Negligence: Plaza Investments v. Queenstown Lakes

Councils are responsible for damage caused by trees on their land where proper inspection would have identified rot and risk of falls with consequential damage to neighbours.  Queenstown Lakes District was ordered to pay $63,500 for damage to a motel after a 120 year old poplar tree in St Omer Park came down in January 2014 during high winds.

Queenstown Lakes denied liability for damage to Plaza Investments motel on Lake Esplanade in Queenstown, saying reasonable steps had been taken to identify the tree’s condition.  A thirty metre tall poplar tree snapped at its roots, taking out signage, several cars and leaving motel units damaged.  It was not the first poplar to fall in a Council reserve.  In 2004, a car was damaged on Lake Esplanade. In 2009, two trees fell in separate instances on Lower Shotover Road.  A person was killed.

After the three earlier tree-falls, Council had all its poplar trees inspected on a regular basis; either visually or with invasive testing.  The High Court ruled Queenstown Lakes did not carry out adequate testing in respect of the 120 year old poplar which fell on Plaza.  The last inspection of this poplar several months before the fall was a visual inspection only.  There was no invasive testing.  Fungal rot at the foot of the tree had compromised the tree’s root system, a common issue with poplar. The Council had not taken reasonable steps to identify the problem and minimize the hazard, Justice Cull ruled.  Queenstown Lakes was liable in negligence for damage caused.

Plaza Investments Ltd v. Queenstown Lakes District Council (31.07.18)

18.153

Contract: Vector v. Sunverge Energy

Rusting solar energy storage systems installed on Auckland homes led Vector to sue California supplier Sunverge Energy for US$5.2 million.

Vector installed some 215 exterior Sunverge solar units on homes in the Auckland region through 2012-2014.  Consisting of a battery, inverter and control system, Vector complains rust is allowing water to seep in creating an electrical hazard.  The High Court was told Vector had a five year exclusive distribution contract for Sunverge products in New Zealand and Australia. This contract has since expired. Vector wants US$5.2 million for the cost of 295 Sunverge units purchased together with the cost of shipping back to California units held in storage.  About 80 units remain uninstalled.  Vector says Sunverge warranted its solar energy storage system fit for purpose for a period of twelve years six months.

Sunverge argues the dispute should be heard in the US courts; that is where the goods were manufactured and where it can claim compensation from component suppliers if necessary.  Vector says their distribution contract specifies New Zealand law is the ‘proper law’ of the contract; New Zealand courts have exclusive jurisdiction.  Associate judge Smith ruled the case be heard in New Zealand.

Sunverge alleges the rusting equipment was not installed properly.  It also argues a full refund is not appropriate when not all installed units have rusted and in other cases consumers have enjoyed up to five years use.

Vector Ltd v. Sunverge Energy Inc – High Court (31.07.18)

18.155

Fraud: Waho v. Te Kohanga Reo

Maori educationalist Toni Waho can hold his head high.  Vindicated by the High Court for bringing allegations of fraud within Te Pataka Ohanga to the attention of government in 2014 he was acting within his mandate as a trustee of Te Kohanga Reo National Trust to comply with government’s ‘no surprises’ policy in Te Kohanga’s funding agreement.

A majority of trustees voted Mr Waho off the Te Kohanga Trust board alleging he had brought the Trust into disrepute by going to government behind the Trust’s back.  Justice Clark ruled Mr Waho was unlawfully dismissed.  He was awarded trustee fees lost: three years and eight months lost at some $29,900 per year.

In 2014, Te Kohanga Trust was receiving about $2.56 million per year to support retention of te reo Maori.  Wholly-owned subsidiary Te Pataka Ohanga Ltd linked the Trust and individual kohanga reo.  Allegations of financial mismanagement swirled around Te Pataka.  General manager of Te Pataka Lynda Tawhiwhirangi was under suspicion over use of her corporate credit card.  The High Court was told Ms Tawhiwhirangi in league with her husband went on the offensive, attempting to extort a settlement package totalling some $800,000 out of Te Pataka by threatening to release spending and funding issues to media.  These allegations were contained in a document which became known as ‘the Rakai list’ named after Mr Tawhiwhirangi.  Mr Waho told the High Court the Rakai list contained allegations against both the Trust and Te Pataka.  Some of the allegations were trivial, Justice Clark said, but many were serious enough to demand investigation by Te Kohanga Trust trustees.  These allegations have not been made public, other than cryptic references to ‘purchases and loans for board members’ and ‘car for the King’.

Mr Waho was disturbed that the Rakai allegations were not followed up; other Te Kohanga trustees viewed them as a sideshow in what was an employment dispute between Ms Tawhiwhirangi and Te Pataka.  He had legal advice that supressing potential criminal activity left trustees vulnerable as accessories.

