Tax Evasion: Commissioner of Police v. Cribbett

 

Facing a proceeds of crime claim following allegations of tax evasion, Christchurch-based Kathy Emily Cribbett took a pragmatic approach; agreeing to pay $49,600 in full settlement, conditional on a successful relationship property claim against former partner Darrin Stephen Baylis.

Mr Baylis has a history of court appearances on meth charges.

The High Court was told Inland Revenue alleges Ms Cribbett as director failed to ensure her company Baylis Motor Company Christchurch Ltd paid GST and PAYE due.

Police weighed in with a Criminal Proceeds (Recovery) Act claim alleging she unlawfully benefitted from criminal activity, aiding and abetting tax evasion by Baylis Motor Company.

Evidence was given that Ms Cribbett extracted $49,600 from the company at a time when tax debts were left unpaid.

In a proceeds of crime settlement negotiated with police, she agreed to surrender this $49,600 benefit.  No payment is due should she fail to recover anything in her ongoing relationship property claim against Mr Baylis.

Several properties in Christchurch controlled by Mr Baylis are currently facing forfeiture in a separate proceeds of crime application brought by police against him.

Justice Churchman ordered the first $49,600 of any relationship property payout received by Ms Cribbett be forfeit.

As part of this court-approved profit forfeiture order, Ms Cribbett negotiated a right of pre-emption over a Frankleigh Street property currently controlled by Mr Baylis.

Should Frankleigh Street become forfeit and ordered sold in the proceeds of crime claim against Mr Baylis, Ms Cribbett has first opportunity to buy at market value, before the property is offered for sale on the open market.

Commissioner of Police v. Cribbett – High Court (10.10.24)

25.008

Conversion: Shotcrete Auckland v. Tira

 

Claiming he was ripped off by his business associate, Glenn Tira decided on a ‘self-help’ remedy; carting away plant and equipment used by their construction company Shotcrete Auckland Ltd.  The High Court ordered he pay Shotcrete $130,400 damages for company equipment not returned.

The decade-long business relationship between Mr Tira and Duncan McLay came to an abrupt end in 2020 when Mr Tira had his supporters break into Shotcrete’s yard, trucking away equipment.

He justified this move as needing equipment to finish current jobs.

Shotcrete’s speciality was application of wet sprayed concrete and waterproofing.

With Shotcrete now in liquidation, Mr Tira opened negotiations with its liquidator about buying or leasing the purloined equipment.  Nothing was resolved.

The High Court was told some of this equipment was later delivered, with little explanation, to Turners Auctions.  Turners sold this equipment on the liquidator’s behalf, grossing $434,300 for Shotcrete.

No progress was made in recovering the rest of the equipment.

The liquidator sued Mr Tira in tort for conversion.  This required proof of deliberate conduct, depriving Shotcrete as the true owner from its use and possession of specified equipment.

The liquidator provided the court with an itemised list of equipment still missing.

Ruling Mr Tira liable in conversion, Justice Walker awarded Shotcrete damages of $130,400; the book value of missing equipment.

Mr Tira did not appear in court to defend the claim.

Shotcrete Auckland Ltd v. Tira – High Court (8.10.24)

25.007

Duress: Wu v. Liu

 

The disputed $1.2 million loan was supposedly fictitious, but the threats of blackmail were real.  Justice Lang ruled the loan enforceable; both sides lacked credibility in their evidence before the court and debtor Hua Wu waited four years before challenging the loan’s existence.

The High Court heard a tangled narrative of Mr Wu’s dealings since his emigration from China, after enrolling as a student at Massey University in 2008.

Also known as Danny Wu, Mr Wu was in court attempting to recover ownership of a property in Auckland suburb of Mangere, a property transferred to Jinxing Liu as part-repayment of a supposed $1.2 million loan.

The court was told Mr Wu was confronted in 2018 by his then employer Timber King Ltd with allegations of theft in his role as general manager of the company.  Timber King, trading as Three Brothers Building Centre, was part-owned by Mr Liu’s son.

Mr Wu paid $400,000 to the company.

Soon after, Mr Liu and his son stepped up the pressure threatening to report Mr Wu to the Police, Inland Revenue and immigration authorities unless he paid more.

