Employment: Lewis v. JP Morgan Chase

Former JP Morgan Chase CEO Rob Lewis’ $498,000 claim alleging injurious falsehood and negligent misstatement was dismissed by the High Court.

Mr Lewis claimed JP Morgan misrepresented his employment history, prejudicing efforts to get work in the banking sector.  He left JP Morgan in 2010, twenty months after appointment as chief executive officer.  His negotiated departure was publicly described as being the result of JP Morgan shifting local operations from Auckland to Wellington.  Each agreed not to make any disparaging comments about the other.  Job applications at Westpac came to nothing; because JP Morgan misrepresented his employment history and his job title, Mr Lewis said.   

The court was told of JP Morgan with its 250,000 staff worldwide giving employees a functional title (describing actual job responsibilities) and an officer title (describing rank within the organisation). Mr Lewis’ functional title was Treasury Sales Team Leader; his officer title Vice President.  Mr Lewis was also given a ‘regulatory title’ of chief executive officer to satisfy Reserve Bank requirements that overseas incorporated banks operating in New Zealand must have a New Zealand-domiciled CEO.  There was no record on JP Morgan’s employee database of his ‘regulatory title;’ with only two fields available, there was no space.

Justice Powell dismissed complaints of misrepresentation by JP Morgan.  The employee database is a JP Morgan internal record.  Information is released only with employee approval.  There was no evidence that Westpac obtained any erroneous information from JP Morgan.  It did not ask for database information.  Westpac senior staff had previous business dealings with Mr Lewis and knew his status and standing within JP Morgan.  It was clear Westpac chose to promote an internal candidate in preference to employing Mr Lewis, Justice Powell said.  This decision was independent of any previous job designation Mr Lewis previously held.

Mr Lewis alleged the ‘Statement of Service’ made available to prospective employers by JP Morgan was incorrect and misleading; it itemised his term as CEO whilst also mentioning his functional and officer titles. Reference to his role as CEO alone would itself be misleading, Justice Powell ruled.

Lewis v. JP Morgan Chase Bank N.A. – High Court (31.07.19)

19.142

Family Trust: Lai v. Huang

Living rent-free on land owned by a family trust and growing produce for her own use and roadside sale did not give Sophie Lai any right to share in a $20 million Coatesville farm sale.

Taiwanese immigrants Mr and Mrs Huang purchased the rural Coatesville property north of Auckland in 1996 through their family trust. They also owned property in the Auckland suburb of Epsom where second son Chun-Ta lived rent-free with future spouse Sophie Lai.  Fast forward twenty years: Sophie and Chun-Ta have two children, are now divorced and Sophie claims a share of the family trust’s $20 million Coatesville sale.  As a consequence of the divorce, she is no longer a beneficiary of the Huang family trust, but her children remain beneficiaries.

Evidence was given of Chun-Ta and Sophie shifting to Coatesville around 2003.  The Huang family trust leased the land initially to kiwi-fruit growers, later to strawberry farmers.  Chun-Ta and Sophie occupied a house on the property, rent-free.  They used land around the house to grow vegetables for themselves and for sale, along with cultivation of calla lilies for commercial sale. They retained the proceeds; revenue did not show up in family trust accounts.  Sophie claimed her work around the property created a constructive trust; she was entitled to share in profits from the sale.  Justice Edwards ruled the work done was well compensated by her living rent-free on the land.  There was evidence Sophie had primary employment interests outside the home; working variously in real estate, in a health and beauty salon and a sushi shop.  Sophie also argued it was unconscionable for her to be cut out; her then father-in-law had promised she would benefit if she worked hard and looked after the land.  Justice Edwards said there was no evidence of promises she and Chun-Ta would be left the land; rather Mr Huang emphasised to family the land was valuable and was to be retained by the trust for the benefit of all family members.  Mr Huang died in 2012.

Lai v. Huang – High Court (30.07.19)

19.141

Insurance: Corbett v. Vero Insurance

Vero’s exclusion clause in a construction-works insurance policy denying liability for defective workmanship did not exclude damage to window glass valued at $385,000 scratched by cleaners as part of a building site final cleanup, the High Court ruled. 

