Tourism: ANZ Sky Tours v. Tourism New Zealand

Tourism New Zealand’s proposed cancellation of Auckland-based ANZ Sky Tours status as an accredited inbound tour operator for Chinese tourists was quashed by the High Court.  Cancellation was a disproportionate response to a commercial dispute between Sky Tours and mainland Chinese travel agent Shanghai Donghu International Travel, Justice Cull ruled.

Donghu complained to Tourism NZ about Sky Tours performance on a nine-day tour commencing early March 2017.  Donghu’s allegations that Sky Tours ‘abandoned’ customers and ‘left them without accommodation’ was described by Justice Cull as extravagant language; the incidents complained of had to be viewed in context.

The High Court was told the tour did not start well on day one; alternative accommodation had to be found when the scheduled Greymouth hotel did not have rooms available.  During a scheduled stopover in Arrowtown on day two, the tour leader went ahead on the tour bus to check accommodation for the next three nights in Queenstown.  The tour bus returned several hours later to pick up the tour party.  Donghu complained Sky Tours had ‘abandoned’ its customers.  Overnight, Donghu arranged for another operator to transport the tour party on the next day’s scheduled trip to Milford Sound.  Sky Tours advised the hotel another operator was now in charge and cancelled its booking for the remaining nights.  Tour members baggage was removed from rooms, whilst the tour party was at Milford Sound.  Sky Tours did not want to be saddled with the bill; previous late payments from Donghu had damaged Sky Tours creditworthiness with the hotel.  Donghu was later to say it intervened in respect of the Milford day trip only and it was intended Sky Tours would then pick up the balance of the tour.  Sky Tours said there had been three prior instances of Donghu cancelling tours, leaving Sky Tours with the cost of unused bookings.  Donghu complained to Tourism NZ alleging Sky Tours was not fit to be accredited as an in-bound tour operator.

In 1999, an inter-government co-operation agreement between New Zealand and the People’s Republic of China set up rules governing organised tours by Chinese nationals.  Tours must be arranged and led by an approved inbound tour operator; each tour party enters New Zealand on a single group visa.  Tourism NZ accredits operators for tours within New Zealand and enforces a published code of conduct.  There are 37 approved tour operators.

Acting on Donghu’s complaint, Tourism NZ recommended Sky Tours’ accreditation be revoked.  This was a disproportionate penalty, Justice Cull ruled.  Sky Tour has eighteen years’ experience in the tourism market.  There had been no previous complaints to Tourism NZ about Sky Tour; other accredited operators had committed 25 breaches or potential breaches of the code in the previous calendar year.  Tourism NZ was ordered to reconsider the facts surrounding Donghu’s complaint and reconsider what penalty (if any) was appropriate.

ANZ Sky Tours Ltd v. Tourism New Zealand – High Court (30.04.19)

19.081

Timeshare: Body Corporate 46051 (Village Resort)

Village Resort timeshare on Taupo’s Lake Terrace has sold for $6.5 million with owners holding ‘fixed weeks’ to receive about $10,000; ‘floating weeks’ $5000.

Village Resort consists of 22 units.  Management told the High Court increasing costs were discouraging timeshare ownership.  Owners defaulting on annual fees were proving difficult to trace. While industry-wide there is still a demand for fixed weeks (which are usually over the Christmas holidays) there is little demand for floating weeks.  Annual levies of $800 to $1000 make it an expensive week’s holiday for many. The lack of value in floating weeks is evidenced by many being offered around New Zealand for sale at zero cost.  The underlying property value can be paid out to existing timeshare owners by cancelling their timeshare unit title structure and having the owners jointly sell. 

Breaking up a timeshare requires a majority vote by timeshare owners and High Court approval under the Unit Titles Act. Timeshare owners lose their contractual rights of occupation, becoming part-owners of the former timeshare property in shares proportionate to their timeshare interest.

