Duress: Dold v. Murphy

It was not economic duress for lawyer Peter Murphy to play hardball, refusing to sign off on a $A112 million business sale unless fellow investors gave him a larger share of the pie.

The end of nearly three decades of co-operation between Peter Murphy, Roger Dold and Chris Jacobs running charter cruises in the Bay of Islands, Fiji and Queensland played out in the High Court at Auckland.

The court was told of growing tensions in 2014 between the three over construction of a passenger terminal at Port Airlie, Queensland.  Mr Jacobs was expected to oversee the project. He fell seriously ill.  Mr Murphy took over management, becoming increasingly annoyed at the time and management pressures which followed.  The job was completed in early 2015, leaving simmering discontent still bubbling away.  Their entire business, Cruise Whitsundays Pty Ltd, was put up for sale.  An indicative offer of $A35 million was not accepted. Accounting firm Deloitte was appointed to handle potential sales.  It attracted an offer from Quadrant Private Equity: $A110 million; far beyond what the three investors ever expected to get.  Negotiations pushed the price up to $A112 million.  Mr Dold and Mr Jacobs expected net proceeds of sale would be divided according to the ratio of their respective shareholdings: Dold (46.9 per cent); Jacobs (46.9 per cent) and Murphy (6.2 per cent).  At this point, Mr Murphy refused to sign off on the deal unless he was paid a greater proportion; reward for the extra work he had done getting the business ready for sale, he said.  A furious Mr Dold said a pistol was being held to their heads, holding them to ransom.  Without Mr Murphy’s signature, the entire $A112 million deal might fall over.  The two grudgingly agreed to pay Mr Murphy an extra four million dollars, with each reserving their rights.  Mr Dold later sued, seeking reimbursement of the two million he contributed.

Justice Edwards dismissed his claim of economic duress. Duress requires proof of illegitimate pressure being applied, causing the victim to enter into a contract. There was no illegitimate pressure, she said.  Mr Dold had ample time to consider his position, and did so, getting legal advice before paying the extra two million dollars.  Mr Murphy’s initial demand for an extra five million dollars was bargained down to four million dollars.  Negotiating the level of payment is the antithesis of duress, Her Honour said.  By his own admission, Mr Dold was selling at a price beyond his wildest dreams at $A112 million.  Agreeing to Mr Murphy’s demand was not economic duress; it was a calculated and considered commercial decision after weighing all the options.

Dold v. Murphy – High Court (31.05.19)

19.107

Restraint of Trade: Mainland Digital v. Willetts

Taking up employment with Canterbury real estate firm Bayleys was not in breach of a two-year restraint of trade written into their previous Open2view franchise agreement said photographers Paul Willetts and Rachel von Nordeck Meyers.  The High Court refused an interim injunction blocking their continued employment with Bayleys, pending trial.  

The High Court was told Willetts and Meyers Open2view franchise agreement came to an end in March 2019.  It operated as a sub-franchise from Mainland Digital Marketing Ltd, controlled by Tim and Janetta Perry.  Mr Willetts and Ms von Nordeck Meyers hold a minority interest in Mainland Digital. Their sub-franchising agreement entitled them to 55 per cent of gross revenue generated within the Canterbury franchise area.  Bayleys was a major client.  Having no agreement with the Perrys over their continuing a Open2view franchising relationship through Mainland Digital, they took up an offer of employment with Bayleys as in-house photographers; each receiving a base annual salary of $18,400 for twenty hours work per week.

The court was told they are left owed $69,000 unpaid by Mainland Digital.  The fate of their 25 per cent stake in Mainland was left hanging.  Mainland Digital sued, alleging employment with Bayleys breached a restraint of trade clause in their earlier sub-franchise agreement.

Courts frown on restraints of trade; they limit business activity.  Wording of any restraint is closely examined.  If there is any ambiguity, it is construed against the person seeking to enforce the restraint; the contra proferentem rule.

Justice Nation said there was no wording in the sub-franchise agreement that clearly prohibited Mr Willetts and Ms von Nordeck Meyers from providing photographic services as employees for a former Open2view client.  Whether restraint wording indirectly prohibits such employment requires a full trial.

Mainland Digital Marketing Ltd v. Willetts – High Court (30.05.19)

19.105

Family Trust: MA Payne Family Trust v. Maloney-Coles

Sixteen years after Mark Payne died in a Taranaki quad bike accident, distant relatives tried without success to claim a share of his estate arguing they were wrongly cut out of a deal involving his family trust as estate beneficiary.

At the time of his death, Mark owned an Oakura dairy farm milking 120 cows.  With him on the farm was his de facto spouse of some six months, Sheree McNeill and her two children from a previous relationship.  Mark’s will left all personal belongings to Sheree as his ‘spouse’ and the farm to his MA Payne Family Trust.  Named as Trust beneficiaries are Mark and his children, with other blood relatives as discretionary beneficiaries.  The High Court was told when setting up the Trust, Mark indicated Trust funds should be used primarily to support any spouse and children, failing that his parents Bernard and Nancy.  Mark had no children at his death.

On Mark’s death, the farm now owned by the MA Payne Family Trust was transferred to a new trust: the Bernard and Nancy Family Trust, naming Mark’s parents together with Sheree and her children as beneficiaries. This was achieved with a Family Court consent order engineered as part of a Family Protection Act claim, with the agreement of lawyers acting separately for Sheree and Mark's parents.

