ltd (in liq) [2018] NZHC 1974 at [47].[13] The power to review a liquidator's actions will be exercised in cases of fraud,where the liquidator's discretion has not been exercised in good faith or where theliquidator has acted unreasonably. The actions of a liquidator can be unreasonablewithout being in breach of an express statutory provision. The question is whether inall the circumstances, including the absence of consultation, the liquidator's actionswere unreasonable.4[14] The Court will not interfere with matters of day-to-day administration or holda liquidator accountable for an error of judgment.5 Serious and obvious lapses ofjudgment on the part of liquidators must be shown before the Courts will interfere.6And, as Williams J has observed, the Courts are not well placed to perform thefunctions undertaken by liquidators in real time and in the real world.7[15] The Courts have suggested that liquidators are more vulnerable to review ifthey have not taken proper advice when making decisions requiring consideration ofmatters outside their expertise.8[16] The Court of Appeal has drawn a distinction between reviewing the exerciseof a liquidator's judgment or discretion, and the mechanical performance by aliquidator of one or his or her statutory functions.9 A "wrong or unreasonable" test asdiscussed above is appropriate in the former case, where the concern is about undueinterference with the liquidator's functions. It is not necessary to show that theliquidator is at fault in the latter case.10Litigation against a company in liquidation[17] Section 248 of the Act provides:4 Consolidated Technologies Development (NZ) Ltd v McCullagh (2006) 9 NZCLC 264,056 (HC)at [15].5 Trinity Foundation (Services No 1) Ltd v Downey (2005) 9 NZCLC 263,917 (HC) at [19].6 Young & Associates Ltd v Ruscoe [2012] NZHC 1438, [2012] NZCCLR 23 at [8].7 At [8].8 At [9].9 Registrar of Companies v Body Corporate 307730 [2013] NZCA 659, [2014] 2 NZLR 623 at [25].10 At [26], the example in that case being where the Court determined it to be necessary to reversethe liquidator's final report to restore the company to the register.248 Effect of commencement of liquidation(1) With effect from the commencement of the liquidation of a company, —(a) the liquidator has custody and control of the company's assets:(b) the directors remain in office but cease to have powers, functions,or duties other than those required or permitted to be exercised by thisPart:(c) unless the liquidator agrees or the court orders otherwise, a personmust not—(i) commence or continue legal proceedings against thecompany or in relation to its property; or(ii) exercise or enforce, or continue to exercise or enforce, aright or remedy over or against property of the company:[18] When considering whether to permit litigation against a company inliquidation, the key question for the Court is whether there are circumstances thatrender legal proceedings necessary, or whether the plaintiff's claim is one that canreadily be dealt with in the liquidation.11 The learned authors of Heath and Whale onInsolvency observe that while the purpose of s 248 has traditionally been thought tobe to prevent particular creditors from obtaining an advantage by bringingproceedings, the more convincing explanation is that the prohibition on litigation isdesigned to prevent a company in liquidation from being subjected to a multiplicity ofactions which would be expensive, time consuming and, in some cases, unnecessary.12They comment that the s 248 question comes down to a question of choosingalternative forms of procedure as between legal proceedings and submitting a proof ofdebt in the liquidation.11 Paul Heath and Michael Whale (eds) Heath and Whale on Insolvency (looseleaf ed, LexisNexis)at [21.4(e)].12 At [21.4(a)]; citing Commissioner of Inland Revenue v Robertson [2017] NZHC 31.[19] Other factors that go to the Court's discretion are:13(a) that there must be equality amongst creditors, so proceedings shouldnot produce an advantage to one particular creditor over another;(b) the assets of the company should not be dissipated in wastefullitigation, particularly if there is a more convenient method fordetermining the claim;(c) the onus is on the party seeking leave to satisfy the Court that leaveshould be given;(d) while the Court is not required to enquire into the merits of the proposedclaim, leave should be declined for a proceeding which is clearly nottenable.Inspection of documents by a creditor[20] Section 256 relevantly provides:256 Duties in relation to records(1) The liquidator of a company must—(a) keep accounting records and other documents of the liquidation andpermit those records, and the records and other documents of thecompany, to be inspected by—(i) any liquidation committee appointed under section 314, unless theliquidator believes on reasonable grounds that inspection would beprejudicial to the liquidation; and(ii) if the court so orders, a creditor or shareholder;13 At [21.4(e)]; citing Satara Co-operative Group Ltd v Fus Ltd HC Napier CIV-2008-441-856, 28January 2010; Birchall v Project Works Construction Ltd (in liq) (2004) 9 NZCLC 263,547 (HC)at [23]–[24]; Fisher v Isbey (1999) 13 PRNZ 182 (HC) at [19]; Body Corporate 81381 v TrebeNew Zealand Ltd (in liq) HC Wellington CIV-2003-485-332, 13 May 2003; Sieradzki v KahikateaManufacturing Ltd (in liq) (2000) 8 NZCLC 262,241 (HC) at [6].[21] The basis upon which the Court will allow a creditor or shareholder to inspectaccounts and records under s 256(1)(a)(ii) was discussed by the Court of Appeal inLevin v Lawrence.14 The Court endorsed the "good reason" test adopted byToogood J in the High Court: 15[T]here must be some good reason for the Court to order inspection incircumstances where the statutory scheme does not ordinarily permit it. Thetest of "good reason" does not require any further elaboration; whether theCourt will exercise its discretion to order access to the records will depend onthe particular circumstances of each case.