Mr Wu took legal advice, telling his lawyers he had not stolen from his employer but needed help in what he said was an employment dispute.  They were surprised to next hear from Mr Liu’s lawyers that all that was needed was Mr Wu’s acknowledgement of receiving a $1.2 million loan.

Behind their lawyers’ backs, the two hatched a deal in which Mr Wu would hand over cash plus Mangere real estate in a subdivision Mr Wu was involved in.

In court four years on, each had entirely different explanations for what had happened.

Mr Wu said he was blackmailed into promising to pay $1.2 million with threats he would be reported to the authorities for theft.  Mr Wu said Mr Liu has a reputation as a loan shark with contacts in China who had threatened his parents.

Mr Liu said Mr Wu lacks credibility, pointing to allegations of his thefts from Timber King plus evidence of Mr Wu’s careless handling of money when working for another employer and his improper use of another employee’s email account when working for a third employer.

Mr Liu told the court that the disputed payments were in fact repayment of a RMB six million advance made to Mr Wu in China back in 2008.

Justice Lang dismissed as lacking any credibility Mr Liu’s claim that Mr Wu had borrowed in China the equivalent of $1.2 million back in 2008 at a time when he was a student in New Zealand, and that Mr Liu had written off this debt as unrecoverable until by chance he met up with Mr Wu again as an employee of his son’s business.

Justice Lang ruled Mr Wu’s signature in 2018 to a document evidencing a debt to Mr Liu of $1.2 million was extracted by duress, after Mr Liu blackmailed Mr Wu with threats to report him to the authorities.

The general rule is that any agreement extracted under duress is voidable; it can be set aside by the courts.  This must be done promptly.

A delay of four years is too long, Justice Lang said.  The loan agreement stands and is enforceable.

Mr Wu said it was only after four years that he was no longer cowed by Mr Liu’s threats and by then had sufficient money to fund a court case.

Wu v. Liu – High Court (7.10.24)

25.006

Maori Land: Pomare v. Pomare

 

Descendants of Sir Maui Pomare are locked in dispute over potential subdivision of land near Plimmerton in Wellington, fifty years after death of his widow and with final resolution of his estate unresolved.

Born near Urenui in Taranaki; educated at Te Aute College in the 1890s: Sir Maui joined that pupil cohort now celebrated for their leadership roles in both Maori and Pakeha cultures.  Widely remembered as the first Maori to qualify as a doctor, with qualifications from American Medical Missionary College in Chicago, and his subsequent appointment as Minister of Health in the 1920s, he was deeply involved in early political campaigns seeking redress for Maori land confiscations.

A century on, and several generations later, control over inheritance of his own Maori landholdings divides his descendants.

Of Ngati Mutunga and Ngati Toa descent, Sir Maui held at date of his death in 1930 interests in Maori customary land situated in Taranaki, Chatham Islands and Wellington.  Commercially, his land in Wellington is the most valuable; ripe for residential development.

As is custom, Sir Maui’s traditional landholdings came to be divided between his two surviving children: Te Rakaherea and Ana.

The Maori Land Court was told of long-running hostility within his family.

Focus of the dispute is use of two buildings on the Wellington land, variously rented out or used rent-free by whanau.

One of Sir Maui’s grandsons told the Court of deep sadness at being shunned by his brother’s family, stating he had effectively been expelled from family land.

Wider whanau discussions about potential development of the land in Wellington have been stymied by a number of Te Rakaherea’s descendants, adamant that a decades-long family arrangement meant they could occupy the land rent-free, provided they paid rates levied on the land.  This claim to rent-free occupation was buttressed by claims that hundreds of thousands of dollars spent upgrading the buildings was an investment made only on an understanding of continued occupation.

Representatives from both branches of Sir Maui’s family applied to the Maori Land Court for creation of an ahu whenua trust.

Permitted by the Te Ture Whenua Maori Act, these trusts create a land management model with fragmented Maori land ownership brought within a trust structure.  Former owners become beneficiaries of a trust with defined shares.  Trustees are appointed.  The Maori Land Court has a supervisory role over trustee decisions.       

Te Rakaherea’s descendants currently in occupation objected to creation of an ahu whenua trust.  They wanted compensation for money spent upgrading buildings.

The court was told they had not got consent from other whanau members as co-owners of the land before spending this money.