Sixteen years later, some of Mark’s cousins learnt they were discretionary beneficiaries of the original MA Payne Family Trust.  Trust assets, now held by the Bernard and Nancy Trust were valued at some two million dollars in 2018.  The cousins sued, seeking to overturn the earlier Family Court order and demanding compensation from lawyers who acted.  As discretionary beneficiaries of the MA Payne Trust, they should have been given notice of the proposed deal, they said.

Justice Ellis ruled there were sufficient grounds for making the Family Court order.  Trustees of the MA Payne Trust were under no obligation to give notice to distant relatives; they had no direct interest in Trust assets, only the right to such assets the trustees may choose to transfer to them.  In any event, lawyers could have achieved the same result by resettling the Payne Trust assets on a new trust like the Bernard and Nancy Trust without notice to discretionary beneficiaries, she said.

MA Payne Family Trust v. Maloney-Coles –High Court (30.5.19)

19.104

Relationship Property: Pisidia Holdings v. Darby

Relationship property claims against a spouse’s company are claims against the company’s value, not a direct claim against company assets, the High Court ruled when ordering relationship property claims registered by Kristen Darby against Glenorchy real estate be lifted.

Kristen claims an interest in estranged husband John Darby’s Glenorchy property development at the head of Lake Wakatipu. Mr Darby is a high-profile property developer with a history of completed projects across central Otago. She says her marital support during their relationship entitles her to a Property (Relationships) Act share in profits from the Glenorchy development.  Lots at Glenorchy are currently offered for sale. Kristen lodged notices of claim against title to seven lots; two of them under contract.  Notices have the practical effect of blocking any sale.

The High Court was told sales are being made in the name of a company: Pisidia Holdings Ltd.  Ultimate owner of Psidia is a trust allegedly controlled by John Darby. Kristen complains she has been refused access to the trust deed for her estranged husband’s Karearea Trust. 

Any relationship property claim Kristen may have to Glenorchy profits amounts to a claim against Mr Darby’s company, Associate judge Lester ruled.  She has no direct claim against assets owned by Psidia.  Her notices of claim against Psidia assets were ordered removed.

Pisidia Holdings Ltd v. Darby – High Court (30.05.19)

19.106

AGM: re Tamaki Estuary Protection Society

The last annual meeting of the Tamaki Estuary Protection Society in Auckland ended in uproar with chairman Patrick O’Meara and his allies walking out.  Those remaining voted in a new executive.  The High Court ordered a new meeting. 

Meanwhile the Society’s bank account remains frozen. Patrick O’Meara and secretary Denny Thompson were ordered to hand to a lawyer for safekeeping all Society records in their possession.  The Society last filed financial statements in 2008, recording $75,400 in its bank accounts.

Tamaki Estuary was formed in the 1970s with the aim of improving aquatic life in and around the waterway.  Its last annual meeting was called in September 2017 by notice in the NZ Herald and on the Society’s website.  There was no quorum.  A new meeting was fixed for the following month.  Described as a ‘fiery meeting’ there were arguments about alleged ‘vetting’ of members, refusals to allow a vote by those paying membership fees on the day and the content of the meeting agenda.  Comments by Mr O’Meara, in the chair, that the current executive remained in office because advance notice had not been given of any new nominations led to an uproar.  He walked out.  Those remaining voted in a new executive committee.  Stalemate followed.

Justice Edwards ruled notice of the disputed meeting failed to accurately specify what was on the agenda and what procedure was required for nomination to the executive committee.  Neither the ‘old’ committee, nor the ‘new’ committee was validly elected. A new election was ordered.

re Tamaki Estuary Protection Society – High Court (29.05.19)

19.103

Bankruptcy: Worldclear Ltd v. Whitham

Ordered to repay $4.5 million stolen from Hamilton-based Worldclear Ltd and now on bail in Singapore facing criminal charges, Richard James Whitham did not contest legal action to bankrupt him in New Zealand.

In May 2018, Whitham with his family suddenly left for Singapore, hiding departure plans from his then employer Worldclear Ltd and blocking Worldclear from client accounts.   He had been responsible for effecting foreign exchange transfers on behalf of Worldclear. Prompt action by Worldclear saw him arrested in Singapore where he currently awaits trial.  The Singapore Supreme Court issued injunctions freezing assets Whitham may hold in Singapore.  It ordered Whitham repay Worldclear $4.5 million.

As first step to recover its money, Worldclear filed in the New Zealand courts to have Whitham bankrupted on the grounds he ‘departed New Zealand with intent to defeat his creditors’.  Bankruptcy was ordered.  ‘Departing with intent to defeat creditors’ is sometimes used in conjunction with an Insolvency Act arrest warrant to have fleeing debtors arrested at an airport on departure.  In this case, bankruptcy was ordered with the debtor already overseas and unable to return whilst on bail.

Evidence was given that Whitham has moved some of the stolen funds out of Singapore.

Worldclear Ltd v. Whitham – High Court (28.05.19)

19.101

Avgas: Air NZ v. BP Oil Ltd

Air NZ’s attempt to have Z Energy bear losses the airline incurred during the two week disruption of Auckland avgas deliveries in September 2017 was dismissed.  Z Energy was under no obligation to provide Air NZ with the full volume of fuel demanded; it was only required to take all reasonable endeavours to supply, the High Court ruled.     