At a Village Resort general meeting in October 2018, timeshare owners approved cancellation.  A valuation report valued fixed weeks at twice the value of floating weeks.

Owners of two Village Resort floating weeks objected to High Court approval for cancellation.  Justice Ellis overruled their objections.  All procedural requirements under the Unit Titles Act had been properly followed.  The objecting owners were not prejudiced; their floating weeks which in all likelihood have little economic value will be paid out at about $5000 for each week.  Timeshare owners with annual fees in arrears will have these arrears deducted from their payout.

re: Body Corporate 46051 (Village Resort) – High Court (30.04.19)

19.080

Trademark: Target Australia v. Target New Zealand

Trademark protection is lost if registered branding is not used continuously for a period of three years. Selling via an off-shore website with products couriered to New Zealand does not count as ‘genuine use in the course of trade’ in New Zealand.

When Target Australia challenged advertised use of the word Target coupled with the image of a bullseye target by unrelated company Target New Zealand, its legal threat re-bounded.  Target New Zealand immediately challenged Target Australia’s New Zealand trademark registrations on grounds of lack of use.  The Trade Marks Act gives protection to registered trademarks only if in genuine use. 

Target Australia is part of Wesfarmers group. It has over three hundred department stores in Australia selling clothing and household items.  Customers in New Zealand can purchase Target Australia products on-line.  Target New Zealand sells furniture.

In 1995, Target Australia registered, in New Zealand, trademarks for its name and bullseye logo in relation to bedding, clothing and footwear, amongst other goods.  Nine years later, Target New Zealand registered a similar trademark for furniture and accessories.  Heads butted in May 2015 when Target Australia took exception to Target New Zealand selling bed linen using the Target name and logo.  Target New Zealand was threatened with legal action.  It retaliated.

Justice van Bohemen ruled Target Australia had lost trademark protection through lack of use in New Zealand.  Selling into New Zealand out of an Australian website did not count.  Claims by Target Australia that it also had a New Zealand website presence were dismissed. The court was told Target Australia had negotiated with TradeMe for sale of Target Australia products online in this country.  Sales of Target-branded clothing through TradeMe’s website did not start until early 2016, outside the earlier three-year period Target New Zealand relied on as evidence of no ‘genuine use’.

The High Court was told Target New Zealand moved quickly in July 2015 to pique Target Australia by registering in its name the disputed trademark for categories of goods previously reserved to Target Australia. It now holds the trademark rights, given that Target Australia’s rights lapsed through lack of use.  Target Australia did claim a minor victory.  It retains New Zealand trademark protection in respect of bed linen, having provided proof of ‘genuine use in the course of trade’ with retail sales of bed linen made through Kmart stores in New Zealand. 

Target Australia Pty Ltd v. Target New Zealand Ltd – High Court (30.04.19)

19.083

Tender: English v. Foley

It started as two locals scoping a potential Queenstown development for Hong Kong resident Marc Holtzman.  When Mr Holtzman dropped out, Queenstown builder Wayne Foley and farming consultant Conor English were left arguing over who is entitled to the economic benefit of Laurel Hills development overlooking Shotover River.

After an initial High Court hearing, Associate judge Lester ruled the two at best had a ‘deal to do a deal’ and further evidence was needed to identify who is entitled to the profits.  The court was told Mr English drew to Mr Holtzman’s attention the potential of subdividing Laurel Hills.  Mr Holtzman in turn sought advice from Mr Foley who had just completed a substantial Queenstown home for him.  Mr Foley cautioned against any project requiring local authority consent.  Meanwhile, Mr Conor proceeded to scope the project. With encouragement from Mr Holtzman, he liaised with Mr Foley.  Mr Foley submitted a conditional tender, with Mr Conor overseas at tender closing date in April 2018.  Mr Conor had discussed with Mr Holtzman a tender price of five million dollars with a due diligence period.   

