27 June 2012

Maori: Paki v. Attorney-General


Water rights for generating hydroelectric power will become an issue following a landmark Supreme Court decision on the ownership of river beds.  With thousands of riverside landowners now becoming the surprised owners of adjoining riverbeds, expect moves to negotiate a share of the economic benefits reaped from water passing over their riverbed land.
An obscure Maori Treaty of Waitangi claim has opened up to Maori and Pakeha alike the possibility of claiming economic rents for water flowing over their land and into hydroelectric plants.
This Treaty issue arose in litigation by the Pouakanui hapu over ownership of a 32 kilometre stretch of the Waikato River near Mangakino.  The hapu claims that they did not understand and that the Crown did not tell them that sales of hapu land to the Crown in 1887 and 1899 also included sale of the riverbed adjoining the land sold.  There is a strong cultural attachment within Maoridom to rivers and streams within tribal areas.  The Pouakanui hapu argues loss of 32 kilometres of riverbed resulted in a serious loss of mana.
Lower courts ruled that any claim by Pouakanui was defeated by 1903 legislation which nationalised the riverbeds of all navigable rivers.  Ownership rights were lost to all riverside landowners, not just Pouakanui.
These lower court rulings assumed that the Waikato River at Mangakino is navigable.  The Supreme Court overturned the traditional legal view of “navigable”.
Legal argument centred on a “whole of river” approach compared with a “part of river” argument.  The traditional legal view in New Zealand has been that if any part of a river is of sufficient width and depth for use in trade and commerce then the whole of the river is to be treated as navigable for purposes of the 1903 legislation, whether in fact it is or is not navigable on any particular stretch of river.  The Supreme Court ruled instead in favour of a “part of the river” approach.  Questions of riverbed ownership depend upon whether a particular stretch of river is in fact navigable, or not.
Construction of hydroelectric dams along the length of the Waikato River has changed the river’s topography markedly since the 1890s.  The Supreme Court said questions of navigability for the Pouakanui claim depended on the state of the river as at 1903, the date of legislation nationalising navigable riverbeds.
Evidence was given that the river adjoining Pouakanui lands then had little smooth water being a succession of turbulent rapids together with the high cliffs and steep canyons of the Whakamaru and Maraetai Gorges.  Through this area, the river fell through one of its steepest gradients at approximately 1:200; exceeded only by a steeper gradient at Aratiatia Rapids and Huka Falls near Taupo.  Historical evidence indicated there was little transport on the Waikato River above rapids near modern day Cambridge.  What water transport there was above Cambridge tended to be family excursions and picnics together with some rudimentary ferry crossings, privately operated.
Where different landowners own land on opposite banks of a “non-navigable” river, each owns that part of the riverbed from their land to the centre of the river.
Sales of Maori customary land to the Crown in the nineteenth century have been the subject of much complaint.  Yet to be finalised in this case is whether Pouakanui’s land sales to the Crown in 1887 and 1889 also transferred ownership to the Crown of the riverbed to the centre of the river, and, if so, is Pouakanui entitled to any compensation for its claimed loss of mana.
 Paki v. Attorney-General – Supreme Court (27.06.12)
12.016


Telecoms: Telecom v. Commerce Commission


Telecom used its network dominance to inflate prices charged to data transmission wholesalers over a four year period ending late 2004 the Court of Appeal has ruled.  Telecom is disputing the $12 million penalty imposed.
Commerce Commission action started when rival wholesalers complained Telecom was discriminating in the price charged for “data tails” in the retail market for end-to-end high speed data transmission services.  
Telecommunications service providers (TSPs) like Telstra Saturn have spent millions constructing fibre optic and wireless backbones for their own networks but need to use Telecom’s data tail: the final section (fibre optic and copper) from the retail customer to the TSPs point of access to the Telecom network.  
TSPs complained that Telecom pricing for wholesale access to data tails was so high that it squeezed their profits.  Telecom pricing became a barrier to entry.  As wholesalers offering high speed data transmission for retail customers, TSPs alleged they were being treated as retail customers themselves by Telecom.  The price charged by Telecom for access to customer data tails was so high that individual TSPs struggled to compete with the data transmission prices offered by Telecom to its own retail customers.
The Telecom network has since been hived into a separate business, Chorus, leaving Telecom as a stand alone TSP.
Section 36 of the Commerce Act prohibits any business holding a substantial degree of market power from using that power for an anti-competitive purpose.  Prior to the creation of Chorus, Telecom was dominant in the telecommunications market.
Evidence was given that the telecommunications revolution of the late twentieth century dramatically changed the volume of and speed at which data could be transmitted between retail customers, but pricing anomalies developed: slower less commercially valuable services were being charged at a higher rate than faster services.
TSPs complained that when Telecom adjusted its retail pricing structure to correct these anomalies it failed to adjust its wholesale prices as well.  There was evidence of data carrier pricing where the wholesale price charged TSPs by Telecom exceeded Telecom’s own retail prices: retail prices which included Telecom’s own wholesale carrier charges.
Competition law allows a dominant firm to charge what a non-dominant firm in a hypothetical competitive market would charge.  Monopolists are allowed to compete but monopolists are not allowed to impose charges in excess of what would be charged in a competitive market.  It can be difficult to determine what would be a competitive market charge when there is no competitive market in fact.
In this case, the Court of Appeal ruled that prior to 2004 Telecom had used its network dominance to prejudice competition for end-to-end high speed transmission services.
Telecom v. Commerce Commission – Court of Appeal (27.06.12)
12.018