In the background, accounting firm Ernst & Young was finalising a government-commissioned report into internal financial controls within the organisation.  Its enquiries were restricted to accounting information up to the end of December 2012.  A media presentation was timetabled to publicise Ernst & Young’s report. One day prior, Mr Waho sent an email to the then Minister of Education recommending a delay.  ‘Certain matters’ should be first discussed, he wrote.  He left it to the Te Kohanga trust board to provide detail.  Press releases went out with government left in the dark.  Within 24 hours there was a dramatic turnaround.  Government became aware of Mr Waho’s concerns.  A Serious Fraud Office inquiry was announced.  By June 2014, Serious Fraud announced it would not be taking any further action; no criminal offending was identified. The Te Kohanga Trust board trumpeted this news as proof Mr Waho’s serious allegations were unfounded.  Justice Clark pointed out that the Rakai allegations were not referred to Serious Fraud for investigation.  She further said Serious Fraud had been critical of failures in corporate governance by Te Pataka.  A separate Internal Affairs investigation into Te Pataka found gross mismanagement in relation to credit card use, governance and financial management, directors’ fees, koha and financial assistance loans.

Mr Waho was dumped from the Trust board by fellow trustees in November 2014, ostensibly for bringing the Trust into disrepute.  There was no factual foundation for this dismissal, Justice Clark ruled.  Mr Waho acted not only with a sense of personal integrity, she said, but in conformity with the obligation on each member of the trust board to disclose to government allegations of any serious wrongdoing at Te Pataka or the Trust.

Waho v. Te Kohanga Reo National Trust – High Court (31.07.18)

18.154

Joint Venture: Tyrion Holdings v. Infrastructure NZ Ltd

Sometime Hells Pizza franchise holder Matt Blomfield failed in his claim for damages against former business associate Paul Claydon over the winding down of their joint venture company, Infrastructure NZ.  Mr Blomfield claims Mr Claydon stole company contracts; Mr Claydon claims Mr Blomfield missappropriated company money.

A fraught relationship between the two was laid out in four days evidence before the High Court.  Infrastructure NZ Ltd was set up in 2005 to undertake roading and subdivision work.  Mr Claydon put in $48,000.  Mr Blomfield was to put in $20,000, he said.  This was disputed.  Mr Blomfield said his contribution was to be ‘sweat equity’.  An initial project at Mangawhai north of Auckland stalled when the developer ran out of money.  Work on an alternative project at Massey collapsed with no payment forthcoming.  Their contracting business was restructured.  Some $600,000 was borrowed as working capital, heavy machinery purchased and major local government contracts secured.

Evidence was given of Mr Blomfield suffering personal financial difficulties.  In late 2007 he drew down $70,000 from the company bank account without prior reference to Mr Claydon.  Six months later a further $30,000 was taken, again without Mr Claydon’s agreement.  In December 2008, Mr Blomfield intercepted a $99,000 cheque intended for Infrastructure NZ, converting it to his own use.  The bank reimbursed Infrastructure NZ.  Mr Blomfield was bankrupted in 2010.

As their business relationship deteriorated, Mr Claydon was hatching plans by mid-2008, without Mr Blomfield’s knowledge, to start a separate contracting business.  Over the following twelve months, Mr Claydon had Infrastructure NZ default on its machinery leases and then negotiated replacement leases with his new infrastructure company.  The court was told one of the heavy trucks went missing from a Raglan construction site. Mr Blomfield later admitted involvement. The truck was recovered several months later, damaged said Mr Claydon.

Through all this, Mr Claydon ensured Infrastructure NZ’s existing contracts were completed, some at a financial loss, he said.  New banking accommodation had to be arranged when Infrastructure’s bank froze facilities because of dissension between the two.

Mr Blomfield sued for damages alleging Mr Claydon’s actions in taking over company contracts and its heavy equipment damaged his fifty per cent shareholding in Infrastructure NZ.  Justice Courtney dismissed this claim.  Mr Blomfield’s shareholding in Infrastructure was through a company he then controlled: Tyrion Holdings Ltd.  Tyrion came to be a shareholder in November 2008.  This was four months after Mr Claydon began moving Infrastructure NZ assets across to his new company.  Tyrion became shareholder as replacement for another Blomfield shareholder company which was in financial difficulty; Mr Blomfield did not want to see his Infrastructure NZ investment at risk.  Justice Courtney said Mr Blomfield could not say Tyrion had suffered any loss because of Mr Claydon’s actions.  It bought in at a price and at a time when Mr Blomfield was aware of Infrastructure NZ’s financial position and Mr Claydon’s strategy of winding down Infrastructure NZ in favour of his new company.

Tyrion Holdings Ltd v. Infrastructure NZ Ltd – High Court (30.07.18)

18.152

Company: Innes-Jones v. Innes-Jones

Brother has fallen out with brother in the face of declining profitability for their Auckland marine chandlery business.  Faced with increased competition from online suppliers and new local competitors, Sailor’s Corner at Westhaven has seen annual gross revenue of over five million dollars in the 1990s reduce to $1.5 million by the 2010s.

Minority shareholder Evan Innes-Jones unsuccessfully sued brother Rex asking the High Court to order a compulsory buy-out of his 44 per cent shareholding.  The Companies Act gives rights to minority shareholders where there has been ‘minority oppression’.  Justice Jagose ruled there had been no ‘oppression’ in this case.

