Joint Ownership: Rozee v. Zhang

Sale of a block of ten adjoining earthquake-damaged Christchurch flats was ordered over the objections of one owner claiming her status as an overseas resident entitled her to a greater share of the sale price.

Donggee Zhang lives in China.  She purchased a London Street flat in the Christchurch suburb of Richmond in 2016 as home for her son to occupy whilst a student in the city. The two-storey block of flats was extensively damaged in the Christchurch earthquakes.  Legal title is held in joint ownership; each flat is owned on a registered lease from all ten owners, known colloquially as a cross-lease title.  Owners took cash insurance settlements after the earthquakes.  They were left to carry out any necessary repairs individually.  Major repairs are impracticable; all flats need to be repaired at the same time.  Demolition with a rebuild is the only realistic way forward.  Only five of the ten flats are currently occupied.  None are insured.

The High Court was told a $1.08 million offer was made in December 2018 to buy the entire site; all ten flats.  This offer remains open until the end of September. Nine owners have agreed to sell. Ms Zhang did not.  She said: accommodation was needed for her son; a sale should be deferred as property prices will rise; and she demanded a higher share of the sale price as compensation for perceived difficulties faced by her as an overseas investor looking to buy a replacement property in New Zealand.  In the months prior to a court hearing forcing a compulsory sale, Ms Zhang said she would agree to a sale provided she received enough money to buy a replacement property.  

Associate judge Paulsen said Ms Zhang provided no evidence of how she might be prejudiced by a forced sale.  She provided no evidence of eligibility to live in New Zealand. She could rent accommodation for her son whilst he remains a student in Christchurch.

Judge Paulsen ordered a Property Law Act forced sale of the ten owners jointly owned interest in London Street.  Sale price is to be no less than $1.08 million, divided into equal shares.  Current market value of London Street was described as $950,000 on an ‘as is’ basis with all ten flats sold together; three million dollars if all the flats were repaired to current code compliance.

Rozee v. Zhang – High Court (30.08.19)

19.158

Leaky Building: Queenstown Lakes v. Crisp

Cadex Finance Ltd director Darren Crisp was ordered to pay damages for his company’s failure to properly weathertight Queenstown’s Alta Apartments built in 2007.

Queenstown Lakes District Council sued after paying $1.3 million settling its liability to Alta Apartment owners for negligence in wrongly issuing a code compliance certificate.  Having paid up, Queenstown Lakes claimed from directors of head contractor Rilean Construction (South Island) Ltd and from Darren Crisp as director of Cadex Finance, the company responsible for apartment construction. Rilean Construction directors settled out of court.  The amount paid remains confidential.  In ‘leaky building’ claims, it is common for councils to pay twenty per cent, contractors 80 per cent.  On this formula, directors of Rilean Construction and Cadex collectively would be in the gun for some one million dollars.  Terms of the agreed settlement between Rilean Construction directors and Queenstown Lakes included specific agreement for Council to go after Darren Crisp for his share.

With legal action filed, Mr Crisp left for Australia. The High Court was told Mr Crisp has been bankrupted in Australia.  An Australian bankruptcy is no bar to legal action in New Zealand or to creditor claims against any New Zealand assets Mr Crisp may have.

Justice Gendall ruled Mr Crisp liable to pay Queenstown Lakes.  The amount he has to pay was supressed in the publicly issued court judgment.

Mr Crisp was liable for his company’s failure to properly weathertight Alta Apartments because he had complete control over steps that prejudiced Alta owners: he had the architect backdate her practical completion certificate for the build despite known weathertightness issues (allowing apartment titles to be issued and triggering buyers liability to pay); he negotiated the release of retentions totalling $50,000 (withheld to ensure weathertightness remedial work would be carried out) without then having the work done.  The architect had signed off on completion, subject to specified remedial work being done.