Vero argued it was being forced to accept liability for the competence of on-site contractors.

The High Court was told subcontractors cleaning a new-build family home did not remove dust and grit from windows when undertaking the final clean.  Scratched windows resulted.  Vero refused to pay; the scratching was ‘a defect in workmanship’ it said, excluded by the policy.

What insurance contracts appear to cover are often taken away by exclusion clauses buried in the fine print.  The courts look closely to see whether exclusion clause wording actually applies to the loss claimed.  The homeowners said their scratched windows were not defective due to poor workmanship, they were damaged by poor workmanship.  The Vero policy does not exclude damage caused by defective workmanship, they said.  Justice Fitzgerald ruled Vero’s exclusion clause did not extend to property damage resulting directly from negligent work; it was liable to pay compensation for the damaged glass.  Liability for the labour cost of replacing the windows is a separate issue.  Wording of the disputed exclusion clause did exclude the cost of repairing or rectifying faulty work.  Doing the job properly is required by the original construction contract.

Corbett v. Vero Insurance NZ ltd – High Court (30.07.9)

19.140

Construction Contracts: Moorhouse Panel & Spray Ltd v. Energy Saving Company Ltd

Technical deficiencies in ‘pay now argue later’ Construction Contracts Act payment claims do not invalidate payment demands, but gross overstatements of what is due will.

Attempts by Neil Clark’s Energy Saving Company Ltd to force customer Moorhouse Panel & Spray into liquidation on an unpaid invoice failed; the amount claimed was forty per cent higher than what was due and no time was given in which to make payment before suing. 

The Construction Contracts Act gives suppliers leverage on unpaid bills.  Failure to respond to a statutory ‘payment claim’ gives an immediate right to sue. The debtor is forced to pay up, leaving any dispute about performance of the contract to be sorted out later.

The High Court was told of a run-in between Christchurch-based electrical contractor Energy Saving and Moorhouse Panel & Spray after a fan motor failed in Moorhouse’s spray booth.  Old age, said Energy Saving; faulty workmanship, said Moorhouse. Moorhouse made part-payment, refusing to pay the balance of Energy’s bill.  Energy issued a ‘payment claim’ as a precursor to putting legal pressure on Moorhouse.  Associate judge Lester said the ‘payment claim’ was invalid for two reasons: it claimed the full account was due and owing with no credit for the significant amount already paid; it threatened legal action if not paid but gave no time for payment, saying the debt was already due.  Action to put Moorhouse into liquidation was dismissed.

Moorhouse Panel & Spray Ltd v. The Energy Saving Co Ltd – High Court (30.07.19)

19.139

Undue Influence: Estate Wilbur Surridge

Businessman Lofty Surridge died in December 2016 leaving an estate valued at some $8.6 million.  Daughter Anne on one side and son Paul with his wife Marion on the other battled over what happens to Lofty’s assets.  The High Court ruled invalid a 2014 will on grounds of Paul’s undue influence.  Lofty dies intestate because an earlier 2000 will has no beneficiaries; a trust named as beneficiary was wound up in the interim.

Complicating division of Lofty’s estate is a 2016 settlement reached after two days of mediation in which his children divided up Lofty’s assets whilst he was alive, but mentally incompetent suffering from dementia.

A tortured history of Surridge family relationships was spelt out in the High Court over six days of evidence.  Lofty was described as an idiosyncratic and curmudgeonly individual. He was stubborn and manipulative. At various times in his life he had been estranged from a number of his children.  His ‘favourite child’ was his cleaning products business; the Sturridge Group of companies trading as Philip Moore and Co.

After Lofty’s death, High Court litigation centred on events surrounding signature of the disputed January 2014 will; Lofty, aged 89, in hospital, seriously ill, sleep deprived and distressed signed three documents: a will drafted at Paul’s instructions which reduced Anne’s share of their father’s estate, a document handing control of his business to Paul’s spouse Marion with an option to purchase at $2.25 million; and an enduring power of attorney in favour of Lofty’s lawyer.

