Employment: Air Nelson v. NZ Amalgamated Engineering

Having a work pattern of contract staff doing line maintenance on aircraft in conjunction with employees saved Air Nelson from allegations of strike-breaking when the contract staff carried on while employees were on strike.

The Employment Relations Act 2000 stops employers using strike-breakers to fill in when staff are on strike or locked out. Use of strike-breakers was at issue when Air Nelson line maintenance staff were on strike in June 2007.

Line maintenance work involves servicing aircraft between flights and carrying out minor repairs. Air Nelson primarily used its own staff for the job, but employed contract staff for about two per cent of the workload. They carried on working during the strike.

The legal debate was whether contract staff doing the actual work of striking employees were strike-breakers, or whether contract staff who habitually did the work were not strike-breakers despite increasing the volume of work they did.

The Supreme Court ruled that continued use of contract employees who habitually did line maintenance work was not in breach of the Act.

Air Nelson v. NZ Amalgamated Engineering – Supreme Court (17.05.10)

05.10.003

Insurance: Ludgater Hldgs v. Gerling

New Zealand rules allowing insurance claims directly against the policy when the insured is insolvent cannot be used where the insolvent company and its insurer are in Australia.

Auckland property company, Ludgater Holdings Ltd claims it has suffered losses of some $267,000 after a fire in February 2006, alleging a defective fitting in a fluorescent light manufactured by Australian company Atco Controls was to blame. Atco is in liquidation.

Atco has product liability insurance with Australian company Gerling Australia Insurance.

Ludgater sued Gerling direct, claiming on the insurance policy by using section 9 of the Law Reform Act 1936. This gives claimants a charge on the proceeds of any insurance payout. The section is designed to allow direct access to insurance moneys where the insured has subsequently become insolvent.

The Supreme Court ruled that section nine does not have extra-territorial effect. Courts are hesitant to impose local laws in a foreign jurisdiction. It is not for New Zealand to impose its laws on litigants in Australia, and vice versa.

It is still open for Ludgater to take the more expensive step of taking legal action across the Tasman. Australia does have rules allowing direct claims against insurance policies when the insured is insolvent.

Ludgater Holdings v. Gerling Insurance – Supreme Court (11.5.10)

05.10.002

Blue Chip: Bartle v. GE Custodian

Blue Chip loan agreements entered into by Mr & Mrs Bartles, a retired Whangarei couple, have been ruled oppressive by the Court of Appeal. The case goes back to the High Court for a decision on the extent to which the agreements should be amended. The Bartles could still lose their Whangarei home after a disastrous investment in the Blue Chip scheme.

To get working capital for its property developments, Blue Chip offered “joint venture” arrangements to investors; a deal typically offered to cash-poor retired couples whose homes were often mortgage free.

In return for funds advanced, investors were offered the chance to share in any capital gain from the development and sale of apartments while being paid an income stream from rent received from the property. To get cash for investment, investors were encouraged to mortgage their debt-free homes. Income from rents was touted as being sufficient to pay interest on the mortgage prior to the sale of the apartment and cashing up of the “joint venture”.

The reality did not turn out as well as expected: the apartments being sold to investors were inflated in value; a falling market reduced realisations; and there was no strong rental demand for the apartments. Blue Chip companies were described as clipping the ticket at every stage of the transaction.

In September 2006, the Bartles agreed to pay $552,000 to purchase an apartment in a building being refurbished in Symonds Street, Auckland. It was sold in July 2009 for $245,000. In the interim they received one rent payment: $1700. The investment was funded with loan advances totalling $630,000 from GE Custodians Ltd, secured over both their Whangarei home and the Auckland apartment.

The Bartles solicitor, Mr Jonathan Mathias, was ordered by the High Court to pay damages for negligence. He is bankrupt.

Faced with a mortgagee sale of their Whangarei home, the Bartles argued that the mortgage transaction should be reopened under the Credit Contracts and Consumer Finance Act 2003 as being oppressive. GE Finance argued the Blue Chip companies were not acting as its agent when they set up the transactions. The financier argued it was an innocent bystander, entitled to enforce a legitimate mortgage transaction. It should not be prejudiced by any alleged oppressive conduct by the Blue Chip companies. GE was described as having “out-sourced” its loan originating operation – Blue Chip companies set up the transactions and presented GE with completed paper work from investors seeking a loan. It was alleged a Blue Chip representative slyly amended the Bartles application to change their status from “retired” to “self-employed investor” in order to facilitate the loan approval.

The High Court ruled that the GE mortgage could be enforced.

The Court of Appeal ruled the mortgage should be reconsidered. The 2003 Act allows a court to reopen credit transactions where there has been oppressive behaviour: behaviour which falls outside current commercial practice.

The loan was held to be oppressive because: GE took no risk (the claimed asset values comfortably exceeded the loan advance and GE holds insurance for any shortfall); the loan was spread over a term of 25-30 years (being a $630,000 loan to a couple in their mid-60s having an annual pension income of about $22,000); and while the Bartles had access to supposedly independent advice, Mr Mathias was described as a “tame” solicitor recommended by Blue Chip to intending investors.

While GE out-sourced the loan origination to Blue Chip companies, the Court of Appeal said it could not avoid potential liability under the 2003 Act by delegating this work.

Bartle v. GE Custodians – Court of Appeal (6.5.10)

05.10.001