Rates: Mangawhai Ratepayers v. Kaipara District

Kaipara District Council has failed to block legal action by Mangawhai ratepayers incensed by a cost blowout for the construction of a sewage treatment plant.  The High Court ruled that ratepayers are entitled to their day in court.

Ratepayers in the seaside resort of Mangawhai are challenging the validity of a special levy set by Kaipara District for sewage reticulation.  Initial borrowings of $35.6 million for the project ballooned out to $57.9 million after modifications to the initial contract.  Ratepayers allege the special levy is illegal and invalid.  They say Council did not follow the correct statutory procedure for setting a special levy.  Some have gone on a rate strike, refusing to pay.  With just over one thousand members, the Mangawhai Ratepayers’ and Residents’ Association funded High Court action seeking a judicial ruling that the levy is illegal.    

In 2005, Council committed to sewage reticulation for Mangawhai after it became apparent waste from septic tanks was polluting the harbour and estuary.  Twelve months later, Council agreed to project amendments which were to have the effect of increasing financing costs by $22 million above its previously authorised limit.  Funding has been provided by ABN Amro.

Kaipara District asked the High Court to strike out key parts of the ratepayers’ claim, saying the financing transaction with ABN Amro is a “protected transaction” under the Local Government Act: lenders can enforce their loans against councils even if there are procedural mistakes by a Council in setting up the loan contract.

Justice Heath ruled ratepayers could still proceed with legal arguments over the legality of the Council’s special levy even though ABN Amro’s right to enforce its $57.9 million loan could not be challenged.  These legal arguments have yet to be heard.

Meanwhile, the Auditor-General is investigating the Council’s activities in relation to the Mangawhai contract, and draft legislation is currently before parliament which will retrospectively validate any irregularities in setting the levy.

Mangawhai Ratepayers v. Kaipara District – High Court (29.08.13)

13.025

Jury Service: McAllister v. Solicitor-General

Jury service is described as a civic duty but for some it has parallels with press gangs in Elizabethan England: snatched off the streets and pressed unwillingly into service with the Royal Navy.  An Auckland engineer sentenced to jail for contempt of court when he refused jury service had the jail term replaced on appeal by a $750 fine.

David James McAllister attended Auckland District Court in July 2013 on a jury summons.  On this first day he was not called to be on a jury and was free to leave by lunchtime.  He was required to turn up the following day.  On the second day he was selected for jury service on what was scheduled to be a three week trial.  He asked to be excused, saying he had work commitments as a self-employed engineer maintaining Kordia’s telecommunication network.  The trial judge said he was excused, but was required to return on day three for any jury to be selected for a shorter trial.  Again he had lost a morning’s work.

Attending on the third day, Mr McAllister was selected.  After the judge presiding at this trial refused to excuse him, Mr McAllister refused to be sworn in as a juror.  He told the judge that work pressures meant that he could not properly fulfil his role as an impartial juror.  While the trial judge was not given the detail, it was to come out in High Court evidence that Mr McAllister was then currently committed to a major repair on a Kordia transmission tower in the Manawatu requiring the co-ordination of 15-20 specialist contractors.

The High Court heard evidence of rapidly rising tensions in discussions between the trial judge and Mr McAllister.  Mr McAllister’s refusal to be empanelled meant there were insufficient numbers left in the jury pool to make up the twelve needed for a jury.  It was to come out in the High Court that the trial judge had already excused some ten potential jurors from sitting on the jury before Mr McAllister sought also to be excused.

The trial was abandoned and all jurors told to report again the next day. 

When Mr McAllister attended the following morning with the remainder of the jury pool he was singled out by the trial judge, told he was in contempt of court for failing to be sworn in as a juror and then again in contempt when he had changed his mind saying that he would sit on a jury.  Mr McAllister spent the day in the courtroom cells before being called back before the trial judge at the end of the day.  He was then sentenced to ten days in jail for contempt.

On appeal to the High Court, Justice Lang cautioned trial judges in their summary use of contempt proceedings.  Judges fining or jailing jurors for contempt simultaneously fill the role of complainant, witness, prosecutor and judge.  There is no formal charge read and no formal plea taken.

Justice Lang said there was no urgency requiring the trial judge to deal with any alleged contempt by Mr McAllister that day.  The matter could be adjourned to a later date. There was a risk the trial judge would reach a decision without hearing the full story.

