Wynyard: Jackson v. Wynyard Group

De-listed in May 2017, Wynyard Group shareholders look to share in a small surplus after the High Court ruled in favour of a $171 million claim against insolvent subsidiary Wynyard (NZ) Ltd.

After developing a worldwide customer base for its risk management and financial intelligence software, Wynyard stopped trading in late 2016.  Subsidiary Wynyard (NZ) Ltd was Wynyard’s operating arm.  It was funded on an ‘as needed’ basis by its holding company Wynyard Group.  By the time both companies were in liquidation, Wynyard (NZ) had chewed through $171 million.  The High Court was asked whether these advances were loan advances or an injection of equity.  Wynyard (NZ) liquidators are holding about $851,000 for distribution to unsecured creditors. Including Wynyard Group’s $171 million claim as debt would see a payout of just under half a cent in the dollar for unsecured creditors; compared with twelve cents in the dollar if Wynyard Group’s funding was ruled to be equity.

The High Court was told the legal status of cash transfers from Wynyard to Wynyard (NZ) was never documented.  Within the group, transfers were assumed to be cash advances eventually to be capitalised as equity.  They were recorded as loans in group financial statements.  No board resolutions were ever passed converting the debt to equity.

Associate judge Bell ruled the $171 million is an unsecured loan.  Liquidators estimate the payout from Wynyard (NZ) will see Wynyard Group in surplus with shareholders sharing in about $363,400.

Jackson v. Wynyard Group Ltd – High Court (31.05.18)

18.120

Bankruptcy: re Foley

Steve Foley and Diane Foley are bankrupt following the failure of their construction company Point to Point Holdings Ltd.  Mr Foley has been bankrupted previously.  He was banned in 2006 from acting as a company director for two years.

The High Court was told the Foleys currently live at a Regency Park address in Gulf Harbour at Whangaparoa, Auckland.  This property forms part of a deceased estate: that of Mrs Foley’s mother.  Mrs Foley claims when her mother’s property is sold there will be sufficient to clear all their debts.  She says she is likely to get an estate payout of about half million dollars. They asked the High Court to refuse creditor applications to bankrupt them.

Associate judge Bell said Mrs Foley has judgment debts against her totalling $138,300.  Regency Park is for sale.  There is no certainty as to sale date, or price.  Some finality is required, Judge Bell ruled.  Mrs Foley has been reticent about both her assets and the full extent of her liabilities, he said.  A full enquiry into her financial circumstances by Insolvency Service was warranted.

Mr Foley is clearly insolvent, Judge Bell ruled.  He has not disclosed any assets.  Inland Revenue told the court Mr Foley has considerable tax arrears: arrears of income tax stretch back to 2007 (totalling $221,000 with interest and penalties); non-payment of child support go back to 2001 ($283,000 including interest and penalties).

re Foley – High Court (30.05.18)

18.119

Fraud: Worldclear Ltd v. T1 Holdings Ltd

After setting up a special purpose company to circumvent bank bans on facilitation of foreign exchange transfers, Hamilton-based Worldclear is chasing an employee alleged to have decamped with $4.6 million. 

Worldclear alleges employee Richard Whitham skipped the country after cleaning out funds held on its behalf by T1 Holdings Ltd and then blocking online access.  T1 Holdings was set up by Worldclear to channel foreign exchange transactions through New Zealand banks after banks stopped acting for financial service providers like Worldclear claiming they might unknowingly implicate banks in money laundering.

Worldclear CEO David Hillary told the High Court T1 Holdings was set up in late 2017.  Mr Whitlam fronted as owner of T1 Holdings while still employed by Worldclear. Together with other Worldclear employees, he was authorised to facilitate Worldclear’s foreign exchange transfers through T1 Holdings.  Mr Hillary was to later learn that instructions to have all T1 transactions authorised by two signatories were never implemented.  Mr Whitlam alone could approve transactions.

Last May, Mr Whitlam failed to turn up to work.  Worldclear staff found access to T1 bank accounts had been blocked.  Worldclear contacted banks holding T1 accounts; funds had been transferred on Mr Whitlam’s instructions to his own personal account.  Panic ensued.  Frantic attempts to find Mr Whitlam’s whereabouts identified he had not been living at his given address for the previous three months.  Police advised he had left the country at 1.30 pm that day. Worldclear’s dropbox account was subsequently accessed from Singapore.  Files relating to Mr Whitlam’s employment and T1 activities were deleted.

Five days later, the High Court imposed freezing orders on all assets Mr Whitlam may still have in New Zealand. The High Court has now appointed Roger Sanderson and Ian McLennan from insolvency specialists McDonald Vague as interim liquidators to take control of T1 Holdings.

Worldclear Ltd v. T1 Holdings Ltd – High Court (29.05.18)

18.118

Asset Forfeiture: Commissioner of Police v. Ladbrook

In court, genuinely surprised by police estimates of profits made from his cannabis dealings, Dirk James Ladbrook failed to prove a lower figure when the High Court ordered sale of his Harley Davidson motorcycle together with a property owned in Crinan Street Invercargill being proceeds of crime as part of a $209,000 asset forfeiture order.  

Ladbrook was sentenced to three years jail in 2014 for cultivating and selling cannabis.  His cannabis dealing was discovered during police surveillance of the Road Knights motorcycle gang.  A search of Crinan Street in October 2013 uncovered a crop of cannabis plants grown under lights in the bathroom and in two bedrooms.  The power meter had been tampered with; breakers in two of the rooms caused usage to be under-recorded.  Excessive power usage alerts authorities to illegal activities.

Police estimated Ladbrook was achieving a minimum of eight harvests a year with a typical harvest of twenty plants. Profits were assessed on sales at an estimated price of $400 per ounce.  The Criminal Proceeds (Recovery) Act allows profits to be assessed on police estimates of ‘street value’ in the absence of evidence as to the actual price realised. Ladbrook failed to provide any satisfactory evidence as to the actual prices received from dealing, Justice Nation said.