The court was told their business operated through two companies: Sailor’s Corner Ltd ran the chandlery business with a second company Ijay Properties Ltd owning the building, on a groundlease from Viaduct Harbour Holdings.  Over the years, income was extracted in the form of wages for time spent on the shop floor and rent paid to Ijay Properties for use of the site.  Family dynamics changed when Evan suffered a heart attack in 2003.  Rex spent more time than his brother on the shop floor, receiving a proportionately greater share of the business income.  Rental payments to Ijay Properties had varied over the years. Rental payments reduced as gross revenue declined.  By March 2013, further working capital had to be injected after Sailor’s Corner suffered trading losses.  No rental was being paid to Ijay Properties.  Evan objected.  He was dependent on this passive income through his part-ownership of Ijay.  He refused to sign off on company accounts and demanded company cheques be delivered to his home 45 minutes away when requiring his joint signature.  With family relationships becoming dysfunctional, Evan asked for a court order requiring Rex buy him out.

Justice Jagose said the business had continued to operate throughout their dispute along the same formula as previously: the two companies were treated as one with an hourly rate paid for work on the shop floor and ‘rentals’ to Ijay Properties dependent on profitability of the chandlery business.  Evan could not claim to be ‘oppressed’ when this same formula was applied after his withdrawal from day to day trading activities.  There was no evidence of any past practice giving each brother a return on their investment in priority to wages.

Innes-Jones v. Innes-Jones – High Court (27.07.18)

18.150

Family Trust: Little v. Woodside Trust

Family trust discretionary beneficiaries cannot challenge trust operations; they have no precise right to trust assets, only an ‘expectancy’ of possible future benefits.  Deidre Little was forced to bear the over $70,000 cost of failed family trust litigation forming part of a bitter matrimonial dispute.

Deidre and John Little separated in 2013 after eleven years marriage. They were then joint trustees of a family trust owning a home at Woodside Crescent in the Auckland suburb of St Heliers, a commercial property in Ellerslie and shares in a company importing children’s products. Mrs Little’s moves to have her former husband removed as trustee saw both removed by the High Court and corporate trustee Howick Trustee DL Ltd appointed as independent trustee.  A 2015 agreement following a formal process of mediation was supposed to settle all their relationship property disagreements. All assets of value were held in their family trust.  The mediation set out procedures for the trustee to divide these assets.  The High Court was told Mrs Little subsequently considered herself not bound by the mediation agreement.  She sued to have Howick Trustee DL removed as trustee.

Justice Brewer ruled she was bound by the agreement and further she had no standing to question Howick Trustee’s operation of the trust.   As a discretionary beneficiary, Mrs Little has a ‘mere expectancy’.  This is not a beneficial interest entitling her to interfere in trust operations, Justice Brewer ruled.  There is a Bill currently before parliament which will allow discretionary beneficiaries to sue, he pointed out.

Mrs Little was held liable for the costs of what Justice Brewer called wholly unnecessary litigation.  These costs are to be deducted from her share of trust assets. Howick Trustee DL had the court approve a division of trust assets with roughly $503,000 going to each of two new family trusts controlled separately by Mr and Mrs Little.  The court was told $465,000 was previously paid to each of Mr and Mrs Little following the sale of Woodside Crescent.

Little v. Woodside Trust – High Court (27.07.18)

18.151

Bankruptcy: Minter Ellison v. Hampton

Discharged from bankruptcy in July 2018, David John Hampton has been disqualified from managing any business for the next four years after the High Court reviewed his history of failures to meet tax obligations and bankruptcy disclosures.

Mr Hampton’s differences with Inland Revenue stretch back to 1994 and include various tax entities owned in part with his former wife, Ms Sissons: the Chesterfield group and a family trust, Anolbe. Mr Hampton’s major gripe is that Inland Revenue welshed on an informal arrangement in which tax liability was to be suspended while the status of various GST refunds was finalised.  He was convicted and fined for failing to file personal tax returns for four years in the 1990s.  A Chesterfield company was convicted on multiple counts of failing to file tax returns, GST returns, PAYE returns and ACC reconciliations.  Mr Hampton was convicted under the Goods and Services Tax Act of intentionally misleading Inland Revenue over a transaction value.  In turn, he is suing Inland Revenue alleging misfeasance in public office.

The High Court was told he was bankrupted in 2013 on a $105,000 debt owed law firm Minter Ellison and $1.3 million owed Inland Revenue.  Both Insolvency Service and Inland Revenue objected to Mr Hampton’s automatic discharge from bankruptcy.  Justice Venning ruled in favour of a discharge, but subject to restrictions on management of any business.

There was evidence of complicated related party transactions within the Chesterfield group described as ‘asset shuffling’ intended to defeat legal proceedings.  There were complaints about his dealings with Insolvency Service.  The court was told Mr Hampton was late in making disclosure of assets and did not provide full details.  The major asset disclosed was a Daihatsu house truck, with no identifying details sufficient to enable valuation.  He failed to disclose the existence of a property at Augusta Street in Christchurch as either a personal asset or an asset of his family trust. The existence of Augusta Street was discovered after a mortgagee sale where Mr Hampton claimed the net proceeds of $89,900. He later changed his position, stating the funds belonged to his family trust.

