Airports: McElroy v. Auckland Airport

Widely viewed as a retail park with airport attached, Auckland International Airport expansion has been protected by a Court of Appeal ruling that undeveloped land not currently being used for airport activity need not be offered back to former owners.

The Craigie Trust, former owners of 36 hectares compulsory acquired in 1975 for airport expansion argued that legislation governing land taken for public works gave it first option to recover the land on payment of the current market price. Craigie was looking to buy the land at its then market price of February 1982, arguing that was the date when the land was no longer to be used for an airport. Craigie’s 36 hectares has in part been converted to airport use with major roads and an avgas pipeline across its former land. It said the Trust was agreeable to the Airport leasing this land should a buyback be ordered.

Craigie argued that its land was compulsorily acquired for use as an “aerodrome” and construction of shops and amusement parks did not amount to use as an “aerodrome”.

The Court of Appeal said the word “aerodrome” had fallen out of use. It should not be read too narrowly given current commercial practice at the world’s major airports. The Court said extensive ancillary services are required in an airport’s environs not only for tourists passing through, but also for use by airport staff.

The Court ruled the 36 hectares were still required for “public works”: future expansion as part of airport activity.

And even if the land wasn’t required for expansion, the Court ruled it would be impracticable and unreasonable to allow Craigie to buy back. The entire airport precinct had been radically altered over the passage of time.

McElroy v. Auckland Airport – Court of Appeal (23.12.09)

04.10.001

Resource Management: Central Plains Water v. Ashburton Water

With shades of goldminers racing to be first to stake a claim, the Court of Appeal has ruled the first to file a complete application for water rights gets priority for a hearing. This gives “first mover” advantage to those quick off the mark and leaves rivals in the position of having to attack the proposal – not advance their own interests.

Demand for water can exceed supply. There is no separate regime in New Zealand dealing with claims to water resources. Claimants need to apply for resource consent under the Resource Management Act 1991.

Consent applications have been a hot issue in Canterbury where conversion of sheep and cropping land to large industrial dairy units has led to increased demand for water use. Anglers, jet boat enthusiasts and local authorities jostle with large commercial users in disputes over how much water can be properly extracted from rivers such as the Rakaia and Waimakariri.

The courts have adopted a first come first served approach: whoever first files a completed water resource application has the right to be heard first. Applicants with competing claims can object to the filed proposal, but are not entitled to put up a counter application to be judged against the proposal filed first.

Since the case was heard, Parliament enacted the Resource Management (Simplifying and Streamlining) Amendment Act 2009 to reduce the procedural hurdles in getting resource consents dealt with.

Central Plains Water Trust v. Ashburton Water Trust – Supreme Court (18.12.09)

(04.10.005)

Class Action: Saunders v. Houghton

For 800 investors bringing a class action following complaints about the 2004 Feltex float, it is going to be a long haul before they see any action. The Court of Appeal has given tepid support for the class action but sent everyone back to the High Court for a long think about the funding arrangements.

Investors, who bought into Feltex at $1.70 per share in the public float, were stung into action when the share price fell to sixty cents per share within two years. It is alleged that Feltex’ financial position was dressed up prior to the float, for the primary benefit of then majority shareholder Credit Suisse PE which received some $180 million from the float proceeds.

In particular, it is alleged that just prior to the float Feltex unilaterally slashed end-of-year rebates to major customers with the effect of creating a $10 million one-off boost to annual profit. This damaged customer goodwill and reduced future profits, it is argued.

It is also alleged Feltex management engaged in “channel stuffing” in the period after the float. This involves delivery of goods in excess of customer’s orders, with an immediate boost to recorded sales, despite the likelihood that some or all of this excess will be returned. Investors allege this was done to massage post-float profitability.

Legal action has been taken against Feltex directors who signed the float prospectus, Credit Suisse as promoter, and the joint lead managers: First New Zealand Capital and Forsyth Barr.

Class action litigation was filed in the names of two representative investors. A class action is the only economic way in which disparate small investors can mount a common action against a large corporate. It enables legal liability (if any) to be fixed, allowing individual shareholders to use the representative court judgment as a template to then prove for their individual loss.

