Bankruptcy: H Investments Ltd v. Official Assignee

Liquidators of insolvent companies looking to get a payout from a bankrupt director’s insolvency for any breach of directors’ duties have been warned by the Court of Appeal: detailed proof is needed of any claimed breach and since courts have a discretion as to the level of damages a full court hearing is most likely needed.

Insolvency specialist have taken to suing directors of insolvent companies for alleged breaches of directors’ duties as a means of topping up the pool of cash to pay company creditors, which includes their own fees. This practice is now extending to actions against bankrupt directors of insolvent companies in the hope of extracting some cash from their bankruptcy.

Liquidators of H Investments Ltd sued bankrupt director Nyall Hitchcock alleging he had traded whilst insolvent, had acted without due care and skill and had failed to keep proper accounting records.  H Investments Ltd was a rural contracting business based in Inglewood, Taranaki.  In 2014, it was put into liquidation by Inland Revenue for unpaid GST. Liquidators claimed in Mr Hitchcock’s bankruptcy for damages of $50,000, being the full extent of H Investments’ unpaid debts after Hitchcock family creditors agreed not to claim for money owed them.

The Court of Appeal ruled it was not enough for the liquidators to say H Investments was insolvent, therefore Mr Hitchcock must have been in breach of his duties as director.  Full details of any alleged breach were required.  There was no evidence, the Court of Appeal said, that the liquidators interviewed Mr Hitchcock to get details about his business practices and how the indebtedness arose.  Non-payment of GST, by itself, is not evidence of insolvency, the Court said. Directors may be choosing not to make payment even though cash could be rustled up.

Any claim in bankruptcy for a breach of a bankrupt director’s duties is not a ‘provable debt’, the Court ruled.  It is a ‘contingent debt’ requiring detailed proof that directors’ duties have been breached and then an assessment of how much should be awarded as damages.  Insolvency Service could reject outright any ‘proof of debt’ for a breach of director’s duties, forcing liquidators into court to prove the validity and value of their claim, the Court ruled.

H Investments Ltd v. Official Assignee – Court of Appeal (29.03.18)

18.069    

Bankruptcy: Toilolo v. MBIE

The High Court upheld a conviction and $450 fine imposed on Timothy Toilolo for continuing in business whilst bankrupt and for being employed by a relative whilst bankrupt.  For over twelve months he continued to participate in his south Auckland accounting practice in breach of the Insolvency Act.

Bankruptcy bars individuals whilst bankrupt from a management role in any business without the prior consent of Insolvency Service. They can continue in employment, but not employment by a relative.

Toilolo was bankrupted in 2014 owing Westpac $186,500. He was then operating an accountancy practice in Manurewa under the name Toilolo & Co Accountants.  The High Court was told he continued briefly to carry out client services in his own name then started providing accounting services as an employee of SCF Central Business Ltd, a business owned by his daughter Olivetta Fetulima.  SCF Central operated out of Toilolo’s office using Toilolo’s contact email address. Signage for the business remained as before, advertising Toilolo & Co as the accounting business.  Toilolo was a joint signatory to SCF Central’s bank account.

The High Court rejected an appeal for discharge without conviction.  The consequences of conviction were not out of proportion to the offending, Justice Woolford ruled.  Toilolo said a criminal conviction prevented him from continuing as a pastor of the Samoan Assembly of God.  He will still be able to continue his good work for the church and the community while not being a pastor, Justice Woolford said.  Having now qualified in law, a criminal conviction would hamper his ability to practise as a lawyer, Toilolo said.  Not every conviction bars individuals from satisfying the ‘good character’ test for admission to the profession.  At the time of his conviction, Toilolo was working as a law clerk for Woodroffe Lawyers.

Toilolo v. Business, Innovation & Employment – High Court (29.03.18)

18.070

Joint Venture: Philip Moore & Co Ltd v. Surridge

The High Court awarded exemplary damages against Anne Surridge for issuing trespass notices against her brother and sister-in-law in an attempt to seize part of her father’s cleaning products business, contrary to her prior agreement to work towards a joint venture operation.  When her father left the business, she was not interested in a joint venture; she wanted to cripple any competition.

