Grant v Arena Alceon NZ Credit Partners, LLC [2024] NZCA 366 (2 August 2024)

Last Updated: 5 August 2024

IN THE COURT OF APPEAL OF NEW ZEALAND I TE KŌTI PĪRA O AOTEAROA

CA723/2023 [2024] NZCA 366

	BETWEEN	DAMIEN MITCHELL GRANT AND ADAM STEVENSON BOTTERILL AS LIQUIDATORS OF ORMISTON RISE LIMITED (IN RECEIVERSHIP AND LIQUIDATION) First Appellants DAMIEN MITCHELL GRANT AND ADAM STEVENSON BOTTERILL AS LIQUIDATORS OF ORMISTON RISE DEVELOPMENT LIMITED (IN RECEIVERSHIP AND LIQUIDATION) Second Appellants
	AND	ARENA ALCEON NZ CREDIT PARTNERS, LLC First Respondent QUAESTOR ADVISORS, LLC Second Respondent

Hearing:	19 June 2024
Court:	Cooke, Venning and van Bohemen JJ
Counsel:	F S Tuteja and L Z Rong for First and Second Appellants J C Caird and A G A Trask-Coombs for First and Second Respondents
Judgment:	2 August 2024 at 10.30 am

JUDGMENT OF THE COURT

1. The appeal is allowed. The application to set aside the respondents’ appearance under protest to jurisdiction is granted.
2. The appellants are awarded costs against the respondents for a standard appeal on a band B basis, with an allowance for second counsel and usual disbursements.

___________________________________________________________________

REASONS OF THE COURT

(Given by Cooke J)


Table of Contents

Para No

Introduction [1]
Background [2]
The relevant provision [11]
Arguments on appeal [15]
Analysis [17]
The relevant principles [18]
Application of the principles [31]
Conclusion [34]
Result [36]

Introduction

• [1] The appellants are the liquidators of Ormiston Rise Ltd (ORL) and its subsidiary, Ormiston Rise Development Ltd (ORDL). They appeal from a decision of the High Court dismissing their application to set aside a protest to jurisdiction filed by the first respondent (Arena) and the second respondent (Quaestor) in response to notices issued by the liquidators under ss 239AG and 261 of the Companies Act 1993 (the Act) requiring them to produce certain information about the affairs of ORL and ORDL.^[1] The essential reason for the Court’s conclusion was that the relevant provisions did not have extraterritorial effect. The appellants contend that the High Court erred in reaching this conclusion.

