Construction: Youssef v. Maiden

An adjudicator’s Construction Act determination intended to settle a dispute over construction of a Northland house was quashed because of a conflict of interest; he had a close professional relationship with the builder’s law firm.  

In a bid to keep legal delays and costs to a minimum, construction contracts often require disputes be put to an adjudicator.  The Construction Contracts Act sets out a detailed process for appointment of adjudicators and consideration of claim and counter-claim.

Owners of a home under construction in Robert Hastie Drive, Mangawhai, agreed to adjudication after a stand-off with builder Bespoke Design and Build Ltd.  Owners said they would not pay for cost overruns they allege arose from inefficiencies. Bespoke downed tools, saying work was suspended until the issue was resolved.

Surveyor Richard Maiden was appointed adjudicator. In October 2018, he decided the owners unlawfully cancelled the contract.  He awarded Bespoke damages of $125,600, including lost profits assessed at $44,700.

The general Constructions Act rule is that parties agreeing to adjudication are stuck with the result; adjudicators’ determinations are a debt immediately payable.  Argue in court later about the calculation.  Courts have limited power to quash determinations.  Judicial review looks at process; how the determination was made.

The owners complained Mr Maiden had a conflict of interest.  The court was told Auckland law firm Martelli McKegg acted for Bespoke.  Martelli McKegg had other building clients for whom Mr Maiden was acting, primarily giving expert industry evidence in leaky home claims.  The owners said Mr Maiden might have failed to adjudicate its dispute purely on its merits given his ongoing professional relationship with Martelli McKegg. Favouring the law firm’s clients would maintain and enhance his relationship with the law firm, with further work to follow.

A fair minded lay observer might reasonably apprehend Mr Maiden might not bring an impartial mind to the adjudication, Justice Peters ruled.  The adjudication was quashed.  There is no suggestion that Mr Maiden in fact favoured Bespoke, Justice Peters emphasised. It is appearances that matter.

The court was told there is a relatively close-knit relationship between law firms specialising in construction law and the pool of adjudicators available in Auckland.  Before appointment, adjudicators’ potential conflicts of interest should be disclosed and consent to continue obtained from all parties, Justice Peters said.

Youseff v. Maiden – High Court (20.12.19)

20.020

Conspiracy: Plumpton v. Terry

Former UCFX Ltd employees: James Terry, Brent Colbert and Scott Maynard, were ordered to pay $681,200 damages for conspiracy after attempting to transfer UCFX staff, clients and business opportunities across to their own new venture.  They left UCFX in 2015, just after the company received recognition as Microsoft Partner of the Year.  

UCFX Ltd got off the ground in 2013, specialising in software technology.  Driving force was entrepreneur Kevin Plumpton.  James Terry took on the role of chief operating officer, unpaid; Brent Colbert was employed to bring in customers; Scott Maynard for his software design expertise.  The High Court was told cracks were appearing by early 2015: promises of increased remuneration after the early start-up period had not eventuated; Mr Plumpton’s management style was seen as non-collaborative leading to a toxic work environment; there were concerns UCFX in Australia was getting priority over New Zealand operations.

Evidence was given of confidential company information leaked to a bank and potential investors with an inference that a new company was to be carved out of UCFX.  Existing UCFX employees were told their company was on the rocks, about to close down; described as an attempt to have them shift across to a proposed new company controlled by Terry, Colbert and Maynard.  Justice van Bohemen ruled the three conspired to appropriate UCFX staff, clients and business opportunities.  All three conspirators were in breach of duties to keep UCFX information confidential.  Breaching obligations of confidence in discussions with third parties while making false and malicious statements to UCFX employees amounted to an unlawful conspiracy.

Damages were calculated as $307,000 for the net cost of bringing in staff from Australia to stabilise the business together with $374,200 for business opportunities lost whilst re-establishing New Zealand operations.

Plumpton v. Terry – High Court (19.12 19)

20.019

GST: Y&P NZ Ltd v. Wang

Wrongly claiming GST had to be paid on a $2.43 million property deal is costing Auckland property company Y&P NZ Ltd $980 a day in interest for late settlement with one million dollars now lopped off the purchase price as it unsuccessfully argued its case in court. 

In 2016, Yang Wang agreed to buy four blocks of bare land in the west Auckland suburb of Henderson.  The price was described as $2.43 million ‘plus GST (if any).’  Y&P was registered for GST.  It expected Mr Wang to be paying GST on the purchase price. Evidence was given that on day before settlement Mr Wang advised he was now registered for GST, making the transaction zero-rated.  Y&P could be left paying GST on the deal out of its own pocket.

Y&P refused to settle the deal unless the extra fifteen per cent GST was also handed over.  It said the standard-form agreement for sale and purchase required at least two days notice prior to settlement of any change in GST status.  Both the High Court and the Court of Appeal ruled Y&P was in breach of contract by failing to settle on payment of $2.43 million without addition of GST.  Goods and Services Tax legislation is specific; GST status is assessed as at the date of settlement.  A requirement in their agreement that two days notice be given was for administrative convenience only; an agreement for sale and purchase cannot override rules in a statute.  Specific performance was ordered, requiring Y&P hand over title.

The agreement for sale and purchase stated both vendor and purchaser were potentially liable to pay interest at 14 per cent for any late settlement.  Since Y&P had no legal grounds to refuse settlement, it was in breach of contract. The dispute has been running since 2016. Mr Wang is now owed over one million dollars for late settlement, to be set off against the purchase price.

Y&P NZ Ltd v. Wang – Court of Appeal (18.12.19)

20.018

Asset Forfeiture: Commissioner of Police v. Lau & Chang

Penalties totalling $1.4 million were imposed after Yat Ming Lau was sentenced to seven years imprisonment for illegally importing pseudoephedrine.  Profit forfeiture extended to assets held in the name of girlfriend Shuo Chang.

Ms Chang unsuccessfully defended Criminal Proceeds (Recovery) Act claims.  She said assets in her name were funded with her own money plus loans from her parents in China. Under the Act, police did not have to prove she participated in illegal drug importations, only that she knowingly benefitted.

