Contract: Travel Managers v. 123Kiwi.com

Taking steps to transfer his travel agency across to House of Travel in breach of a contract with Travel Managers Group cost Gregory Southcombe and his business $615,000 for profits otherwise due on three years remaining of the Travel Managers contract.

The High Court was told Mr Southcombe and his travel business, then called Travel Café, had worked with Travel Managers since 2009.  Travel Café was the retail arm, booking travel through facilities provided by Travel Managers.  Other Southcombe family members owned and ran Travel Managers.

Evidence was given of delicate family negotiations in respect of a $115,365 debt owed Travel Managers by Gregory Southcombe.  It was agreed the debt would be cleared by having Travel Café put all its business through Travel Managers up to March 2017 with commissions and overrides applied in reduction of the debt.  Commissions are made on travel booked.  Overrides are rebates paid by airlines after travel commences if specified levels of volume and value are achieved.

In August 2013, Mr Southcombe signalled to Travel Managers he was looking to go elsewhere unless current trading terms were renegotiated.  Four months later, he was in discussions with House of Travel.  Travel Managers later discovered that Travel Café had signed up independently for the Amadeus online airline reservation system, had received an advance payment from Amadeus of $138,000 and had diverted  commissions totalling over $51,000 otherwise payable to Travel Managers.

In the High Court, Justice Woodhouse ruled that Travel Café had repudiated the Travel Managers contract by carrying out steps to take its business elsewhere.  Travel Café, and Mr Southcombe as guarantor, were held liable for $40,300 still owing on the original $115,365 debt and were further held liable for the commissions and overrides Travel Managers would have received if the contract had run its course through to 2017.   

Travel Managers Group v. 123Kiwi.com – High Court (27.11.15)

16.013

Bankruptcy: Parker v. Official Assignee

Considered a commercial risk to the community, property developer Philip Christopher Parker’s bankruptcy was extended three years by the High Court to February 2017 because of what the court said was his lack of judgement, business prudence and integrity.

Central to the Insolvency Service’s objection to Mr Parker being discharged from a 2011 bankruptcy was his involvement in a failed Ukrainian farm development and his failure to candidly disclose his financial position.  The Insolvency Service said Mr Parker should remain bankrupt for a further period to prevent him leaving the country, to ensure some accountability for his actions and to deter others from taking a cavalier attitude to commercial obligations and their duties of disclosure on bankruptcy.

Mr Parker declared himself bankrupt in February 2011.  He told the Insolvency Service his only assets were his personal effects and a bible, which he said he owned jointly with his brother.  He admitted to debts exceeding ten million dollars.

Insolvency Service inquiries raised concerns.  It said Mr Parker was not upfront about his commercial dealings.  He gave a personal guarantee of $311,700 at a time he was hopelessly insolvent.  There were a number of unexplained and poorly documented transactions between Mr Parker and his parents and between Mr Parker’s business interests and his parents.  Mr Parker had failed to have his businesses prepare proper financial statements.  He had failed to disclose a consultancy agreeement entered into six days prior to bankruptcy in which he was to receive a monthly fee of $5000, later increased to $6000.  There was some evidence that his wife, living in the Ukraine,  was benefitting from this agreement.

A failed Ukrainian business venture raised the most concern.  Evidence was given that Mr Parker attempted in 2010 to raise US$30 million for a proposed large scale dairy conversion in the Ukraine.  Projected returns of twenty per cent per annum were offered.  Supposedly some 3500 hectares in southern Ukraine were available for the conversion.  A Hong Kong company, Steppeland Agricultural Ltd, was the proposed investment vehicle.  There were no precise figures as to how much was raised.  One estimate put the figure at two million dollars.  Two investors who travelled to the Ukraine found the company did not own the assets claimed.  Further evidence was given that a second investment vehicle was promoted just prior to Mr Parker’s bankruptcy to supposedly manage the project.  Mr Parker obtained further funds from existing investors days before filing for his own bankruptcy.

The Insolvency Service said Mr Parker was uncommunicative, argumentative and evasive when asked for information.  At the High Court hearing for an extension to the bankruptcy, Associate Judge Doogue described Mr Parker as evasive and belligerent. 

Parker v. Official Assignee – High Court (26.11.15)

16.012

Insurance: JCS Cost Management v. QBE Insurance

Legal costs included in professional indemnity insurance cover defence costs only for activities covered by the policy.  Insured for professional liability in respect of its project management business, JCS Cost Management could not recover legal costs defending a claim centred on a pre-project consultation.

Stephen Johnston met with an existing client in March 2009 to view an open home in Takapuna, Auckland.  Evidence was given that he expected his company JCS Cost Management Ltd might project-manage any upgrade should the client purchase.  The client purchased what proved to be a leaky home.  Auckland Council was sued.  The Council in turn sued Mr Johnston, alleging he was liable on pre-purchase advice given the purchasers.  The Council did not succeed against Mr Johnston.  He recovered a contribution to his legal costs from the Council, but was left $52,000 out of pocket.  QBE Insurance denied this cost was covered by his professional indemnity insurance.

