Hawkins: Education v. McConnell Ltd

McConnell Ltd has to pay Ministry of Education $1.1 million as a contribution towards government legal costs in its ‘leaky building’ claim for Botany Downs College in Auckland. McConnell’s insolvent subsidiary Hawkins Construction built Botany Downs but cannot pay $13.5 million damages ordered by the High Court.

Frustrated by Hawkins delaying tactics over the Botany Downs claim, government chased holding company McConnell and two of its directors, David and John McConnell, attempting to recover some of its legal costs.  

Five years after Education sued, Hawkins was put into receivership and then liquidation within weeks of being ordered to pay $13.5 million.  The High Court was told Hawkins did nothing when the claim was first filed in 2013. It did not get lawyers onto the job for two years.  It asked for a delay to allow mediation.  Mediation failed. Four months before a scheduled February 2018 trial date, Hawkins changed lawyers.  Its request for an adjournment was refused.  Things hotted up.  Education offered to settle for $7.1 million; Hawkins countered with $2.1 million.  Days before trial, Education was offering to settle for around $3.2 million; Hawkins lowered its counter-offer to $0.5 million. With a trial looming, Hawkins’ new lawyer, Kensington Swan, was sitting on unpaid billings of just under $700,000. It extracted a guarantee from holding company McConnell Ltd to cover its fees.

It is unusual for someone other than the losing litigant to be ordered to make a contribution to a winning litigant’s legal fees.  Justice Downs ordered McConnell Ltd to contribute.  It controlled Hawkins by having directors in common, had Hawkins defend a clearly hopeless case while refusing reasonable offers of settlement and using threats of Hawkins likely insolvency as a weapon.  Evidence was given of Hawkins deliberately sending mixed messages; stating it was insolvent and could not pay anything whilst still gearing up for a scheduled four week High Court hearing.  Government lawyers were questioning how it could be in Hawkins interest to go to trial when it had no money.  Ministry of Education was forced to incur legal costs of a trial, getting in return a worthless judgment for $13.5 million.

The High Court was told Hawkins had net assets of $45 million as at March 2017, predominately payments owed by other McConnell companies.  The company was being wound down.  It had no staff.  It did not have a bank account; treasury functions were centred elsewhere in the McConnell group.

Claims McConnell directors David and John McConnell were personally liable to contribute towards Education’s legal costs were dismissed.  This turned on questions of whether the two had delayed Hawkins liquidation to protect their own personal interests.  It was alleged they wanted to see Hawkins’ liquidation delayed to beyond April 2018. This would limit the chances of any liquidator setting aside under the ‘two year rule’ securities issued in 2016 giving them status as Hawkins’ secured creditors owed $15.9 million.  Hawkins’ liquidation commenced in May 2018.  Justice Downs said there was no evidence delays were motivated by attempts to protect their standing as secured creditors.

Education v. McConnell Ltd – High Court (26.06.19)

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Fraud: R. v. Ho & Christie

Fictitious trade transactions were concocted by Siu Shun Ho and Christopher John Christie in a ‘money-go-round’ defrauding ANZ bank to get eight million dollars working capital for their importing business, International View Ltd.  Each was sentenced to two years and ten months imprisonment for fraud.

The High Court was told the two perpetrated their fraud over a twelve month period starting mid-2016.  Fake documents were prepared purporting to evidence the importation of computer parts from Asia for sale in New Zealand.  ANZ advanced trade finance against the revenue expected from on-selling the supposedly imported computer parts.  With multiple false transactions, Ho and Christie extracted eight million dollars from ANZ; much of it used to repay earlier fraudulent loans, some siphoned off into their other business interests.  When ANZ asked for detailed financial information as part of a regular customer annual review, the two forged false business records to camouflage their fraud.  When the fraud finally fell apart, ANZ was left $2.3 million out of pocket.

Evidence was given that Ho voluntarily filed for bankruptcy prior to arrest.  His shareholding in Chinese language World TV was described as being worth over $750,000. Christie’s company Computerware Plus is expected to close following his imprisonment.