The High Court was told that over a seven year period to May 2014 a total of $1.3 million in unexplained funds passed through bank accounts controlled by Ms Chang and Mr Lau.  During this period, Mr Lau’s declared annual taxable income was $44,900, Ms Chang’s $38,300.  A forensic audit identified substantial amounts spent on jewellery and other luxury items.  This spending stopped shortly after Mr Lau’s arrest.

There was evidence of funds being used to service loans on an Auckland property in Richard Farrell Avenue, Remuera, owned by a Lau family trust.  A second Lau property at Rukutai Street in the Auckland suburb of Orakei was sold to Ms Chang, with funding provided by Mr Lau, police said.  A BMW car registered to Ms Chang was similarly funded by Mr Lau, police said.

Ms Chang knew Mr Lau was repeatedly importing pseudoephedrine and she helped conceal his interests in property, Justice Downs said. She knowingly benefitted from Mr Lau’s illegal activities.  The two had been ‘good friends’ since 2002.  On one power utility account she was described as Mr Lau’s ‘wife.’  Spending on expensive jewellery and extended trips to China ended abruptly after Mr Lau’s arrest.  Ms Chang was required to surrender Rukutai Street and the BMW as tainted property, purchased with proceeds of crime.

Commissioner of Police v. Lau and Chang – High Court (17.12.19)

20.017

Fraud: Lal v. Worksafe

Ten months home detention for Deepak Yogesh Lal after forging safety compliance certificates was confirmed by the High Court.

In December 2017, new regulations governing handling of hazardous substances came into effect.  Employees working in the industry were required to complete specified education courses, obtaining compliance certificates.  Lal had not completed equivalent courses when the new rules became operative.  The High Court was told Lal did not undertake the required new qualification, instead forging a completion certification using a fellow employee’s certificate as a template.  When told this was at a lower level to the course he was required to complete, Lal then forged another completion certificate using yet another employee’s valid certificate. Evidence was given that the forgery was so good that Worksafe New Zealand initially thought the forged certificate was valid.

When a Worksafe investigation uncovered the true picture, Lal was charged with using forged documents to obtain a pecuniary advantage; getting paid employment at a higher rate was the pecuniary advantage.    

Appealing his sentence, Lal said the offending was not that serious.  Justice Jagose said the intent was to avoid health and safety objectives.  The behaviour was flagrantly dishonest.  Home detention was confirmed.  The Sentencing Act allows individuals on home detention to seek day release, enabling them to continue in employment.

Lal v. Worksafe New Zealand – High Court (16.12.19)

20.014

Fraud: R. v. Keenan

Former police officer Shaun Joseph Keenan is to serve at least half of a three year eight month fraud sentence before eligible for parole.  Keenan pleaded guilty to misappropriating $486,000, part of Treaty settlement monies intended by 1800 members of Ngati Te Whiti for construction of a marae in Taranaki.  

Keenan left the police in 2012 to become founding chief executive officer of the Te Whiti Trust Board, responsible for managing construction of the hapu’s new marae.  He unsuccessfully appealed the length of his non-parole period.  He said the sentencing judge failed to take into account his remorse and his status as a first offender.  The High Court ruled there was little evidence of remorse; Keenan promised in the two years after the fraud was discovered that he would make good the money taken.  Nothing was repaid.  During this period he transferred assets out of his name: signing over ownership of a life policy and signing a relationship property agreement transferring his half interest in the Stratford family home to his wife.  A cultural report before the court indicated Keenan’s primary focus was on his immediate family, not the harm caused fellow Te Whiti hapu members.

The High Court was told Keenan stole a further $24,000 from another organisation after being fired by Te Whiti Trust Board.

The extended non-parole period was necessary to denounce Keenan for his actions and to deter Keenan and others from similar offending, Justice Churchman said.

R. v. Keenan – High Court (16.12.19)

20.016

Asset Forfeiture: Commissioner of Police v. Nicholls

Admitting to benefit fraud and dealing in cannabis, Richard James Nicholls and Sarah Michelle Nicholls agreed to pay $134,000 in a negotiated settlement under the Criminal Proceeds (Recovery) Act.  In a deal confirmed by the High Court, they were given the opportunity of refinancing a Levin property to raise the necessary cash. 

The Nicholls’ property on McDonald Road, Levin, was subject to a restraining order while police criminal inquiries were underway. Police allege the Nicholls received $81,300 from cultivation and supply of cannabis and $62,900 from benefit fraud. The Nicholls admitted McDonald Road and a Toyota Hilux were purchased in part with funds generated by illegal activities.  They agreed to hand over payment totalling $134,000 plus a boat, outboard motor and trailer.

Commissioner of Police v. Nicholls – High Court (16.12.19)

20.015

Overseas Investment: Land Information v. FFG Investment Ltd

Two property companies part-owned by Chinese offshore interests were ordered to pay fines totalling $123,000 after breaching the Overseas Investment Act; land purchased for subdivision on Auckland’s North Shore adjoined a reserve, triggering the need for Overseas Investment Office consent.  

Kauri Glen Reserve in Birkenhead is listed in the Reserves Act.  Neighbouring land is deemed ‘sensitive land’ requiring government consent before purchase by overseas interests.  In 2013, FFG Investment Ltd purchased 2.8 hectares adjoining Kauri Glen.  FFG was owned forty per cent by Fei Wen, a Chinese national. As an ‘overseas person’ Mr Wen’s stake made FFG also an ‘overseas person.’  A company is an overseas person if more than 25 per cent is owned by overseas interests.  FFG Investment was not aware it needed government consent.

The High Court was told cost overruns on a planned 27 lot subdivision resulted in FFG selling its assets to a new company: Grand Sky Ltd.  It too was an ‘overseas person.’  Mr Wen similarly held a forty per cent stake in Grand Sky.  

The two companies negotiated an agreed penalty of $123,000 for their breach of overseas investment rules.  The penalty payable was reduced because both companies co-operated fully in the Overseas Investment Office investigation.

Land Information v. FFG Investment Ltd – High Court (13.12.19)

20.013

Asset Forfeiture: Commissioner of Police v. Rowland & Zammit

Convicted on seven charges of importation and supply of controlled drug N-ethylpentylone, Matthew Aaron Rowland surrendered assets to the value of $1.75 million as part of a negotiated settlement under the Criminal Proceeds (Recovery) Act, including properties in both New Zealand and the United Kingdom together with cryptocurrency. 