Commissioner of Police v. Ladbrook – High Court (29.05.18)

18.116

Mortgagee in possession: re Livingspace Properties Ltd

Livingspace liquidator Robert Walker alleges RFD Finance Ltd, associated with property developer David Henderson, improperly extracted excessive funds when acting as a mortgagee in possession of Livingspace’s Invercargill and Dunedin accommodation businesses over a two-year period up to 2012.

Kristina Buxton, Mr Henderson’s spouse, is sole shareholder of RFD Finance.  She has been the company’s sole director since 2014.  The High Court was told RFD Finance took over Livingspace Properties Ltd’s business operations in September 2010 as mortgagee in possession, running the business to generate funds in repayment of a $300,000 loan.  Livingspace operated accommodation businesses in Tay Street Invercargill and Castle Street Dunedin.  To protect debtors, strict legal rules govern mortgagees in possession. They must strictly account for their activities.  The liquidator of Livingspace alleges RFD Finance extracted more from the business as mortgagee in possession than was necessary to recover its costs.  This reduced the amount available for Livingspace and its unpaid creditors, he alleges.  Companies Office records state unsecured creditors are owed $12.8 million. 

There was evidence in a 2012 court case that RFD Finance had remained in possession after recovering sufficient to repay its outstanding loan plus interest.  Livingspace’s liquidator was ignored when asking RFD Finance to provide details of its Livingspace transactions.

Associate judge Osborne ordered Ms Buxton hand over accounting records detailing RFD’s activities as mortgagee in possession.  Ms Buxton said she has instructed lawyers to have Mr Walker removed as liquidator of Livingspace.

re Livingspace Properties Ltd – High Court (29.05.18)

18.117

Name Suppression: Shepherd v. Police

Facing charges of theft and deception with allegations she misappropriated $103,600 from CCS Disability Action, Toddy Shepherd failed in her application for name suppression arguing disclosure would affect operations at her new employer Kaitaia-based He Korowai Trust.

Police are prosecuting Ms Shepherd for alleged unauthorised expenditure relating to accommodation, flights, rental cars, petrol purchases, credit card purchases and cash withdrawals on her corporate credit card when employed by CCS Disability.  She resigned from CCS in November 2015.  She was charged three months after starting work with He Korowai Trust.  She is responsible for the Trust’s Sweet-As Academy, providing vocational training.

He Korowai chief executive Ricky Houghton told the High Court Trust funding is subject to political pressure.  The Trust needs to maintain public confidence.  He said the Trust has up to 190 families receiving support. Major funders Foundation North and Te Puni Kokiri had been advised confidentially that Ms Shepherd faces criminal charges.

Name suppression requires proof of extreme hardship, Justice Gordon ruled.  Speculation that funding for the Trust might be cut does not reach the standard of extreme hardship, she said.  Both Foundation North and Te Puni Koriki have indicated funding arrangements will continue in the interim pending a hearing of charges against Ms Shepherd.  Mr Houghton told them Ms Shepherd has no authority to disburse Trust funds.

Shepherd v. Police – High Court (23.05.18)

18.115

Fraud: Harnett v. Social Development

Two years four months jail following a $259,100 benefit fraud by David Earle Harnett was confirmed by the High Court.

For nearly ten years, Harnett collected social welfare benefits without declaring either ownership of a mortgage-free property in the Auckland inner city suburb of Grey Lynn or his part-ownership of a property in Paris. Harnett returned to New Zealand from Paris in 2006 with his two young children.  His wife remained in Paris.  Rather than living at his Grey Lynn property, Harnett chose to rent in another suburb.  Grey Lynn in turn was rented out.

Justice Brewer said the sentence was not manifestly excessive.  Deterrence and denunciation was required.  Pleading guilty, Harnett repaid the $259,100.

Harnett v. Social Development – High Court (23.05.18)

18.114

Directors: Finnigan v. Ellis

Management of failed infant milk exporter Wenztro were ordered to pay all the company’s debts totalling $765,600 for what was described as blatant, ongoing and serious breaches of directors’ duties.  Wenztro was hopelessly undercapitalised, failing to properly execute even one of its planned infant milk exports to China.  Part of one botched export order did make it to China with Wenztro liquidators unable to find what happened to the proceeds.

Wenztro was formerly known as Trojan Foods (NZ) Ltd. A narrative of mismanagement unfolded through nine days of evidence in the High Court implicating: lawyer Brian Robert Ellis; James Neil Black a twice bankrupted businessman who was bankrupt when Wenztro was trading and barred from running a business, plus; Gerald Norman Williams, a businessman who had previously been banned from acting as a company director. 

Looking to exploit food safety scares following melamine poisoning in retail milk sales throughout China, Wenztro Co-Operation Ltd jumped on the bandwagon.  In 2010, Wenztro contracted to supply 18,300 cans of infant formula to a Chinese importer. Wenztro’s website touted the company as having a team with extensive experience in the New Zealand dairy industry, with offices in the heart of New Zealand’s dairy industry, a quality assurance system in place and a distribution network across Asia.  In fact, there was no team (a single employee was paid six months late only one thousand dollars of her promised $60,000 salary), the company operated out of Mr Ellis’ law office in central Auckland, any product had to be sourced from other suppliers and its marketing outreach consisted of contacts in Hong Kong.

The High Court was told Wenztro shareholders put no cash into the business.  Sourcing the 18,300-can order proved problematic as suppliers demanded cash up front.  The order when delivered was mislabelled and could not be sold in China.  The Chinese importer cancelled, suing to recover advance payments made.  Much of this money was spent meeting Wenztro’s operating costs.  Meanwhile the botched order made its way to Hong Kong.  There was evidence of product being smuggled into China following online sales.  Liquidators could find no trace of the proceeds.

Justice Wylie ruled the three directors were in breach of their duties as directors: trading recklessly, incurring obligations the company could not perform and failing to exercise proper care and skill in management of Wenztro.  The three were held jointly and severally liable; payment can be recovered in unequal shares if any one director cannot contribute his share.

