Private Equity: Malthouse Ltd v. Rangatira Ltd

The Court of Appeal ordered private equity investor Rangatira pay a $920,000 ‘top up’ fee following its divestment of Tuatara Breweries four years after buying in 2013.  Failure to set a ‘sunset date’ when buying Tuatara left Rangatira exposed to demands from Tuatara’s founding shareholders for a share of Rangatira’s profit.

Hard-nosed negotiations between Rangatira and Tuatara’s founders, Sean Murrie and Carl Vasta, saw a formula devised in 2013 to accommodate their differing views over Tuatara’s value.  Shareholders valued their business at $16.6 million; Rangatira said it was worth no more than $12 million.  Rangatira agreed to compensate shareholders with a ‘top up’ fee if subsequent events proved Tuatara was worth more than $12 million.  A top up was payable on the occurrence of any one of two defined ‘exit events’.  One event was a subsequent sale for more than $12 million.  Claims for a ‘top up’ were made after Tuatara was sold to DB Breweries in 2017 for an undisclosed price, but a figure well in excess of $12 million.

Rangatira refused to pay.  It said this exit event was time-limited to two years from its Tuatara purchase; the same time limit their contract specified for another exit event, the need to achieve a specified earnings level.  Reaching a value of $12 million in two years is a very different return on investment from reaching a value of $12 million in ten or fifteen years, Rangatira said.

The plain meaning of the 2013 contract had a two year exit event time limit applying only to achievement of a specified earnings target, the court ruled.  It did not apply to the alternative exit event triggered by a subsequent sale to DB Breweries.

Malthouse Ltd v. Rangatira Ltd – Court of Appeal (20.12.18)

19.030

Overseas Investment: Jun Li v. 110 Formosa (NZ) Ltd

Chinese investors disputing ownership of Auckland’s Formosa Golf Club were very guarded in the High Court when giving evidence both about their source of funds for the purchase and potential breaches of the Overseas Investment Act.  The High Court ruled Jun Li, whose mother is a former governor at a branch of the Bank of China, is part-owner of Formosa.  Fellow investor Meng Wang had tried to cut him out, saying Mr Li was only a conduit used to bring funds for purchase of Formosa into New Zealand for other investors.

Mr Li said he personally put $4.8 million into the 2014 purchase of Formosa; money borrowed from his mother, Na Li.  Mr Wang said that money came from Wang family sources, co-ordinated by his mother, named as Mrs Zhou.  Justice Fitzgerald commented neither Mr Li nor Mr Wang were the ‘main players’ in the golf club purchase.  Rather, each were acting largely at the direction of their respective mothers.   

The High Court was told of several false starts through 2014 as a consortium of Chinese investors looked to buy the Formosa Golf Club. It was intended to subdivide land around the golf course.  A March 2014 agreement to buy at $38.9 million fell over; conditions as to finance were not satisfied.  Mr Li was listed as one of the purchasers, as nominee for his mother.  An April 2014 agreement to buy at $36 million, which did not include Mr Li as a purchaser, also collapsed.  Mr Li was re-introduced to the consortium several months later following concerns some of the prospective investors might cause Overseas Investment Act complications.  They had spent so much time outside New Zealand they might no longer satisfy residency requirements.

Evidence was given of Mr Li being offered a 32 per cent stake in the venture with profit shares and equity interests to be determined on the proportion each investor eventually put in.  Purchase of Formosa was finally clinched in September 2014 at a price of $38 million; five million dollars upfront and the balance in instalments over the next twelve months.  Cash totalling $4.8 million paid by Mr Li to Mr Wang’s lawyer at Mr Wang’s request was used to pay the deposit.  Mr Li was to later discover he was not credited as a part-owner of Formosa and that Mr Wang claimed to ‘own’ the $4.8 million.  Mr Wang’s mother said Mr Li was only added as an investor to cover any investigation by the Overseas Investment Office. It was claimed money was brought into New Zealand though Mr Li’s bank account to camouflage who was the actual investor, deflecting any Overseas Investment Act inquiry.  Having to untangle over one month of evidence given in the High Court, Justice Fitzgerald said much of it was unsatisfactory on key issues, failing to comply with the Evidence Act and High Court rules.

