Defamation: Hyung Soo Lee v. Yong Woo Lee

Ructions within Auckland’s Korean community continue with journalist Steve Lee, owner of weekly Korean-language newspaper The New Zealand Sunday Times, ordered to pay $150,000 damages for defaming local identity Henry Lee over motives behind a rescue operation mounted to finance purchase of a building in Argus Place, Glenfield, for use as a Korean cultural centre.

A 2015 investigation by Internal Affairs censured the Korean Society of Auckland Incorporated for breaching its own rules by raising a loan to buy the cultural centre without first getting the required two-thirds majority approval at a meeting of members and for abusing its charitable status by funding golfer Lydia Ko.  Charity funding is to be used for society generally, not channelled to individuals.

The Korean Society signed up to buy Argus Place in 2013 for $1.5 million.  The Korean government agreed to commit $150,000, payable once at least $750,000 has been raised for the purchase.  With settlement date looming, there were serious concerns about loss of face when fundraising looked to be some $423,000 short.  The High Court was told committee member Sung Hyuk Kim came to the rescue, on conditions.  His advance of $423,000 would be interest free for two months; then two further members, one being Mr Henry Lee, would compensate him for any shortfall not covered by further fundraising such that between them each would bear one third of the deficiency.  The fundraising deal was not made public.  Mr Kim was to later sue Mr Henry Lee for his promised contribution.

The High Court was told Mr Steve Lee printed in a March 2015 edition of The New Zealand Sunday Times a detailed editorial condemning the deal.  He alleged Mr Henry Lee was neither honest nor honourable in his conduct, was deceptive and was attempting to ‘privatise’ the cultural centre to avoid paying Mr Kim.  Writing in Korean, he described the fundraising agreement as ‘yi-myin-gye-yak’. Translated directly, it means ‘hidden contract’.  In the context of the editorial, Justice van Bohemen ruled the term had negative connotations of ‘back-door deal’, under the table agreement’ and ‘secret deal’.  Use of the term in The New Zealand Sunday Times, coupled with the headline, had connotations of shamefulness and untoward secretiveness cast in pejorative and sensational terms, His Honour said.  There was nothing shameful or inappropriate in three committee members entering into a private agreement to cover the fundraising shortfall, he said. The arrangement was kept private so as not to discourage further fundraising.  Mr Steve Lee’s claimed defences of truth and honest opinion were dismissed. A further defence of ‘public interest communication’ was also dismissed.  This covers publication of material of significant public concern, but requires responsibility in the reporting.  Funding for the Korean cultural centre purchase was a matter of public interest, Justice van Bohemen ruled.  Failure to first interview Mr Henry Lee, seeking comment on the allegations challenging his integrity counted against Mr Steve Lee’s claim to a public interest defence.

The High Court was told Mr Henry Lee also sued Mr Kim for defamation after Mr Kim sued to recover payment promised under the fundraising agreement.  This defamation claim was subsequently withdrawn.

Hyung Soo Lee v. Yong Woo Lee – High Court (30.11.18)

19.016

Asset Forfeiture: Commissioner of Police v. Harris

Land, vehicles and farm equipment valued at $263,800 were seized from Brent Craig Harris as proceeds of crime.

Harris was arrested in September 2018, driving a stolen Toyota Hilux.  He has 23 convictions for receiving since 2007.  Police allege he was part of a methamphetamine ring.  Justice Clark ordered forfeiture of assets in his possession under the Criminal Proceeds (Recovery) Act saying on the balance of probabilities Harris has been involved in significant criminal activity as evidenced by unexplained levels of wealth given his declared income for the three years prior to arrest.  Total legitimate funds Harris and his partner Jamie Lee Reader had access to during this period was some $28,000.

The High Court was told of police intercepting text messages between Harris and Ms Reader in which Harris offered to buy her a house or motorhome and further text messages in which he accused her of stealing cash and drugs from him.  Harris’ house at Matokitoki Valley Road, near Gisborne, was destroyed by fire in suspicious circumstances.  Equipment and chemicals used for cooking meth were found at the site together with traces of methamphetamine.  A person using a vehicle in Harris’ possession had been seen in Opotiki buying equipment that can be used for cooking meth.   Police had linked Harris to a property in Te Waiti Road, near Opotiki, where a drug search uncovered methamphetamine, cannabis and cash. Texts from Harris to occupants of Te Waiti Road indicated he was imposing a ‘tax’ as compensation for what police had seized.

Justice Clark ordered seizure and sale of 2.55 hectares of land at 354 Matokitiki Valley Road, Gisborne, along with: a Ford utility and Toyota Hilux; a Honda trail bike; three quad bikes; generators and $6500 cash.  Harris did not contest the forfeiture order.

Commissioner of Police v. Harris – High Court (30.11.18)

19.015

Power Supply: Vector v. Utilities Dispute Commissioner

An October 2014 fire at a Vector electricity substation in Auckland caused a three day outage across the city’s eastern suburbs with consumer losses estimated at between $47 million and $72 million.  Damages totalling nearly $300,000 awarded to three consumers by the Utilities Dispute Commissioner were quashed by the High Court; lines companies like Vector are under no obligation to provide a continuous power supply.

The fire started in a Vector cable following a power arc across a cable joint.  The cable lay in an open trench, alongside 37 other supply cables.  Open to the air, with a plentiful supply of oxygen, the fire quickly spread throughout the trench leading to a comprehensive power outage. Food retailers Progressive Enterprises Ltd and Wendco (NZ) Ltd together with cool store operator Americold NZ Ltd claimed through the Utilities Disputes Commissioner against lines company Vector Ltd for their losses: stock losses and generator hire.  This disputes procedure is intended as a relatively quick and informal process to settle claims against utilities.  Claims are limited to $50,000, unless the utility agrees to a higher limit.  Progressive made multiple claims, one for each of its seven retail stores and its separate meat plant, all affected by the outage.

