Bethell v Papanui Properties Ltd
| Jurisdiction | New Zealand |
| Judge | Lester |
| Judgment Date | 04 December 2019 |
| Neutral Citation | [2019] NZHC 3169 |
| Docket Number | CIV-2019-409-336 |
| Court | High Court |
and
and
JUDGE Lester
CIV-2019-409-336
IN THE HIGH COURT OF NEW ZEALAND
CHRISTCHURCH REGISTRY
I TE KŌTI MATUA O AOTEAROA
ŌTAUTAHI ROHE
Companies, Insolvency — application for directions — status of funds paid by clients for trade contractors before company went into voluntary administration — whether company was a trustee of funds — Companies Act 1993
K M Paterson and B R McKinnon for Applicants
J V Ormsby and S C Cowan for First and Second Respondents
M H O Maling and J R C Addington for Third Respondent
This judgment was delivered by me on 4 December 2019 at 3.00pm
pursuant to Rule 11.5 of the High Court Rules
Registrar/Deputy Registrar
December 2019
This proceeding concerns applications for directions by the liquidators of Arrow International (NZ) Ltd (in liquidation) (“Arrow”).
The application is made pursuant to s 284(1)(a) Companies Act 1993 (“the Act”) which provides:
284 Court supervision of liquidation
(1) On the application of the liquidator, a liquidation committee, or, with the leave of the court, a creditor, shareholder, other entitled person, or director of a company in liquidation, the court may—
(a) give directions in relation to any matter arising in connection with the liquidation: …
The directions relate to the status of funds paid to Arrow by six of its clients shortly before Arrow was placed into voluntary administration.
Separate questions arise concerning the status of retentions deducted by Arrow from payments to contractors/suppliers both pre-and post-1 April 2017.
Mr Bethell, Mr McKay and Mr Gower were appointed administrators of Arrow on 28 February 2019 and two related companies (Arrow International Group Ltd (in liq) and Construction Labour and Resources Ltd (in liq)). At that time the companies had approximately:
When Arrow was placed in liquidation, Messrs Bethell, McKay and Gower were appointed liquidators.
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(a) 17–20 construction projects in progress;
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(b) 205 employees;
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(c) over 700 unsecured creditors; and
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(d) 85 secured creditors.
Arrow acted as agent for the six clients referred to above, under a form of contract known as the “PMCM Contract” standing for Project Management and Construction Management Contract.
Under the PMCM Contract, Arrow acted as agent for its clients to enter contracts with Trade Contractors on behalf of the client for the provision of goods and services for the relevant building project. These were “Construction Management” contracts as opposed to traditional contracts where there is a “head contractor” who then directly engages various subcontractors. The PMCM Contract states that Arrow has no liability to Trade Contractors for amounts due from the Clients under contracts made between Clients and Trade Contractors by Arrow.
The PMCM Contract that Arrow entered into with Trade Contractors reflected that Arrow's role was as agent only.
While the charging paperwork tendered by Trade Contractors was not always uniform or consistent with what was required by the PMCM Contracts, the intention was that Arrow would receive Payment Claims from Trade Contractors which Arrow would review and collate and then issue a Payment Schedule sent back to the Trade Contractors. Arrow then issued monthly tax invoices to its client which claimed amounts to be paid to Trade Contractors, Arrow's margin and project management fees.
Also included in this system of invoicing were contracts made by Arrow with Consultants on behalf of clients, albeit such contracts adopted a different form of contract.
In a separate category called “Purchase Order Suppliers” related to suppliers of consumables and some building materials where Arrow contracted with the supplier in its own name. Monthly invoices issued by Arrow to its clients also included amounts Arrow sought to recover for these orders.
The client made payment in one lump sum to Arrow. Arrow then paid Trade Contractors and Consultants and retained its margin, fees and what it had paid or would have to pay to Purchase Order Suppliers who were in a debtor/creditor relationship with Arrow. In paying Trade Contractors and Consultants, Arrow was acting as agent of its client as it was meeting the liability of the client.