Avgas, designated as Jet A1, is delivered to Auckland airport from Marsden Point refinery along a 160 kilometre pipeline. A pipe rupture prevented fuel deliveries for two weeks.  As airport stocks ran down, fuel supplied to airlines was rationed, flights cancelled and airlines ‘tankered in’ fuel with Auckland-bound aircraft taking on extra fuel at other airports.

Air NZ sued suppliers BP Oil and Z Energy alleging breach of contract; they failed to supply avgas as needed, it said.  The claim against BP Oil was settled out of court. The Z Energy claim went to trial. Air NZ said Z Energy was obliged to provide an ‘unqualified supply’.  Their contract, concluded by an exchange of emails, said nothing about levels of supply. It merely specified the period of supply and a formula for fixing price.  Justice Venning ruled past practice created an implied term that Z Energy was obliged only to take all reasonable endeavours to supply fuel required.  Disruptions to fuel supply at Sydney airport in 2003 and from Christchurch airport after the series of Canterbury earthquakes saw industry protocols developed for fuel rationing.  These protocols formed an implied term in the Z Energy supply contract with Air NZ.  Z Energy said it alone had suffered losses totalling five million dollars with the 2017 Auckland disruption.

The court was told an industry study in 2003 had highlighted the vulnerability of avgas supply to Auckland.  Airlines did not support construction of extra storage at the airport.  This would increase the cost of fuel supplied.

Air NZ Ltd v. BP Oil NZ Ltd & Z Energy Ltd – High Court (28.05.19)

19.102

Estate: re Estate of Sprott

Children of the late Jim Sprott are at loggerheads over time taken to sell the family home in Combes Road, Remuera, Auckland.  Daughter Lindsay is demanding damages, complaining she lost the opportunity to buy into Vancouver’s booming real estate market because of brother Adrian’s delays.

Industrial chemist Jim Sprott famously provided scientific evidence leading to Arthur Allan Thomas’ acquittal for the 1970 Crewe murders.  Dr Sprott subsequently fronted high-profile campaigns in relation to topics as varied as road safety and cot death.  Dying in 2014, his will provided for sale of the Remuera family home with proceeds divided amongst his three children.  Lindsay alleges her brother Adrian as executor has delayed unreasonably in selling. Five years on, the property remains unsold.  She says her intended purchase of a property in West Vancouver fell over in 2016 because of delays in receiving her inheritance.  She states she lost the chance to buy a Vancouver property at $1.8 million; a property now worth $2.8 million.  Adrian told the High Court a sale was delayed because of the chance of getting a better price: first, when changes to Auckland City rules made it possible to remove a large tree on the property; later when further rule changes opened up the possibility of subdivision.

At a preliminary High Court hearing, criteria were established to calculate changes in value of Combes Road over time and to clarify legal details of Lindsay’s intended Vancouver purchase.

Re Estate of Thomas James Sprott – High Court (27.05.19)

19.100

Family Trust: Evans v. AW Builders Ltd

A builder selling his home to a family trust then immediately forgiving payment due when facing potential liability in a building dispute was an attempt to dissipate assets and become ‘judgment proof’ the High Court ruled, imposing a freezing order over the family home. 

Auckland builder AW Builders Ltd and its sole director/shareholder Anthony Williamson is being sued for about $800,000 following a dispute over earthworks and construction of a home at Whitford for Oliver Evans.  Within six months of being fired from the Whitford building contract, Mr Williamson had his Cockle Bay family home transferred to a family trust.  Mr Williamson and his spouse are two of the three trustees. Their contract specified a price of $1.2 million.  The debt owed by the trust to Mr Williamson was immediately forgiven.

Mr Evans asked the High Court to freeze the Williamsons’ Cockle Bay home.  Justice Davison ruled there is sufficient prima facie evidence supporting Mr Evans claim for damages to justify a freezing order, pending trial.  While Mr Williamson said the property transfer was simply part of an estate planning exercise underway for at least a year, Justice Davison said the timing of the transfer and the fact a transfer was made for nil consideration demonstrated it was undertaken to frustrate enforcement of any judgment against him. The court has yet to rule whether Mr Williamson is liable for damages.

Evans v. AW Builders Ltd – High Court (24.05.19)

19.099

Fraud: FM Custodians Ltd v. R. & Smith

Defrauded by Hokitika accountant Lindsay Beckett Smith, FM Custodians Ltd lost $784,000 lent on behalf of investors in its NZ Mortgage Income Trust (No. 2) Fund.

FM Custodian lost a High Court battle to recover $648,100, proceeds of land sold at Blue Spur subdivision near Hokitika. This money potentially goes to Michael and Lilian Ross, ruined financially by Smith’s dishonesty.

The High Court was told of a 2013 FM Custodians loan made supposedly to business interests associated with Mr Ross and Smith. Mr Ross knew nothing of the loan. Smith forged Mr Ross’ signature to three documents: a loan application, a mortgage and a guarantee over the Ross family home.  Smith subsequently pleaded guilty to forgery and was sentenced to over two years imprisonment.  FM Custodian appealed a District Court order that it forfeit the benefit of its loan. The Sentencing Act allows forfeit of legal rights where a benefit is derived from illegal activity.  FM Custodians protested; it was a victim, not the perpetrator, it said.