When awarding damages, the Commissioner decided Vector owed a duty of care in tort to consumers and was in breach of this duty. This decision was quashed by the High Court.  The Commissioner had misunderstood the law when reaching her decision; there is no common law rule that lines companies owe customers a duty to provide a continuous supply of power.  Justice Courtney declined to rule on whether such a duty should exist, since the High Court was being asked simply to rule whether the Commissioner had correctly applied the law as it stands.  Her Honour ruled that any potential liability owed by power distributors such as Vector to end consumers is further limited by the terms of retailers’ supply contracts with their customers.  Distributors provide power to retailers. Retailers’ supply contracts with consumers typically include terms limiting not only their own liability, but also lines company’ liability.  With this clause in retailers’ supply contracts described as being for the benefit of and enforceable by lines companies, a line company can claim the benefit of liability limitations in retail consumers’ contracts despite not being a party to the contract.  The traditional rule that only parties to a contract can claim the benefit of the contract was changed by the Contracts (Privity) Act.

Vector Ltd v. Utilities Disputes Commissioner – High Court (28.11.18)

19.014

Family Trust: Sunde v. Sunde

Stubborn resistance blocking beneficiary entitlement to payment from a family trust had its consequences; Kevin Sunde as a trustee of the LeRoy Family Trust was ordered to pay personally legal costs that followed.    

The LeRoy Trust was established in 2005 at the initiative of two brothers: Roy and Leo Sunde.  It owns properties in the Auckland suburbs of Oratia, New Lynn and Royal Oak.  Family members transferred these properties to the Trust, receiving in return acknowledgement of a debt owing for the value of each property.  When in 2018 several family members triggered demand for repayment of $2.5 million owed them, Kevin Sunde as one of the trustees dug in his heels. He argued capital should be preserved for the benefit of Sunde grandchildren, not paid out to his Sunde siblings and their mother.  He also questioned the need for repayment of another $2.85 million demanded on behalf of another relative, Leo Sunde.  The High Court was told Leo, aged 91 and now mentally incapable, lives in a retirement village with his financial affairs managed by a relative holding an enduring power of attorney.

With Kevin the only trustee not agreeing to pay the total demanded of $5.35 million, family members sued in the High Court seeking summary judgment on their contractual right to payment.  The LeRoy Trust was described as dysfunctional.  Demands for payment and Kevin’s intransigence are coloured by a long-running family dispute.  In the end, Kevin abandoned his claimed defences to all but Leo’s demand for prepayment.  At a subsequent costs hearing, Kevin was ordered to contribute to family members’ legal costs and further was refused permission as trustee to recover his own legal costs from assets of the LeRoy Trust.  The legal position was clear, Justice Downs said.  There was no merit in his objections to payment claimed by relatives suing for $2.5 million.

Kevin’s only potentially valid legal defence to non-payment concerned repayment of $2.85 million demanded on behalf of Leo. Kevin alleges repayment is not for Leo’s benefit, but for the benefit of the family member holding Leo’s enduring power of attorney.  If so, payment is potentially unlawful and in breach of the Protection of Personal and Property Rights Act.  The relative in question disputes the allegation.  At a summary judgment hearing, Associate judge Andrew said judgment in favour of Leo for his claimed $2.85 million would be entered in five months if the family has not sorted out its differences within that time.

Sunde v. Sunde – High Court (29.10.18 & 27.11.18)

19.013

Post judgment note: Kevin's appeal against personal liability for legal costs was declined.  Leo Sunde died in May 2019.  The High Court subsequently ordered payment of $3.02 million by the LeRoy Trust to Leo's estate: the original debt owed Leo plus interest.

Injunction: Medtech Ltd v. Midlands Health Network

Patient care at Midlands Health Network was disrupted when management was served with a High Court injunction. Software supplier Medtech Ltd alleges its proprietary health management product has been unlawfully passed on to competitors.

Primary health care providers across Midland region use Medtech’s web-based product for practice management support.  Pinnacle was established by doctors as a not-for-profit business hosting their IT requirements.  Pinnacle is licensed to use Medtech’s software.  The licence is not transferable.  Pinnacle is required to prevent the software from being accessed or copied.

The High Court was told a routine email request from Pinnacle to Medtech for an updated licence key allowing continued access had attached to it an unrelated email trail identifying that Pinnacle staff had shared without authority a previous licence key with a company called Valentia Technologies (NZ) Ltd.  This company has a cosmopolitan air about it.  Directors reside variously in Pakistan, Ireland and South Australia.

Justice Whata said the email is sufficient evidence to support a serious case of conspiracy to unlawfully use Medtech software. An injunction, pending trial, was issued against Midlands Health Network, Pinnacle and Valentia.  They must preserve all emails, files and documents relating to use of Medtech’s software.  Justice Whata said any hint of evidence being destroyed would result in the companies’ directors being in contempt of court.

Medtech Ltd v. Midlands Health Network Ltd – High Court (27.11.18)

19.012

Relationship Property: M. v. H.

Agreements between de facto couples made before a 2001 law change bringing de facto relationships into the regime mandating a 50/50 split of relationship property are enforceable even when the couple later marry, and then separate.  Subsequent marriage by a de facto couple does not nullify their prior property agreement.

The Court of Appeal ruled a former spouse was entitled to share in one million dollars held in term deposits generated by her former husband’s practice as a barrister.  In court proceedings the two were identified only as M and H.

The court was told they signed a property sharing agreement in June 2000, when in a de facto relationship.  The agreement set out what was to be treated as relationship property; what was separate property.  Detailed provisions specified re-characterisation in future of separate property as relationship assets.  This included a progressive reallocation of rights in their primary residence over time: the wife was entitled to a 15 per cent share in the first year; stepping up over subsequent anniversaries to a 50/50 split after three years.  They married in 2008, eight years after signing their property sharing agreement, and then separated in 2014, six years later.

Validity of the prior June 2000 agreement was challenged. The Court of Appeal ruled legislation bringing de facto relationships into the existing 50/50 matrimonial property regime expressly preserved prior agreements between de facto couples.  The June 2000 agreement between M and H was enforceable according to its terms.  In dispute was one million dollars in term deposits held as part of the barrister’s finances.  Their June 2000 agreement specifically stated his law practice remained separate property. The funds were part of his business, generated from his work as a barrister and held to meet business debts, he said.  The court was told his income net of tax for the 2012 tax year was $430,000.  The one million dollars were not part of his business, the Court of Appeal ruled.  They were not needed to meet business debts, as evidenced by the barrister in fact using the money to buy a house after the couple separated.  If the barrister were to have sold his law practice, the one million dollars in term deposits would not be sold as a business asset.  The term deposits fell to be divided 50/50 as relationship property under their June 2000 agreement.