Mr Ellis was the only director to give evidence. Justice Wylie said he was neither reliable nor credible as a witness.           

Finnigan v. Ellis, Williams & Black – High Court (22.05.18)

18.113

Peer-to-peer Lending: Commerce Commission v. Harmoney

Harmoney’s fixed ‘platform fee’ charged for peer-to-peer lending online is not brokerage but a credit fee, the High Court ruled in an industry test case.

The Credit Contracts and Consumer Finance Act requires credit fees be reasonable.  According to its website, Harmoney Ltd currently charges a flat $450 as its platform fee on each loan arranged.  Minimum loan limit is one thousand dollars.  Prior to December 2015 it charged a 1.25 per cent service fee calculated on repayments of interest and principal.

Harmoney unsuccessfully challenged Commerce Commission complaints that its platform fee was caught by the Act.  Harmoney said borrowers committed to payment of platform fees when signing up online to its ‘borrower agreement’.  This was independent of any subsequent loan, Harmoney said.  Funds are sourced from investors who also register online.  Potential borrowers could sign up but never take out a loan.

Justice Courtney ruled the platform fee formed part of Harmoney’s credit contracts.  Harmoney itself was a ‘creditor’ in peer-to-peer lending.  It is more than a ‘match-maker’, she said.  In any event, the platform fee was implied into loan contracts as a fee payable ‘in connection’ with loans, she said.  The platform fee is deducted from funds disbursed when a loan is arranged.

Commerce Commission v. Harmoney Ltd – High Court (18.05.18)

18.112

Business Prohibition: re Henderson

Discharged from bankruptcy subject to a court order prohibiting him from managing any business until the end of 2022, property developer David Ian Henderson has court approval to now provide consultancy services, but under a very tight leash.

Associate judge Osborne granted Mr Henderson a very limited power to go back into business.  He previously rejected eighteen applications by Mr Henderson to resume his business activities prior to 2022.  The collapse of Mr Henderson’s property development companies coupled with long-running disputes with both Inland Revenue and Insolvency Service had resulted in the extended ban.

Judge Osborne has allowed Mr Henderson to go into business as a self-employed sole trader offering consultancy services in the construction, land development and hospitality industries.  He is not allowed to employ staff or to rent premises. His financial affairs are to be under the control of a financial supervisor, chartered accountant Brenton Hunt. All revenue is to be paid into a bank account controlled by Mr Hunt, with sub-accounts set up for payment of GST and income tax.  All consultancy arrangements are to be on terms specified by the High Court in a standard-form consultancy contract.  Mr Henderson is required to tell all intending clients of his previous bankruptcies and of the current restrictions on his management of a business.

In his High Court application, Mr Henderson indicated he proposed to use his new-found business freedom to subdivide a 70 acre rural property in the Gibbston valley, central Otago, where he presently lives with partner Katrina Buxton.  Judge Osborne put the kybosh on that.  He said Mr Henderson was not to act as consultant to any business activity involving Ms Buxton.  Their close personal relationship precluded any managerial independence.

re Henderson – High Court (18.05.18)

18.111

Deception: Cooper v. R.

Sneaking a signed bank withdrawal form for $70,000 off a lawyer’s file and then withdrawing the money amounted both to criminal deception and to financial abuse equated with domestic violence. The withdrawal form was being held pending final agreement on a relationship property dispute, but agreement had stalled.

The Court of Appeal confirmed a sentence of nine months’ home detention for Robert Britt Cooper.  The court was told Cooper and his estranged wife agreed at mediation in general terms over division of their relationship property.  As part of the deal, they both signed a bank withdrawal form breaking a $70,000 term deposit in the name of their family trust.  This was to be held un-actioned on Cooper’s file at MD Law in Kerikeri pending final agreement on relationship property.  With no final agreement, Cooper visited MD Law at a time he knew his lawyer was overseas and asked staff if he could see his file to get copies of some documents.  While a staff member copied documents from the file at his request, Cooper pocketed the signed withdrawal form.  He then withdrew the $70,000, refusing to return the money.

A failure to disclose a material fact (removal of the withdrawal form) when asked by staff if there were any other documents he wanted amounted to deception.

It was also an act of domestic violence.  There was a protection order in force against Cooper. Psychological abuse of a protected person is a breach of the Domestic Violence Act.  Psychological abuse includes financial abuse; limiting access to financial resources. Withdrawing the $70,000 limited his estranged wife’s potential access to funds.

Cooper v. R. – Court of Appeal (18.05.18)

18.110

CBL: Reserve Bank v. CBL Insurance

Political promises of consultation are often empty words: consult then ignore.  The Reserve Bank is flexing its regulatory muscle.  It takes a more prescriptive approach to consultation in its prudential supervision of the financial sector as evidenced in litigation over CBL Insurance: consult then obey.

Earlier this year, the High Court appointed interim liquidators to CBL Insurance Ltd following a Reserve Bank request.  Amongst other grounds, Reserve Bank alleged CBL was insolvent.  This claim has since been dropped.  The primary ground for liquidation is now an allegation CBL failed to comply with directions made under the Insurance (Prudential Supervision) Act.

CBL Insurance is not in liquidation.  The need for liquidation and the identity of a potential liquidator is hotly contested by existing management and CBL’s sole shareholder: LBC Holdings.  Behind the scenes there is a flurry of activity with confidential proposals to hive off some of CBL’s underwriting activities.

Grounds for Reserve Bank intervention were spelt out in a preliminary court application by CBL directors Peter Harris and Alistair Hutchison asking to see information held by the Bank.

Liquidation proceedings were triggered by CBL’s alleged failure to comply with Bank directions.  In January 2018, CBL was instructed that it must ‘consult’ with the Reserve Bank before making any payments exceeding five million dollars.  The Bank’s directive defined ‘consult’ as: [CBL] providing the Bank with sufficient information for the Bank to form an informed view on the proposed transaction; receiving feedback from the Bank and [CBL then] having regard to that feedback before entering into the transaction.