The family saga centred on Philip Moore and Co Ltd, a Wellington business run with an iron hand by father Lofty Surridge. Subsidiary trading operations were set up in the main centres.  Cleaning products were manufactured from domestic and imported ingredients at a plant in Otaki under the name Kyle Chemicals Ltd.  A separate legal entity was used for manufacturing because of potential liability surrounding volatile ingredients.  The High Court was told daughter Anne was installed as sole director and nominal shareholder of Kyle Chemicals because when the company was set up she had minimal assets and would not be worth suing as director.  It was a pretence that Anne owned Kyle Chemicals. Lofty was in charge.  Thirty months prior to his death, Lofty stepped down. He entrusted daughter-in-law Marion Pearson with the task of running operations at Kyle Chemicals.  Lofty’s progressive dementia left the next generation in charge. Relations between Anne on one side and her brother Paul and his wife Marion on the other became toxic.

The High Court was told of a two day mediation held in 2016 to overcome the family impasse.  It was agreed Anne would take control of the Auckland trading subsidiary; brother Paul Wellington operations including the Otaki factory.  Anne would have to source her own product; she was not to get any product from the Otaki factory.  They agreed in writing to progress a joint venture to jointly take control of existing Philip Moore distributorships: primarily links with Italian manufacturer Ghibli & Wirbel and US chemical company Minuteman International.

Evidence was given that Anne immediately set out to undermine the agreement.  A staff member met with Ghibli, obtaining for Anne an exclusive dealership.  A similar deal was struck with Minuteman.  Brother Paul did not find out until each refused to fill his orders, saying orders had to go through their newly appointed exclusive dealer.  Anne also attempted to take control of the Otaki factory: issuing trespass notices against her brother and sister-in-law, instructing a local security firm to take control and changing the locks.  She gained control of the factory bank account.  Anne placed a large order for almost all stock held in the Otaki factory. In her position as titular director she raised an invoice for this purchase ready for payment.  Justice Churchman said this large order was intended for a new business she was setting up in Wellington, in direct competition with her brother.  Attempts to enforce the trespass orders failed when Otaki police refused to act on them.  The Public Trust (by then acting as Family Court-appointed property manager for Lofty) did assist Anne in gaining control of the factory bank account but only after being misled; it was Marion Pearson who Lofty left in control of factory administration, not Anne.

Justice Churchman ruled Anne was liable for intentional interference with a business by unlawful means (when attempting to seize control of the Otaki factory) and also in breach of the Fair Trading Act (through use of misleading statements when attempting to gain intervention by the police and the Public Trust).

Anne was ordered to pay exemplary damages of $15,000. She was reminded she is still under a continuing contractual obligation set up a joint venture operation with her brother.  She has to honour the agreement or renegotiate it.  Otherwise she will be liable for damages.

Philip Moore & Co Ltd v. Surridge – High Court (28.03.18)

18.068

Gambling: Xiao v. Sun

Xiufang Sun, also known as Lily Sun, was involved in ‘loan-sharking’ at Auckland’s Sky City casino the High Court ruled when blocking her attempts to enforce securities taken for loans and ordering unpaid loans need not be repaid.

Justice Gordon ruled Ms Sun was in the business of raising loans for unsuccessful gamblers, enabling them to keep gambling in the hope of ‘chasing back’ their losses.  Interest rates of five per cent per week, amounting to between 200 and 300 per cent per annum, were oppressive and in breach of the Credit Contracts and Consumer Finance Act.  It is not illegal to provide someone with funds to gamble, but it is illegal to use these funds to gamble on the borrower’s behalf.  Loans outstanding were cancelled as an illegal contract under the Contract and Commercial Law Act.  Ms Sun was formerly a blackjack dealer at Sky City.

Gambler Candy Xiao cried enough when her supposed debt to Ms Sun reached $800,000.  Ms Sun was threatening to sell off an apartment and her family home to recover payment.  In the High Court, Ms Sun said $800,000 amounted to the sum total of interest-free loans made by a friend.  Ms Xiao said it was an accumulation of rolled-over interest compounded into loans initially totalling not much more than $133,000.  Ms Xiao did not keep detailed records of her borrowings; she was hiding a gambling habit from her husband.