M. v. H. – Court of Appeal (26.11.18)

19.011

Price Fixing: Commerce Commission v. Lodge Real Estate & Monarch Real Estate

Waikato real estate agents Lodge Real Estate and Monarch Real Estate have been found liable for price fixing after a Commerce Commission appeal.  Lodge’s Jeremy O’Rourke and Monarch’s Brian King also face personal liability for fines yet to be imposed by the High Court. 

Commerce Commission prosecutions against all four foundered in the High Court when the trial judge ruled there was no firm agreement to fix prices for vendors listing and selling.  This was overturned in the Court of Appeal.  At trial in the High Court, rival firms Success Realty, Lugton’s and Online Realty ‘fessed up to price fixing and then gave evidence against competitors Lodge and Monarch.  Fines for anti-competitive behaviour are routinely reduced for pleading guilty and assisting Commerce Commission prosecutions.  Fines recently against real estate firms admitting price fixing have run to the millions.

Commerce Commission intervention followed industry response to price changes in 2013 by Trade Me for real estate listings. Lodge’s annual Trade Me listing costs of $8000-$9000 were set to jump to $200,000-$220,000; Monarch’s $36,000 to nearly $225,000.  Horrified, representatives from Hamilton agencies met, agreeing to a common response: the cost of a Trade Me listing previously carried by agencies would be shifted to individual vendors.  Those real estate agents proved to have agreed were liable for price-fixing: having entered into ‘an arrangement or understanding’ having the effect of reducing price competition; in breach of the Commerce Act.

At their High Court trial, Lodge Real Estate and Monarch Real Estate argued there was no firm agreement with fellow agents in the Hamilton region.  They had met to discuss the issue, but each firm was given wriggle-room; specific deals could be struck with individual clients.

The Court of Appeal said there was clearly ‘an arrangement’: those attending the meeting agreed they would withdraw their standard listings from Trade Me, with subsequent listings to be vendor-funded. It was enough that those in attendance had a mutual expectation that all would follow this policy.  Each knew that unless everyone shifted to vendor-funding there was a risk listings would be lost.  While it was open for individual agents to make exceptions for specific clients in certain cases, that did not negate the fact price-fixing was agreed.

There is a distinction, said the Court of Appeal, between parallel conduct by competitors where their prices are set independently (but competitive pressure results in similar price and quality offerings) and agreements to act in the future in an anti-competitive manner.

Commerce Commission v. Lodge Real Estate Ltd & Monarch Real Estate Ltd – Court of Appeal (23.11.18)

19.010

Relationship Property: Kidd v. Russell

It was ‘repugnant to justice’ and ‘completely unfair’ Justice Grice ruled for Tony Kidd to receive a 50/50 split of relationship property when he brought no property of value into a six year relationship.  He was awarded thirty per cent of the net equity in the home owned by his former partner.   

The default rule in the Property (Relationship) Act is that relationship property is split 50/50 should partners separate.  Departures from this rule require proof equal division would be repugnant to justice or completely unfair.

Mr Kidd moved into Ms Russell’s Waitara home in late 2010.  She had purchased the home months previously with proceeds of a relationship property settlement at the end of her previous 25 year marriage.  It was second time round for both.  He contributed no assets to their new relationship beyond some furniture, his work tools and a work vehicle.  The court was told Mr Kidd was committed to paying $1040 per year to settle a debt after his 2008 conviction and imprisonment for a $38,000 fraud.  Their relationship came to an end after nearly six years.  Improvements had been made by Mr Kidd to the Waitara home with the benefit of a bank loan. The only additional assets purchased were replacement motor vehicles; depreciating assets.  The Waitara home was the only relationship asset of any value.  They had no children; Ms Russell has two from her earlier relationship. 

At the end of their relationship, Mr Kidd was described as being well on the way towards rebuilding his future wealth: he had a job and steady salary; an upgraded vehicle; a relationship claim against the family home and the benefit of not having to pay rent as had been the case before their relationship.  By contrast, Ms Russell was economically disadvantaged: her earlier relationship property payout put into buying a home was now diluted by Mr Kidd’s claim forcing a sale of the property; she worked part-time as an unskilled worker.

Justice Grice ruled the $139,300 net proceeds from sale of the home be split thirty per cent to Mr Kidd: seventy per cent to Ms Russell.

Kidd v. Russell – High Court (22.11.18)

19.009

Fisheries: Sajo Oyang Corp v. Primary Industries

Already facing criticism for failures to prosecute illegal dumping of quota fish, Primary Industries wound up legal action against South Korean Sajo Oyang Corporation for fishing offences in 2014 with a behind closed doors settlement and disclosure in court of the fact of a settlement, but not its terms.

Primary Industries attempts to control management of fisheries with a quota management system.  This converts a public resource (fish stocks) into a private right (permission to take a specified type and quantity of fish).  Enforcement is a nightmare.  With up to one hundred vessels fishing each year within New Zealand’s exclusive economic zone, monitoring of catch is problematic.  A 2016 University of Auckland Business School report identified levels of catch were being misreported; unwanted species were illegally dumped at sea so captains could load and report only higher grade higher value species.  There had been fewer than ten prosecutions.  A subsequent report by lawyer Michael Heron QC was critical of Primary Industries failure to come to grips with the problem of illegal dumping.

Against this background, Korean vessels Oyang 75 and Oyang 77 had been seized in 2014 for illegal dumping.  Ships’ officers were convicted and fined in total some $650,000. Evidence was given that 405 tonnes of quota fish were dumped off Oyang 75, a lesser amount off Oyang 77.

The question of penalties to be imposed on shipowners Sajo Oyang Corporation dragged on, punctuated by a series of appeals through to the Supreme Court and disputes over crew entitlements to payment. In the interim, the two vessels were released after a cash bond was lodged with Primary Industries.  The High Court was told settlement of all claims had been agreed.  Terms were confidential.  The monetary penalty suffered by Sajo Oyang was not disclosed.