[22] The Court of Appeal commented that while no inflexible rules can or shouldbe laid down, the "good reason" test may be elaborated to the following extent:16(a) Mere suspicion or assertion by a creditor that a liquidator has notundertaken – or is not undertaking – the liquidator's statutory taskproperly is not sufficient.(b) It is not permissible for a creditor or shareholder to apply merely inorder to embark on a fishing expedition – in order to sift through theaccounts and records of the liquidation to see if that might turnsomething up.(c) At a minimum, the applicant must put forward some persuasive,tangible or concrete reasons why inspection should be granted. Anexample might be where the creditor, from its own dealings with thecompany in liquidation, has a genuine concern about a particular aspectof the company's affairs.Has the liquidator acted wrongly or unreasonably by not bringing legalproceedings against the landowners?[23] As a creditor, United Civil requires leave to apply to review the liquidators'decisions under s 284(1).14 Levin v Lawrence [2013] NZCA 394, (2013) 11 NZCLC 98-018.15 At [53]; see Levin v Lawrence [2012] NZHC 1452 at [56].16 At [53].[24] As noted, the purpose of the leave requirement is to act as a filteringmechanism, to ensure that only appropriate applications for review proceed to a fullhearing.17 The Courts have consistently held that liquidators should remain free toundertake their duties in a cost effective and efficient manner.18 If creditors were freeto challenge every act or decision of a liquidator, this objective would beundermined.19[25] A creditor seeking leave under s 284 needs to do more than merely demonstratethat its claim is sustainable.20 The creditor will need to show that it has an arguablecase. That is, it must have a credible factual basis and there must be a reasonablelikelihood that, if the claim is established, the Court will disturb the act or decision inquestion. The Court is only likely to take this step if the act or decision isunreasonable.21[26] In this case, the issue of leave was reserved to be determined with theapplication for review of the liquidators' decision. As the leave issue and thesubstantive application both involve considering whether the liquidators' decision iswrong or unreasonable, and reflecting the parties' approach to their submissions,I move directly to that issue. I observe however that the liquidators' decision underchallenge (to negotiate rather than bring legal proceedings) is highly discretionary andof the kind that the Court is unlikely to disturb.United Civil's concerns[27] United Civil complains that in the three years and three months since theirappointment, the liquidators have charged $337,000 and have only collected $96,000for the unsecured creditors. It emphasises that there is a shortfall of nearly $400,000in terms of claims by unsecured creditors in the liquidation, with United Civilrepresenting around 80% of that sum.17 Trinity Foundation (Services No 1) Ltd v Downey, above n 5, at [21].18 At [18].19 At [18]; upheld on appeal in Trinity Foundation (Services No 1) Ltd v Downey (2006) 3 NZCCLR401 (CA). See also Manifest Capital Management Pty Ltd v Lawrence, above n 1, at [7].20 Trinity Foundation (Services No 1) Ltd v Downey, above n 5, at [21].21 At [21].[28] United Civil is critical of the liquidators' reports, saying that they do notdisclose the assets owned by the company, being the contracts with the landowners,the existing infrastructure in the ground, and the land on which wastewater pumpstation E is situated. United Civil submits that the liquidators' failure to informcreditors of the assets of the company in their reports is a dereliction of their duty.Further, it submits that those reports conflate the receivership with the liquidation,when the receivership ended nearly three years ago, paying a surplus of $270,000 tothe liquidators.[29] United Civil's main complaint is that the liquidators should have taken legalaction against the landowners under the funding agreements to recover their agreedcontributions to pay the company's debts to unsecured creditors. United Civil saysthat the liquidators' strategy of negotiation is misconceived. It maintains that the onlyway for the liquidators to get the landowners to pay is to sue them under the contracts.It asks the Court to review the liquidators' decision not to sue the landowners, afterreviewing the landowner agreements if necessary.[30] United Civil says it is especially concerned that the liquidators may beprevented from taking legal action against individual landowners due to statutorylimitation periods expiring. There is evidence that at least two of the fundingagreements date back to June 2016. United Civil says that it is unknown whether theliquidators have made demands on landowners under the funding agreements; orwhether those agreements contain sunset clauses.[31] Additionally, United Civil considers that by entering into new arrangementswith landowners for completion of the infrastructure, the liquidators are divertinglandowner funds away from creditors such as United Civil, to pay for new work.The liquidators' response[32] The lead liquidator, Boris van Delden, has sworn an affidavit. He describesthe liquidators' overall strategy since their appointment and their approach to gettingthe non-paying landowners to pay.