Mr Hampton was also criticised for not updating his address and employment status with Insolvency Service.  He told the court he had been working in remote locations, driving logging trucks.

Minter Ellison v. Hampton – High Court (26.07.18)

18.149

Property: Jokim Investments Ltd v. Sowman

Landlords owning an apartment contaminated by methamphetamine manufacture were awarded $299,000 for lost rentals and decontamination costs.

Grant Ian Sowman was held liable as tenant after police discovered a clandestine lab at a Point Ridge apartment in Albany on Auckland’s North Shore.  Sowman pleaded guilty to criminal charges.  His partner Adrienne Williams was also held liable for decontamination costs after admitting to using methamphetamine on the premises.  Jokim Investments Ltd as owner of what was described as a two bedroom 64 square metre apartment originally finished to a high standard was left to clean up the mess.  It took three and half years to remediate the property.

Sowman admitted liability, but disputed the cost. Justice Palmer said it was reasonable for Jokim to engage professional advisers and appoint a project manager to oversee the work.  Private landlords do not have the expertise to co-ordinate difficult remediations.  Damages of $260,000 were awarded for professional costs, inspections and remediation costs.  A claim for lost rentals was reduced to $38,900.  Taking three and half years to complete the project was too long; two years was reasonable.  Some of the lost rentals was covered by insurance.

The High Court was told Jokim Investments has a freezing order over property owned by Sowman at O’Shea Road on Great Barrier Island.

The Point Ridge body corporate had limited insurance cover for methamphetamine contamination.  As a general rule, tenants are excused liability where landlords have insurance cover for the loss suffered.  But this exemption does not apply where tenants cause damage intentionally or cause criminal damage punishable by imprisonment.

Jokim Investments Ltd v. Sowman – High Court (25.07.18)

18.148

Asset Forfeiture: Commissioner of Police v. Gong

While not conceding he is guilty of tax evasion, Yu Ping Gong agreed to surrender six tenanted properties having a net value of $4.9 million to settle tax claims of $1.23 million.  In a court-approved settlement under the Criminal Proceeds (Recovery) Act, he gets to keep two properties including his home at Sunnyhills in Manukau, south Auckland.

An Inland Revenue investigation identified Mr Gong and taxpayers associated with him owed tax of over $1.2 million for the five year period ending March 2016 while declaring income of only $929.  Inland Revenue threatened prosecution for tax evasion. It claims Mr Gong purchased properties now having a gross value of $9.1 million out of undeclared income.  Net equity was estimated at $7.7 million.

While denying tax evasion, Mr Gong told the High Court he wished to ‘regulate’ his tax affairs.  Inland Revenue agreed it would take no further action for alleged tax evasion.  In return, Mr Gong forfeits to government all his equity from six properties in the Auckland suburbs of Newmarket, Farm Cove, Flat Bush, Avondale, Mt Eden and Bucklands Beach.  Mr Gong gets to keep two properties having a gross value of some $2.9 million.

Inland Revenue agreed to keep confidential all evidence it collected during its tax investigation.  In tax returns, Mr Gong describes himself as a plumber.  News reports speculate Inland Revenue’s investigation into Mr Gong followed publicity attached to criminal investigations in China and Canada into activities of his brother, Xiao Hua Gong.

Commissioner of Police v. Gong – High Court (25.07.18)

18.147

Fraud: Nguyen v. Kennedy

Convicted of fraud in Australia and bankrupt in New Zealand, Rebecca Ange Kennedy was ordered to repay $653,000 stolen in a property swindle. Her mother, Youen Chen, was found liable for repayment in part; $517,130.

The property swindle centred on a nail bar in Wellington’s Cuba Street, operating as LA Nail Care Ltd.  Owned by the Nguyen family, it offered manicures and pedicures. Ms Kennedy was a customer.  She learnt the Nguyens were concerned about losing their Cuba Street lease; the landlord was selling.  Ms Kennedy proposed an arrangement in which she would act as a go-between, enabling the Nguyens to buy the property.  Over a period of five months she extracted $653,000 from them: just over $135,000 went to Ms Kennedy; some $517,000 into her mother’s bank account.  The supposed Cuba Street purchase was a con.  The Nguyens confronted her over the fraud.

Associate judge Johnston ordered repayment of the full $653,000.  Youen Chen is personally liable to repay the $517,000 she received.  Judge Johnston ruled the Nguyens could seize and sell any assets purchased with the misappropriated money.  There was evidence that Ms Chen used some of the money to purchase a property in Mewburn Rise, Karori, where Ms Kennedy has been living.

Nguyen v. Kennedy – High Court (24.07.18)

18.146

Fraud: Rapana v. R

With a history of dishonesty, Isaac Rapana was sentenced to three years four months jail for frauds against his employer totalling just over $100,000.