The Reserve Bank alleges three subsequent CBL transactions with United Specialty Insurance, each under the five million threshold, but collectively totalling nearly $15 million dollars breach this directive together with a $42 million payment to Danish Alpha Insurance.

Reserve Bank v. CBL Insurance Ltd – High Court (18.05.18)

18.109

Receivership: FM Custodians v. Hannan

Sued by FM Custodians for debts totalling $803,800, Paddy Hannan defeated attempts to bankrupt him after attacking the manner in which his business interests were handled in receivership.

Mr Hannan had earned the ire of Hutt City Council with landfill operations in Waiu Street, Wainuiomata.  Noise and dust upset neighbours. Abatement notices were issued. Criminal prosecutions followed.  The Environment Court was called into play. This was not the only legal issue facing Mr Hannan.  In 2014, FM Custodians Ltd called up its loan, appointing Auckland chartered accountant Kevin Whitley as receiver of Mr Hannan’s business operations.  Mr Hannan had guaranteed the loan.  In March 2014, Mr Hannan and his companies were held liable to repay $803,800.

Three years later, FM Custodians attempted to bankrupt Mr Hannan on the unpaid debt.  Probably to FM Custodians surprise, Mr Hannan turned up at the bankruptcy hearing.  He had not contested its earlier court action demanding $803,800 and he had proved difficult to find for service of bankruptcy proceedings.  FM Custodians had eventually served notice by email.

In court, Mr Hannan attacked the manner in which Mr Whitley had carried out the receivership.  He alleged company assets should have been sold off earlier.  Mr Whitley said costs had been run up dealing with ‘distressed assets’ owned by Mr Hannan’s companies.  Getting the Wainuiomata properties into a saleable state required considerable expense including repair of environmental damage and complying with council requisitions for subdivision of the Waiu Street properties.  Surveying, engineering and landscaping costs alone ran to $231,700.  This on top of receivership fees of $481,100.  Included in receivership costs is the sum of $34,300 paid to Mr Hannan in the first few months of the receivership for consulting advice.  The original debt plus ongoing costs now run to over two million dollars.

Mr Hannan said eventual sale of his business assets had covered all of the $803,800 guaranteed debt; he should not be bankrupted now for unpaid ongoing costs.  Associate judge Smith agreed.  Realisations totalling $909,700 were in the receiver’s hands at the time bankruptcy proceedings were started.  This more than cleared the debt on which FM Custodians were attempting to bankrupt Mr Hannan.  The receiver had not formally elected to allocate these amounts against receivership costs.  Mr Hannan was entitled to take advantage of the ‘first in-first out’ rule, Judge Smith said.  Realisations were applied first to repayment of the original $803,800 debt.  Terms of the $803,800 court judgment were not wide enough to include liability for ongoing costs.  Mr Hannan is potentially contractually liable for these costs under terms of his guarantee.  FM Custodians has to start again with new legal action against Mr Hannan if it now wants to pursue him for receivership costs, Judge Smith ruled.

FM Custodians Ltd v. Hannan – High Court (17.05.18)

18.108

Capital + Merchant: Gibson v. Official Assignee

Receivers of Capital + Merchant are suing Insolvency Service alleging it stuffed up the GST calculation on an $18.5 million out of court settlement with auditors BDO Spicers.

Capital + Merchant Finance Ltd went bust in 2007, owing some 7500 retail investors $167 million.  Insolvency specialists KordaMentha are realising company assets. Its latest report discloses payouts to retail investors to date total twelve million dollars; less than ten cents in the dollar.  Currently in the mix is an unresolved GST assessment of $1.75 million.  Inland Revenue claims GST is payable on part of the $18.5 million BDO settlement.  Details have not been made public, but the settlement was part-funded by BDO’s insurers. Insolvency Service, as liquidators of Capital + Merchant negotiated the settlement.  KordaMentha alleges Insolvency Service was negligent in not clarifying the GST position when agreeing to the settlement.  Insolvency Service denies liability.  Justice Muir indicated the issue is not likely to require a court decision until Inland Revenue and Insolvency Service resolve their current tax dispute over whether Capital + Merchant is liable to pay the disputed $1.75 million.  This dispute centres on the manner in which the $18.5 million payout was funded by insurance.

Gibson v. Official Assignee - High Court (16.05.18)

18.107

Resource Management: Lau v. R.

Sentenced to two months two weeks imprisonment after unlawfully clearing protected native trees off a building site, Augustine Lau has a long list of prior resource management breaches.

Also known as Ee Kuoh Lau, Augustine Lau came to New Zealand from Malaysia in 1992.  He was convicted and sentenced in January 2018 for damaging six pohutukawa and one totara on a coastal site near Waiwera, Auckland.  The motive was financial, the trial judge was told.  Views would be enhanced and further building on the site would then be possible.  The trees were knocked over with a digger boom; for safety reasons following a recent storm, Mr Lau said.  The court was told Auckland Council staff had previously told him the trees were protected. Mr Lau’s subsequent resource consent application for the trees’ removal had been refused.

The Court of Appeal dismissed Mr Lau’s appeal against sentence.  A longer term of imprisonment would have been justified, the court said.  There was evidence of multiple resource management breaches around Auckland by Mr Lau in the past: Paremoremo (unauthorised dwellings and wastewater discharges); Albany (removal of vegetation and wastewater); Waiwera (unauthorised dwellings); Otahuhu (unauthorised earthworks); Flat Bush (unauthorised dwellings and wastewater); Mt Albert, Mt Roskill and Swanson (all unauthorised dwellings).  Auckland Council has commenced bankruptcy proceedings against Mr Lau for a series of unpaid court cost orders totalling some $379,000.  Inland Revenue is also pursuing Mr Lau.

Lau v. R. – Court of Appeal (16.05.18)

18.106

Asset Forfeiture: Commissioner of Police v. Vousden

Acquitted of money-laundering charges, Allister Vousden acknowledged the fact of his involvement when negotiating an out-of-court settlement under the Criminal Proceeds (Recovery) Act.  He agreed to forfeit vehicles and a Papakura property totalling $796,000 in value.