There was evidence that individual investors had put $450,000 into the kitty to get litigation started. This will not be sufficient funding for complex commercial litigation.

A company called Joint Funding has been established to collect funds and direct the litigation.

The Court of Appeal ruled the class action was to remain on hold, pending full details of the legal claim and some clarity about the status of the funding arrangement for the litigation. In particular, the Court wanted to see some controls over how the litigation would be managed – to avoid the perceived abuses in US class actions where litigation funders often stand accused of pursuing unmeritorious claims to extort a settlement out of defendants.

Saunders v. Houghton – Court of Appeal (18.12.09)

04.10.002

Maori: Paki v. Attorney-General

Using legal concepts of relational good faith should be to the fore in dealing with historical Treaty grievances, suggests the Court of Appeal. This avoids the heavy legal baggage of arguing that the Crown has been in breach of a fiduciary duty to Maori.

Over the last two decades, iwi and individual hapu have made regular trips through the nation’s courts alleging historical failures by the Crown in honouring terms of the Treaty of Waitangi. Maori cultural views from the mid-nineteenth century when the Treaty was signed do not translate easily into the legal-speak of English common law inherited by the New Zealand legal system.

The core of many claims has been that the Crown breached a fiduciary duty owed to Maori. At its simplest, this argues the Crown was in a position of trust, and abused this position for its own benefit.

The Court of Appeal said arguments based on an alleged breach of fiduciary duty demean Maori. It suggests Maori were of inferior standing, not equal Treaty partners.

Better, said the Court, for Maori litigants to view the Treaty relationship like a modern-day employment contract: a relationship contract where implementation of the earlier contract is bound by obligations of good faith. A breach of the Treaty relationship becomes a breach of good faith, not a breach of fiduciary duty.

These views were aired in litigation by the Pouakanui hapu over ownership of the bed of the Waikato River near Mangakino. The hapu argued that they did not understand, and the Crown did not tell them, that sales of hapu land to the Crown also included sale of the riverbed adjoining the land. Loss of the riverbed resulted in a serious loss of mana, given the historical importance of the river to local Maori.

The Court ruled that this claim was defeated by 1903 legislation which nationalised the riverbeds of all navigable rivers. This was done to protect Crown use of waterways for hydroelectric power projects. Since the Waikato River near Mangakino was navigable at the time of the legislation ownership rights in the riverbed were lost for Pouakanui, as they were for all other riverside landowners.

Paki v. Attorney-General – Court of Appeal (11.12.09)

04.10.003

Relationship Property: Ward v. Ward

With the wisdom of Solomon, the courts have split a family trust in two to accommodate a marriage split and to settle disputes between a former married couple over how the trust should operate.

The court was told the family trust was established well into an 11 year marriage. This arose after the husband gained full ownership of a family farm trading as Lang Park Ltd. The husband made use of matrimonial property legislation to gift a half interest in the farm to his wife tax free. The farm, together with other assets, were then put into a family trust with themselves as trustees and members of the family as beneficiaries.

Nearly three years later, the marriage broke up. The trust assets then had a net value of some $1.8 million. The wife shifted off the farm, while the husband remained living on the farm and received a management fee based on the annual after-tax profit for running the farming business. This left the wife with no financial support out of trust assets. Husband and wife, as trustees, were deadlocked as to how the trust should operate.

While the spouses controlled the trust assets as trustees, the assets were no longer matrimonial property to be divided 50/50 under matrimonial property legislation. Courts have very limited powers under the legislation to bust open family trusts and treat them as matrimonial assets.

But the Family Proceedings Act 1980 allows trust assets to be rearranged where required to protect the interests of any children.

The husband argued that any rearrangement should take into account that he had originally provided the lion’s share of the assets – half of which he had gifted to his wife prior to setting up the family trust.