Sajo Oyang Corporation v. Primary Industries – High Court (22.11.18)

19.008

Charity: re Marianne Caughey Rest Homes Trust Board

Auckland’s Caughey Smith-Preston Charitable Trust providing care facilities for the aged has been run out of business by increased costs and private sector competition but is stuck with its traditional residential care model.  The High Court ruled it would be a breach of Marianne Caughey Preston’s bequest to change the Trust’s activity. 

Born in Ireland, Marianne died at Auckland in 1938 aged 87.  She left a bequest creating a charitable trust valued at some $40 million dollars in today’s terms for care of the aged: cash, extensive property holdings and her shareholding in Auckland’s iconic department store Smith and Caughey. During her life, Marianne established and helped run charitable organisations helping poor of the city, particularly women. This at a time when there was no equivalent of contemporary taxpayer-funded social welfare.

The Trust’s most recent financial statements disclose a net worth of $48.6 million.  Its major asset, a rest home and geriatric hospital on Remuera’s Upland Road in Auckland’s eastern suburbs, lies empty.  The High Court was told Upland Road has incurred operating deficits since 1990.  First constructed in the 1950s, with subsequent extensions, Upland Road cannot bear the additional costs now demanded by government for funding as a service providing hospital, palliative care and dementia services.  Consumer preference is for aged-care facilities in the for-profit sector.  The Trust, with its dated facilities, cannot compete.  The Trust decided in 2017 to close Upland Road after recording a $3.76 million deficit for the preceding year.

With plans to sell Upland Road, the Trust asked the High Court if it could move out of residential care, instead providing ‘outdoor relief’ as practised by Marianne in her lifetime.  Marianne was prominent in supporting non-residential, community-based, care for Auckland’s elderly: money, food, clothing and other means of support and care.

Justice Fitzgerald ruled the plain terms of the Trust created by her will and its overall scheme are for the provision of residential care.  Marianne’s will states that if terms of the Trust cannot be fulfilled then then it is to be wound up and assets handed over to Auckland hospital ‘for relief of the aged and infirm’.

re Marianne Caughey Smith-Preston Memorial Rest Homes Trust Board – High Court (20.11.18)

19.007

Bankruptcy: Body Corporate 68792 v. Memelink

Described as a habitual debtor who disputes apparently valid claims then commonly pays at the last minute when there is no other option open to him, Wellington-based Harry Memelink lived to fight another day when the Court of Appeal declined to bankrupt him on unpaid body corporate levies.

The court was told of Mr Memelink’s commercial behaviour evidenced by a string of debt collection actions brought against him: the fact of the debt and/or the amount due would be disputed; when found liable he would delay enforcement by making last minute promises to pay, often failing to fully honour these undertakings.  Attempts to bankrupt Mr Memelink for non-payment would see a continuation of the cycle: bankruptcy proceedings would be adjourned on promises to pay.

Debts before the Court of Appeal concerned unpaid body corporate levies claimed by two separate bodies corporate: one for $124,700; the other $97,600.  Mr Memelink disputes the amount due.  He has made some part payments.  Evidence was given of Mr Memelink failing to pay ongoing body corporate levies as ordered by a bankruptcy judge, delaying the filing of claimed legal defences to the disputed debts and further failing to fully disclose his net worth.

Bankruptcy proceedings are designed to deal with insolvency, not debt collection.  The Court of Appeal said Mr Memelink is someone who is unwilling, rather than unable to pay his debts.  It declined to bankrupt Mr Memelink on the claimed body corporate debts.    

Mr Memelink was bankrupted in August 2018 on debts totalling $121,900 owed Lower Hutt law firm Collins & May Law for unpaid court costs.  His bankruptcy is on hold.  Mr Memelink has applied to have this bankruptcy annulled.

Body Corporate 68792 v. Memelink – Court of Appeal (19.11.18)

19.004

Real Estate: Harcourts Group v. Grewal

Harcourts Real Estate pumped $1.01 million into failed south Auckland Harcourts franchise Preet & Co to cover shortfalls in its trust account.  Preet director Gurpreet Grewal was ordered to honour his guarantee of repayment.

Real estate business Preet & Co hit the news for all the wrong reasons in late 2017 with details of shortfalls in its trust account.  Harcourts moved fast to protect its name as franchise owner.  The extent of deficiencies in client money at Preet & Co was identified, funds advanced to cover the shortfall and Mr Grewal required to guarantee repayment.  Harcourts took control of Preet & Co’s trust account.  After signing guarantees covering the funds advanced by Harcourts, Mr Grewal later disputed liability.  He had been misled when signing, he said.  Harcourts had failed to deliver on its promised ‘continued support’, he complained.  It is a stretch to say ‘continued support’ meant Harcourts could not do anything Mr Grewal might disagree with, Associate judge Bell said.  Given that Preet & Co was hopelessly insolvent and that further financing from any source would require his signature as guarantor, Mr Grewal could not object to Harcourt’s demand he sign.  In any event, Harcourt’s standard franchise agreement signed earlier by Mr Grewal committed him to reimbursing Harcourts for any payments made on behalf of Preet & Co.  Mr Grewal was held liable to repay the guaranteed $1.01 million loan with interest running at ten per cent.

Summary judgment for franchise fees of $259,700 allegedly owing to Harcourts was refused.  Detailed accounting evidence is required at a full trial.  The Harcourts franchise agreement required payment of franchise fees by Preet & Co calculated at eight per cent of its gross income.

Harcourts Group Ltd v. Grewal – High Court (19.11.18)

19.006

Injunction: Autoterminal NZ v. IBC Japan Ltd

Autoterminal was refused an interim injunction blocking Hohua Hemi from supplying Japanese used car imports for 2 Cheap Cars, allegedly in breach of agreements to have Autoterminal New Zealand Ltd as sole importer.

Robert Stone controls Autoterminal; Mr Hemi, Japanese supplier IBC Japan Ltd.  Both companies form part of a joint venture in the used car trade the two have operated for over twenty years.  Business is not running smoothly.  Litigation between the two is under way in several jurisdictions around the world.