Background

• [2] The relevant facts are explained in affidavits from one of the liquidators of ORL and ORDL, Mr Damien Grant, and from the Managing Director of Arena and President of Quaestor, Mr John Felletter.
• [3] ORL was incorporated in New Zealand on 8 July 2019 to engage in a substantial residential property development of land in Murphy’s Road, Flatbush, Auckland into approximately 727 units. ORDL was later incorporated to participate in the development.
• [4] On 18 February 2020, ORL, ORDL, and Arena entered into a Syndicated Senior Development Facilities Agreement. In essence, this was a substantial financing arrangement entered into to enable ORL to purchase and develop the land. On the same day, Arena and ORL entered into another agreement to refinance the deposit earlier paid to purchase the property, and to fund the balance of the purchase price.
• [5] These funding arrangements were substantial. Arena agreed to provide total funding of $340 million to ORL/ORDL for the development. Arena was entitled to receive reasonably detailed information concerning the development under the terms of the agreements as would be expected with extensive funding of this kind. Arena was also a minority shareholder of ORL, holding 19.5 per cent of its shares. The nature of the relationships between Arena/Quaestor and the beneficial owners of ORL/ORDL have not been explained in Mr Felletter’s evidence.
• [6] ORL’s obligations to Arena under both agreements were guaranteed by ORDL. In addition, a general security agreement over all of the assets of ORL and a registered mortgage over the land were entered into by the parties. These were held by Quaestor, a security trustee for Arena, under a Security Trust and Subordination Deed dated 18 February 2020.
• [7] The development apparently did not proceed as well as expected. On 28 April 2021, Arena made demand on ORL under the Syndicated Senior Development Facilities Agreement following an event of default. The alleged default was not remedied and receivers were appointed by Quaestor in May 2021. By the time receivers had been appointed, construction had commenced on all stages of the development. Steps were then taken to preserve the value of the companies’ assets, and to avoid the significant risks associated with immediately stopping work. The receivers prepared a development budget of $29 million for the continuation of the works, including earthworks and civil and design works in accordance with the original plans. To fund those works, ORL, ORDL, and Arena entered into a Receivership Facility Agreement dated 4 June 2021 under which Arena provided funding of up to $30 million to continue the works in line with the development budget. The obligations under the Receivership Facility Agreement were also secured by the original security arrangements described above.
• [8] In August 2021, Arena/Quaestor advised that the total level of the debt was $179,895,000. In order to repay the secured debt, the receivers conducted a sale process for the land and development by way of public tender. On 19 August 2021, the receivers accepted an offer to acquire the property from an entity related to Arena for approximately $198 million. $178 million was then paid to Arena. Since that time, Arena has advised that a further amount of $25,228.55 was incurred in interest as at September 2021.
• [9] One of the issues of greatest interest to the liquidators involves what are described as the “preservation advances” — amounts paid to third parties which are said to have preserved the value of the secured property. As at September 2021 the amount of such advances stood at $6,239,574.
• [10] On 25 August 2021, Mr Grant was appointed administrator of ORL by way of Board resolution. ORL was put into liquidation with Mr Grant appointed as liquidator the following month. In December 2021, ORDL was placed into liquidation by a court order with Mr Grant again appointed as liquidator. Mr Botterill was subsequently appointed alongside Mr Grant as joint liquidator of both ORL and ORDL.
• [11] Some information was supplied by Arena/Quaestor. By letter of 27 September 2021, Arena/Quaestor outlined the balances owed and also filed a proof of debt in the amount of $3,658,007.62 enabling Arena/Quaestor to vote at creditors meetings.
• [12] But the dispute in this proceeding arises from Arena/Quaestor declining to provide further information. Between August 2021 and February 2022, notices were issued by the liquidators to Arena and Quaestor under ss 239AG and 261 of the Act requiring them to deliver documents, records, and information relating to ORL and ORDL. The liquidators then sought leave to serve the application under s 266 on their registered offices overseas under r 6.28 of the High Court Rules 2016. That leave was granted and Arena and Quaestor were duly served.^[2] Arena and Quaestor then filed appearances protesting jurisdiction of the New Zealand courts on the grounds that the statutory powers relied upon by the liquidators did not have extraterritorial effect, and that Arena and Quaestor had not submitted to the jurisdiction of the New Zealand courts. The liquidators then applied for an order setting aside this appearance under protest. This is the application that the Court dismissed.^[3]

The relevant provisions

• [13] Section 261 of the Act as relevant provides:

261 Power to obtain documents and information

(1) A liquidator may, from time to time, by notice in writing, require a director or shareholder of the company or any other person to deliver to the liquidator such books, records, or documents of the company in that person’s possession or under that person’s control as the liquidator requires.

(2) A liquidator may, from time to time, by notice in writing require—

(a) a director or former director of the company; or

(b) a shareholder of the company; or

(c) a person who was involved in the promotion or formation of the company; or

(d) a person who is, or has been, an employee of the company; or

(e) a receiver, accountant, auditor, bank officer, or other person having knowledge of the affairs of the company; or

(f) a person who is acting or who has at any time acted as a solicitor for the company—

to do any of the things specified in subsection (3).

(3) A person referred to in subsection (2) may be required—

(a) to attend on the liquidator at such reasonable time or times and at such place as may be specified in the notice:

(b) to provide the liquidator with such information about the business, accounts, or affairs of the company as the liquidator requests:

(c) to be examined on oath or affirmation by the liquidator or by a barrister or solicitor acting on behalf of the liquidator on any matter relating to the business, accounts, or affairs of the company:

(d) to assist in the liquidation to the best of the person’s ability.

...

(6A) A person who fails to comply with a notice given under this section commits an offence and is liable on conviction to the penalty set out in section 373(3).

• [14] Section 239AG then provides that ss 261 and 263 to 267 of the Act apply to a liquidator and a liquidation. Section 266 sets out the court’s powers in relation to compliance with notices given by the liquidator under s 261 in the following terms:

266 Powers of court

(1) The court may, on the application of the liquidator, order a person who has failed to comply with a requirement of the liquidator under section 261 to comply with that requirement.