Justice Fitzgerald said the evidentiary presumption is that the $4.8 million funded by Mr Li came from his own money, lent to him by his mother.  Her Honour ruled that Mr Li was entitled to a choice of two remedies against Mr Wang: the return of his $4.8 million for breach of contract, or an equity stake in Formosa Golf Club based on his $4.8 million contribution to the purchase price. The High Court was told progress on golf club re-development has stalled, blocked by a caveat lodged against the title in 2015 to protect Mr Li’s claim for an equity interest in the property.

Jun Li v. 110 Formosa (NZ) Ltd – High Court (19.12.18)

19.029

Fraud: Young v. R

Hamilton-based Matthew John Young’s four years and eleven months’ sentence for dishonesty and fraud was confirmed by the Court of Appeal, describing the sentence as stern but not manifestly excessive. 

Victims of Young’s offending lost $269,070 following what was described as persistent deceit, abuse of trust and blatant dishonesty. He initially faced more than forty charges. Young pleaded guilty to thirteen, four of which were committed whilst on bail after arrest on earlier fraud charges.  He committed the fraud offences whilst bankrupt, following his July 2011 bankruptcy.

The court was told Young’s dishonesty included: using doctored screenshots and falsified e-banking receipts as purported evidence of payments supposedly made under a tenancy agreement; further doctored screenshots of payments from an Australian bank as supposed evidence of an ability to fund lease payments on a commercial tenancy; opening utility accounts for power and phone but making no payments; buying two high-end cars in the name of a company knowing the company had no means to pay;  deceiving his partner’s mother by promising to pay for renovations at her home but then leaving her with the bill; and fraudulently carrying on business as a nightclub owner arranging for renovations when he did not own the business and had no intention of meeting contractors’ bills.

Young v. R. – Court of Appeal (18.12.18)

19.027

Intellectual Property: Lookman Family Trust v. Design Electronics

Michael Lookman is suing Nelson acquaintance Warwick Jones after sinking $1.8 million dollars into development of SenSys; technology facilitating remote real-time access to workplace data.  Mr Lookman says promises to develop legally enforceable patent rights and trademarks have come to nothing; Mr Jones says the intellectual property is ‘inside his head’ and that Mr Lookman is disrupting efforts to commercialise SenSys. 

The High Court was told the two joined forces in December 2016.  Through a family trust, Mr Lookman agreed to provide capital for development of Mr Jones ideas.  Funding of up to $2.1 million was promised in reimbursement of expenses incurred.  Mr Lookman was to handle finances, with an option to later take an equity stake in the Wellington-based business: Design Electronics Ltd.  Monthly management meetings were scheduled, with business information shared through a Dropbox account.  By late 2017, Mr Lookman was concerned about the lack of progress; no patents had been applied for, or trademarks sought.  Their 2016 agreement gives Mr Lookman security over SenSys’ intellectual property. Their business relationship unravelled in an acrimonious fashion.  Mr Lookman’s access to financial data was blocked when Mr Jones removed all files from the Dropbox account.  Monthly reporting and monthly management meetings stopped.  Mr Lookman sued, seeking repayment.  The court was told Design Electronics cannot pay.  Enforceability of a guarantee given by Mr Jones is before the courts.

Associate judge Mathews said their 2016 agreement is an executory contract; both parties have continuing obligations under the contract. It runs until 2021.  He ordered Mr Lookman be given access to SenSys’ electronic accounting system, as required by the 2016 agreement.

Lookman Family Trust v. Design Electronics Ltd – High Court (18.12.18)

19.028

Post Judgment Note: A further court hearing in May 2020 determined Mr Jones had failed to provide ongoing financial information as required by the funding agreement with Mr Lookman.

Financial Statements: re General Electric International

The Companies Office misapplied filing rules when demanding US listed company General Electric prepare and file audited financial statements for subsidiary General Electric International at an annual estimated cost of US$500,000.  Bureaucrats asked themselves the wrong question: can the company afford to pay rather than does the information demanded provide any useful benefit?   