With Mr Holtzman’s withdrawal from the project, Mr Foley said the project was his alone.  He never agreed to enter into a joint venture with Mr Conor, he said.  He had never met him.  Mr Conor argued Mr Foley submitted the tender as agent on his behalf, or failing that, the two were joint venture participants in the Laurel Hills project.  Judge Lester ruled further evidence is needed to establish beneficial ownership of Laurel Hills.

English v. Foley – High Court (30.04.19)

19.082

Overseas Investment: Lochar Estate Ltd v. Donaldson

Attempts to tip-toe around overseas investment rules sees company director Jamie Donaldson facing a $400,000 claim from liquidator of Lochar Estate Ltd.  Overseas shareholders allege what were supposed to be unsecured advances by them to the company was wrongly used by Mr Donaldson to buy Lochar shares.

Plans by entrepreneurs Jamie Donaldson and Owen Jennings to market a central Otago vineyard to Asian interests fell over when Lochar Estate went into receivership in September 2014.  Receivers for FICO Finance Ltd were left with a surplus of some $600,000 after selling off company assets.  This surplus was handed on to Lochar’s liquidator.  Confusion over who owed what to whom followed.

In the High Court, Associate judge Johnston was to describe Lochar’s financial records as shambolic, failing to reflect the situation accurately.  The court was told Lochar agreed in 2010 to purchase an established eighteen-hectare vineyard.  The agreed price was $950,000: $550,000 cash upfront; $400,000 satisfied by the vendors taking 420 shares in Lochar.  In economic terms, the $400,000 was vendor finance; at law the vendors were part-owner of the new business.  The vendors held a put option.  At any time in the next three years they could force the other Lochar shareholders to buy their 420 shares at $400,000.  Aware the vendors were looking to exercise their put option, Mr Donaldson faced a dilemma. Asian investors who had bought into the venture sat with combined shareholdings below 25 per cent, avoiding the need for Overseas Investment Act consent.  If forced to take up further shares through the put option, they would be over the threshold and political approval required.  Responding to Mr Jamieson’s call for further capital, their payments were used to buy out the vendors.

Evidence was given that Mr Donaldson told overseas shareholders that while seeking overseas investment approval their increased equity contributions would be treated as unsecured advances to Lochar Estate and he would temporarily take ownership of the 420 vendor shares.  It is illegal under the Overseas Investment Act to hold shares as nominee for overseas interests so as to evade the need for approval.

Judge Johnston ruled a full trial was needed to resolve who owed what since company financial records could not be assumed accurate.  Overseas shareholders argue Mr Donaldson owes Lochar $400,000 and they are unsecured creditors of the company for the extra ‘equity contributions’ paid in at the time the put option was exercised.

Lochar Estate Ltd v. Donaldson – High Court (29.04.19)

19.079

Avondale Racing: Middeldorp v. Avondale Jockey Club

Twice suspended from Avondale Jockey Club committee following complaints he was not acting in the Club’s best interests, Vince Middeldorp gained a High Court ruling that the committee had no power to suspend.  It was a hollow victory.  Mr Middeldorp was left without a remedy; his own behaviour counted against him and he should pay Jockey Club legal costs, Justice Gordon ruled. 

Sitting on land in west Auckland potentially valued at $250 million, Avondale has struggled financially for the last three decades. Racing industry plans will see the course close in 2024, with Avondale Jockey Club racing at Ellerslie.

The High Court was told Mr Middeldorp has been a member of Avondale since 1982 and on the committee since 2013.  The committee sought advice in 2014 from United Kingdom consultants: Turnberry Consulting.  Its initial report received lukewarm support from the committee; it was strongly opposed by Mr Middeldorp.  Online posts followed.  Under the alias ‘klinger’, these posts criticised the Turnberry proposals and the national association: NZ Throughbred Racing.  Disclosure in blog posts of information confidential to the committee saw suspicion fall on Mr Middeldorp.  He never admitted authorship, until the High Court trial where he acknowledged he was ‘klinger’.