[33] Mr van Delden explains that the Veolia agreement provides that the existinginfrastructure in the ground is owned by Hayfield until the works are completed, whenit will ultimately vest in Watercare. He goes on to say:28. The liquidators regard the existing works in the ground to be avaluable asset of the company and the liquidators have adopted a deliberatestrategy to realise the value of the existing infrastructure works for the benefitof the company creditors.29. The lands covered by the Veolia agreement have almost certainlyincreased in value due to demand for residential sections, but that value canonly be fully realised once the water supply and wastewater infrastructureworks are complete.30. The liquidators consider realisation of the existing works to bepossible because all landowners who signed the Veolia agreement want toconnect their residential developments to the water supply and wastewaternetworks via the existing works.[34] Mr van Delden confirms that all but one of the stage one landowners have paidthe per HUE amount they were invoiced by Hayfield for stage one. Some landownershave paid more because they have benefited more from a variation to the plannedworks. Mr van Delden confirms that the landowner who did not sign a landowneragreement will need to "catch up" with the other landowners before connecting to theinfrastructure. Non-paying stage two landowners will also need to "catch up" with theother landowners, but stage two owners are not required to pay until stage one of thework is finished. He records that to signify its commitment, one of the non-payingstage two landowners has deposited $1,555,000 into its lawyer's trust account toconfirm that it is willing to contribute to the completion of the infrastructure.[35] Further, Mr van Delden describes some of the proposals that have beendiscussed with landowners, including the liquidators' proposal that Hayfield takesecurity over their residential developments so that payment for the existing workscould be delayed until the landowners had obtained section 224 certificates, withpayment to Hayfield shortly after titles issue. That proposal was rejected bylandowners.[36] Mr van Delden concludes:The negotiations with the landowners have proved to be complex, but thelandowners have a common goal to finish the infrastructure so that they cancomplete their individual developments, obtain titles and sell residentialsections. They are highly motivated to complete the infrastructure and theliquidators are willing to work co-operatively with the landowners providedeach landowner pays their fair share of the existing works.There are other advantages to the landowners completing the infrastructureproject under the Veolia agreement. There is an existing resource consent forthe infrastructure works, and Veolia has already approved the engineeringdesign and detailed plans necessary to complete the works. Also, theconstraints on water supply in the Watercare network means that reservationcapacity and the Veolia agreement may not otherwise be available to thelandowners.[37] Mr van Delden concludes that the liquidators' view, based on legal advice, isthat proceedings against the landowners are not the best way to collect money to paythe debts of the company. His view is that any proceedings taken against thelandowners will not be straightforward, with landowners having potential defencesunder the contracts, and will be expensive and long-running. He states that balancedagainst that litigation risk is the knowledge that the water supply and wastewaterinfrastructure must be completed for the landowners to complete their landdevelopments and to sell residential sections. Mr van Delden states that while one ortwo landowners may have difficulty in contributing their share of the cost, mostlandowners are able to fund completion of the works and to pay contributions towardsthe cost of the existing works to pay the unsecured creditors in the liquidation.[38] David Petterson, an experienced insolvency practitioner, gives expert evidencefor the liquidators. Having reviewed the approach taken by the liquidators, heconcludes:In my opinion, the liquidators have chosen the right course of action. I alsobelieve it will prove to be the most cost effective as well. In taking this route,the liquidators have not gone down an irrevocable path, rather they havechosen the cost and time effective option. Litigation still remains an optionshould they need to take that course, but if that should happen, they will bebetter informed than if they had not undertaken the negotiated settlementapproach they have adopted.Discussion[39] The liquidators' decision as to whether to negotiate with landowners or tocommence legal proceedings involves them exercising their judgment and discretion.Therefore, the relevant question is whether the liquidators' decision is "wrong orunreasonable".22[40] I do not consider that the liquidators' strategy of negotiation over litigation iswrong or unreasonable. The liquidators have been dealing with a complicatedsituation involving staged works, interdependencies between paying landowners, areluctance by some to pay without assurance that others will, and (legitimately orotherwise) concerns about the quality of workmanship United Civil.[41] A specific complication is the overlap between stage one and stage twolandowners. The completion of the first stage relies in part on funding from the secondstage as a contribution to stage one costs (on the basis that stage two landowners willreceive some benefit from stage one works). However, Mr van Delden deposes thatwhen the stage two landowners are expected to pay the $3.606 million was notdocumented and is an issue the liquidators have been trying to resolve.