Copyright: Oraka Technologies v. Geostel

While pleading poverty in the face of a court order for payment of $4.1 million to Waikato inventors of an asparagus grading machine, Napier Tool and Die Ltd restructured its balance sheet saving Australian-controlled parent Tru-Test Corporation $4.11 million in advance of what proved to be an adverse court ruling.

Last June, the High Court awarded Tirau-based Schwarz family $4.1 million damages for breach of copyright after eleven years litigation.  Held liable, Napier Tool & Die is appealing.  It asked the High Court to put enforcement on hold pending an appeal, saying it had a net worth of only $327,000.  Enforcing judgment would lead to liquidation and any appeal would collapse, it said.

Justice Hinton said a stay of enforcement would have been refused but for the fact a priority Court of Appeal hearing date has been set.

The court was told Napier Tool & Die’s balance sheet was restructured immediately after the Supreme Court refused leave to appeal on preliminary issues raised during the protracted High Court litigation.  Napier Tool & Die declared a $2.25 million dividend in favour of Tru-Test.  There was no evidence of dividends being paid previously.  A loan of $1.86 million from Tru-Test was repaid by way of book entry, written off against money Napier Tool & Die was owed by another Tru-Test company. Tru-Test specializes in agri-technology.  The share register is dominated by Australian interests with Sydney venture capitalists holding a controlling 33 per cent stake through KTT Partnership Ltd.

Asked by Justice Hinton if Tru-Test might provide a guarantee for all or part of the $4.1 million judgment debt as a condition of granting a stay, lawyers for Tru-Test said the company would not and further it could not be forced to.

Oraka Technologies v. Geostel – High Court (26.08.16)

16.133

Post Judgment Note: Following subsequent appeals, Court of Appeal ruled in June 2020 damages payable to Schwarz family and Oraka Technologies should be calculated as a notional licence fee: $47,000 only.  A low licence fee arose because a notional fee would assume a non-exclusive licence covering a limited territorial area.  

Tax: Henderson v. Inland Revenue

The High Court dismissed a tax appeal by David Henderson finding him personally liable for $1.7 million GST unpaid by companies he controlled.

In a money-go-round engineered by Mr Henderson in 2008, GST collected on the sale of property to Christchurch City was absorbed into a newly formed company leaving the vendor companies insolvent unable to pay GST due.

The High Court was told Mr Henderson’s Property Ventures Ltd together with related companies sold land to Christchurch City in August 2008 with $1.7 million GST included in the sale price.  Before any money was handed over, Mr Henderson formed a new shell company, ILR Holdings Ltd and had ILR purchase for a price of one dollar debts owed by the Property Ventures group totalling $14.9 million.  Once paid by Christchurch City, Property Ventures paid a net balance of $3.26 million across to ILR leaving Property Ventures with no assets to pay GST due of $1.7 million.  IRL used most of this $3.26 million to pay subsequent operational costs of Property Ventures.  Smaller sums were paid out for the personal benefit of Mr Henderson and his partner: $320,000 to companies associated with Mr Henderson and $55,000 to clear a debt he had personally guaranteed; $306,000 to a company associated with his partner and $235,900 for GST owed by her company.   

Justice Gendall ruled the Taxation Review Authority was correct in holding Mr Henderson personally liable for Property Venture’s unpaid GST liability.  As director of the Property Ventures group, Mr Henderson had entered into an arrangement having the effect of leaving the group insolvent. Mr Henderson was adjudicated bankrupt in November 2010.

Henderson v. Inland Revenue – High Court (24.08.16)

16.132

Asset Freeze: Twentieth Century Fox v. Dotcom

A two million dollar payout expected by Kim Dotcom on the sale of a sumptuous Coatesville property he previously rented has been frozen by the High Court and his monthly drawdown from frozen assets for living expenses reduced to $70,000.