In the New Zealand courts, Mr Stone alleges Mr Hemi is cutting him out by supplying car dealers directly, without importing through Autoterminal.  He alleges Mr Hemi is breaching a July 2014 ‘vehicle supply agreement’ between IBC Japan and Autoterminal and also in breach of two supplementary agreements dated 2016 and 2017.  Mr Hemi disputes the existence of the 2016 and 2017 agreements.  He doesn’t have copies.  Mr Stone has only hard copies.  There is no email trail identifying pre-contract negotiations.  The supplementary agreements between Autoterminal and IBC Japan were allegedly signed at a time when Mr Stone was in control of both companies.  Mr Stone says digital copies of the contracts were lost when a business laptop and backup, both held by a business associate, were stolen.  Mr Hemi points out that if the supplementary agreements were created using Google Docs, as alleged, then copies should be available on the web.

Justice Woolford said he did not have to decide whether the supplementary agreements did exist; no interim injunction would be granted to enforce them.  If proved to exist and to be breached, damages would be an adequate remedy.  IBC Japan is in a position to pay damages. It is currently owed at least $40 million by Autoterminal.  Payments to IBC Japan by Autoterminal do not fall due until customers pay Autoterminal.

Justice Woolford also raised questions about enforceability of the disputed 2016 and 2017 supplementary agreements.  They appear to have the effect of substantially reducing competition, in breach of the Commerce Act, he said.

Autoterminal New Zealand Ltd v. IBC Japan Ltd – High Court (19.11.18)

19.005

CBL: Reserve Bank v. CBL Insurance Ltd

CBL Insurance directors’ Peter Harris and Alistair Hutchison were described by Justice Courtney as lacking commercial probity, manipulating information provided to the Reserve Bank as insurance regulator.  

CBL Insurance was a licensed insurer with barely one per cent of cover written on New Zealand risks.  Most of its exposure was as reinsurer of builders’ warranty insurance in France.  Concern about CBL Insurance’s financial stability led to appointment of interim liquidators in February 2018.  Full liquidation followed nine months later on two grounds: first, proof CBL Insurance was balance sheet insolvent, and secondly on grounds that it was ‘just and equitable’ to put the company into liquidation, as evidenced by manipulation of solvency data supplied to the Reserve Bank as regulator.

The High Court was told of directors misrepresenting the status of a $20 million deposit CBL Insurance had placed with National Bank of Samoa.  A March 2015 letter drafted by Mr Harris, with the involvement of Mr Hutchison, represented the Samoa deposit as being unencumbered and able to be returned to CBL Insurance at any time.  In fact, the deposit was security for a loan and the deposit was seized when interim liquidators were appointed.  If the true status of the deposit had been revealed, it would have put CBL Insurance’s solvency ratio below 100 per cent.  This at a time when CBL Corporation was being prepared for public float.  Mr Harris and Mr Hutchison sold significant parcels of shares on the float.  There were also allegations of CBL Insurance purporting to improve solvency in September 2017 by selling overdue receiveables and backdating the transaction to satisfy Reserve Bank solvency requirements. Solvency returns were required on a six-monthly basis.  The transaction was cancelled five months later.  The Reserve Bank also queried the status of an investment in a Peruvian goldmine: El Toro.  Email communications between Mr Harris and other interested parties indicate the El Toro shareholding was owned by CBL Insurance, the Reserve Bank claims. Dividends totalling US$600,000 paid by El Toro never made their way to CBL Insurance.  Clouding the issue is Reserve Bank concerns that El Toro may have been part of a money-laundering operation.  It wants answers as to whether CBL Insurance directors were aware of this.

There was differing evidence over the extent of CBL Insurance’s balance sheet insolvency; a measure of its ability to meet ‘long-tail’ insurance claims, potentially stretching out ten years.  One actuary assessed liabilities exceeding assets by $98.4 million as at December 2017.  Updated figures as at June 2018, put balance sheet insolvency at between $122.8 million and $274.8 million.  This alone was grounds to put CBL Insurance into liquidation, Justice Courtney ruled.

Reserve Bank v. CBL Insurance Ltd – High Court (16.11.18)

19.002

Lease: Annie Enterprises Ltd v. Cho

Having Social Development as a motel’s sole customer using motel units to temporarily accommodate beneficiaries did not change the site’s use as a motel.  It remained a motel, albeit with idiosyncratic features, ruled Justice Downs. Attempts to cancel the motel operator’s lease was blocked.

Hyun Sook Cho owns a six-unit motel on her Walmsley Road property in Mangere, South Auckland.  The motel is currently operated on a long-term lease until 2044 by Rajesh Sachdeva through his company, Annie Enterprises Ltd.  Ms Cho alleged Annie Enterprises was in breach of its lease; the site was no longer being used as a motel.  Mr Sachdeva says Ms Cho wants him out only because his business is now profitable.  Notice of cancellation is a tactic to force renegotiation of lease rentals, he alleges.   

The High Court was told Ministry of Social Development agreed with Annie Enterprises in 2017 for exclusive use of all six units as temporary accommodation.  Social Development pays a daily tariff.  It can cancel the arrangement on thirty days’ notice.  Occupancy by beneficiaries runs at about 80 per cent.  Social Development pays a daily rate regardless of occupancy levels.

Justice Downs ruled the ‘exclusive use’ arrangement with Social Development was not grounds for cancellation.  Auckland City accepted the new arrangement satisfied resource consents for the property’s use as ‘travellers accommodation’. Beneficiaries were in occupation for varying lengths of time, but were not living there.  It made no difference that the motel no longer advertised itself as available for bookings.  Until such time as Social Development gives notice, the motel is fully booked.

Annie Enterprises Ltd v. Cho – High Court (16.11.18)

19.001

Blue Chip: Commercial Factors Ltd v. Meltzer

Claims for payment on a Blue Chip litigation funding agreement by financier Terry Haydon failed.  Allegations Blue Chip liquidators Meltzer, Hayward and Heath acted in bad faith were dismissed by the Court of Appeal. 