N-ethylpentylone, sometimes called ‘bath salts’, is frequently mis-sold as ecstasy but is far more potent.  The High Court was told of Rowland’s arrest as part of ‘Operation Manuka’ investigating illegal drug deals in the Wellington district.  He was sentenced to four years and seven months imprisonment. Police investigations traced proceeds of drug dealing into: a property in Woodville; a removable house in storage at Upper Hutt, and four United Kingdom properties, in Blackpool.  All were surrendered as assets obtained with the proceeds of crime, together with cash seized from various properties and storage lockers, the proceeds of New Zealand and offshore bank accounts, bitcoins and ethereum held in online wallets under Rowland’s control, plus several motor vehicles and motorcycles.

Associate Ashleigh Marie Zammit pleaded guilty to one representative charge of money laundering; assistance in purchase of tainted assets to the value of $219,400.

Commissioner of Police v. Rowland & Zammit – High Court (13.12.19)

20.012

Real Estate: Wyatt v. Real Estate Agents Authority

Unsuccessful in a complaint against Auckland real estate agent Barfoot and Thompson filed with the Real Estate Agents Disciplinary Committee, Orewa resident Gregory John Wyatt later annoyed industry regulators by setting up a company using a name matching that of the regulator.  The High Court upheld objections, forcing a name change.  

A February 2012 decision of the Real Estate Agents Disciplinary Tribunal records an unsuccessful complaint by Mr Wyatt alleging unsatisfactory conduct by Barfoot and Thompson over sale of rural land owned by a family trust.  Subsequently, Mr Wyatt registered a company named Real Estate Authority Ltd.  Companies Office staff ordered a name change. Battle was joined in the High Court, with regulator Real Estate Agents Authority taking up the running.  It said the company’s name breached the Flags, Emblems and Names Protection Act, prohibiting private individuals using names which suggest government patronage.

Mr Wyatt said the industry regulator’s statutory name is the Real Estate Agents Authority.  This is different from his company name of Real Estate Authority Ltd, he said.  The regulator commonly uses an abbreviated name of ‘Real Estate Authority’ as an operating name in its public pronouncements.

Justice Gault ruled government entities can choose to use abbreviations of their names for trading or for operating purposes.  Mr Wyatt’s company name was so similar as to suggest it was part of or supported by the regulator.  A name change was necessary.

Wyatt v. Real Estate Agents Authority – High Court (13.12.19)

20.011

Mutual Wills: McNeish v. McArthur

A promise to ‘honour your mother’s wishes’ was not enough to establish existence of mutual wills when stepchildren sued unsuccessfully to recover from their stepfather’s estate. 

Lorraine and Ian McArthur married in 1984, each with children from prior relationships.  When Lorraine died in 2005 leaving all her assets to Ian, Lorraine’s children did not contest her will believing they would share in Ian’s estate on his death.  That did not happen.  When Ian died in 2018 his estate passed to his children alone.

The High Court was told Ian and Lorraine signed mirror wills in 2002 each leaving their respective estates to the other, with a gift over should one predecease the other; the survivor’s estate was to be split 50/50 between their respective children: Ian had six children; Lorraine three. When Lorraine pre-deceased Ian, her assets passed to him.  When Ian died, a subsequent will signed in 2013 left all assets to his children.

Lorraine’s children sued, claiming the 2002 wills were mutual wills; Ian was obliged to respect the 2002 arrangement.  Legal rules governing mutual wills require there be an agreement not to revoke mutually agreed arrangements by means of a subsequent will.  These rules are now codified into the Wills Act.  There must be clear evidence of a mutual agreement.

Lorraine’s children said evidence was provided shortly after their mother’s death.  This was when Ian was arranging a shift from Brisbane back to New Zealand and demanding the return of funds they lent Lorraine’s son to purchase a home for Ian’s and Lorraine’s use in Australia.  The High Court was told of considerable tension at the time between Ian and his stepson.  The stepson took Ian’s comments after Lorraine died of ‘honour[ing] your mother’s wishes’ as reinforcing earlier family references indicating each branch of the family would eventually get a fifty per cent share.

Justice Doogue ruled this comment was not clear evidence of mutual wills.  Neither parent had promised they would not revoke their 2002 will.  At no stage had Lorraine’s children been told of any written or oral agreement not to revoke.  Justice Doogue contrasted this situation with other examples of litigation over mutual wills where family conferences had been held and children expressly told the terms of their parents’ wills and told of an agreement not to change those terms.

McNeish v. McArthur – High Court (12.12.19)

20.009

Land Title: Mau Whenua Inc v. Shelly Bay Investments

Development economists point to lack of secure title to land as a common feature holding back economic growth in third world countries.  At risk of being kicked off their land, occupiers cannot borrow for further development.  Lenders refuse to lend.  In New Zealand, the High Court dismissed claims by disaffected Maori that recent changes to land title legislation provided leverage to kick property developer Ian Cassells off his proposed Shelly Bay development in Wellington.

Taranaki iwi received land at Shelly Bay on Miramar peninsular as part of its Waitangi Treaty redress.  Formerly in use as an air force base, the land was valued at $15.2 million on transfer to its new Maori owner: Port Nicholson Block Settlement Trust.  In 2016, Port Nicholson was looking to rationalise its property holdings.  Plans to sell Shelly Bay created a furore: individual Maori adamant the land should never be sold; local citizens critical of development plans.  By late 2019, developer Ian Cassells had cleared multiple local authority consent hearings and judicial challenges to his plans.  He was ready to start, blocked only by a caveat lodged over title to Shelly Bay by individual Maori.  They allege Port Nicholson trustees acted in breach of trust by selling to Mr Cassells’ company and transferring title to Shelly Bay.   Their caveat had the effect of blocking any further dealing with the land.

The Land Transfer Act grants ‘indefeasible’ title to registered owners of land; in general terms, title cannot be overturned unless the now registered owner is guilty of fraud.  Land transfer fraud has a specialised legal meaning.  Individual Maori allege companies associated with Mr Cassells are guilty of ‘fraud’: they got title to Shelly Bay in the full knowledge there was a running dispute over Port Nicholson’s right to sell.  They said changes in 2017 to land title legislation extended the definition of land transfer fraud.       