In court, the dirt flew between Anne and Paul.  Anne referred to a 1998 court case involving a property dispute between Paul and his then spouse in which the trial judge said he was unable to accept Paul as a ‘wholly reliable witness’.  Marion was subject of an Australian Securities and Investment Commission investigation in 2013 in which ASIC found as an investment adviser she had been dishonest with clients and had engaged in misleading conduct. Paul complained of the benefits Anne received earlier from their late mother’s estate, accusing her generally of dishonesty and deceit.  In a 2018 court case, Anne had been found liable for intentionally disrupting Surridge business operations to the detriment of Paul.

Justice Clark ruled Lofty’s January 2014 will invalid. Medical evidence indicated Lofty suffered at the time from short term memory loss, declining cognitive ability and bouts of delirium.  In addition, Paul exerted undue influence in respect of the 2014 will, she ruled.  At the time, Paul was unaware an earlier 2000 will existed and did not know Lofty’s then wishes were to bequeath his assets to a family trust.  Anne’s and Paul’s 2016 mediated settlement still stands, Justice Clark said.  It states named assets are to be sold and the proceeds divided equally between Lofty’s five children.  Since the family trust named in the earlier 2000 will no longer exists, Lofty died intestate without named beneficiaries.  His remaining assets are to be divided equally between his five children under rules in the Administration Act.

Re: Estate Wilbur Surridge – High Court (30.07.19)

19.138

Freezing Order: Smith Mitchell Ltd v. Bradley

Te Kuiti accounting firm Smith Mitchell had a freezing order imposed over assets owned by former employee Sharon Bradley after allegations she stole client funds in excess of one million dollars. Frozen by High Court order are her personal and business bank accounts and a property on Hanning Road, Pirongia, with a rateable value of $950,000.

The High Court was told Ms Bradley is suspected of a seven year fraud perpetrated at Smith Mitchell before her 2018 resignation. She left to establish her own business, a quilting/craft workshop trading as Waitomo Sewworms.

Smith Mitchell provides back-office accounting services for clients.  Clients give Smith Mitchell authority to operate their business bank accounts. Invoices sent into Smith Mitchell for payment are processed on the client’s behalf.  It is alleged Ms Bradley stole client money; by creating fictitious invoices actioned with payment out of client accounts into accounts she controlled and also by double payment of legitimate invoices with one legitimate payment to the appropriate recipient and a second fraudulent payment to herself. Financial controls within Smith Mitchell required all client payments to be approved by two staff-members.  There was evidence of allegedly fraudulent transactions supposedly signed off by a second staff member who was not in the office at the time payment was approved.

Smith Mitchell Ltd v. Bradley – High Court (26.07.19)

19.137

Bankruptcy: Official Assignee v. ASB

Insolvency Service is chasing down bankrupts using other people’s bank accounts to hide income which should be disclosed. When demanded, banks are required to disclose bankrupt’s transactions through these third-party accounts while not disclosing any information about the account holder, the High Court ruled.

Acting on tip-offs from the public, Insolvency Service is learning of bankrupts prohibited from running a business doing so on the sly, banking income into a ‘friend’s’ bank account over which they have no signing authority.  Access to the account is gained through a debit card held by the bankrupt.  This flouts bankruptcy law; income earned whilst bankrupt and before discharge from bankruptcy must be declared to Insolvency Service.  After making an allowance for living expenses, any surplus income earned during bankruptcy goes to repay bankruptcy creditors.

The High Court was told Gordon Bayne was bankrupted in 2016.  Insolvency Service followed up on tip-offs from a supplier who alleged Mr Bayne was operating a concrete-laying business whilst bankrupt.  Payments were funnelled through an ASB bank account.  ASB claimed client confidentiality, refusing to disclose details of the account, other than to say Mr Bayne was not the named account holder and had no signing authority.

Justice Wylie ruled banks must respond to Insolvency Service demands for information.  Insolvency Service has extensive Insolvency Act powers to demand information about bankrupt’s ‘property, conduct or dealings.’  Money banked to a third-party account on behalf of a bankrupt is the bankrupt’s ‘property.’  Banks must not only disclose money paid into the account at the bankrupt’s direction, but also disclose funds withdrawn for the bankrupt’s benefit, Justice Wylie ruled. Details of the account holder do not have to be disclosed.  Any practical difficulties for banks seeking to isolate the bankrupt’s transactions from the account holder’s transactions are for the banks to sort out, he said. Robust discussions with the account holder were suggested.

