Transpower: Vector v. Transpower

Transpower has benefited from some double dipping.  Auckland power utility Vector failed in its argument that Transpower owed it a refund of $3.2 million for charges levied while a new main transmission line was pushed through central Auckland.  At issue was the question of who bears transmission costs during the staged development of Transpower infrastructure.

The High Court ruled that Transpower could levy all users for the cost of a transmission grid upgrade while at the same time charging an individual power utility for using part of the upgrade while still under construction.

During 2013-2014 Transpower strengthened its Northland network by constructing a new transmission line from Penrose to Albany through central Auckland.  Transpower’s income is derived from transmission charges levied against those drawing down from the grid.  The main grid is an “interconnection asset”.  Power can flow in either direction through the grid   Costs are “socialised”.  The cost of building and maintaining the grid interconnection is spread across all lines companies and a few major electricity users since supply to individual recipients cannot be easily metered.   By contrast, users at the end of a spur line are charged individually for power taken.  Power flows only one way and can be metered.    

The High Court was told Transpower socialised proposed costs of the Penrose/Albany interconnection on the assumption that this upgrade would go live as one completed project.  Because of construction delays, one section across part of Auckland’s North Shore went live nine months before completion of the entire project.  Vector was sole user of this section of the project for these nine months.  Transpower treated this stage of the link as a spur and billed Vector $3.2 million for power carried during the period of Vector’s sole use.

Having paid the $3.2 million invoice, Vector demanded repayment.  It was being asked to pay twice for a transmission upgrade: first as its share of the “socialised” interconnection construction costs; and secondly for its nine months usage prior to commissioning of the final project.

Justice Williams ruled no refund was required.  A 2010 participation code forming part of the Electricity Industry Act defines what is an interconnection asset and what is a spur.  The code speaks in the present tense and recognises that a particular transmission link can change at any given time between interconnection asset and spur.  For the nine months in question, Vector’s use of the first commissioned stage of the planned interconnection link was use of the link as a spur.

The Electricity Authority says individual utilities can negotiate with Transpower over transmission charges to be levied on interim use of those parts of a staged development which are temporarily operating as a spur.

Vector v. Transpower – High Court (24.12.14)

15.005

Land: Western Park Village v. Baho

Failing to disclose during negotiations for the sale of a Parnell residential unit that a threat of potential legal action had been made against the body corporate cost the vendor damages of $50,000.

In May 2007, Western Park Village Ltd agreed to purchase a residential unit at 30 Augustus Terrace, Parnell in Auckland from Mr Baho at a price of $1.225 million.  It later used a failure by Mr Baho to disclose legal problems faced by the Augustus Terrace body corporate as grounds to try and escape the contract.
To finance the purchase, part of the price was left in secured by a mortgage back to Mr Baho. Remaining payments were due in two lump sums.  The Court of Appeal was told Western Park defaulted on payment of the second instalment.  Discussions over rescheduling this debt failed.  Western Park then sought to cancel its purchase, alleging breaches of contract by Mr Baho.  By the time the case reached the Court of Appeal, the central issue was liability for rock and debris falling down a cliff from the Augustus Terrace property on to buildings below.

Evidence was given that rockfall debris had been an ongoing problem for at least a decade.  A geo-textile net had been installed to catch rocks falling, but this was damaged in a substantial slip. In 2006, the body corporate controlling the Augustus Terrace development received a letter from the neighbour’s solicitors requiring specified remedial work on the cliff face to commence without delay.  This was coupled with a warning that legal action would be taken otherwise.

Western Park said it was not told of this threat when buying the following year.  Within months of this purchase, the Augustus Terrace body corporate was sued in nuisance for damage caused by the ongoing rockfall.  The court was told the dispute was settled out of court with Western Park paying some $33,600 as its share of the body corporate’s remediation costs.

The Court of Appeal said the failure by Mr Baho to disclose the fact of the ongoing dispute was a breach of a specific clause in the agreement for sale of purchase where he stated he had no knowledge of the possibility of any proceedings being issued against the body corporate.

A prospective purchaser made aware of this threatened legal action would make inquiries about the likely cost of necessary remediation work and deduct this figure from the price offered, said the court.  Damages of $50,000 were awarded to Western Park.  This sum was to be set off against the $204,070 owed to Mr Baho for the still unpaid second instalment on the mortgage back.