[42] Mr van Delden says that consequently there was very little trust, if any,between the stage one landowners and the stage two landowners. He says that an issuethe liquidators faced on their appointment was that, based on the plans and works inthe ground for stage one, the stage two landowners could argue that they would notreceive any benefit from those works and refuse to pay the expected contributions tothose works. He says that none have done so yet and "everyone is working towardsre-establishing working relationships and trust so that funding can be finalised."[43] The liquidators have also had to deal with the complication that not alllandowners had signed funding agreements and additionally, how to deal with newowners buying into the subdivision who would benefit from the water infrastructurebut were not obliged to pay anything under funding agreements. It seems that this hasbeen a cause for concern by funding landowners, which contributed to their reluctanceto make any further payments. Separately, a group of six landowners proposed to fundcompletion of part of the infrastructure without paying anything towards the cost ofthe existing infrastructure. The liquidators refused and have insisted that thelandowners pay their share towards the existing infrastructure.22 Registrar of Companies v Body Corporate 307730, above n 9.[44] In these circumstances, a strategy of negotiation is not unreasonable. Thebottom line is that all landowners need to connect to the newly constructed water andwastewater system, including the existing works in the ground owned by Hayfield andthe to-be-constructed wastewater pump station E on land owned by Hayfield. Withoutdoing so they cannot connect to the mains, obtain section 224 certificates fromAuckland Council, obtain titles and build on or sell their sections. Therefore, thelandowners are strongly incentivised to pay Hayfield for the existing work already inthe ground, irrespective of any rights of action that Hayfield may have against themunder the landowner agreements. I note that despite the complications described, nolandowner has refused to pay.[45] It is also clear that the liquidators are exploring alternative pathways tosecuring the funding outside the original funding agreements, with some success. Theliquidators have entered into a new infrastructure agreement with two landowners thateffectively bypasses the original landowners' agreements.23 Under this agreement thelandowners complete part of the water supply infrastructure known as the dual supplywater main along Hingaia Road South. All landowners require completion of, andwill benefit from, the dual supply water main. This agreement involves the twolandowners paying money upfront towards toward the cost of the existing works (the$96,000 collected in the liquidation to date). The liquidators state that they are opento negotiating similar agreements with other landowners.[46] As to the time it has taken to reach this point, Mr van Delden explains that inaddition to the issues with non-paying landowners, there has been a considerable delayin getting the necessary approvals for the landowners to connect to pump station E.There have also been issues with the water main connection. The liquidators havebeen negotiating with Veolia, Watercare and Auckland Council on these issues formany months.[47] Mr van Delden's evidence is that the liquidators are very close to reaching aresolution. He says that only the week prior, the liquidators finalised the cost tocomplete the whole works, and a schedule of what each landowner would need to23 Infrastructure Funding Agreement dated 28 April 2021.contribute for the works to be completed and unsecured creditors paid. He says thatthe liquidators are considering an approach involving all landowners paying theirentire share of the construction cost upfront, with the funds being held in a solicitors'trust account to be released on receipt of engineer certified invoices.[48] While I accept that three years is a long time for the unsecured creditors to waitto be paid, the liquidators have explained the reasons for the delay. It is notinconceivable that, despite all reasonable efforts being taken by the liquidators, itcould take three years to reach the current position given the complexities described.[49] I record that even without the expert evidence of Mr Petterson, I would haveconcluded that the liquidators' strategy is reasonable.[50] As to United Civil's concern about statutory limitation periods for taking legalaction against the landowners expiring, the liquidators are seeking legal advice. It isto be assumed that this advice will address any limitation issues. I do not consider thatthis concern warrants the Court interfering with the liquidators' strategy.[51] As for United Civil's complaints about the liquidators' reports, while I acceptthat they could have been more specific about the company's assets, and clearer thatthe $261,901 they received was collected by the receivers, these defects do not justifythe Court reviewing their decision not to commence proceedings.Should the applicant be permitted to bring adjudication proceedings against therespondent?[52] United Civil seeks leave to proceed against Hayfield under s 248(1)(c) of theAct to have the balance of its claim (being the difference between the total amount ofits claim and the now interim amount of its debt admitted by the liquidator) determinedin accordance with the provisions of the construction contract under the ConstructionContracts Act 2002.