Incorporated in the United States, General Electric International Inc is a wholly-owned subsidiary of General Electric.  It does not have to file audited financial statements in the US, instead having its financial position consolidated into financial statements for parent General Electric.  GE International provides support services in New Zealand for power utilities, oil and gas.  In 2015, it earned $16 million from its New Zealand operations; chicken feed compared with the US$13 billion GE International earned through 2015 in some 120 other countries around the world.  Since 2014, New Zealand has been the only country demanding GE International file audited financial statements.  New Zealand companies legislation requires overseas corporates to publish financial information with the Companies Office.  This is a creditor-protection issue.  Creditors dealing with overseas interests need to know if they are dealing with a customer of substance; if it all goes belly-up, they need a sense of what assets might be available in this country to pay debts.  It is prohibitively expensive to chase debtors around the world trying to get payment.  In the past, filing in the New Zealand Companies Office copies of overseas parent company financial statements, or group accounts, has sufficed.  Companies Office says legislation changed the rules with effect from 2014.  Staff demanded GE International prepare and file audited financial statements and a cash flow statement, all complying with NZ international accounting standards.  An offer to file financial information for GE International prepared as part of General Electric’s US consolidated accounts was refused.  This did not satisfy a requirement to comply with NZ accounting rules.

Justice Mallon ruled Companies Office staff had failed to properly consider GE International’s request.  The 2014 rules permit exemptions, as did the previous rules, when it would be ‘unduly onerous or burdensome’ to prepare and file financial statements not complying with NZ accounting rules.  Companies Office staff had incorrectly concentrated on whether GE International could afford to do the extra work, rather than identifying whether there was any advantage in so doing.  Accounting experts said US accounting rules are robust and will suffice for filing in New Zealand.  Companies Office was ordered to reconsider GE International’s request for an exemption. The intent of the 2014 law change was to reduce compliance costs where costs imposed provide little of benefit to users.  Financial statements for parent General Electric are on the public record; New Zealand filing is required under the Financial Markets Conduct Act since employees here participate in an employee share purchase scheme.

re General Electric International Incorporated – High Court (17.12.18)

19.026

Joint Venture: Detection Services Ltd v. Pickering

Both were described as having strong and determined personalities.  Steve Simmons and Chris Pickering spent an expensive week in the High Court fighting over ownership of technology used to detect water leaks in high pressure pipes. Justice Woolford ruled both were in breach of their joint venture arrangement and neither were entitled to damages. 

What started out in 2007 as a strong personal friendship ended as a bitter employment dispute in the Employment Court and a property dispute in the High Court.

The High Court was told the two collaborated on development of a leak detection system for use in both Australia and New Zealand, by a business trading under the name Detection Solutions.  Previously with an office furniture company, Mr Pickering was employed by Mr Simmons in early 2010 as general manager of Detection Services. The following year they had fallen out over ownership of the leak detection technology developed. Equipment for detecting leaks was built in New Zealand; engineering quotes from New Zealand firms were markedly lower than Australian.   Mr Simmons fired Mr Pickering for not handing over the developed product.  The Employment Court ruled Mr Pickering had been unjustifiably dismissed; development of the leak detection system was not part of his employment contract.  Questions of ownership moved to the High Court.  Justice Woolford ruled development of the technology was a joint venture: they shared ideas; Mr Pickering contributed his computer skills and Mr Simmons his engineering knowledge.  While the leak detection system in its final form was put together after Mr Pickering was employed as general manager, it remained a product of their prior joint venture.  Their falling out was triggered over compensation payable to Mr Pickering for work he had done developing the leak detection system.  When it came to the crunch, Mr Pickering said he was owed $257,100. Mr Simmons claimed $3.1 million for what he said was the cost of re-engineering the system from scratch after Mr Pickering failed to hand over the finished product.  Meanwhile, the product of Mr Pickering’s work lies crated up in storage, the court was told.

Justice Woolford ruled a joint venture between the two for the design and construction of a leak detection system for Detection Services came into existence by at least late 2008.  The joint venture relationship meant each owed duties of trust and confidence to the other.  They were required to act in good faith.  Both failed to act in good faith and instead acted in their own interests by failing to negotiate and settle the terms of payment to Mr Pickering for his work on the project, Justice Woolford said.  Mr Pickering took the stance he alone owned the leak detection equipment. He failed to clearly itemise how he reached his claimed figure of $257,100.  For his part, Mr Simmons incorrectly elevated a joint venture dispute about price to an employment dispute.