Western Park Village v. Baho – Court of Appeal (19.12.14)

15.004

Trustee: Waho v. Olsen-Ratana

A trustee of the Kohanga Reo Trust dismissed after going public with allegations made by an outsider of wrongdoing by fellow trustees failed to get an interim injunction blocking his dismissal.  He is left to pursue a full court hearing to prove these allegations.

Kohanga Reo Trust hit the headlines in late 2013 with complaints that Lynda Tawhiwhirangi, chief executive of the Trust’s commercial operations, had misappropriated more than $10,000 through misuse of her corporate credit card.  Steps for her dismissal followed.

Mr Waho, a trustee of Kohanga Reo, became concerned about what he considered inappropriate behaviour by fellow trustees in negotiations over Mrs Tawhiwhirangi’s departure.  Her mother-in-law, Dame Iritina Tawhiwhirangi, was also a trustee of Kohanga Reo.  The court was told Lynda Tawhiwhirangi demanded a severance payment of $400,000 as the price for her departure.  When this was refused, her husband (Dame Iritina’s son) produced an eight page document alleging financial improprieties by trustees of the Kohanga Reo Trust and by a number of its employees.  Some of these allegations amounted to potential evidence of criminal conduct.  Mr Waho alleged Mr Tawhiwhirangi then upped the stakes: blackmailing the board of trustees by demanding a payment of $800,000 to stay quiet; threatening to go to the media otherwise.

Mr Waho became concerned that the Kohanga Reo board of trustees was considering doing a deal with the Tawhiwhirangi family.  In March 2014 he wrote a lengthy letter to his fellow trustees setting out four steps he considered necessary: a board inquiry into Mr Tawhiwhirangi’s allegations; a stop to negotiations over any payments; a report on steps taken to recover funds misappropriated by Lynda Tawhiwhirangi; and immediate steps to inform the police, the Serious Fraud Office and government of what was happening.  Mr Waho concluded his letter by stating that he would personally report his misgivings to “the proper authorities” unless the board of trustees agreed to implement his requests.  He forwarded a copy of this letter to government ministers after what he perceived as a failure by fellow trustees to immediately address the issues raised.  Eight months later, fellow trustees voted to remove him as trustee on grounds he had brought the Trust into disrepute.  They said Mr Waho had pre-empted both any Board decision and any effective response to the allegations raised when he contacted government ministers directly, knowing that a Board meeting had been scheduled to review the allegations.

Prior to the vote, Mr Waho filed in the High Court for an interim injunction to block steps to remove him, claiming he was being unlawfully excluded from trust business.  An injunction was refused.

An interim injunction is available where the applicant has a strong case and it is vital that the status quo be maintained.  On appeal to the Court of Appeal, a majority of the judges took the view that Mr Waho had a seriously arguable case that he should remain on the Board.  Mr Waho presented himself as a principled whistle-blower concerned to protect the Trust.  By contrast, other board members considered Mr Waho had impugned and discredited them without justification.

The appeal court ruled there was no need to preserve the status quo.  Removal from the Board did not endanger Mr Waho’s personal interests or place him at any personal disadvantage, it said.  He was able to pursue separately the allegations of wrongdoing by fellow trustees free of the collective responsibility for Board decisions which otherwise governs all board members.

Waho v. Olsen-Ratana – Court of Appeal (15.12.14)

15.003

Tax: Shearing Services v. Inland Revenue

Registered to an address in Northland while providing shearing services to Southland sheep stations, Shearing Services Kampupene Ltd failed to deflect Inland Revenue demands for over $1.5 million in unpaid PAYE plus shortfall penalties with an argument it enjoyed sovereign exemption from tax by reason of Maori ownership.

Shearing Services was investigated following non-payment of PAYE for the tax years 2005-2007.  Up until January 2005, the company had been deducting PAYE.  The legal issue was whether shearers and shed hands were now independent contractors (where no PAYE need be deducted) or were still employees (where PAYE deductions are required).  The High Court was told Shearing Services did not address this central question.  Rather, it argued at length that it was exempt from tax.  When the tax investigation started, Shearing Services refused to provide any information to Inland Revenue, stating that the Commssioner of Inland Revenue was required to attend Te Kooti marae for discussions on the issue.  The Commissioner declined the invitation.  A decision from the marae subsequently stated that the information need not be supplied.

