Lease: Cameron & Co v. McVicar

A Christchurch commercial tenant four years into a 15 year lease was given two months to pack up his business and his personal effects when the property was sold out from underneath him in a mortgagee sale.  Secured creditors can ignore leases given after a mortgage is set up unless they have consented.

Mr McVicar felt he had been shafted after given notice to quit his leased property at 227 Fitzgerald Avenue in Christchurch.  He took out a 15 year lease on an earthquake-damaged building in 2015 at $400 per week.  It was used as a clothing retail outlet.  He also lived in a small part of the building.  Mr McVicar used his skills as a builder to remediate some of the earthquake damage, successfully reversing a local authority demolition order.

Evidence was given the landlord cancelled his building insurance in late 2010, months prior to the February 2011 earthquake.  Secured creditors hold a $378,000 first mortgage security, registered back in 2004.

The High Court was told police were called when hostilities broke out between Mr McVicar and his landlord: the landlord complained rent was in arrears; Mr McVicar said the landlord had not reimbursed him for work done protecting and preserving the building.  Police invited lawyers acting for secured creditors to step in and sort things out.  It was in the secured creditors’ interests that lease payments be made.  The landlord could than pay interest due on the mortgage.  With a mortgagee sale looming, Mr McVicar canvassed the possibility of buying the property himself.  Nothing came of this.

With the landlord in arrears on loan repayments, secured creditors’ gave notice of a forced sale requiring Mr McVicar to vacate.  They were not bound to honour the lease.  Their mortgage security was taken before the lease was given.  They had not consented to the lease.

Associate judge Matthews said consent requires a positive affirmative act.  The creditors had notice of the lease.  Their solicitor had been given a copy.  Knowledge does not amount to consent.  Their solicitor had attempted to mediate in the dispute between landlord and tenant, but was careful to make it clear that this was not consent to the validity of the lease.  While the McVicar lease was enforceable against the landlord, it was not enforceable against the prior secured creditors who had not given consent.  The mortgagee was entitled to vacant possession on a forced sale.

Cameron & Co v. McVicar – High Court (29.02.16)

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Fair Trading: Aldrie Hldgs v. Clover Bay

Fudging the facts about a farm’s milk production cost Kaukapakapa farmer Roger Prout $250,000 damages for breach of the Fair Trading Act in negotiations leading up to the 2013 sale of his farm.  Damages initially assessed at $500,000 were cut in half because of inadequate due diligence by purchaser Pauline Laboyrie.

The High Court was told Ms Laboyrie purchased Alpine Road Farm north of Auckland after following up an advertisement on TradeMe.  She had limited farming experience, but had been in relationships with farmers in both Kaukapakapa and the Waikato.  She purchased Alpine Road Farm for $2.9 million after speaking with Mr Prout, asking some questions by phone and making a brief site visit.  No professional advice was sought on the farm’s economic viability.  No budgets were prepared. 

Justice Heath found that Mr Prout had misled Ms Laboyrie about the farm’s production levels.  In stating past output, Mr Prout did not mention total output included production from cows grazed on land leased from neighbours.  Production attributable only to cows grazing the land being sold was much less.  Justice Heath said Ms Laboyrie would not have purchased the farm had the true position been disclosed.  Mr Prout was liable for a breach of the Fair Trading Act.  He was described as a dairy farmer of some thirty year’s experience.  He is also a licensed real estate agent and operates a yacht charter business. 

Aldrie Holdings v. Clover Bay Park – High Court (24.02.16)

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Defamation: Arnold v. Fairfax

Claim and counterclaim in High Court defamation proceedings are underway between Invercargill mayor Tim Shadbolt and councillor Karen Arnold.

Ms Arnold alleges the mayor in his fortnightly newspaper columns questioned her honesty and integrity when she criticised the operation of Invercargill City Holdings, owner of the city airport and electricity supply company.  She further alleges the mayor defamed her in criticisms of her support for proposed tourist attractions featuring tuatara and kakapo.  The mayor’s column in The Southland Times dismissed one of her plans as being “a harebrained scheme to support a parrot”.

In a preliminary High Court hearing, Ms Arnold challenged Mr Shadbolt’s proposed defence in which he is arguing the comments made were not defamatory, but if held to be defamatory are protected as being honest opinion.  These two defences are inconsistent, she said.  You cannot stand behind both at the same time.

Justice Clifford ruled alternative defences are acceptable at law, even though they may appear inconsistent to a lay person.

Mr Shadbolt is countersuing alleging he was defamed in correspondence Ms Arnold sent to the Southland Times editor.  He alleges the letter maligns his independence, suggests he lies to council and that his conduct is motivated purely by animosity towards Ms Arnold.  These claims have yet to be heard.  Justice Clifford struck out that part of Mr Shadbolt’s defamation claim where Ms Arnold’s letter said she had been subject to “a rambling verbal assault”.  This phrase was not capable of a defamatory meaning, he ruled.  It describes unfocused and ineffective talk. 