Justice Lang ruled that refusing to be sworn in as a juror without lawful excuse was a contempt of court.  At the time, Mr McAllister did not provide an adequate excuse.  To the trial judge he simply appeared to be avoiding jury service and that amounted to contempt of court.  Justice Lang ruled that a prison term was excessive.  The day spent in the cells and a $750 fine was sufficient punishment.  The High Court took into account that Mr McAllister had turned up to court each day as required by his jury summons and had attempted to atone for his contempt by belatedly offering to serve on a jury.

Justice Lang said the later offer to serve was not a separate act of contempt.  It was an offer to rectify the unfortunate situation he had created by refusing to take the oath.

McAllister v. Solicitor-General – High Court (29.08.13)

13.023

Christchurch Earthquake: Fowler Developments v. CERA

Challenges to government offers to buy out earthquake damaged properties in Christchurch were successful in the High Court, but no decision was made on the merits of the offer.  The court simply ruled that government did not follow the correct procedure before making offers.

Following devastating earthquakes in Christchurch during 2010 and 2011, government declared whole suburbs as no longer habitable because of severe infrastructure damage.  Eventually over 7400 properties were “red zoned”.  A government-funded buy out scheme enabled residential property owners to cash up and move.  A two-tier compensation scheme saw those with property insurance offered the 2007 rating value for their property; those without insurance and those owning bare land were offered 50% of rateable value.  Government budgeted some $12.5 million for compensation to those offered the 50% deal.

Property owners aggrieved by the 50% offer banded together in a lobby group called Quake Outcasts.  Together with a property developer owning vacant land in the red zone, they sued government challenging the manner in which the offer was formulated and alleging a 50% offer is discriminatory, oppressive, disproportionate and in breach of their human rights.

Of red-zoned insured property owners receiving the full 2007 rating offer, 98.9% have accepted.  These full offers were perceived as a better option than the market could possibly provide, Justice Pankhurst said.

As regards the 50% offers, the court was told acceptances were received from 62.6% of uninsured residential property owners and 72.8% of those owning vacant land.  Evidence was given that government made the 50% offers after being told by the Valuer General that vacant land in the red zone may be worth no more than ten per cent of its pre-earthquake value.

Examples were given of some anomalies which had been dealt with administratively: six insured red-zoned residential leaseholders leasing from their local authority were made full 100% offers on the condition that they then freeholded their property and surrendered it to government; 22 insured red-zoned commercial/industrial property owners were offered 100% of the value of their buildings but 50% of the value of the underlying land.    

Justice Pankhurst did not address the merits of offers made by government.  He reviewed the process by which government had red-zoned properties, ruling that it had not followed the statutory process required by the Canterbury Earthquake Recovery Act 2011.  Before red-zoning entire suburbs, government should first have revoked or suspended the existing resource management zoning, he said.  To that extent, government declaration of the red zones was unlawful.

Fowler Developments v. CERA and Quake Outcasts v. CERA – High Court (26.08.13)

13.022

Five Star Finance: R. v. Williams

After pleading guilty to breaches of the Crimes Act, Neill Allan Williams was sentenced to an extra seventeen months in prison for frauds perpetrated against investors in the Five Star group.

Already jailed for three years and seven months following Securities Act convictions, a concurrent sentence of five years was handed down by the High Court after Williams pleaded guilty to two counts of theft by a person in a special relationship.  This followed investigations into fraudulent lending by Five Star Consumer Finance.  Five Star investors have recovered about forty cents in the dollar after the company went into receivership.

The court was told Williams was not a director of Five Star but was deeply involved in the company’s administration.  Between 2003 and 2007, Five Star made loans totalling $29.2 million to related parties in breach of the trust deed which governed use of funds raised from outside investors.  False documentation concealed the true beneficiaries of the loans and was used to hoodwink the company auditors and solicitors.  A further $14.2 million was misappropriated in 2007 as Five Star management sought to cover up the earlier fraud.

In April 2013, Williams was jailed for breaches of the Securities Act and the Financial Reporting Act.  He strongly contested a parallel Crimes Act prosecution, changing his plea to guilty only after four days of evidence had been heard.

In passing sentence, Justice Gilbert said a five and half year jail term was the correct starting point for these breaches of the Crimes Act but a six month discount was appropriate given Williams’ age and poor health.  Aged 79, he was described as being bankrupt and in remission from cancer. 

R. v. Williams – High Court (22.08.13)

13.024

Dominion & North South: R. v. Bettle, Arkinstall & Forsyth

Three further directors of Dominion Finance Group and North South Finance have been sentenced to home detention after pleading guilty to charges of breaching securities legislation: Richard Gilbert Bettle (ten months home detention), Vance Eric Arkinstall (ten months) and Paul Winstone Forsyth (eleven months).  In total, five of the companies’ directors have now been sentenced to home detention.