Associate judge Johnstone ruled a sale accompanied by a vendor’s alleged breach of trust does not affect title to land.  The new owner gets clear title, not open to attack.  The caveat over Shelly Bay was removed. Aggrieved claimants’ remedy is to sue Port Nicholson trustees, Judge Johnstone said. Separate legal proceedings alleging the trustees were in breach of trust have yet to be heard.

Mau Whenua Incorporated v. Shelly Bay Investments Ltd – High Court (6.12.19)

20.008

Fraud: R. v. Demarco

‘The greatest betrayal I have ever experienced:’ Sir Peter Jackson commenting on frauds perpetrated by former employee Eugene John DeMarco.  DeMarco was sentenced to two years five months imprisonment for an elaborate series of lies when selling replica vintage aircraft owned by Jackson’s company, Vintage Aviator Ltd. 

The High Court was told DeMarco brokered the sale of three Vintage Aviator aircraft to New Zealand Warbirds Association in 2016. Funding came in part from a Warbirds’ enthusiast.  Warbirds was told there was an excess mark up of $622,000 on the list price because Warbirds’ benefactor was a friend who wanted to put extra money in DeMarco’s pocket. This was a lie.  The benefactor had never met DeMarco and was unaware of the mark-up, thinking he was paying list price.  Of the $2.1 million paid for three aircraft, none went to Vintage Aviator. DeMarco diverted payment to a company he owned, a company called The Old Stick and Rudder.

DeMarco’s Old Stick and Rudder was used to perpetrate a separate fraud involving a P-40 Kittyhawk.  A DeMarco friend paid US$500,000 for what he thought was purchase of the aircraft and a share in Old Stick and Rudder.  The signed paperwork did not in fact transfer Kittyhawk ownership but did prohibit DeMarco from using the aircraft as collateral for any loans. Despite this prohibition, DeMarco gave mortgage security over the aircraft when refinancing a bank home loan. He fraudulently represented to the bank that he had unqualified authority to use the Kittyhawk as security.

In 1999, a United States court conditionally discharged DeMarco following his conviction for possessing a stolen aircraft.

R. v. DeMarco – High Court (5.12.19)

20.007

Conspiracy: Moeke v. Raukawa Iwi Development

What South Waikato District described as a ‘pre-emptive strike’ blocking the Tokoroa purchase of a potential Head Hunters’ ‘gang pad’ saw Council and property owner Raukawa Iwi Development jointly liable for conspiracy facing damages claims totalling $600,000. 

Ford Moeke is a patched member of the Head Hunters. His signature to a 2018 contract purchasing a site in the Tokoroa suburb of Amisfield caused a stir with rumours it was to be the site of gang headquarters.  The property was put up for sale by Raukawa Iwi Development Ltd. Raukawa has substantial assets following Treaty of Waitangi settlements derived from central North Island Kaingaroa Forests.  Local concerns in Tokoroa saw Raukawa write to Mr Moeke telling him the deal was off. Raukawa immediately sold to the local Council.  Mr Moeke sued.

The High Court ruled Raukawa was liable for breach of contract and Raukawa in conjunction with South Waikato District liable for conspiracy.  The two combined unlawfully with intent to thwart Mr Moeke’s purchase.  Ownership of the Amisfield site has since passed to a bona fide purchaser buying from Council.

Associate judge Sargisson said assessment of damages requires further evidence.  Mr Moeke claims $450,000 for breach of contract.  Ruakawa says damages are minimal; being only the difference between the price he agreed to pay and the property’s current value.  Mr Moeke says the current value is substantial; he had plans to subdivide.  Judge Sargisson said the claim for $150,000 exemplary damages is large compared with past court awards.  Orders for payment of exemplary damages are uncommon; they are ordered as punishment for outrageous behaviour.

Moeke v. Raukawa Iwi Development Ltd & South Waikato District Council

20.004

Bloodstock: Harris v. Berkley Stud

With a seventy per cent interest sold to Cambridge Stud in 2018 for $2.1 million, stallion Highly Recommended stands at the centre of a legal storm over nomination rights and entitlements to share in the sale proceeds.

Part sale of the stallion was made by Berkley Stud, based just outside Christchurch.  Berkley part-financed its 2013 purchase of Highly Recommended with sale of nomination rights.  Thoroughbred purchases can be funded from sale of part shares in the stallion, or from selling nomination rights giving an entitlement to future servicing.  Nomination rights are a form of forward contract; payment upfront for future delivery, in this case future delivery of a service in every sense of the word – the right to mate nominated mares with the stallion.

The High Court was told Berkley sold lifetime nomination rights at $10,000 each.  Nomination holders were entitled to a defined number of service rights.  Nomination rights are likened to tickets in a lottery. If progeny race successfully, the stallion’s market value increases and the nomination right itself becomes more valuable.  There is a downside.  The stallion may prove infertile, die, be sold, or leave progeny which race poorly. Express terms of a nomination agreement typically specify who bears some of these risks.

Purchasers of Highly Recommended nomination rights joined forces to sue for a share of the $2.1 million generated by the stallion’s part sale to Cambridge Stud. They said a plain reading of the nomination agreements entitled them to a two per cent share of the sale price; payment of $42,000 for each nomination right held.  

In the High Court, Associate judge Paulsen ruled in favour of Berkley Stud.  Reading the agreement as a whole, entitlement to share in the sale price arose only if a sale extinguished their nomination rights, he ruled.  Sale to Cambridge Stud did not bring their nomination rights to an end.

Nomination holders argue it is common practice in the throughbred industry for nomination holders to share in any sale price even where nomination rights continue.  This requires a full trial with evidence provided by industry experts, Judge Paulsen said.

Harris v. Berkley Stud – High Court (4.12.19)

20.006

Banking: NZ Association of Credit Unions v. Finzsoft

Facing a rupture to online banking facilities after Credit Union Baywide moved to consolidate control, Co-op Money NZ had the High Court block Finzsoft Solutions’ plans to terminate support for its mobile banking. 

The NZ Association of Credit Unions, known as Co-op Money NZ, provides back-office services for credit unions.  Co-op Money signed a licensing agreement with Finzsoft in 2014 agreeing use of Finzsoft’s mobile banking app for credit unions’ banking customers.  Co-op Money charges participating credit unions.  About 10,000 retail customers regularly use the service.