The committee banned Mr Middledorp from committee meetings for a period in November 2016 (after he publically questioned the honesty of a Turnberry consultant) and again in December 2017 (after he sent to Clubmembers ahead of the annual meeting an anonymous ‘letter of concern’ purporting to be from ‘concerned members’.  It was not from members, it was from a single member: Mr Middeldorp).

The High Court later ruled Jockey Club rules did not give the committee power to suspend its members.  Refusing a remedy, Justice Gordon said Mr Middeldorp had not been seriously prejudiced: his livelihood had not been affected; he delayed taking any legal action; and Mr Middeldorp chose to make public what was a confidential move by the committee to temporarily suspend him.

Mr Middeldorp also alleged the committee did not act in good faith when it declined membership applications in 2017 for fourteen applicants.  The High Court was told of committee concerns that the co-ordinated applications were a concerted effort to promote horse trainers into the Club who would then call for a special general meeting to reverse decisions made earlier to close training facilities. Mr Middeldorp had cross-nominated many of the applicants.  He is also a trainer.  Justice Gordon ruled the committee acted properly in writing to each applicant asking for their reasons in wishing to join, then refusing those applications where no reply was received.

Middeldorp v. Avondale Jockey Club Incorporated – High Court (26.04.19)

19.078

OPCA Litigants: Niwa v. Inland Revenue

A new phrase enters the legal lexicon: OPCA litigants.  Labelled as Organised Pseudo-legal Commercial Argument litigants they appear in court arguing they are not on trial since another manifestation of themselves is liable. Judges are getting beyond tolerating such tactics by allowing OPCA litigants their day in court; they are now striking out such claims before trial as an abuse of process and a waste of court resources.

In New Plymouth, Justice Ellis struck out a court filing purporting to be an application for judicial review by one Donald James Niwa challenging Inland Revenue’s successful District Court judgment for payment of income tax arrears.  In court Mr Niwa claims he did not owe any tax.  This liability fell on an individual with a similar name written in capital letters: DONALD NIWA.  This DONALD NIWA was created by the state, he said, and is the only person responsible for debts owed the state.  The Mr Niwa, written in lower case letters, did not sign DONALD NIWA’s application for judicial review; it was ‘signed’ by use of Mr Niwa’s thumb-print.  His application for judicial review was struck out, without a court hearing.

OPCA litigants surfaced in North America last century.  There is no closed list.  In North America they are commonly labelled as de-taxers, freeman, sovereign citizens or members of obscure cults denying the state has any authority over them. In New Zealand, OPCA litigants are frequently Maori claiming their iwi or hapu never submitted to crown sovereignty following the Treaty of Waitangi.  They are often encouraged in this defence by gurus who peddle pseudo-legal nonsense encouraging a split identity defence; arguing that an individual can somehow exist in two separate but related states.  Their ‘real’ self is free of any legal obligations whilst their ‘state-created’ alter ego is the only ‘person’ subject to government authority.

Court hearings often descend into farce as it is unclear which of the two persona is making an appearance and answering questions. Judges dismiss split-person defences. The individual before the court is under its jurisdiction and must obey its rulings. 

In the words of a Canadian judge, OPCA litigants share a critical characteristic: they will honour regulatory, contract, family and other legal obligations if they feel like it.  And typically, they don’t.

Niwa v. Inland Revenue – High Court (17.04.19)

19.077

Financial Abuse: Flavell v. Campbell

The High Court revoked an enduring power of attorney a sister held over her brother’s financial affairs.  She has over sixty convictions for dishonesty spread over two decades.  He has chronic mental illness, with impaired short-term memory.  His bank account was frozen by bank management after an inheritance from his mother began disappearing at an alarming rate, spent gambling at Sky City casino.  Public Trust was given control of his bank account. 

All names were supressed by the High Court, with aliases given for the case name.