The High Court at Wellington was told Rapana defrauded his employer, a company producing portable buildings, multiple times through 2016.  A company credit card was used without authority on 36 separate occasions for personal expenses.  His employer was talked into making out company cheques payable to cash on the premise that Rapana would pay company accounts with a credit card earning him air points, using the cheques for reimbursement.  On multiple occasions, Rapana cashed the cheques but did not pay the company account.  After being dismissed, Rapana approached company clients and had them pay company income into his personal account after representing that he still worked for the company.  Also after his dismissal, Rapana contacted Spark impersonating his former employer to have the company’s contact number transferred to a new number.  Business calls were lost for ten days.  He also conned the company’s internet service provider into changing company password access, locking the company out of its computer system for four days.

The court was told his former employer had since gone out of business, though that was not entirely attributable to Rapana’s fraudulent conduct. He has previous convictions for fraud dating from 2012 and 2014.  This includes burglary where he retained a key from previous employment, using it to gain access to business premises stealing items.

Rapana v. R. – High Court (23.07.18)

18.145

Estate: Kawana-Mouat v. Mouat

Convicted of manslaughter six years after lying to police about the circumstances of her husband’s death, Susan Mouat was forced to surrender her inheritance; the Succession (Homicide) Act disqualifies killers from benefitting financially out of their victim’s estate.

Bruce Mouat died in July 2011, from injuries suffered when he fell drunk down steps of the family home his widow told the police. Six years later she pleaded guilty to manslaughter, having admitted to pushing him causing the fall.  Bruce died without leaving a will.  This left his widow as the sole beneficiary under the Administration Act of an estate valued at $129,700.  Stepson Laine Andrew Kawana-Mouat received $62,300 of this money in an out-of-court settlement as part of a Family Protection Act claim against his late father’s estate.

After Susan Mouat’s conviction for manslaughter, the stepson successfully challenged her entitlement to any return from her late husband’s estate.  The Succession (Homicide) Act prohibits anyone from benefitting through the unlawful killing of another.  The effect of the Act is that it is as if the criminal had in fact pre-deceased the person they killed.  Rules of succession are applied as if the killer also were dead.  Applying the Administration Act to these new circumstances: the stepson was entitled to claim from Susan Mouat half the $67,300 she had received; his half-sister (the daughter of Bruce and Susan Mouat) is entitled to the other half totalling $33,680 should she wish to claim.

The court was told Susan Mouat took absolute control of jointly owned assets valued at about $200,000 on her husband’s death. The Succession (Homicide) Act does not affect jointly owned property.  Jointly-owned property does not form part of a person’s estate on death.  Full ownership and control passes to the surviving joint owner.

Kawana-Mouat v. Mouat – High Court (17.07.18)

18.144

Trust: Ivanishvili v. Credit Suisse

Former Georgia Prime Minister Bidzina Ivanishvili was told New Zealand courts were the wrong venue for recovery of some $US125 million investment losses following frauds allegedly perpetrated by a Credit Suisse employee out of Switzerland.

Mr Ivanishvili is a French national.  He retired from Georgian politics in late 2103 after serving thirteen months as prime minister.  Reports link his business wealth to the privatisation of state assets in Russia.

The High Court was told Mr Ivanishvili’s family trust discovered significant financial losses in 2015.  Net value dropped from $US417 million to $US294 million.  There are allegations trust investments were mismanaged in some cases and stolen outright in others.  False financial information was provided to him over a period of time, Mr Ivanishvili alleges.  Assets were administered initially out of Switzerland, later out of Guernsey.  A Credit Suisse employee is currently serving a five year jail term for his role in the Ivanishvili trust.

Mr Ivanishvili is looking to hold Credit Suisse liable for his losses.  Opening shots were fired in the New Zealand courts.  In March 2014, control of Ivanishvili trust assets was switched from a Credit Suisse corporation in Canada to Credit Suisse Trust Ltd in New Zealand.  Mr Ivanishvili alleges Credit Suisse in New Zealand breached its duties as trustee: failing to properly review and monitor investments.  Credit Suisse denies liability.  It says trustee decisions were made independent of the bank.

Justice Venning ruled their legal dispute be heard in the Swiss courts.  The relevant banking records and most of the witnesses reside in Switzerland.  There are no business connections or relevant transactions involving New Zealand.  Also relevant are contractual arrangements entered into in Canada and the Bahamas.  

Mr Ivanishvili said he is prejudiced by any hearing in the Swiss courts; Swiss law does not recognise the concept of a trust as it exists in English law.

Ivanishvili v. Credit Suisse AG – High Court (17.07.18)

18.143

Charitable Trust: Friends of Auckland Art Gallery v. Auckland Art Gallery Foundation

With dwindling membership and $515,000 in the bank, Friends of Auckland Art Gallery is flying under the radar with an un-advertised de facto winding up of its charitable trust while retaining control over what will be its final bequest to Auckland’s art gallery.

A charity called the Friends of Auckland Art Gallery Acquisitions Trust is the current incarnation of an art appreciation society formed in 1954 to raise funds for the city art gallery.  In 2005, a new kid appeared on the block: the Auckland Art Gallery Foundation; another charity with similar aims.  Foundation membership now exceeds 6700; Friends has dwindled to about 500.