The High Court was told one Co-op member, Credit Union Baywide, has moved aggressively seeking to gain effective control of the Co-op.  Some credit unions have jumped ship.  Co-op Money NZ had seventeen participating credit unions in 2014; down to three after Baywide sought effective control.  Early November 2019, Finzsoft gave notice of termination; withdrawing Co-op Money’s use of its banking app.  Finzsoft’s licensing agreement allows for termination if there has been a ‘change of control’ at Co-op Money.

At Co-op Money’s request, the High Court suspended operation of this termination notice.  Co-op denies there has been a change of control as envisaged by the licensing agreement.  Next step for Co-op Money is to start talks with Finzsoft triggering a dispute resolution procedure set out in the licensing agreement, Justice Wylie ruled. Co-op Money was warned not to dally; dispute resolution is to be started promptly.  Meanwhile termination is suspended pending further order of the court.

NZ Association of Credit Unions v. Finzsoft Solutions (NZ) Ltd – High Court (4.12.19)

20.005

Yarrow v. Westpac

Paul Yarrow’s 2017 bankruptcy on a $14.8 million Westpac guarantee was confirmed by the Court of Appeal.  In successive claims, Mr Yarrow argued unsuccessfully that the guarantee was a forgery, the debt had been paid and that the guarantee was unenforceable because Westpac was in breach of fiduciary duties owed him as guarantor.   

Founded in Taranaki, Yarrow Bakers had been in family hands for three generations until receivership in 2011.  Six years earlier, Paul Yarrow took control of Yarrow Group, buying out his brother.  Paul signed a guarantee of Yarrow’s Westpac debts in 2009.

When sued by Westpac, he first argued his signature on the guarantee was a forgery.  This was disproved with evidence from the lawyer witnessing his signature.  He then claimed the guaranteed debt had already been repaid by Yarrow Bakers.  Evidence from Westpac proved otherwise.  He then claimed the guarantee was unenforceable; Westpac owed him a fiduciary duty of disclosure and had failed to disclose onerous lease terms affecting Yarrow’s profitability.

The lease in question was a 2007 commercial transaction in Australia called the ‘Minto lease.’  The court was told an Australian Yarrow company owned ultimately by Mr Paul Yarrow’s family trust purchased a commercial site with funding from Westpac Australia, leasing the property to a Yarrow Group subsidiary.  Lease payments generated an 18 per cent yield.  Paul Yarrow argued above market rentals affected Group profitability, prejudicing Yarrow Group.  Westpac’s failure to disclose this information was a breach of fiduciary duty, he claimed, reducing payments due on the guarantee.

Westpac NZ was not aware of the Minto lease when Mr Yarrow signed the bank guarantee, the Court said.  The Minto lease was a Westpac Australia deal.  Mr Yarrow likely knew, or could easily have discovered, terms of the Minto lease before signing the guarantee, it said.  He controlled the ultimate owner of Yarrow Group.  Legal documents provided by Westpac before the guarantee was signed made it clear it was Mr Yarrow’s responsibility to get any relevant financial information he required from Yarrow Group.  Mr Yarrow was an experienced businessman who received his own independent legal advice, the court said.

Yarrow v. Westpac – Court of Appeal (3.12.19)

20.003

Accident Compensation: Hamlton v. ACC

Accident Compensation needs to reconsider weekly compensation payments due an Auckland hairdresser after the High Court overruled repayments demanded totalling $655,000.  With her company employing up to 25 staff at any one time, business net profitability could not simply be imputed to her as income for ACC purposes.

By rich-world standards, New Zealand has a high proportion of closely-held companies.  Director/shareholders have a discretion as to how resources are extracted from their company: shareholder salary; loans; directors’ fees; or dividends. Sandy Hamilton, owner of Auckland hairdresser Olette, challenged Accident Compensation assessment of earnings related compensation payable while she worked part-time recovering from injuries suffered during childbirth in 1999.

The High Court was told Accident Compensation alleged Ms Hamilton restructured benefits she received from Olette after 2004 to increase accident compensation payments.  Previously, she was paid by Olette as a shareholder/employee, with earnings related compensation supplementing her income for the reduced hours worked.  Restructuring in 2004 saw the shareholder/salary removed and Ms Hamilton instead being paid an agreed hourly rate for hours worked.  At one point, Accident Compensation had Ms Hamilton under covert surveillance to check she was working only the hours she said she was working; this investigation revealed nothing untoward. 

In response to the 2004 restructuring, Accident Compensation reduced compensation payable, arguing there had been no loss of earnings in any real sense; benefits received as an Olette director should be included as ‘income’ received.  It calculated 75 per cent of company net profit should be imputed as income received for Accident Compensation purposes.  This had the effect of reducing ongoing weekly compensation.  For the income years in question, company net surpluses were in six figures, exceeding $200,000 some years.  Accident Compensation alleges Ms Hamilton was ‘overpaid’ $655,200 in earnings related compensation for the years 2004 to 2015.

Justice Edwards ruled it was too simplistic to assume 75 per cent of net profits is income received by Ms Hamilton.  She is one of two directors of Olette.  A family trust is majority shareholder.  Accident compensation legislation requires assessment of ‘reasonable remuneration’ for shareholder/directors in closely-held companies.  Any surplus beyond this is a ‘dividend’ imputed to shareholders; in this case imputed to the Hamilton family trust.

Accident Compensation made no attempt to determine what should be ‘reasonable director’s remuneration’ for a person in the position of Ms Hamilton managing a business with income derived from a substantial staff roster.  Former levels of weekly compensation were reinstated until such time as Accident Compensation reviews its assessment.

Justice Edwards commented any distributions received by Ms Hamilton as beneficiary of her shareholder family trust were not to be treated as ‘income’ from her hairdressing business when calculating earnings related accident compensation.

Hamilton v. Accident Compensation Corporation – High Court (27.11.19)

20.002

Land: Koro Pue Whanau Trust v. Tapatu

After issuing trespass notices and calling for police assistance over an eight year period, all to no avail, owners of Taranaki Maori freehold land took to the High Court for an order clearing relatives off land near New Plymouth.  

