Commerce Act: Commerce Commission v. PCG Wrightson

PCG Wrightson has been fined $2.7 million and Rural Livestock $475,000 for colluding on fees charged for implementation of a national animal tagging system.

Legislation in 2012 required all cattle and deer be tagged with a radio frequency identification device to track stock movements.  Stock and station agents became the focal point for implementation because all stock moving through saleyards required a tag.  There are twelve agents throughout New Zealand.  PCG Wrightson, as the biggest, took the lead.

The High Court was told PCG Wrightson held informal discussions with other stock agents before sending out a letter specifying minimum prices to be charged for tagging un-tagged stock arriving at saleyards together with increased yard fees and administration fees to cover costs of the national scheme.  In-house legal counsel at PCG Wrightson warned this letter could amount to price-fixing, in breach of the Commerce Act.  A follow-up letter was drafted, advising each agent they should set their own prices.  This letter was sent to only three of the 68 saleyards in New Zealand.  PCG itself has an interest in some 50 of these saleyards.

The Commerce Commission took action, arguing general use of the Wrightson-recommended prices breached the Act.  PCG Wrightson pleaded guilty and was fined $2.7 million.  Justice Asher said the best guess was that PCG Wrightson gained a commercial advantage of less than one million dollars from fixing prices, but a heavy penalty was neccesary because the company was a key driver in setting these prices.  Rural Livestock also pleaded guilty.  It has interests in seven South Island saleyards, holding a seven per cent share of the national market.  The company was fined $475,000.  Payments are to be made over a two year period.  Instalment payments were ordered to preserve Rural Livestock’s financial stability.

Commerce Commission v. PCG Wrightson & Rural Livestock – High Court (22.12.15)

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Maori: Victoria St West v. Baker

Over four years, Wellington Maori have seen the value of their Port Nicholson Treaty settlement assets drop by two-thirds to $11 million.  Port Nicholson trustees are now in pursuit of $731,000 apparently lost in a property deal with Anthony Gapes’ Redwood group.

The High Court was asked to remove Auckland liquidator John Gilbert from one of Gapes’ companies following allegations that Mr Gilbert was installed as a patsy liquidator tasked to not look too hard at company transactions.

Victoria Street West Ltd went into liquidation in 2015, with Mr Gapes as shareholder appointing Mr Gilbert as liquidator.  The liquidator’s initial report lists the company’s only asset of value as a bank account holding $34,200 with secured creditors owed some $26,400 and unsecured creditors owed $1.4 million.  Port Nicholson trustees cried foul. They were not listed as an unsecured creditor despite claiming $731,000 was due.  This $731,000 debt is listed in the Trust’s most recent annual report as “impaired”. Evidence was given that the Trust paid a deposit of $750,000 in 2010, agreeing to buy a property at 83 Waterloo Quay, Wellington.  The Trust subsequently transferred its interest in this agreement to Victoria Street West, but the company failed to fully reimburse the Trust its $750,000 as promised.        

At a creditors’ meeting in May 2015, Mr Gilbert was confirmed as liquidator of Victoria Street West.  The Trust was the only creditor to vote against his appointment.  Included in the majority voting in favour were three entities under the control of Mr Gapes between them claiming $1.19 million.

Associate judge Bell ordered that a further creditors’ meeting be held to vote again on the question of a liquidator.  The $1.19 million in related party votes are not to be voted.  The judge instructed that all creditors are to receive a copy of his judgment along with notice of the meeting and they were to be specificially advised of the multiple name-changes Victoria Street West has undertaken.  Victoria Street West was previously known as Redwood Group Ltd.  The court was told Mr Gapes appears to have transferred the name Redwood Group on to a different company leaving the former Redwood Group assetless under the new name of Victoria Street West.  Mr Gapes Redwood group development at Spring Park in Mt Wellington, Auckland, is in receivership.

Victoria St West Ltd v. Baker – High Court (18.12.15)

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Financial Services: Excelsior v. Financial Markets Authority

Excelsior Markets has been removed from the register of financial service providers.  Owned by interests in Pakistan, operating out of Sri Lanka, and with only an administrative presence in New Zealand, Excelsior was deregistered because local registration created a false and misleading appearance that its overseas clients would be protected by New Zealand law.

The High Court was told Excelsior offers facilities for foreign exchange trading.  It has no New Zealand clients.  It is has clearing accounts with CFH Clearing House in London.  CFH Clearing requires account holders to be regulated by a financial services regulator.  Excelsior used its New Zealand registration as an entrée into CFH Clearing and to garner contacts with Goldman Sachs, UBS and Barclays.

The Financial Markets Authority deregistered Excelsior in May 2015, a decision upheld by the High Court.  Excelsior had no New Zealand clients on its books.  A client holding account in Sri Lanka held a balance of US$513,300 as at March 2015.  Excelsior is a New Zealand registered company, but offers little more than administrative services for company operations carried out overseas.  Justice Nation said its registration in New Zealand as a financial services provider would mislead overseas customers that their transactions would be governed by New Zealand law.

In 2014, the Financial Marketing Authority was empowered to deregister providers not trading in New Zealand.

Excelsior Markets v. Financial Markets Authority – High Court (18.12.15)

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Fraud: Wynyard v. R

The Court of Appeal overturned convictions entered against Glenda Mary Wynyard for alleged fraud in attempting to stem a 2009 cashflow crisis in her advertising agency, Media Counsel Ltd.