To date, the nearly 6000 investors who placed money with Dominion Finance have recovered only twelve cents in the dollar since the finance company’s 2008 receivership.  The nearly 7000 investors in North South Finance have been repaid 65 cents in the dollar since North South went into liquidation insolvent in 2010.

Bettle, Arkinstall and Forsyth pleaded guilty prior to a scheduled six week trial on charges of issuing false offer documents.  The court was told the two finance companies issued in 2007 and 2008 prospectuses and investment statements which misrepresented the investment risk by not properly disclosing the companies’ financial positions.  In particular, the offer documents concealed the extent of related party lending, the quality of loans and the companies’ deteriorating liquidity.

The three directors said they had signed the offer documents believing them to be true.  They had been let down by others who prepared the information.  Justice Katz said securities law in this area imposes strict liability.  It is not enough that directors have an honest belief that the information is accurate, they must have reasonable grounds for that belief.  Directors have ultimate responsibility for the proper governance and management of their company.

Both Mr Bettle and Mr Arkinstall were described as non-executive directors who were added to the boards for their good standing and existing reputations in other areas.

Mr Bettle lives in Stoke, Nelson.  He told the court that with the benefit of hindsight he lacked experience of the finance sector which caused him to rely too heavily on management, the trustees for debenture holders, the auditors and other directors.  He was deeply remorseful for the losses suffered by investors.   He offered to surrender the fees received as chairman of Dominion Finance.  He was sentenced to ten months home detention together with 200 hours community work and required to pay $90,000 in reparations.

Mr Arkinstall said he regretted investor losses.  He himself had over $150,000 invested with Dominion Finance.  He had now retired from business life and was solely reliant upon superannuation for his income.  He was sentenced to ten months home detention at his Lower Hutt home and 200 hours community work.

Mr Forsyth was sentenced to eleven months home detention, 200 hours community work and ordered to pay $50,000 reparations.  He too had funds invested with Dominion Finance: suffering losses of some $300,000.  As a qualified chartered accountant, Mr Forsyth worked part-time for the companies processing loan applications submitted to both Dominion Finance and North South.  This closer involvement in the companies’ day to day affairs meant he was slightly more culpable than were the other two directors, Justice Katz said.

R. v. Bettle, Arkinstall & Forsyth – High Court, Auckland (16.08.13)

13.020

Spamming: Internal Affairs v. Mansfield

An Australian spammer has been ordered to pay a $95,000 administrative fine following an illegal email marketing campaign for a business called Business Seminars NZ.  This follows a harsher penalty imposed in Australia for similar spam advertising where the same spammer was fined one million dollars.

Internal Affairs in New Zealand took action against Perth businessman Wayne Robert Mansfield after receiving some 50 complaints from members of the public over a five month period in 2010 about unsolicited emails advertising business seminars.

Evidence was given that in the region of one million unsolicited email messages were sent to New Zealand addresses promoting a series of business seminars on social media marketing.  Internal Affairs identified that seminars were advertised at $199 a seat, to be held at various locations around the country, such as the Langham hotel in Auckland.  The seminar schedule indicated four seminars might be held per day at each venue.

The Unsolicited Electronic Messages Act 2007 prohibits spam.  Spammers face administrative fines, not criminal prosecutions.  Identified spammers face a court-ordered fine unless they can prove on the balance of probabilities that recipients consented to the emails in question.

Spammers not only annoy recipients, they clog up the internet, slowing traffic and reducing productivity.  The court was told an estimated 120 billion spam emails are sent worldwide every day.

Mr Mansfield did not appear in court.  Evidence was given that he had initially responded to Internal Affairs requests for information, but then stopped.

Justice Wylie said evidence indicated there was no consent given for the emails sent.  Five databases were used for the advertising campaigns.  The number of addresses on each database ranged between 66,700 and 80,700.  Mr Mansfield admitted buying email addresses from a third party.  An analysis of some 19,200 addresses from the databases identified that 14% were recipients inherently unlikely to consent to any emails: being not for profit sites, technical addresses used for website administration or the likes of military email addresses.

Mr Mansfield had conceded to Internal Affairs that his emails were being blocked as spam by various internet service providers.  He had changed his IP address to try and circumvent this restriction.    

The 2007 Act is modelled on Australian legislation, but with lower maximum penalties.  Mr Mansfield featured in Australian litigation from 2006 where he was fined one million dollars for a spam campaign in which 70 million emails were sent to some five million recipients.

Internal Affairs v. Mansfield – High Court, Auckland (14.08.13)

13.021