R. v. Ho, R. v. Christie – High Court (25.06.19)

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Swaps: Bushline Trustees v. ANZ

ANZ Bank faced heavy criticism over its miss-selling of swap contracts to farmers, with the Court of Appeal overriding disclaimer clauses where Bank legalese was in effect saying: ‘Notwithstanding what we promised we would do and what we represented to be true, you have no claim against us even though we did not do what we said we would do and what we represented to you was false’.     

Taranaki dairy farmers Sharon and Bill Coomey sued ANZ over terms of their ANZ business loans, turning down successive offers to settle out of court as their trial date loomed.  ANZ won in the High Court.  The Coomeys won comprehensively in the Court of Appeal.  Questions of damages were deferred at the request of both parties; often a precursor to compensation being settled quietly behind closed doors.

Court of Appeal was told the Coomeys ANZ borrowings reached $11.97 million by 2008; interest charged was a mixture of fixed and floating rates.  Floating rates were hedged with three separate fixed rate swap agreements. Bank staff sold swap contracts to clients as managing interest rate risk: with a swap, floating rates in effect were fixed, they said, with customers still enjoying the benefit of any favourable interest rate movements.  Internal bank documents produced in court showed growing concern at higher levels within the bank about selling tactics; field staff were confused about the product, selling loans and swaps as a package deal when they were in fact two different products with different risk profiles.

During 2008, the Coomeys increased ANZ borrowings to $19.47 million, funding purchase of a run-off.  Existing loans were consolidated with the full amount becoming what was a floating rate loan hedged with an option to swap for a fixed interest rate. Rates moved against the Coomeys following turmoil in capital markets triggered by the US bankruptcy of Lehman Brothers in September 2008.  This led to increases in bank funding costs.

ANZ was held in breach of contract for its misleading representations that adding swaps to a floating rate loan was the same as a fixed rate loan.  Downside risk was not disclosed to the Coomeys.  It also failed to honour promises to hold steady its agreed margin over the bank bill rate.  Contractual promises to ‘monitor’ the Coomeys’ risk were not honoured.  ANZ did not respond to queries from the Coomeys about possible action they could take as the 2008 financial crisis unfolded, and also failed to be pro-active advising the Coomeys about anticipated interest rate movements.  The Coomeys refinanced with another bank in 2013, quitting ANZ after paying $16.3 million. 

The Court of Appeal dismissed ANZ arguments it was protected by a disclaimer of liability in its loan contract.  Courts have power to ignore disclaimers under the Contractual Remedies Act where it is ‘fair and reasonable’ to do so.  The Court of Appeal said it counted against the Bank that its standard form swap contracts were ‘non-negotiable’, were designed for customers not having sophisticated knowledge of derivative contracts and that all customer information came from ANZ marketing its own product.

Bushline Trustees Ltd v. ANZ Bank – Court of Appeal (24.06.19)

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Post Judgment Note: ANZ appealed.  The Supreme Court ruled in July 2020 there was no evidence ANZ promised not to increase its agreed margin, leaving the Coomeys liable to pay a disputed $3.8 million for increased margins charged.  All other issues had been settled out of court, the Supreme Court was told.

Construction: Oceania Football v. Engineered Solutions

FIFA’s Oceania federation was ordered to pay $411,900 due on construction of its Auckland-based training facility while alleging the construction contract was tainted by fraud and corruption.

After a PwC investigation uncovered financial irregularities at Oceania, then president David Chung and secretary general Tai Nicholas both resigned.  A Serious Fraud Office investigation commenced.  Meanwhile, Oceania refused to make progress payments to engineering company Engineered Solutions & Systems Ltd on $3.65 million contract signed in 2017 for construction of a building intended to house Oceania offices, conference rooms, changing rooms and a gym.  Engineered Solutions is owned by Mr Shakti Singh and his wife Nirmala.