The Court of Appeal ruled QBE could be liable for defence costs only if the Council’s claim was hypothetically successful and the nature of the claim fell within the terms of the policy.  Mr Johnston said the client meeting at an open home was related to his business.  He was seeking potential work.  The Court said “work” as defined by the QBE policy covered management of projects for remuneration where there was a construction or development on foot.  The uninvoiced client meeting at a open home did not fall within the insurance policy definition.  QBE was not obliged to pay defence costs.

JCS Cost Management v. QBE Insurance – Court of Appeal (25.11.15)

16.011

Fraud: McGregor v. R.

Three years and ten months imprisonment for Joanne Christine McGregor following thefts of $472,900 from clients of Perpetual Trust was confirmed by the Court of Appeal as not being manifestly excessive.

The court was told McGregor misused her position at Perpetual Trust managing estates, trusts and personal affairs of clients to start stealing client money from early 2008, some nine months after starting employment with the Trust company.  She took money directly from client accounts, used client ATM cards to withdraw cash and used friend’s names without their knowledge to generate false invoices.  In one instance she supposedly purchased a car on behalf of a Perpetual client but registered the vehicle in her own name.  Evidence was given that the stolen funds were used to buy a home, purchase two cars, pay for an overseas trip and make payments to a family trust.

McGregor pleaded guilty.  In the Court of Appeal she said the jail term was excessive.  She said her mental health should have been taken into account.  There was evidence McGregor suffered from mild post-traumatic stress following the February 2011 Christchurch earthquake.  She was working from Perpetual Trust offices in the Pyne Gould Guiness building at the time of the earthquake, but was away at lunch when the earthquake struck and the building collapsed. Many of her friends and colleagues were killed.  The Court said her offending started years before the earthquake. 

McGregor said the length of the sentence failed to take into account her remorse.  The Court said no allowance could be made for remorse beyond the reduction already given for her guilty plea.  She had been reluctant to fill in a statement of assets and liabilities required before sentencing.  She had attempted to mislead the sentencing judge, said the Court, making little effort to sell her house while telling the judge she was selling up to better pay reparations for the money stolen.  When sentenced to jail, McGregor was ordered to pay $50,000 reparations.

Perpetual Trust made good all the money stolen from client accounts.

McGregor v. R – Court of Appeal (23.11.15)

16.010

Insurance: AAI Ltd v. 92 Lichfield St

It was an abuse of court procedure for Grant Thornton, as receivers of a Christchurch property company, to try and liquidate a Vero insurance subsidiary over a disputed  insurance payout, the Court of Appeal ruled.

Grant Thornton was appointed receivers of 92 Lichfield Street Ltd in 2010.  Property developer David Henderson previously controlled the company.  Receivers insured the Christchurch Lichfield St building for $13 million with Vero subsidiary AAI Ltd.  Three mortagagees were recorded as having an interest in the insurance policy.   The court was told lenders associated with David Henderson bought out at a later date the second and third mortgagees: Dominion Finance and Hanover Finance.

The building was badly damaged in the Christchurch earthquakes.  Negotiations between the receivers and Vero took some time.  Grant Thornton agreed to Vero’s June 2013 offer of $6.5 million plus claim costs to date together with some $203,000 for costs incurred to protect the damaged building.   The receivers amended a seven page discharge form sent by Vero, deleting the need for approval from secured creditors (which now included interests associated with David Henderson) and signed only as receivers.  The court was told Vero refused to pay, saying agreement was required from all secured creditors as well.  Vero said it faced the risk of paying the receivers in full and then facing separate claims from the mortgagees who were noted on the policy.  Through 92 Lichfield Street Ltd, the receivers applied to have Vero’s subsidiary wound up by the High Court on the grounds that there was an undisputed debt due of $6.5 million and the insurer refused to pay.  The High Court ordered immediate payment, failing that AAI Ltd was to be wound up.   

The Court of Appeal said there was a substantial dispute as to whether the money was immmediately payable and it was an abuse of process to take winding up proceedings to force payment.  The court was told Vero was forced to pay $6.5 million into court because the receivers were not willing to delay liquidation proceedings while the High Court decision in their favour was appealed.

The Court of Appeal ruled the receivers knew final settlement also required agreement from all secured creditors noted on the policy.  When seeking extensions of time to consider the June 2013 offer, the receivers said discussions with mortgagees needed more time.  Vero told the receivers they could pass on details of the $6.5 million settlement offer to Mr Henderson and to any other interested parties.

AAI Ltd v. 92 Lichfield St – Court of Appeal (19.11.15)

16.009