Queenstown Lakes District Council v. Crisp – High Court (29.08.19)

19.157

Fraud: R. v. Henare

Angered by perceived injustice over land taken from his forebears, Stephen James Henare fought a long legal battle to take control, from the Maori Trustee, forestry land in the Far North together with $1.096 million in cash.  Within twelve months, the money was gone, with eleven dollars left in Trust bank accounts.  Henare was sentenced to five years two months imprisonment for fraud and for lying to the Maori Land Court about his management of Trust assets. 

The Parengarenga 3G Trust holds 511 hectares of forestry land in Taitokerau District.  The Trust has some 400 beneficial owners.  After protracted legal proceedings, pushed along primarily by Henare, P3G assets were transferred from the Maori Trustee to seven new trustees: Henare, his daughter, his sister, his brother and three others.  Henare and his sister were signatories on Trust bank accounts.  A Serious Fraud Office investigation found about $798,000 was fraudulently transferred over a twelve month period to bank accounts controlled by Henare.  Payments totalling about $185,000 went to accounts controlled by his sister.

A Trust beneficiary, concerned about Henare’s activities, unsuccessfully asked the Maori Land Court to remove Henare as trustee. Henare lied to the Maori Land Court, saying there was ‘just under one million dollars’ sitting in Trust bank accounts.  In fact, there was only some $400,000 left; about $600,000 had been fraudulently taken by that time.  He was convicted of attempting to pervert the course of justice.

Henare failed in the most basic of trust obligations – honesty in the administration of funds, Justice Muir said.  Henare pursued a calculated plan to ensure Trust domination by family members, oversaw signing authorities on bank accounts which delivered control to himself, all the while hypocritically invoking his commitment to Christian ideals, Justice Muir said.  Trust money was used to hire a corporate box at the Warriors league club and to gamble at Auckland casino, before he was barred from the casino.

It was intended the one million dollars received by P3G from the Maori Trustee would fund P3G through its next crop rotation; paying for replanting, crop maintenance and rates until the next harvest.  After Henare’s theft, P3G had to borrow against future cutting rights to fund its next crop rotation, at a potential cost of five million dollars in lost revenue.

Henare’s sister, Margaret Dixon was sentenced to twelve months home detention and ordered to pay $5000 reparations.  

R. v. Henare – High Court (28.08.19)

19.156

Copyright: Zhang v. Sealegs International

Sealegs International holds no copyright in use of retractable wheel assemblies in its amphibious boats, ruled the Court of Appeal, leaving Orion brand free to compete with its own product.

In 2018, a High Court injunction blocked former Sealegs’ employees from producing and marketing a rival product.  This injunction was lifted by the Court of Appeal.

Sealegs holds registered patents protecting its claimed original mechanisms for retractable wheel assemblies.  It chose not to sue competitor Orion in patent law, suing instead in copyright law.  Copyright blocks reproduction of ‘artistic works.’  The trial judge ruled Sealegs product was unique.  Orion appealed; there is nothing new about boats having retractable legs and Sealegs retractable leg assembly is purely functional, it said.  A leg must be affixed to a hull, have a pivot, an axle and a wheel.  Allowing Sealegs copyright in its product created a monopoly over what is purely a collection of functional components, Orion said.

Visual similarity arising from functional similarity does not create copyright, the Court of Appeal ruled.  Claims to operational originality are for patent law, not copyright law.

Zhang v. Sealegs International Ltd – Court of Appeal (27.08.19)

19.155

Employment: Ioan v. Scott Technology

Dismissing an employee during a 90-day trial period with payment in lieu of work for a notice period is not summary dismissal, the Court of Appeal ruled. 

Engineer Calin Iaon failed in an Employment Relations Act claim against Dunedin-based Scott Technology NZ Ltd.  The Court of Appeal was told Mr Iaon suggested when hired that he be offered a 90-day trial after concerns were expressed about potential difficulties he might have in getting on with others.  His trial agreement provided for four weeks written notice.  He was dismissed in October 2016, with just over three weeks still to run on his 90-day contract.  In its termination letter, Scott Technologies described Mr Iaon as a capable experienced and practical engineer, stating there was a mismatch between the characteristics required for a senior role and what was delivered.