Evidence was given of Fund Managers Otago Ltd acting as fund manager for FM Custodians in processing Smith’s loan application for funding to develop Blue Spur.  Otago sent instructions to a law firm in Hokitika to act as FM Custodian’s agent in getting signatures to the loan documents and guarantee.  Unbeknown to each of FM Custodian, Otago and the law firm, Smith forged Mr Ross’ signature to all the documents.  Whilst not itself guilty of fraud, FM Custodian must accept responsibility for the illegal acts of Smith, Justice Nation ruled.  The Hokitika law firm, acting as agent for FM Custodian, had certified the signatures as being that of Mr Ross, without actually seeing him sign.  In the alternative, said Justice Nation, Smith acting as agent for the law firm when asked to get Mr Ross’ signature became also an agent for FM Custodian.  FM Custodian’s rights as mortgagee were forfeit. Proceeds from sale of the mortgaged land are now held by the Official Assignee.  The court was told Mr and Mrs Ross are currently $670,200 out of pocket from their original investment in Blue Spur.

FM Custodians Ltd v. R. & Smith – High Court (22.05.19)

19.097

Family Trust: Re J.J. Enright Trust

Cut out of their father’s will, four of Jack Enright’s children were awarded damages totalling $1.7 million from their youngest brother having been wrongly denied fourteen years income from their father’s family trust.

In 2014, Jack Enright died in Australia, near his youngest son Tony.  Tony has five siblings.  Questions were asked about circumstances in which Tony became sole beneficiary of their father’s family trust owning Dunstan Burn Station at St Bathan’s in central Otago.  Covering over 10,000 hectares, Dunstan Burn runs sheep along with some cattle and deer.

The J.J. Enright Trust was created in 1974 with a rental property in Athol Street, Queenstown, settled on the trust. Subsequently, Athol Street was sold, the funds used to subdivide properties at Wye Creek and these profits used to buy Dunstan Burn.  It was a matter of pride for Jack to buy back Dunstan Burn; the farm, previously owned by his forebears, had passed out of family hands following financial difficulties.

Evidence was given of Jack progressively falling out with all of his children, bar Tony.  Jack was variously described as forceful, strict and dominating.  The children were unaware of any entitlement as beneficiaries under Jack’s 1974 family trust.  Terms of the trust deed specified net income in each tax year was to be distributed according to the unanimous decision of the trustees, failing that it was to be appropriated each year equally between the six children. The court was told no trustee decisions were in fact made.  No provision was made in trust annual accounts for the required allocation of income. Over a fourteen year period to 2008, trustees failed to properly appropriate a total of $2.2 million to the children as beneficiaries.  In 2007, Jack transferred all trust assets, then valued at $2.5 million, to Tony despite legal advice this was not permitted by the trust deed.  Two years later, these trust assets were valued at $11.5 million.

Justice Palmer ordered Tony compensate siblings Cathie, Wayne and Shell, together with the estate of deceased sibling Adrian, a total of some $1.7 million out of trust assets he had wrongly received; the money to be divided equally between the four.  Fellow sibling Terry receives no payment.  He was aware back in 2008 of his right to sue but was now out of time to take legal action.  Tony was described as born in 1965, qualified with a PhD in medical research and now living in Brisbane.

Re  J.J. Enright Trust – High Court (22.05.19)

(19.098)

Post Judgment Note: The Court of Appeal ruled in October 2020 that Terry was also entitled to compensation.  His claim was not out of time.

Security: Brown v. Heartland Bank

Heartland Bank is thrashing out creditor security rights in respect of current assets: accounts receivable and work in progress.  The High Court has left hanging the question of when secured creditors can lay claim to the proceeds of client invoices issued before liquidation but collected later.  

Accounts receivable and work in progress can make up a large chunk of business current assets.  Financiers lending on security of current assets want certainty they can collect if their client goes belly-up.

Stages Civil & Electrical Ltd went into liquidation insolvent in 2015.  It was working as sub-contractor to a company then known as Transfield Services installing fibre optic cabling in Hamilton.  At the date of liquidation, Stages owed Heartland Bank $1.2 million.  The bank held an all-encompassing security over Stages’ assets. Nearly $900,000 was recovered after selling Stages plant and equipment.  Claims to security over accounts receivable and work in progress were disputed.

The High Court was told Heartland agreed a ‘whole turnover factoring’ agreement with Stages.  Every receivable generated by Stages was instantly ‘owned’ by Heartland with Stages appointed as Heartland’s agent for collection of the debt. Heartland installed proprietary software within Stages’ accounting system which tracked the issue of all invoices and payment receipt.  Whilst legal documentation described Heartland as ‘owner’ of each receivable, the Personal Property Securities Act qualifies this ownership; employees and Inland Revenue as preferential creditors on liquidation can take priority.

Associate judge Smith questioned whether Heartland took priority for the value of invoices totalling $188,100 issued before liquidation, but not collected until after Stages went into liquidation.  Under the Personal Property Securities Act this turned on whether Heartland provided ‘new value’; whether Heartland allowed Stages further credit on gaining ‘ownership’ of the invoices in question. Further evidence was called for.