[53] United Civil submits that this dispute is of the kind that it should be permittedto pursue against the company in liquidation because the dispute concerns mattersunder a construction contract which are not readily resolved by a liquidator, the claimis tenable and the liquidators' evidence is that the liquidation will probably be a solventliquidation, so there is good reason for United Civil to establish its full entitlement.[54] The liquidators oppose leave being given, contending that they reached aprocess agreement with United Civil to determine the company's final claim under theconstruction contract. They argue that this process agreement gives rise to promissoryestoppel and that the parties should complete the process before resorting to any formof litigation.[55] Further, they submit that in exercising its discretion the key issue for the Courtis balancing the interests of United Civil and the interests of the general body ofcreditors. They say that fairness is to be construed in the context of the liquidation inits entirety and involves a consideration of the interests of all creditors, and of thecapacity of the liquidators to deal with the burden of the proposed litigation. Theyargue that a separate adjudication proceeding at this late stage is not necessary, isexpensive and prejudicial to other creditors.[56] To determine whether United Civil should be given leave to proceed againstthe company, it is necessary to look more closely at the agreement reached betweenUnited Civil and the liquidators to determine United Civil's claim.The agreed process[57] At the commencement of the liquidation, the liquidators engaged withUnited Civil to try to determine its claim amount. Prior to the liquidation, United Civilhad commenced adjudication proceedings against Hayfield. Additionally, on2 May 2019, United Civil lodged a proof of debt for $4,239,860.77, which included$3.3 million for Payment Claim 23. According to the liquidators, Payment Claim 23was served after the company was placed into liquidation and had not been certifiedby the engineer to the construction contract.[58] United Civil sought to continue the adjudication proceedings. The liquidatorsrefused. On approximately 16 May 2019, the liquidators engaged John Green as anindependent construction expert to advise them on the claims made by United Civil inthe adjudication proceeding. Mr Green received and considered 13 Eastlight foldersof materials concerning around 26 items. The liquidators engaged Harrison Grierson(the engineers to the contract) to evaluate Payment Claim 23.[59] On 22 July 2019, the liquidators, representatives of United Civil, HarrisonGrierson and John Green met to discuss United Civil's claim. On the eve of themeeting, United Civil provided an updated claim amount of $4,725,621, whichincluded new amounts for interest and costs.[60] Following the meeting, United Civil's lawyer Mr Hazleton sent an email toMr van Delden to record the agreement reached at the meeting. The following wasrecorded in Mr van Delden's affidavit dated 11 November 2021:75. On 22 July 2019, the liquidators met with representatives of UCCL,HG (the engineers to the construction contract) and John Green (theindependent expert) to agree on a cost-effective process to determine theamount due to UCCL under the construction contract without the partieshaving to resort to litigation. It was agreed:(a) That the certified sums would be admitted as a debt.(b) That the retentions would be admitted as a debt (subject to the termsof the contract).(c) That Mr Green would advise the liquidator on the claims that weretaken to adjudication as to sums that he considers are due to UnitedCivil as a debt.(d) There is no issue as to liability for the variations claimed in PaymentClaim 23 but Harrison Grierson need to evaluate PC23 as to quantum(being the final sum certified for any particular claim) on the basisthat it was a final claim of United Civil as at the date of the liquidation.The liquidator is to discuss with HG payment for this task, and theparties are agreed that it is in everyone's interests to pursue this assoon as possible. United Civil will make its personnel available to HGto discuss matters on reasonable notice. HG will not reconsider theclaims at adjudication which Mr Green is considering.(e) HG and United Civil will report back to the liquidator on whether theyare agreed on any or all items of PC23 that are for discussion, or if notagreed, where the disagreement lies.(f) United Civil will discuss issues of interest and costs with theliquidator separately.[61] Mr van Delden replied to Mr Hazleton by email: "points confirmed".[62] On 16 August 2019, United Civil submitted Payment Claim 24, and advisedthe liquidators that its claim had increased to $4,813,597 including GST.[63] On 10 October 2019, Harrison Grierson's assessment of Payment Claim 23 andfinal certificates were received by the liquidators. The liquidators provided these toUnited Civil on 14 October 2019.[64] On 5 December 2019, the liquidators admitted an interim debt of $943,855.48(for Engineer-certified payment claims) less $57,032 for the cost of remedial worksowed by United Civil.[65] John Green held two meetings with United Civil and Harrison Grierson, andon 5 March 2020 published his independent expert evaluation of United Civil'sadjudication claim. Mr Green concluded that United Civil was entitled to a furtherpayment of $2,409,001 (as against United Civil's claim of $2,719,381.99).Mr Campbell says that United Civil does not have any issue with Mr Green'sevaluation of the adjudication claims.24[66] On 13 March 2020, Mr Campbell wrote to the liquidators requesting that aninterim amount of $3,218,577.22 including GST and retentions be admitted as a debtin the liquidation on an interim basis. The sum comprised:(a) $943,855.48, certified by Harrison Grierson under the contract butunpaid (relating to payment schedules 12, 13, 20, 21 and 22);(b) $554,909.29, assessed by Harrison Grierson as payable under PaymentClaim 24;(c) the additional amount of $1,492,228.02, assessed by John Green; and(d) $227,584.33 for retentions.24 Second Affidavit of Andrew Campbell, affirmed 10 December 2021, at [18].