Detection Services Ltd v. Pickering – High Court (14.12.18)

19.025

Post judgment note: The Court of Appeal held Mr Pickering was in breach of their joint venture agreement by not handing over the developed product together with invoices for development costs incurred.  Mr Simmons was ready and able to make payment of invoices provided.  The case was referred back to the High Court for assessment of damages.

BlackfortFX Fraud: Ryan v. R.

Already in jail following a Companies Act conviction when pleading guilty to fraud, Lance Jack Ryan succeeded in reducing the sentence for his part in the BlackfortFX Ponzi fraud from seven and a half years to six.  This six year sentence is cumulative; it does not start running until his two year Companies Act sentence is finished.  

Ryan was mastermind behind the BlackfortFX fraud.  He has a long history of dishonesty.  There are 56 convictions for dishonesty between 2000 and 2003 under a different name: Lance Jared Thompson.  In late 2017, he was jailed following conviction for managing a company while prohibited from doing so.  Three years previously, he set up a fictitious foreign exchange trading business, with co-offender Jimmie Kevin McNicholl.  McNicholl fronted as the public face of the business.  Ryan had to keep in the background.  The Companies Office refused registration of any company with Ryan involved.  Attempts to get a financial services provider certificate from the Financial Markets Authority had to be reformulated when the FMA refused to give any recognition to a business with Ryan at the helm.

The Court of Appeal was told that in reality Ryan was in charge of the planning, development and operations of Blackfort.  It was a scam from the off.  A professional website attracted investors.  A cloud-based accounting system gave clients immediate access to their investment record.  The only accurate data for each account was investor deposits; fictitious information about trading profits was later loaded onto customer pages. Blackfort is in liquidation.  More than 900 investors put in a total of some $8.3 million.  Losses are estimated at $4.4 million.  Evidence was given that some investors were Christchurch earthquake victims, placing funds on deposit while they considered what to do with their insurance payouts. When investors began pressing for payment, unaware their money had been stolen, Ryan concocted false documents suggesting Blackfort funds were being wrongly withheld by a Swiss bank and that legal action for recovery was underway.

The Court of Appeal said sentencing principles require that when an offender, already in jail on unrelated charges, comes up for sentencing on new charges then the starting point is the appropriate overall sentence as if the offender had been sentenced on all charges at the same time; the so-called ‘principle of totality’.  In Ryan’s circumstances, his subsequent jail term for fraud should be reduced to six years, the court ruled.

Ryan v. R. – Court of Appeal (14.12.18)

19.024

Pollution: Vernon v. Taranaki Regional Council

Reduction in a $45,000 fine for ‘dirty dairying’ because of economic hardship was refused.  Reducing fines amounts to no more than a licence to pollute, Justice Ellis said.  Two Taranaki farmers were advised to apply for payment by instalments.

John and Alison Vernon milk one hundred cows on a 144 hectare property at Midhurst near Mount Taranaki.  The High Court was told they had failed a number of annual council inspections stretching back to 2006 for failing to properly dispose of effluent. They had resource consent to discharge untreated effluent on the farm by spray irrigator.  They were convicted of breaching the Resource Management Act after council inspectors found their irrigator disconnected and effluent flowing into a nearby watercourse.  They were fined $45,000.

The Vernons appealed the amount of their fine.  They couldn’t afford to pay.  They were financially stretched.  Their bank had them on ‘credit watch’.  A fine is not the only sentencing option, Justice Ellis said. But a custodial sentence is impracticable given their day-to-day farming obligations.  She recommended the Vernons apply under the Summary Proceedings Act for payment by instalments.

Vernon v. Taranaki Regional Council – High Court (13.12.18)

19.022

Class Action: Ross v. Southern Response

The High Court approved a class action for potentially two thousand Christchurch AMI Insurance policyholders claiming to be misled by Southern Response in its treatment of earthquake claims.  It is claimed some individual policyholders were underpaid up to $100,000.  A class action reduces legal costs for individual claimants and prevents a multiplicity of similar claims.