Justice Gordon did not believe Ms Sun’s claim to not be charging interest.  Evidence was given that in a January 2014 WINZ application for a sole parent benefit Ms Sun denied having any savings or being owed any money.  Subsequent enquiries found some $98,800 moving through four separate bank accounts over the following eleven months.  With a WINZ investigation deepening, Ms Sun had an acquaintance open a bank account on her behalf and then made significant cash deposits and withdrawals through this account.  One source of funding for Ms Sun’s lending was a Sky City acquaintance, also a former blackjack dealer.  The High Court was told interest was promised at four per cent per week with Ms Sun charging Ms Xiao five per cent, keeping the one per cent difference as commission.

The High Court was told Ms Xiao agreed to an exclusion from gambling at Sky City for just over three months in 2014 after found attempting to bet at blackjack after a final card had been dealt.  Ms Sun offered to bet on her behalf during this exclusion period to ‘chase-back’ losses while Ms Xiao watched from a viewing area above the gaming floor.  This amounted to illegal gambling: ‘distributing the turnover of gambling’. The evidence was that while Ms Sun reported shared winnings some days (but then retained Ms Xiao’s share as payment of overdue interest) she tended to keep the wins and report the losses to Ms Xiao (who then required further loans to cover both a day’s losses and daily accumulating interest).  Within twelve months, Ms Sun was demanding interest at about $40,000 per week.  Ms Xiao’s continuing inability to pay would be met with anger from Ms Sun followed by offers of a further loan and veiled threats of harm if payments were not made.  There were threats to tell her husband about her gambling debts and threats of potential physical harm from the criminal underworld.  Ms Sun’s former partner is currently serving a ten year jail sentence for importing methamphetamine.

Ms Xiao signed multiple loan agreements each specifying an increased amount still owing.  Interest clauses were left blank in each agreement.  This was because there was a private side agreement as to interest payable, Justice Gordon ruled.

The total amount borrowed by Ms Xiao was disputed. Sky City records assembled from chip purchases and a record of gambling at the tables indicated that Ms Xiao had lost in net terms about $133,000 during the period Ms Sun funded her gambling. It was acknowledged this figure could be out by some tens of thousands of dollars; the casino does not track each gamblers betting to the last dollar.  But the casino’s VIP loyalty card system does provide a good trace. Ms Xiao had repaid Ms Sun at least $100,000 in various instalments; money borrowed from friends or stolen out of her husband’s safe at home.  Justice Gordon ruled no more need be paid.  The balance of some $33,000 amounted to an illegal loan and was not enforceable.  Ms Sun’s claim to still be owed $700,000 was dismissed.

Xiao v. Sun – High Court (26.03.18)

18.066

Maori: Tahi Enterprises Ltd v. Taua

Auckland-based Te Kawerau received forestry at Riverhead with a value of $6.5 million as a Treaty settlement.  Dianne Lee is in court alleging Te Kawerau awarded her company Tahi Enterprises Ltd the exclusive right to a 35 per cent share in all future iwi profits.

Tahi Enterprises claims joint venture agreements signed with Te Kawerau in 2007 and 2008 granted Tahi exclusive rights to share in all future developments.  This took place some seven years before the iwi’s Treaty settlement was finalised by parliament.  In return, Tahi promised up to two million dollars in cash to fund Treaty negotiations. The agreements require funds advanced to be repaid out of iwi cash receipts, in particular from rentals received for cutting rights in the Riverhead forest.   Tahi Enterprises claims it is presently owed $1.3 million.

The High Court was told lawyers for Te Kawerau purported to cancel the joint venture agreement.  Tahi Enterprises sued.  It alleges Te Warena Taua, rangatira of Te Kawerau, and kuia Hariata Arapo Ewe had authority to commit their iwi to the deal and that it is binding.  Mrs Ewe has since died.

In a preliminary hearing before the High Court, Justice Lang ruled Tahi Enterprises would need to prove each and every one of the iwi had agreed to Mr Taua and Mrs Ewe signing.  At the time the joint venture agreements were signed, the iwi had about 400 members aged eighteen, or over.