(2) The court may, on the application of the liquidator, order a person to whom section 261 applies to—

(a) attend before the court and be examined on oath or affirmation by the court or the liquidator or a barrister or solicitor acting on behalf of the liquidator on any matter relating to the business, accounts, or affairs of the company:

(b) produce any books, records, or documents relating to the business, accounts, or affairs of the company in that person’s possession or under that person’s control.

(3) Where a person is examined under subsection (2)(a),—

(a) the examination must be recorded in writing; and

(b) the person examined must sign the record.

(4) Subject to any directions by the court, a record of an examination under this section is admissible in evidence in any proceedings under this Part, section 383, subpart 6 of Part 8 of the Financial Markets Conduct Act 2013, or section 44F of the Takeovers Act 1993.

• [15] In interpreting these provisions, Associate Judge Gardiner referred to the principle referred to by the Supreme Court in Poynter v Commerce Commission that statutes are presumed not to have extraterritorial effect.^[4] The Judge reviewed relevant New Zealand authorities as well as authorities from the United Kingdom and Australia.^[5] She then concluded that there was no language expressly providing that the powers had extraterritorial effect, so the question was whether this was necessarily implied.^[6]
• [16] The Judge then acknowledged that it had been held that s 261 had extraterritorial effect against directors or former directors because of their voluntary assumption of duties, including duties under pt 16 of the Act.^[7] But the same rationale could not be applied to shareholders, creditors, or other people who merely knew something about affairs of the companies.^[8] The Judge then held that notwithstanding the attractiveness of at least s 261(1) having extraterritorial effect for the effective and efficient administration of New Zealand liquidations, it was not clear from the words or scheme of the Act that Parliament intended that result.^[9] This meant that the strong presumption against extraterritorial effect had not been clearly displaced by express words, or as a matter of inevitable logic from the terms of the statute read alongside the purposes of the Act.^[10] She declined to set aside the respondents’ protest to jurisdiction as a consequence.^[11]

Arguments on appeal

• [17] On appeal, the appellants argue that the terms of the provisions, interpreted in light of their purpose, have express extraterritorial effect. Section 261 applies to a director or shareholder and those terms are defined without any territorial limit. The only prerequisite in the section is that the person must have information in their possession or control. Section 266 is then an effective enforcement of an order under s 261. There is no reason to distinguish between the position of directors and other persons in that context. Shareholders and creditors submit to the jurisdiction of the New Zealand courts in relation to the affairs of the relevant companies. It is then necessary for the effective exercise of liquidation for information to be made available to liquidators so they can carry out their statutory functions.
• [18] The respondents argue the presumption against extraterritoriality is strong, and that s 261 is an extraordinary power that should not be read expansively. Statutory powers that concern gathering information are different from those aimed towards realising the assets of a company, with the former, akin to a subpoena, generally not applied extraterritorially. The exception is for foreign directors who have a responsibility for a company’s affairs. But shareholders and creditors are in a very different position from directors. The informal process under which a liquidator could seek information without the involvement of the court is also a compelling factor telling against extraterritorial reach. That is further underscored by the offence provisions associated with s 261.

Analysis

• [19] In order to address the issues on appeal we first consider the principles that apply when considering whether statutory provisions have extraterritorial effect, and then we apply those principles to the provisions of the Act in light of the relevant circumstances.

The relevant principles

• [20] The presumption of interpretation recognised in Poynter v Commerce Commission — that statutes are not intended to have extraterritorial effect unless this is expressed or arises as a matter of necessary implication — is of importance.^[12] But the presumption is not linear. A statute can be interpreted as having intended extraterritorial effect only in particular ways, or in certain circumstances.
• [21] Whilst the relevant provisions here do not expressly state that they have extraterritorial application we consider that they do so, at least to some extent, as a matter of necessary implication. That is because the extraterritorial effect is necessary for the provisions to be effective. For example, s 261(1) empowers the liquidator to require delivery of “books, records, or documents of the company” — that is, the liquidator may require a director, shareholder, or other person to return the company’s property.^[13] It would be inconsistent with Parliament’s intent for any of them to be able to avoid such an obligation by leaving the jurisdiction.
• [22] Similar considerations arise in relation to the power to provide information about the business, accounts, or affairs of the company under s 261(3). It would be inconsistent with the apparent intention of Parliament if a director of the company was able to avoid that obligation by leaving the jurisdiction. As Peter Gibson J said for the English Court of Appeal in Re Seagull Manufacturing Co Ltd (in liq):^[14]