The Court of Appeal ruled ‘termination on notice’ includes circumstances where a notice period is paid out with immediate cessation of work.  Mr Ioan’s claim of unjustifiable dismissal failed.

Under current legislation, use of 90-day employment trials is limited to employers with fewer than twenty employees.

Ioan v. Scott Technology NZ Ltd – Court of Appeal (27.08.19)

19.154

Debt: Stellar Homes Ltd v. Fordsan Construction Ltd

The High Court dismissed a $703,300 summary judgment claim against builder Frederick van der Sande; a full court hearing is needed to sort out disputed facts.  Mr van der Sande alleges KJ Syms Trust, financier for their failed joint venture building company, changed the rules, reneged on promises to clear joint venture debts and did not honour a ‘stand still’ agreement promising not to sue. 

Their joint venture was established in 2011: accountant, the late Kelvin Syms providing funding through his KJ Syms No. 2 Trust; Mr van der Sande handling construction of residential property.  Mr Syms died in 2014.  New trustees took control of the funding side.

Evidence was given of disputes arising over the accounting treatment of ‘management fees’ after Mr Syms death.  Project manager Fordsan Construction Ltd, controlled by Mr van der Sande, was receiving monthly management fees.  The new trustees changed past practice, treating the fees as an advance, repayable by Fordsan if no joint venture profits eventuated. The supposed debt was secured with a general security agreement over joint venture assets.  With a debt of $703,300 having accrued, the trustees triggered their security in 2017, appointing a receiver and sued Mr van der Sande as guarantor of Fordsan’s debt.

Associate judge Sargisson put the case on hold. The joint venture agreement states management fees are absorbed into Mr van der Sande’s profit share, should joint venture profits eventuate.  It does not say management fees are repayable advances.  There is also a dispute over the status of a 2017 ‘stand still’ agreement in which Mr van der Sande agreed money was owing and the trustees agreed not take immediate action to recover the debt; payments were re-scheduled for fixed dates with a six month delay.   Mr van der Sande said he signed only after the trustees agreed to pay creditors direct for construction work.  Creditors were not paid, he said.  Trustees did not sign the ‘stand still’ agreement.  They appointed receivers to recover the disputed debt within a month of Mr van der Sande’s signature.

Stellar Homes Ltd v. Fordsan Construction Ltd – High Court (23.08.19)

19.153

Fair Trading: Commerce Commission v. Steel & Tube

Fined two million dollars for breaches of the Fair Trading Act, Steel & Tube increased revenue by some four million selling as a premium product steel mesh misrepresented as satisfying earthquake standards when no appropriate testing had been carried out.  Steel & Tube management were ‘grossly careless’ in not checking staff followed correct procedures, the High Court ruled.

Agitation from the local steel industry about allegedly inferior steel imports and subsequent Radio New Zealand enquiries about local practices resulted in local supplier Steel & Tube Holdings Ltd under investigation. Commerce Commission identified that some 480,000 sheets of SE62 grade steel mesh manufactured and sold by Steel & Tube between 2012 and 2016 had not been tested according to industry protocols and in many cases carried certification falsely certifying mesh had been independently tested.  The ‘E’ in SE62 signified the mesh was better able to maintain strength when stretched by earthquakes.

Pleading guilty to Fair Trading Act charges brought by Commerce Commission, Steel & Tube management said the problem lay with a former senior technical staff member at its Christchurch plant. Methodologies required for industry testing were not followed.  The staff member considered in-house processes were a sufficient substitute. Independent testing was carried out on sample batches as the product was developed, then copies of the independent test certificate attached to subsequent production runs which had not been independently tested.  In the High Court, Justice Duffy said management was grossly careless in not having its manufacturing process audited.  Expert evidence indicated the untested SE62 mesh was not a ‘risk to life’ if used for slab flooring; its performance was unknown for suspended floors – the lack of proper testing left open the question of whether it would perform adequately, or not.