Official Assignee v. ASB Bank Ltd – High Court (23.07.19)

15.135

Deceit: Ellice v. Stallard

Shane Ray Stallard duped Glenfield acquaintance Lynda Ellice out of her $500,000 lotto winnings claiming he was seriously ill with cancer, then disappeared.  Stallard was ordered by the High Court to refund the money received plus interest; a total of $660,330.

The Ellice and Stallard families both lived in west Auckland suburb, Glenfield.  Stallard was a high school friend of the Ellice’s son.  The High Court was told of Stallard manipulating Lynda Ellice’s emotions after she won big in lotto, saying he needed money to fund cancer treatment, to pay for knee surgery and to pay his children’s school fees.  The pretence was orchestrated by having Mrs Ellice take him to medical appointments; but she was always asked to drop him at the entrance. In hindsight, she never saw him actually attend a medical appointment.  He had Mrs Ellice make cash payments with withdrawals from ATM machines, break investment term deposits and draw down on her credit card.  Over a period of four years to 2012 he extracted some $550,000.  Her husband became aware funds had disappeared only after their bank threatened legal action alarmed at the precarious state of their finances.  Mrs Ellice managed their household funds.  In September 2012, Mr Ellice demanded repayment. Nothing was paid back.

Justice Fitzgerald ruled Mr Stallard was liable in deceit; falsely representing money was needed for medical treatment knowing that was not true.  Mr Stallard was also liable for breach of contract; there was evidence he regularly promised to repay money handed over by Mrs Ellice.  He did not appear in court to defend the Ellices’ claim.

Ellice v. Stallard – High Court (23.07.19)

15.136

Environment: re Paddy Hannan Contracting Ltd

Companies controlled by contractor Paddy Hannan are in liquidation with liquidators looking to recover from Mr Hannan personally costs of decontaminating Wellington land fill.

Hannan’s companies had resource consent to dump clean landfill on sites in Waiu Street, Wainuiomata. Complaints about site operations and the fill used led to Resource Management Act prosecutions against both Mr Hannan personally and his company.  Hutt City Council declared the sites contaminated.  Hannan’s companies were put into receivership in 2014 after FM Custodians Ltd called up a loan.  Receiver Kevin Whitely told the High Court there is a shortfall owed creditors of $1.9 million. Substantial costs were incurred remediating Waiu Street before the land could be sold.

The High Court put Mr Hannan’s companies into liquidation, with Auckland insolvency specialists KhovJones appointed liquidator. Legal action against Mr Hannan is likely.  Breaching regulatory requirements for a clean-fill operation raised questions about Mr Hannan’s conduct as a director, Associate judge Andrew said.

Re Paddy Hannan Contracting Ltd – High Court (22.07.19)

15.134

Caveat: Chen v. Sanctuary Developments

With the first of its planned ninety residential apartments on the market, Auckland’s International on Princes Street is in court trying to get a financier’s caveat taken off the title. Buyers do not get clear title unless the caveat is removed.

Gary Groves’ Sanctuary Developments struggled to get finance for his redevelopment of Fonterra’s former headquarters on Princes Street in Auckland’s central business district.  Initial plans to augment bank funding through a syndicate of private investors failed.  The proposed $18 million syndication, promoted through accounting firm Gilligan Sheppard, promised a forty per cent share of development profits.  It fell through; there was a lack of investor interest.  Sanctuary Developments was in the gun.  It had agreed unconditionally to buy Princess Street for $43 million.  Sanctuary used $5 million dollars put up by Chao Ming Chen as part of the proposed Gilligan Sheppard syndication to pay the Princes Street deposit.  Sanctuary then defaulted on the balance of the purchase price.

