Insurance: IAG v. Degen

 

Insurance companies have drawn the line on Christchurch property owners gaming insurance payouts for earthquake damaged homes by now refusing to make upfront lump sum payments for owners opting to manage their own repairs; reimbursement will be made only as and when invoices are submitted for repairs completed.

Settlement of Mr Degen’s NZI insurance claim was much delayed with a dispute whether his property could be repaired or required demolition and a rebuild.  Their dispute reached the Canterbury Earthquakes Insurance Tribunal, set up in 2019 to provide a speedier and more flexible judicial forum to settle insurance disputes.

A 2022 Tribunal ruling found in favour of NZI: Mr Degen’s house could be repaired; a rebuild was not necessary.

But NZI objected to the Tribunal’s ruling that NZI’s owner, IAG Insurance, make a lump sum payment as soon as Mr Degen had signed a building contract for repair.

The insurance industry has faced a pattern of property owners gaming upfront payouts for owner-managed repairs.  A promised repair contract might be cancelled or heavily amended after a cash payout is made, or no repairs made at all.  Christchurch property marketing campaigns frequently advertise properties selling on an ‘as is, where is’ basis; often a case of the vendor having taken a cash payout for owner-managed earthquake repairs, undertaking little or no repairs, then later selling.

In the High Court, Justice Hinton ruled IAG was not required to make an upfront cash payout on Mr Degen’s claim.  Payment was due only after Mr Degen had incurred costs of repair, had submitted invoices and IAG was satisfied the costs are reasonable and relate to the risk insured.

It is implicit in any insurance contract promising ‘cover’ for insured risks that any payment must relate to making good the loss, Justice Hinton ruled.

In passing, the High Court was asked to consider the legal effect of wording in the Fair Insurance Code requiring insurers to ‘settle all valid claims quickly and fairly.’  Justice Hinton emphasised the key word is valid.  No valid claim requiring ‘quick’ payment exists where there is an ongoing dispute with the insurer over the extent of coverage and the amount to be paid.

IAG New Zealand Ltd v. Degen – High Court (6.03.24)

24.069

Relationship Property: Kemp v. Kemp-Upton

 

Six years after their property assets were divided as part of a relationship property agreement the two are back in court; there was no written agreement as to division of joint liabilities, in particular a $1.7 million Westpac mortgage.

Jan Kemp and Andre Kemp-Upton separated in 2014 after a 32 year marriage.

The High Court was told at that time they had joint control of five Auckland properties and a property in Fiji, all held through a family trust.  With the assistance of their then accountant, a schedule of joint assets and liabilities was drawn up and agreement in principle reached on division of assets and liabilities.  Seeking to avoid the need to make any cash adjustments, it was agreed the properties would be valued and then parcelled out between the two; Andre took two Auckland properties and their interests in Fiji, Jan the remaining three Auckland properties.

A formal relationship property agreement signed three months later agreed transfer of the properties but made no specific reference to liabilities, other than joint liability for their personal credit card debts at time of separation.

In 2021, Andre sued, claiming he had paid more than his half share of their joint liabilities.  He demanded payment of some $136,000 to square their obligations.

Jan took the fast-track summary judgment route, claiming there was never any agreement to share liabilities.  Provision for existing mortgage liabilities was dealt with in net asset valuations for the properties since shared out, she says.  Her former husband’s current claim suggests their previously agreed property valuations were skewed in his favour she says.  In addition, there had never been any valuation made or credit given for her share of Andre’s business, Our Space Architecture Ltd, which was agreed to be a relationship asset, she states.

Disputed facts cannot be dealt with in fast-track summary judgment applications, Justice Robinson said.  It needs a full court hearing.

It is for Andre to establish how the original property valuations were calculated and to explain why their relationship property agreement failed to state liabilities were to be shared equally as he now claims, Justice Robinson ruled.

Kemp v. Kemp-Upton – High Court (1.03.24)

24.065

Loan: Chen v.Tawa Trade Finance

 

Auckland property investor Liyun Chen was ordered to pay $1.1 million as guarantor after her company defaulted on a loan refinancing properties in Auckland suburb Flat Bush.  This amount will increase, with interest running at 28 per cent until payment.

The High Court was told Ms Chen misled financier Tawa Trade Finance Ltd by signing a loan contract as guarantor for her company LC1521319 Development Co Ltd promising Tawa Finance would have first mortgage security when rights to a first mortgage over Flat Bush had already been promised to General Finance.     

The Tawa Finance loan was a short-term six month loan dated June 2022, rolled over for six months at her request.  Security was offered over multiple Flat Bush properties.