The High Court was told of allegations that there had been fraudulent and/or collusive tendering by the main contractors, including Engineered Solutions, and that Engineered Solutions was party to breaches by Mr Chung and/or Mr Nicholas of fiduciary duties they owed their employer Oceania.  Evidence was given of significant property dealings involving a syndicate of investors including Mr Singh, Mr Chung and Mr Nicholas after the $3.65 million contract was signed.  One industry expert expressed surprise at provisions in the construction contract: a substantial up-front payment and the balance payable in ten equal instalments scheduled without the need for certification that work completed justified payment.  The High Court was told investigators have found two signed contracts, with differing key terms.

Associate judge Smith ruled Oceania was required to honour ‘payment claims’ made by Engineered Solutions on its construction contract under the Constructions Contracts Act.  The Act imposes a ‘pay now, argue later’ regime.  Builders can enforce their contractual right to payment, with the merits of any dispute sorted out later.  This rule was introduced to protect contractors’ cash flow.

Oceania said it would create a substantial injustice if ordered to pay; there was a ‘substantial dispute’ as to whether Engineered Solutions was entitled to anything.  Oceania’s investigations have been underway since 2017, Judge Smith said.  Engineered Solutions cannot be expected to wait indefinitely until investigations are complete.  Immediate payment of the claimed amount was required, or Oceania put into liquidation. Engineered Solutions’ contract was terminated in September 2018.

Construction of Oceania’s Auckland headquarters is funded by a ten million dollar interest-free FIFA loan.  Building work is incomplete, with some $1.7 million spent to date.

Oceania Football Confederation Inc v. Engineered Solutions & Systems Ltd – High Court (21.06.19)

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Freezing Order: Mudjaya Corporation v. Chua

Michael Chua Khian Keng, sometime motor racing enthusiast based in Palmerston North, is alleged to have embezzled $26.5 million from Malaysia infrastructure company Mudajaya Corporation. The High Court lifted its freezing order over assets held in New Zealand by Mr Chua and family on grounds a Malaysian court order might prove unenforceable in New Zealand; Mr Chua was not told of the court case against him in Malaysia.

Mudajaya alleges Mr Chua defrauded it of RM72 million over the period 2012-2013, extracting secret profits by over-invoicing contractors.  The High Court in New Zealand was told of extensive Mudajaya interviews with Mr Chua in early 2015, including veiled threats against his children and threats to hand him over to Malaysian police who ‘will beat you until crazy’.  Mr Chua and his family departed Malaysia for New Zealand. A Malaysian court judgment for the amount allegedly stolen was entered against Mr Chua by default.  Mudajaya investigators traced him to Palmerston North through online postings featuring his interest in motor racing.

Mudajaya obtained a New Zealand High Court order freezing Chua family property in New Zealand.  Mr Chua had the freezing order overturned.  Enforcement of overseas court judgments is governed by the Reciprocal Enforcement of Judgments Act.  The overseas judgment must first be ‘registered’ in the New Zealand courts. Registration is refused where the defendant does not have formal or informal notice of the earlier overseas case and not given a chance to appear in the overseas court and challenge the case on its merits.  Malaysian authorities gave notice of legal action against Mr Chua by substituted service; notice in local Malay newspapers.  Justice Fitzgerald said evidence is required that Mr Chua knew legal action had been filed against him in Malaysia.  He claims he was never told.

The court was told Mr Chua is currently under arrest in Malaysia.

Mudajaya Corporation Berhad v. Chua – High Court (21.06.19)

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Price Fixing: Commerce Commission v. GEA Milfos

High Court approved an agreed Commerce Commission settlement having dairy technology firm GEA Milfos pay a $825,000 fine for fixing prices with competitor Dairy Automation over supply of milk sensor and herd management software.  

Milfos offers milk management systems as part of its package deal when installing new milking sheds on dairy farms.  It sources milk sensors from competitor Dairy Automation Ltd.  The High Court was told Milfos shared with Dairy Automation its in-house spreadsheet used as a ‘quote-calculator’ for new installations.  In May 2012, the two competitors agreed to tie their sites together at farming field days and agreed not to quote against each other.  This as a pre-cursor to a proposed exclusive distributorship; it never eventuated.  Meanwhile, the two continued to use the Milfos quote-calculator, minimising price competition.  Price-fixing is in breach of the Commerce Act.