The High Court was told of fevered negotiations through 2015 as Sanctuary looked to get its project back on track.  The deal was revived, with funding lined up from Bank of New Zealand and construction funders Waimauri Ltd and Miraka LLC. They took mortgage securities over the project.  This left the status of Mr Chen’s five million dollars uncertain.  He lodged a caveat against the title, stating terms of the Gilligan Sheppard offer entitled him to mortgage security.  Sanctuary argues the Gilligan Sheppard deal was superseded by alternative funding arrangements with Mr Chen agreeing to take Sanctuary preference shares instead.  Mr Chen says this arrangement was a false paper trail devised by Mr Groves and intended to placate other lenders; he is still entitled to his mortgage, he says. Evidence was given that Sanctuary has never issued preference shares to Mr Chen and that under terms of its constitution it cannot do so.

Associate judge Sargisson ruled Mr Chen has an arguable case that he is entitled to mortgage security over Princess Street. The caveat remains.  A full court hearing is needed to establish whether Mr Chen is a secured creditor for his five million dollar advance.

Chen v. Sanctuary Developments No 8 Ltd – High Court (22.07.19)

15.133

Unit Titles: Singh v. Boutique Body Corporates Ltd

Body corporate managers owe no general legal duties to individual apartment owners.  If they have stuffed up, it is for the body corporate itself to sue its manager, the High Court ruled.

Sheryl Sitara Singh has been bankrupted following what proved to be a quixotic legal campaign against Boutique Body Corporates Ltd and body corporate committee members with her dispute over levies imposed for a $13 million remediation contract at Richmond Terraces, Flat Bush south Auckland.  

Angered over increased levies imposed for remedial weather-tightness work at Richmond Terraces, Ms Singh sued Boutique Body Corporates, the body corporate secretary, and individual body corporate committee members alleging they failed to properly manage the project and failed to provide sufficiently detailed reports on the work being carried out.

Associate judge Bell ruled body corporates operating under the Unit Titles Act are like corporates created under the Companies Act. Shareholders of a corporate cannot sue for wrongs done to the company; the company itself must sue.  Similarly, apartment owners in a body corporate cannot sue as individuals for any wrong suffered by their body corporate; it is for the body corporate to sue.  Judge Bell struck out her legal claim against Boutique Body Corporates.  The fact a majority of unit owners voted in favour of the remediation levies imposed, indicated the body corporate itself (represented by its members at a general meeting voting for the levies) did not consider it had suffered any legal injury.

Part of Ms Singh’s claim against individual body corporate committee members (as representatives of the body corporate) was left open.  The body corporate had promised to keep apartment owners informed about remediation work. Ms Singh complains she was not kept informed.  Since Ms Singh is bankrupt, it is for Insolvency Service exercising her legal rights to decide whether there is any economic merit in continuing with this claim.

Singh v. Boutique Body Corporates Ltd – High Court (19.07.19)

19.131

Fraud: FMA v. Financial Planning Ltd

Allegations that up to eight million dollars are missing led Financial Markets Authority to freeze accounts controlled by Dunedin financial adviser Barry Kloogh.  

Mr Kloogh is sole director and shareholder of Financial Planning Ltd and Impact Enterprises Ltd.  FMA investigations found that of the $15.6 million client money placed with Mr Kloogh in the seven years up to April 2019, only $7.4 million could be accounted for.  There was evidence of client money being used to pay Mr Kloogh’s personal expenses instead of being placed on investment as promised and of incoming client money being diverted in payments to other clients seeking repayment.

In the High Court, Associate judge Lester appointed interim liquidators to take control of all company assets.  Financial Planning’s and Impact Enterprises’ bank accounts are frozen.  A Serious Fraud Office investigation is underway.

Financial Markets Authority v. Financial Planning Ltd & Impact Enterprises Ltd – High Court (19.07.19)

15.132

Arrest: Maori Trustee v. Smith

Maori Trustee has taken possession of disputed land at Rautawhiri Station near Gisborne following the arrests of occupiers Bruce Smith, Ruby Smith, Jarna Smith and Kresla Smith.  The Smith whanau have been warned any attempt to re-occupy Rautawhiri will result in imprisonment for contempt of court.

