Export Sales: Smallmon v. Transport Sales

Exporters selling into Australia are not directly responsible for ensuring goods comply with Australian regulations. A Queensland buyer of used trucks penalised after Australian regulators shifted the goalposts failed in an attempt to pass the problem back to a New Zealand exporter.

The Court of Appeal was told that Smallmons, a Queensland road transport business, purchased four Volvo trucks from Auckland-based Transport Sales Ltd in 2006. The vehicles, previously operated by Fonterra, were sold for NZ$72,000 each.

Smallmons had trouble registering the vehicles after unloading in Brisbane. The trucks were roadworthy, but did not have compliance plates fitted: plates attached at the time of manufacture which verify the vehicle satisfies Australian regulations. The trucks had been originally assembled in Australia and did in fact comply with Australian regulations at the time of manufacture. No compliance plates were fitted because the vehicles were assembled for immediate export to New Zealand.

Evidence was given that Queensland authorities had previously accepted for registration Australian assembled vehicles imported second-hand from New Zealand without compliance plates. In what was an apparent change in policy, registration was refused in this case.

Following political lobbying, the Smallmons were issued with restricted permits: the four trucks could be used on roads in Queensland, but not New South Wales, and if sold the trucks were again prohibited from being used on the road.

Given these difficulties, the Smallmons sued Transport Sales alleging the Auckland company was in breach of contract by selling vehicles which could not be used legally on Australian roads.

Export contracts are governed by a United Nations convention: Sale of Goods (United Nations Convention) Act 1994. The first rule is that goods delivered must comply with the agreed terms of the contract. There was no explicit agreement in this case about who was responsible for getting the trucks on the road in Queensland. Generally, an exporter is not responsible to see that exported goods comply with any regulations imposed by the importing country unless the same regulations exist in both countries, or the importer told the exporter of any special regulations and required the exporter to ensure the goods complied (exporters cannot be expected to know all the importer’s rules and regulations), or the exporter was in fact aware of the importing country’s regulations.

While part of Transport Sales business involved selling second-hand vehicles to Australia, the court said there was no evidence that the company knew of the detailed Australian registration requirements. There was no breach of contract and Transport Sales was not liable to pay damages.

Smallmon v. Transport Sales Ltd – Court of Appeal (22.07.11)

09.11.001

Bridgecorp: R. v. Petricevic

There is no injustice in having to do without a lawyer in a criminal trial. Rodney Michael Petricevic, charged with criminal offences following the collapse of Bridgecorp, claims to be broke and unable to afford a lawyer.

Attempts to stop these prosecutions failed when the High Court ruled there was no breach of the Bill of Rights Act 1990 should Mr Petricevic be forced to defend himself without legal representation.

The criminal trial will focus on allegations that Mr Petricevic took money from his companies without justification. Creditors suspect substantial sums were transferred to a family trust for the benefit of his wife and children. Mr Petricevic claims to have no assets. He was bankrupted in August 2008. His application for legal aid was refused on the basis that his wife could provide funds given that she is a beneficiary of the family trust. Legal aid rules treat assets available to a spouse as financial resources available to her husband.

The Court said that while the Bill of Rights Act says an accused is entitled to a lawyer, the State does not guarantee to pay for a lawyer.

A trial does not become unfair unless the accused cannot conduct his own defence because of legal complexities arising during the trial. Justice Venning ruled that was unlikely to happen in this case. Mr Petricevic has a substantial background in business, was the managing director of a public company and can be expected to be very familiar with documents which will feature as evidence in the trial.

R. v. Petricevic – High Court (12.07.11)

07.11.001

Nathans Finance: R. v. Moses & others

Directors of Nathan Finance have been convicted of misleading the public about the company’s financial position when they failed to disclose the full extent of intercompany debts and wrongly stated that these loans were on the same terms as loans to third party borrowers. The directors claim that they acted honestly, but that was not a defence in itself. They must have reasonable grounds for that belief.

Kenneth Roger Moses, Mervyn Ian Doolan and Donald Menzies Young were prosecuted in the High Court for breaches of the Securities Act 1978. Another director, John Lawrence Hotchin, earlier pleaded guilty.

Over 7000 investors were left out of pocket when Nathan Finance went into receivership in 2007, owing about $174 million.

Nathan acted as a conduit for funds borrowed from the public. Critical for Nathan investors were the lending policies and liquidity of the company. Nathan is a wholly owned subsidiary of the VTL group: a company which sold vending machines and installed proprietary software to record transactions. This was a type of business which found normal bank financing difficult to obtain.

The Nathan prospectus played down the extent of intercompany lending at a time when the bulk of funds were onlent to VTL companies. The prospectus stated there was no history of bad debts written off. While this was literally true, it was misleading as interest on VTL loans was rolled over and capitalised into loans at a time when there would be serious doubt about full recovery.

In the High Court, Justice Heath acknowledged that the directors honestly believed that comments made in the prospectus were not misleading, but this alone was not an adequate defence. They had to reach an independent judgment on the question. The directors relied on advice from management and professional advisers that everything was “compliant”. In particular, the directors said they were relying on company employees, the company auditors, the registrar of companies and the trustee appointed to represent debenture holders – each of which had a role in the preparation of a prospectus. A review of the content of a prospectus was not something directors could delegate to someone else, said Justice Heath. It was for the directors to read each prospectus and determine for themselves whether the statements made reflected the position of the company, as they knew it.

Following conviction, a decision on penalties was deferred for a later hearing.

R. v. Moses, Doolan & Young – High Court (8.07.11)

07.11.03