Earlier this year, Mr Vousden was charged along with alleged members of the Head Hunters following a police drugs bust. Police allege he laundered drug profits through his Auckland business: Ellerslie Collision Repairs Ltd.  He was acquitted on all charges.  His company is now in liquidation.

Facing an asset forfeiture application by police, Mr Vousden agreed to the sale of vehicles he was holding together with sale of a property he owned at Old Wairoa Road in Papakura, Auckland.  Criminal charges require proof beyond a reasonable doubt. In contrast, asset forfeiture claims are civil law actions.  A lower standard of proof is required.

Mr Vousden admitted in the High Court there is evidence to support police allegations of his money-laundering.  Surrendering assets was a pragmatic way of settling a Proceeds of Crime claim, he said.  Police said they were not aware of Mr Vousden having any other major assets derived from his money-laundering.

The High Court ordered sale of Old Wairoa Road together with eight cars seized along with a boat and boat trailer.  The vehicles included: a Chev Camaro, Chev Corvette, Chev Silverado and Ford Galaxie.   Net proceeds of sale go to government with Mr Vousden to receive $10,000 cash.

Commissioner of Police v. Vousden – High Court (15.05.18)

18.105

Fraud: Hansa Ltd v. Hibbs

Convicted fraudster Paul Clifford Hibbs used stolen investor money to dabble in a Marlborough wine venture: Haldon Range Vineyards.  His innocent co-investors are facing demands for repayment of $167,900 by liquidators cleaning up after Hibbs.

Hibbs was jailed for eight years earlier this year after pleading guilty to Ponzi frauds perpetrated through two investment companies: Hansa Ltd and Cameron Gladstone Investments Ltd.  The extent of investor losses is disputed.  Liquidators for Hansa told the High Court $4.5 million is still unaccounted for out of some $8.5 million paid to Hibbs for investment through Hansa.  As part of their recoveries, liquidators took action against Haldon Range Vineyards Ltd: a joint venture company owned 25 per cent by Hibbs family interests and 75 per cent by Richard Bell’s Family Trust.

Evidence was given that development of Haldon Range vineyard started in 2007.  A dam was constructed to provide water.  The dam proved faulty, consulting engineers were sued and then the dam had to be emptied after earthquake damage following the 2013 Seddon earthquakes.  Seddon township lies fifteen kilometres downstream. Costs approaching three million dollars were spent sorting out the problem.  Under the joint venture, Hibbs was responsible for one quarter of these costs. He handed over $167,900, in dribs and drabs, and then only after pressure from Mr Bell.  Liquidators sued Haldon Range for return of the $167,900, getting judgment by default when Haldon Range lawyers failed to file a statement of defence in time.  Mr Bell was under the impression lawyers for each side were going to talk to each other. 

Now under threat of liquidation, Haldon Range got a court order setting aside the default judgment.  This allows it to contest the claim.  Haldon Range investors say they had no knowledge of Hibbs fraud.  The High Court was told the only asset of value in Haldon Range is its accumulated tax losses.  These are of no benefit to either the liquidators of Hansa Ltd or its bilked investors.  They cannot take advantage of someone else’s tax losses.

Hansa Ltd v. Hibbs – High Court (11.05.18)

18.104

Insurance: Groen v. Southern Insurance

Southern Response is resisting production of legal advice allegedly supporting its claim that a Christchurch red zone payout was made in good faith after the Groen family discovered a $104,800 discrepancy between Southern Response internal documents and the deal offered.

The Groen family home at Brynn Lane, Bexley, was written off after the Christchurch earthquakes.  Red-zoned by government, the family had to buy or build elsewhere. They were insured with AMI Insurance. Southern Response Earthquake Services Ltd has the job of settling Christchurch earthquake claims against AMI after the insolvent insurer was bailed out with taxpayers’ money.  The Groens settled with Southern Response in 2012 for $337,700 after being told this was the amount allowed for rebuilds under their AMI policy.  After a 2016 Privacy Act request, the Groens received an ‘office version’ of their claim which assessed a rebuild cost of $442,500.  They want the 2012 settlement set aside.  They allege Southern Response breached the Fair Trading Act.  They are suing for the difference between the ‘office version’ and the amount previously agreed.  This has yet to be decided.  When filing its defence, Southern Response said it acted in good faith on the basis of legal advice received.  In a preliminary hearing, the Groens asked to see this legal advice.  Southern Response refused.  It claims legal privilege.

Justice Davidson ruled the legal advice is privileged. Legal advice is not claimed as a defence.  It is part of Southern Response’s narrative that it did act in good faith.  Southern Response is able to use this legal advice when defending the Groens’ claim without having to produce the actual legal advice.  Justice Davidson warned Southern Response. If there is anything in the legal advice which contradicts what it says in court then that alone would be evidence of bad faith.

AMI underwrote several different types of earthquake cover.  Southern Response says the $442,500 ‘office version’ is generic; containing all potential costs for the Brynn Lane property that might arise in any claim against AMI, not the costs that may apply particularly under the Groens’ specific insurance policy.

Groen v. Southern Response Earthquake Services Ltd – High Court (11.05.18)

18.103

Insurance: K Trust v. Collins

Peter Collins has been ordered to pay over $530,000 after being held liable for fire damage to neighbouring properties at Port Underwood in the Marlborough Sounds after a tree he was felling knocked over power lines triggering a fire.

Insurance companies IAG New Zealand and Lumleys sued Mr Collins after paying out following the December 2013 fire.  Two properties on Tumbledown Bay Road, Port Underwood, were damaged.  The High Court was told Mr Collins subsequently left for Queensland.  He was served with court papers but did not defend the insurance companies’ claims.