In 2015, an inheritance of $203,400 was paid into the brother’s credit union account.  Within one month, over $100,000 had been spent at Sky City.  Knowing his personal circumstances, credit union management froze the account.  The sister, accompanied by her brother, called at credit union offices demanding the account be unfrozen.  She tried to stop management speaking to her brother alone.  She had to be removed by police.  She was subsequently convicted of trespass.  A complaint made to the consumer complaints service operated by Financial Services Complaints Ltd was dismissed.   The credit union was justified in freezing the account, it said.

The court was told the brother then signed an enduring power of attorney giving his sister control over his financial affairs.  The credit union ignored this power of attorney, refusing to hand over her brother’s money.  She sued.  A court-appointed psychiatrist was to later report the brother lacked capacity to manage his own affairs and would have been mentally incapable of understanding the legal effect of granting a power of attorney in favour of his sister. This report came after the sister attempted to stop his brother attending a psychiatric examination.

In court, the brother said his sister was his ‘best friend’ providing help and support for his mental issues.  Revoking the power of attorney, Justice Moore said this does not affect her ability to continue supporting her brother.  But she is not a fit and proper person to manage her brother’s financial affairs, he said.

Flavell v. Campbell – High Court (12.04.19)

19.076

Litigation Funding: Cain v. Mettrick

Litigation funders must disclose their identity.  They cannot hide behind nominees the High Court ruled, following an application by Queenstown Lakes mayor James Boult being sued for alleged Companies Act breaches when director of the Stonewood group. 

Companies in the Stonewood Homes group are in liquidation with unsecured creditors claiming some $27 million.  Liquidators Ernst & Young are suing Mr Boult and former Stonewood managing director Brent Mettrick for $25.47 million alleging breaches of the Companies Act.  Both deny liability.  Ernst & Young are using third party funders; Stonewood has no money to pay for drawn-out litigation, they say.

The High Court was told a company called PLF Services Ltd is putting up the money.  Ultimate owners of PLF are not identifiable from the public record.  The trail ends with a private nominee trust company. The courts have only recently allowed litigation funders into the courts; justified as improving access to justice.  Previous judicial concerns had been that outside funding might lead to an abuse of process; those with a grievance intermeddling in private litigation to settle old scores.

Justice Mander ruled use of nominees to disguise who is the ‘real’ litigation funder again raises concerns about abuse of process. Ernst & Young were ordered to disclose who is behind PLF Services.  If the liquidators do not know, Mr Boult can ask to have PLF removed from the case, Justice Mander ruled.

Cain v. Mettrick – High Court (12.04.19)

19.075

Tax: Holdaway v. Ellwood

As purchasers of a Blenheim farmlet, the Holdaways recovered $42,800 damages for a GST credit denied after vendor David Ellwood failed to tick a box in the contract acknowledging he was GST registered.

In 2017, Mr Ellwood sold his eight hectare property on Waihopai Valley Road to the Holdaways.  With no house on the property, it sold for $335,000 ‘inclusive of GST (if any)’.  On what is a standard form agreement, Mr Ellwood said he was not registered for GST. In fact, he was. After signing, and just prior to settlement, the Holdaways became GST-registered.  Buying from a non-registered vendor would allow then to claim a $42,835 GST credit.  Their GST claim was refused because Mr Ellwood was also registered.  Land sales between GST registered taxpayers are zero-rated.  If the Holdaways had not in fact registered for GST, Mr Ellwood would have been required to account to Inland Revenue for GST on the sale, since he was GST registered.

In the High Court, the Holdaways were awarded damages for the disallowed GST credit and for accountant’s fees sorting out the calculations. Standard form agreements commit vendors to declaring their GST status when a contract is signed; unregistered purchasers have a discretion to later register for GST but are obliged to tell vendors of their changed GST status.  The Holdaways were not penalised for failing to tell Mr Ellwood they had subsequently registered.