Unable to refinance at end of the roll-over period, Ms Chen raised a raft of legal reasons why Tawa Finance could not force repayment, variously alleging: promises of a further extension had been made; Tawa was in breach of the Credit Contracts and Consumer Finance Act; there had been a failure to comply with the Anti-Money Laundering and Countering Financing of Terrorism Act; there were breaches of the Fair Trading Act, and; that Tawa Finance had failed to get the best price when selling up the Flat Bush properties.

Associate judge Taylor dismissed all these claims.  LC Development was in breach of contract from the start because it was never in a position to give Tawa Finance the promised first mortgage security.

Evidence was given that Tawa Finance was owed some $2.5 million subsequent to the discovery it did not have first mortgage security, instead ranking behind General Finance.  It first had to account to General Finance before claiming monies from forced sale of the Flat Bush properties.

General Finance’s right to first mortgage security was contained in an agreement to mortgage, later protected by a caveat registered against title to the Flat Bush properties.

Ms Chen claimed Tawa Finance sold the properties at below market values.  Tawa said Ms Chen was incorrectly using as her benchmark market values as at 2021.  Market prices had fallen since.

Ms Chen said Tawa Finance had unreasonably rejected a conditional sale she herself had organised.  Judge Taylor said Tawa was under no obligation to accept a conditional offer and further was under no obligation to accept a deal on offer whereby $100,000 of the price was to go to Ms Chen’s former partner.

Ms Chen also complained that Tawa Finance was delaying sale of one property so as to accrue more penalty interest, wiping out any equity in the property.

Judge Taylor ruled Tawa Finance had acted properly, taking advice from reputable real estate agents in how to best market the Flat Bush properties.

Chen v. Tawa Trade Finance Ltd – High Court (1.03.24)

24.067

Joint Venture: Chen v. Huang

 

A relationship beginning as friends ended with allegations of dishonesty in handling Chinese investment in the New Zealand wine industry.  Xiaolin Chen was ordered to repay $1.2 million and Waihopai Valley Vineyard Ltd ordered to repay $1.17 million; money advanced to take Waihopai Valley Vineyard out of receivership in 2013.  Chen interests subsequently sold Waihopai assets without accounting for the proceeds.

It was a friendship between their respective spouses that saw Xiaolin Chen, also known as Chris Chen, join forces with Hongzhao Huang back in 2006 with plans to develop vineyards in New Zealand.  A New Zealand citizen since 2001, Mr Chen promoted New Zealand wines in China though franchised outlets branded as Chateau Kiwi.  Mr Huang lived in China.

The Court of Appeal was told their joint business interests first commenced with plans to buy land in Matakana, north of Auckland, intending to develop a lifestyle subdivision within a vineyard.  Ownership at Matakana was taken in the name of Mr Chen.  Mr Huang stayed in the background; lacking New Zealand citizenship, he needed Overseas Investment Office consent before surfacing as an owner.

The Matakana purchase adjoined land owned by the Vegar family.  They introduced Mr Chen to another business opportunity, developing a further vineyard in Marlborough; a proposal which eventually became Waihopai Valley Vineyard Ltd.  The Vegars were to develop and manage this project on his behalf.

By 2013, the Marlborough project as in deep financial trouble: contractors unpaid; crop yields down; and a dispute with the Vegars over payments due for the current harvest.  ASB Bank appointed receivers to protect its mortgage security over the vineyard and its current crop.

Mr Chen’s relationship with Mr Huang then got a lot more complicated.  At a time when their Matakana business relationship was underway, Waihopai needed rescuing.

Mr Chen floated the idea of having ASB repaid by merging Matakana and Waihopai, with Huang interests putting in cash and taking an equity interest in the Marlborough vineyard.

The two were later in court arguing over the status of Mr Huang’s $2.3 million cash injection used to repay ASB.

Mr Huang claimed it was a loan, as yet repaid.  Mr Chen said it was an equity investment.  Mr Chen had some explaining to do, Mr Huang said.

The Court of Appeal was told Mr Chen sold off Waihopai assets after the company came out of receivership, distributing the $7.4 million proceeds to Chen interests, with nothing for Mr Huang.  He learnt of the asset sales months after the event.

Litigation centred on Chinese cultural norms of guanxi, the importance of maintaining ongoing relationships unfettered by any need for written documentation, a practice most commonly seen with intra-family financial arrangements.

The Court of Appeal ruled this was not a case where guanxi was relevant.  The two had a business relationship stretching back years.  In their business dealings, the practice had been to formalise their relationship with legally-drafted contracts.

Mr Huang’s $2.3 million Waihopai cash injection was a loan, not an equity investment, the court ruled.