The High Court was told Milfos held a market share of just over twenty per cent for milk testing and herd management systems through the four year period ending May 2015 with sales of under three million dollars. Extent of Milfos’ mark-up on milk testing equipment was supressed by the High Court.

Commerce Commission v. GEA Milfos International Ltd – High Court (20.06.19)

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Fiduciary Duty: Moanaroa v. Ruwhiu

Ordered to pay $545,000 compensation, Vernon Ruwhiu had promised to manage Takangaroa Moanaroa’s retirement savings.  Instead, he used her savings for his and his family’s benefit.  

Facing a forced sale of property she part-owned at Whenuapai in west Auckland, Mrs Moanaroa met Mr Ruwhiu at a 2003 seminar about mortgagee sales.  Aged 65, she was looking for investments enabling her to retire.

The High Court was told Mr Ruwhiu promised to manage her money for her benefit so she could retire by 2006 and buy a Whangarei retirement property.  At Mr Ruwhiu’s behest, $223,300 derived from the sale of her Whenuapai property, together with $60,00 of her savings, were paid across to a trust he established: the Kaiawhina Family Trust.  Mr Ruwhiu was a trustee.  He and his children were named as beneficiaries, as was Mrs Moanaroa.  The money was used to buy a Whangarei property, in the name of the Trust.  Mrs Moanaroa was installed as tenant; she thought she was the owner.  She was evicted in 2015 when the Whangarei property was sold in a mortgagee sale.

Justice Whata ruled that Mr Ruwhui breached fiduciary duties owed Mrs Moanaroa: he did not act in good faith and acted for his own benefit.  He and Denise Ruwhiu were liable for ‘knowing receipt’; as trustees of the Kaiawhina Trust they both knew the money taken was meant to be used for the sole benefit of Mrs Moanaroa.  Instead it was used to purchase an asset they could convert to their own use.  They were ordered to repay the money misused together with interest totalling $267,300 for the fifteen year period they had wrongly deprived Mrs Moanaoroa of her money. 

Mr Ruwhiu’s sister Bonnie was ordered to pay $145,200 of any shortfall Vernon and Denise Ruwhiu are unable to pay.  She knew the Whangarei property was more properly an asset of Mrs Moanaroa at a time when she bailed out her brother by refinancing the Whangarei purchase.

All three were held jointly liable to pay an extra $25,000 general damages to mark the distress caused Mrs Moanaroa.  They did not contest her legal action.

Moanaroa v. Ruwhiu – High Court (19.06.19)

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Contract: M2 NZ Ltd v. The Phone Company

It all turned on placement of a comma. Was The Phone Company entitled to a one per cent commission in perpetuity on all telco M2’s net receipts, or just on revenue generated through its ‘piggyback’ deal with Vodafone? 

In 2015, M2 purchased Orcon, Slingshot and Flip for $250 million, later merging with Vocus Communication.  This telco consolidation caused Phone Company Ltd to reconsider the wisdom of its earlier exit from a marketing alliance with M2.  The Court of Appeal was told Australian-based M2 sought assistance from Phone Company to establish a dealer network and operational capability when pushing into the New Zealand market in 2005.  Phone Company facilitated a ‘piggyback’ deal enabling M2 to operate over the Vodafone network.  It became entitled to a share of future M2 net revenues, in perpetuity. In mid-2012, Phone Company triggered contractual rights to take a lump sum payment and surrender its rights to future payments.  Three years later, the M2-Vocus deal went public.  Phone Company sued.  M2 misrepresented the position when negotiating the early lump sum buy out, it claims.

At a preliminary hearing, Phone Company and M2 were in court arguing over the interpretation of their original agreement. Phone Company said wording entitled it to in perpetuity payments regardless of which carrier or carriers M2 piggybacked on. M2 said the deal applied only to Vodafone.  At the time the deal was struck, M2 was using only the Vodafone network.