Directions are sought, as in January 2019 Arrow had issued its monthly invoices to its clients. The six clients covered by this application had paid their invoices prior to Arrow being placed into administration. At that time, Arrow retained approximately $1.358m that it had received for payment to Trade Contractors. Those funds are held on trust pending the outcome of this application. Annexed to this judgment is a Schedule prepared by the applicants detailing the amounts invoiced by Arrow to its clients, of the amounts received how much had been paid to Trade Contractors before administration, how much of the amount represents Arrow's fees and margin, the amount the applicants consider is unpaid by Arrow to Trade Contractors and the amount owed by Arrow to Purchase Order Suppliers but not paid out together with retentions.
Because the clients have a direct contractual liability to Trade Contractors in many cases the amounts the applicants record as unpaid to Trade Contractors have now been paid by the clients to clear their contractual obligation in that regard.
The above is only a basic summary of the background. The terms of the PMCM Contracts are essentially the same in regard to those clients for whom the largest amounts are in issue and so I will only refer to Papanui Properties Ltd's contract as an example.
Under the PMCM Contract the “Client” is Arrow's client. “Contractor” means “a party engaged by Arrow on behalf of the Client to perform part of the Contract works” and “Consultant” has a similar meaning. “Supplier” means the services to be performed by Arrow in accordance with the agreement.
Clause 2.4 of the PMCM Contract provides:
2.4 Arrow's Authority
By this Agreement the Client appoints and gives Arrow the authority to act as its agent for the Project for:
(a) Engagement of Consultants to undertake investigation, design, advisory, and similar services for the Project;
(b) Consent and other regulatory matters;
(c) Engagement of Contractors and Suppliers;
(d) Administration and monitoring of Consultants, Contractors and Suppliers referred to above;
(e) The verification of Payment Claims submitted by Contractors under the Construction Contracts Act 2002;
(f) The issuing of Payment Schedules to Contractors under the Construction Contracts Act 2002;
(g) Financial transactions associated with the above.
Where Arrow has engaged such Consultants, Contractors or Suppliers or any other party for the provision of goods or services in relation to the Project the Client acknowledges that Arrow has made such engagements as agent for the Client and the Client shall be liable for any amount payable pursuant to such engagements.
The amounts the Client was required to pay to Arrow is set out in Appendix C to the agreement as follows:
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1. The value of construction works and services (permanent and temporary) undertaken, and goods and services supplied, under contracts and orders entered into for the Project by Arrow on behalf of the Client.
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2. The value of preliminary and general costs (project related costs not directly attributable to the contracts and orders referred to in 1 above) including but not limited to site supervision, plant, site facilities, site services, consumables, overheads, contract administration, and off site time and disbursement charges related to the construction and tendering functions.
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3. The value of Consultant services provided under engagements entered into for the project plus disbursements and the cost of managing those engagements.
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4. The value of any statutory or territorial charges incurred plus disbursements and the cost of managing any statutory process for the project.
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5. Any costs incurred by Arrow arising from services provided in relation to Client contracts (third party contracts) for direct supply of systems, process plant, office equipment or similar items (where the Client makes contract payments directly to the supplier).
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6. A demolition works only margin of 2% (two percent) this relates to demolition only period of works. 1
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7. A construction management margin of 4.5% (four and a half percent) on the sum of construction works and services, preliminary and general costs, consultant services, statutory and or territorial charges and direct supply items (the sum of 1 through 5 inclusive above). 2
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8. The value of GST as an additional charge where applicable.
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9. Any costs incurred by Arrow arising from preparing responses to adjudication claims on the part of the Client.
Appendix C of the agreement also provides the basis upon which the amount of each monthly invoice is to be calculated, with cl 3 providing as follows:
3. Progress Invoices
The amount due on each monthly invoice shall be calculated on a basis of percent of work undertaken up to the invoice date plus the value of material on site and any off site payments, together with any fees, disbursements or other project costs incurred, and Arrow's margin and fee. GST will be added to each invoice as an additional charge.
The terms of the Contract in respect of one Client (Massey University) were different. Arrow was not appointed Massey University's agent to engage Contractors or Suppliers. Arrow's role was to assist Massey University to engage...
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