Rockforte Finance: R. v. O'Leary & Gardner

Directors of Gisborne based finance company Rockforte Finance have been sentenced for their role in misusing company money to prop up trucking company, Gisborne Haulage.  The 90 investors who had put in $3.8 million were paid out in full by taxpayers because Rockforte was part of the government-funded deposit guarantee scheme set up after the 2008 banking crisis.

Nigel Grant O’Leary was sentenced to four years’ jail; John Patrick Gardner to eleven months home detention and 200 hours community work.  The court was told Rockforte breached loan limits set out its trust deed governing use of funds borrowed from the public.  When Gisborne Haulage got into financial difficulty, further funds were advanced by Rockforte in breach of trust deed limits as to how much could be lent to any one borrower.  This was compounded by the fact that Rockforte directors had a commercial interest in Gisborne Haulage and these further loans were in breach of trust deed controls on related party lending.  A relative of Mr O’Leary was put up as the supposed owner of Gisborne Haulage in a deliberate attempt to disguise the loans as not being related party loans.

Evidence was given that a total of nine loans were falsely recorded, hiding their true nature.  In addition there were two instances of investors’ money being recorded as repaid when in fact the funds were misappropriated by being illegitimately reinvested without the investors’ knowledge.

Of the two directors sentenced, Mr O’Leary was described as the primary offender.  He signed off on a false prospectus which hid the level of related party lending and he pleaded guilty to deceit in relation to false information provided to government when Rockforte entered the government-funded deposit guarantee scheme.

Mr Gardner was described as having less culpability.  Whilst a director of Rockforte, he was on the periphery of much of the offending and did not have the finance and accounting background of other directors.

R. v. O’Leary & Gardner – High Court (24.10.13)

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Insurance: Wild South v. QBE Insurance

The High Court provided no help at all to Christchurch businesses trying to establish whether insurance cover continued between multiple earthquakes which severely damaged the city in 2010 and 2011.  A clause in insurance policies providing automatic reinstatement of cover was not read as being “automatic”: it depended on the circumstances.

Wild South Holdings and Maxims Fashions which each own commercial buildings in Christchurch insured with QBE Insurance asked the High Court to rule on the interpretation of their insurance contracts.  In particular, they wanted a ruling on whether their policies ran on after each of the large quakes in September 2010, February 2011 and June 2011.  They had deliberately underinsured their buildings.  If the policies did not expire, but ran on after each earthquake, multiple claims would be possible following each successive earthquake.

The insurance contracts held by both Wild South and Maxim said insurance cover was automatically reinstated in the event of any insured loss, in the absence of written notice from QBE to the contrary.

Justice Fogarty said the wording of commercial contracts is to be interpreted in a dictionary sense.  In this case, insurance cover did extend to more than one loss or event but only for an aggregate loss up to the sum insured.

Justice Fogarty took the view that the commercial reason QBE had a contractual right to cancel “automatic” reinstatement was to give the insurer a chance to assess its ongoing level of risk after the first claim and decide whether to cancel outright or offer further cover on amended terms.

The insurance policies before the court did not specify a period within which this assessment should be made.  This left Wild South and Maxims in the vulnerable position of not knowing whether their cover continued on through subsequent earthquakes.

Justice Fogarty interpreted policy wording on reinstatement of cover as giving QBE a reasonable time within which to give written notice overturning the supposedly automatic reinstatement of cover.  He did not accept QBE’s argument for a general rule that insurers had up to the assessment and payment of any prior claim to make its assessment whether to give notice.

He said factual evidence was required before the court could assess at what point it was too late for QBE to give notice cancelling cover in these two cases.  The court was told QBE had not given notice by the date of the court hearing.

The replacement cost of both Maxim’s and Wild South’s buildings was said to be in excess of eight million dollars each.  Maxim held aggregate cover of $3.6 million and Wild South $3.04 million.  At the time of the court hearing, each had been paid some $1.5 million by QBE.  In both cases, it was disputed as to whether these payments were final settlements.  

Wild South v. QBE Insurance – High Court (23.10.13)

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Copyright: G-Star v. Jeanswest

The ferocity with which G-Star protects its Biker jean design is evidenced by the costs incurred when suing Jeanswest Corporation in New Zealand.  After a court hearing lasting eight days, G-Star was awarded damages of $325.

The High Court was told G-Star’s classic Elwood Biker jean is an iconic brand, combining fashion with the functionality of motocross trousers.   Inspired by the shape created when wet trousers mould to motorcylists’ legs, its French creator intended the design to be named after the famous racer,  Mike Hailwood.  When spoken in French, Hailwood corrupted to Elwood.

G-Star alleged Jeanswest was ripping off its design of the 2006 Elwood Anniversary jean by selling similar styled jeans in New Zealand.

Evidence was given that G-Star has about five per cent of the fashion jean market in New Zealand, selling in the $180 to $570 price range.  

Jeanswest’s 27 outlets in New Zealand are controlled by management in Australia.  Evidence was given that a very small production run of the disputed jeans was sent to New Zealand: only 63 pairs of jeans, of which 62 were sold and one went missing – probably shoplifted.

After a G-Star representative purchased one pair from a Christchurch Jeanswest store, lawyers became involved.  A “cease and desist” letter was sent to Jeanswest together with a demand that Jeanswest acknowledge that its product was in breach of copyright as a copy of G-Star’s 2006 Elwood Anniversary jean.  Jeanswest agreed to stop selling the disputed line of jeans, but denied it was a copy.  G-Star sued for breach of copyright.

Copyright exists in design drawings for fashion clothing.  Replicating the fashion item is a breach of copyright in the original design drawings.

Justice Heath ruled that the Jeanswest product did breach G-Star’s copyright and that Jeanswest (New Zealand) was liable as a secondary infringer: the New Zealand operation did not manufacture the product but was liable for selling in New Zealand a product in breach of copyright.

Since such a small number of jeans were sold, nominal damages only of $325 were awarded.

G-Star v. Jeanswest – High Court (15.10.13)

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