Tahi Enterprises is also suing Mr Taua for rent allegedly due on his home at Oruarangi Road. Mangere.  Ms Lee says she was told by Mr Tuau that the iwi had agreed to gift him a sum equivalent to four per cent of the Treaty settlement value in recognition of his and his father’s efforts in pursuing iwi Treaty claims. Ms Lee says she then purchased Oruarangi Road for $220,000 from interests associated with Mr Taua.  He signed on as tenant, paying rent.  The deal envisaged Oruarangi Road being handed back once Mr Tuau paid Tahi Enterprises the funds he said the iwi were to give him.  Ms Lee says no funds have been handed over and rent is in arrears.

Tahi Enterprises Ltd v. Taua – High Court (26.03.18)

18.067

Mortgage: General Finance v. Serepisos

His mother was the one sued, but Wellington entrepreneur Terry Serepisos was standing in the shadows when General Finance forced a mortgagee sale following default on a commercial loan.

The High Court was told Mrs Serepisos took out a one year $474,000 General Finance loan in 2014 secured over an apartment in Tory Street, central Wellington.  She signed a declaration confirming the loan was for business investment.  Interest was set at 11.45 per cent, increasing to 21.45 per cent for late payment.  No interest payments were ever made.  No principal repayments were made.  Council rates were left unpaid.  Body corporate rates for the apartment were not paid.  Within seven months, General Finance issued a Property Law Act notice threatening a forced sale.  It took over twenty months for General Finance to sell; finding a buyer at $580,000. During this period General Finance received multiple offers ranging from $390,000 through to $630,000, some of the offers heavily conditional.  The earlier $630,000 offer did go unconditional but the buyer then defaulted. After General Finance subsequently sold for $580,000, it sued Mrs Serepisos for the shortfall on resale.  With penalty interest added, her debt had ballooned out to over $700,000.

In court, Mr Serepisos gave evidence in place of his mother saying he had authority to speak on her behalf.  It is tolerably clear, said Justice Ellis, that Terry Serepisos was in any event her guiding hand in the transaction.  Mr Serepisos said he had found a buyer, a Mr Chin, who was willing to pay up to $800,000.  General Finance did not get the best price reasonably possible, he alleged. A sale to Mr Chin did not go ahead, he said, because General Finance did not provide access so Mr Chin could inspect the apartment before firming up on price.

General Finance signed off on its sale in early May 2016.  There was no evidence that General Finance had knowledge of Mr Chin’s interest prior to this sale, Justice Ellis said.  The best evidence was that Mr Chin did not first meet Mr Serepisos until three days after General Finance had sold.  General Finance did get the best price possible when selling at $580,000, Justice Ellis ruled.  Mrs Serepisos is personally liable for the $332,200 shortfall on resale.

General Finance v. Serepisos – High Court (26.03.18)

18.065

Bankruptcy: Inland Revenue v. Stephens

Bankrupted on tax debts totalling $551,000 following his persistent failure to meet tax obligations, Tainui Stephens could not claim any special treatment by reason of his high profile in film and television, the High Court said.

Mr Stephens said bankruptcy would not only affect his mana as a leader in Maori film and television but would also seriously affect his ability to continue work.  While bankrupt he could not continue in any management role within the industry.

Inland Revenue said Mr Stephens has a long history of non-compliance: tax returns for the five years to March 2011 were filed five years late; returns for the next three years were also late.  GST returns were filed late.  His company Pito One Productions Ltd was wound up by Inland Revenue in 2017 for unpaid tax totalling $232,700.  Liquidators recovered only $16,100.  With his criticism of Inland Revenue for not sending out ‘reminders’, Mr Stephens did not see tax obligations as requiring any special urgency, Associate judge Smith said.

There was evidence of Mr Stephens and associated entities buying and selling properties at a time when he was failing to meet tax obligations.  Bankruptcy will enable Insolvency Service to investigate these transaction, Inland Revenue said.  In a 2016 financial disclosure to Inland Revenue, Mr Stephens disclosed an interest in two properties at Otaki.

Offers by Mr Stephens to clear his tax debts with a one-off payment of $24,000, later increased to an offer of $50,000, were turned down by Inland Revenue.  Judge Smith declined Mr Stephens’ request to rule against bankruptcy.  I have no confidence there will be no further tax defaults if adjudication is not made, Judge Smith said.