The High Court dismissed Steel & Tube’s complaint that the level of fine was excessive.  It was a false representation to sell steel mesh described as being independently tested, when it had not.  The company, through its senior management, had to accept responsibility for the work of its technical staff.

Commerce Commission v. Steel & Tube Holdings Ltd – High Court (23.08.19)

19.152

Fraud: Angus v. R

Convicted of fraud together with husband Darryl Angus, Melissa Jane Angus is seeking to overturn her convictions for misappropriating $93,200 received by Wainuiomata-based Omega Funeral Services for pre-paid funerals.  She says delays prejudiced her right to a speedy trial.  

The collapse of Omega Funerals in 2005 created waves in the tight-knit Wainuiomata community.  Locals pre-paying funerals were told Omega would hold their money safe in a separate trust account.  This was never done.  Customers’ money was used for business expenses and the Angus’ personal expenses. When Omega went into liquidation, there was nothing for creditors, including those pre-paying funerals now left as unsecured creditors.

The Court of Appeal was told the two left for Australia during a police investigation.  They were charged after returning in 2014.  Melissa Angus first elected trial by jury, changed later to judge-alone trial and then pleaded guilty.  In early 2019, the District Court sentenced her to six months home detention and ordered payment of $10,000 reparations at $100 per week.

She now appeals the convictions, but not the sentence, alleging she was prejudiced by the delays.  In a preliminary hearing, the Court of Appeal said it had no jurisdiction to hear an appeal.  Legal rules applying as at the date District Court proceedings started meant her appeal should be heard in the High Court, not the Court of Appeal.

Angus v. R – Court of Appeal (20.08.19)

19.151

Family Trust: Reid v. Castleton-Reid

Gift, or held on trust?  A $1.5 million balance in son Barry’s share trading account was held on trust and Ross Reid, now aged 97, was entitled to demand payment, the Court of Appeal ruled.  Ross Reid funded the Craigs share trading account with $1.7 million cash advanced in 2009. Son Barry Castleton-Reid says he also has claims for payment out of the account; his personal assets have been mixed into the Craigs account. 

Ross Reid jointly owned Reidbuilt Homes.  He was bankrupted in 1999 and again in 2003. Four years later, he had a $1.8 million capital distribution from a family trust, the Hallmark Trust, paid into his personal bank account.  Ross Reid was neither a trustee nor a beneficiary of Hallmark.  These trust funds were later transferred into a Kiwibank account jointly held with his spouse, who was a beneficiary.  She died in 2008.  The joint bank account became Ross Reid’s sole property, by survivorship. 

The court was told son Barry was the primary beneficiary of his late mother’s estate, receiving real estate then valued at $2.8 million plus listed shares in Air NZ and Auckland Airport then worth some $470,000. In April 2009, Ross Reid transferred $1.7 million out of his Kiwibank account into a Craigs share trading account opened in the name of son Barry.  Barry was told this was ‘his inheritance’.  By family agreement, $800,000 was paid out of the Craigs account to sister Dee-Ann as compensation for the small bequest she received from her mother’s estate.  Evidence was given of Ross Reid trading shares through the Craigs account and of account funds being used to buy apartments, for both father and son.  

Twelve months after the Craigs account was opened, Barry closed the account, claiming the closing balance of $1.55 million was his absolutely. Ross Reid said this now leaves him with no assets and superannuation as his only income. The Court of Appeal said there was no intention in 2009 to make a gift of $1.7 million; it was intended son Barry would inherit the balance of the Craigs account on Ross Reid’s death.  Meanwhile son Barry holds funds in the Craigs account on trust for his father, the court ruled.   

There is insufficient evidence to support a claim that the initial $1.7 million payment amounted to a gift, the court ruled. Email messages from Ross Reid to his son stating the money ‘would be yours’ or ‘are to be yours’ are future focused and not consistent with an immediate gift, the court said.  The word ‘gift’ was not used in the 2009 discussions; the arrangement was described as ‘an inheritance’.

