Trademark: IOC v. Tempting Brands

Notorious for aggressive defence of its brand throughout the world, the International Olympic Committee was laughed out of New Zealand courts when challenging registration of the name Pierre de Coubertin as a trademark by Netherlands company Tempting Brands.  Monsieur de Coubertin is held up by the IOC as founder of the modern Olympic movement.

The High Court was told of ongoing worldwide battles between IOC and Tempting Brands over use of the name de Coubertin. Tempting Brands creates brand names, protects the name through trademark registration and then licences use.  IOC challenged Tempting Brands Trade Marks Act registration in New Zealand for use of the name Pierre de Coubertin on jewellery and sporting goods, amongst other things.  Tempting Brands has trademark rights to use of the name Pierre de Coubertin in the European Union; IOC use of the name in Switzerland, where the International Olympic Committee is based.  The two are currently arguing over trademark rights to the name in other countries around the world.

IOC said it has common law rights to the name Pierre de Coubertin.  He played an important role in the 1896 revival of the Olympic Games, was a founding member of the IOC and its second president.  To challenge Tempting Brands registration of the name as a trademark, IOC had to prove knowledge in New Zealand of the link between Monsieur de Coubertin and the IOC and provide evidence of business activities in New Zealand which linked the two.  Justice Churchman described as ‘fanciful’ and ‘lacking reality’ any local knowledge of the link.

IOC said its 2004 award of a Pierre de Coubertin medal to All Black Tana Umaga and a 2008 Pierre de Coubertin trophy to All Black coach Graham Henry cemented the link in New Zealand minds.  Justice Churchman said evidence indicated there was little clarity of understanding even amongst New Zealand sports journalists over the status of the awards or the connection with the International Olympic Committee.  Attendance by New Zealand athletes at previous Olympic Games did not amount to IOC use within New Zealand of the name or image of Pierre de Coubertin.

Comite International Olympique v. Tempting Brands Netherlands BV – High Court (30.09.19)

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Fraud: Ross v. R.

ANZ bank as victim made a profit of eight million dollars.  Property developer Leonard John Ross was sentenced to four years four months imprisonment for a $41 million dollar bank fraud, a sentence confirmed by the Court of Appeal.

This was far from a ‘victimless’ crime, the Court of Appeal said.  Use of false financial information by Ross to get bank funding for the Waldorf Celestion Apartment development in Auckland’s central business district put the Bank at risk. A downturn in property prices would have left ANZ Bank exposed with consequences for its customers and the wider economy.

In 2008, Ross commenced development of the 127 apartment Celestion project as part of his Tasman Cook property group.  ANZ Bank offered $40.4 million funding subject to a number of conditions: confirmation of the 120 pre-sales Ross said were already signed up and deposits for pre-sales to be held in a lawyer’s trust account. Subsequent enquiries identified that multiple ‘pre-sales’ did not exist; forged agreements for sale and purchase and forged sale commission details were used to hide the fraud.  There were no deposits.  These defaults could have left ANZ bank at risk; it could be left with losses if forced to take over the project.  The completed project now trades as Nesuto Celestion Apartment Hotel in central Auckland.  ANZ Bank made a profit of eight million dollars on its loan, through interest and fees charged.

Ross v. R – Court of Appeal (26.09.19)

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Nuptial Settlement: Booth v. Booth

A $1.57 million debt arising from the transfer of a Manawatu family farm to the next generation was presumed forgiven, until son and daughter-in-law separated and the High Court was asked to rule on the debt’s status.  Daughter-in-law Tania Booth said reviving the debt reduced the value of her relationship property claim.

A farm at Opiki, south of Palmerston North, has been in Booth family hands for three generations.  Current owner, Jason Booth, assumed ownership from his parents in 2011. This deal saw Jason paying $4.2 million funded in part by a $1.57 million loan from his parents.  This loan was repayable on demand and interest free, with a provision for interest if demanded to be payable at the current rate on government stock.

The High Court was told of family discussions signalling that the loan would never be called up; the debt did not appear in Opiki farm accounts.  When Jason and Tania separated in 2016, there was a flurry of activity. Farm accounts were re-cast to now include as a liability the $1.57 million owed Jason’s parents.

Tania said forgiveness of the $1.57 million debt was part of a ‘nuptial settlement.’  It was intended to assist family finances, to the continuing benefit of Jason, Tania and their family.  She asked the High Court to cancel the debt under the Family Proceedings Act.  If it was a nuptial settlement, said Associate judge Johnston, any understanding that the $1.57 million loan would not be called up applied only whilst the marriage continued.  The loan was enforceable once the marriage ended.

Booth v. Booth – High Court (25.09.19)

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Liquidation: Levin v. Autoterminal NZ Ltd

Liquidators in control of Christchurch motor vehicle dealer formerly known as Nigel Thompson Motor Company Ltd are suing used car importer Autoterminal claiming $2.9 million.

They allege Autoterminal was party to fraud getting paid with intent to defraud Thompson Motor creditors, or failing that was paid at a time knowing Thompson Motor was insolvent.  In turn, Autoterminal alleges it was Thompson Motor that acted fraudulently. Autoterminal itself is currently subject of legal action between entrepreneurs Robert Stone and Hohua Hemi fighting for control of their multimillion dollar joint venture used car import trade.

In March 2017, Thompson Motor was put into liquidation. It defaulted on multiple agreements with Inland Revenue promising to get tax payments back on track.  Unsecured creditor claims filed with Thompson Motor liquidators total $680,000; assets recovered to date $3200.