Inland Revenue v. Stephens – High Court (23.03.18)

18.064

'The Block': Perry v. O'Neills Building Removals

As a television ratings winner, it had a sorry legal denouement: Brenda Perry purchased the house on 80 Anzac Street, Takapuna renovated as part of the first season of ‘The Block’in 2012.  The house was on land held by an insolvent company in liquidation and a secured creditor had claims over the house which was subsequently damaged beyond repair whilst being relocated to a new site on Waiheke Island.  Ms Perry was left to recover $163,800 in damages from two companies in liquidation, both insolvent, and from Jeremy O’Neill owner of O’Neills Building Removals.

In July 2016 Ms Perry agreed to buy 80 Anzac for $178,000.  This included the cost of relocating the house to Waiheke Island.  The High Court was told the house was not kept secure on site where a new development was then underway.  Fittings were damaged and stolen.  Decking and railings were removed.  O’Neills trucked the house to a temporary site in west Auckland.  It was further damaged by not being stored in a watertight condition.  Ms Perry cancelled the contract.  She sued Auburn Developments Ltd (as presumed owner of 80 Anzac), O’Neills Building Removals Ltd (responsible for the relocation) and Jeremy O’Neill (director and owner of O’Neills).  All three were barred from even being in court to defend her claim because of their failure to previously provide documents as ordered by the High Court.

Ms Perry was awarded $163,800 damages: the deposit she paid ($89,000); wasted expenditure for building consents and preparatory work on the intended Waiheke Island site ($49,800); and general damages ($25,000).

Companies Office records show Auburn Developments Ltd went into liquidation in 2008; O’Neills Building Removals Ltd in November 2017. Liquidators’ reports for both companies show there is little likelihood of payments for Ms Perry as an unsecured creditor.  The first Auburn liquidation report indicates Anzac Avenue was sold to an associated company for development four years prior to renovations on ‘The Block’ going to air.

Perry v. O’Neills Building Removals Ltd – High Court (22.03.18)

18.063

Gold Line Taxi Co-Op: Deep v. Auckland Gold Line Co-Operative Taxi Society

Auckland Gold Line Co-Operative Taxi Society successfully tendered for a taxi rank at Auckland Airport in March 2013. Current and former members of the Gold Line Co-Op allege Manmohan Dua has improperly seized control and is targeting former directors and drivers.  There are allegations of Co-Op rules not being followed and of drivers being improperly excluded from the airport rank.    

Disgruntled members and former members of the Auckland Gold Line Co-Operative Taxi Society Ltd allege that new directors have been appointed without Co-Op rules being followed, that member meetings required by law have not been held, that financial reports have not been provided, and that individual drivers are being refused access to the airport rank without being given a proper chance to argue their case.  Management is alleged to have acted improperly by transferring Gold Line’s business to a subsidiary, shutting out members.

The High Court was told Mr Dua left Gold Line in 2013 for a competitor.  He attempted to buy back-in during 2015, but his application was denied.  He became a director of Gold Line the following year after a new board of directors was appointed.  Mr Dua has been acting as if he were managing director, disgruntled drivers and former directors complain.  They allege he was not validly appointed according to Co-Op rules.  Gold Line is registered as a co-operative under the Industrial and Provident Societies Act.

Justice Moore heard preliminary legal argument in the High Court.  Disgruntled members have agreed to reformulate their legal claim.  Their request to take possession of the Co-Op’s membership records and board meeting records was refused.  They expressed concern these documents would be falsified if left in the possession of current management.

Deep v. Auckland Gold Line Co-Operative Taxi Society – High Court (22.03.18)

18.062

Family Trust: Judd v. Hodgkinson

Gifting of $973,700 to a family trust during a contested Family Court hearing should be investigated said Associate judge Smith when adjudicating bankrupt Havelock North fruiterer Richard Hodgkinson over unpaid maintenance.

After a protracted series of court hearings with an initial June 2014 Family Court hearing, an appeal and a rehearing Mr Hodgkinson was ordered to pay $78,500 maintenance to his former wife Michelle Judd.  No payments have been made.  Ms Judd applied to bankrupt her former husband to force payment.  He asked the High Court to exercise its discretion under the Insolvency Act not to bankrupt him.  He had no assets, he said.  Bankruptcy was pointless.  The court was told Mr Hodgkinson is a discretionary beneficiary of the Richard Hodgkinson Trust.  The Trust has a net worth of some $1.52 million as at March 2017, including $406,000 in liquid investments and $916,000 in land.