There was no evidence of an agreed integration of the Matakana and Waihopai businesses, such that Mr Huang was an equity investor in Waihopai.  Both sides had circulated various merger options.  These were no more than ‘suggestions’.  Shareholdings were never decided, being dependent on further due diligence and asset valuations.

One stumbling block in their Waihopai merger negotiations had been Mr Huang’s demand to see copies of Waihopai’s financial statements, copies which Mr Chen never handed over.  It was later discovered Mr Huang’s cash advances were recorded in Waihopai’s financial statements as loans, albeit as ‘shareholder loans.’

In addition, Mr Chen had confirmed to the Overseas Investment Office in 2018 that the $1.2 million he received from Mr Huang was a loan.  This at a time when the Office was suspicious that Mr Chen had been improperly acting as trustee for Mr Huang, potentially part of a scheme to end-run overseas investment rules requiring Mr Huang to first get approval before making equity investments in New Zealand land.

The court ruled Mr Chen was personally liable to repay the $1.2 million received from Mr Huang.  Waihopai was liable to repay $1.17 million it received direct from Mr Huang.

Action is being taken against Chen interests to recover cash stripped out of Waihopai following the Waihopai asset sales.

Chen v. Huang – Court of Appeal (1.03.24)

24.068

Fraud: re Cryptopia Ltd

 

Liquidation costs to date exceed $23 million for Cryptopia liquidators Grant Thornton chasing down cryptocurrency assets hacked in a 2019 online attack and seeking both to identify Cryptopia customers and to reconcile customer accounts.  The High Court has set out rules for customer repayments with a December 2024 deadline for claims.

Based out of Christchurch, Cryptopia Ltd was supposedly a secure custodian for nearly one million account holders from some 180 countries storing hundreds of different cryptocurrencies.

The hack targeted ‘hot wallets’ on Cryptopia’s servers used to meet requests for outgoing cryptocurrency.  Currencies stolen were only Bitcoin, or cryptocurrencies readily exchangeable for Bitcoin.  Liquidators’ report that nine per cent of Cryptopia’s Bitcoin holdings were stolen.  Those responsible have never been identified.  Seventeen Cryptopia Bitcoin were later recovered in the United States by the FBI.  The true owner could not be identified; this Bitcoin had been put through ‘the mixer.’

Four years into liquidation, Grant Thornton applied to the High Court for directions on distribution of assets held.

They told the court all cryptocurrencies held at date of liquidation had been moved to a secure server and accounts frozen.

Liquidators are separately holding $855,000 on behalf of 12,000 depositors; crypto currencies paid into Cryptopia for safekeeping subsequent to the widely publicised 2019 hack and apparently in ignorance of advice not to make further deposits.  Individual depositors are known.  These funds are to be returned.

More complicated is allocation of losses between Cryptopia depositors as at date of the hack.

The High Court ruled each type of cryptocurrency on the books is to be treated as a separate class.  Depositors for each currency prove against Cryptopia holdings of that crypto asset.  Liquidators can ignore low account balances where nominal value due for repayment is less than that account holders share of liquidation costs.  They are to be written off.

The High Court approved a ‘soft cut-off date’ and a ‘hard cut-off date.’

Grant Thornton has set up a claims portal to interact with account holders.  Some 25 per cent are based in the United States.

Liquidators told the High Court that as at November 2023, over eighty per cent of account holders had opened their email advising of the portal.  Only thirteen per cent had completed the registration and identification process.  Liquidators said this low response rate was typical of overseas cryptocurrency frauds.  Account holders may suspect the process is an ‘exit scam’ seeking to steal more money, or may have been hiding illicit proceeds from money-laundering or fraud, or have already written off any claim as not worth pursuing.

The proposed ’soft-cut off’ date is 90 days from the date liquidators email account holders advising claims procedure is closing.  This provides a window within which account holders are told what is the liquidators’ assessment of funds held on their behalf.  Account holders can challenge this calculation, providing evidence to the contrary.

The ‘hard cut-off’ date is 31 December 2024.  Account holders who have not engaged with the liquidators by this date are presumed to have abandoned any claim.  Account holders with valid claims will then be paid out.

After deduction of liquidators’ costs from each class of cryptocurrency, the crypto assets held by the liquidator will be returned pro-rata to account holders in that class.  There may be instances where there is a surplus; a lack of claims in one cryptocurrency class might mean there are enough crypto assets to achieve a full return to those account holders who do claim, with cryptocurrency left over. 