Judge Doogan approved creation of an ahu whenua trust.  Multiple trustees were appointed from each branch of the Pomare family.  Judge Doogan left open the possibility of a later appointment of an independent trustee.

He ruled that family members currently occupying the land have no continuing rights of occupation and that they can remove at their own cost additions made to the buildings.

Rather than impose an occupation rent for the current occupiers past twenty years of rent-free occupation, Judge Doogan suggested the newly appointed trustees might consider they instead contribute to costs of a development plan which could include redevelopment of the land they currently occupy.

Pomare v. Pomare – Maori Land Court (3.10.24)

25.005

Financial Services: FMA v. AA Insurance

 

AA Insurance was fined $6.1 million following failures to properly apply discounts on multi-policy annual premiums and failing to honour promises of discounts for AA members and legacy ‘lifetime’ policy holders.  This penalty is on top of $16 million compensation AA Insurance paid directly to affected customers

AA Insurance self-reported its breaches to the Financial Markets Authority after a routine 2018 audit identified deficiencies in company recordkeeping.  Checking to see that Automobile Association members were getting their promised discount, the auditor found AA Insurance could not conjure up a complete list of AA Automobile Association membership.

An expansive audit followed.

AA Insurance said this failure to allow required discounts lay with customers not self-declaring their entitlements when taking out insurance, AA Insurance staff not correctly entering required data and errors in software programmes creating invoices.

AA Insurance admitted breaches of the Financial Markets Conduct Act; prices offered for insurance cover were less than that charged.

The High Court was told AA Insurance overcharged customers by $11.1 million for policy years dating back to 2015.  An extra $4.5 million compensation was paid to affected customers as ‘use of money’ interest.  This included some $883,000 AA Insurance paid to charities in respect of bilked customers who could not be located or did not respond.

In addition, $420,000 was paid to those customers promised a guaranteed no-claims discount for life which was not honoured.

Justice O’Gorman ruled AA Insurance pay a $6.175 million penalty for breaches of the Act.  Counting in its favour was timely self-reporting of these breaches, compensation paid to policy holders and the level of co-operation with FMA.

Financial Markets Authority is a direct beneficiary of the fine levied.  First deduction from the $6.1 million is FMA’s full costs.

Financial Markets Authority v. AA Insurance Ltd – High Court (3.10.24)

25.004

Property: Wang v. Hu

 

After their Auckland joint venture property deal went sour, Bin Hu disputed that one million dollars paid to her up front by Yang Wang was a personal loan due for repayment.  End result: she was ordered to pay the disputed one million; this after seeing Mr Wang take full control of their property development, buying in at a mortgagee sale.

The High Court was told Ms Hu agreed in December 2020 to buy a property in Auckland waterfront suburb St Heliers for $12.3 million.  Her contract was for deferred settlement: March 2022.

The court was told Ms Hu is an experienced property developer.  She had plans to redevelop the St Heliers site.

When signing, Ms Hu needed to find one million; payment of the deposit.

An acquaintance, then working for the Chinese Construction Bank, got in touch with Mr Wang.

Mr Wang paid one million dollars into Ms Hu’s solicitors’ trust account, placed to the credit of Ms Hu and receipted as ‘deposit funds from Yang Wang to Hu Bin to purchase [the St Heliers property].’  There was no written agreement between the two regarding terms of their arrangement.

Some eight months later, the St Heliers project was restructured: Ms Bin transferred her right to buy across to a joint venture company owned by family trusts controlled separately by Mr Wang and Ms Hu.

Their project was not a success.  Mr Wang bought in at a mortgagee sale, assuming sole control of the St Heliers development.

Some three years after paying his one million dollars to Ms Hu’s lawyers, Mr Wang sued Ms Hu claiming this money was a loan, yet to be repaid.

In the High Court, Ms Hu confusingly claimed some of this money was in fact her own contribution to the St Heliers deposit while also claiming that the entire one million dollars was from the outset Mr Wang’s equity contribution to the failed project.   

Associate Judge Lester ruled Ms Hu’s various explanations lacked credibility.

The evidence was that Mr Wang’s one million dollar payment was a personal loan to Ms Hu.  This was an oral agreement for an interest free loan.

At time of this loan, there was no discussion or evidence of the subsequent transformation of their relationship into joint venture partners for the St Heliers project.