During the initial June 2014 Family Court hearing, Mr Hodgkinson forgave a $973,700 debt owed him by the Trust.  This was an attempt to make himself ‘judgment proof’, said Ms Judd.  He was giving away his assets.

It is probable Mr Hodgkinson made the gift to avoid making maintenance payments to Ms Judd, Judge Smith ruled.  Bankruptcy triggers Insolvency Act powers to grab back gifts made up to five years prior to adjudication where a gift left the donor insolvent.  To keep the $973,700 benefit, it will be for the Trust to prove Mr Hodgkinson could still otherwise meet his debts.

Judd v. Hodgkinson – High Court (21.03.18)

18.061

Property: Weber v. Henderson

Unaware that property can be purchased in unequal shares, a Palmerston North purchaser took a half share in a home with her then friend while putting up ninety per cent of the cash.  She is now in the High Court trying to unravel the nightmare that followed.

Sharryn Weber and Debra Henderson were the best of friends.  In July 2017 they purchased a home in Trump Place, Palmerston North, intending to co-habit while retaining space for their children to stay if needed.  The $598,800 purchase was financed with a $479,200 bank loan.  Of the cash injected, Ms Weber put up 90 per cent; Mrs Henderson ten per cent.  They took title as 50/50 owners.

The High Court was told the two have fallen out. Several members of Mrs Henderson’s family including two daughters and their boyfriends had shifted in.  One couple took up occupation of the lounge. One of the boyfriends is on bail. There was evidence of Ms Weber being threatened and excluded from parts of the house.  Police were called on more than one occasion.  Ms Weber shifted out.  She applied to the High Court for orders under the Property Law Act forcing a sale.  Mrs Henderson did not contest the application.  Justice Cull ordered Trump Place be sold with the net proceeds held in trust pending a further court hearing.  Still to be resolved is how the net proceeds are to be divided, questions of liability for alleged damage to the property, and the issue of occupation rent potentially payable by Mrs Henderson for the period she was the only co-owner in occupation.

Weber v. Henderson – High Court (21.03.18)

18.060

Asset Forfeiture: Commissioner of Police v. Chase

Police speculate that a drug-running operation controlled by Christopher Arthur Roger Chase, known on the street as ‘the London Undergound’, raked in $24 million selling illegal drugs.  Assets valued at $565,000 were confiscated from Chase as proceeds of crime.

Chase was sentenced to ten years jail in August 2015 after conviction on fourteen charges of importation and supply of class C analogue drugs.  The analogues were imported in powder form, pressed into pills and sold to distributors. Class C includes chemical compounds analogous to codeine and amphetamine.

The High Court approved an agreed asset forfeiture settlement under the Criminal Proceeds (Recovery) Act.  Police have seized real estate in Fiji and Coatesville, north of Auckland, together with cash and jewellery.  Estimated realisable value is $740,000.

Justice Lang ruled $175,000 be handed over to Chase’s former wife as her share of relationship property.  Remaining seized assets are to be sold and the net proceeds forfeit to the government.  Ms Chase was not charged with any drug offences.

Commissioner of Police v. Chase – High Court (19.03.18)

18.059

Insider Trading: R. v. Sansom

Prosecution of insider trading does not require proof inside knowledge prompted trading.  It is enough to prove trading took place whilst having inside information about a listed company, the High Court ruled.

Hamish Mark Sansom is alleged to have breached the Financial Markets Conduct Act by selling 15,000 shares in ERoad Ltd after being sent a confidential internal ERoad management report highlighting poor performance by the company’s US operations.  It is a criminal offence to trade on inside information.  Mr Sansom says his sale was not motivated by the internal report; he was intending to sell anyway.

At a preliminary hearing prior to his trial, The High Court was asked to rule on a technical legal point: is an insider’s motivation for trading relevant.  Justice Hinton ruled an insider commits a criminal offence by trading at any time having material information not generally available to the market. Motivation for trading is irrelevant. This is based on the ‘market fairness rationale’ she said.  It is directed at preventing insiders having an information advantage not derived from research or analysis of publicly available information.  Requiring the prosecution to prove an insider’s motivation for trading would seriously undermine enforcement, she added.

