Fair Trading: McAlister v. Lai

Property lawyer Jeffrey Lai unwittingly breached the Fair Trading Act assisting in negotiations over finance where his client misrepresented levels of debt financing in a 2013 purchase of Orcon for $38 miilion.  Justice Fogarty did not award damages to an aggrieved investor who lost most of his $200,000 investment, ruling Mr Lai did not knowingly breach the Act. 

Mr Lai represented Mr Warren Hurst in negotiations to buy telecommunications company Orcon in March 2013.  Mr Hurst was hustling to fill a six million dollar funding gap over and above $22 million put up by ASB and ten million dollars left in as vendor finance.  Mr Hurst had previously borrowed $100,000 privately from a business acquaintance, Mr Greg McAlister.  He offered Mr McAlister a job as CEO at Orcon together with a chance to invest in the deal.  Mr McAlister had industry experience with both Telecom and Vodafone.     

The High Court was told Mr McAlister agreed to put up $200,000 in return for a convertible note.  Calculation of the ratio for conversion to equity hinged on the starting level of equity capital in the new business.  Evidence was given of calculations based on equity of $8.5 million.  During a day of hectic negotiations with the sale deadline looming, Mr Lai assisted with some back of the envelope calculations for a suitable conversion rate.  It transpired that unbeknown to Mr McAlister the Orcon purchase was to be entirely debt funded.  Mr Hurst was intending to raise further cash with a sale and leaseback of some Orcon assets netting $3.25 million (incurring subsequent monthly expenses of $150,000) and by folding his company Vivid Networks Ltd, which he valued at $2.5 million, into the new Orcon group.      

A subsequent cashflow crisis saw Mr Hurst bankrupted and Mr McAlister getting back only $7800 of his original $200,000 investment.  With Mr Hurst bankrupt, Mr McAlister sued Mr Lai alleging false and misleading behaviour in misrepresenting the level of equity capital supporting his convertible note investment.

Justice Fogarty said Mr Lai had not been involved in discussions about Mr McAlister’s possible investment.  One day before the Orcon purchase was due to close, Mr Lai was present at a meeting between Mr Hurst and Mr McAlister and assisted in settling terms of the $200,000 convertible note.  Mr Lai was in breach of the Fair Trading Act by omitting to clarify the extent to which the Orcon purchase was debt funded.

Mr Hurst was the primary actor in misrepresenting the equity component of the Orcon deal, Justice Fogarty said.  As the secondary actor, Mr Lai needed to have knowingly misrepresented the equity component before having to pay damages, he said.   There was no evidence that Mr Lai had turned his mind to the question of Mr McAlister being misled when he used figures being bandied about to make some rough conversion calculations.

McAlister v. Lai – High Court (27.04.17)

17.035

Relationship Property: Williams v. Hacking

East Coast farmer Graeme Williams is suing Auckland barristers Robert Hacking and Simon Jefferson QC for negligence, claiming $556,000 was wasted when a relationship property agreement they helped mediate was subsequently overturned in the Family Court.

A larger-than-life identity on the East Coast, Mr Williams was angry at the outcome of a relationship property mediation in 2011 asking: “How paying a further million dollars to a woman I know is a liar, thief and manipulator of the children is a better option than going to Court?”  Mr Williams subsequently did go to court with a Family Court judge finding his former wife lacked credibility, fabricated evidence and had committed perjury.

The High Court was told Mr and Mrs Williams separated in 2006 after sixteen years’ marriage.  Relationship property at that date was valued at some $780,000.  Most of Mr William’s assets, including his substantial landholdings, were held in a family trust and were not relationship property.  On separation, Mr Williams agreed to transfer some assets out of the trust in what he described as a desire to be fair to his former wife and to forestall possible litigation.  She was to receive an interest in properties at Tokomaru Bay, a Mazda utility and $600,000 cash.  Mrs Williams was not happy.  She sued in the Family Court claiming a bigger payout.  An ill-fated mediation followed in 2011.  Mr Williams questioned at the time legal advice given him during the mediation that agreeing to hand over further assets from his family trust was necessary; if his former wife went to court she might get an even greater share.  After following this advice, Mr Williams returned to the Family Court seeking to overturn the agreed mediation and to have a judge rule on all his former wife’s relationship property claims.  The judge rejected her claims to a share in family trust assets and ruled she was not entitled to maintenance.  The 2011 mediation agreement was set aside as causing a serious injustice to Mr Williams.  He is now suing Auckland barristers Robert Hacking and Simon Jefferson QC alleging negligence in the advice given as part of the 2011 mediation.

Williams v. Hacking – High Court (27.04.17)

17.036

Company: Wilding v. Te Mania Livestock

Hacked emails and an allegation of theft surfaced in a multi-million dollar dispute over operation of renowned north Canterbury Te Mania Aberdeen Angus Stud.  Third generation owner Timothy Wilding fell out with his business partners resulting in a no-holds barred two-month High Court trial after failed attempts to negotiate a commercial solution.

Justice Davidson ruled Mr Wilding be given the opportunity to buy out his business partners’ majority shareholding.  Livestock on hand alone is valued at $2.4 million.  Valuation of some other company assets are disputed.  A final figure for the value of shares in Te Mania Livestock is yet to be set.  Ownership of grazing land has created complications.  Stud cattle graze on land owned by a separate Wilding company and on other land in the area, in part on informal leases with no firm terms.  

Established on the Conway River in 1928, Te Mania was recapitalised in 1997 with local and overseas investors buying in.  The Wilding family was left with a forty per cent stake. 

Evidence was given of growing hostility around 2012 between Mr Wilding and fellow director Mr John Harrington particularly over allegations that Te Mania cash was being used to fund Wilding family interests.  Mr Wilding personally was under financial pressure.  Tempers flared as he looked to increase grazing fees.  Singaporean shareholders wanted out, dissatisfied with returns on their investment.  Each block of shareholders has the right to appoint a director and with directors unable to agree on the way forward writs began flying.  Mr Wilding sought unsuccessfully to have Mr Harrington removed as director.  Mr Harrington in turn resigned as general manager of Te Mania and with other directors tried to put the company into liquidation.  Mr Harrington was charged with allegedly stealing hay from Te Mania and when this charge was later dropped Mr Harrington unsuccessfully sued Mr Wilding for malicious prosecution and abuse of process.

The court was told Mr Wilding’s brother-in-law used his knowledge of the company’s email system and Mr Harrington’s password to monitor and pass on Mr Harrington’s email traffic.  This gave Mr Wilding knowledge of his fellow directors’ and shareholders’ plans and the legal advice they had received.

Justice Davidson said there had been an irretrievable breakdown in relationships between the Wilding family and other shareholders.  He ruled Mr Wilding be given the opportunity to buy out shareholders wanting to exit.  A clean break was promised.  Mr Wilding told the court that if he gained full control of Te Mania he would not use the company as a weapon to sue its former directors and shareholders.  He said he could find sufficient funds to pay exiting shareholders at fair value for their holdings.  Justice Davidson indicated that China-based shareholder Mr Weiguo Hong with his fifteen per cent shareholding might increase his investment to fund the buyout.     

Wilding v. Te Mania Livestock Ltd – High Court (12.04.17)

17.034