[67] Mr Campbell recorded that this sum did not allow for:(a) interest accruing before and after the date of liquidation;(b) United Civil's costs arising from the agreed process;(c) time-related costs and demobilisation costs as a result of the suspensionof the contract works;(d) further disputed sums including, but not limited to, $645,949.52(excluding GST) from other variations not referred to John Green;(e) items under the original scope of works which were not subject to afinal remeasure, as would have been the case had the contract run itsnormal course;(f) claims for loss of profit if the contract is terminated.[68] On 10 June 2020, Mr van Delden wrote to Mr Campbell expressing displeasurethat United Civil was "moving the goalposts" at this stage in the process. In particular,the liquidators protested United Civil introducing "new claims" that were not part ofthe process agreement, namely a claim for time-related costs and demobilisation costsarising from suspension of the contract works, costs arising from a final remeasureand a claim for loss of profits in the event that the contract is terminated.[69] Mr van Delden recorded that the question of interest after the date ofliquidation and legal costs associated with the agreed process were reserved pendingthe outcome of the final remeasure and John Green's analysis. He stated that as far asthe liquidators were concerned, interest after liquidation would only be payable for allcreditors if there were sufficient funds from assets realised such that after all costs andclaims were paid there was a surplus. He suggested that costs associated with theprocess lie where they fall.[70] Mr van Delden deposes that United Civil never replied to this letter, and as aresult the agreed process "has not been completed".[71] On 13 May 2021, United Civil, through its counsel, wrote to the liquidatorsthrough their counsel demanding, amongst other things, that the liquidators admitUnited Civil's debt in the liquidation.[72] In response, the liquidators' counsel recorded that the liquidators were awaitinga reply from United Civil to their 10 June 2020 letter so they could advance UnitedCivil's claim beyond the amount admitted in December 2019. They refused to releasethe retention money, stating that it was being held against any defects in United Civil'swork, as Hayfield and the liquidators were entitled to do. They stated that theliquidators had always been available to meet with United Civil to provide a detailedupdate on the liquidation and negotiations with landowners that was not possible in aformal report. They reiterated that the invitation remained open.[73] On 25 June 2021, after United Civil filed the present application, theliquidators admitted an "interim debt" to "narrow the issues before the Court". Theliquidators admitted the further sum of $2,123,028.60, to bring the total admitted inrespect of United Civil's claim to $3,009,852.08 inclusive of GST.[74] On 1 November 2021, the liquidators agreed with United Civil to increase theamount admitted to $3,044,213.22, to resolve the retentions issue.The remaining areas of dispute[75] In his second affidavit, Mr Campbell sets out his view on the remainingunresolved issues. The first is Harrison Grierson's assessment of Payment Claim 23.There is a difference of approximately $650,000 excluding GST between UnitedCivil's claimed amount for Payment Claim 23, and Harrison Grierson's assessment.[76] The liquidators' position is that United Civil has still not provided any detailedexplanation to the liquidators for the claimed differences or explained why HarrisonGrierson's calculations are incorrect. This is despite Harrison Grierson's evaluationof Payment Claim 23 being provided to United Civil on 14 October 2019. Instead,Mr Campbell argues that because United Civil was "successful" with regard to 66%of the matters referred to Mr Green, the liquidators should increase all the claimedamounts assessed by Harrison Grierson and admit most of the disputed sum ofapproximately $650,000.[77] The liquidators maintain that they need proper details to process United Civil'sclaim, because to date its claim has been assessed at approximately $1.2 million lessthan the original proof of debt. They say that if necessary, they can engage expertassistance to analyse the claim differences once they receive sufficient detail fromUnited Civil.[78] They emphasise that there will be a substantial impact on landowners of anychanges in the amount of admitted debt, which the liquidators need to be able to justifyto other creditors and the funding landowners. They say that by not providing theliquidators with a detailed response on Harrison Grierson's assessment, United Civilis preventing the liquidators from completing their statutory functions.[79] Mr Campbell states that the second outstanding point is the calculation ofcontractual interest. Mr Campbell says that there have been discussions with theliquidators on interest, but the issue has not been resolved. He maintains that the issueof interest cannot be determined finally until the first unresolved issue (the disputed$650,000) is settled, as the value of the interest is dependent on the principal sum due.[80] The liquidators say that by May 2020, they had provided United Civil with adraft calculation of the interest due up to the date of liquidation ($146,123.05). Theysay that the amount has not been finalised or admitted, but to the extent that the interestissue is a straightforward calculation, it does not require the intervention of anadjudicator.