Ms Hu was held liable to repay the loan.

Wang v. Hu – High Court (2.10.24)

25.003

Tax: Jaques v. Inland Revenue

 

Part way through a High Court hearing on appeal against convictions for tax fraud, Keith Jaques abandoned his appeal.  This after the sitting judge pointed out his appeal had no chance of success.  Continuing the appeal hearing raised a risk of Inland Revenue asking for a heavier sentence since the lower court judge had said Jaques avoided prison on conviction by the narrowest of margins.

In 2024, Jaques was convicted of eight tax offences spanning tax years 2013- 2015 and 2019-2020.  This arose from his failures to fully report cash income from his food services business, failure to account for GST and failures to forward employee PAYE deductions.

He sold donuts and other refreshments at large sports events in Wellington, Hamilton and Auckland.  Inland Revenue said some $800,000 income was not reported for tax.

After a two week lower court hearing, the trial judge sentenced Jaques to twelve months home detention; credit was given for Jaques remorse, admission that tax fraud undermined trust in New Zealand’s system of tax collection, and the judge’s assessment of Jaques’ prospects of rehabilitation.  

On appeal, Jaques challenged his convictions on grounds that the trial judge had been confused about that part of business where he traded as a sole trader and other parts where he traded as a company.

Jaques represented himself on appeal.

Early in the appeal hearing, Justice Boldt explained to Jaques why his appeal could never succeed.  Convictions would stand, regardless of whether he was trading as a sole trader or company.

Jaques elected to withdraw his appeal.

Jaques v. Inland Revenue – High Court (1.10.24)

25.002

Defamation: Chiv v. Dai

 

Learning her clients wished to change accounting adviser, Wellington-based Sandy Dai bad-mouthed their choice of Auckland chartered accountant Kevin Chiv saying Mr Chiv was banned from working as an accountant, had a record of inappropriate sexual relations with his female clients and needed psychiatric help.  All untrue.  Ms Dai was ordered to pay Mr Chiv $50,000 for defamation.  The Institute of Chartered Accountants struck her off the register of chartered accountants for what was described as unprofessional and at times disgraceful conduct.

The High Court was told a Cambodian couple running a bakery on Auckland’s North Shore looked to change their accounting adviser in early 2021.

They had become dissatisfied with services provided by Ms Dai; both the inconvenience of dealing with a Wellington-based accountant and her increasing fees.  Mr Chiv, also known as Khieng Khiv, was preferred.  He is a fellow Cambodian speaker. 

When asked to forward her client records to Mr Chiv, Ms Dai responded by sending multiple emails to her then client demeaning Mr Chiv.

Her statement that Mr Chiv was ‘banned from trading,’ was untrue, Justice Moore ruled.

In 2019, Mr Chiv had been disciplined by the New Zealand Institute of Chartered Accountants after admitting multiple charges including: providing false and misleading information to the Institute; negligence or incompetence bringing the profession into disrepute; and breach of Institute rules.  He was suspended from Institute membership for two years.

Mr Chiv’s suspension did not stop him working as a tax agent or doing accounting services work for clients, Justice Moore said.  He was not ‘banned.’

Ms Dai’s allegation that Mr Chiv had sexual relations with female clients came from her misreading of the Institute’s published decision when suspending Mr Chiv.  When deciding on an appropriate penalty for Mr Chiv, the Institute made passing reference to a published health sector disciplinary hearing in which a nurse faced professional disciplinary charges for improper sexual relations with clients.  This was not a reference to Mr Chiv; it referred to facts in an entirely unrelated health sector disciplinary hearing.

Ms Dai not only defamed Mr Chiv by falsely accusing him of sexual impropriety, but then repeated the defamation in a subsequent email to her client after being warned by Mr Chiv that her comments were defamatory, Justice Moore said.

Ms Dai’s comment that Mr Chiv needed psychiatric help might be dismissed as a commonplace jibe as someone being ‘crazy’ or ‘ridiculous,’ Justice Moore said.

But her comment became defamatory in the context of her added comments that Mr Chiv might be delusional, that consulting with a GP ‘would be a good start,’ and that he needed support from his friends and family.

These additional comments by Ms Dai suggested Mr Chiv genuinely needed psychiatric treatment, Justice Moore said.