In 1955, Renata Te Pue gifted part of his land on Everett Road to daughter Peggy and her husband Raymond Tapatu.  Te Pue later sold the balance of his holding to son Koro. The High Court was told of long-standing differences over the boundary division between brother and sister.  Trustees of the Koro Pue Whanau Trust, now holding Koro’s share, complain that Tapatu whanau have encroached on about one acre of Trust property having built a boundary fence enclosing a small residential building, shed, caravan and septic tank all sited on Trust land.  Trustees also complain water supply on its property is being diverted to the Tapatu property.

Back in July 2011, the Maori Land Court ordered the Tapatu family shift off disputed Trust land.  Enforcement procedures were ignored.  At the Trust’s request, a High Court possession order was issued to force compliance with the Maori Land Court order.

Koro Pue Whanau Trust v. Tapatu – High Court (20.11.19)

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Shop Vouchers: Commerce Commission v. Home Direct

Unless there is a countervailing customer benefit, retail vouchers which cannot be exchanged for cash or which expire after twelve months are prohibited following a Commerce Commission test case. 

The Commission challenges unfair terms in standard form consumer contracts.  It took legal action against New Zealand’s largest mobile shop trader, Home Direct Ltd. Home Direct sells clothing, toys, electronics, furniture and whiteware on credit.  The High Court was told Home Direct credit contracts allowed it to continue debiting customer accounts after payment of the original debt.  The resulting credit balance was converted into a ‘voucher entitlement.’  Vouchers could be used only for Home Direct purchases.  They could not be converted to cash. They expired after twelve months. Some $644,000 was forfeited to Home Direct over several years of the scheme’s operation.

Home Direct accepted these terms were unfair.  A High Court ruling under the Fair Trading Act was needed to formally declare such terms unfair.  This court ruling affects the retail operations of any ‘person,’ not just Home Direct.

Commerce Commission v. Home Direct Ltd – High Court (12.11.19)

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Bankruptcy: Yoonwoo C&C Development v. Huh

Chased to New Zealand on debts allegedly arising from his failed Korean construction company, Jae Ho Huh hid from pursuers appearing in court only when threatened with bankruptcy.  He was given time to dispute a $2.1 million debt allegedly owed; bankruptcy averted.

The High Court was told Mr Huh previously controlled Korean property company Dae Joo Group with annual turnover in excess of seven billion dollars.  The business collapsed.  Mr Huh left Korea for New Zealand, unwilling to return for fear Korean authorities might take action for alleged breaches of tax law.

Meanwhile, Yoonwoo Development Corp took action in Korean courts for breach of contract.  Under Korean law, litigants can reach a settlement over a dispute and have their agreement filed in court, having effect of a court order.  Litigants acknowledge acceptance by affixing their seal to the agreement.  There is a register of seals to identify ‘signature’ of formal documents.  Armed with a Korean court order for $2.1 million ostensibly marked with the seals of Mr Huh’s companies and Mr Huh’s personally, Yoonwoo sued in the New Zealand courts to get an enforceable New Zealand court judgment for $2.1 million.  Evidence was given that Mr Huh proved evasive, avoiding personal service of intended New Zealand court proceedings.  Notice was given by advertisement.  Mr Huh made no court appearance.

When Yoonwoo then attempted to bankrupt Mr Huh in New Zealand courts on the $2.1 million court judgment, he appeared in court claiming he was unaware of the Korean court case and that the seal affixed to the agreement was not his; he did not owe Yoonwoo anything.  Associate judge Bell dismissed the bankruptcy application; a full court hearing is needed to establish the validity of Yoonwoo’s claim against Mr Huh.  Judge Bell stymied further evasive tactics; Mr Huh is to place on the court file details of his residential address and his lawyers are authorised to accept on his behalf service of all legal documents.

Yoonwoo C&C Development Corporation v. Huh – High Court (11.11.19)

Insurance: Frucor v. Blumberg

Insurance industry tactics of ‘deny, delay and dispute’ saw the Court of Appeal sharply criticise industry attempts to run out of town start-up operations by Right2Drive which provides temporary car rentals to ‘not-at-fault’ drivers waiting for insurers to repair damaged vehicles.  Insurance companies were told to read the law and comply with the rules, rather than being obstructive.

Right2Drive took to the courts owed $4.9 million in claims denied by Vero, AMI Insurance and AA Insurance.  Tower, YOUI and AIG had similarly refused to meet Right2Drive claims.

Using a business model available in Australia and the United Kingdom, Right2Drive specialises in hiring replacement cars to ‘not-at-fault’ drivers whilst their damaged vehicle is under repair.  It started New Zealand operations in 2016.  Car repairers typically refer car-less drivers to Right2Drive as it is more convenient than having the repairer provide a courtesy car as a temporary fix.  The Court of Appeal was told Right2Drive has the driver sign a hire contract, but there is an understanding that it will waive recovery of any hire charges not recovered from insurers.  Temporary hire of a replacement vehicle is a natural consequence of the ‘not-at-fault’ driver’s car being damaged by a negligent motorist.  The negligent motorist’s insurer is in the gun for this cost; a third party claim in insurance jargon.

Vero argued the insurance industries side: the ‘not-at-fault’ driver had incurred no expense; the cost of Right2Drive hire was too expensive; no interest should be paid on late payment to Right2Drive.  All these defences were rubbished by the Court of Appeal.

The ‘not-at-fault’ driver is contractually committed to paying Right2Drive hire charges (though in fact they are not going to be demanded); the daily hire rates together with delivery and pick-up charges were reasonable; interest on late payment was reasonable – insurers get a free ride otherwise by delaying payment.

Vero told the Court of Appeal drivers could first approach insurers to get use of a replacement vehicle.  This is an option not advertised on insurance company websites and insurance companies do not make a habit of taking the initiative offering temporary replacements to not-at-fault drivers, the Court pointed out.

Operation of the business model used by Right2Drive had survived challenges in the courts of Australia and the United Kingdom, said the Court of Appeal.  Instead of being seemingly intent on knocking Right2Drive out of business, it is to be hoped New Zealand’s motor vehicle insurers will now accept Right2Drive is providing a service that should be available to not-at-fault drivers, the Court of Appeal said.