The High Court was told Friends decided in 2015 to wind up.  There was near unanimous support.  Only two per cent of membership voted against.  There was a legal complication.  Friends trust deed does not allow trustees to spend trust capital; art work can be purchased only out of income.  Most recent financial statements show annual income of some $19,400. Friends applied to the High Court for a Trustee Act variation to its trust deed allowing trustees to spend trust capital on art work.  The Attorney-General, who has legal responsibility for the operation of charitable trusts, said Friends should instead be restructuring with an advertised proposal to hand over its capital investments untouched to a charity with a similar purpose, such as the Foundation.  This would require public notice of Friends winding up.  Letting Friends spend its capital, contrary to the terms of its trust deed, offended against the public interest, said the Attorney General. It lacked transparency.  There would be no public advertisement of Friends proposed changes to the perpetual nature of its existence and no opportunity for objections.

Justice Toogood approved changes to Friends trust deed. It was an expedient way to wind up the Friends trust, he said.  Friends and the Foundation had already integrated their activities to a large extent. Friends’ trustees can now spend the trust capital of $515,000, deciding what art work goes to the Auckland art gallery rather than having Foundation trustees decide.  The Foundation’s endowment presently stands at $1.58 million, according to its most recent financial statements.

Friends of Auckland Art Gallery Acquisitions Trust v. Auckland Art Gallery Foundation – High Court (17.07.18)

18.142

Employment: LSG Sky Chefs v. Prasad

Status as an ‘employee’ does not require a bilateral employer/employee relationship, the Court of Appeal held, ruling staff working fulltime for airline caterer LSG Sky Chefs were LSG employees even though hired from and paid by an intermediary labour hire company.

The status of triangular labour hire contracts was in question when Kamlesh Prasad and Liutofaga Tulai claimed they were LSG Sky employees.  The two were hired by other companies, Solutions Personnel Ltd and Blue Collar Ltd, and directed to work at LSG’s in-flight catering business.  One had worked at LSG for four years, the other two.  LSG paid Personnel for staff provided; Personnel paid the individuals.

The Employment Relations Act has an open-ended definition of who is an employee:  courts are asked to look at ‘the real nature of the relationship’ and ‘consider all relevant matters’.  The Court of Appeal ruled Mr Prasad and Ms Tulai were ‘employees’ of LSG Sky.  It provided them with a work environment and work instructions.  LSG controlled their daily work activities.  There had been continuity in the work relationship for an extended period of time.  It was fanciful for Personnel to argue the two were in business on their own account as independent contractors, the Employment Court said at an earlier hearing.  The two did not issue invoices or keep business records.

LSG Sky Chefs New Zealand Ltd v. Prasad – Court of Appeal (16.07.18)

18.141.

Debt Compromise: Trends Publishing v. Advicewise People

Trend Publishing’s debt compromise is dead in the water following a Supreme Court hearing.  Manipulation of creditor classes for voting and a failure to provide adequate financial information before voting meant Trend’s Part 14 debt rescheduling scheme was fatally flawed.

Faced with allegations it put up misleading financial information in a Science and Innovation grant application, coupled with demands from Callaghan Innovation for repayment of initial grant funding of some $383,000, Trend Publishing International Ltd resorted to the Companies Act Part 14 debt rescheduling procedure to fend off creditor claims.

Part 14 allows companies to reschedule debt if approved by a majority of creditors holding 75 per cent of affected debt.  Earlier court hearings heard evidence one of Trend Publishing’s motives behind the Part 14 proposal was an attempt to silence Callaghan Innovation’s allegations.  Questions had arisen after a Deloitte investigation identified, contrary to Trend’s representations, that the business had poor liquidity and negative equity in 2014 when its grant application was made.

Trend’s Part 14 proposal offered an upfront payment of the first one thousand dollars owed each creditor, with the balance payable by instalments.  This proposal was approved by 81.25 per cent of creditors, but 75.53 per cent of votes came from ‘insider’ creditors; being debts owed to Trends management personally or to an associated company controlled by them.  Removing from the count ‘insider’ creditors would have seen the proposal approved by only 28 per cent of creditors by value.

The Supreme Court ruled the ‘insider’ creditors should have been polled separately from other creditors.  All unsecured creditors had the same legal rights, but some had a different economic interest in the outcome.  Creditors with differing economic interests should be grouped separately for voting.  ‘Insiders’ had a personal interest in seeing their company continue in business; a different perspective from unpaid outsiders.  Interests of the two groups of creditors were diametrically opposed, the Court said.  They should not have been lumped together in one group for voting.  That was a material irregularity.  Voting on the Part 14 scheme was ruled invalid.  In addition, one group of creditors should not have voted at all, the Court said.  That was creditors owed less than one thousand dollars; promised full payment by the proposal.  Their existing right to be paid immediately in full was not being altered by the scheme. Unaffected by the outcome, they should not have voted.

Two of the Supreme Court judges said there was also a material irregularity in the information provided creditors. Initially there was no financial information at all sent creditors prior to the vote.  In response to creditor requests, a one page summary was provided two days prior to voting.  It did not provide adequate information about the proposal’s effect.  In particular, it provided no detail of the ‘fresh capital’ promised should the proposal be approved.  Creditors later learnt this amounted to a mere $50,000 put up by an unidentified business friend of Trends co-founder and director David Johnson.

