Insolvency: Grant v. CP Asset Management

Court-appointed liquidators were reinstated after allegations that voting on the appointment of a replacement liquidator was rigged to curtail an investigation into alleged wrongdoing by management of a company previously trading as CP Holdings Ltd.  One creditor owed $1.04 million alleges management stripped assets out of the company to defeat their claim.

CP Holdings, now known as NZ Properties, was controlled and managed by Mr Charles Pandy, his wife Jaswanti and his son Prakash.  The court was told Brian and Bridgit Lawrence sued CP Holdings in 2006.  They had bought into a motel business operating from premises owned by CP Holdings.  Their business failed after a series of plumbing failures caused flooding in and around the motel.  CP Holdings as landlord admitted liability but disputed the level of damages to be paid.  Arguments over damages payable dragged on.  It wasn’t until 2011 that damages were fixed at $1.04 million in a court hearing where no-one from CP Holdings turned up.  When they were not paid, the Lawrences went back to court and had CP Holdings put into liquidation with two insolvency practitioners appointed as liquidators: Damien Grant and Steven Khov.

In the intervening five years, the court was told, assets owned by CP Holdings had been transferred to new companies leaving CP Holdings assetless.  The Lawrences allege these new companies are related parties controlled directly or indirectly by interests associated with Mr Pandy.

After the liquidation commenced, steps were taken to replace the court-appointed liquidator.  Creditors by majority vote can appoint a replacement liquidator.  A vote was pushed through with a majority of votes which seemed to be held by creditors associated with the Pandy family.  Claims held by allegedly related party creditors totalled $2.03 million.  The Court of Appeal questioned the validity of some of these claims: one; a debt claimed for an allegedly unpaid salary for someone who appeared to be the employee of another company; others being debts owed by CP Holdings but now more than six years old and no longer recoverable.

The original court-appointed liquidators indicated they were willing to continue with their investigation into alleged wrongdoing by former management, even though the company had no assets to fund an investigation.  By contrast, the liquidators voted in by creditors said anything beyond a limited initial investigation would need to be funded by creditors or some other third party before they would commit resources to a detailed investigation.

In particular the new liquidators expressed no interest in challenging the validity of debts claimed by related party creditors.  At the same time, these very interests had offered to advance an unspecified amount of money to the new liquidators to help fund the costs of the liquidation.

The Court of Appeal said it was incongruous that interests likely to be the subject of any investigation were offering to dictate the funding and hence its scope and depth.

The court ruled that the creditors’ resolution voting out the court-appointed liquidators was not in the interest of unsecured creditors.  The Lawrences’ $1.04 million debt was by far the largest debt owed to an external creditor.  All the creditors who voted for a replacement liquidator were associated with the Pandey family.  The Lawrences were entitled to as thorough an investigation as possible of CP Holdings’ activities, the court ruled.

Damien Grant and Steven Khov were reinstated as liquidators.

Grant v. CP Asset Management – Court of Appeal (30.09.13) & Supreme Court (25.02.14)

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Negligence: Marchand v. Jackson

Failing to arrange insurance cover for clients and then dishonestly stating that he had done so meant an insurance broker was liable for his clients’ uninsured losses on a $1.5 million property after the Christchurch earthquake.

Mr John Jackson as owner of Town and Country Brokers was left liable for repair costs to a substantial Tai Tapu lifestyle property owned by Nicola and Jacques Marchand, damaged in the September 2010 Canterbury earthquake.

In June 2009, the Marchands approached Mr Jackson to arrange insurance cover for both their personal assets and Dr Marchand’s medical practice.  Dr Marchand had been insured previously with the Medical Assurance Society.  This cover was cancelled by the Society after Dr Marchand’s conviction for fraud.  The doctor had been sentenced to eight months home detention after conviction on 57 counts of making fraudulent medical services claims totalling $30,500 over a three and half year period.

Insurance companies routinely cancel insurance cover for any person convicted of fraud.

As broker for the Marchands, Mr Jackson did arrange alternative cover for Dr Marchand’s medical business, and did send an insurance proposal to NZI for house and contents insurance in respect of the Tai Tapu residence.  But, the court was told, he failed to follow up NZI’s response, leaving the Tai Tapu property and contents uninsured.  He was later to say that his poor health contributed to the oversight.  Rather than admitting to his error, Mr Jackson maintained a pretence that cover was in place.  He reassured Mrs Marchand they were insured when she queried why no invoice had been received for the premium due, he paid out of his own pocket a claim by Mrs Marchand for damage to her spectacles, he sent to her a claim form for minor damage to wall paper even though there was no insurance in place against which to claim and then after the September 2010 earthquake he sent to NZI a back-dated insurance application.  NZI refused to provide cover. 