The Court of Appeal pulled apart wording in their 2005 agreement.  Placement of a comma tied Phone Company’s commission rights to net revenue earned using only the Vodafone network.

M2 NZ Ltd v. The Phone Company Ltd – Court of Appeal (19.06.19)

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Property: Jacks Point Village v. Long Capital Holdings

Chinese investor Long Capital Holdings forfeited deposits totalling $2.61 million after pulling the plug on plans to build part of Queenstown’s Jacks Point subdivision.  Compliance with Jacks Point’s detailed scheme plan made the project uneconomic.

In June 2017, Long Capital paid deposits totalling $2.61 million after signing a $26.1 million deal to develop five hectares at the upmarket Jacks Point subdivision.  The contract was conditional on Long Capital submitting a development plan satisfactory to Jacks Point’s owners.  It never did submit a plan, demanding return of its deposit.

Associate judge Johnston ruled Jacks Point could keep the deposit.  The High Court was told Long Capital carried out extensive feasibility studies, to the extent a development plan was prepared.  But no plan was ever submitted.  Potential planning delays and rising construction costs caused Long Capital to back off.  It feared the project would be uneconomic.  Long Capital could not rely on its own failure to submit plans as proof that the contract was at an end, Judge Johnston ruled. 

Jacks Point Village Holdings No.2 Ltd v. Long Capital Holdings NZ Ltd – High Court (19.06.19)

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Estate: re Vugler

A $190,000 gift made eighteen months before death was treated as an advance on a daughter’s legacy, deducted from her share as a beneficiary of her late mother’s estate. 

Marie Vulger died in 2015.  Her estate, currently valued at about $880,000, is to be divided equally amongst her seven children.  Questions arose over $249,000 paid to daughter Helen Mary Erceg in the eighteen months prior to her death; one large payment of $190,000 and multiple smaller payments of several thousand dollars each.  Ms Erceg was an authorised signatory to her mother’s bank account during this time.  She was her mother’s primary caregiver.

The High Court was asked to rule on how the $249,000 should be treated.  Ms Erceg made no appearance; accepting the court ruling.   The doctrine of ‘satisfaction’ presumes children are not to receive ‘double portions’; gifts in advance of a legacy and the legacy itself. This usually applies to large sums paid without explanation, rather than small sums paid by way of allowance. Justice Jagose said there was no evidence of any clear intention by Marie Vulger that the $190,000 was to be a standalone gift.  It was to be treated as an advance on her daughter’s legacy, deducted from Ms Erceg’s share of the final distribution.

re Estate Marie Josephine Vugler – High Court (19.06.19)

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AGM: NZ Electrical Institute v. Westpac

Arguing over control of a $40,000 bank balance; a bitter battle between Electrical Institute factions based separately in Auckland and Wellington has seen a $40,000 Westpac balance run down to $200, chewed up by legal expenses. 

Wellington members objected to an Auckland ‘takeover’ of branch funds.  Auckland was not validly appointed as Institute executive and had no grounds to disband Wellington branch, the High Court ruled.  The Institute was founded in 1940.  Regional branches were established, with members paying a branch fee together with a capitation figure forwarded to ‘head office’.  It describes itself as a non-profit industry body providing training and support. The Institute is currently managed by the Horan family, out of Pukekohe.

Wellington branch members took legal action after a September 2016 edict that their branch was disbanded; all funds were to be transferred to Auckland.  Justice Cooke ruled the Auckland-based executive had not been validly elected at a previous annual general meeting.  They had declared themselves re-elected, without the need for either re-nomination, or a vote.

In addition to not having executive authority to deal with Wellington branch, Justice Cooke ruled the Auckland faction failed to comply with natural justice.  It did not give Wellington a proper opportunity to respond.  Complaints Wellington branch had failed to file tax returns were invalid; tax filing was a ‘head office’ responsibility. Allegations about misuse of Branch funds had no substance.  The Auckland executive also ignored its own rules; if a branch were disbanded, branch funds had to be held in trust for five years before coming under Institute control, pending a possible revival of branch activities.