Three years ago, the Maori Land Court ruled Smiths’ lease of Maori land at Rautawhiri Station was at an end.  They refused to leave, claiming ancestral rights.  A stand-off followed.  The Smiths blocked public access to the property.  Attempts were made to trespass the Maori Trustee.  Earlier this year arrest warrants were issued by the High Court, suspended for a period to allow the Smiths time to get legal advice. With no progress made, the Smiths were arrested and removed from the property.

Justice Grice released them from custody with a clear warning; return to Rautawhiri and they will be back in jail.

Maori Trustee v. Smith – High Court (18.07.19)

19.129

Company: re Vey Group Ltd

A Companies Act compulsory buy-out for minority shareholders in Wellington property company Vey Group Ltd was ordered by the High Court following complaints about the commercial behaviour of Palmerston North director Leslie Fugle, alleged to be using the company for his own benefit.  Interests associated with Mr Fugle gained control of Vey Group after a 2016 forced sale of a majority shareholding.

The High Court was told of disharmony between founding shareholders of Vey Group resulting in a Family Court order forcing Patricia Turvey to sell down a majority stake in Vey Group to repay funds lent the company by son Daryn.  Leslie Fugle came to become sole director of Vey Group with shareholding split 51 per cent Fugle family interests: 49 per cent the Orana Trust holding shares for Turvey family interests.

Vey Group owns a three-level apartment building built in 2002.  It is not code-compliant, needs remedial work and is uninsured.  

Evidence was given of Mr Fugle ignoring Orana Trust interests.  He refinanced a BNZ mortgage over the Vey property with a loan from privately-owned Aokautere Land Holdings Ltd, at a time when his son was Aokautere’s sole director.  As a ‘major transaction,’ this refinancing required Orana approval.  Mr Fugle went ahead over objections from Orana.  He refused to provide financial information about Vey Group requested by Orana Trust unless the Trust first agreed to his fee at five hundred dollars per hour.  He attempted to sell the Wellington property in a private sale to a buyer identified only as ‘R Pratt’ at what was said to be at an undervalue, with no marketing, no valuation undertaken and on unusual terms.  Notice was given to Orana of a shareholders’ meeting to approve the ‘R. Pratt’ sale; advice of the meeting venue was incorrect causing Orana to initially attend at the wrong venue, then Mr Fugle refused to accept Orana’s vote against the sale saying its proxy vote was invalid.  Orana trustees sued to block the sale.

After a defended High Court hearing, Justice Mallon ordered a compulsory buyout.  Vey Group shares are to be valued by an independent accountant, with Fugle interests given 14 days to buy at that price.  If they do not wish to purchase, the shares can be sold to a third party at no less than the independent valuation.  Justice Mallon warned that if Mr Fugle does not co-operate, she can order the Wellington property sold ‘as is, where is’ and Vey Group liquidated.

re Vey Group Ltd – High Court (18.07.19)

19.130

Reckless Trading: Esko Group v. Eskdale

William Robert Eskdale and Michael William Eskdale, directors of insolvent Northland freight-forwarder Esko Group Ltd, were held jointly liable to pay $246,700 for trading recklessly, with William Eskdale ordered to pay a further $145,600 which included personal drawings taken from the company.

Fellow director James Johnston did a deal with Esko liquidator, settling out of court and giving evidence of the Eskdales siphoning money out of Esko to prop up their related trucking business, Eskdale Freight Ltd.

There was evidence Esko was insolvent within a year of its 2015 incorporation.  Inland Revenue put the company into liquidation in 2017 on tax debts totalling $458,000.  Mr Johnston told the liquidator of Esko cash being poured into Eskdale Freight.  Mr Johnston was not an Eskdale Freight shareholder; the Eskdales were. Eskdale Freight, which operated out of Port Whangarei, was wound up insolvent in 2016 with all its serviceable trucks repossessed.

Esko’s liquidator said its directors never had any reasonable prospects of seeing repayment of money shifted across to Eskdale Freight.  The Eskdales were held liable for recklessly trading Esko in breach of the Companies Act; failing to act in good faith and for using company funds to pay creditors of their other business.  William Eskdale was further held liable to repay $92,000 being cash taken from Esko to pay personal debts.