Blue Chip group was put into liquidation in 2008 leaving some 3000 investors with losses in excess of $80 million.  Liquidators canvassed the possibility of suing Blue Chip’s directors and auditor BDO Spicer.  With no money in the kitty, they looked outside for litigation funding.  Mr Haydon’s Commercial Factors Ltd agreed to provide $60,000 funding for preliminary work: getting a legal opinion and paying liquidators’ preliminary expenses.  It was agreed Commercial Factors would get a fee of $15,000 plus a 24 per cent return on its advance, subject to specified conditions.  Payment was conditional on another party agreeing to fund any ongoing court case or alternatively Blue Chip liquidators recovering any monies owed Blue Chip.

A legal opinion stated there were strong grounds to sue both directors and auditor.  Struggling to find a further litigation funder to pony up funds for legal action, the liquidators filed legal proceedings at their own expense.  Time limits for bringing legal action forced the liquidators’ hand.  In the end, legal action did not proceed.  It was estimated over $250,000 would be needed to reconstruct Blue Chip’s chaotic accounting records.

Commercial Factors alleged filing court proceedings triggered payment; ‘another party’ had agreed to fund the litigation.  The Court of Appeal ruled that once Blue Chip went into liquidation Blue Chip and the liquidators were one and the same; it could not be said funding by the liquidators amounted to funding by ‘another party’.  The evidence did not pin down exactly how much money was put up by the liquidators. Advances of $112,500 up to February 2014 were disclosed.

Commercial Factors further alleged the liquidators had acted in bad faith; it should have been repaid out of $307,900 recovered by the liquidators as debts due to Blue Chip.  Liquidators were justified in using this money to first pay liquidation expenses, the Court of Appeal ruled.

The liquidators’ final report show not only was Commercial Factors left out of pocket, so too were the liquidators. Recoveries totalled $307,900; as against liquidators’ billed remuneration of $253,200 and paid legal fees totalling $182,400.

Commercial Factors Ltd v. Meltzer – Court of Appeal (16.11.18)

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Mortgage: Mangawhai Property Ltd v. Chen Hong Co Ltd

Waterstone Insolvency has the difficult task of unravelling fluid financing arrangements for a lifestyle subdivision at Hakaru between Kaiwaka and Mangawhai in Northland.  A default interest rate of 120 per cent features. As do Augustine Lau and Jiawen Mao, recently convicted following multiple breaches of resource management and building regulations in respect of properties in Auckland City.

Waterstone are liquidators of Chen Hong Co Ltd. Chen Hong’s sole director is Jiawen Mao. The company holds second mortgage security over a Hakaru subdivision being developed by Mangawhai Property Ltd. Mangawhai Property is owned by Yan Lin of Beach Haven in Auckland, also known as Bella Lin.

Chen Hong Ltd’s financing of the project is disputed; evidence indicates there might have been two separate loans.  Mangawhai Property alleges documents describing a second loan from Chen Hong Ltd were forged.   Immediately in dispute was an initial August 2016 loan.  It itemised a $693,000 advance for one month only, interest on maturity in a lump sum of $3000 with default interest running at 120 per cent for late payment.  Mangawhai Property claims it borrowed only $600,000 and that $505,100 was repaid in November 2016.  Waterstone deny there was any repayment.  They suspect a supposed repayment went to Jiawen Mao’s father.

Putting to one side the dispute about repayment, Waterstone sued in the High Court alleging at least $100,000 was still due, had not been paid and asked the High Court to put Mangawhai Property into liquidation on grounds of insolvency.  Just prior to the application coming to a hearing, Mangawhai paid the claimed $100,000. That is the end of the winding up application, Associate judge Bell ruled.  The claimed unpaid debt had been paid.  He refused Waterstone’s request to consider further money allegedly unpaid. Waterstone allege a total of $2.2 million is owed.  New court proceedings have to be filed.

There was evidence that Jiawen Mao, director of second mortgagee Chen Hong Ltd, was at critical times also director of Niu Niu Bi Co Ltd, a company which also appears to have financed Mangawhai Property.  She told Waterstone she had no hands-on involvement; Augustine Lau ran the business.

Mangawhai Property Ltd v. Chen Hong Co Ltd – High Court (15.11.18)

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Resource Management: R. v. Lau & Mao

Augustine Lau’s two year’s imprisonment was upheld by the High Court for his multiple resource management and building offences committed over a three year period with some 26 non-conforming dwellings constructed on six properties around Auckland.  Rentals collected on these illegal dwellings were in the region of $240,400 a year.

The High Court was told of multiple breaches of the Resource Management Act, Building Act and Companies Act.  The worst breaches occurred at three sites: Ormiston Road (with eight dwellings constructed on a site approved for one only); Fairburn Road (where nine hundred cubic metres of earthworks were undertaken without consent, proper preparation or compaction utilising fill which included rubbish, debris and asbestos) and; Paremoremo Road (where the site contained nine dwellings with approval for one only).  Site occupancies were increased both by extending an existing dwelling and by shifting re-locatable buildings on site.  At Ormiston and Paremoremo, waste water disposal did not comply with local regulations, draining onto slopes above watercourses.  Council requisitions requiring Lau to remedy breaches were ignored.  Remediation and legal expenses are costing Auckland City ratepayers some one million dollars.

Whilst stating a longer sentence could be justified, Justice Whata dismissed appeals by both Lau and the Crown over the adequacy of sentence.  In mitigation, Lau said he suffered from ADHD.  There was medical evidence this has manifested itself in ongoing conflict with authority figures throughout his life.

Appeal against sentence by Jiawen Mao was also dismissed. She had been fined $64,000 and ordered to pay $155,000 reparations.  This arose from her ownership of and legal control of the Ormiston Road and Fairburn Road properties.  Justice Whata said she had a secondary role in the offending.  There was evidence of her acquiescence in the actions of Lau, blindly signing documents put in front of her and being coached by Lau as to evidence she should give in court.

R. v. Lau & Mao – High Court (15.11.18)

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Receivership: Fatupaito v. Harris

Attempted use of receivership as leverage by property developer Gregory Olliver in an acrimonious relationship property dispute with his former wife saw the Court of Appeal ruling Keith Harris and Iain Nellies were invalidly appointed as receivers of CIT Holdings’ assets and that they were not entitled to payment of their costs and expenses from CIT.