The court was told that the day of the fire Mr Collins was cutting down pine trees.  He warned neighbours to evacuate after a fire started telling them one of the trees had fallen on to power lines with electrical arcing igniting dry undergrowth. While he later denied involvement, fire investigators identified a falling tree as the primary cause.  One house and its contents were completely destroyed.  Rebuild costs were assessed at about $416,500.  The insurer paid out $285,000: the sum insured.  Sheds, outbuildings, water and sewage reticulation on a second property were damaged.  Repairs and the cost of alternative accommodation came to $112,000.

Addition of court ordered interest brought the total damages for negligence to over $530,000.

Insurance companies have a right of subrogation. Having paid out on a claim they take over all legal rights of the person insured and can sue to recover the amount paid out.

K Trust v. Collins – High Court (9.05.18)

18.102

Maori: Rotorua District v. Ngati Whakaue Endowment Trust

Over six hectares of prime commercial property in downtown Rotorua transferred to Ngati Whakaue as part of their Treaty settlement are not to be charged full rates by the local Council because of restrictions on ownership.  The properties can never be sold.

Nearly 150 years of local history were traversed by the Court of Appeal determining the status of Ngati Whakaue’s land holdings. Hapu from Te Arawa iwi around Rotorua were adept in accommodating nineteenth century settler encroachment. Negotiations in 1880 acknowledged growing European tourism and settlement in the district.  Land was leased on terms requiring rentals to be used for the benefit of local Maori.  A rating dispute before the Court of Appeal concerned land on perpetual leases with rentals earmarked for education.  Initially, Rotorua High School as the only secondary school in the district was the sole beneficiary.  Subsequent acts of parliament allowed other local schools to benefit.

As part of its Treaty of Waitangi claim, Ngati Whakaue pointed out that successive acts of parliament had removed them from management and control of their own trust lands.  Legislation enacted in 1995 created the Ngati Whakaue Education Endowment Trust.  Control over land first leased over a century ago to benefit education was transferred to the Trust.  It has power to lease the land ‘but shall not sell or otherwise dispose of any part of the land.’

In a test case, Rotorua District Council levied full rates on one of the Trust’s leased properties operating as a lakefront hotel. Council had allowed a ten per cent discount previously, treating the land as Maori freehold.  The Trust objected to paying full rates.  While the land is now recorded in Ngati Whakaue’s name on the general land register rather than the Maori register, it does not have full rights of ownership.  The Rating Valuation Act allows councils to rate properties at their full commercial value, regardless of any restrictive terms in a particular lease which might reduce the rental income stream accruing to a landlord.  The Court of Appeal said there are no restrictions on the Trust’s rights to lease, but there are restrictions on its full rights of ownership since it can never sell.  A rate reduction is appropriate, the Court ruled.

The case has been referred to the Land Valuation Tribunal to assess an appropriate rate.

Rotorua District Council v. Ngati Whakaue Education Endowment Trust Board – Court of Appeal (9.05.18)

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Company: Dold v. Murphy

Nearly three decades of co-operation running charter cruises in the Bay of Islands, Fiji and Queensland comes to an end with Peter Murphy playing hardball against former business partners Roger Dold and Chris Jacobs following their $A112 million sale of Cruise Whitsundays Pty Ltd.

In 2016, the three cashed up their Whitsunday operations after previously operating Fullers cruises in Northland and South Seas cruises in Fiji.  Their respective shares in Cruise Whitsundays were Dold (46.9 per cent), Jacobs (46.9 per cent) and Murphy (6.2 per cent).  Initial intentions were to divvy up the proceeds in ratio of their shareholdings. The High Court was told Mr Murphy then refused to sign off on the Whitsunday sale unless given an extra $A5 million.  Held to ransom, Messrs Dold and Jacobs bargained this down to $A4 million with each contributing two million.  Mr Murphy said he was entitled to extra for his work on the Whitsunday operations. Revenge was quick.  Messrs Dold and Jacobs sued to recover their four million. They argue payment was in breach of their private shareholders’ agreement.  Mr Murphy countered.  He alleges Messrs Dold and Jacobs ran down the Whitsunday business prior to sale by appointing an incompetent chief executive officer and by installing a new reservation system which did not work properly resulting in lost revenue.  He alleges failures to properly invoice led to accumulated losses of over $A22 million.  Litigation has become bogged down in voluminous requests by Mr Murphy for production of documents.  Associate judge Bell indicated Mr Murphy had been unco-operative when lawyers for Messrs Dold and Jacobs tried to sort out informally what extra information he needed. Judge Bell said some of the information Mr Murphy wanted produced in court for inspection was in documents he already had access to.  Judge Bell did order disclosure by Messrs Dold and Jacobs of any documents bearing on increased costs incurred because of problems with reservations software and with actions of the chief executive dismissed for incompetence.

The High Court was told Mr Murphy has a legal background.  Messrs Dold and Jacobs say they had relied on him for legal advice and guidance.  The disputed facts surrounding their bust-up is yet to go to a hearing.  Mr Murphy alleges Mr Dold and Mr Jacobs were so heartily sick of each other that after he put the squeeze on they were willing to pay two million each to sever their ties.

Dold v. Murphy – High Court (9.05.18)

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Gibbston Valley water: Tomanovich Holdings v. Gibbston Community

Interests associated with former property developer David Henderson are fighting for control of the water supply to central Otago’s Gibbston Valley.

Mr Henderson and partner Kristina Buxton live on a property in the Valley.  There is a long and acrimonious history between Mr Henderson and Gibbston Valley neighbours over ownership and control of a jointly operated water supply, set up as a not-for profit corporate.  Some thirty properties use the service.

The High Court was told Henderson interests took control of the scheme in March 2007 paying $60,000 to buy Gibbston Water Services Ltd.  The valley water supply was at risk when Mr Henderson was bankrupted in November 2010. Gibbston Water was put into receivership and then liquidation.  While Henderson family interests then tried unsuccessfully to regain control by selling Gibbston Water assets to a related Henderson company for one dollar, the Gibbston Water liquidator instead sold the water scheme for $35,000 to a newly formed company owned by other Gibbston Valley property owners: Gibbston Community Water Company (2014) Ltd.