Evidence was given that Shearing Services claimed to be the trading name for an organisation called Maunga Hikurangi Koporeihana.  Hikurangi was liable for any PAYE deductions, it claimed.  And Hikurangi itself was exempt from tax, it further claimed.  The ultimate ownership of Hikurangi was said to lie with one hapu: Ngati Hine Hapu Ki Moerewa.  Shearing Services said the Te Ture Whenua Maori Act 1993 exempted the business from tax.  It claimed the existence of a regulation called the Maori Incorporation Maunga Hikurangi Koporeihana Maori Constitution Regulations 2008 gave legal existence to Hikurangi and with it the charitable status afforded organisations under the 1993 Act.  Hikurangi’s supposed legal existence was confirmed by a “certificate of trade” issued by “Kaitaki Ahuwhenua Trust Inc” – an organisation described by the High Court as being an entity with no legal basis.  This certificate of trade purported to authorise rights to do business “within and outside the Dominion of Aotearoa (NZ) where the native title has not been extinguished”.  At one point, a representative of Shearing Services issued a notice of default to Inland Revenue, purporting to hold the Commissioner of Inland Revenue liable for dishonouring the mana of Hikurangi.

At an earlier Taxation Review Authority hearing, the judge said documents produced by Shearing Services indicated a fundamental misunderstanding of the operation of the 1993 Act.  Under this Act, only the Maori Land Court and the Maori Appellate Court are authorised to establish ahu whenua trusts.  As a whanau trust, Hikurangi was not created by court order.

In the High Court, Justice Mallon said Shearing Services continued to assert claims of Maori sovereignty and purported to exercise jurisdiction over the Commissioner of Inland Revenue without addressing the relevant issue of the tax status of its workers.  This was not a case of two cultures talking past each other, she said, it was a case of failing to advance legally valid grounds to dispute the PAYE assessment.  Shearing Services argued that within Maoridom there are no concepts of employees and independent contractors.  These are pakeha concepts.  It said tikanga Maori recognised a different type of working arrangement: Whanau Kiatono and this was not subject to pakeha laws or tax legislation.

Shearing Services Kampupene Ltd v. Inland Revenue – High Court (15.12.14)

15.002

Inheritance: Wightman v. Public Trust

Directions made by a Canterbury farmer over fifty years ago proved pivotal in claims by five grandchildren for a share in his Methven landholdings now valued at some $12.8 million.

Wallace Wightman died in 1965. His farms were then valued at about $208,000. He had settled in the Methven district early in the twentieth century.  Six years before he died, Wallace gave instructions to the Public Trust as to what was to happen to his farm on death.  Given that his children were themselves well off at this date, Wallace wanted the farm to remain in the family and be held in trust for his grandchildren.  His will stated that his eldest daughter Clara was to decide how his estate was to be ultimately divided.  Wallace was of the view that she would be in the best position to later decide who should inherit.  Clara was long-lived.  She died in her 96^th year and in her will decreed that only one grandchild, Robert, should inherit Wallace’s farm.  Five grandchildren challenged this result, having received no financial benefit from their grandfather’s estate. Not all the grandchildren took exception to Robert taking sole ownership of the farm; they had received benefits ranging from $3.3 million to $832,000 indirectly from their grandmother’s estate.

Evidence was given that the Public Trust employed a farm manager to run the farm after Wallace’s death.  The manager retired in 2003, after 37 years in the job.  Grandson Robert managed the farm subsequently.  He became entitled to absolute ownership of the farm in 2011 after probate of Clara’s will made public her decision in favour of Robert.  Title in the farm could not be transferred to Robert until protests by the aggrieved grandchildren were sorted out.

They sued under the Family Protection Act, alleging grandfather Wallace had failed in his moral duty to provide for them.  Justice Whata ruled that leaving the final decision to Clara’s unfettered discretion resulted in a breach of moral duty: it meant the five grandchildren were denied the familial recognition received by their siblings and cousins who did inherit.

His Honour ordered that $150,000 be paid to each of the five grandchildren; a total of $750,000 to be found out of the capital being inherited by Robert.  It was not appropriate to remove Robert from the farm, he said.  Evidence was given that Robert was paid an annual salary of $55,700 after assuming management of the farm in 2003 and had purchased adjacent land out of money from the sale of his own property and from an inheritance.

The court was told the five grandchildren, together with all the other grand children, received $44,200 each from Clara’s estate.

Wightman v. Public Trust – High Court (9.12.14)

15.001