Trends Publishing International v. Advicewise People – Supreme Court (16.07.18)

18.140

Telecoms: Spark v. Clearspan Property

Telcos are getting nervous about Clearspan Property taking control of multiple cellphone tower sites giving it greater negotiating leverage over site rentals.  In a test case, the High Court rejected Spark complaints that site purchases amounted to ‘subdivisions’ in breach of resource management legislation.

Clearspan Property Ltd is a consortium of private investors.  Bryan Mogridge is one of two directors and a minority shareholder.  Majority interest lies with fellow director Mark Wheeler of Wheeler Property Holdings.  The Court of Appeal was told Clearspan has been on an acquisition trail; buying up sites holding cellphone towers.  Typically, telecoms companies build their towers on other people’s land, taking a lease of the small piece of land where a tower is situated.     

With some deft legal footwork, Clearspan is achieving a de facto subdivision of land where towers are sited while avoiding the legal definition of a ‘subdivision’ as defined in the Resource Management Act.

In the test case before the court, Clearspan purchased a 5.25 per cent stake in a commercial property in the Auckland suburb of Mt Roskill.  That saw Clearspan as owner of an undivided share of the entire property.  A Spark cellphone tower sits at the back.  Spark has a lease over the cellphone site only; amounting to 42 square metres of the total 809 square metre property.  In an arrangement with its fellow owner, two land titles were issued: Clearspan has title to a 42 square metre lot where the cellphone tower is situated with rights as against its joint owner to exclusive possession over this 42 square metres; its joint owner has title to the remaining 767 square metres and similar rights of exclusive possession.  At law, Clearspan and its joint owner remain owners of the entire Mt Roskill site by agreed proportions, but have agreed each has exclusive possession of defined areas.  This is not a ‘subdivision’ the Court of Appeal ruled.

Spark New Zealand Ltd v. Clearspan Property Assets Ltd – Court of Appeal (13.07.18)

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Copyright: Sealegs International v. Zhang

Amphibious boat supplier Sealegs is chasing across the seven seas those rivals copying its unique system of using retractable legs enabling boats to be driven in and out of the sea.  It took action against former employees, Chinese investors and a local boat manufacturer who thought they were cleverly skirting round Sealeg’s patents, only to be caught by copyright law protecting ‘artistic works’.    

The High Court issued a permanent injunction stopping former employees Darren Leybourne, and Vladan Zubcic together with Chinese investor Yun Zhang from manufacturing and selling products similar to Sealegs under their Orion brand.  The injunction also extends to local company Smuggler Marine Ltd which used Orion products. All have to account for profits made using the copied design and hand over for destruction all copies manufactured.

Mr Leybourne was employed by Sealegs for seven years, leaving in 2011.  With considerable expertise in hydraulics, he rose through the ranks becoming project manager.  The High Court was told he left Sealegs in frustration over production inefficiencies and annoyance at a new corporate structure which altered management reporting lines.  Mr Zubcic worked at Sealegs as a mechanical and design engineer.  He joined Mr Leybourne in 2013 at new company Orion Marine Ltd.  Orion was registered in 2012.  It was funded by Chinese investor Yun Zhang with the backing of family interests in China. Mr Zhang had lived in New Zealand with the Leybournes on a homestay basis for five years whilst on a student visa. He became a permanent resident in 2017.

Initially, Sealegs and Orion enjoyed a collaborative working relationship.  Sealegs contracted out work to Orion on new prototypes.  Evidence was given of growing suspicion by Sealegs that Orion was setting up in competition.  An Orion amphibious craft for use in flood rescue equipped with retractable legs was on display at the 2014 Shanghai boat show.  Auckland-based Smuggler Marine had been previously fitting the Sealeg system to its craft, having sold fifteen units prior to 2015.  Then it switched to an Orion product, telling the High Court Sealegs was ‘a challenge to work with’.  All along, Mr Leybourne emphasised in his contact with Sealegs that the way forward was to work together collaboratively.  He offered Sealegs a ‘no fight fee’: without conceding its product was in breach of Sealeg’s intellectual property rights it would pay a fee of $5000 to Sealegs on each Orion product sold until either 100 units were sold or Sealeg’s patent expired, whichever came first.

In the High Court, Justice Davison said Orion’s legal focus was on any potential breach of Sealeg’s patent.  Its patent specification emphasised use of the retracted front wheel as a bumper sitting at the bow, providing protection from contact with a wharf or other craft.  Orion was confident its use of a cowling over a retracted front wheel was sufficient to circumvent the patent.  Orion failed to appreciate its substantial copying of the Sealegs product was a breach of copyright.  Its product was a copy of and directly derived from the Sealegs system, Justice Davison ruled.  Sealeg’s product was protected as an ‘artistic work’ under the Copyright Act. There is no registration requirement for copyright.  Copyright applies automatically to original works.

Sealegs International Ltd v. Zhang – High Court (12.07.18)

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Arbitration: Openyd Ltd v. GJ Lawrence Dental Ltd

It is open warfare at Raumati Dental Centre in Paraparaumu as the new lock horns with the old.  Rudayna Ibrahim and Hayder Al-Sabak have joined forces in an attempt to oust from the Dental Centre dentist Gary Lawrence who has been operating in Raumati Beach for over 35 years. 