Other issues were straightforward.  Judge Smith ruled that $20,000 liquidators recovered from Stages’ shareholder as a current account debt goes to pay preferential creditors; the debt was not payable until liquidators made demand after liquidation. A $105,300 invoice issued by liquidators for work in progress completed, but unbilled, at the time of liquidation belonged to Heartland Bank; this invoice quantified the value of work in progress which was an asset covered by the Bank’s security at the time of liquidation.

Brown v. Heartland Bank Ltd – High Court (21.05.19)

19.096

Due Diligence: Sullivan v. Wellsford Properties Ltd

Failure to disclose material information during due diligence on sale of his Wellsford service station and adjoining food court cost Garry Hannam and his company $424,300.  Operating expenditure invoiced to one tenant was in dispute. 

Peter Sullivan fronted for a group of investors negotiating in 2014 to buy a Wellsford commercial property leased to seven tenants: a service station and food outlets.  Negotiations resulted in sale at a price of $5.05 million; an implicit yield of 7.6 per cent.  The contract included a due diligence period.  Wellsford Properties Ltd was obliged to allow ‘full access to the property’ and provide any ‘relevant information’.  With commercial property values determined by net rental income, purchasers’ enquiries zeroed in on operating expenses which could be charged back to tenants: rates and utility charges.  Wellsford Properties was unwilling to hand over financial statements, but it undertook to provide certified details of rents and actual operating expenditures for the previous three years.  It did not disclose that a Caltex service station on the site had challenged an invoice for some fifty per cent of power used across the seven tenancies; it was separately metered for power it said.  Under-recovery of operating expenditure fed through to reduced net income from the tenancies.  After their purchase, the new owners renegotiated Caltex’s lease obligations. 

The Court of Appeal ruled purchasers were entitled to damages of $424,300 from Wellsford Properties, representing the reduced amount they would have paid if full disclosure had been made of net rental income paid.  In addition, Mr Hannam was held personally liable under the Fair Trading Act.  He was directly involved in the sale process and specifically involved in Wellsford Properties responses to requests for information about operating expenses.

Sullivan v. Wellsford Properties Ltd – Court of Appeal (20.05.19)

19.095

Asset Forfeiture: Commissioner of Police v. Parkes

Four motor vehicles, three motorbikes, a boat and its trailer were seized as proceeds of crime with Gerrard Gordon Parkes sentenced to eleven years’ imprisonment for methamphetamine possession and supply.

Parkes was found to have supplied or possessed for supply nearly 570 grams of methamphetamine.  Police assessed the value at $478,300.  The High Court approved a negotiated settlement under the Criminal Proceeds (Recovery) Act for the sale of assets seized: a Nissan Skyline, Land Rover, Chevrolet Camaro, Holden V8, Kawasaki ZX motorbike, two Harley Davidson motorbikes, and a Haines Hunter motorboat named ‘Licence to Thrill’ together with its trailer.  In total, their estimated value is $153,800.   All the vehicles were registered to individuals other than Parkes, or otherwise registered to fictitious names.  Those listed as owner who could be traced said they had no interest in the asset.  Most of the vehicles were registered to the name of Parkes former de facto partner, Whitney Harris.

Commissioner of Police v. Parkes – High Court (20.05.19)

19.094

Asset Forfeiture: Commissioner of Police v. Cutler

Cash totalling $1.1 million seized by police from a Storage King unit in Auckland was forfeited to government as proceeds of crime after Brian Paul Cutler pleaded guilty to charges of importing methamphetamine and possession for supply.

A joint Customs and Police investigation tracked deliveries of imported methamphetamine to an address in Southgate Place, Henderson, and on to a nearby Storage King unit.  Cutler was arrested after quantities of the drug and cash totalling $1.116 million were found at the unit.  Police moved to have court approved forfeiture under the Criminal Proceeds (Recovery) Act as soon as Cutler pleaded guilty.  The High Court was told Cutler has been in New Zealand since September 2017, has no known other sources of income and has never declared any income for tax.

Commissioner of Police v. Cutler – High Court (20.05.19)

19.093

Company: Soma v. Nath

A1 Cars 2014 Ltd was supposedly operating a car sales business for a period of five years from Great South Road, Papatoetoe in south Auckland.  When Hera Soma and Sunil Nath took to the High Court, Justice Brewer ruled both had ignored their company’s existence and had supressed company income.  He ordered a copy of his judgment be forwarded to Inland Revenue. 

The two started their car sales business in 2013, selling cars on commission.  Mr Nath worked the sales yard; Mr Soma brought in customers.  Legal writs flew when the two fell out.  This after Mr Soma had frozen the company’s bank account and seized from the car yard business records together with Mr Nath’s diary. Mr Nath trespassed Mr Soma.

Mr Soma alleged Mr Nath had failed to keep proper records and had unilaterally taken control of company assets.  Mr Nath alleged Mr Soma was not an investor; his accountant had made a mistake by including Mr Soma as a director and shareholder, he said.

Justice Brewer said A1 Cars 2014 Ltd had no life of its own.  Any returns made on its behalf to Inland Revenue were fictional.  Mr Nath ran the business as a cash business, putting through the company’s books only those sums he had to, such as payments from finance companies. Mr Nath took as much cash from the business as he could, Justice Brewer said.  Cash transactions were not reported to Inland Revenue by their company.

Both Mr Nath and Mr Soma told the court their accountants would be called to give evidence; their accountants could not be persuaded to attend court.