Esko Group Ltd v. Eskdale – High Court (17.07.19)

19.128

Fraud: Chen & Jiang v. R.

Sentences imposed on lawyer Gang Chen and bank employee Zongliang Jiang for their part in a $54 million dollar mortgage fraud were upheld on appeal; minimum periods of imprisonment restricting their rights to parole, were cancelled. 

Chen and Jiang participated in a mortgage fraud perpetrated by property developer Kang Huang who used false mortgage applications from ‘dummy purchasers’ to get working capital from major trading banks for his construction business at residential borrowing rates.  Chen signed off on mortgage applications knowing they were false; Jiang took kickbacks as a BNZ employee to process applications knowing they were false.

As a conveyancing solicitor, Chen acted as lawyer for many of the fictitious borrowers invented by Huang and also acted as lawyer for banks gulled into providing mortgage finance.  He was sentenced to six years’ imprisonment.  On appeal, Chen said he could not be convicted of ‘obtaining by deception’ when the deception benefitted Huang, not him.  He was guilty of ‘obtaining,’ the Court of Appeal ruled, even where the benefit was enjoyed by someone else.  The Court quashed the minimum period of three years’ imprisonment imposed by the trial judge.  Chen did not gain any direct monetary benefit from the fraud and otherwise was of good character, the Court said.

A two year four months minimum period of imprisonment imposed on Jiang was also quashed.  His prison sentence of four years nine months remains.  Jiang received $240,000 in bribes to process false mortgage applications for BNZ loans totalling some $18 million.  He surrendered assets valued at $850,000 as benefits accruing from his criminal behaviour.  This acknowledgement of wrongdoing should be taken into account, the Court of Appeal said.

High Court evidence identified that the defrauded banks suffered no financial loss on most of the fictitious loans; a rising real estate market ensured they were repaid in full.

Chen v. R. & Jiang v. R. – Court of Appeal (10.07.19)

19.127

Tonga: Hawaiki Submarine Cable v. Kingdom of Tonga

Tongan government is being sued in New Zealand for $US1.4 million remaining unpaid after linking to the Pacific-wide Hawaiki submarine cable.  In October 2016, it guaranteed payment of the full $US2.8 million construction cost for a fibre optic submarine spur to Tonga from Hawaiki.  

The Hawaiki network runs between New Zealand, Australia, Hawaii and mainland USA.  Tonga Cable Ltd, majority owned by the Tongan government, agreed in 2016 to pay for a connection to Hawaiki.  As majority shareholder, the Tongan government guaranteed payment.  A first instalment of US$1.4 million was paid on signing. The connection was operational mid-2018. Tonga has defaulted on the final instalment due.

Tongan government said it could not be sued on its guarantee in the New Zealand courts; Tonga was the appropriate place to sue. In the New Zealand High Court, Associate judge Andrew ruled the case be heard in New Zealand.  The fibre-laying contract stated New Zealand law was the ‘proper law’ of the contract; any dispute was to be heard in New Zealand courts.  The guarantee did not have a ‘proper law’ clause, but the guarantee was inextricably linked to the fibre-laying contract, Judge Andrew ruled.  The guarantee was ‘infected’ by the contract guaranteed.  Claims under the guarantee came within New Zealand courts’ jurisdiction.

Tongan law allows decisions of New Zealand courts to be enforced in that country.

Hawaiki Submarine Cable LP v. Tonga Cable Ltd & Kingdom of Tonga – High Court (10.07.19)

19.126

Accident Compensation: Trevarthen v. ACC

Deanna Trevarthen died aged 45, thirteen months after being diagnosed with mesothelioma, a fatal cancer caused by exposure to asbestos.  Deanna’s name will live on in legal circles after her estate’s successful claim for accident compensation.

Before her death, Deanna’s claim for accident compensation was turned down; ACC is not available for the consequences of disease, other than work-related diseases.  Her sister-in-law Angela Calver carried on the fight as executrix of Deanna’s estate.