US film studios have taken action around the world to freeze assets controlled by Mr Dotcom as they seek to extradite him from New Zealand for alleged breach of copyright.  Extradition is fiercely contested.  Assets totalling $US34.9 million are currently frozen in New Zealand and Hong Kong, the bulk being some $US32 million in Hong Kong bank accounts.

When the film studios discovered Mr Dotcom had swung a payout deal with the landlord of his former Coatesville residence, they asked the High Court to freeze this cash as well.  The deal with his Coatesville landlord is for Mr Dotcom to receive two million dollars on sale of the property with an interim payment of $250,000 in December 2016 if it is not sold by that date.  Justice Courtney extended the freezing order to cover these payments.

She also adjusted the level of monthly drawings to be taken from frozen funds to meet ordinary living expenses.  Mr Dotcom is currently separated from his wife.  He pays the costs of his childrens’ private school fees, their two nannies and security.  Since leaving the rented Coatesville mansion, Mr Dotcom has rented an Auckland apartment.  He has three personal staff on his payroll and also pays their accommodation: a personal assistant, a chef and a housekeeper.  Security for himself and his family costs $10,000 a month.  Drawings were reduced from $80,000 per month to $70,000.  The film studios wanted to see monthly drawings slashed to $10,000.     

Twentieth Century Fox v. Dotcom – High Court (19.08.16)

16.131

Company: Stacey v. Watson

Justice Faire dismissed as “sellers regret” allegations by Diversified Investments director Norm Stacey that fellow director Vicki Watson sold the business too  cheaply to Fisher Funds in return for a sweetheart deal giving her a favourable employment contract with Fisher. 

Diversified Investments was forced to sell off its managed funds and related Kiwisaver business when the Financial Markets Authority clamped down in 2013 on Kiwisaver providers with high total expense ratios.  Diversified held about $8.5 million under management for a little under 320 Kiwisaver members and some 150 other investors.  Diversified’s small size and investment in “funds-of-funds” created multiple layers of fees.

Market interest came from potential buyers Elevation Capital, Craigs Investment, Fisher Funds and latterly Devon Funds.  In April 2014, Ms Watson was well down the track in negotiating a deal with Fisher Funds when Mr Stacey approached Devon Funds who then showed interest at price above that Fisher was offering.  The High Court was told of a terse meeting between Ms Watson and Mr Stacey over the competing bids and the “handshake deal” already struck with Fisher Funds.  Mr Stacey then called Devon Funds, telling it the deal was off.  Diversified’s business was sold to Fisher Funds for $318,000.

Mr Stacey subsequently alleged the business was sold at a gross undervalue.  He claimed the market value was close to $1.1 million.  He sued, alleging Ms Watson feathered her nest at his expense, selling out cheaply because she was promised a “super salary” in a job with Fisher Funds.  As directors of Diversified, each received an annual salary of $100,000 plus expenses.  During negotiations, Fisher Funds offered Ms Watson an annual salary of $200,000 with bonuses and the right to buy back Diversified’s client base if she were dismissed in the next three years.  Employment contract negotiations were initially kept confidential from Mr Stacey.  The final agreement for sale and purchase signed by Mr Stacey contained Ms Watson’s right to buyback clients.  Ms Watson’s remuneration was agreed after the purchase price was settled, Justice Faire said.  She was assuming a greater and different responsibility at Fisher Funds than she exercised at Diversified.  Evidence was given that Mr Stacey made no enquiries about her proposed employment with Fisher Funds, though invited to do so.  Mr Stacey’s primary concern was the terms of a restraint of trade limiting his field of work for a period after the sale.

Ms Watson did not owe any fiduciary duty to Mr Stacey as a fellow director or to Mr Stacey’s family trust as a shareholder of Diversified, Justice Faire ruled.  Neither could her conduct be considered “unfairly discriminatory or unfairly prejudicial” to Mr Stacey.        