R. v. Sansom – High Court (19.03.18)

18.058

Duress: Hornsby v. Haines

Auckland engineer Edward Hornsby’s claim of duress and that business acquaintance Tucker Haines held him by the short and curlies in business negotiations was dismissed in the High Court. Having defaulted on a business deal over a Riverhead commercial property, Mr Hornsby could not then belatedly argue their deal was not enforceable because he was under pressure with threats of a mortgagee sale.

Differences between the two followed a 2004 sale.  Mr Haines owned property in Duke Street Riverhead used to store relocated houses.  Interests associated with Mr Hornsby agreed to buy at $820,000.  By mutual agreement this was $30,000 below then market valuation. Mr Haines left $310,000 in on second mortgage.  This was to be repaid in tranches over the next five years.

The High Court was told complications followed when the second mortgage payments were not made as agreed.  When Mr Haines threatened a mortgagee sale, Mr Hornsby alleged the mortgage was not enforceable, it was merely a legal stratagem; the mortgage was cover allowing Mr Haines to swap his loan for equity in Mr Hornsby’s business and then utilise some $40 million in accumulated tax losses. Meetings between the two in 2008 resulted in successive renegotiations of their deal.  Payment of the principal sum owed Mr Haines was rescheduled and then repaid in full over the following nine months.  The two then disagreed over what they had agreed.  Mr Haines sued for unpaid interest plus the acknowledged $30,000 reduction in the 2004 purchase price; it was a loan, he said.

Mr Hornsby said renegotiations following the threatened mortgagee sale amounted to duress.  Mr Haines had him by the short and curlies, he complained.  Justice Palmer ruled there was no duress.  Mr Haines was entitled to enforce his legal rights and issue a Property Law Act notice threatening a forced sale.  The successive agreements were enforceable. Mr Hornsby had guaranteed payment.  It was only when sued for unpaid interest did Mr Hornsby object. He had performed without complaint the renegotiated terms for payment of the $310,000 loan, Justice Palmer said.  This was an affirmation of the deal he now claimed to be have been extracted under duress. The $30,000 price allowance was also recoverable.  It was a loan, not the price of an option to take shares in his business as Mr Hornsby argued.

Hornsby v. Haines – High Court (15.03.18)

18.057

Asset Forfeiture: Commissioner of Police v. Wallace

After nearly four years dealing variously in cannabis, methamphetamine, LSD and Ritalin by Phillip David Wallace, police could find only two assets to his name: a 2000 Triumph Sprint motorbike and a 2005 Harley-Davidson Road King custom trike.  Both were confiscated as proceeds of crime over protests of Wallace’s associates who said the assets were theirs, though registered in Wallace’s name.

Wallace was jailed for two years and three months in July 2016 after conviction on 19 charges of dealing in breach of the Misuse of Drugs Act.  He has a prior conviction from June 2014 for dealing.  Prior to his second conviction, police seized two motorbikes in Wallace’s possession.  The High Court approved confiscation and sale under the Criminal Proceeds (Recovery) Act.

Wallace associate Michael Wallace protested, saying the Triumph was his.  He was told detailed evidence had to be put before the High Court to prove his claim.  He did not appear at the hearing.  Wallace’s girlfriend said she had purchased the Harley-Davidson trike.  It was registered in Wallace’s name, she said, because he held a motorcycle licence and she did not want to be liable for traffic fines.  Her evidence as to the circumstances of the purchase and the method of payment did not tally with evidence from the Hokitika vendor.  Her account of how she supposedly purchased the $18,000 Harley-Davidson trike was not credible, Justice Mander said.

Commissioner of Police v. Wallace – High Court (14.03.18)
18.054

Fraud: Anderton v. Police

The High Court confirmed eighteen months imprisonment for Joshua Kenneth Anderton on 34 charges of fraudulently obtaining $48,405 selling items online never delivered.  Anderton’s appeal seeking home detention was dismissed.  Justice Toogood said a more appropriate jail term would have been more than two years.

The court was told Anderton made bogus sales on TradeMe and other online platforms.  He muddied the trail by using a number of different trading accounts and bank accounts.  He took control of his mother’s TradeMe account, changing her password and fraudulently trading through her account.  Whilst on bail awaiting trial, Anderton continued to defraud buyers with further bogus online sales.