In 2016, CIT Holdings Ltd was put into liquidation by Inland Revenue for unpaid tax.  CIT owned adjoining properties on Waimarie Street in the Auckland seaside suburb, St Heliers.  Liquidators KPMG have spent two years negotiating with several players having an interest in CIT: Inland Revenue (who put up cash to help with the marketing of Waimarie Street); Bank of New Zealand (having a first mortgage over the properties); Bankhouse Trust Ltd (controlled by Mr Olliver and claimed to be a secured creditor of CIT Holdings) and warring spouses Gregory Olliver and Sarah Sparks as beneficial owners of trusts controlling CIT Holdings.

Selling Waimarie Street proved problematic with litigation delaying progress.  The Court of Appeal was told Mr Olliver put commercial pressure on the liquidators, trying to force sale of selected CIT Holdings’ assets to him.  When that failed, he threatened to have receivers appointed under a general security deed he held through Bankhouse Trust.  In March 2017, Messrs Harris and Nellies were appointed.  As receivers, they agreed to a highly conditional sale of CIT assets to GMO Trust Ltd, a company associated with Mr Olliver.

It all unravelled.  The general security deed was invalidated by the High Court; it had the effect of elevating unsecured advances to the level of a secured debt. Liquidators KPMG challenged Mr Olliver’s appointment of receivers.  The Court of Appeal ruled the appointments were invalid.  Mr Olliver had acted in bad faith.  Part of the deal with GMO Trust was sale by the receivers of legal claims CIT Holdings was pursuing against Ms Sparks and trusts associated with her. The principal purpose, perhaps even the sole purpose, of the receivership was a means for Mr Olliver to get control over these claims to debts due by Ms Sparks to CIT Holdings, the Court of Appeal said.

The receivers’ appointment was invalid.  They had no right to charge costs of the receivership to CIT Holdings, the Court of Appeal ruled.  This does not preclude the receivers getting payment from Bankhouse Trust if the Trust did agree to cover costs when appointing them.  Their final receivers’ report filed at the Companies Office does not itemise their costs.

Fatupaito v. Harris – Court of Appeal (14.11.18)

18.225

Maori: Stafford v. Attorney General

The extent to which Maori land reparation claims extend to resources owned by state-owned enterprises and other Crown entities is gaining momentum following a 2017 Supreme Court ruling that successive governments are in breach of trust for failing to reserve for Nelson Maori 10,000 acres of land as promised in 1845.

The pivotal philosophy behind state-sector restructuring in the 1980s was to separate government commercial activities from direct political influence; a practice which has been embraced and continued since. To date, there have been no political directions forcing crown entity management to surrender assets in satisfaction of Maori land claims.

As nominal representative for iwi in the Nelson region, kaumatua Rore Stafford successfully sued government for breach of fiduciary duty.  An 1845 award by Commissioner Spain had promised one tenth of the 151,000 acres taken by early colonial settlers would be reserved for local Maori.  Some 5100 acres was set aside.  The remaining 10,000 acres of promised rural land never was. The Supreme Court sent the case back to the High Court to sort out an appropriate remedy for this breach.  Mr Stafford’s successful claim is not for a breach of the Treaty of Waitangi; it is for governments’ failures to honour an 1845 agreement.

To protect his iwi’s position, Mr Stafford took steps to identify government land in the Nelson area which could be ‘tagged’ as available for compensation.  Hearing that the Accident Compensation Corporation was selling a Nelson site, he had a caveat lodged against the title to protect any potential claim.  Accident Compensation’s plans to sell fell through. The High Court ruled Mr Stafford had no caveatable interest; he could not prove any specific legal link to Accident Compensation’s land.  Undeterred, Mr Stafford moved on to the Court of Appeal asking the court to rule on the wider question of whether government has power to direct crown entities like Accident Compensation to make land available for Maori reparation claims. Refusing to make a ruling, the Court of Appeal said this is a question of considerable novelty, complexity and public importance.  Better that the issues be first thrashed out in a High Court hearing before potentially coming before the Court of Appeal, it ruled.

Stafford v. Attorney-General – Court of Appeal (12.11.18)

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Contract Retentions: Bennett v. Ebert Construction

Sold by politicians as protection for sub-contractors, changes to the Construction Contracts Act requiring contract retentions to be held ‘in trust’ do not in fact require creation of a trust fund.  First major casualties are Ebert Construction sub-contractors.

Construction law was changed in a knee-jerk reaction to the 2013 collapse of Mainzeal group where sub-contractors were left in the cold over retentions totalling $18 million.  For commercial construction contracts, the head contractor became obliged to hold retentions in trust.  Typically, ten per cent of a sub-contractor’s price is held back: half released when a certificate of practical completion is signed off on their work; the balance when an agreed defects liability period passes.

The High Court was told the collapse of Ebert Construction Ltd last July saw $3.67 million sitting in the company’s retention account; well short of the $9.32 million the company should have funded as a retention liability.  Ebert Construction’s ongoing reconciliation of its retention account lapsed in the months leading up to receivership.  Receivers from PwC have been untangling the claims.  There are some 152 sub-contractors who could potentially claim against the $3.67 million retentions.  Release of retention funds to some contractors had been signed off, but not actioned before receivership.  Other sub-contractors had done work but their contract was not recorded in Ebert’s computer system as needing retentions.

Justice Churchman said the Construction Contracts Act did not require retention monies to be banked into a separate account; money could be mixed in with the head contractor’s other accounts.  This does not create an express trust in the accepted legal sense.  With Ebert’s credit facilities heavily overdrawn, retentions not paid into its retentions account simply evaporated.  Sub-contractors entitled to claim against the $3.67 million retention account are those whose identified retentions were paid into the account plus those whose release had been signed off but not actioned, Justice Churchman ruled.  They all receive a pro-rata payment of what is owed. Sub-contractors who did not have any retention paid into the account cannot claim.

PwC, receiver of Ebert Construction, was also appointed receiver of the $3.67 million retention fund.  Since this account is a trust fund it is not ‘owned’ by Ebert; a High Court order was needed to have someone appointed to take control.

