Maori: Clarke v. Takamore

Cross-cultural differences in “body snatching cases” pit rights of individual freedom against the collective decisions of tribal custom. The High Court ruled that individual freedom takes priority where before death the deceased has made a clear choice about funeral arrangements.

Arrangements following the 2007 death in Christchurch of Jim Takamore gained national exposure when his body was taken by close relatives back to his home marae in the Bay of Plenty against the wishes of his grieving widow who planned to bury her late husband in Christchurch.

The court was told that Mr Takamore had chosen to live outside the tribal life and customs of Tuhoe, his tribe. He had lived in Christchurch for over twenty years and described himself as a “South Island Maori”, meaning he no longer identified with the life and traditions of his North Island ancestry.

Justice Fogarty ruled that under common law Mr Takamore was entitled to have his views respected on death, especially where he had chosen his widow to carry out these wishes as executor. The collective will of Tuhoe could not be imposed on his executor.

Evidence was given that Tuhoe tikanga for dealing with disputes over where a burial should take place could be settled by consensus or compromise, but failing that strong-arm tactics could be used relying on cunning, courage and determination.

The court case followed heated discussions following Mr Takamore’s death between his immediate family and relatives who had travelled down from the Bay of Plenty with the intention of returning his body to the home marae. Under Tuhoe custom, an important spiritual link exists between your place of birth and burial. The body was taken north, over the widow’s protestations.

Mr Takamore’s widow immediately got a court injunction to prevent his burial in the Bay of Plenty, but the burial went ahead in any event.

The Court ruled that members of Tuhoe had taken Mr Takamore’s body north without legal authority. His widow was entitled to have the body returned.

One complication however is that Mr Takamore was buried on private land at his home marae. Consent of his Tuhoe relatives was required to disinter his body. The case was adjourned to give all parties a chance to reflect on the court ruling. There was evidence that some Tuhoe were distressed that tribal members had taken Mr Takamore’s body north against the wishes of his widow.

Clarke v. Takamore – High Court (29.07.09)

10.09.001

Employment: McAlister v. Air NZ

Discrimination on grounds of age can be applied to airline pilots, but employers must first make an effort to adjust scheduling to minimise the problem.

Issues of age discrimination reached the Supreme Court when Air New Zealand faced United States restrictions on pilots aged 60 or older flying into its airspace. These pilots could fly into the US as first officer, but not as pilot-in-command.

In response, Air NZ policy was to demote senior long-haul pilots to first officer, enabling them to continue flying the US route.

In a test case, Mr McAlister argued this policy was age discrimination in breach of the Employment Relations Act 2000. Human rights legislation does permit age discrimination, provided age is a genuine occupational qualification.

In this case, US-imposed rules did make age a genuine occupational qualification for long-haul pilots.

But first, Air NZ had to establish that it could not adjust its staff scheduling to accommodate affected pilots without first demoting them. The case was referred back to the Employment Court to deal with this issue.

McAlister v. Air NZ – Supreme Court (20.07.09)

10.09.002

Trademarks: Intellectual Reserve v. Sintes

It looked like an unequal match: a sixty year old sole litigant arguing his own case in the Court of Appeal against the moneyed might of the Mormon Church.  But the Mormon Church failed in its attempt to block trademark registration for a logo phrased as “familysearch” designed to complement the litigant’s domain name: familysearch.co.nz.

The Church already holds trademark registration for the words “family search” under headings tied to geneaology. While approved, the logo’s registration was tagged to make it clear that others could still use the phrase “family search” and not be in breach of the trademark.

The Utah based church has an extensive archive with biographical details for over 400 million people.  The archive was established to assist in tracing the ancestors of current adherents.  The Mormon Church allows ancestors to be posthumously received into the faith.  This archive is commercially valuable.  Non-Mormons use the database to search their own family trees.

In New Zealand, a Mr Robert Sintes set up a web-based operation called New Zealand Family Tracing Service in 2000 to help individuals trace relatives spread around the world.

Initially the Church challenged use of his domain name, familysearch.co.nz.  The court was told this action had been discontinued.  It also challenged trademark registration arguing that the proposed logo was not “distinctive” as required by trademark legislation and that it would cause confusion.

Trademarks are not permitted where they are not distinctive to the owner’s goods or services and instead seek to appropriate some common word in the English language and stop others from using it in business; such as the names of towns or regions, or laudatory words like better or best.

The court expressed surprise that the Mormon Church had already obtained trademark rights in the words: family search.  These words are not distinctive to the Church’s religious interest in geneaology and are precisely the words any person would use when searching their family tree.

There was evidence that the words “family” and “search” are in the top two per cent of the most commonly used words in the English language.

The fact that Mr Sintes did not use these words alone, but instead surrounded the words with embellishments in the form of his logo meant that the logo in its entirety was distinctive.  Registration was permitted with the caveat that this did not stop others using the same words.

Intellectual Reserve v. Sintes – Court of Appeal (16.7.09)

08.09.004

Tax avoidance: BNZ v. CIR

The High Court has disallowed as tax avoidance a series of BNZ structured finance transactions described as tax machines having no commercial purpose or rationale.

Losses to the New Zealand taxpayer were estimated at $335 million, with benefits of $238 million accruing to National Australia Bank, owner of the Bank of New Zealand.

The transactions relied on international tax arbitrage, exploiting the tax asymmetries under which different legs of a structured finance deal could be viewed differently in different countries. For BNZ in New Zealand, the beauty of the scheme was that its costs would be deductible while income would be tax exempt. All this unravelled when the High Court ruled that the deals constituted tax avoidance and removed all the tax advantages gained. This included disallowing the funding costs incurred by the BNZ. The BNZ hotly argued that funding costs were part of the Bank’s ordinary fundraising activities unrelated to the disputed transactions and should still be allowed as a tax expense.