AMI Insurance had spread its risk poorly. The insurer was insolvent after the 2010-2012 Christchurch earthquake series.  It had insured nearly one-third of residential homes in the city.  AMI’s losses were socialised with liabilities hived off into Southern Response Earthquake Services, set up as a crown entity with taxpayers’ money poured in to settle AMI’s Christchurch earthquake claims. Since that date, homeowners have criticised the manner in which Southern Response co-ordinated repairs and paid out claims.  It is alleged policyholders were offered up to $100,000 less than their contractual requirement where homes were written off as beyond economic repair. Policyholders point to the difference between Southern Response’s internal paperwork itemising potential payout amounts and the payouts in fact offered.

Policyholders Brendan and Colleen Ross fronted as representative litigants.  They allege Southern Response breached the Fair Trading Act, breached a duty of good faith implied in AMI Insurance policies and misrepresented costs when making offers to settle.         

Associate judge Mathews ruled all similar potential claimants be joined to participate at a future court hearing.  This class action is limited to AMI policyholders where their home was damaged beyond reasonable repair.

A keen issue was whether it should be an ‘opt-in’ or ‘opt-out’ class action.  The vast majority of jurisdictions around the world allowing class actions use an ‘opt-out’ procedure: all potential litigants are presumed to be in unless they expressly choose to ‘opt-out’.  New Zealand is an exception.  Class actions are new to this country.  The initial class action cases plumped for “opt-in’; only those who expressly sign up get the benefit of the class action.  All others have to go the long way; separately pay for and prove their own case.  The common legal view is that a change to ‘opt-out’ in this country will require legislation.

AMI policyholders planning to join the class action against Southern Response need to ‘opt-in’.  No deadline has yet been set.

Ross v. Southern Response Earthquake Services Ltd – High Court (13.12.18)

19.023

Fraud: Li v. Yu

Chinese property investor Zhong Li was duped by business associate York Yu who fraudulently used Li’s power of attorney to steal four properties from him. With Yu bankrupt, Mr Li sued in the High Court to chase down available assets, recovering a Whangarei property and getting a court order for $658,100 owed by a Yu-controlled company.

In 2005, Mr Li deposited one million dollars with a New Zealand bank in what was initially an unsuccessful bid to qualify for a visa. He left the funds in New Zealand, later signing a co-operation agreement with Mr Yu for development of residential apartments in Schnapper Rock Road on Auckland’s North Shore.  Mr Li was promised a $400,000 return on his investment plus a share of development profits.  He signed a power of attorney in favour of Mr Yu, allowing him to get on with the job during Mr Li’s absence back in China.  The High Court was told Mr Yu dishonestly used the power of attorney to borrow against the development in Mr Li’s name, with funds going to a company controlled by Mr Yu’s wife.  Also without Mr Li’s knowledge, Mr Yu used Mr Li’s money to buy a property in Tauroa Street, Whangarei.  Concerned about Mr Yu’s failure to disclose details of their joint investment, Mr Li revoked the power of attorney.  He alleged Mr Yu later used the revoked power of attorney to transfer three Schnapper Rock apartments and Tauroa Street to a company called Harv Properties Ltd and had Mr Li’s name dishonestly added as an additional ‘covenantor’ to a Harv Properties’ guarantee.  Around this time, Mr Yu transferred his shares in Harv Properties to his personal assistant Ke Cheng.  She signed an acknowledgement of trust, stating she held the company on Mr Yu’s behalf and would act according to his instructions.

Justice van Bohemen ordered Tauroa Street be re-registered in Mr Li’s name.  Harv Properties became registered owner by fraud.  Ownership had to be surrendered.  Ownership of the three Schnapper Rock apartments could not be recovered.  In the interim, Harv Properties had on-sold the apartments to purchasers acting in good faith with no knowledge of the prior fraud.  Title to land cannot be impeached against buyers acting in good faith.  Harv Properties was ordered to pay $658,100 damages; Mr Li’s equity in the three apartments at the date sold.  Harv Properties did not defend the case. Companies Office records show it is about to be struck off for failing to file an annual return.