[81] The liquidators say that the issue of costs, with respect to the agreed process,is a matter still to be resolved by the parties. They record that the liquidators havespent $89,975 with Harrison Grierson, and $107,450 with John Green, plus GST.United Civil has not paid anything towards the process.[82] In relation to United Civil's foreshadowed claim as to a loss of profitsfollowing disclaimer of the construction contract, the liquidators say that noinformation has been presented to them by United Civil to prove such a claim. Theysay that it is axiomatic that such a claim cannot be advanced without the details beingsupplied to the liquidators.[83] The liquidators submit that if, at the end of the agreed process, United Civil isunhappy with the final amount admitted by the liquidators, then the appropriateremedy is to seek review of the decision under s 284, not leave to commence anadjudication proceeding.Discussion[84] United Civil has not persuaded me that there is good reason to grant it leave tocommence an adjudication claim against Hayfield in liquidation. United Civil and theliquidators agreed on a process to fairly and cost-effectively determine United Civil'sclaims. At a minimum, that process was intended to cover claims that had alreadybeen referred to adjudication prior to liquidation, as well as Payment Claim 23. Thequestion of costs and interest was reserved for later discussion.[85] In relation to Payment Claim 23, the agreed process was that once HarrisonGrierson had completed its evaluation of Payment Claim 23, Harrison Grierson andUnited Civil would report back to the liquidators on whether they were agreed, or ifnot agreed, where the disagreement lay. There is no evidence that United Civil hasinformed the liquidators of the specific areas of disagreement with Harrison Grierson.The agreed process did not specify what was to happen in the event of disagreement,but at the very least, United Civil must be required to set out specifically how it saysHarrison Grierson's assessment is wrong.[86] The critical question for the Court in deciding whether to grant leave to bringproceedings against the company in liquidation is not so much whether United Civilis estopped, but rather whether there is a good reason for permitting litigation. I donot agree that the remaining areas of dispute are unsuited to alternative disputeresolution through a process of the very kind the parties agreed to in June 2019. Tothe contrary, a process that involves an assessment of United Civil's claim by anindependent engineer, followed by negotiation between the liquidators and UnitedCivil based on that assessment, is eminently appropriate. Litigation is not necessaryto resolve the dispute about Payment Claim 23.[87] Similarly, quantification of interest can be readily determined by theliquidators. The question of costs associated with the agreed process can be readilynegotiated. These matters do not require legal proceedings.[88] I accept that a claim to lost profits and irrecoverable expenditure arising out ofthe termination of the contract may be more suited to legal proceedings. I also acceptUnited Civil's submission that such a claim cannot have been part of the agreedprocess because the liquidators did not disclaim the contract until after the process wasagreed, in 2021. However, I do not consider leave to proceed against the company forthis foreshadowed claim is justified at this stage, when United Civil has not yet put thebasis for the claim to the liquidators.Does the applicant have a good reason for inspecting the identified documents?Landowner agreements[89] Mr Campbell says that United Civil has expended substantial time, money,and resources to prove its claim in the liquidation. He seeks access to the landowneragreements to do "due diligence" before his board of directors commits furtherresources to prove the outstanding matters concerning United Civil's claim. He statesthat he will be better placed to do that if he has a copy of the landowner agreements,can read them for himself and seek independent legal advice on their contents.[90] Elaborating on this point, Mr Dalkie submits that United Civil is at a crossroadsand needs to decide whether to expend further funds establishing its full entitlementor settle for the approximately $3.1 million currently admitted in the liquidation. Hesubmits that until recently, United Civil has been led to believe that the landownercontracts were open-ended and enforceable, but the liquidators' evidence suggests thatenforcement of the landowner contracts will not be straightforward. He submits thatin these circumstances, it is reasonable for United Civil to want to make its ownassessment of the enforceability of the landowner contracts.[91] The liquidators have refused to provide copies of the landowner agreements toUnited Civil. They consider that disclosing the landowner agreements would beprejudicial to the conduct of the liquidation, because it will disrupt the commercialstrategy adopted by the liquidators. They say that by letter dated 3 June 2021 theyoffered to meet with Mr Campbell of United Civil to verbally explain the strategyadopted by the liquidators and why they would not release copies of the landowneragreements. They say that he refused to meet unless the liquidators handed over copiesof the landowner agreements.[92] I am not persuaded that United Civil has good cause to access the landowneragreements. There is no link between the provable amount United Civil is owed andthe landowner agreements. The unresolved aspects of United Civil's claim will beassessed by the liquidators and either admitted or rejected in the usual manner, entirelyseparate from and independent to the funding agreements.