Tomanovich Holdings Ltd, owned by Henderson family interests with Katrina Buxton as director, is in court alleging the $35,000 sale to Gibbston Water (2014) was below market price.  It wants the sale reversed.  This would have the effect of putting Mr Henderson back in control. Having argued a few years previously the valley’s water scheme was worthless and a sale at one dollar could be justified, Henderson interests now say the scheme is worth at least $140,000 and was sold to Gibbston Water (2014) at an undervalue.

Neighbours are fed up.  They allege that an argument about sale of assets on a company liquidation is being used improperly in an attempt to wrest control from current owners; that Henderson interests are misusing the court process as evidenced by irreconcilable values argued for valuations of the same assets in different court actions; that Mr Henderson is intimately involved in court litigation in breach of High Court prohibition orders which followed his conditional release from bankruptcy; and that he has acted in a threatening manner towards Christine Erkkila, a current Gibbston Water (2014) director.  The High Court was told Mr Henderson was offered cash to make good any loss he might have suffered as an unpaid creditor of now-liquidated Gibbston Water Services Ltd.  This offer was rejected.  Gibbston Water (2104) asked that the challenge to asset sales be struck out.

Justice Gendall ruled Henderson interests were entitled to their day in court but no further action could be taken until they put up money or a bond as security for Gibbston Water (2014)’s likely legal costs. The amount required has yet to be fixed.

Tomanovich Holdings Ltd v. Gibbston Community Water Company 2014 Ltd – High Court (8.05.18)

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Media: GTV Holdings v. Delargey Trust

‘Studied ambiguity’ underpinned last minute amendments to the $6.05 million sale in 2013 of reality television Greenstone TV clinching a sale to Cordell Jigsaw in Australia.  Equivocation meant a deal was struck, but this virtually invited subsequent litigation over deferred payments amounting to $554,700, the Court of Appeal said. 

For a decade, John Harris with New Zealand on Air funding produced a slew of reality television programmes including Border Patrol, Serious Crash Unit and Highway Cops.  Many of these programmes were later licensed for broadcast by the Seven network in Australia.  In November 2013, Mr Harris sold his interest in Greenstone to Cordell Jigsaw Zapruder Productions Pty Ltd.  It produces similar reality programmes across the Tasman.  The agreed purchase price of $6.05 million was divided into two tranches: $4.8 million upfront; $1.25 million six months later with an adjustment if Highway Cops 2, then in production, was not taken up by the Seven network.  Cordell Jigsaw did not want to pay in advance for potential licensing income that might not eventuate.  It had control of Greenstone TV at the time Seven network was billed $A360,000 for twenty episodes of Highway Cops 2 at $A18,000 per episode.  Mr Harris said he was entitled to the full $1.25 million second tranche, without deduction.  Cordell Jigsaw deducted $554, 720 claiming the adjustment applied.

A minute examination of the 2013 sale agreement then followed in the High Court and the Court of Appeal.  Both ruled $554,720 was still due.  The adjustment formula was described as a compromise, drafted to ensure final agreement could be reached on the $6.05 million deal, but almost inevitably likely to lead to disputes over interpretation.  Astute self-interest was the very reason the 2013 adjustment mechanism was left unclear, the Court of Appeal said, but leaving interpretation to the courts is the price paid for ‘studied ambiguity’.  The economic effect of the Seven deal struck for Highway Cops 2 was consistent with previous deals, the Court ruled, even if it did not match exactly the usual Greenstone template. Mr Harris was entitled to his money.

GTV Holdings Ltd v. Delargey Trust – Court of Appeal (8.05.18)

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Fair Trading: McAlister v. Lai

Being aware of financial arrangements for the $38 million purchase of Orcon in 2013 meant property lawyer Jeffrey Lai was by implication liable for a breach of the Fair Trading Act when he acted on a client’s misrepresentation about the level of equity contributed. Investor Greg McAlister sued to recover a $200,000 investment.

Mr Lai represented Mr Warren Hurst in negotiations to buy telecoms company Orcon in early 2013.  With settlement looming, Mr Hurst was struggling to finalise financing. The Court of Appeal was told of a critical April 2013 meeting held in Mr Lai’s office between Mr Hurst and Mr McAlister. Mr McAlister had been lined up to become Orcon’s CEO.  He had agreed to put $200,000 of his own money into the $38 million deal, subject to suitable terms being negotiated.  At the April meeting, discussion centred on terms for a convertible note recording Mr McAlister’s investment.  Orcon’s proposed debt/equity ratio was critical in determining a conversion ratio for the McAlister convertible security.  At the meeting, Mr Hurst said he was putting up $8.5 million by way of equity funding.  Mr Lai prepared a convertible note on this basis for Mr McAlister to sign.  In fact, Mr Hurst was looking to put up next to nothing; the deal would be almost entirely debt-funded.  He planned to fold his company Vivid Networks Ltd into Orcon at a value of $2.5 million.  Further cash was to be raised by the sale and leaseback of Orcon assets netting a further $3.25 million.  When Orcon subsequently suffered a cash flow crisis, Mr McAlister’s $200,000 convertible note lost most of its value.  Mr Hurst was bankrupted.

Mr McAlister sued Mr Lai.  He alleged Mr Lai, as Mr Hurst’s legal adviser, breached the Fair Trading Act.  The Court of Appeal said Mr Lai had helped structure the proposed Orcon sale and leaseback deal.  He would have been aware Mr Hurst had misrepresented to Mr McAlister the level of equity contributed to the Orcon purchase.  Mr Lai was personally involved in calculating terms for the McAlister convertible note knowing the debt/equity ratio was incorrect, the Court ruled.  It was not a case of being fresh to the transaction and working off figures given him by the parties, the Court said.

It was misleading and deceptive in breach of the Fair Trading Act for Mr Lai to calculate the conversion rate for Mr McAlister’s investment using an incorrect equity figure.  Damages require a High Court assessment as to the full extent of Mr McAlister’s losses.