Where a company has come to a calamitous end and has been wound up by the court, the obvious intention of this section was that those responsible for the company’s state of affairs should be liable to be subjected to a process of investigation and that investigation should be in public. Parliament could not have intended that a person who had that responsibility could escape liability to investigation simply by not being within the jurisdiction. Indeed, if the section were to be construed as leaving out of its grasp anyone not within the jurisdiction, deliberate evasion by removing oneself out of the jurisdiction would suffice. That seems to me to be a wholly improbable intention to attribute to Parliament. ...

• [23] A similar conclusion was reached in New Zealand in Re International Direct Ltd (in liq) where the Court held that it would be “unacceptable” for a director to avoid providing assistance to a liquidator by leaving the country.^[15] That approach was also applied in Grant v Pandey, although Associate Judge Bell emphasised that the directors’ duties under the Act were the primary reason for asserting extraterritorial jurisdiction and that different considerations could well apply when considering other persons within s 261(2).^[16]
• [24] In their submissions, the respondents accepted that the provisions had extraterritorial effect for directors, and potentially also in relation to the company’s property under s 261(1). The Judge appears to have accepted it did so in relation to directors.^[17] We agree that must be so. For these reasons, we accept that these provisions of the Act must have been intended to have some extraterritorial application. The real issue is the extent to which it does so.
• [25] In Masri v Consolidated Contractors International (UK) Ltd, the House of Lords concluded that the similar English provisions did not extend extraterritorially in relation to information sought from officers of foreign companies notwithstanding that the companies themselves had submitted to the jurisdiction.^[18] But when interpreting the legislation, reference was made to the international law principle that a domestic court could assert extraterritorial jurisdiction over a third party when there was a substantial and bona fide connection between the matter within the court’s jurisdiction and the third party.^[19] Lord Mance, using the language from Re Seagull Manufacturing Co Ltd (in liq), said for the Appellate Committee:

19 I accept that the existence of a close connection between a subject matter over which this country and its courts have jurisdiction and another person or subject over which it is suggested that they have taken jurisdiction will be relevant in determining whether the further jurisdiction has been taken. It will be a factor in construing, or ascertaining the grasp and intendment of, the relevant legislation or rule. ...

• [26] But the relevant officers of the companies were held not to have such a close connection.^[20]
• [27] In Waller v Freehills, the Federal Court of Australia similarly took into account the international law principles. The relevant legislation had express extraterritorial application.^[21] But the Court nevertheless held that the international law principles should be taken into account when the Court exercised the power to issue an examination summons for the person overseas.^[22] The Court ultimately held that the strong connection between the overseas person sought to be examined in that case would “assuage any concerns regarding comity”.^[23]
• [28] We agree with the line of analysis undertaken in these cases. It is not just the presumption against extraterritoriality but also the presumption that legislation should be interpreted consistently with New Zealand’s international obligations that is relevant.^[24] Indeed, these presumptions of interpretation may be complementary. New Zealand statutes are presumed not to have extraterritorial application, but they may more readily do so when this is consistent with international law.
• [29] Here, the respondents accept that the sections have extraterritorial application in relation to directors, but contend this does not extend to other persons named in this section, including shareholders or creditors. We consider it unlikely that only some subsections have extraterritorial application with respect to particular named recipients of a liquidator’s notice — in particular only s 261(2)(a), and s 261(1) to the extent that it refers to a director. That would be an unusual interpretation of the provisions. The more natural interpretation is that the section as a whole applies extraterritorially depending on the extent of the connection of the recipient with the activities of the company within the jurisdiction.
• [30] Approached in that way, it can be seen that the cases finding that directors may be subjected to examination powers of this kind, even if they are overseas, are not the result of an interpretation of the provisions applicable to directors only. Rather, these cases reflect a broader principle that the statute has extraterritorial application to include jurisdiction over overseas persons who must be accepted to have submitted to be within the reach of the provisions because of their substantial connection with the activities of the companies within the jurisdiction. To use the language of Re Seagull Manufacturing Co Ltd (in liq), they are then within the grasp of the provisions.^[25]
• [31] The respondents refer to the potentially extraordinary nature of a liquidator’s powers under the provisions as generally described by this Court in Finnigan v Ellis, contending that they should not be given a broad interpretation.^[26] They point out that the powers in s 261 could be exercised by a liquidator without a court order, and it is potentially an offence not to comply with a liquidator’s exercise of power.^[27]
• [32] We accept that the powers have potentially broad application, but we do not consider that extraterritorial reach based on a close connection is unjustified. Any unjustified exercise of a liquidator’s powers can be addressed in an application under s 266, an application for review of the exercise of a liquidator’s powers under s 284, and also in the defence of any criminal proceedings that are able to be brought against a foreign person. We consider that these procedural avenues, and the existence of the requirement for a substantial connection, support the extraterritorial reach of the provisions that we have identified.
• [33] It follows that we do not agree with the Judge’s conclusions expressed in the following terms.^[28]