Nathans Finance: R.v. Moses, Doolan & Young


Reparations totalling $1.08 million paid by convicted Nathans Finance directors will not be paid directly to investors but can be used by Nathans’ receivers to fund further litigation against the directors following a High Court ruling.  There is a prime facie case for receivers to sue Nathans’ directors for trading whilst insolvent, the High Court said.
After being convicted of securities offences for issuing a misleading prospectus, four directors of Nathans Finance were required to pay reparations totalling $1.08 million to reflect their remorse for the damage caused investors.
Payments were ordered against  Kenneth Roger Moses ($425,000), Mervyn Ian Doolan ($150,000), Donald Menzies Young ($310,000) and John Lawrence Hotchin ($200,000).
The High Court was asked to rule on how this money should be divided.
Investors said it should be divided between those who put money into the company after the misleading prospectus was published.  The court was told that out of the $174 million dollars owed by Nathan Finance when it went into receivership a total of $68.9 million was invested or reinvested after the misleading prospectus was in the market place.  Of that $68.9 million, the largest single investor is owed $484, 200.
Nathans Finance receivers argued that all investors and the company itself should be considered “victims” of the offending.
Justice Heath ruled that the reparation payments would be best used for the benefit of all who had suffered loss by being paid to the receivers.  It provides a fund from which the receivers could pursue other means of recovery, he said.  There was evidence that company indebtedness increased by about twenty million dollars when under control of the directors in the eight months prior to receivership.
R. v. Moses, Doolan & Young – High Court (27 June 2012)
12.015



01 June 2012

Sth Canterbury: re Hubbard Churcher Trust


Some twenty-one investors in a personalised investment fund managed by South Canterbury Finance director Allan Hubbard have been overpaid about $1.6 million in an interim distribution made by government appointed receivers.  They will be required to make repayment after a High Court order on how the fund should be wound up.
In June 2010, government appointed statutory managers to numerous Hubbard investment vehicles.  The Timaru-based chartered accountant operated a mix of finance companies and investment vehicles.  Statutory managers have spent considerable time and energy unravelling the investment fund’s finances, not helped by Mr Hubbard’s idiosyncratic manner of business relying on paper based records and making frequent post-balance date adjustments to reflect his assessment of where specific revenue should be placed.
Mr Hubbard died after a road accident in 2011.
The High Court was asked to rule on distributions between some 300 investors claiming an interest in Hubbard Churcher Trust Management Ltd.  Values for this share-based investment fund vary daily since it invested primarily in listed shares with some further investments in venture capital and private equity funds.  At the time of the court hearing $35.9 million dollars remained to be distributed with an interim distribution of nine million dollars having been made earlier.
Evidence was given that Mr Hubbard established the fund at some unknown date in the late 1990s, offering a bespoke personalised investment service to clients.  Most clients gave no specific investment instructions, relying on Mr Hubbard’s financial acumen to make investment decisions on their behalf.   Clients paid money in through one-off payments or made regular payments by bank automatic payment.   
While assets were initially registered in the name of specific clients, Mr Hubbard later shifted all assets into one umbrella holding company and kept secondary records identifying each client’s individual portfolio.  Each year he provided individual investors with a statement of their current holdings and previous year’s income.
The court was told Mr Hubbard generally bought investments in bulk and retrospectively allocated investments to specific investors.
The existence of this investment fund did not come to the statutory managers’ attention until some months after their investigations started into South Canterbury.  By then, the investment fund paper trail was becoming even more confused. 
The High Court was asked to rule on how the fund should be wound up, given that previously asset allocation was at the sole whim of the late Mr Hubbard based on his perception of each individual’s acceptance of risk.  Reconciliations by the statutory managers found the total value of investments as reported to investors did not match the value of the assets held by the fund and that the individual portfolios as reported to some investors probably did not represent their individual holdings.  What purported to be a bespoke personalised service at times operated more like a pooled investment fund.
Justice Chisholm said a court-ordered distribution involved finding the “least unfair result for the investors” bearing in mind that no method of distribution would result in “perfect justice for all”.  Further accounting work would be required, he said.
His Honour ruled that the statutory managers were to use the 2000 year as their starting point, paying back investors their capital invested as at that date.  Additions to the fund after that year from capital gains and revenue are to be pooled with investors paid pro rata after an allowance for interest to reflect the length of time individual investors had an interest in the fund.
Preliminary calculations before the court indicate that use of this method means that some 80 investors have already received their full entitlements, or have been overpaid, leaving about 220 investors to share in the pooled “surplus”.
Re Hubbard Churcher Trust Management –High Court (1.6.12)
12.011