The court was told Ebert Contracts’ sub-contractors are owed approximately $33.8 million.  They are unlikely to get any money other than those entitled to share in the $3.67 million retentions.

Bennett v. Ebert Construction Ltd – High Court (12.11.18)

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Tax: van Uden v. Inland Revenue

Despite personally owning no property in New Zealand and spending on average eight months a year at sea, China Navigation captain Gerardus van Uden was held to be a tax resident, liable for tax in New Zealand on his world-wide income and on his employer-funded superannuation.  

Mr van Uden claimed his permanent place of abode was overseas and that his stays in this country were purely transitory.  The Court of Appeal said whether a person is tax resident in New Zealand is a question of fact, turning on each individual’s circumstances.

Mr van Uden filed New Zealand income tax returns up to the 2004 tax year in which he declared approximately half his salary as taxable, declared no taxable income for the next two tax years then filed non-resident tax returns for years 2007 – 2009.  This triggered a tax audit for the years 2005 – 2009.  He said his ‘place of abode’ was no longer New Zealand; it was wherever he might be at any one time.

The Court of Appeal ruled New Zealand was still his abode, on an objective view.  Evidence was given that rental properties managed by Mr van Uden were in New Zealand, together with a family home at Cockle Bay in Auckland’s eastern suburbs. He did not personally own these properties; they were previously owned separately by Mr van Uden and his spouse before being transferred into a family trust.  Cockle Bay had been let out as a short term let, but kept available whilst he was in the country.  Cockle Bay was described as ‘own home’ in a mortgage application.  The Cockle Bay address was used for all correspondence: bills, bank statements, insurance and investments.  Motor vehicles were registered to the address.  He paid for a Sky television service at the address.

Inland Revenue was justified in charging a ten per cent penalty on the basis Mr van Uden had taken an ‘unacceptable tax position’, the Court of Appeal ruled.

van Uden v. Inland Revenue – Court of Appeal (8.11.18)

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Tax: Frucor Suntory v. Inland Revenue

Inland Revenue’s claim that Frucor’s capital restructuring amounted to tax avoidance was dismissed by the High Court. Tax deductions totalling $22.4 million for the 2006 and 2007 tax years were at stake with similar deductions for subsequent tax years hanging on the High Court’s ruling.

Inland Revenue took exception to a financial arrangement seeing Frucor Holdings issue a convertible note to Deutsche Bank New Zealand with a forward purchase, by holding company Danone Asia Pte Ltd, of shares Deutsche Bank could call for under the convertible note.  In economic terms, this was a five year $204.42 million loan with interest at 6.5 per cent.  Inland Revenue alleged $55 million of the $66 million interest paid was in fact non-deductible repayment of principal.  Frucor, known as Danone Holdings NZ Ltd at the time of the transaction, is a wholly-owned subsidiary within the Danone group, owned ultimately by France-based Groupe Danone SA.

Evidence was given of Deutsche Bank touting for business in 2002 offering alternative funding sources.  Danone had recently bought Frucor for $297.5 million, funded with an almost equal split between debt and equity.  The commercial benefits offered through Deutsche Bank’s financing were a more economic debt:equity split at 63:37, a currency hedge with debt capital in New Zealand dollars and reduction in group liability for tax in France. There was evidence that Deutsche Bank’s pricing of the convertible note left a minimal margin on its loan.  It received a $1.8 million fee for setting up the arrangement.  Unusually, Deutsche Bank agreed to pay a fee to Danone to guarantee Danone’s performance of the deal. 

Inland Revenue alleged the entire arrangement was artificial.  A plain vanilla loan would serve the stated commercial purpose.  It said the $204 million paid by Deutsche Bank for the Danone convertible note was funded in part by having Singapore-based Danone Asia immediately paying $149 million in a forward purchase of the shares to be issued in five year’s time to Deutsche Bank pursuant to the convertible note. Interest cannot be claimed on a $204 million dollar loan when in effect less than $204 million was borrowed, it said.

Justice Muir said Frucor did receive $204 million dollar cash.  It attracted interest and this interest was paid over the life of the convertible note. A debt equity swap, extinguishing a debt by an issue of shares, is common commercial practice.  Doing so does not amount to tax avoidance.  One of the commercial benefits was to minimise tax payable by companies in the Danone group, in both France and Singapore.  Reductions in group offshore tax liability does not amount to tax avoidance in New Zealand, Justice Muir said.

Tax benefits engineered by Danone have been blocked since July 2018 with new tax rules; part of a world-wide move to counteract tax base erosion and profit shifting.

Frucor Suntory New Zealand Ltd v. Inland Revenue – High Court (5.11.18)

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Tax: NRS Media Holdings v. Inland Revenue

NRS Media Holdings won twice over; exempt foreign income totalling $3.67 million tumbled into the till while it was also able to claim expenses of $3.88 million against this tax free income for the cost of monitoring its Australian subsidiary.

Exploiting a since-repealed loophole which appeared during legislative changes to the controlled foreign corporations regime, NRS Media Holdings Ltd argued successfully in the Court of Appeal that it could both have its cake and eat it.  NRS Media is the sole or majority shareholder of subsidiaries in the United Kingdom, Australia and Canada.  They purchase media time for client advertisers.  The Court of Appeal hearing concerned the tax effect of NRS Media’s relationship with its Australian subsidiary.  Two tax years were at issue: 2011 and 2012.  For those two tax years NRS Media received tax free dividends totalling $3.67 million.  It claimed as a NRS Media tax expense costs for payroll, consultants, marketing and travel, rent and overheads totalling $3.88 million; costs incurred to ensure proper legal governance of its Australian subsidiary, it said.  NRS Media established and managed strategic and business plans for the group, with staff travelling to and reviewing subsidiary performance on a regular basis.  NRS Media said it did not manage its subsidiary’s operations.  Each has its own board and management team.

The Court of Appeal ruled the claimed deductions were allowed under the general deductibility rules in tax law.  The costs amounted to oversight of its subsidiaries, facilitating their operations.  These were recurrent and regular business expenses, allowed as a tax deduction against revenue.

NRS Media Holdings Ltd v. Inland Revenue - Court of Appeal (1.11.18)

18.220