Liquidators told the High Court there are complications in making in specie cryptocurrency distributions to account holders in some countries.  They identified ten countries, including China and Vietnam, where it is illegal to deal in cryptocurrencies.  Liquidators said Cryptopia has some 1,100 account holders in these ten countries with holdings between them valued in excess of USD two million.  The High Court approved payment to these account holders in cash, following sale of their cryptocurrency holding.

The High Court signalled liquidators can return to court after their distribution to customers to decide how any surplus might be distributed.

Still standing in line are Cryptopia’s unsecured trade creditors, currently owed $2.9 million.  Cryptocurrency account holders not repaid in full will probably join them.

re Cryptopia Ltd (in liquidation) – High Court (1.03.24)

24.066

Ruapehu Alpine: Gibson v. Platt

 

Insolvency specialists separately managing skifield operations at Ruapehu joined forces to bat away legal argument from users that government interests are subservient to users rights at a time when taxpayers have provided over $17 million to keep the skifield open while a buyer is found.

A cascade of factors forced Ruapehu Alpine Lifts Ltd into a liquidation: heavy borrowing to fund construction of its $25 million Sky Waka gondola; covid pandemic travel restrictions and border closures keeping visitors off the mountain; and warmer weather meaning less snow.  Ruapehu Alpine owns skifield assets on the central North Island mountain, which coupled with a Conservation licence allow it to run commercial operations in what is a national park.

Its 2023 liquidation saw insolvency specialists at PwC appointed liquidators.

Prior to liquidation, eight million dollars of taxpayer support kept Ruapehu Alpine trading.  This was topped up with another tranche of five million dollars prior to the 2023 ski season; PwC needed to keep Ruapehu Alpine alive both to generate income from sales in the coming season and to maintain a viable business ready for sale.

In the background, financier ANZ Bank bit the bullet and exited what had been a catastrophic deal with Ruapehu Alpine.  ANZ funded the Sky Waka project.  By October 2023, ANZ was owed $16.1 million.  It sold this debt and its rights as secured creditor to government-owned Crown Regional Holdings Ltd for a nominal one dollar plus a deferred entitlement to receive fifty per cent of any funds recovered by Crown, capped at $638,400.  Exercising ANZ’s rights, Crown immediately appointed as receivers insolvency specialists at Calibre Partners.

This receivership annoyed some skifield users, complaining the appointment was invalid.  Members of Ruapehu Alpine’s liquidation committee led the charge.

Company law allows creditors of an insolvent company to band together, appointed as a committee to oversee a liquidation.

Ruapehu’s five person liquidation committee represents groups interested in seeing Ruapehu Alpine revived, including Ruapehu Alpine staff and skifield life pass holders.

The committee had its eyes on some $2.4 million cash in hand generated from Sky Waka ticket sales.  This money belonged to Ruapehu Alpine they claimed.  The cash was available to pay liquidation committee members for ‘actual out-of-pocket expenses necessarily incurred,’ as permitted by the Companies Act, it said.

Both PwC and Calibre Partners faced the possibility these ‘out-of-pocket expenses’ would extend to legal action challenging Crown’s appointment of a receiver, and with it, disruption to any sale of Ruapehu Alpine’s assets.  They jointly asked the High Court to rule on who was entitled to cash from Sky Waka ticket sales.

Justice Campbell ruled the money belonged to Crown Regional Holdings.  It had purchased ANZ’s rights.  These rights included a right to keep ‘after-acquired property’ relating to Sky Waka.  All cash from ticket sales was after-acquired property.

Justice Campbell rejected an argument that any cash coming into the hands of a liquidator must be held for the benefit of unsecured creditors and can be accessed by a liquidation committee.  While the liquidator did receive the cash, first claim on these ticket proceeds goes to any creditor who has security over gondola revenue.  It is similar to the liquidator of a retail store holding a ‘liquidation sale,’ he said.  In a retail context, the liquidator acts as agent for any creditor holding security over stock in store, getting in the cash before handing it over.

The High Court was told PwC and Calibre Partners had agreed between themselves a modus operandi, allowing the receivers to manage day-to-day operations of the skifield.  This arrangement was supported by a further tranche of government funding: $4.3 million.

Gibson v. Platt – High Court (28.02.24)

24.064

Investment Fraud: Huljich v. McCaffrey

 

If it were a film script, it reads like a scam built on a scam.  Entrepreneur Chris Huljich is chasing down proceeds of a USD 1.5 million investment stolen by a Hong Kong based investment broker and now allegedly misappropriated a second time by a UK-based recovery agent who was hired to follow the money.  Following an undefended High Court hearing, recovery agent Patrick John McCaffery was ordered to pay NZD 12.8 million.  There is no evidence McCafferty has any assets in New Zealand available to satisfy this court judgment.