[121] The question of whether legislation has extraterritorial effect is a question of statutory interpretation. It is a matter of discerning Parliament’s intention when enacting the legislation. The particular facts of the case at hand are not relevant, although they will be relevant to whether a Court exercises its discretion to make an order under s 266. I therefore reject the liquidators’ submission that the statutory powers have extraterritorial effect because of the close involvement of Arena and Queastor with the company’s affairs, or because they and ORL/ORDL elected New Zealand law to govern their contractual relationship.

• [34] For the reasons outlined above, we consider that the correct principle is that the provisions have extraterritorial effect to the extent that they apply to a person located overseas who has a sufficiently substantial connection with the activities of a company in New Zealand to justify the assertion of jurisdiction by the New Zealand authorities.

Application of the principles

• [35] Given the above conclusions, we consider that the substantial connection of Arena and Quaestor with the activities of the companies within New Zealand means they must be taken to have accepted that the New Zealand authorities, including the liquidators, have jurisdiction to require them to produce information concerning those activities. We think it is clear that Arena and Quaestor are unable to avoid responding on the basis that they are beyond the jurisdiction.
• [36] Arena and Quaestor have engaged in significant business activities within the jurisdiction. ORD and ORDL were incorporated to engage in a substantial property development in Auckland, and Arena agreed to finance that development in the amount of $340 million. Arena is a minority shareholder of ORL. Under the terms of the funding arrangements, the courts of New Zealand have exclusive jurisdiction to deal with disputes, and the parties agreed that the New Zealand courts are the appropriate forum. Substantial work was then undertaken by the companies to develop the property with the finance so provided. When matters did not proceed as hoped, Arena and Quaestor exercised their rights under the funding arrangements to appoint receivers in New Zealand. Those receivers then engaged in a sale of the development property to an entity associated with Arena, and Arena was paid back $178 million from the sale proceeds, a substantial portion of what it was then owed. The receivers also entered new funding arrangements to engage in further activities to preserve the value of the development, including by making the preservation advances. This further funding was protected by Arena/Quaestor’s security arrangements. Arena and Quaestor contend that they are still owed money by the companies, and they filed a proof of debt in the administration in order that they could vote at the watershed creditors meetings in New Zealand.
• [37] Against that background, the liquidators have understandably made inquiries of Arena and Quaestor in relation to the activities of the companies, including inquiries in relation to the preservation advances. But Arena and Quaestor have declined to provide the information, and say that the liquidators’ powers under the Act to require information cannot be exercised as the provisions of the Act do not apply to them as they are outside the jurisdiction. We consider that stance to be untenable. We are not dealing with the officers of foreign companies but with companies that engaged in activities in the jurisdiction.^[29] There is a substantial connection between the activities of Arena and Quaestor and the activities of the companies within the jurisdiction. Arena and Quaestor must be taken to have accepted that the provisions of the Act concerning the companies’ activities apply to them. They cannot have their cake and eat it too. They are in a very similar position to a director of a company who accepts the duties of director by taking office. By engaging in very substantial business activities with companies within the jurisdiction, including by entering the funding agreements specifying that New Zealand law and the New Zealand courts have jurisdiction, they must be taken to have accepted that New Zealand law applies to them in relation to inquiries related to those activities.