McAlister v. Lai – Court of Appeal (7.05.18)

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Legal Costs: Inland Revenue v. New Orleans Hotel

Litigants can no longer recover from the losing side legal costs for in-house lawyers representing them in court, the High Court ruled in a landmark case.  This rule applies equally to both private sector and public sector corporate litigants. 

Associate judge Matthews said revisions to the High Court Rules governing court procedure tightened up entitlements for recovery of legal costs.  Revised Rules now limit recovery against unsuccessful litigants of a contribution towards only those costs ‘actually incurred’ by a successful litigant in having a lawyer appear in court.  Recovery is no longer permitted for in-house counsel.  There is an economic cost in employing legal staff: salaries and overhead office expenses.  This economic cost is not a direct cost ‘actually incurred’ as now required by the Rules, Judge Matthews ruled.

Most affected is Inland Revenue.  It files hundreds of bankruptcy and company liquidation applications in the High Court each year as an act of last resort against defaulting taxpayers.  Inland Revenue frequently uses its own legally-qualified staff to appear in court on its behalf, rather than hiring outside lawyers. 

It was taxpayer New Orleans Hotel (2001) Ltd who successfully argued it was not liable to cough up for Inland Revenue’s use of in-house lawyers.  Operated by South Island hospitality entrepreneur Peter Whittaker, New Orleans paid its tax in full, but late and only after Inland Revenue took action in the High Court to have the company liquidated for a failure to pay.

Inland Revenue v. New Orleans Hotel (2011) Ltd – High Court (7.05.18)

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Crown Land: Vogel v. Crown Lands

With a decision that will resonate with Maori, the High Court ruled emotional attachment to land is a factor to be considered when selling land surplus to government requirements. Grandsons of James and Jocelyn Vogel argue they are entitled to preferential treatment in a government sale of Vogel House in Wellington.

In 1965, the Vogels gifted their grand family home to government.  It is a two-storey house on 9.6 hectares of land in Lower Hutt.  The property has been variously occupied since by the Australian High Commissioner, the Governor-General, prime ministers and other government ministers.  Cost of upkeep and new rules governing ministerial accommodation led to a government decision to sell.  The property was valued at five million dollars in 2014.

Crown Lands reviewed the wills left by both James and Joyce Vogel, identifying that their grandsons Timothy and Geoffrey Vogel together with the Vogel Charitable Trust and the Wellington SPCA had an interest in what might happen to the property.  In a June 2016 decision, Crown Lands decided Vogel House would be sold to The Vogel Charitable Trust and the SPCA for $415,000, being the value of improvements made since the 1965 gift.  The grandsons objected.  They were entitled to the same deal they said, particularly given their family association and emotional attachment to the property.  Crown Lands then decided to sell Vogel House on the open market. Grandsons Timothy and Geoffrey again objected.

In the High Court, Justice Mander reviewed operation of the Land Act as it applies to sales of surplus government land.  The Act allows sales without public tender if to do so would create ‘hardship’ for an applicant.  ‘Hardship’ is not limited to financial hardship, he ruled.  It can include distress from losing an opportunity to acquire land having a family connection.  ‘Hardship’ creates an entitlement to negotiate prior to any surplus land being advertised for sale.  Sale at a reduced market price is permitted by the Act.  Crown Lands has a discretion in setting the price.  But to sell property valued in excess of five million dollars for $415,000 is not permitted, Justice Mander ruled.  That amounts to a gift by government.

Crown Lands was left to reconsider its strategy for the sale of Vogel House.  The property has heritage status under the Heritage New Zealand Pouhere Taonga Act. There are restrictions on subdivision

Vogel v. Crown Lands – High Court (4.05.18)

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Tax: Ling v. YL NZ Investment Ltd

Onselling a Pukekohe property within months of purchase, Louise Ling was held liable to pay damages of $365,800 after GST status she declared in a $3.5 million sale was accurate when made but retrospectively reversed by Inland Revenue.  Her subsequent application for GST registration was approved by Inland Revenue but backdated to a date prior to the sale. 

Ms Ling purchased in July 2015 a house with stable yards and adjacent horse grazing covering 4.6 hectares at Station Road in Pukekohe, South Auckland.  She sold five months later in December for $3.5 million, the same price she paid to purchase according to online sales data.  She was later sued for $365,800 for telling the purchaser she was not registered for GST.  When purchaser YL NZ Investment Ltd applied for a GST refund on its December purchase, Inland Revenue advised that Ms Ling was in fact registered for GST and there would be no refund: property transactions between GST-registered taxpayers are zero-rated for GST.

The Court of Appeal was told Inland Revenue advised Ms Ling in September 2016 that her application for GST registration was approved. This was months after the sale of Station Road to YL NZ investment had been completed.  The same letter advised her GST registration was backdated to May 2015, a date before her Station Road purchase.  Ms Ling’s Station Road sale had seen her selling for $3.5 million (including GST) and her circling the front-page acknowledgement that she was not GST registered.  In the normal course of events, this would allow YL NZ Investments to recover GST on the purchase as a GST registered taxpayer.  But with her GST registration backdated by Inland Revenue she was now at law GST registered at the time of the sale.  YL NZ Investments could not recover GST.  It sued Ms Ling for breach of contract: the standard form agreement for sale and purchase contains a promise that GST status is correctly stated. 

Learning of the consequences of her backdated GST registration, Ms Ling sent a revised contract to YL NZ Investments eight months after the deal had been completed, seeking to reduce the sale price to $3.13 million plus GST.  The purchaser refused to sign.

The Court of Appeal ruled the standard form agreement used for sales and purchases incorporates from the Goods and Services Tax Act its definition of who is a ‘registered person’.  Ms Ling was at law a ‘registered person’ at the time she signed even though at that time she was not in fact registered under the Act; that came later and was backdated.

There were ‘swings and roundabouts’ in the back-dated registration.  While deemed to be GST registered for her sale to YL NZ Investments, Ms Ling is now also treated as GST registered for her prior purchase.

Ling v. YL NZ Investment Ltd – Court of Appeal (2.05.18)

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