Holdaway v. Ellwood – High Court (11.04.19)

19.074

Insider Trading: R. v. Talbot

Fined $12,000 for failing to disclose a ‘relevant interest’ when trading listed securities, former Deloitte partner Mark Stephen Talbot negotiated his way out of prosecution for insider trading. Paying Financial Markets Authority a $150,000 penalty and agreeing to a five year ban from managing any business issuing securities to the public saw Talbot admitting guilt to the ‘relevant interest’ charge with charges of insider trading dropped.

Justice Jagose was underwhelmed by Talbot’s request for leniency having pleaded guilty to the ‘relevant interest’ charge.  A guilty plea could have come much earlier, he said, rather than being used as a bargaining chip for the prize of avoiding an insider trading charge.  

While working part-time as chief financial officer of listed company VMob Ltd, Talbot purchased VMob shares through his company: MST Holdings Ltd.  These transactions were disclosed, as required by securities legislation.  VMob now trades as Plexure.

The High Court was told Talbot also purchased VMob shares for Blumau Finance Ltd, a company owned by his father.  These transactions on behalf of a family member were not disclosed, as required by rules now re-enacted in the Financial Markets Conduct Act.

Talbot was prosecuted under predecessor legislation which set a maximum fine of $30,000.  Current legislation sets a $200,000 maximum.

R. v. Talbot – High Court (9.04.19)

19.073

Director Disqualification: Registrar of Companies v. Blake & Ryan

Currently imprisoned on fraud offences relating to Ponzi fraud BlackfortFX, Lance Jack Ryan is now banned for life from managing a company.  David Blake, his sometime associate now on parole following multiple convictions for managing companies whilst prohibited, is prohibited from managing companies for the next twelve years.  

Ryan’s present prison term followed his orchestration of a Ponzi scheme masquerading as a foreign exchange operation known as BlackfortFX.  He was bankrupt at the time.  The Ponzi scheme netted about $8.4 million.  Victims are likely to get back little over thirty cents in the dollar.  Back in 2005, Ryan was sentenced to three years imprisonment for benefit fraud; collecting some $100,000, using the name Thompson. He has multiple convictions for running a business whilst disqualified.  He has been bankrupted, twice.  When imposing a lifetime ban, Justice Venning said Ryan has been guilty of persistent and on-going dishonest behaviour showing an arrogant disregard for the law and for compliance obligations.

Blake has been bankrupted, three times; the first in 1992.  There is no record of any personal creditors receiving payment out of his bankruptcies. He has multiple convictions for managing businesses whilst prohibited: recruitment franchisor EVP New Zealand Ltd (which went into liquidation owing creditors $286,900); Hygiene Foundation Ltd (owing $700,900 on liquidation); and Q Technology Ltd ($618,500).  Blake describes his expertise as being in sales and sales management.  He joined with Ryan in operation of Hygiene Foundation and Q Technology.  Ryan’s involvement was described in the High Court as that of ‘enforcer’.  Imposing an extended twelve year ban on Blake, Justice Venning said compared with Ryan the sums lost were not at the extreme end and Blake had not been convicted of dishonesty.

The High Court was told Companies Office gets about one thousand complaints a year demanding specific individuals be banned as directors.  Of those complaints, about twenty result in prosecution.  

Registrar of Companies v. Blake & Ryan – High Court (3.04.19)

19.072

Google Ads: NZ Fintech v. Credit Corp Financial Solutions

Online lender Moola alleges illegitimate use of Google Ads by Australian provider Wallet Wizard chasing market share.

Moola, owned by Christchurch-based NZ Fintech Ltd, alleges Wallet Wizard is breaching the Trade Marks Act using ‘Moola’ as an Adword to have Wallet Wizard appear in a sponsored advertisement at the top of Google searches when consumers type in the word Moola.  Fintech registered ‘Moola' as a trademark in 2017.  Wallet Wizard counters that Fintech uses the same tactic; buying ‘wallet wizard’ as an Adword to draw potential consumers to its Moola website.  Both companies provide short-term loans, arranged on-line.  As on-line providers, both want as many eyeballs as possible viewing their offerings.