Frucor Beverages Ltd v. Blumberg – Court of Appeal (11.11.19)

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Unsolicited Emails: Internal Affairs v. NZ Trustees Association

Errol Anderson, founding trustee and former registrar of NZ Trustees Association, was ordered to pay $8000 and the Association itself pay $36,000 as penalties for sending thousands of unsolicited emails, part of a marketing campaign. 

The Unsolicited Electronic Messages Act prohibits mass email marketing campaigns without recipient consent. 

NZ Trustees Association Charitable Trust was established in 1997 offering information for trustees and company directors in performance of their legal duties.  In 2016, it chose to deregister as a charity after a bruising legal battle over its advertising methods.  The High Court was told NZ Trustees commenced a membership drive in October 2015 aimed at 26,000 charities offering what it called a ‘donation of membership.’  NZ Trustees offered twelve months free membership to subscribers with annual membership fees payable in subsequent years. Members received a website listing, access to an 0800 number, an email helpdesk, support services and copies of NZ Trustees publications.  On eight separate occasions, a total of more than 53,000 unsolicited emails were sent to over 14,000 recipients.  More than one hundred complaints were made to Internal Affairs.  As a membership drive, the campaigns were moderately successful; revenue increased by $48,500.

NZ Trustees compounded its legal difficulties by sending out further unsolicited emails requiring payment of annual subscriptions after being warned by Internal Affairs that it was under investigation and that mass solicitation should stop.  NZ Trustees subsequently retracted these emailed invoices and apologised to recipients.       

Both NZ Trustees and Mr Anderson were fined for breaching the Act.  Mr Anderson received no direct financial benefit from the mass mailout, but was largely responsible for its implementation, Justice Lang said.  Mr Anderson’s application for name suppression was dismissed.  Embarrassment on publication is not grounds for suppression, Justice Lang said.  Mr Anderson has more than two decades involvement in the trust sector.

Internal Affairs v. NZ Trustees Association Charitable Trust and Anderson – High Court (21.10.19) & (8.11.19)

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Asset Forfeiture: Commissioner of Police v. D'Esposito

Fines in excess of one million dollars imposed for breaches of the Fisheries Act were followed with proceeds of crime penalties totalling $318,900.  Marcus D‘Esposito, Joe D’Esposito and Nino D’Esposito did a deal to have their real estate holdings in the Hawkes Bay released from a government restraining order in return for a cash payment.

Along with related fishing interests, the three pleaded guilty in February 2019 to breaches of fisheries regulations, under-reporting catches.  They personally paid $324,900 in criminal fines for fisheries breaches.

Legal action was also taken under the Criminal Proceeds Recovery Act with freezing orders placed on real estate, motor vehicles and cash. The High Court approved a settlement negotiated under the Act with payment of $318,900 representing the commercial value of 27 tonnes of misreported bluenose fish and 1100 kilograms of paua shellfish unlawfully received.

Commissioner of Police v. D’Esposito – High Court (7.11.19)

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Contract: Oxygen Air Ltd v. LG Electronics Australia

LG Electronics Australia was awarded $583,100 damages in a counter claim against Auckland air conditioning installer Oxygen Air Ltd after their distribution agreement ended acrimoniously. Oxygen Air failed in a claim against LG for $1.54 million damages with director Eddy Rotteveel alleging LG Electronics failed to perform its side of the distribution agreement.  

Oxygen Air and LG Electronics joined forces in 2009 with Oxygen given exclusive distributorship rights for heat pumps and ducted air conditioning units within New Zealand and Pacific islands.  The High Court was told of ongoing complaints by Oxygen about product supply and provision of technical support.  Matters reached a head in February 2015; Mr Rotteveel made it clear Oxygen Air no longer wanted any dealings with the LG brand, current deliveries would not be paid for and stock in store would be sold with proceeds going towards legal action against LG Electronics.

Legal action centred on calculation of damages. Oxygen Air said its distribution agreement entitled it to damages for loss of profits.  Justice Powell ruled this formula applied only if LG Electronics were in breach of contract.  It wasn’t in breach, he said.  Oxygen Air instead owed LG Electronics $583,100 for units delivered but unpaid.

Part of Oxygen Air’s claim for $1.54 million damages was an allegation that it was shut out of a distribution agreement held with LG Electronics for installation of solar panels.  Evidence was given of Oxygen Air lobbying to get the distributorship and acting behind LG Electronics’ back in setting up a website claiming to be a distributor.  There was no appointment.  LG Electronics internal documents showed Oxygen Air had been considered as a distributor but rejected; it was proving a difficult customer over supply of air conditioning units and had no expertise in solar panel installation.

Oxygen Air Ltd v. LG Electronics Australia Pty Ltd – High Court (6.11.19)

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Family Trust: Young v. Hunt

In the four years prior to his death in July 2015, John Hunt as trustee of the Twiss Family Grandchildren’s Trust misappropriated $181,000 with payments into his own bank accounts.  His widow was ordered to repay $146,000, trust monies which her late husband paid into a joint account she had access to.  

The Twiss Family Trust was established in 1991 by Margaret and Richard Twiss.  It came to an end in August 2016 with descendants Thomas and Simon Young final beneficiaries.  They discovered substantial defalcations made by the late John Hunt when he was a trustee. They sued his widow, Jennifer Hunt. Associate judge Johnstone ruled she was liable to repay $146,175 paid by her late husband into a joint account he shared with her.  On her husband’s death, she gained sole ownership of the account by survivorship. Ms Hunt said she had no knowledge of her late husband’s theft.  She was an innocent party, she said.  On her husband’s death she was left in a poor financial position; was forced to sell the family home and is now living in rented accommodation with a pension her only income.

Judge Johnstone said Ms Hunt was liable to repay the $146,000 jointly received on grounds she had been unjustly enriched. Any lack of knowledge about where the money came from was of no relevance.

Legal action is pending against Mr Hunt’s estate for the remaining $35,000 he paid into a bank account in his sole name.

Young v. Hunt – High Court (1.11.19)

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Relationship Property: Hare v. Hare

Charging orders for unpaid child support registered over the family home are secured debts deducted from the sale price before division of relationship property, the High Court ruled in a test case.

Kelly-Anne Hare argued child support was her spouse’s personal debt and should not be taken into account when assessing value of relationship property.  Once a charging order for unpaid child support is registered against title to the family home under the Child Support Act it becomes a secured debt charged against the home, the High Court ruled. 