Justice Brewer said evidence indicated the two had a profit sharing agreement.  Neither made any attempt to comply with their duties as directors of A1 Cars 2014 Ltd. Neither were entitled to Companies Act remedies.

Mr Nath was ordered to repay Mr Soma $85,000; money lent for cars to be imported from Japan.  A1 Cars 2014 Ltd was ordered to pay Mr Soma $11,000; his half share on the sale of a HiAce van.

Mr Soma failed in his further claims: first for $106,500 allegedly loaned to both Mr Nath and A1 Cars 2014 Ltd ; secondly for $800,000 claimed from Mr Nath alone as damages for alleged failures to comply with the Companies Act.

Soma v. Nath – High Court (17.05.19)

19.089

Asset Forfeiture: Commissioner of Police v. McDonald

Two Invercargill properties were forfeited after the High Court ruled Kerryn Robert McDonald benefitted by $216,200 from illegal activities: methamphetamine possession and pentedrone importation.

Criminal Proceeds (Recovery) Act claims were made after McDonald was sentenced to two years four months imprisonment in 2015 for importing pentedrone from China and then sentenced in 2017 to four years imprisonment on charges of possessing methamphetamine for supply.  McDonald said he was a ‘bit player’ in drug dealing, making no profits.

The Act allows government to seize assets to the full street value of illegal drugs passing through offenders’ hands, unless an offender can prove the drugs in fact were of lesser value.

In respect of pentedrone importations, McDonald said he did no more than email contacts in China on behalf of others, setting up deliveries.  Police telephone intercepts identified McDonald as an importer, dealing in pentedrone. It is sold as a substitute for ecstasy.  The value of pentedrone passing through his hands was assessed at $115,500.  No asset forfeiture claim could be made in respect of drugs intercepted by customs at the border, Justice Mander ruled.  They never came into McDonald’s possession.

In respect of methamphetamine, McDonald said he was no more than a ‘caretaker’ holding drugs on behalf of others.  At the time of the drug bust, McDonald was seen to throw a 112 gram bag of methamphetamine over a boundary fence.  Evidence of dealing was found at the property: electronic scales for weighing drugs and packaging for retail sale.  During the police search, an associate of McDonald arrived at the property and was found to be carrying methamphetamine in similar packaging.  The value of methamphetamine held by McDonald was assessed at $100,700.

Ordered forfeit to the crown: net proceeds from sale of his property at Dundee Street, Invercargill ($55,400); a property at Largs Street, Wallacetown formerly owned by McDonald and transferred to his ex-partner on his arrest (valued at some $70,000) and a 2010 Harley Davidson motorcycle. Police have been unable to trace the motorcycle.  McDonald said it was broken up for parts, and sold.

Commissioner of Police v. McDonald – High Court (17.05.19)

19.088

Estate: Estate of Valerie Svendsen

Remembered as owner and designer of the Memsahib fashion line, the late Valerie Svendsen left another legacy, a Waiheke property valued at $1.7 million fought over following her death.

Having no children, Ms Svendsen’s will divided her estate equally between a niece named as Linda May McCarthy and a ‘surrogate’ nephew Neil Peter McMillan.  Mr McMillan claimed he had been promised full ownership of the Waiheke property in return for financial assistance provided Valerie and her husband, Alan, during their lifetime.

The High Court was told of Alan requesting in 2007 $185,400 to meet costs of renovating Waiheke.  Mr McMillan was a regular acquaintance of the Svendsens.  He had known them all his life.  In 2007, he was teaching in London.  Mr McMillan told the court he was promised the Waiheke property as an inheritance if he provided the money interest free.  He borrowed funds from his London bank, sending the proceeds to the Svendsens in New Zealand.  It was used to create a kitchen for Ms Svendsen; a library for her husband’s books.  Mr McMillan completed repayment of the London loan in 2015, paying interest of up to 7.6 per cent in the interim.  There was legal advice that their agreement should be reduced to writing; a proposed contract was never drawn up.

On the death of the widowed Ms Svendsen, Mr McMillan found he was to share the Waiheke property with Ms McCarthy.  He sued.  Nine individuals, including mutual friends of the Svendsens, provided High Court evidence of the close association between Mr McMillan and the Svensdsens.  They recounted his many acts of kindness over the years; some recounted Ms Svendsen talking of an agreed inheritance in return for an interest free loan.  Mr McMillan arranged Ms Svendsen’s funeral.  In contrast, Ms McCarthy said Ms Svendsen had told her she was opposed to the arrangement.  The court was told Ms McCarthy had less involvement in the Svendsens life compared with Mr McMillan.  She lived most of her life in the United States, returning to New Zealand in 2008. Her personal visits to Ms Svendsen were infrequent until 2017 when gold card eligibility allowed her free ferry travel to Waiheke.  She did not attend Ms Svendsen’s funeral.

Justice Brewer ruled provision of financial assistance could support a claim under the Law Reform (Testamentary Promises) Act. The Act allows compensation for failures to honour promises made whilst alive; it does not necessarily directly enforce any promise made.  Mr McMillan was awarded three-quarters of the Waiheke property’s value.  Mr McMillan took the financial risk of taking out an interest-bearing loan, on-lending interest free and without security in order to increase the Svendsens enjoyment of life.

Mr McMillan is to receive three-quarters of Waiheke’s net sale proceeds; Ms McCarthy the remaining quarter.