The Supreme Court ruled that the gift could not be taken into account. The earlier matrimonial property deal was separate from the subsequent creation of the family trust. When looking at rearranging trust assets, the starting point was that each spouse had contributed half of the trust assets. Having contributed equally, the wife had every expectation that she would share equally with her spouse in the benefits, said the Court. Circumstances had changed with the marriage breakup.

Equal division of the trust was held to be the best way out of the impasse. The Court ordered that two separate trusts be established, with the trust assets divided equally between the two and each spouse being a trustee of a separate trust.

Ward v. Ward - Supreme Court (8.12.09)

04.10.004

Retirement: Cashmere Capital v. Carroll

Christchurch retirement village residents found their rights of occupation were worthless when the owner failed to properly bring them under the new consumer protection regime in the Retirement Villages Act 2003.

Concerns about the level of understanding enjoyed by elderly people buying into retirement villages and the complexity of legal arrangements on offer led to government intervention with the 2003 Act. The new Act imposes statutory obligations on village owners for residents’ health and welfare. To protect residents’ legal position, an independent statutory supervisor is appointed.

Importantly, mortgagees enforcing their security over a registered retirement village must still honour the rights of village residents. But this was to prove of no benefit to residents of an unregistered retirement village in Curlett’s Road, Christchurch, because the owner had failed carry out registration with the Registrar of Retirement Villages.

The court was told that part of a motel complex in Christchurch had been converted into a retirement home. Occupiers made a one-off unsecured loan to the owner in return for what was described as a lifetime occupation licence. Their interests as licenced occupier were not recorded against the land register title.

Subsequently, the owner mortgaged the property to Cashmere Capital Ltd, receiving loan advances totalling $940,000. Cashmere said they were told the occupiers were tenants.

Two years later, Cashmere sought to enforce its security. Only then, it said, did it become aware that the tenants were not in fact tenants, but claimed rights of occupation for life.

To protect their position, the occupiers claimed Cashmere had become an “operator” under the 2003 Act, and as an operator was legally obliged to register their interests with the Registrar of Retirement Villages. If done, this would stop Cashmere from evicting them in advance of a mortgagee sale.

The Supreme Court ruled that the mere fact a creditor took steps to enforce its mortgage does not make it an “operator” of a retirement village. Further steps are required, which indicate that the creditor is assuming control and management of the property.

The case was sent back to the High Court for further evidence on this point.

Cashmere Capital v. Carroll – Supreme Court (4.12.09)

12.09.006

Telecoms: Vodafone v. Telecom

The Kiwi share created when Telecom was privatised is annoying Telecom’s competitors. They are obliged to contribute each year to Telecom’s costs of subsidising a basic residential service to uneconomic customers and Vodafone doesn’t agree with the manner in which these costs are calculated because mobile phone coverage gets minor consideration.

In March 2007, the Commerce Commission determined contributions payable for the 2003-2004 year and Vodafone appealed. It challenged the methodology used to determine Telecom’s losses, claiming more significance should be given to the possibility of using mobile phone technology instead of long lengths of copper wire to service distant customers.

The Court of Appeal did not overturn the Commission’s method of calculation but signalled that changes might be needed in future annual calculations given the rapid introduction of new technology.

On privatisation, Telecom was required to continue free local calling and a capped line rental for all residential customers. With a proportion of residential lines uneconomic, Telecom sought to recover some of its losses with a cross-subsidy from interconnection charges with competitors.

Resulting litigation over interconnection charges led to an agreement with government and a process for Telecom to recover from competitors the cost of subsidising uneconomic residential customers.

It is not for Telecom to decide the size of the subsidy. The Commerce Commission annually obtains information from Telecom and then assesses what would be the net costs incurred by an efficient telco in providing the subsidised service.

For the 2003-2004 year calculation, the Commission used Telecom’s existing core fixed wire network as the starting point. Vodafone’s complaint was that the Commission should have included in its starting point existing mobile phone towers. Vodafone said failing to take mobile technology into account overstated the net cost incurred by Telecom and increased the subsidy claimed.

Vodafone v. Telecom – Court of Appeal (2.12.09)

12.09.005