Embezzlement: Sharma v. Mundath

Early 2018, accountant Mujeeb Rahiman Mundath left New Zealand for Sydney.  He has not returned.  Former employer, the Sharma Group having interests in hotels, motels and restaurants, alleges he embezzled at least $5.4 million from the group.  Freezing orders have been imposed on assets both in New Zealand and Australia.

In the New Zealand High Court, Associate judge Bell ordered Mr Mundath pay $4.69 million; the amount Sharma Group incontrovertibly proved Mr Mundath embezzled.  Claims for the balance allegedly taken require a full court hearing. Mr Mundath alleges the Sharma group is party to immigration fraud and tax fraud.  

The High Court was told the Sharma group is a mix of companies and trusts associated with the families of three brothers: Rakesh Sharma, Ashok Sharma and medical practitioner Dr Vinod Sharma.  They say Mr Mundath was employed by them at an annual salary of $75,000.  They trusted him.  He handled the group’s financial accounting and tax affairs.  He has a commerce degree.  He started, but did not complete, his professional accountancy exams.

Mr Mundath left for Sydney when his honesty was questioned; an unusual payment of $394,800 was queried.  A forensic accountant was called in.  She made a painstaking analysis of some 2800 financial transactions involving Mr Mundath covering eight years he was with Sharma group.  These transactions totalled $9.2 million; all but $104,900 was paid into bank accounts under the control of Mr Mundath including accounts in his name and his wife’s name.  Mr Mundath claimed these were reimbursements for payments he made on behalf of the Group.  Some were in fact reimbursement, but not all, the forensic accountant said.

Evidence was given of Mr Mundath arranging cash payments for contractors and suppliers.  Mr Mundath said he was then instructed to record the payment against other accounts so that tax deductions could be claimed.  There was evidence of business invoices paid twice; the second payment going into an account controlled by Mr Mundath.  Mr Mundath said Vinod Sharma and Rakesh Sharma told him to pay business GST refunds into bank accounts he controlled to hide from other family members that personal expenses were being run through business accounts. Mr Mundath set up fictitious payroll records, recording additional wages for existing employees and also wages for ‘ghost’ employees, with payments into bank accounts he controlled.  He alleges these transactions were company policy, designed to cover an immigration fraud run by the Sharma group where immigrants without work visas were taken on and where others with work visas were paid less than their employment contract stated.  The Sharma brothers deny any involvement in tax fraud or immigration fraud. The forensic investigation identified that most of the payments made into bank accounts controlled by Mr Mundath used a false payee description to disguise the fact payment was going to him.

Mr Mundath owed a fiduciary duty to the Sharma group not to take unauthorised personal benefits when arranging payments.  It is implausible to say the millions of dollars unaccounted for were reimbursement for Sharma debts he had paid in cash, Judge Bell said.

Even if the Sharma group were involved in tax fraud and immigration fraud, said Judge Bell, Mr Mundath is still liable to repay money taken.

Sharma v. Mundath – High Court (24.01.19)

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Credit Contract: Watherstone v. PGW Rural Capital Ltd

The High Court struck out attempts by north Canterbury farmer Richard Watherson to re-open PGW Rural loan contracts for charging allegedly excessive interest rates.  A one year time limit applies to interest rate challenges against financiers calling up current account loans.

Financially over-extended with redevelopment plans for a 2900 hectare north Canterbury property known locally as The Doone, Mr Watherston’s properties at both The Doone and Rocky Peaks were put into receivership by PGW Rural Capital Ltd in May 2013.  The High Court was told PGW Capital suffered losses of some $1.8 million. Five years after the receivership commenced, Mr Watherston challenged interest rates PGW Capital charged.  He wanted interest rates reduced under the Credit Contracts and Consumer Finance Act.  He alleges the rates charged were above market rates, contrary to representations made at the time of the loan.  He claims a reduced interest rate would have enabled successful redevelopment of The Doone.

The High Court was told PGW demanded Mr Watherston repay his current account debt in May 2013, the day receivers were appointed. The date demand was made to repay all advances became the date on which ‘the last obligation had to be performed under the credit contract’ Justice Dunningham ruled.  Unlike a term loan, a current account debt does not have a due date for payment until demand is made.  Mr Watherston had twelve months from the date repayment was demanded to challenge terms of the contract.  Suing five years from that date was outside the twelve month time limit set by the Act. Being under a contractual obligation to also pay PGW Capital’s enforcement costs, which were incurred later in the course of the receivership, did not push out the start point for calculating time limits.