The High Court was told Mr Huljich placed USD 1.5 million for investment in 1999, only to see the funds disappear within a year; part of a multi-million dollar theft by a Hong Kong based investment broker described in court only as ‘Mr H.’  Twenty-five years on, all Mr Huljich has is promises by a recovery agent that the proceeds have been tracked down.

Evidence was given that Mr Huljich signed up in 2003 with a fraud detection service called TASK International Ltd.  It undertook to trace where the stolen money had gone; in return for twenty per cent commission on any assets recovered, plus expenses covered in part by a USD 30,000 retainer.  TASK was recommended by the same adviser who recommended placement of the earlier stolen investment; a Mr Olliver.

Mr McCaffrey was the TASK contractor on the job.  He reported that some of the stolen money was used to buy valuable collectables: paintings, rare watches and pens, plus gold coins.  He said TASK did not have the resources to recover any of these items.

Subsequently, Mr McCafferty offered personally to recover the assets, sell them and account to Mr Huljich for the proceeds.  A formal contract was signed in 2012, after Mr McCafferty stated he was holding the assets in a UK warehouse, ready for sale. 

The 2012 contract was not straightforward.  A string of individuals stood in line to receive payment from any funds recovered: first a 7.5 per cent commission payable to Auckland barrister Charles Sturt (who witnessed the agreement); $100,000 due Mr Olliver for past expenses; then thirty per cent of the remainder for Mr McCafferty.  Any surplus after full repayment of Mr Huljich’s USD 1.5 million was to be split between Mr Huljich and Mr Olliver on a sliding scale.

Mr Huljich was provided with an inventory of assets seized, together with presumed values.  Mr Olliver reported that in the company of Mr McCafferty he had sighted the assets in warehouse storage in the UK.

A 2021 asset schedule sent to Mr Huljich valued the collectables in storage at GBP 8.8 million.

He was told intended sales of these collectables and conversion to cash had been complicated by death of one of the warehouse owners.  Mr Huljich told the High Court current whereabouts of these assets is now unknown.

In New Zealand, Justice O’Gorman ruled Mr McCafferty liable for breach of contract; failing to sell the reportedly seized assets and to account for the proceeds as promised in their 2012 contract.  Damages were calculated at NZD 12.89 million; being seventy per cent by value of the assets listed in the inventory supplied as valued by Mr McCafferty.

Huljich v. McCaffrey – High Court (28.02.24)

24.063

Relationship Property: Alalaakkola v. Palmer

 

Copyright in works of art produced during a relationship amount to relationship property, the Court of Appeal ruled.  But these copyrights need not be shared equally when a relationship ends.  Copyright can be valued with the artist buying out their former spouse’s half interest. 

Artist Sirpa Alalaakkola took strong exception to former spouse Paul Palmer exercising any control over commercial exploitation of her work saying her artistic output amounted to a personal brand; ‘I am my art and my art is me,’ she said.  Uncontrolled and unsanctioned exploitation of her work would affect ‘my good name, my identity and my soul,’ she explained.     

Ms Alalaakkola is renowned for her colourful artwork, much of it depicting holiday activities.

Relationship property law governs both works of art and copyright in reproductions.  The physical representation of a painting by itself is a chattel; an item of property.  The right to make reproductions is also a property right; an example of intangible property with exercise of these intangible rights prescribed by copyright law.

Ms Alalaakkola objected to copyright in various paintings being transferred to Mr Palmer as part division of their relationship property.  He indicated plans to make and sell reproductions.

Recognising that her art is highly personal, the Court of Appeal ruled that it was inappropriate and unfair to impose a transfer of copyright in selected paintings from Ms Alalaakola to her former spouse as part of a disputed relationship property claim.  A primary principle in the Copyright Act is that the artist personally controls any transfers of copyright.

The court ruled that copyright in all of Ms Alalaakkola’s artistic output held at the date their relationship ended be valued.

This will require some heroic assumptions as to the potential future income stream likely from sale of any reproductions.  The Court of Appeal delegated this task to a future Family Court hearing.

Mr Palmer is entitled to a credit for half the value of these copyrights in the final division of their relationship property.

Alalaakkola v. Palmer - Court of Appeal (21.02.24)

24.062

Contract: Heartland Bank v. Internet Business Systems

 

Described as a Heartland Bank delaying tactic, its claim that a $2.77 million disputed invoice should be argued in the New Zealand courts rather than Australia was dismissed.  IT company Internet Business Systems gets to have its claim heard in the state of Victoria.