The Institute’s financial statements to March 2019 disclose accumulated funds totalling $9900, down from some $135,000 three years previously.  Legal action over control of the $40,000 Westpac account was described by Justice Cooke as being totally uneconomic.

NZ Electrical Institute Inc v. Westpac – High Court (19.06.19)

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Mortgagee Sale: Epsom Woods Ltd v. Waitakere Farms Ltd

Multiple attempts by Peter Mawhinney and interests allegedly associated with him to frustrate the mortgagee sale of a forestry block on Anzac Valley Road in west Auckland have been dismissed by the courts, including an attempt to argue the forest was a residential property protected by the Residential Tenancies Act.    

In March 2017, Waitakere Farms Ltd became owner of the 51 hectare forestry lot paying $1.65 million following a mortgagee sale. The effect of a mortgagee sale is to clear the title of all interests subordinate to the mortgage.  Rights of lower ranking mortgages and rights of the previous owner are stripped off the title.

Waitakere Farms’ interest as new owner of Anzac Valley was challenged by a company called Epsom Woods Ltd.  It claimed a forestry right over trees on the land and further claimed a residential tenancy existed with rights of occupation running to 2040. Epsom Woods, controlled by former bankrupt Andrew Bond, was incorporated in June 2018.  It is alleged the company is a front for Peter Mawhinney, currently bankrupt.  Mr Mawhinney owned the forestry block prior to its mortgagee sale, both in his own name and through a series of trusts.  He gained notoriety for long-running legal battles with first Waitakere City Council and later Auckland City in unsuccessful attempts to subdivide Anzac Valley. Council frustrations led to a 2016 High Court order blocking Mr Mawhinney from mounting any more litigation for a period of five years.

The High Court was told it took four years to finalise a forced sale of Anzac Valley to Waitakere Farms; Mr Mawhinney was regularly in court challenging the right of the mortgagee to sell and the manner of the sale.

Waitakere Farms than faced a claim Epsom Woods owned cutting rights to the trees.  This was evidenced by an assignment of cutting rights signed by Mr Mawhinney as trustee of the Anzac Valley Trust and by Mr Bond of Epsom Woods.  Both their signatures were witnessed by a Paul Graeme Alexander described by Associate judge Bell as a person who has made his own contributions to case law on bankrupts and insolvents.  Mr Alexander has been bankrupted more than once. Judge Bell ruled Epsom Woods had no greater right to the trees than did Mr Mawhinney and Mr Mawhinney’s claimed cutting rights were lost following the mortgagee sale.

The claim Waitakere Farms was bound by a residential tenancy running to 2040 was also dismissed.  The court was told there is no residential accommodation on site; just converted containers used for storage and a site office.  The Tenancy Tribunal ruled that the Residential Tenancies Act does not apply to Anzac Valley; there is no residential accommodation on site.  Named as supposed residential tenant at Anzac Valley was Anthony Mawhinney, brother of Peter Mawhinney.

Waitakere Farms is controlled by Hunterville-based Joe Duncan.

Epsom Woods Ltd v. Waitakere Farms Ltd – High Court (17.6.19)

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Bankruptcy: Memelink v. Official Assignee

Annulment of Harry Memelink’s bankruptcy was refused by the High Court while he protested lawyers and judges were ganging up on him. 

A regular visitor to the courts, Wellington-based Mr Memelink was propelled into bankruptcy in August 2018 on a court costs judgment of some $122,000 owed a Lower Hutt law firm.  His attempts to cancel bankruptcy were refused by Associate judge Lester.

Mr Memelink alleged the judge ordering him bankrupt was biased; he was related to one of Mr Memelink’s creditors.  Judge Lester said the judge imposed bankruptcy following non-payment of a sealed court order.  There is no bias in forcing performance of a court order.  Mr Memelink also alleged the bankruptcy judge was biased because he had been involved in earlier Memelink litigation as lawyer, before becoming a judge.  When giving advice as a lawyer, the bankruptcy judge was acting for Mr Memelink, not against him, said Judge Lester.