Watherstone v. PGW Rural Capital Ltd – High Court (23.01.19)

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Tenders: Rintoul Group v. Robson

Suing former council engineer Jacqueline Robson, contractor Rintoul Group alleges she maliciously blocked it from getting any infrastructure contracts over a two year period before she left Far North District Council in 2017. 

Ms Robson’s application to strike out the claim was refused; Rintoul’s allegations now get a full court hearing.  Okaihau-based Rintoul alleges Ms Robson acted with targeted malice when it was unsuccessful for all seventeen of its bids for infrastructure contracts between 2015 and 2017: to build parts of the Twin Coast cycle trail, repair roads and carry out upgrades.  In separate litigation, Rintoul was paid an undisclosed sum in an agreed settlement with Far North in a dispute over the award of contracts for four sections of the cycle trail.

Successful claims for misfeaseance in public office are rare.  Allegations of malice require a very high standard of proof; akin to allegations of fraud.  Ms Robson says she followed the rules.  She did not evaluate tenders.  She did no more than act on the recommendation of council tender evaluation teams, she says. A former Far North civil engineer, now living in Queensland, says it was not that straightforward.  He alleges Ms Robson could and did influence how contracts were awarded: on occasions she picked the team members for tender evaluations; she did not always approve recommendations made by tender evaluation teams; and she did refer teams’ recommendations back for further review. It is alleged on one occasion Ms Robson sent back a recommendation with the comment Rintoul was not going to be given another contract.  Associate judge Bell ruled a full court hearing was necessary to resolve these clear conflicts in the evidence.

As an alternative, Rintoul claims Ms Robson failed to act in good faith and did not award tenders on merit.

Rintoul claims compensation for contracts not awarded. It also wants exemplary damages.  Ms Robson now works in the private sector.

Rintoul Group Ltd v. Robson – High Court (23.01.19)

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Honey: Te Tumu Miere Ltd v. Zealande Ltd

An industry-wide problem of widespread theft of both bees and honey surfaced in litigation between Te Tumu Miere Ltd, owned by the Maori Trustee, and apiarist Zelande Ltd.  Zealande refuses to hand over hives until paid its management costs.  

Having oversight of some 100,000 hectares of Maori-owned land, the Maori Trustee set up Te Tumu Miere Ltd as a service company to link owners of Maori land with the honey industry, helping Maori generate income through honey collected from their land.  The project was not a commercial success.  Te Tumu is in liquidation.  The liquidators’ initial report states that Te Tumu directors blame its failure on unsustainable losses and an ‘incorrigible management contract’.

In the High Court, Te Tumu sued Auckland-based apiarist Zealande Ltd demanding possession of 1500 hives purchased from Zelande. Zealande claims a lien over the hives for unpaid management fees.  Te Tumu does not know where the hives are located.  Evidence was given that hive location is a carefully guarded commercial secret.  With hives commonly situated in remote rural areas, theft is rife.  Within the industry, employee poaching is commonplace. A new employee brings not only industry skills, but also knowledge of competitor’s hive locations.

Zelande’s management contract with Te Tumu was due to run until 2022.  Zealande says it cancelled its management contract with effect from September 2018. Te Tumu liquidators want possession of the hives to be on-sold as a company asset; Zealande says biosecurity legislation requires oversight of the hives by qualified staff, which it offered to provide at a fee of over $100,000 until handover in late April at the end of the season.

Justice Jagose refused Te Tumu’s request for a third party to assume management of the hives.  Te Tumu was lax in taking steps to get possession, he said.  There is nothing unjust in Zealande demanding payment for management costs; it was left to manage the hives by default when the relationship with Te Tumu broke down.

As a last-minute compromise, Te Tumu offered to pay into court the fees demanded by Zelande provided Zelande delivered the hives to an agreed site within six weeks.  The two warring parties need to work out the mechanics of such an arrangement if they want it incorporated into a court order, Justice Jagose said.

Te Tumu Miere Ltd (in liquidation) v. Zealande Ltd – High Court (4.01.19)

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