Re Estate of Valerie Svendsen – High Court (17.05.19)

19.091

Director Disqualification: re Timothy Toilolo

Director disqualification imposed on south Auckland chartered accountant Timothy Toilolo was overturned in the High Court.  Companies Office could not argue he was a commercial risk to the public when it took over four years to decide on disqualification.

In 2014, Westpac bankrupted Mr Toilolo and put his accounting services company into liquidation.  Companies Office investigations found his company was illiquid from the start and that Mr Toilolo failed to keep proper business records. This company insolvency followed the collapse of his previous accounting services company: Professional Accounting & Taxation Ltd.  Liquidator’s report for Professional Accounting shows the company’s fee base was sold to Mr Toilolo to provide clients for his second, unsuccessful, business. This report states Mr Toilolo paid only $9700 towards the fees purchase, defaulting on the balance promised.

Mr Toilolo was discharged from bankruptcy in August 2017. During bankruptcy, he was disqualified from managing any business.  Over twelve months later, Companies Office staff issued a banning order, further prohibiting Mr Toilolo from managing any company for the next two years and six months. He appealed.

Companies Office told the High Court Mr Toilolo put the public at risk: he traded companies whilst insolvent; did not exercise proper managerial oversight; and did not keep proper accounting records, a skill which should be a core competency for a chartered accountant.

The purpose of banning orders is to protect the public, Justice Wylie said.  Timeliness is relevant.  Companies Office delays undermined any argument Mr Toilolo remained a risk to the public, he ruled.

re Timothy Toilolo – High Court (17.05.19)

19.090

Company: Gillette v. Green

Having unilaterally taken control of their Nelson company now known as RoofPower Installations Ltd, sold its assets at an undervalue to his new company for some $6000 and then on sold to a third party for $120,000, Thomas Green was ordered to pay $60,000 compensation to former joint venture investor Nathan Gillette.

This after Mr Green was ordered to pay Mr Gillette $20,600 by the Employment Relations Authority for aiding and abetting RoofPower’s breach of Gillette’s employment contract.

The High Court was told Mr Gillette came to New Zealand from Singapore in 2016 on a visa backed by an employment contract with RoofPower.  Mr Green had set up RoofPower two years previously.  Their deal saw Mr Gillette putting up $98,000 to become a 49 per cent shareholder in RoofPower and becoming sales manager on a $60,000 salary with promised bonuses if sales targets were met.  The two quickly fell out.  Within months, Mr Green stopped paying his salary.  Seven months after their joint venture arrangement was agreed, Mr Green unilaterally transferred company assets across to a new company.  The transaction was not approved by shareholders as required by the Companies Act.  The deal was not documented.

Mr Gillette sued.  His claims that Mr Green misrepresented RoofPower’s profitability were dismissed.  There were conflicting views over what Mr Green had said during negotiations. Justice Cooke ruled Mr Gillette was entitled to a remedy under Companies Act ‘minority oppression’ rules.  He had been unfairly prejudiced.  His salary had been stopped, supposedly because of a lack of cash, whilst Mr Green in control of RoofPower’s bank account continued to use company cash to meet his own day to day expenses.  Management decisions were not made jointly, contrary to their shareholders’ agreement.  Mr Green delayed appointment of Mr Gillette as a director, using threats to compromise his visa residency as leverage forcing Mr Gillette’s agreement to a deferral.  Mr Gillette was effectively excluded from any real input into the financial performance of the company or access to accounting information, Justice Cooke said. He was treated as no more than an employee, despite his shareholding investment as part owner.

Evidence was given that Mr Green negotiated an $80,000 employment contract with the third-party purchaser of RoofPower’s assets. This employment was later terminated.

Gillette v. Green – High Court (17.05.19)

19.092

Land: Registrar General of Land v. Zhang

Having paid a defrauded property owner compensation, government sued fraudster Hui Zhang who forged the owner’s signature to sale of a residential property in the Auckland suburb of Highland Park. 

The High Court was told owner Wai Kar Wong lived in Hong Kong.  He had rented Highland Park to a tenant who subsequently entered into a relationship with Hui Zhang.  The two hatched a plot to defraud Mr Wong.  Title to Highland Park was transferred to Zhang after forging Mr Wong’s signature. Mr Wong did not learn of the fraud until after a mortgagee sale by Westpac, enforcing borrowing by Zhang.  Title to Highland Park remained with the innocent purchaser from Westpac.  Mr Wong was paid $668,188 compensation by government, for the loss of his property.

The Land Transfer Act provides a crown guarantee of registered interests in land.  Security of title reduces borrowing costs for the benefit of creditors and debtors alike. Anybody purchasing an interest in land, not guilty of fraud, keeps that registered interest with government compensation paid to the victim of any prior fraud.  The Act permits government to then recover from the fraudster.

Justice Moore ordered Zhang pay $687,800: the $668,200 compensation paid Mr Wong plus $19,600 costs incurred.  Legal proceedings were served on Zhang in prison. He did not defend the claim.

Registrar General of Land v. Zhang – High Court (15.05.19)

19.087

Deceit: Sahu Khan v. Shariff

Looking like an advance fee fraud, promises that Dr Sahu Khan’s appointment as chief legal adviser to the Fiji government was imminent stayed on hold following further requests for more payments pending an announcement.  No appointment was ever made.  His claim against Mohammed Shariff for FJD653,300 damages failed; dishonesty was not proved.    