Mr Memelink further said if his bankruptcy were annulled, he would release assets from a family trust to meet creditor claims.  There were vague promises of financial support from family members.  Justice Lester said Mr Memelink hinted at $600,000 being made available but made no promises as to amount.  Mr Memelink still disputes amounts due to specific creditors.  It is now for Insolvency Service to determine how much Mr Memelink owes, Judge Lester said.

In court papers filed earlier, Mr Memelink admitted to: debts totalling $5.55 million; $6000 in assets.

Memelink v. Officlal Assignee – High Court (14.06.19)

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AGM: re Fiji Community Association

Factional fighting within Auckland-based Fiji Community Association saw vice president Adi Aseneca Uluiviti removed from the executive committee with effect from August 2018 after she failed to attend three consecutive meetings.

The Association’s main asset is the Bula Centre, an early childhood care centre in Mangere East.  Bula’s poor financial management resulted in an adverse Ministry of Education report.  Subsequent High Court litigation between competing Fiji Community factions was settled out of court with an agreement to start again with a ‘clean slate’; a June 2018 meeting of members was to vote in a new executive.  An election did not stop in-fighting: Ratu Isoa Soqosoqo Koromako was elected president with Ms Uluiviti vice president, each by a margin of only two votes.  There was no appointment for secretary or for treasurer; votes were tied.  Objecting to Ratu Koromako’s choices as co-opted members to fill the un-filled vacancies, Ms Uluiviti boycotted subsequent executive committee meetings.  Under terms of the Association constitution, her failure to attend three meetings without adequate explanation meant she automatically ceased being a member of the committee.

The Association alleges Ms Uluiviti refuses to hand back office equipment in her possession.

re Fiji Community Association of Auckland Inc – High Court (6.06.19)

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Christina Domecq: JCCL Global Pty Ltd v. Foundry Innovations Ltd

Formerly a director of both Tourism Holdings and Harmoney, Christina Domecq has been held liable on debts exceeding $13.2 million with interest running at up to sixty per cent per annum on one loan.

Ms Domecq personally guaranteed bridging finance as part of Fulcrum Group’s proposed float on ASX.  The float never eventuated; start-up costs crippled what was touted as the next big thing in data analytics.  The High Court was told of Fulcrum’s increasing indebtedness resulting in ploys to keep loans ‘off the books’, designed to present a more attractive picture to prospective investors.  Instead of Fulcrum borrowing in its own name, Ms Domecq had Fulcrum funding pass through a company she controlled: Foundry Innovations Ltd.  Ms Domecq guaranteed Foundry’s borrowing.  The funds were passed on to Fulcrum.  Foundry, as Fulcrum’s majority shareholder, expected to recover this money handsomely following Fulcrum’s public offering.  When listing plans fell over, both Foundry and Ms Domecq were left exposed.  In addition, Ms Domecq guaranteed working capital provided by Heartland Bank to companies she controlled.   

Three financiers successfully sued Ms Domecq on her guarantees: Heartland Bank owed $12.8 million; JCCL Global Pty Ltd owed $A250,000 plus interest running at forty per cent; Spofforth Pty Ltd $A130,000 plus interest running at sixty per cent.  Associate judge Bell ruled these high interest rates were not ‘unfair’ as defined by Australian credit legislation.  The loans were short-term and unsecured.  Rates charged reflected the commercial risk taken.

The court was told her debt to Heartland Bank was reduced in part following the $404,100 sale of a property at Makora Avenue, Waiheke.

JCCL Global Pty Ltd v. Foundry Innovations Ltd; Spofforth Pty Ltd v. Foundry Innovations Ltd – High Court (4.06.19); Heartland Bank Ltd v. Domecq – High Court (7.06.19).

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Post judgment note: Ms Domecq filed for bankruptcy on 10 June 2019.