The case was referred back to the High Court to determine how the Craigs closing balance of $1.55 million is to be divided between father and son.  Son Barry received $333,000 from the account to buy a central Auckland apartment; father Ross sold Barry’s Air NZ and Auckland Airport shares with proceeds paid into the Craigs account.  Who bears the cost of the $800,000 compensation paid to Dee-Ann is yet to be decided.

Reid v. Castelton-Reid – Court of Appeal (20.08.19)

19.162

Debt: Harvey v. Tasman District

Seven years on and Tasman Council is chasing Richmond real estate agent Mike Harvey for water service connection fees due on his Mapua subdivision.

Mr Harvey claims he is not personally liable for $10,100 still owing on twelve water service connections booked in 2011.  It is the responsibility of his company Split Atom Ltd, he said.

Justice Churchman ruled Mr Harvey personally liable. Mr Harvey signed a council form asking for the connections.  He was described as ‘owner’ on the form though title to the land was taken in the name of Split Atom.  When signing, Mr Harvey did not negate personal liability by stating he was signing as agent for his company, making it Split Atom’s debt.

Alluded to in evidence was disaffection over a $278,400 development levy imposed by council on Split Atom.  In 2011, there was a moratorium in Mapua on new water connections to council water supply.  Mr Harvey’s connections to the water supply were conditional on Split Atom paying development costs. 

Harvey v. Tasman District Council – High Court (16.08.19)

19.149

Insurance: Dodds v. Southern Response

A ‘full and final’ insurance settlement was no bar to a claim for damages after Southern Response misrepresented policy cover following earthquake damage to a Christchurch property.

Karl and Alison Dodds were awarded $178,800 damages after Southern Response misrepresented $894,900 was their maximum entitlement.  Southern Response said its payout offer left out contingencies otherwise payable on a rebuild because the Dodds were instead buying a replacement home.

The High Court was told the Dodds’ home at Errol Lane in Huntsbury was considered uneconomic to repair after the series of Christchurch earthquakes.  The Dodds were insured with AMI Insurance.  Government-funded Southern Response took over AMI’s earthquake liabilities after the insurer was brought to its knees by the magnitude of earthquake claims.  Buying a replacement property was an option under the AMI policy.  The Dodds took up this option.  How much was payable became an issue in the High Court.  Under the policy, the payout was not to exceed the cost of rebuilding on the present site; this calculation assumed there would be a notional rebuild of the damaged home.  Southern Response said legal rules as then understood for calculation of a notional rebuild saw a deduction for both architect fees and any contingency for increased costs since there was in fact no rebuild being undertaken.  A subsequent Supreme Court case stood this understanding on its head; insurers were obliged to pay out these costs even on a notional rebuild.

Southern Response misrepresented the Dodds’ entitlement by omitting the extra $178,800 payable on a notional rebuild, Justice Gendall ruled. Paper work provided to the Dodds emphasised the lower figure; internal Southern Response documentation containing the extra figures was held back.  This omission was both a misrepresentation in negotiations over the payout and a breach of the Fair Trading Act.

Southern Response was also in breach of its duty of good faith, Justice Gendall ruled.  The AMI policy promised there would be a ‘fair settlement’ of claims.    Failing to disclose material facts and misrepresenting the true position was in breach of the policy.  It caused the Dodds to settle their claim for less than they were entitled.

The Dodds’ agreement that their $894,900 payout was in ‘full and final’ settlement was not binding.  It was not a free bargain.  Southern Response misrepresented critical facts.  Further, wording of the ‘full and final’ settlement did not absolve Southern Response from breaches of statute.  The Dodds’ claimed under the Contract and Commercial Law Act and the Fair Trading Act.

Dodds v. Southern Response Earthquake Services Ltd – High Court (16.08.19)

19.148

Fraud: Bublitz v. R

Acquitted on appeal of issuing a false finance company prospectus, property developer Paul Bublitz was released from prison but must serve eleven months home detention for misleading Treasury over the extent of his prohibited related party lending.