The disputed invoice relates to an aborted Heartland project to set up a new online platform for its retail consumer car loan business.  Its previous dealings with Internet Business Systems Australia Pty Ltd had been successful; delivering software tracking inventory for Heartland’s lending to car dealerships. 

This initial project led to Heartland in 2021 issuing a ‘request for proposal’ to set up a retail platform.  Internet Business was again engaged, but terms and extent of this engagement are disputed.  Heartland cancelled the project expressing concerns whether Internet Business could deliver on time, or at all.

Internet Business sued in Australia for work done to date.  Both sides agreed there had never been any formal contract signed; the disputed work had progressed in tandem with an initial scoping ‘discovery’ phase.  Heartland paid an agreed $100,000 upfront for this discovery phase.

A preliminary legal issue arose; did New Zealand law or Australia law apply to their $2.77 million dispute?

The Trans-Tasman Proceedings Act governs jurisdictional disputes.

In the New Zealand High Court, Justice Andrew ruled Australia was the better jurisdiction.  Internet Business will likely succeed in a claim for quantum meruit; compensation for work done in the absence of any contract.

Quantum meruit compensation is specifically demanded by Internet Business in its Australia claim.  In New Zealand, Heartland is narrowly arguing no contract existed at all, ignoring any quantum meruit entitlement.

The High Court was told a Heartland executive emailed Internet Business at a time when the project was being put on hold, stating that Heartland would ‘mahi tika;’ do the right thing, paying for work done.

Heartland Bank Ltd v. Internet Business Systems Australia Pty Ltd – High Court (20.02.24)

24.061

Misrepresentation: Munroe Trustee v. Wang

 

Auckland property purchaser, Dabin Wang, says a $1.07 million claim for loss on resale following his default on an Auckland purchase is far too high; misleading information about the level of buyer interest caused him to bid too high in a closed tender offer, he says.  The vendor has to accept responsibility for misrepresentations by its real estate agent, he claims.

Mr Wang defaulted on a $2.96 million purchase, losing his deposit.  The vendor later resold at $1.78 million.

Munroe Family Trust put its North Shore property at Forrest Hill up for sale in July 2021.  Barfoot & Thompson’s Milford branch was appointed agent.  Kai Deng from Barfoot drew Mr Wang’s attention to the listing.  The property had potential for subdivision into townhouses.

Mr Wang is an immigrant from China.  He speaks poor English.  Dealing through Mr Deng had the advantage they could converse in Mandarin.  The High Court was told Mr Wang had previously purchased at least three properties through Mr Deng.

When tenders closed for Forrest Hill in July 2021, Mr Wang’s $2.96 million was the highest offer.  He was to later learn the next highest bid was $610,000 less.

When sued for Munroe Trust’s loss on resale, Mr Wang claimed Barfoot’s Mr Deng had misled him.  He claims Mr Deng talked up the level of buyer interest alleging he was told active buyers were offering in the range $2.7 million to $2.9 million.  He alleges Mr Deng said a bid near three million dollars would be needed to secure the property.

Mr Deng says he has ‘no memory’ of making such comments.

After a High Court fast-track summary judgment hearing, Associate judge Brittain ruled it was arguable that Mr Deng was acting as agent for vendor Munroe Family Trust when making the alleged pre-contract misrepresentation and that the Trust had to accept responsibility, if the comments are true.     

A full court hearing is needed to resolve the conflict in evidence between Mr Wang and Mr Deng, Judge Brittain ruled.  The nuances of what Mr Deng said speaking in Mandarin needs to be considered when translated into English, he said.

As a side issue, Mr Wang claims Mr Deng was also at fault for not explaining at time of the sale any potential consequences of defaulting.  Mr Wang said in China the only penalty is loss of deposit.  The New Zealand rule is that a defaulting buyer loses not only the deposit paid but is also liable for any loss on resale.

Munroe Trustee Ltd v. Wang – High Court (19.02.24)

24.060

Family Trust: Logan v. Bishop

 

There is no public registry providing details of family trusts, forcing Auckland insolvency specialists Larissa Logan and Rhys Cain to get High Court orders requiring shareholders of insolvent Auckland recruitment agency BF7 Trading Ltd to identify trustee names for their family trust.

Without trustee names, BF7 liquidators cannot start legal proceedings to recover a $315,000 family trust debt allegedly owed the company.

BF7 was propelled into liquidation by Inland Revenue in 2021, claiming unpaid tax debts of some $480,000.  The recruitment company has gained unwanted media publicity over migrant worker employment issues.  Spencer Bishop is currently listed as BF7 director; Spencer together with Raymond Bishop as shareholders.