Exploiting the trust of others by deliberate dishonesty and deception warrants a deterrent approach to sentencing which would not have been reflected adequately in this case by a sentence of home detention, Justice Toogood said.  There was evidence 23 year old Anderton had no prior convictions for dishonesty but had failed to perform community work imposed for driving offences.

Anderton v. Police – High Court (14.03.18)
18.053

Asset Forfeiture: Commissioner of Police v. Balle

Jacob and Natalia Balle will lose their family home with police laying claim to the net equity in their $1.37 million property at Taylor Road, Waimauku west of Auckland after finding a commercial cannabis operation.

A March 2017 drugs raid uncovered over 150 cannabis plants growing under heat lamps and fans powered by a portable generator.  In addition, a large amount of cannabis was discovered being dried.  Cash totalling $41,000 was also found.  Jacob pleaded guilty to cultivation; sentenced to 150 hours community work. Police enquiries identified the Taylor Road property was purchased in 2011 out of legitimate income with the help of a large mortgage.  In the two tax years surrounding this purchase Jacob declared income of $112,200 and $77,000.  In the subsequent five tax years he declared no income.  Over this seven year period $958,000 in cash was paid into various bank accounts held in their names.

In an agreed settlement under the Criminal Proceeds (Recovery) Act, Taylor Road is to be sold.  Currently valued at $1.37 million, there is a $705,000 mortgage.  The High Court ordered $50,000 of the net proceeds be paid to Natalia.  There was evidence she currently has care of three children and is estranged from her former husband.  The balance of some $620,000 is forfeit.

Commissioner of Police v. Balle – High Court (14.03.18)

18.056

Asset Forfeiture: Commissioner of Police v. Rose

Jailed for defrauding his employer Mercury Energy, Paul Kenneth Rose forfeited assets totalling $683,000 as proceeds of crime. The High Court was told Mercury is negotiating with government lawyers to get a slice of this money. 

Rose was convicted of fraud in 2016 after diverting Mercury Energy purchases through dummy companies he controlled.  This conflict of interest enabled him to cream off a personal benefit unbeknown to Mercury, then known as Mighty River Power.  The High Court approved an agreed settlement under the Criminal Proceeds (Recovery) Act.  Police collected $727,800 from the sale of three residential properties and a 2008 Audi motor vehicle.  Of this, $683,000 was confiscated.  $45,000 was returned to Rose.  This reflected Rose’s responsibilities in caring for several young children.  A 1979 Ducati Desmo motorbike also seized by police was returned.  There was no evidence this $20,000 motorbike was purchased with tainted money.

Commissioner of Police v. Rose – High Court (14.03.18)

18.055

Overseas Investment: R. v. Tang

Four Chinese nationals were penalised $891,000 following the purchase of a $5.1 million Auckland residential property which proved to be in breach of the Overseas Investment Act.  Net profits on resale were liable for confiscation.

In 2013 Wenbing Tang purchased a Riddell Road property in Glendowie on behalf of a consortium of three Chinese investors: Xianghua Huang, Binyan Zhou and Binzhi Ouyang.  This amounted to a purchase of ‘sensitive land’ as defined by the Overseas Investment Act: the property exceeds 0.4 hectares and has a sea frontage.  No government consent was sought.

The High Court was told Mr Tang is an experienced property investor.  Neither the real estate agent nor his lawyer raised the issue of Overseas Investment consent being required.  Mrs Huang, Mr Zhou and Mr Ouyang were also in breach of the Act.

The Overseas Investment Act imposes civil penalties for any breach.  Mr Tang was fined $110,000.  He is an experienced businessman, said Justice Lang.  The ‘OIA consent’ tickbox on the front of sale and purchase agreements should have raised questions.  The three Chinese purchasers made a net profit of just over $806,300 after selling Riddell Road for $6.15 million.  This amounted to a profit of just under $269,000 each.  Justice Lang ruled against confiscation of the entire net profit.  Their co-operation merited a reduction.  They admitted liability after learning they had breached the Act.  Mrs Huang and Mr Ouyang were each ordered to pay $229,500; Mr Zhou $243,000.  Mr Zhou did not appoint a local lawyer.  This caused increased legal costs for the Overseas Investment Office having to apply for alternative service of legal proceedings.

Land Information v. Tang – High Court (12.03.18)

18.052