Ms Dai was ordered to pay $50,000 damages for defamation.

Her defamatory comments were made to a limited audience; Ms Dai’s former client.

Mr Chiv did not come to court with a stellar professional reputation.     

The court was told that not only had Mr Chiv previously faced professional disciplinary action in 2019 by the Institute of Chartered Accountants, but in the same year the Immigration Advisors Complaints and Disciplinary Tribunal fined him $7000 and required him to reapply in one year as a licenced provider if he wished to resume acting as an immigration provider.

The court was told Mr Chiv had failed to exercise due care and diligence in filing immigrant visa applications, delegated work to unqualified staff, and had breached client confidentiality.

Chiv v. Dai – High Court (30.09.24)

25.001

Estate: Estate William Frame v. Frame and W&G Trustee

 

While brother Allan was left with ownership of the Roxburgh central Otago family farm on death of his father, it required court action to pay estate bequests owed his four sisters.  Associate Judge Paulsen ruled Allan Frame had no grounds to delay payment of $1.1 million due his siblings.

After their parents’ deaths, Allan was left in control of the Burnbank Trust which owns the family farm on Langlea Road.

The High Court was told of a 2006 family arrangement which saw the family farm transferred to the Burnbank Trust for $2.1 million.  The farm was previously owned in partnership by Allan and his father William Frame.

As is common in these family transactions, no cash changed hands.  The Trust owed Allan $720,000; his father William $1.4 million.

At time of his death in 2023, William was owed $1.1 million by Burnbank Trust: an $800,000 balance still owing on sale of his share of the farm to the Trust; plus a credit balance of $371,000 owed by the Trust, part of ongoing financial transactions between the Trust and the Frame father and son farming business now leasing the property.

Terms of William’s will has the effect of bequeathing this $1.1 million to Allan’s four sisters with payment to be made six months after his death.

Executors of William’s estate recognised Allan might face commercial difficulties quickly raising $1.1 million to pay his sisters.  They were open to discussions on his plans to raise finance, or to sell part of the farm to get cash.

The court was told Allan instead stalled.

He wanted to wait until financial statements for farming operations were prepared at end of the financial year to establish how much the farming partnership might owe the Burnbank Trust.  This could reduce the amount of the $1.1 million debt, he claimed.

Judge Paulsen ruled against any delay.

The $1.1 million was due to William’s estate now.  No future set off could operate.

On William’s death, the Trust’s obligation to pay William’s estate was fixed at $1.1 million due.  William personally was no longer farming once dead.  For accounting purposes, the business relationship with the Trust immediately after his death is between the Trust and a continuing farming business including William’s estate as partner, not William personally.

The effect of this High Court ruling is that William’s executors can force sale of the family farm if Allan does not take immediate steps to find $1.1 million for payment to his sisters.

The court was told Allan has plans to subdivide and sell part of the farm.

Estate William Frame v. Allan Frame & W&G Trustee Ltd – High Court (27.09.24)

24.233

Reckless Trading: Boaden v. Mahoney

 

Owed unpaid rent and the cost of clearing debris from an Auckland site, commercial landlord Drew Boaden did not roll over when learning he would receive no cents in the dollar on liquidation of tenant, Civil Underground Ltd.  He sued Civil director Tim Mahoney, getting a court order that Mahoney personally pay him $89,400 because of Mahoney’s reckless behaviour in continuing Civil Underground’s business operations whilst it was insolvent and unable to pay its debts.

Setting up commercial operations under the Companies Act is oft touted as insulating owners from personal liability for unsecured business debts.  These debts are debts of the company; not debts of the directors or the shareholders.

But trading as a corporate is not a licence to cheat creditors.

If directors recklessly trade their company whilst it is insolvent, Companies Act allows courts to order directors tip funds into the liquidation as compensation for all creditors harmed.

When a liquidator sues, the liquidator is prime beneficiary.  Liquidation fees and costs are first claim on any insolvent company’s assets.  Creditors get only what is left over.

The Companies Act also allows individual unpaid creditors to take the same legal action as a liquidator, recovering what the company owes by suing directors personally.

The High Court was told Mr Boaden’s problems developed after he gave tenant Civil Underground notice in early 2020 to vacate a 5.5 hectare site in Glen Eden used as a storage yard for Mr Mahoney’s earthmoving equipment.  The yard had been sold.