Arnold v. Fairfax – High Court (23.02.16)

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Spamming: Aksentijevic v. Internal Affairs

A $12,000 penalty for spamming was reduced to $250 on appeal.  Inflammatory messages sent to some 440 members of an internet forum could have been disciplined by Internal Affairs imposing a small fine for infringing the Unsolicited Electronic Messages Act rather than mounting a District Court prosecution, the High Court ruled.

Zeljko Aksentijevic was prosecuted for sending 2,230 unsolicited email messages to members of an internet forum discussing electronic simulations of arcade games.  He was interested in promoting his application: CrazyTilt.  A US-based member of the forum complained to Internal Affairs identifying Mr Aksentijevic operating out of Auckland’s North Shore as a member sending bulk unsolicited emails to the forum.  Mr Aksentijevic said he was doing no more than highlighting the advantages of CrazyTilt and criticising others who were selling bootleg copies of his app.  He appealed a District Court ruling that this behaviour amounted to spamming.

In the High Court, Justice Woodhouse ruled unsolicited “promoting” or “marketing” prohibited by the Unsolicited Electronic Messages Act does not require proof of a commercial or business objective, or even an intention to make money.  The Act is designed to cut down on unwanted spam cluttering up recipients in-trays.  His Honour left open the question of whether internet forum opt-in rules that have users agreeing to receive emails from other forum members could amount to consent for unsolicited emails, but said it did not apply in this case.  The forum administrator had banned Mr Aksentijevic following exchanges of increasingly vituperative emails between members.

While ruling Mr Aksentijevic was in breach of the Act, Justice Woodhouse said the $12,000 penalty imposed was manifestly excessive.  In previous cases where spammers had sent in excess of one million spam emails, the fines imposed have been in six figures: $100,000 or more.  Some 2,200 emails sent unsolicited by Mr Aksentijevic was minscule by comparison.

For low level spamming, the Unsolicited Electronic Messages Regulations sets out a procedure akin to breaches of parking regulations.  Internal Affairs issues an infringement notice imposing a maximum fine for individuals of $200 per event.  While upholding Mr Aksentijevic’s conviction under the Act, Justice Woodhouse reduced the fine to $250.

Aksentijevic v. Internal Affairs – High Court (22.02.16)

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Sth Canterbury Finance: McLeod v. R

Five years after a bombastic Serious Fraud Office press release heralding the conclusion of its investigation into South Canterbury Finance and what was claimed to be the biggest commercial fraud in New Zealand history, the High Court pilloried this investigation as falling well below standards the public is entitled to expect.  

In ordering a taxpayer contribution to the $1.38 million legal costs incurred by former South Canterbury Finance chief executive, Lachie John McLeod, Justice Heath ruled the Crown justified in charging him with only three of the five charges laid.  A $240,000 contribution to McLeod’s defence costs was awarded in respect of two charges where Justice Heath said there was insufficient evidence to go to trial.

South Canterbury was placed in receivership in August 2010, triggering a $1.6 billion government payout for investors.  South Canterbury investors were covered by a government guarantee then in place to provide stability in the face of world-wide fears of a general run on financial institutions.

McLeod was later acquitted of five fraud charges arising from South Canterbury’s business dealings: Two of theft by a person in a special relationship, one of obtaining a benefit by deception and two of false accounting.  Following a judge-alone trial, Justice Heath ruled three charges were not proved and two should never have been laid.  The first of these two charges concerned a $12 million loan to the director of a company related to South Canterbury, allegedly routed through the director to avoid the need to disclose any related party lending.  Justice Heath ruled there was no artifice.  It was a loan to the director personally and was repaid by the director.  The second was an allegation that McLeod provided Treasury with false information to induce the government into accepting South Canterbury into the government guarantee scheme.  Justice Heath ruled McLeod had no personal responsibility for the criticised documents forwarded to Treasury as part of the application.  When interviewed by the Serious Fraud Office, McLeod was not questioned about the documents or the government guarantee scheme, His Honour said.  

Justice Heath was scathing in his criticism of the Serious Fraud Office investigation.  There was an insufficient level of supervision and co-ordination.  The investigation team lacked an experienced leader capable of conducting regular reviews of the work undertaken.  Potential defendants were not given an opportunity to comment on allegations that might be made against them in criminal charges.  So far as the major charge concerning provision of false information to gain entry to the government guarantee scheme was concerned, the standard of investigation was poor, he said.  Prior to charges being laid, no steps were taken to interview staff of Treasury or the Reserve Bank.

This contrasted with a December 2011 Serious Fraud Office press release trumpeting the fact charges had been laid against five individuals associated with South Canterbury Finance after a detailed fourteen month investigation into what was billed as the biggest white-collar crime ever.

Successful defendants can apply under the Costs in Criminal Cases Act to recover legal costs incurred.  The Act is not a mechanism to punish prosecutors for undertaking a poor investigation.  It is intended to provide compensation for legal costs in defending charges which should never have been laid.

McLeod v. R – High Court (19.02.16)

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