Paul Bublitz was charged with fraud offences after exploiting government guarantees for finance company deposits; guarantees intended to avert liquidity concerns following the 2008 global financial crisis. Bublitz had direct or indirect control over Viaduct Capital and Mutual Finance.  He used depositors’ funds to rescue his personal investment in Hunter Capital and to get loans for further property development.  He was sentenced to three years two months imprisonment.

The Court of Appeal overturned his conviction for issuing in 2010 a false prospectus for Mutual Finance.  This prospectus referred to the then government guarantee of depositors’ funds.  The trial judge said this was misleading; the government guarantee was at risk of being withdrawn should Treasury become aware of the extent of prohibited related party lending by Mutual to entities associated with Bublitz.  The Court of Appeal said the prospectus was not misleading; depositors’ funds were guaranteed, regardless of any related party lending.  Unless and until the guarantee was withdrawn, all deposits made during the currency of the prospectus were guaranteed.

Bublitz had been in jail for some two and half months following conviction.  The Court of Appeal ordered his release, but ordered he serve eleven months home detention on his remaining convictions; charges of misleading Treasury over undisclosed related party lending.  Bublitz became eligible for home detention, in part, because he gained no personal benefit from the fraud.  He lost well over two million dollars of his own money attempting to ‘rescue’ his finance company investments and spent over one million dollars on legal fees at an initial nine month criminal trial, aborted because of government’s failure to disclose documents.  Bublitz’ legal fees for a second trial were covered by legal aid.

Bublitz v. R. – Court of Appeal (16.08.19)

19.150

Debt: GPC Electronics (NZ) Ltd v. Jones

Stalling on payment of an overdue debt, Nelson entrepreneur Warwick Jones contributed to a creditor’s confusion, causing it to wind up the wrong company for non-payment.  He was ordered to pay three-quarters of legal costs incurred untangling the problem.

The High Court was told Mr Jones stood discreetly in the courtroom public gallery while his company Sensys Ltd was ordered into liquidation, ostensibly over a debt owed to supplier Australian-owned GPC Electronics (NZ) Ltd.  Sensys Ltd was a shell company, with no assets and no trading history.  Mr Jones formed Sensys Ltd to protect the Sensys name. His trading company was called Design Electronics Ltd.  It was Design Electronics which owed GPC Electronics.

Confusion arose after Design Electronics opened a trading account with GPC giving as its name: Design Electronics Ltd trading as Sensys. The customer name recorded in GPC’s accounting system was Sensys. 

Evidence was given of GPC first chasing an overdue account in May 2018.  The letter was addressed to Sensys Ltd.  Three weeks later, the debt was paid.  Four months later, GPC was chasing another late payment.  Again, the letter was addressed to Sensys Ltd.  Mr Jones emailed his reply over the word ‘Sensys.’ With legal action threatened, Mr Jones did nothing other than plead for time with emails written on behalf of the 'Sensys Team.’  The day after Sensys Ltd was put into liquidation he told the liquidator GPC had the wrong company.

Associate judge Lester ruled Mr Jones’ actions were a major contributing factor.  Lawyers acting for GPC made the initial mistake; Mr Jones actively compounded the error by representing in his correspondence that Sensys was the debtor. These actions strongly suggest Mr Jones was aware the wrong company was being pursued and chose to remain silent to buy time, Judge Lester said.  Mr Jones was ordered to pay three-quarters of the wasted costs incurred putting Sensys Ltd into liquidation and then reinstating the company to the Companies Register.  The amount due is not yet finalised.

GPC Electronics (New Zealand) Ltd v. Jones – High Court (15.08.19)

19.147

Licence: JK Trading Ltd v. RimPro-Tec Ltd

As a vehicle accessory intended to protect wheels from kerb damage it was a failure.  Auckland-based JK Trading Ltd was awarded $223,100 damages against supplier Rimpro-Tec Ltd; money lost on a worthless licensing agreement.