Civil stopped paying rent and failed to clear all debris and rubbish stored on site.  Mr Mahoney subsequently put his company into liquidation.

Learning that unsecured creditors would get nothing on liquidation, Mr Boaden sued Mr Mahoney directly, alleging reckless trading in breach of the Act.

Justice Tahana ruled Civil Underground was insolvent from late 2018.  Unpaid debts were accumulating.  Mr Mahoney’s expectations of profitable work on the horizon for Civil Underground were unrealistic.

Lockdowns imposed during the covid-19 pandemic did not contribute to Civil Underground’s insolvency, Justice Tahana said.  Civil was insolvent long before.

As director, Mr Mahoney was ordered to pay Mr Boaden $89,400 for unpaid rent and rubbish disposal costs, company debts accruing after he failed to stop trading when it was clear that immediate liquidation was required.

Mr Mahoney was barred from defending Mr Boaden’s reckless trading claim.  This was a court-imposed penalty for Mr Mahoney’s earlier failure to hand over company records.

Mr Mahoney said these records had been lost, with his desktop computer and laptop stolen from his car and his mobile phone junked after it stopped operating.

Boaden v. Mahoney – High Court (26.09.24)

24.232

Harditex: Cridge v. Studorp Ltd

 

Sloppy workmanship led to water ingress and moisture damage for homes clad with manufacturer James Hardie’s product Harditex, the Court of Appeal confirmed.  No fault lay with the manufacturer.  This ended a marathon class action with James Hardie facing potential re-cladding costs for some 117,000 houses built prior to Harditex’ withdrawal from the market nearly twenty years ago.

Harditex was sold as external cladding.  Installation consisted of fibre cement sheets nailed directly to timber framing with only building wrap as a barrier between the two.    

The court was told of invasive testing carried out on eight Harditex-clad properties to determine the extent and causes of moisture damage.  These test properties were owned by class-action litigants suing James Hardie.

None of the eight test properties had cladding installed in full compliance with manufacturer’s instructions.  None had cladding properly jointed.  Window installations did not comply.  Many did not have an approved coating system applied.  Those that did, were left with the coating not properly or incompletely applied.

Home-owners’ complaints that Harditex was inherently defective and not suitable for exterior cladding were dismissed.   James Hardie was not negligent and was not in breach of the Fair Trading Act the court ruled.

The fault lay with contractors affixing the product.

lnstallation instructions were adequate. 

James Hardie is not a guarantor of building standards, the court said.  It could not be held responsible for poor on-the-job workmanship.

Cridge v. Studorp Ltd – Court of Appeal (26.09.24)

24.231

Health Data: HealthAlliance v. Hewlett Packard

 

On learning Health New Zealand wanted to store existing records using new software, US-based Capex Discovery refused assistance for data migration to a new platform, blocked access to stored data and sued for increased licence fees alleging nearly 190,000 health workers were accessing data while Health New Zealand was paying for only 5000 licences.

Capex offers secure storage for sensitive business records, promising fast search capabilities for authorised users.

The High Court was told Capex came to control digital storage of, and access to, New Zealand health data when Hewlett Packard spun off its global software business in 2017.

Justice Tahana ruled Health New Zealand’s contract remained with Hewlett Packard post-2017, with Capex providing storage on Hewlett Packard’s behalf.

It was an implied term of the Hewlett Packard contract that data could not be held to ransom; assistance had to be provided for data transfer to a new platform.

Capex’ claim that Health New Zealand owed USD 5.1 million for licences was dismissed.      

Evidence was given of a longstanding commercial relationship between Health New Zealand and Hewlett Packard for electronic storage, management, and access to, health sector data.

Regular software upgrades saw multiple iterations of this data being transferred by Hewlett Packard across to new platforms.

Health New Zealand’s current dispute with Capex followed Hewlett Packard’s decisions in 2017 to restructure and then sell off its data management business.

Capex agreed with Hewlett Packard to take over its Health New Zealand contract.  This involved storage of, and access to, staff emails.  Some emails included patient data.

Health New Zealand was sent several letters, asking for a signed acknowledgement that Capex was now the contracting party.

In legal jargon this was an attempted novation; have the Hewlett Packard/Health New Zealand contract replaced on the same terms by a Capex/Health New Zealand contract.