The High Court was told former president of the Fiji Law Society Dr Sahu Khan, who now lives in New Zealand, was contacted by email in late 2012.  Mr Shariff represented himself as a go-between offering him a high-level legal position within the Fiji government.  An indirect approach was needed, he said, given the sensitivities of Fiji politics.  Dr Sahu Khan and Mr Shariff were known to each other; Mr Shariff had borrowed FJD30,000 from a Khan family company.  Dr Sahu Khan expressed interest in the job offer.  What followed was a series of urgent emails through December 2014 to February 2015 each requiring cash transfers totalling FJD30,800 to clear certain matters before his appointment could be announced: payment to confirm his appointment ($2500); for registration of his contract ($1600); payment of fines supposedly due to the Independent Legal Services Commission ($6500); payment for release of goods seized by Fiji authorities ($3750); tax arrears ($8800); and further payments supposedly demanded by the Independent Legal Services Commission for an alleged breach of trust ($7500).  Dr Sahu Khan made payment in each case, in anticipation of a job with a promised annual salary in the region of three million Fiji dollars.

Dr Sahu Khan sued for deceit when no job eventuated. Mr Shariff did not defend the claim. The High Court dismissed Dr Sahu Khan’s claim, for lack of evidence.  Clear and cogent evidence of dishonesty is required before courts award damages for deceit.  Justice Fitzgerald was critical of the disorganised and incomplete evidence put before the court.  Allegations of dishonesty alone were not enough.  Prima facie proof was needed that Mr Shariff knew representations made were false.

Evidence was given that Dr Sahu Khan’s developing suspicions led him to tell Mr Shariff he would be demanding FJD 480,000 ‘special damages’ if the job did not eventuate.  This could not be recovered in a claim for deceit, Justice Fitzgerald ruled.

Dr Sahu Khan’s subsequent appeals were unsuccessful.

Sahu Khan v. Shariff – High Court (28.02.17), Court of Appeal (13.12.18) & Supreme Court (14.05.19)

19.086

East Wind Group: Best Invest NZ v. Japan Business Consulting

Liquidators of Best Invest NZ Ltd are looking to hunt down over eight million dollars but are chasing ghosts. Director Masatomo Ashikaga died in February and no replacement director has been appointed.  His widow Siu Tai Tsai appears to have control of company bank accounts for Mr Ashikaga’s East Wind group, but has gone to ground and cannot be traced.

Grant Thornton were given limited powers by the High Court as interim liquidators of specified companies in the East Wind group; they are authorised to take possession of and to protect East Wind assets.

Headed by Best Invest NZ Company Ltd, the East Wind group provided financial services, investing funds primarily on behalf of Japanese investors.  Mr Ashikaga’s death precipitated concerns.  One investor demanding repayment was told by Ms Tsai: ‘there is only three dollars in the bank account’.  Grant Thornton told the High Court there are concerns Best Invest’s funds have been co-mingled with other companies in the East Wind group.  They had been unable to contact Ms Tsai.  A person living at her home address said Ms Tsai no longer lived there, refusing to give any details of her whereabouts.

Associate judge Bell appointed Grant Thornton interim liquidators of the two East Wind companies which appear to have received Best Invest money.

Best Invest NZ Company Ltd v. Japan Business Consulting Company Ltd – High Court (13.05.19)

19.085

Insurance: Taylor v. Asteron Life

Insurance broker Peter Taylor was ordered to repay income protection insurance payments totalling $371,200 after the High Court ruled bone cancer did not affect his income.

Mr Taylor set up business in Dunedin, taking out income protection insurance in 1994.  He claimed after a bone cancer diagnosis in 2009.  His claim was accepted, with regular payments made of some $6000 monthly.  He was required to make periodic reports to insurer Asteron: statements as to his ongoing medical condition and details of current income.  The content of these reports came in for minute examination in the High Court. Accepting that Mr Taylor had been affected by radiation treatment for his bone cancer and subsequent surgery, Justice Cooke ruled that his illness had not affected his income in a way covered by the Asteron policy.

Mr Taylor told the court he had been incapacitated by illness and was able to work no more than a few hours per day.  Income levels dropped drastically he said; his business ran at a loss.  Evidence indicated otherwise.  When making periodic reports, Mr Taylor did not act in good faith, Justice Cooke ruled. Staff told of Mr Taylor still ‘having his finger on the button’.  He attended regularly at the office, and when absent kept in constant touch with staff and clients by phone and email.  Mr Taylor did not disclose to Asteron income generated by staff or trailing commissions received on cover written in prior years.  When Asteron questioned income levels, Mr Taylor produced financial statements for the business which proved to be misleading.  Justice Cooke ruled wording of the income protection policy provided cover for a fall in business net profit, based on income generated by Mr Taylor personally or his staff.  Asteron was justified in cancelling the income protection cover and recovering all payments made.  Mr Taylor was never entitled to payment in the first place.

Justice Cooke rejected Mr Taylor’s claim he keep payments received because he had ‘changed his position’.  Building a $700,000 house at Karitane on the Otago coast and buying two Mercedes motor vehicles at a combined cost of $379,500 could not be considered purchases made purely as a consequence of receiving a monthly insurance payout of $6000, Justice Cooke said.

Taylor v. Asteron Life Ltd – High Court (7.05.19)

19.084