The evidence was that Deanna had ingested asbestos fibres as a young girl, accompanying her father working as an electrician on building sites.  Three decades later, mesothelioma was diagnosed; a death sentence.  In 2010, ninety people were diagnosed; seventy-eight in 2011.  The disease takes decades to manifest itself.  Asbestos fibres ingested set off adverse genetic changes in susceptible cells.

Mesothelioma was not a work-related illness for Deanna, though the fibres were ingested on worksites where she had played with asbestos offcuts.  Proof was required that she had suffered ‘personal injury by accident’.  Accident Compensation said a pattern of exposure to asbestos over time was not a single event; it was not an accident.  The disease had arisen as a result of a gradual process.  Medical evidence is that mesothelioma may be caused by a single fibre, or a few fibres, or many fibres.  The condition, once caused, is not aggravated by further exposure.  There is no minimum exposure level below which there is no risk of developing the disease.

Deanna’s estate was entitled to accident compensation, Justice Mallon ruled.  She had been exposed to asbestos on a ‘specific occasion’ though any one of multiple exposures could have resulted in the disease.  A foreign object does not have to be inhaled only once to amount to an ‘accident’ Her Honour ruled.

Estate of Trevarthen v. Accident Compensation Corporation – High Court (8.07.19)

19.125

Insurance: Xu v. IAG Insurance

Split 3:2, the Supreme Court denied Ruiren Xu’s claim demanding IAG Insurance pay replacement cost on an earthquake-damaged Christchurch property purchased ‘as is’.  A full scale legal assault on a thirty year principle of insurance law failed; resulting in a harsh outcome for property owners said the minority.

The Barlow family claimed against their IAG policy after Canterbury’s earthquakes, selling their damaged Wainoni home in December 2014 ‘as is’ with their claim still unresolved.  As part of the deal, their insurance rights against IAG were assigned to the purchaser.

While contractually obliged to pay replacement cost to the Barlows, IAG refused to pay replacement cost to the purchaser.  The principle enshrined in Bryant v. Primary Industries, a thirty year old Court of Appeal case applied it said: cover is for the named policy-holder; after a loss has occurred, someone else cannot retrospectively claim replacement cover.

Two judges in the Supreme Court criticised this thirty year old case, saying it was wrongly decided and not relevant.  It was poorly reasoned they said, applying case law about indemnity insurance contracts which had no relevance to a case about replacement cover.  It was also an economic issue they said.  Premiums were priced on the basis that replacement cover was promised; it should make no difference who was claiming as owner of the property.  Application of the thirty year rule in these cases amounted to a windfall for insurers and perpetrated a harsh outcome for property owners, they said.    

Three judges in the Supreme Court ruled the specific wording of the IAG policy was critical; wording required the Barlows as policy holder to bear the cost of reinstatement and then seek reimbursement. When selling they made it clear they had no intention of bearing repair costs.  Bryant still applied, they said. Entitlement to replacement benefits conditional on reinstatement by the insured cannot be assigned where no reinstatement has occurred, the majority said.

Xu v. IAG Insurance Ltd – Supreme Court (3.07.19)

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Memelink: Lynx Trustees Ltd v. Body Corporate 68792

Lynx Trustees Ltd, associated with frequent Wellington litigant Harry Memelink, faces liquidation if it fails to pay $289,000 owed the body corporate running a sixteen unit commercial property in Lower Hutt.

Mr Memelink has been accused of obstructive and unreasonable conduct in body corporate affairs.  He alleges the body corporate has been mismanaged.  Lynx owns six of the 16 units.

The High Court appointed an administrator in March 2015 to take control of the business.  A succession of administrators followed.  The current appointment, Mr Gambitsis, is the third.  Mr Memelink supported appointment of Mr Gambitsis, telling the court he agreed to be bound by an audit of body corporate finances. A subsequent audit by Deloitte identified Lynx owed $289,000 in unpaid levies.  Lynx refuses to pay.  It challenges Deloitte’s methodology, complaining it does not identify payments made prior to January 2008.  Justice France said there is no evidence that any pre-2008 information benefits Lynx. The $289,000 debt can be enforced, he said.

Lynx Trustees Ltd v. Body Corporate 68792 – High Court (2.07.19)

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