Health New Zealand never signed.  Its rights against Hewlett Packard remained.

The subsequent legal dispute was whether Capex could block data migration as leverage in its commercial dispute over licence fees.

The Hewlett Packard contract did not specifically spell out rights to data migration.

Justice Tahana ruled contract terms had to be interpreted in light of the long-standing relationship between Hewlett Packard and Health New Zealand.  Their past working relationship coupled with knowledge on both sides that only Hewlett Packard held keys to unlock encrypted data for migration created an implied term that data migration could not be blocked, she ruled.

The contract did allow Hewlett Packard to charge commercial rates for assistance with data migration, she said.

This ruling was not directed specifically against Capex.  Health New Zealand’s contract is with Hewlett Packard.  It is for Hewlett Packard to ensure Capex releases Health New Zealand’s data.

HealthAlliance NZ Ltd v. Hewlett-Packard New Zealand – High Court (20.09.24)

24.230

Construction: Beca Carter v. Wellington City

 

Building Act’s ten year ‘longstop’ limitation does not apply to contribution claims where one defendant found liable for construction defects later casts around looking for someone else to also pay up.  What has been a hot topic in the building industry went down to the wire, with a 3-2 split in the Supreme Court panel of judges; the majority deciding Building Act rules do not undercut the long-established and bespoke right of defendants to claim financial contributions from others.

The practical effect is to force architects, engineers, builders, subcontractors and others in the construction industry to extend run-off insurance cover for longer periods and to maintain a comprehensive archive of critical documentation for previous work.

The litigation centred on Bank of New Zealand’s $101 million claim against Wellington City for alleged negligence in its issue of a compliance certificate for a building subsequently damaged in the 2016 Kaikoura earthquake.

When sued, Wellington City immediately filed contribution claims against consultants Beca Carter and Professor John Mander claiming that if Wellington City were liable, they were also to blame having prepared and reviewed engineering design for the building.

Beca Carter argued this contribution claim was out of time; filed more than ten years after the design work was submitted.

The Building Act puts a ten year time limit on construction claims.  Claimants do not even get into court to argue legal liability if the supposed wrongdoing occurred more than ten years previously.

By contrast, contribution claims between defendants are governed by a 1936 Law Reform Act.  A two year time limit applies.  But this time limit runs from the date any defendant claiming a contribution has been found liable and a court has ruled on the damages payable.

The Supreme Court ruled Beca Carter could be dragged into the BNZ case as a potential contributor to any damages awarded against Wellington City.

Wellington City has a two year period to claim against Beca Carter should it be found liable in BNZ’s separate Building Act claim.  In fact, Wellington City filed its claim for contribution against Beca Carter even before any court hearing potentially finding it liable to BNZ.

In contrast, a minority of judges in the Supreme Court agreed with Beca Carter that the Building Act ten year long-stop rule provides an industry-specific code, overriding any further Law Reform right for a defendant to later claim contributions outside the ten year period.

The majority ruling prevails.

Beca Carter Hollings & Ferner Ltd v. Wellington City – Supreme Court (18.09.24)

24.228

Investment: Birnie v. Outward Ltd

 

In the world of investment banking, it is no more than small change to put $325,000 into a blockchain start-up.  Misrepresentations about prospects for start-up Outward Ltd, which never got off the ground as planned, saw investment banker Bill Birnie and colleague Charles Pearce go full guns blazing to recover their losses.  

The two exposed a series of blatant mistruths by Warkworth-based Rob Rogers raising start-up funds for Outward.

Prospects and possibilities were presented as done deals.

Mr Rogers’ company Jervois Strategy Ltd assisted Outward in a 2018 fundraising round.  Mr Rogers was sued personally after complaints about his marketing spiel.  Justice McHerron described Messrs Birnie and Pearce as being apparently beguiled by Mr Rogers ability to spin straw into gold.

The High Court was told of multiple emails sent by Mr Rogers both talking up benefits of blockchain technology to reduce costs of financing international trade and emphasising the foothold Outward was securing in this new world.

A statement that Outward had been ‘accepted into’ Blockhaus was deceptive and misleading, Justice McHerron ruled.  It suggested Outward was a serious investment opportunity with access to an extensive trading platform.

