McConnell Ltd has to pay Ministry of Education $1.1 million as a contribution towards government legal costs in its ‘leaky building’ claim for Botany Downs College in Auckland. McConnell’s insolvent subsidiary Hawkins Construction built Botany Downs but cannot pay $13.5 million damages ordered by the High Court.
Frustrated by Hawkins delaying tactics over the Botany Downs claim, government chased holding company McConnell and two of its directors, David and John McConnell, attempting to recover some of its legal costs.
Five years after Education sued, Hawkins was put into receivership and then liquidation within weeks of being ordered to pay $13.5 million. The High Court was told Hawkins did nothing when the claim was first filed in 2013. It did not get lawyers onto the job for two years. It asked for a delay to allow mediation. Mediation failed. Four months before a scheduled February 2018 trial date, Hawkins changed lawyers. Its request for an adjournment was refused. Things hotted up. Education offered to settle for $7.1 million; Hawkins countered with $2.1 million. Days before trial, Education was offering to settle for around $3.2 million; Hawkins lowered its counter-offer to $0.5 million. With a trial looming, Hawkins’ new lawyer, Kensington Swan, was sitting on unpaid billings of just under $700,000. It extracted a guarantee from holding company McConnell Ltd to cover its fees.
It is unusual for someone other than the losing litigant to be ordered to make a contribution to a winning litigant’s legal fees. Justice Downs ordered McConnell Ltd to contribute. It controlled Hawkins by having directors in common, had Hawkins defend a clearly hopeless case while refusing reasonable offers of settlement and using threats of Hawkins likely insolvency as a weapon. Evidence was given of Hawkins deliberately sending mixed messages; stating it was insolvent and could not pay anything whilst still gearing up for a scheduled four week High Court hearing. Government lawyers were questioning how it could be in Hawkins interest to go to trial when it had no money. Ministry of Education was forced to incur legal costs of a trial, getting in return a worthless judgment for $13.5 million.
The High Court was told Hawkins had net assets of $45 million as at March 2017, predominately payments owed by other McConnell companies. The company was being wound down. It had no staff. It did not have a bank account; treasury functions were centred elsewhere in the McConnell group.
Claims McConnell directors David and John McConnell were personally liable to contribute towards Education’s legal costs were dismissed. This turned on questions of whether the two had delayed Hawkins liquidation to protect their own personal interests. It was alleged they wanted to see Hawkins’ liquidation delayed to beyond April 2018. This would limit the chances of any liquidator setting aside under the ‘two year rule’ securities issued in 2016 giving them status as Hawkins’ secured creditors owed $15.9 million. Hawkins’ liquidation commenced in May 2018. Justice Downs said there was no evidence delays were motivated by attempts to protect their standing as secured creditors.
Education v. McConnell Ltd – High Court (26.06.19)
19.122