Ms Hare and her spouse Jonathon Keith Hare had been in a de facto relationship for over three years before Mr Hare was adjudicated bankrupt in March 2016.  Their family home in the Wellington suburb of Tawa was owned solely by Mr Hare.  The length of their relationship entitled Ms Hare to claim a share as relationship property.

Evidence was given that the house owned by Mr Hare now has a market value of about $320,000.  Registered against the title is a bank mortgage ($86,000) and a child support charge ($81,900).  The child support arises from a prior relationship.  This charging order was registered before his de facto relationship started with Kelly-Anne.

With the child support charge excluded on a notional sale of the family home, as Ms Hare argued, a half share of the equity would amount to $120,000.  Of this $120,000, she would receive $103,000 as a ‘protected interest’ specified in relationship property legislation.  With the child support charge included, as the High Court ruled, she is entitled to $78,500.  The court was told Ms Hare is negotiating with Insolvency Service to buy out her bankrupt spouse’s interest in the home.

Hare v. Hare – High Court (31.10.19)

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Partnership: Patel v. Patel

Having agreed to jointly develop an Auckland property eventually sold for $1.485 million, Pareshkumar Patel and Prakashkumar Patel were required to share profits equally.  Prakash put up most of the money; Paresh managed the project.

In May 2014, the two agreed to redevelop a property available for sale on Ashgrove Road, Mangere.  Prakash was a courier driver; Paresh a real estate agent.  They are not related, but had been acquaintances for many years.  The High Court was told their plans were to relocate a house on the 1.3 hectare property, then divide the property into three titles putting houses on the two new sites.  In what was later to be a point of contention, Paresh shifted a house off one of his other properties onto the Ashgrove site; a free gift said Prakash, a financial contribution said Paresh.  Justice Gwyn was to later count this relocated house as a $55,000 financial contribution by Paresh.

The High Court was told Prakash put $776,530 cash into the project.  Paresh’s financial contribution was assessed at $252,100.  When all three properties were sold, Prakash refused to repay Paresh his financial contributions or to hand over any share of the profit.  Prakash claimed their deal was limited to the two new sections carved out of the original site.  Paresh sued.  

Justice Gwyn ruled their business venture was governed by the Partnership Act.  They were carrying on a business in common with a view to profit.  There are no formal requirements to establish a partnership. An informal oral arrangement can amount to a partnership.  The default rule in the Partnership Act is that profits are shared equally.  The two had agreed financial contributions with interest calculated at six per cent would be repaid before division of profits, Justice Gwyn said.  After return of financial contributions plus interest, profits from development of all three lots are to be shared equally, she said.

Patel v. Patel – High Court (22.10.19)

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Constructive Trust: Avon Parnell Ltd v. Chevin

Bankrupted four times and with criminal convictions for dishonesty, Peter Louis Chevin is alleged to have fraudulently seized control of an Auckland property company, raising a million dollar loan on security of company assets.

Avon Parnell Ltd owns two properties in the Auckland inner city suburb Parnell.  On incorporation in 2015, ultimate ownership of the company lay with Auckland property developer Tim Edney.  It is alleged Mr Chevin, acting without authority, changed Companies Office records online in May 2019 naming Russell PKR Trustee Ltd as Avon Parnell’s sole shareholder and Mr Chevin’s associate Mr Clark Valmont as sole director.

In June 2019, Mr Edney’s son-in-law learnt a million dollar Kiwibank loan had been raised on Avon Parnell assets with $990,000 paid across to a bank account controlled by Mr Valmont.  Further transfer of this money was frozen by the High Court.

Avon Parnell sued, claiming the $990,000 frozen funds is held on constructive trust demanding the money be returned.  Late to file a defence, the High Court gave Mr Chevin seven days to get his defence filed in court.  Mr Chevin claims he has an agreement with Mr Edney to use Avon Parnell as a vehicle for the purchase of a family home.

The High Court was told Mr Chevin assisted with the 2015 incorporation of Avon Parnell.  It is alleged he retained Companies Office log-in and password details, later gaining online access to change ownership.

Avon Parnell Ltd v. Chevin – High Court (11.10.19)

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Family Trust: Addleman v. Lambie Trust Ltd

Beneficiaries of a family trust are entitled to copies of the trust deed and trust financial statements, they do not first have to prove any breach of trust by trustees, the Court of Appeal ruled in a case where one sister is looking to identify funding for assets valued at over $17 million dollars in November 2002 held in a trust controlled by her sibling.

Prudence Addleman was surprised to learn in 2002 that she was the beneficiary of a family trust.  This when receiving a cheque for $4.25 million and being told this was her full entitlement under the trust.  Trustees refused to provide any further information, other than later providing a copy of the trust deed.  After getting lawyers involved, she was told she was a discretionary beneficiary under a trust established with funds received by her sister Annette Jamieson as compensation for an accident in the 1970s when Annette was a teenager and left as a quadriplegic.  Disclosure of further information was refused; Annette was entitled to her privacy, trustees said.    

Prudence was entitled to more information, the Court of Appeal ruled.  Annette’s compensation was in 1990 put into a family trust called the Lambie Trust, used primarily for property development including the development of a 42 hectare block of land near the Auckland suburb of Howick.  Nominal settlor of the Lambie Trust was a cousin, property developer Robert Palmer.  It was unlikely that Annette’s compensation was sole source of funds for the Howick development, said the Court of Appeal.  With Annette’s one million dollar compensation payout being used for ongoing medical support and also used to buy houses in both London and later the United States, there would be insufficient free funds sourced from Annette’s compensation to finance large-scale property development.  She currently lives in Australia; Prudence lives in England.

The Lambie Trust could not be categorised as a ‘sole purpose’ trust for the benefit of Annette alone, the Court of Appeal said. Funding apparently came from sources other than Annette’s compensation.  Annette is not the sole trust beneficiary.  Sister Prudence was entitled to more information.  Prudence is now aged 70; Annette 66.  They are the only two named as final beneficiaries of the Lambie Trust remaining alive.  They have been estranged for the past twenty years.

Addleman v. Lambie Trustee Ltd – Court of Appeal (4.10.19)

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