Swiss-based Blockhaus is a blockchain-based financial investment platform.  The court record shows Outward had gone no further than having preliminary discussions with a privately-owned company based in Auckland trading under the name Blockhaus NZ Ltd.  There was never any concluded legal agreement between Outward and Blockhaus NZ, the court was told.  Outward had never been ‘accepted’ by Blockhaus.

A statement that Outward’s blockchain-based software was currently being implemented as part of a pilot project with Maersk was incorrect and made recklessly, Justice McHerron said.

The court was told that even after receiving clear advice there was no Maersk project involving Outward, Mr Rogers persisted in talking up the existence of Outward’s supposed involvement in a multi-million dollar project.

His statement that a consortium of offshore investors was about to put up to USD 30 million into Outward, with due diligence currently underway, was also misleading.

The court was told there had been preliminary discussions with this consortium, through an intermediary, but no progress was made and there was never any due diligence undertaken.     

Having ruled that these misrepresentations were in breach of the Fair Trading Act, Justice McHerron said Messrs Birnie and Pearce had no legal claim against Mr Rogers personally.

Mr Rogers’ work raising capital for Outward was done for his company Jervois Strategy, as part of its contract with Outward.  Commissions were invoiced by Jervois and paid to Jervois.

The two investors should have sued Jervois Strategy instead, Justice McHerron said.

Separately, Justice McHerron ruled any claim against Outward Ltd itself was barred by a clause in the investors’ contract exempting Outward from liability for ‘any loss or damage’ resulting from their investment.

As a general rule, the Fair Trading Act prohibits use of exemption clauses to avoid fair trading liability; to protect consumers who face ‘take it or leave it’ standard-form contracts when dealing with corporates.

But where both sides to a commercial dispute are ‘in trade,’ Fair Trading Act exemption clauses are enforced if fair and reasonable.

Justice McHerron ruled it was fair and reasonable to exempt Outward from liability in this case.  Both Mr Birnie and Mr Pearce come from investment banking backgrounds.  As wholesale investors they knew the risks of investing in start-up businesses.  They could have been more diligent in their research before investing.  The risk lay with them.

Despite having struck out on these Fair Trading Act claims, the two were awarded damages against Mr Rogers personally and Playmaker Labs Ltd, a company related to Outward.

In 2022, with litigation looming: Mr Rogers promised to pay $100,000 and Playmaker $200,000; to settle the dispute.  Playmaker paid only $10,000 before a court hearing was set down to force the issue.

Justice McHerron ruled the settlement agreement enforceable.

Both Outward and Playmaker are controlled by Peter Dowell, formerly with ANZ Bank, now a Wellington investment banker.

Birnie v. Outward Ltd – High Court (16.09.24)

24.227

Bankrupt: re Harry Shand Crawford

 

Christchurch property developer Harry Shand Crawford was bankrupted on a $942,000 guarantee over top of protestations that he had been a victim of circumstances and that unpaid creditor Blackwater Properties was being vindictive, out to ‘teach him a lesson.’

This debt followed a speculative punt by his company, then known as Crawford Group Ltd, buying four adjoining properties in Christchurch suburb Phillipstown for proposed redevelopment.  His company defaulted.  The guarantee was called up.

The High Court was told Blackwater had some difficulty in tracking down Mr Crawford to serve notice of its bankruptcy application.

At a subsequent bankruptcy hearing, Associate Judge Lester refused Mr Crawford’s request to be excused bankruptcy on Insolvency Act ‘just and equitable’ grounds.

Mr Crawford is hopelessly insolvent, he said.  Mr Crawford claims to own only some furniture and have less than one thousand dollars in his bank account.

Mr Crawford’s commercial behaviour as a property developer warrants bankruptcy and with it further investigation by Insolvency Service, Judge Lester said.

The court was told Mr Crawford took steps to strip assets out of Crawford Group after it defaulted on the Phillipstown purchases, knowing it was going to be sued.

Mr Crawford was commercially irresponsible, Judge Lester said.

Mr Crawford’s allegations that Blackwater’s director was known for ‘aggressive bankruptcy tactics’ that had resulted in ‘business associates nearly being murdered’ were dismissed as factually incorrect.

re Bankruptcy of Harry Shand Crawford – High Court (13.09.24)

24.226