Google’s advertising model sees providers bidding to buy a place on the opening page of searches.  Whenever a consumer keys in a specific keyword or phrase, Google Ad’s algorithm uses the keyword to call up and rank advertisers paying for that word or phrase.  Consumers do not know how Google’s algorithm operates.  They do not know what specific keywords or phrases individual advertisers purchase.

Wallet Wizard says it cannot be in breach of the Trade Marks Act when buying ‘Moola’ as an Adword.  Consumers do not know what keywords Wallet Wizard purchases to promote its search ranking.  The High Court was told Wallet Wizard’s spend on Moola as an Adword amounted to less than four per cent of its total Adword spend.

Justice Gault refused an interim injunction blocking Wallet Wizard’s Adword use of Moola.  It is for a full trial to determine whether consumers searching online for ‘moola’ would perceive that appearance of Wallet Wizard’s sponsored advertisement was because of their use of that trade-marked word in their search query.  Wallet Wizard says consumers do recognise that businesses pay to get a better Google search ranking, but they do not understand how Google Ads works.

NZ Fintech Ltd v. Credit Corp Financial Solutions Pty Ltd – High Court (2.04.19)

19.071

Constructive Trust: Kumar Trustee Co Ltd v. Chawdrapu

Only after his employee set up in competition did Ajay Kumar demand repayment of a claimed $211,000 loan. There was no loan; details of a loan had been an artifice for the employee to get extra funds when refinancing an informal funding arrangement for an Auckland apartment.

Mr Kumar operated an insurance and mortgage broking business out of his Epsom home: Global Financial Services Ltd.  The High Court was told in 2003 he took under his wing, as a mortgage broker, a recent immigrant from India; Venugopal Chawdrapu. Support extended to having his Kumar Family Trust buy a Sandringham apartment rented by Mr Chawdrapu when threatened with possible eviction following a planned sale by his landlord. Circumstances of this purchase were later subject of disputed High Court evidence.   Mr Kumar said his Trust was the registered owner and Mr Chawdrapu owed $211,000 for his subsequent purchase from the Trust.

Justice Davison ruled Mr Chawdrapu was beneficial owner of the Sandringham apartment from the outset, whilst nominally in occupation as tenant.  A constructive trust operated.  The ‘rent’ paid was above market rates; it covered mortgage payments on a bank loan raised by the Kumar Trust to buy the property.  In addition, Mr Chawdrapu paid rates and body corporate fees levied on the apartment.  Lump sum payments were made in reduction of the mortgage.  This arrangement was consistent with Mr Chawdrapu being the ‘owner’ whilst legal title was held by the Kumar Trust.

When Mr Kumar later agreed to transfer title from Kumar Trust to Mr Chawdrapu, the transaction was recorded in an agreement for sale and purchase as if it were an arms-length transaction at then market price. The Trust was paid sufficient to clear the balance of the bank mortgage.  Evidence was given that the deal was ‘dressed up’ to show a further $211,000 owing to the Kumar Trust for the purchase as a means for Mr Chawdrapu to increase his level of bank borrowings, allowing him further funds for investment.  The High Court was to rule there was no $211,000 debt. It represented Mr Chawdrapu’s ‘equity’ in the Sandringham apartment and was a subterfuge to get further bank funding.

No formal acknowledgement of a $211,000 debt was ever prepared or signed.  Mr Kumar’s trust did not demand payment until five years after title was transferred to Mr Chawdrapu and two years after he left Global Financial Services.  The court was told Mr Kumar said to a Global Financial employee that he would ‘destroy’ Mr Chawdrapu after Mr Chawdrapu went to work for a rival business.

Kumar Trustee Co Ltd v. Chawdrapu – High Court (1.04.19)

19.070