Justice Kos said that Mr Jackson failed in his duties as an insurance broker by not completing the job diligently or with reasonable care and skill.  He was liable to pay for damage to the Tai Tapu property as if it had been insured.

The High Court was not asked to rule on what would have been the extent of insurance cover that a competent broker would have arranged for the Marchands.  Insurers willing to offer cover to people convicted of fraud often demand a higher premium and impose a greater excess.  Those convicted of arson or serious criminal damage usually find insurance is not available at any cost.

In parallel litigation, Mr Jackson failed to recover from his professional indemnity insurer, IAG New Zealand.  Mr Jackson sued IAG claiming insurance cover for his negligence.  IAG said Mr Jackson’s professional indemnity insurance excluded cover for any dishonest acts or omissions.  Both the Court of Appeal and Supreme Court agreed the exclusion applied: Mr Jackson’s liability to the Marchands arose from his admitted dishonesty in telling them that cover was in place, when it wasn’t. 

Marchand v. Jackson – High Court (2.11.12) and IAG Ltd v. Jackson – Court of Appeal (15.7.13) & Supreme Court (25.02.14)

 14.009

Bankrupt: Medtronic NZ v. Finch

Orthopaedic surgeon Gregory Dale Finch has been ordered to pay $1.08 million for unpaid medical supplies and further ordered to pay extra costs because he lied to the court.  The High Court was told Finch is bankrupt and has left for Western Australia.

Medical supplier Medtronic New Zealand Ltd was left out of pocket after Finch failed to pay for supplies used in his orthopaedic practice.  When sued, Finch delayed proceedings by claiming he did not owe the money personally, it was a debt owed by his business trading as a limited liability company.  Medtronic’s records showed Finch personally as the purchaser; there was no record of his company as purchaser.

Evidence was given that Medtronic got a court order giving it access to two of Finch’s computers.  Forensic analysis identified that a purchase order claimed by Finch to be in the name of his company and the basis of his contract with Medtronic was in fact a forgery.  The purchase order on Finch’s computer identified Finch personally as the purchaser.  Justice Duffy ruled that the purchase order in a company name used by Finch as evidence was fictitious, having been forged on another computer.

The court said Finch personally was liable for the debt of $1.08 million.  In addition Finch is liable for $A35,200 paid by Medtronic for the forensic examination of his computer by experts at Macquarie University.

Justice Duffy said use of fabricated evidence was flagrant misconduct putting Medtronic to extra work.  Finch is required to make an increased contribution towards Medtronic’s legal costs.  He was ordered to pay $45,500 – being 80% of Medtronic’s legal costs.

While Finch is bankrupt in New Zealand, the New Zealand High Court judgment can be transferred to Western Australia and used to seize any assets held there.

Medtronic New Zealand v. Finch – High Court (25.02.14)

14.014 

Pollution: Auckland Waterfront v. Mobil

Auckland ratepayers face a ten million dollar cost to remove contaminated subsoil before completing redevelopment of the Wynyard Quarter, site of the former tank farm facing Auckland’s harbour front.   Attempts to hold Mobil Oil liable for the cost were described by the High Court as being untenable, commercially unrealistic and not in accordance with the site lease.

The tank farm on land formerly owned by the Auckland Harbour Board has been used to store bulk fuel for over a century.  Storage tanks sat on land reclaimed in the early 1900s.  The land is now owned by the Auckland Waterfront Development Agency which has site plans for mixed residential and commercial use.   It first requires remediation.  Fill used for the reclamation included toxic waste from a nearby gas works together with city rubbish.  Further subsoil contamination arose later from oil spills and leakages.  Various oil companies held site leases during the tank farm’s 100 year existence.  When alternative storage facilities were built at Wiri in South Auckland, oil companies moved out.  Mobil stayed on site temporarily under a series of short-term tenancies from 1985.  When Mobil departed, city authorities claimed Mobil was liable to remove subsoil contaminated by over a century’s use as an oil depot.

The High Court was asked to rule on the effect of a “clean and tidy” clause in successive short-term Mobil leases operating from 1985.  This clause mirrored similar clauses in the original long-term Harbour Board leases.

Auckland Waterfront argued the wording obliged Mobil to leave the land in an uncontaminated condition (with the exception of the gas works and rubbish waste used originally as fill).  Mobil said the “clean and tidy” obligation referred to the surface of the land only.

Justice Katz ruled the “clean and tidy” clause applied to the surface only.  The wording best suited surface contamination only.  There was no discussion of liability for subsurface contamination when negotiating the short-term leases.  It would be unusual, she said, for a tenant to be liable for historic contamination, much of it caused by others, without some prior discussion and negotiation followed by clear and unambiguous wording in the lease.

Auckland Waterfront v. Mobil – High Court (7.02.14)

14.008