Li v. Yu – High Court (11.12.18)

19.021

Fraud: Commissioner of Police v. Lowen

After pleading guilty to benefit fraud totalling $347,400, Pauline Lowen asked cash held under the Criminal Proceeds (Recovery) Act be released so she could pay reparations.  Release was refused.  Social Development said assets seized would be taken into account when suing for recovery.

Following a 2017 investigation into benefit fraud, police seized and sold two Canterbury properties: one in Heathridge Place, Lincoln, owned by Lowe and her former husband, and; a rental property in Bower Avenue, Parklands, owned by a Lowens-controlled company.  The two sales netted $154,500.

Her former husband says he is entitled to half; his share of relationship property.  She says she needs the balance to pay reparations to Social Development.  If the funds are seized by police, it reduces the assets otherwise available for repayment, she says.  In the High Court, Social Development conceded it made little difference which arm of the state was repaid: police or Social Development.  Either way, taxpayers were being compensated.

Given Lowen’s years of dishonestly claiming benefits to which she was not entitled, any idea of releasing cash to her was fraught with risk, Justice Mander said.  Social Development said it would take into account cash realised from sale of the two properties when assessing reparations.  To what extent the full $154,500 can be credited to Lowen is yet to be decided; it may be reduced by her former husband’s relationship property claim.  Social Development said he was fully aware of the offending and benefitted from it.  Mr Lowen has not been charged in relation to his spouse’s benefit fraud.  She pleaded guilty.

Commissioner of Police v. Lowen – High Court (7.12.18)

19.020

Mahana Estates: Murren v. Schaeffer

Two US investors thought their $US 2.3 million was ploughed into a productive Moutere vineyard.  They found instead their money was used for the personal benefit of a fellow American promoting the investment.  James Murren and Daniel Lee successfully sued Glenn Schaeffer in the High Court seeking to recover their lost $US 2.3 million.    

The three Americans go back a long way.  They worked as analysts on Wall Street in the 1980s. Paths again crossed when they all moved to senior positions with various companies in the Las Vegas gaming industry: Mr Murren with MGM Grand Casino: Mr Lee with Mirage Resorts; Mr Schaeffer with Circus Circus.

The High Court was told Mr Schaeffer encouraged his friends to invest in the New Zealand wine industry.  Local costs in New Zealand and exchange rate differentials meant it was cheaper to produce wine in New Zealand and export to the US than it was to produce in the US.  He offered them a deal, investing through a limited partnership.  This created a partnership structure with investors having the benefit of limited liability.  Mr Murren put in $US 1.6 million; Mr Lee $US 700,400.

Justice Collins ruled Mr Schaeffer was personally liable to repay their investments.  He was in breach of both the New Zealand Fair Trading Act and the Nevada Deceptive Trade Practices Act by making misleading and deceptive statements about the nature of their investment.  He was also liable in negligence, having been less than forthcoming when detailing the nature of the investment to his fellow investment partners.  This was in breach of a partner’s obligations to act in good faith towards fellow partners.

Mr Murren and Mr Lee were led to believe their money would be used to acquire part of a company now called Wollaston Estates Holdings Ltd which at its peak owned vineyards covering about one hundred hectares in and around Moutere and Hope.  The High Court was told their money was used primarily to purchase some significant sculptures on display in the vineyard and to build a private dwelling for Mr Schaeffer.  Mr Schaeffer merged his personal assets with vineyard assets and failed to properly record investments made by Mr Murren and Mr Lee, Justice Collins said.

Murren v. Schaeffer – High Court (5.12.18)

19.019

Relationship Property: Bethell v. Bethell

In the Bethell family for generations, the family farm at Weka Pass in North Canterbury has been sold by the third generation: from clogs to clogs in three generations, as the Dutch have it.

High living, a crippling drought and divorce all contributed to the demise of the Bethell farming dynasty.  Third generation farmer Sam Bethell and former spouse Diana were in court picking apart what was left of a multi-million dollar farming operation.  From a farm sold for $6.8 million, Sam is left with the residue of their farming trust, Stumpy Trust, holding net assets of approximately $1.2 million and Diana with $300,000 extracted by court order from Stumpy Trust and settled on a new family trust in her favour.   

