Real Estate: Property Ventures v. Regalwood Hldgs

The shortcut summary judgment procedure used to enforce fixed sum contracts cannot be used for property transactions where the vendor is in breach of contract and the extent of the breach has not been quantified.

In 2006, Regalwood Holdings was disputing with Property Ventures settlement of a contract to buy a Christchurch property at a previously agreed price of $1.5 million. Property Ventures argued that the vendor, Regalwood, did not have the building up to Building Act standards, as required by the terms of the contract. Regalwood argued it was entitled to the full purchase price immediately, regardless of any alleged breach, and a cash adjustment could be made at a later date if found due.

The court was told that Property Ventures had plans to on-sell the property to the Christchurch City Council, but this fell through when the Council withdrew: the Council had blocked a building consent for alterations by Regalwood because extra earthquake strengthening was considered necessary.

As an opening shot in the legal war, Regalwood sued Property Ventures, using the High Court summary judgment procedure, seeking a court ruling that it had validly cancelled the sale because Property Ventures had failed to stump up the purchase price due on settlement date.

The Supreme Court ruled that there was no valid cancellation. In order to cancel, Regalwood must itself have been in a position to settle. It wasn’t, because of an alleged failure to have the building in compliance with the Building Act. When a vendor is in material breach of a contract, it cannot force the purchaser to pay the full amount due and argue about damages later.

It is back to the High Court for arguments over whether Regalwood is in material breach, and if so, what are the consequences.

Property Ventures v. Regalwood Hldgs – Supreme Court (28.04.10)

05.10.004

Price Fixing: Poynter v. Commerce Commission

An Australian manager of the Fernz Group has been removed by the Supreme Court from price-fixing litigation brought by the Commerce Commission. Living overseas and having no physical link with New Zealand operations meant he did not come within the Commerce Act net and the Commission’s allegations of price fixing.

The Commission has been pursuing companies, including Fernz Group, for allegedly fixing prices and divvying up market shares in relation to the wood chemical-treatment business. Mr Poynter was for a brief period a senior manager of Fernz in Australia. He was one of a number of managers and employees sued.

Mr Poynter challenged the right of the Commerce Comission to take legal action against him given that he had never lived in New Zealand and that there were no allegations that he had engineered any price-fixing from offshore.

The Commission argued offshore executives could be potentially liable: either as part of a conspiracy or by having New Zealand employees acting on their behalf.

The Supreme Court ruled that even if a manager had conspired while overseas to fix prices in New Zealand, the manager could only be sued for conspiracy if and when physically visiting New Zealand.

And, even if New Zealand employees were acting on an offshore manager’s instructions, they were not acting on behalf of the manager – they would be acting on his instructions on behalf of the company. Consequently, the off-shore manager could not be liable for their acts.

Poynter v. Commerce Commission – Supreme Court (16.04.10)

05.10.006

Mortgage: Totara Investments v. Crismac

Further fallout from the Digi-Tech tax scheme has left a financier high and dry. A financier could not use a power of attorney clause in mortgage documents to extend its security over other un-mortgaged assets after the initial security proved worthless.

Crismac Ltd fronted the litigation as representative of borrowers who had invested in a project promising substantial tax savings. Tax benefits evaporated after the scheme was successfully challenged by Inland Revenue as tax avoidance.

Totara Investments funded investors like Crismac into the Digi-Tech scheme. Crismac was given a limited recourse loan, with Totara’s rights of recovery limited to prescribed Digi-Tech scheme assets. When these assets proved worthless, Totara used a power of attorney clause in the loan documents to create a mortgage over other Crismac assets and then proceeded to appoint a receiver to realise these assets.

The Supreme Court ruled this was invalid. The primary clause in the loan documents made it clear that it was a limited recourse loan with a right of recourse over specified assets only. A secondary clause creating a power of attorney in favour of Totara could not be used to seize further assets.

Totara Investments v. Crismac Ltd – Supreme Court (16.04.10)

06.10.002

Maritime: Tasman Orient v. NZ China Clays

While the ship captain’s behaviour was described as “outrageous”, insurers of the Tasman Pioneer were held not liable for cargo losses following a grounding in the Sea of Japan because a multi-million dollar legal claim focussed on the captain’s motives rather than his behaviour.

Litigation followed the 2001 grounding of the Tasman Pioneer during a heavy rain storm. The captain was taking a shortcut through a narrow subsidiary channel in the Sea of Japan during a voyage from Yokohama to Busan in Korea. Rather than calling the coastguard immediately for assistance, the captain sailed on at full steam for nearly three hours to reach the main channel before anchoring and contacting emergency services.

Cargo interests looked to hold the shipping line responsible for losses.

Risk allocation for marine risks is governed by an international convention: the Hague-Visby Rules. Shipping lines are responsible for “commercial fault”: seaworthiness and manning at the commencement of the voyage. Cargo interests take the risk of “nautical fault”: acts and omissions of crew during the voyage. But liability for nautical fault can be sheeted back to the shipping line where actions of the crew were carried out “recklessly and with the knowledge that damage would probably result”.

The Supreme Court accepted it was arguable that continuing to sail on after the grounding could amount to reckless navigation. But that was not what the legal papers before the court set out.

Rather, the legal claim stated that the captain’s actions were intended to cover up the circumstances of the grounding and to absolve himself from blame. There was evidence that the ship’s chart was altered to hide the actual course travelled and a story was concocted that the ship had hit a submerged container.

Motive alone did not impose liability on the shipping company for nautical fault.

Cargo interests had to recover losses from their own separate insurers: a total exceeding NZD twenty million.

Tasman Orient v. NZ China Clays – Supreme Court (16.04.10)

05.10.005