The transactions in question spanned eight tax years between 1998 and 2005. Colloquially called “repo” deals, they typically involve an equity investment in an overseas counterparty on the basis that the counterparty would buy back the shares. Financially, this amounts to secured collaterised borrowing. Economically, it is a loan secured by a pledge of shares. Legally, it is an offshore equity investment.

Overseas tax authorities have got wise to the tax avoidance possibilities inherent in these cross-border tax transactions. Under US tax law, they are treated as “abusive arrangements”. In the UK, the supposed equity leg of the transaction is treated and taxed as if it were debt.

The High Court was told that National Australia Bank had second thoughts in the mid-1990s about setting up these structured finance transaction through a UK subsidiary because of what was delicately described as potential tax “uncertainties”.

Instead, they were structured through the BNZ, its NZ subsidiary.

The first BNZ transaction, in 1995, was a five year deal consummated with the AIG group. Pricing on the transaction resulted in a positive tax benefit for the NZ taxpayer: BNZ gained an $18 million tax deduction; but the counterparty paid tax of $21 million – a net tax benefit of three million dollars.

For this initial transaction, BNZ obtained a binding ruling from Inland Revenue. This operates as advance advice from Inland Revenue as to how it will view a transaction should it later be included in a tax return. A strong point supporting the favourable ruling was the knowledge that the transaction would be tax positive for the NZ tax base.

BNZ then used the same template for subsequent structured finance deals which were tax negative for NZ, but did not apply for a binding ruling. Applying for a binding ruling would obviously disclose these transactions to Inland Revenue, Justice Wild commented in the High Court.

By fiddling with the pricing parameters, BNZ could make future deals tax negative. It resulted in BNZ offering counterparties funds at well below their normal cost of funds for their participation in an arrangement whereby there was an agreed share of the resulting tax benefits.

How the benefits were split was described as bearing no relation to any normal commercial considerations such as current market conditions or the credit status of the counterparties.

Inland Revenue called the deals “tax machines”. A formulaic approach was used, churning out tax losses for BNZ on a predetermined basis.

BNZ was concerned that overuse of the tax machine would affect its effective tax rate, which would become apparent from its published accounts.

In response, BNZ attempted to restructure the deals so as to consolidate the counterparty’s side of the transaction in its consolidated accounts – and did succeed in doing so in two of the transactions. Consolidation meant tax paid in the counterparty’s jurisdiction would be recorded in BNZ’s consolidated accounts, though that payment would be of no advantage to the NZ tax base.

Applying the first test for tax evasion from the Ben Nevis Case the question was did the transactions appear commercially and economically realistic.

Justice Wild answered: No. They returned high yields for BNZ with no risks other than tax. Those tax benefits were the benefit of expenses deductible against BNZ’s other income, and the tax exempt income received.

But despite this, the transaction was not tax avoidance if it fell within the scheme and purpose of a specific tax provision: the second test from Ben Nevis.

The tax provision relied on was the conduit relief regime which allows a “pass through” of foreign sourced income; from overseas sources, through a NZ subsidiary to the subsidiary’s foreign owner. This income passes through tax free, subject to a 15 per cent withholding tax.

Justice Wild ruled that the BNZ transactions were not within the scheme and purpose of the conduit relief regime. There was no income stream to pass through to its parent company. The transactions generated only tax benefits.

The High Court agreed with Inland Revenue that the effect of the transactions should be nullified as tax avoidance.

This had the effect of increasing BNZ’s tax liability by some $416 million, and triggering penalty interest of about $240 million.

BNZ Investments v. CIR – High Court (15.7.09)

09.09.001

Mortgage: Westpac v. Clark

Westpac Bank learnt it had no security worth enforcing after it was the victim of a sophisticated fraud lending $180,000 to a con artist masquerading as a woman owning property in Remuera, Auckland.

The con artist vanished, along with the money.  She left a trail of confusion behind: the property owner who knew nothing of the mortgage; a solicitor who had signed off on the legal documents; and the Bank which was out of pocket.

A central principle of the land registration system in New Zealand is that "the register is everything”.  Any interests registered against the title are enforceable, provided the person claiming the interest is not guilty of fraud.  Despite being an innocent victim, Westpac found this principle did not apply because while registration would give it security over the land this secured a non-existent loan.

To recover its losses, Westpac sued the solicitor who signed off on the legal documents.  He had certified to the Bank that the mortgage documents were in order and would be registered against the title, before the Bank released the money.  The solicitor had been conned by the fraudster who used a false passport and other documents to impersonate the true owner.

The fraud was discovered before the mortgage was registered, but the Bank sued the solicitor for negligence on the basis that if the mortgage had been registered it would have gained the protection of being “on the register” as secured creditor.

The Supreme Court pointed out that there is a difference between what is secured and what is owing.  Registration would have given Westpac security over the land.  But the Bank’s standard-form loan documents assumed that the person giving the security was the person taking out the loan.  The loan document was not enforceable against the true owner of the Remuera property: she never signed it; the fraudster did.  By contrast the mortgage document secured monies owed by the true owner.  In this case the true owner owed nothing.

The Court ruled that even if the solicitor had registered the mortgage on behalf of the Bank before the fraud was discovered, the Bank would be in no better position – it would have security but no loan enforceable against the owner of the property.

The claim against the solicitor failed.  It was for the Bank to pursue the fraudster.

Westpac v. Clark – Supreme Court (3.7.09)

08.09.009