Economic history is littered with examples of family businesses falling apart in the third generation: the first generation builds up the business; the second, imbued with their parents’ work ethic, build on the existing asset base; the third generation, having enjoyed a life of moneyed plenty, throw it all away.

Sam and Diana were married in 2000, separating in 2014. The High Court was told of a lifestyle enjoyed by few New Zealanders: a string of polo ponies and extensive sporting trips for Diana before motherhood intervened; expensive toys for Sam enjoying private use of a Cessna aircraft and later a helicopter plus always the latest in farm machinery; a farm homestead fitted out with swimming pool and tennis courts for the family together with overseas family holidays.  With high levels of debt and heavily dependent on commodity prices, the farm did not survive a change in business strategy from 2011. The farm was progressively de-stocked with sheep and cattle numbers reduced, replaced by mixed cropping and grazing.  Exceptionally dry years through 2014-2016 hit farm finances.  Crop yields plummeted.

Evidence was given of Sam receiving in 2005 a cash payment of $2.2 million and a debt owed him from the Stumpy Trust of $3.6 million. These assets were his separate property.    

After Sam and Diana separated, the High Court was asked to identify what was relationship property and what was Sam’s separate property. The Bethell farm was transferred to the Stumpy Trust in 2005.  Substantial tax losses were carried forward from a predecessor trust. A lack of clear accounting separation between Sam’s personal business assets and the Trust resulted in Sam’s $915,270 accounting credit with Stumpy Trust being treated as relationship property.  This imprecise accounting relationship had flowed from the fact income taken from the Trust had been effectively tax free in Sam’s hands.  Diana was entitled to $457,600 of this relationship property accounting credit as her half share.

Justice Nation ruled Diana was entitled to a further payment of $419,470 to achieve equal sharing of all relationship property in addition to the creation of a new family trust in her favour with capital of $300,000.  She keeps a horse float, ponies and horses.  Sam keeps control of the Stumpy Trust, together with assets he needs to continue his farm contracting business.  The court was told Diana now works as an agricultural sales rep.

Debts incurred by Sam in an unsuccessful Christchurch property development were not relationship debts; they remained his separate debts.  The High Court was told Sam joined with three others in buying land in Johns Road, on the outskirts of Christchurch.  The land had potential for rezoning and subsequent development.  The land was not re-zoned, one of the investors was bankrupted and the regional council subsequently imposed a contamination notice imposing substantial clean-up costs.  The investment was written off.  At the time of the court hearing, Sam owed $373,800 for his share of interest payments and de-contamination costs.  The investment was separate property.  There was no evidence the Johns Road purchase was intended to be for the joint benefit of Sam and his then wife.  The Johns Road 2007 purchase was funded out of his separate property.

Bethell v. Bethell – High Court (4.12.18)

19.018

Fraud: Alofa v. Police

The High Court confirmed 18 months’ imprisonment for Paul Alofa following a cheque kiting fraud perpetrated against ASB Bank.

Alofa has 38 convictions for dishonesty-related offences dating back to 1988.  His recent conviction follows two kiting frauds in 2016.  Kiting is the practice of drawing against uncleared deposits. Banks may allow depositors to draw against a percentage of the value of cheques deposited before they are cleared through the banking system.  Alofa created the deposits by banking worthless cheques into newly-opened ASB bank accounts.  The High Court was told Alofa created a series of bank accounts, using an alias in each instance.  In January 2016 he opened an ASB account in the name of Diego McCarthy, banking into the account 25 cheques written on his closed ANZ cheque account in the name of Retzlaff Wichburger.  Before the deposited cheques were dishonoured he withdrew a little over $25,500 from the McCarthy ASB account.  The second cheque fraud concerned another ASB account opened by Alofa using the name Robert Tapu.  With no credit in the account he drew a cheque in favour of Motor Trade Finance, attaching to the cheque a forged letter purporting to be from ASB guaranteeing payment.

Alofa said his sentence should be reduced because he had repaid ASB $8000.  The trial judge did not believe payment had in fact been made.  In the High Court, Justice Downs said it was for Alofa to prove payment.  Alofa offered no evidence of having made payment, either at trial or on appeal.

Alofa v, Police – High Court (3.12.18)

19.017