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The ‘tiny homes’ case: High Court throws a spanner in the works for liquidators

30 Mar 2023

| Author: Heidi Bendikson

Maginess v Tiny Town Projects Limited (in Liq) [2023] NZHC 494 (Venning J)

Companies Act 1993 – Part 19 High Court Rules – application for directions in relation to liquidation of Tiny Town Projects Limited (in liquidation) – whether property had passed to purchasers – whether s 53 Personal Property Securities Act 1999 (PPSA) applied – whether purchasers had interest via equitable lien – whether institutional constructive trust – whether payment after liquidator’s appointment a mistake – Declaration that equitable lien applied, excluded from PPSA

Tiny Town Projects Limited (in liquidation) (TTPL) had been in the business of constructing custom-built tiny homes prior to being placed in liquidation late last year. Its sole director and shareholder was declared bankrupt.

Before being placed in liquidation, TTPL was constructing six tiny homes pursuant to a standardised agreement with each of the purchasers.

The agreements provided for payments by instalment over the course of construction, with delivery taking place following receipt of a Code Compliance Certificate (CCC). Delivery could not occur before all instalments had been paid.

Funds received from the purchasers were applied in the ordinary course of TTPL’s business, not held in separate bank accounts or applied to particular tiny homes.

The six tiny homes at issue were the principal assets in the company’s liquidation and at the time of application were stored in leased premises.

Three of the tiny homes were 95% complete and fully paid by the purchasers.

The other three tiny homes were between 40% to 50% complete and partially paid for by those purchasers.

One of the partially-paid purchasers, the Warmerdams, had paid an instalment of $46,430 on the day TTPL was placed in liquidation, following the liquidator’s appointment.

The Warmerdam Payment has been claimed by a company which had acquired TTPL’s accounts receivable as a purchase money security interest creditor.

The Warmerdams argued the payment was made in error, before it was due and should be returned to them.

One of the liquidators told the High Court that the prospect of any recovery for general or secured creditors was slim. TTPL had very limited assets other than the tiny homes but was concerned about the ongoing costs of storing and insuring tiny homes.

Applicable principles –  whether property in tiny homes passed to fully paid purchasers – High Court found it did not – tiny home contracts were agreements “to sell” – discussion of precedent which was distinguished from facts  – High Court found completion of tiny homes (and therefore intention to pass property in tiny homes to purchasers) tied to code compliance certificates under the agreements – default rules for passing property under Contract and Commercial Law Act 2017 (CCLA) applied – whether s 53 PPSA applied to agreements – High Court found it did not  – provisions of CCLA relevant to determination of whether s 53 applied – whether purchasers had interest in tiny homes via equitable lien – analysis of precedent and particularly Australian case Hewett v Court (1983) 149 CLR 639 (HCA) – noted tiny homes readily identifiable and appropriated to the agreement – High Court found (on balance) purchasers had interest as equitable lien holders and were excluded from PPSA by s 23(b) PPSA – High Court considered equitable liens analogous to other non-consensual liens under s 93 – High Court noted no basis for institutional constructive trust – High Court found Warmerdam payment a mistake – payment would not have been made if Warmerdams knew TTPL in liquidation.

Held:  Declarations that purchasers entitled to an equitable lien over partly constructed tiny homes relating to their contracts; purchasers’ equitable liens excluded from the operation of the PPSA; tiny homes are not held on trust for the respective purchasers; s 53 PPSA did not apply to contracts of sale to tiny home purchasers; Warmerdam payment to be returned.

Tiny Town

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