The High Court was told Chris and Debbie Chester, owners of RimPro-Tec, enthusiastically promoted their rim protection product, envisaging sales of hundreds of thousands of units throughout Australasia. JK Trading signed up in 2009 as Australasian agent.  It paid $130,000 goodwill for its licensed sales territory and $210,000 for stock. RimPro-Tec was a plastic product to be affixed to wheels.  It didn’t work.  The product launch at Auckland’s 2010 Top Gear Live show was a disaster.  The double-sided tape used to fix Rim-Pro Tec to wheels proved too sticky, getting tangled.  The Chesters helped JK Trading at its Top Gear stand and saw the problems first hand.  The product subsequently went through various iterations including different tape and clip on components.  Customer feedback was unenthusiastic.  Wheels still suffered kerb damage.  The accessory had to be removed for wheel alignments.

JK Trading sued for a refund, claiming the product was not reasonably fit for purpose.  RimPro-Tec Ltd denied liability; the licensing agreement described JK Trading as the ‘manufacturer.’  RimPro-Tec was not responsible for any defects, it said.  Justice Gordon ruled the intention of the licensing agreement was to have Rim-Pro design and produce a product protecting wheels from kerb damage. JK Trading was no more than a distributor and sales agent.  Its ‘manufacturing’ responsibilities amounted to packaging components supplied by RimPro-Tec and making delivery to customers.  Rim-Pro Tec was ordered to refund JK Trading’s goodwill payment of $130,000 together with the value of unsold stock.  In March 2018, the Chesters put RimPro-Tec into voluntary liquidation.

JK Trading Ltd v. RimPro-Tec Ltd – High Court (15.08.19)

19.146

Insolvency: re Ashok Maharaj

Five months after the High Court dismissed a part-payment scheme designed to avoid bankruptcy, builder Ashok Maharaj was back in court seeking approval for a similar scheme.  It was refused again, for similar reasons.  A lack of detail about funding for the promised part-payments and Mr Maharaj’s history of trading whilst insolvent meant it was not in the public interest to postpone bankruptcy proceedings, the court said.

There is no bar on insolvent debtors making repeated proposals to creditors in an attempt to avoid bankruptcy.  Insolvency Act part-payment schemes allow debtors to escape bankruptcy provided there is support from a majority of creditors and High Court approval.  The necessary majority of Mr Maharaj’s creditors voted in favour of a scheme having all creditors (bar one) receiving immediately fifteen cents in the dollar.  This is more than they will get if he is bankrupted, Mr Maharaj said.  Westminster Finance Ltd agreed to twelve monthly payments each of some $2300 giving it fifteen cents in the dollar on principal due and five cents in the dollar for arrears of interest.  Westminster had taken no steps to call up its loan; $90,000 cash advances made in 2007 and 2008.

Mr Maharaj said funding for immediate creditor payments would come from $40,000 paid across from one of his companies and the twelve monthly payments out of a salary working for that same company. Associate judge Andrew said there was no clarity about whether the $40,000 was a gift or a loan (creating more debt), what would be the employment terms with his company and whether he could meet promised creditor payments out of the undisclosed salary after meeting household expenses.  The part-payment scheme was disallowed.  Mr Maharaj’s bankruptcy hearing was set down for September.

re Ashok Maharaj – High Court (7.08.19)

19.145

Joint Venture: IBC Japan Ltd v. Autoterminal NZ Ltd

Hohua Hemi’s attempt to liquidate used-car importer Autoterminal New Zealand over an alleged forty million dollar debt, part of his global dispute with business colleague Robert Stone, was struck out by the High Court.  Mr Hemi alleges Autoterminal director Mike Tyler is siding with Mr Stone.

Mr Hemi’s Companies Act claim that Autoterminal New Zealand Ltd be wound up on ‘just and equitable grounds’ was struck out by Associate judge Smith.  Suing for liquidation in the name of allegedly unpaid Japanese supplier IBC Japan could not be used by Mr Hemi to fight out a dispute between himself and Mr Stone as shareholders of New Zealand-registered importer, Autoterminal.