[93] Further, the liquidators have explained that the funding agreements are not theonly mechanism for procuring payment by the landowners. In fact, Mr van Deldenhas made clear in his affidavit that he considers the landowners' need to connect intothe infrastructure owned by Hayfield is a more compelling reason for the landownersto pay their contributions towards the past and future work.[94] Fundamentally, it seems unlikely that United Civil would walk away from theremaining amounts it claims to be owed, irrespective of what the landowneragreements provide. As noted above, Mr Campbell deposes that the sum in dispute inrelation to Payment Claim 23 is some $650,000 excluding GST. The company claimsto be entitled to interest of at least $146,123.05. It also signals a claim for loss ofprofit of around $190,000 excluding GST.[95] It is difficult to avoid the conclusion that United Civil wants to see thelandowner agreements so it can decide whether to seek orders under s 286 for theliquidators to commence a proceeding against the landowners; or orders requiringassignment of the liquidators' right to sue to it under s 260A. This strategy was earlieroutlined in a letter from United Civil's counsel to the liquidators:It is critical to the outcome of the winding up the landowners either be madeto pay up or, if not, then sued. As the application says, to make an informedbusiness decision about either funding litigation against the landowners, ortaking an assignment under s 260A from the liquidators, United Civil mustfirst be able to see all the contracts and assess them.[96] If that is the strategy, I consider that giving access to the landowner agreementsis likely to lead to an intervention that will prejudice the liquidators' ongoingcommercial negotiations with the landowners to secure payment for the benefit of allcreditors. For that reason, I am not satisfied that United Civil has a good reason to seethe landowner agreements.Other agreements between the landowners and the liquidators[97] Mr van Delden deposes that the only document in this category is theInfrastructure Funding Agreement between the liquidators and two landowners tocomplete the dual supply water main. A redacted copy of that agreement is annexedto Mr Van Delden's affidavit. This redacted version of the agreement is sufficient toinform United Civil of the nature of the arrangement reached between the liquidatorsand these two landowners.Proofs of debt lodged by landowners[98] Mr van Delden deposes that five landowners have submitted claims in theliquidation purporting to claim interest on loans which they have incurred afterHayfield was placed in liquidation. He explains that the landowners are arguing thatthe liquidation of Hayfield is a breach of the landowner agreements. They contendthat Hayfield's failure to complete the water and wastewater infrastructure has causedthem loss because they are unable to complete their residential subdivisions and repayloans which continue to incur interest.[99] The liquidators have recorded the landowner claims in their six-monthlyreporting, but they do not consider them to be legitimate claims in the liquidation.This was made clear in the liquidators' fourth report which states:The significant increase arises from five landowners lodging claims foramounts that are not due contractually, or at the date of the liquidation.[100] Mr van Delden confirms that the liquidators have not admitted the unsecuredcreditor claims lodged by these landowners.[101] I cannot see any good reason for United Civil being permitted to view or takecopies of these proofs of debt.Correspondence concerning set-off of claims by landowners[102] United Civil has requested copies of any written communications between thelandowners and the liquidators that show any agreement where amounts due under thelandowner contracts have been set off against claims made by the owners.[103] Mr van Delden has deposed that there are no documents of this nature held bythe liquidators.[104] Furthermore, the liquidators have explained to United Civil (via lawyers) thatthere has not been any set-off under the landowner agreements against claims madeby owners, and that this is unlikely as the liquidators do not accept that the owners'claims are valid.Decision[105] The liquidators' strategy of negotiating with non-paying landowners, ratherthan taking legal action, is not wrong or unreasonable. I therefore decline to reviewthis decision under s 284(1).[106] At this point the circumstances do not render legal proceedings necessary toresolve the outstanding aspects of United Civil's claim in the liquidation. United Civilshould complete the agreed process and put any additional claim for lost profits arisingout of termination of the contract to the liquidator before seeking leave to bring legalproceedings. I decline United Civil leave to proceed against the company inliquidation under s 248(1)(c)(i).[107] United Civil has not established that it has a good reason to inspect thelandowner funding agreements, nor any other document. Leave to inspect thedocuments under s 256(1)(a)(ii) is declined.Result[108] United Civil's application is dismissed.[109] Hayfield has been the successful party and would ordinarily be entitled to anaward of costs on a category 2B basis together with disbursements, as fixed by theRegistrar. If the parties cannot reach agreement on costs they have leave to file andserve memoranda of up to five pages in length on that issue. I will then determinecosts on the papers._______________________________Associate Judge Gardiner