Stacey v. Watson – High Court (16.08.16)

16.130

Undue Influence: re Sheward

The last will of longstanding Akaroa identity Frank Sheward was invalidated because of the undue influence of caregiver Pru Downes in having his final will rewritten to benefit her family trust.  Her family trust still stands to receive some $500,000 under an earlier will now admitted to probate.

Frank Sheward died in 2013 in his late eighties owning a house and 6.5 acres on Rue Balguerie at Akaroa.  He was a widower for the last ten years of his life and had no children.  On his death he left two wills dated four days apart, signed some five months before he died.  The first left Rue Balguerie to his neighbours: Alistair and Neroli Davidson.  Mr Davidson, formerly officer in charge of the Akaroa police station, had known Mr Sheward for twenty years.   The latter will saw the property being divided between the Davidsons and the Downes family trust, a trust established for the benefit of Pru Downes and her family.  Ms Downes had been Mr Sheward’s caregiver for the last three years of his life.

The High Court was told Ms Downes was initially contracted through Access Home Health in late 2009 to assist Mr Sheward.  Later the Access link was severed and Ms Downes came to her own private arrangement with him for personal care and domestic assistance.  The extent of this arrangement became a matter of concern in the local community with suspicions she was taking personal advantage of a lonely vulnerable old man.  There was evidence of gifts of a $50,000 Subaru Forrester, a ride-on lawnmower and payments by cheque for Ms Downes medical and dental expenses, payment of school fees, a substantial Christmas bonus for Ms Downes together with air fares for her children to visit in Akaroa and a gift for a granddaughter.  His Farmlands Co-op account was used to purchase petrol and clothing that Mr Sheward was unlikely to want or to need.  There was talk of Mr Sheward becoming godfather to her children.  Her children were then in their fifties.      

The High Court was told of growing suspicion and animosity between Ms Downes and the Davidson neighbours.  Asked at one point by Mr Sheward to handle his tax accounts, Mrs Davidson became uneasy about the manner in which Ms Downes appeared to be handling Mr Sheward’s financial affairs.  There was evidence Ms Downes actively intervened to keep the Davidsons away from Mr Sheward in his final days.

Following Mr Sheward’s death, the High Court was asked to rule on the validity of his final two wills: one signed on 14 April 2013, the second on 18 April 2013.

His 14 April will, drafted after several meetings with his lawyer, left Rue Balguerie to the Davidsons.  Ms Downes told the High Court the lawyer got it wrong.  Mr Sheward had been considering a subdivision of his 6.5 acre property for some time, with the Davidsons interested in buying some five acres.  Ms Downes, meanwhile, had raised with Mr Sheward the possibility of her daughter building a house at the back of the property and her daughter providing continuing care for Mr Sheward should she no longer be capable of doing so.  Ms Downes daughter lives in Palmerston North where she runs a landscaping business.

Evidence was given that the 14 April will was sent back to the lawyers within a day of signature, handwritten annotations on it in Mr Sheward’s writing indicating the Downes family trust was to share in the property.  Lawyers promptly returned a revised will with the words “draft” and “copy” stamped on the document for Mr Sheward to check.  The court was told Ms Downes immediately took Mr Sheward down to the local chemist where two staff were asked to witness his signing of this draft which then became the 18 April will.

Justice Dunningham ruled the 18 April will invalid.  She said the 18 April will was signed in unorthodox circumstances.  Mr Sheward had little knowledge of what he was signing.  There was evidence Mr Sherward had very limited reading and writing skills and was probably dyslexic.   The 18 April will was invalidated by Ms Downes undue influence, Justice Dunningham ruled.  Ms Downes had encouraged Mr Sheward’s high level of dependency and had encouraged Mr Sheward to regard her family as a surrogate family.

The 14 April will was admitted to probate as Mr Sheward’s final will.  Downes family trust is the residuary beneficiary.  Lawyers estimate the residue could amount to $500,000 or more.                 

Re Sheward – High Court (15.08.16)

16.129