In three separate court proceedings over the last few months each side had chased a quick legal solution.  In each case, the court has ordered a stay of proceedings telling the warring parties to go to arbitration.

In the latest round, Mr Ibrahim sought a court order to force Mr Lawrence out of the building.  Eviction would leave Mr Lawrence with no practice, no income and no ability to treat patients.

The High Court was told the premises are owned by Mr Lawrence’s family trust.  The trust leases the premises to Openyd Ltd; a holding company which provides an administrative structure for the group dental practice.  Previously, Openyd shareholding was divided equally between the three dentists. Mr Lawrence tried to sell, but could not find a buyer.  Through 2017 there was a falling out.  Mr Al-Sabak gave Mr Ibrahim voting power over his shares.  Things moved rapidly.  Mr Lawrence was removed as director with Mr Ibrahim’s son installed in his place.  Mr Lawrence asked the High Court have a receiver put in control of Openyd and he applied to have Openyd put into liquidation.

Each of the three dentists is party to a Deed of Association.  It sets out the rules, as between themselves, for the operation of the dental practice. Mr Lawrence says his failure to find a buyer triggers a clause in their Deed bringing their association to an end. The Deed also has an arbitration clause: all disputes about the meaning or operation of the Deed must go to arbitration.  Mr Ibrahim says the arbitration clause does not apply to arguments about rights of occupation.  Openyd is the tenant.  Each dentist has a sub-tenancy from Openyd which can be terminated by Openyd at will. Openyd has given notice, he said. Mr Lawrence should go.  Justice Cooke ordered a stay of eviction.  Arbitration comes first.  Then the issue of eviction can be considered in the light of an arbitrator’s ruling over the status of their Deed of Association.

Openyd Ltd v. GJ Lawrence Dental Ltd – High Court (3.07.18)

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Debt: Heyward Holdings Ltd v. Booth

Maitland Booth, former director of Heyward Holdings Ltd (now in liquidation) has been ordered to pay $566,940 to his former company.  The High Court dismissed arguments that personal expenses charged to the company were not his but were expenses incurred by a family trust.

Heyward Holdings was used to hold land for development in Dunedin.  A family trust associated with Mr Booth was the sole shareholder.  In 2016, the trust sold out its interest in Heyward Holdings. The company slipped into liquidation months later.  Tracking back through Heyward Holdings financial statements, the liquidator discovered a debt showing in the 2014 financial statements having Mr Booth owing his company $566,940.  This debt magically disappeared in the 2015 financials with Mr Booth now owing nothing and his family trust owing more to Heyward Holdings.  Mr Booth said there had been an accounting error.  The debt was never his, it was a debt of the family trust.  The error was corrected, he said, by ‘assigning’ the debt across to his family trust.

In the High Court, Associate judge Matthews said a debtor cannot ‘assign’ a debt.  For a debtor, a debt is a liability, not an asset.  Judge Mathews further ruled the financial statements did not need ‘correction’. The Heyward Holdings credit in favour of Mr Booth arose from personal expenses being charged to the company: payments for phone and power, food, dental expenses, parking fines, Ministry of Justice fines, car expenses plus cash advances.  There was no evidence of Mr Booth being a beneficiary of his family trust such that the trust could be assuming responsibility for these personal debts.

Heyward Holdings Ltd v. Booth – High Court (3.07.18)

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Director: Clarke v. Registrar of Companies

A seven-year ban for director of failed property developer Valiant Homes Ltd, Hamish James Clarke, was upheld by the High Court.

Valiant Homes was put into receivership and liquidation in 2015.  Valiant, together with four associated companies, owe Inland Revenue $1.1 million with some $904,000 of that being GST unpaid.  Using its Companies Act administrative powers, the Companies Office banned Mr Clarke from acting as a company director for seven years starting August 2017.  The maximum period for banning orders was doubled to ten years following a law change effective 2014.

Mr Clarke appealed.  He said seven years was punitive.  It should be reduced.  The purpose of banning orders is protection of the public.  A seven-year ban was not manifestly excessive, Justice van Bohemen ruled.  The court was told Valiant Homes suffered a cash flow crisis.  It used Inland Revenue as a bank; delaying payment of GST because penalties for late payment were less than the default interest payable to other creditors for late payment.  The Companies Office said Mr Clarke either mismanaged his company or was fundamentally ignorant of what is required of a company director.  It said Mr Clarke failed to keep proper accounting records for Valiant. There were doubts about Mr Clarke’s claim that company records were destroyed when its office was ransacked by unpaid creditors after Valiant’s liquidation became public knowledge.  There was no complaint to the police about any alleged break-in.  Companies Office also said Mr Clarke has failed to co-operate with his companies’ liquidators. 

Mr Clarke was bankrupted in July 2016.  His ban from acting as a company director runs on for five years beyond any automatic three-year discharge from bankruptcy.

Clarke v. Registrar of Companies – High Court (2.07.18)

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