Media Counsel is in liquidation.  The liquidators’ report states that a lack of working capital and excessive drawings taken by Ms Wynyard contributed to the company’s failure.  Double pledging of invoices by Media Counsel led to a Serious Fraud Office investigation and to charges laid under the Crimes Act.  The Court of Appeal ruled seven of the Crimes Act convictions could not be sustained; Wynyard could not be guilty of fraud in directing that billings be paid to the Marac Finance since Marac was entitled to receive payment.

The court was told Media Counsel’s business grew rapidly from inception with billings of $4.2 million in 2007 reaching $33.9 million in 2009.  The profit margin on billings is slim.  Agencies must pay for advertisements on placement, unless accredited with the Print Media Accreditation Authority.  Terms for accredited agencies is payment on the last day of the month following publication.  Media Counsel gained accreditation in November 2008.  Prior to that, the company used a “place-through” agreement with accreditated agency Aegis, paying a fee to place advertisements through Aegis and to get the benefit of extended credit terms.

Evidence was given that Media Counsel negotiated a three million dollar credit line with Marac Finance after gaining its own accreditation.  Marac purchased selected client billings, immediately paying Media Counsel 80 per cent of the invoice face value.  The client was then instructed to pay Marac.  On receiving payment, Marac paid the 20 per cent balance due to Media Counsel, less fees and an interest charge.

A severe cash crisis struck in 2009.  Media Counsel lost its accreditation.  The “place-through” agreement with Aegis was reinstated.  This resulted in Aegis (apparently unaware of the existing financing arrangement with Marac) instructing Media Counsel clients to pay it direct, while Marac was expecting to receive these same payments.  Marac had registered its financing agreement on the personal property securities register.  Aegis is deemed to have notice of Marac’s rights to collect the invoices.  Marac, with Wynyard’s assistance, acted promptly to collect payment on its pledged invoices, leaving Aegis out of pocket.  At a Serious Fraud Office interview, Wynyard said she was desperate to prevent Marac from putting her company into liquidation and wanted to see Marac paid since she had guaranteed the Marac debt.

The Court of Appeal ruled that Wynyard’s convictions on seven of the counts could not stand.  Ensuring that pledged client billings were paid to Marac, the rightful recipient, was not fraud.  She had not honoured promises to Aegis that it could collect the same invoices, but that was not a crime she had been charged with.

At trial, Wynyard was sentenced to eight months home detention.  She has been on bail pending appeals.  The Court of Appeal said bail is to continue while sentencing is reconsidered in respect of four other convictions not appealed.     

Wynyard v. R – Court of Appeal (17.12.15)

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Carbon Credits: NZ Carbon Farming v. Mighty River

Mighty River Power is not liable to buy additional carbon credits costing some $34.7 million after the Court of Appeal ruled against NZ Carbon Farming, owner of the Hawarden Forest in north Canterbury.

The tangled mess which is the carbon emissions trading scheme, created as a political response to feared global warming, was compounded in Mighty River Power’s agreement to buy carbon credits from NZ Carbon farming.  The two could not agree when payments fell due, there were arguments about overpayments and complications from changes to the accounting treatment for carbon capture by forestry.

Eighteen months into its long-term contract to buy carbon credits, Mighty River Power was told by NZ Carbon Farming that scaling-up mechanisms in the contract had the effect of doubling the price payable, from $36 million to $71 million.  This followed their contract using government-issued “look-up tables” to estimate carbon capture by Hawarden Forest while new rules required a field measurement approach applied specifically to individual forests.  New rules had the effect of doubling the carbon credits available for transfer from Hawarden Forest.

Carbon emissions trading is intended to put a price on carbon to force a reduction in atmospheric pollution.  Specified emitters of carbon are required to pay for the privilege.  This can be “paid” in a number of ways.  Electricity generator Mighty River Power operates a risk management policy designed to cover at least 50 per cent and at most 100 per cent of its obligations.  Carbon credits come from government (as an incentive to develop renewable energy projects), under long-term contracts (as with NZ Carbon Farming), and market purchases on the spot market.

The court was told Mighty River Power and NZ Carbon agreed in January 2012 to a long term contract for the purchase of carbon credits.  Evidence of prices and volumes were supressed.  The volume of carbon credits potentially available from new wood growth in the Hawarden Forest was an issue in negotiations.  Mighty River Power was looking to balance its emissions risk management portfolio.  At the time of negotiations, the take or pay agreement for carbon credits was assessed using a guide published by the Ministry for Primary Industries: the “look-up” tables.  These tables were about to be replaced by a field measurement approach: a more precise assessment of potential carbon credits determined following a field examination of individual forests.  The density of Hawarden Forest and its silviculture meant the future volume of carbon credits doubled in comparison with the “look-up” tables.  Armed with this new information, NZ Carbon said the revised volume applied to the minimum/maximum annual deliveries in Mighty River Power’s purchase contract, doubled the number of carbon credits it had to take and pay for.

The Court of Appeal said that NZ Carbon Farming’s interpretation parted company with commercial commonsense.  The court ruled that while the contract referred to carbon credit volumes assessed by the “look-up” tables, the scaling-up mechanism in the contract recognised different carbon credit volumes would follow from application of the field measurement approach.  The parties did not intend during their negotiations that later introduction of the field measurement approach would trigger an increase in volumes to be purchased at the contract price.  The fact that NZ Carbon took no objection to the contract’s operation in its first eighteen months, at a time when the field measurement appproach was in operation,  was a further indication of both parties intentions at the time the contract was negotiated, the court said.

NZ Carbon Farming v. Mighty River Power – High Court (9.06.15) & Court of Appeal  (16.12.15)

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