The Autoterminal dispute is one of multiple legal cases both in New Zealand and elsewhere in the world where Mr Hemi and Mr Stone are fighting over control of their joint business empire.  The High Court was told the two had been in business together since the early 1990s; purchasing used cars in Japan and selling them in New Zealand and elsewhere.  Multiple companies handling their business affairs were set up around the world; each owned 50/50 by Mr Hemi and Mr Stone, typically with trustees appointed to handle their separate business interests.

Current New Zealand litigation centres on Autoterminal, set up in April 2000.  Shares are currently in the name of Hamilton-based Mike Tyler.  He admits to holding as trustee, but there is a dispute as to whom the shares are held in trust for.  Mr Hemi says Mr Tyler holds half the Autoterminal shares as trustee for him. Mr Tyler disputes this.  Mr Tyler refuses to release any financial information to Mr Hemi.  Mr Hemi alleges Autoterminal has failed to comply with a 2014 ‘vehicle supply agreement’ covering importation of used cars.  Mr Hemi further alleges Autoterminal owes IBC Japan at least forty million dollars for cars exported from Japan and sold in New Zealand.  The High Court was told of rumours circulating in the used-car trade, sourced from IBC Japan, that Autoterminal was going into liquidation and that Mr Tyler was going to jail for fraud.  Mr Hemi has a fifty per cent stake in IBC Japan.  Since May 2018 he has been IBC’s ‘representative director’; a requirement of Japanese company law.

IBC Japan’s claim to be owed over forty million dollars by Autoterminal is subject of separate legal proceedings filed in the High Court.  In further legal proceedings, Mr Hemi seeks a court ruling that Mr Tyler holds half the Autoterminal shares in trust for him.

IBC Japan Ltd v. Autoterminal New Zealand Ltd – High Court (6.08.19)

19.143

Business Sale: Turnover Ltd v. Buy Right Cars

Car dealer Brandon Orlandini claims he is owed extra earn-out fees of $5.4 million, alleging Turners mis-managed Buy Right Cars after it took over.

Through eighteen years work, Mr Orlandini built up Buy Right Cars, importing and selling cars ex-Japan.  In 2016, Turners Automotive Group Ltd paid Mr Orlandini $31.18 million for Buy Right: $9.18 million in cash and Turners’ shares plus $22 million for inventory.  Part of the sale price was withheld, to be paid at the end of the next two financial years if sale targets were met.  Mr Orlandini was to remain in control of Buy Right during the earn-out period.

The High Court was told Mr Orlandini was paid $3.41 million for the first earn-out period.  Before the first earn-out period ended, Mr Orlandini agreed to give up day-to-day control of Buy Right, receiving a lump sum payment of one million dollars for the second earn-out period.  He later alleged a further $5.4 million was due.  Making a ‘fundamental change’ to Buy Right’s business model triggered a clause in the sale agreement making total earn-out fees payable regardless of whether specified sale targets were met, he said.

In particular, Mr Orlandini alleges changing car yard signage from Buy Right to Turners and increasing ex-New Zealand used car sales as a proportion of all sales amounted to a ‘fundamental change.’ The value of Buy Right’s business was adversely affected, he said.   Turners denies it took any action adversely affecting business during the earn-out period.  In turn, Turners is suing Mr Orlandini for $500,000 alleging he was overpaid for the first earn-out period.  A High Court hearing is set down for next year.  In the interim, Mr Orlandini asked for court orders giving him access to Turners’ business records, as a precursor to getting a freezing order over Buy Right Cars’ assets.  Allegations of a fall in the value of business assets do not justify access, Justice Hinton ruled.  Turners says Buy Right is to be amalgamated into Turners’ main business.  If successful, Mr Orlandini can be paid out of Turners’ assets, it says.

Turnover Ltd v. Buy Right Cars (2016) Ltd – High Court (1.08.19)

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