Conclusion

• [38] We consider that the High Court erred by concluding that the relevant provisions of the Act could only have extraterritorial application for overseas directors. The correct principle is that the provisions have extraterritorial effect in relation to any person who has a substantial connection with the activities of the companies in liquidation to the point that they must be taken to have accepted the jurisdiction of the New Zealand authorities to require information to be provided to them in relation to the companies. Overseas persons who agree to become directors of New Zealand companies are an illustration of that principle, but they are not the only persons to whom the sections apply extraterritorially.
• [39] In the present case we consider it clear that the extent of Arena and Quaestor’s activities within the jurisdiction involve a very substantial connection with the activities of the companies in New Zealand. They must be taken to have accepted the jurisdiction of the liquidators to exercise powers to obtain information from them about these activities notwithstanding they are located overseas.
• [40] For these reasons the appeal is allowed, and the liquidators’ application to set aside the respondents’ appearance under protest to jurisdiction is granted.
• [41] In their submissions on appeal the appellants sought orders that the respondents deliver the books and records sought pursuant to ss 261 and 266 of the Act. We do not make that order. No application under those sections is before us, and we consider that such further steps should be addressed by the High Court in the usual way.

Result

• [42] The appeal is allowed. The application to set aside the respondents’ appearance under protest to jurisdiction is granted.
• [43] The appellants are awarded costs against the respondents for a standard appeal on a band B basis, with an allowance for second counsel and usual disbursements.

Solicitors:
Simpson Grierson, Auckland for First and Second Respondents

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^[1] Grant (as liquidators of Ormiston Rise Ltd (in rec and in liq)) v Arena Alceon NZ Credit Partners LLC [2023] NZHC 3048, [2023] NZCCLR 16 [Judgment under appeal].

^[2] At [4], citing Grant v Arena Alceon NZ Credit Partners LLC HC Auckland CIV-2022-404-874, 4 August 2022 (Minute of Associate Judge Taylor).

^[3] Judgment under appeal, above n 1, at [150].

^[4] Judgment under appeal, above n 1, at [79]–[81], citing Poynter v Commerce Commission [2010] NZSC 38, [2010] 3 NZLR 300.

^[5] Judgment under appeal, above n 1, at [83]–[114].

^[6] At [115].

^[7] At [122]. See also Grant v Pandey [2013] NZHC 2844.

^[8] Judgment under appeal, above n 1, at [122].

^[9] At [138].

^[10] At [139].

^[11] At [150].

^[12] Poynter v Commerce Commission, above n 4, at [15] per Elias CJ and [36] per Blanchard, Tipping, McGrath and Wilson JJ.

^[13] See ANZ National Bank Ltd v Sheahan [2012] NZHC 3037, [2013] 1 NZLR 674 at [38].

^[14] Re Seagull Manufacturing Co Ltd (in liq) [1993] Ch 345 at 354.

^[15] Re International Direct Ltd (in liq) HC Wellington CIV-2006-485-2020, 17 November 2006 at [23].

^[16] Grant v Pandey, above n 7, at [10]–[27].

^[17] Judgment under appeal, above n 1, at [122].

^[18] Masri v Consolidated Contractors International (UK) Ltd (No 4) [2009] UKHL 43, [2010] 1 AC 90 per Lord Mance.

^[19] At [18]. See, for example, James Crawford Brownlie’s Principles of Public International Law (9^th ed, Oxford University Press, 2019) at 440–441.

^[20] Masri v Consolidated Contractors International (UK) Ltd (No 4), above n 18, at [26] per Lord Mance.

^[21] Corporations Act 2001 (Cth), s 5.

^[22] Waller v Freehills [2009] FCAFC 89, [2009] 177 FCR 507 at [44]–[49] and [61].

^[23] At [97].

^[24] New Zealand Air Line Pilots’ Association Inc v Attorney-General [1997] 3 NZLR 269 (CA) at 289.

^[25] Re Seagull Manufacturing Co Ltd (in liq), above n 14, at 354.

^[26] Finnigan v Ellis [2017] NZCA 488, [2018] 2 NZLR 123.

^[27] Companies Act 1993, s 261(6A).

^[28] Judgment under appeal, above n 1.

^[29] Compare Masri v Consolidated Contractors International (UK) Ltd (No 4), above n 18; and re Tucker (R.C.) (a bankrupt), ex parte Tucker (K.R.) [1990] Ch 148 (CA).