The High Court was told company financial statements list the Bishop Family Trust as a BF7 creditor owing some $315,000.  A liquidators’ letter requesting repayment was ignored.

At a liquidators’ formal interview, Spencer Bishop declined to name trustees of his family trust; needing time to check the documents, he said.  Follow-up requests for the information were ignored.  BF7’s bank did not know the trustees’ names.

Liquidators were in a bind.

To get into court and sue for recovery of the claimed loan, the person or persons being sued need to be identified and served with court papers.  Family trust records are private documents.  There is no public record listing trustees of family trusts.

Both Spencer and Raymond Bishop were sued to force disclosure.  They said it was a breach of privacy to force disclosure of private information about a family trust.

Associate judge Sussock said liquidators are under a Companies Act duty to realise and distribute company assets in a reasonable and efficient way.  The Bishops were ordered to disclose written documents in their control that identified terms of the $315,000 family trust loan together with the trustee’s names and contact details.

To forestall responses by the Bishops that they have no relevant documents ‘under their control,’ Judge Sussock said in the circumstances of a family-owned company dealing with a family trust it did not matter in what capacity the Bishops had access to relevant documents, disclosure was required.

If Spencer and Raymond are beneficiaries, they are in a position to know names of the trustees; the Trusts Act requires disclosure to beneficiaries of ‘basic trust information’ which includes details of who are the trustees.   

The disclosures required do not extend to disclosure of any assets held by the Bishop Family Trust, Judge Sussock emphasised.

Logan v. Bishop – High Court (16.02.24)

24.059

Asset Forefeiture: McFarland v. Commissioner of Police

 

Gang culture with its strong ethic that you do not rip off fellow gang members saw police make use of Christchurch Head Hunters hand-written cash records in a Court of Appeal ruling confirming criminal proceeds confiscation of its Wigram gang pad; a property worth some half million dollars that Head Hunters inherited at no cost from previous owners, the disestablished Epitaph Riders.  

The court dismissed Head Hunter claims that the Vickerys Road property had not been renovated with funds generated by illegal activity and that confiscation would amount to undue hardship.

Evidence was given that West Auckland chapter of Head Hunters set up what in effect was an operating subsidiary in Christchurch following the 2015 demise of local gang, Epitaph Riders.  Most members of the Riders had left gang life; others ‘patched over,’ welcomed into Head Hunters.

At that time, Epitaph Riders headquarters in Wigram was all but abandoned.  Title to the property was held in name of Lincoln Property Investments Ltd.  Head Hunters’ members assumed ownership with a change in company personnel as directors and shareholders.

After senior members of Christchurch Head Hunters were jailed for drug dealing, police applied to have Vickery Road confiscated as ‘tainted property’ under the Criminal Proceeds (Recovery) Act.

Police claimed the gang headquarters was extensively renovated with profits from sale of methamphetamine, money extorted using standover tactics and profits from pokie machines sited at Vickery Road operated without a Gambling Act licence.

At a High Court hearing, evidence from a quantity surveyor valued cost of the renovations at some $180,000 on the assumption work was done by contractors at commercial rates.

Head Hunters claimed the work cost no more than $10,000.  Materials were gifted, or picked up cheap on TradeMe, they claimed.  Much of the work was done by gang members, using their trade skills, they said.

The renovations clearly cost more than $10,000, the Court of Appeal ruled.

At issue was source of the funds.

In evidence were notebooks seized by the police; a written record of gang cash transactions.  The gang had an appointed bookkeeper, keeping a tally of cash received and cash expended.  This was to ensure no member ‘ripped off’ their own gang.

The notebooks recorded sale of motor vehicles (which police wire taps identified as vehicles sold after being seized from its then owner), bar takings, raffle receipts, and pokie revenue, together with book entries of cash with no source references and other entries claimed to be donations.  In court, Head Hunters’ lawyer acknowledged the likelihood of anyone making cash donations to Head Hunters was ‘pretty slim, but not impossible.’

Notebooks’ content was accepted by the Court of Appeal as evidence of cash generated from illegal activities.  Attempts by Head Hunters to have the notebooks excluded as unreliable evidence were not successful.

Claims that confiscation of Vickery Road amounted to undue hardship was also dismissed.

Head Hunters said seizure of their half million dollar property was out of proportion to any illegally obtained cash spent on renovations. In contrast, ‘white-collar’ criminals having assets confiscated for tax evasion lose assets only to the value of the benefit wrongly obtained, they said.

Confiscation was no hardship, the Court said.  Head Hunters paid nothing when gaining ownership of Vickery Road from Epitaph Riders.         

McFarland v. Commissioner of Police – Court of Appeal (16.02.24)

24.058

Maori: re Estate Sapasui Fred

 

It had been the family home for some sixty years.  Following the death of their surviving parent Sapasui Fred in 2003, four children have been in conflict over continued use of their Auckland home; son Nooroa living at the property saying cultural traditions require the home stay in the family; his three siblings saying it should be sold to realise their joint inheritance.

A High Court application under the Property Law Act saw a sale ordered, but an actual sale delayed five months to give all siblings a chance to talk.

The court was told Ms Fred died without leaving a will.  Default rules in the Administration Act see her estate divided equally between her four biological children.  Other members of the family raised as whangai adoptions do not qualify for a share.

Son Nooroa currently occupies the family home in Auckland suburb Otara, together with his two whangai sisters, his son and two nephews.  Rates are in arrears.  Nooroa has not been charged rent by his late mother’s estate for the near two decades he has been in occupation.

Ms Fred was born in Niue; her late husband was Cook Island Maori.

Maori cultural norms see land as a cultural heritage, not a commodity to be bought and sold.  Land is expected to be passed from generation to generation; current occupiers are merely custodians.

Justice Tahana commented that these cultural views do not necessarily elevate individual economic benefits above family relationships and future generations.

The Otara property is not customary Maori land; it is held as general land with ownership registered under the Land Transfer Act.  Currently, all four siblings are registered as owners, holding title as trustees of their late mother’s estate.

Justice Tahana urged the four siblings meet to resolve their differences, suggesting a rental arrangement might be considered.

Failing any agreement, Nooroa and his extended family are required to vacate the property in June 2024 and the property sold.  Net proceeds of sale is to be divided equally between all four siblings.

re Estate Sapasui Fred – High Court (16.02.24)

24.057

Mortgage Fraud: Westpac v. New Dawn Holdings

 

The property deal did not go ahead, but lawyer Jesse Nguy still drew down $1.3 million bank finance supposedly to complete the purchase and then misappropriated the money.  Despite never seeing the money, borrower New Dawn Holdings Ltd and guarantor Colin Chu were still liable to repay Westpac, the Court of Appeal ruled. 

Liability for borrowings on the aborted Auckland property purchase turned on questions of agency law; who was bent lawyer Jesse Seang Ty Nguy acting for?

The court was told New Dawn Holdings committed to its purchase in late 2019.  Paperwork for a Westpac home loan was signed, with approval given for $1.32 million mortgage finance; a thirty year secured loan.  New Dawn and Mr Chu nominated as their lawyer Mr Nguy, a sole practitioner then operating out of Auckland’s central business district and trading as Jesse & Associates.

As is usual practice, Westpac sent instructions to the nominated lawyer to act as its agent in completing the paperwork, getting all legal documents signed and have the bank protected as first mortgagee with a mortgage registered against title to the property after settlement date.

Evidence was given that after receiving the lawyer’s signed certificates that all was ready to go, Westpac paid the loan finance into Mr Nguy trust account ready for settlement.  Unbeknown to the Bank, the purchase never went ahead.  The Bank continued to remain in the dark because interest was paid on the loan for some twelve months.  When interest payments stopped, the Bank discovered its supposed secured home loan was an unsecured loan with the money misappropriated by Mr Nguy.

Westpac sued.

In High Court fast-track summary judgment proceedings, Mr Nguy was ordered to pay damages to Westpac.  As agent for Westpac, he had failed to apply the mortgage funding as instructed.

The positions of borrower New Dawn Holdings and guarantor Mr Chu were less straightforward.  New Dawn had never received any money.  There was nothing to repay, they said.

The Court of Appeal ruled New Dawn as borrower and Mr Chu as guarantor were liable to make repayment to Westpac simply by terms of their Westpac loan contract.  Any failure by Mr Nguy to pass on the money was a matter between Mr Nguy and them.  Mr Nguy was acting as agent for New Dawn and Mr Chu at the time he misappropriated their money.

Mr Nguy was struck off the roll of solicitors in October 2021.

It came out in evidence that there was a close business relationship between Mr Chu and Mr Nguy at time of the aborted purchase.

While the loan application led Westpac to believe Mr Chu was sole shareholder of New Dawn Holdings, there was a side deal; Mr Chu held a 25 per cent stake only.  He held 75 per cent of New Dawn’s shareholdings as trustee for Mr Nguy.  The interest payments made to Westpac for just over a year were funded by both Mr Chu and Mr Nguy, the court was told.

Westpac v. New Dawn Holdings Ltd – Court of Appeal (14.02.24)

24.055