The liquidators challenge payments totalling $2.9 million made by Thompson Motor to supplier Autoterminal in the two years prior to liquidation.  Normally, disputes over recovery of pre-liquidation payments are dealt with in a relatively straightforward High Court procedure with a minimum of paperwork. Thompson Motors’ liquidators got court approval, over Autoterminal objections, to have the case instead heard under Part 18 of the High Court rules; requiring each side to disclose detailed claim and defence with wide rights of discovery, enabling disclosure of documents by court order.

The High Court was told of irregular dealings between Autoterminal and Thompson Motors with allegations Thompson Motors forged registration documents prior to sale of imported used cars and that Thompson Motors fraudulently pocketed car sale proceeds.

The need for a full statement of each side’s position and access to all relevant documentation requires use of the detailed Part 18 procedure, Associate judge Smith ruled.

Levin v. Autoterminal New Zealand Ltd – High Court (25.09.19)

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Venture Capital: Design Electronics Ltd v. Lookman Family Trust

Having made a five year commitment promising $2.1 million venture capital for commercial development of SenSys, the Lookman Family Trust could not demand immediate repayment when all parties fell out.   

Michael Lookman had put up $1.8 million of his family trust’s promised venture capital for Warwick Jones development of remote real-time access to workplace data when the two fell out spectacularly.  Mr Lookman complains about lack of access to company information.  He says promised security over SenSys intellectual property has not been handed over. Mr Jones says this intellectual property is ‘inside his head.’

In May 2019, Lookman Trust gave notice that their 2016 funding agreement was ‘cancelled,’ demanding immediate repayment of the $1.8 million advanced to date.  The High Court said that their funding agreement did not state cash advances were repayable on demand, neither did it provide for the consequences of any claimed ‘cancellation.’  Even if cancelled, there was no contractual right to repayment until the five years were up.

SenSys has an arguable case that there is no default unless repayment is not made at the conclusion of the funding agreement in December 2021, the High Court ruled.  Interest payments due Lookman Trust under terms of its loan are being paid.

Design Electronics Ltd v. Lookman Family Trust – High Court (23.09.19)

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Contract: Restaurant Brands Ltd v. Forsgren NZ Ltd

Having received full government compensation following the compulsory acquisition of a Carl’s Jr fast food site taken for widening Auckland’s upper harbour highway, Restaurant Brands also snatched $400,000 held in an escrow account since its 2014 purchase of the site, money put up by vendor Forsgren NZ Ltd as compensation should road widening go ahead.   

Whilst lawfully entitled to the Forsgren money, Restaurant Brands’ morality in demanding payment was questioned by Justice Muir.  In a $10.5 million deal in 2014, Restaurant Brands Ltd purchased seven Carls’ Jr fast food sites from Forsgren interests.  This included $1.7 million paid for premises located on the corner of Upper Harbour Highway and Paul Mathews Road on Auckland’s North Shore.  Restaurant Brands expressed concern potential road widening would affect access, reducing profitability.  A side letter was signed, agreeing $400,000 of the $10.5 million purchase would be withheld, placed in escrow as potential compensation for Restaurant Brands should road widening affect upper harbour business in the next four years.  The deal saw Forsgren remain as site lessee, in turn sub-letting to Restaurant Brands. The wording of this side letter was subject of minute examination in the High Court five years later.

In late 2017, Restaurant Brands was told of plans to compulsory acquire land under the Public Works Act.  Government compensation was agreed, with Restaurant Brands paid $1.4 million.  The High Court was told this valuation was better than Restaurant Brands own assessment. Government calculations did not take into account Restaurant Brands’ contractual rights to the $400,000 escrow account.  Forsgren said the $1.4 million government payout to Restaurant Brands included compensation for future income lost because of the forced closure, losses compensated by funds in the escrow account.  Allowing Restaurant Brands to also access the $400,000 escrow account would result in an unanticipated windfall, it said.      

The side letter entitled Resturant Brands to payment from the escrow account if any time within four years of purchase its rights to the upper harbour site were ‘terminated for any reason.’  Public Works compulsory acquisition ‘terminated’ its right of occupation; Restaurant Brands was entitled to the $400,000, Justice Muir ruled.  A court is not justified in concluding that a contract does not mean what it seems to say simply because, so interpreted, the contract is unduly favourable to one party, he said.

Restaurant Brands Ltd v. Forsgren NZ Ltd – High Court (19.09.19)

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Tax: re Yogi Trustee Ltd

Paul Webb owes Inland Revenue $26.3 million in tax arrears.  Companies office records give as his residential address valuable real estate on Arney Road in the Auckland suburb of Remuera.  Chasing down assets is proving complicated.  Arney Road has a current rating valuation of $6.4 million, but the property is owned by Yogi Trustee Ltd a company which no longer exists; it has been struck off the companies register.  

First step: Inland Revenue asked the High Court to reinstate Yogi Trustee Ltd to the register.  Inland Revenue interest in Mr Webb and his Honk group of companies stretches back more than ten years.  In 2013, Inland Revenue obtained a High Court freezing order over Yogi Trustee’s assets. By the time of a November 2018 District Court order that Mr Webb pay $26.3 million in tax arrears, Yogi Trustee no longer existed.  It had been struck off by the companies office; an administrative action for failure to file annual returns. 

Companies Act rules specify that when a company owning land is removed from the register, title to the land reverts to the state. This did not help Inland Revenue in its tax recoveries against Mr Webb; government practice is to hold this land as neutral stakeholder until a claimant comes forward.

The High Court ordered Yogi Trustees Ltd be restored to the companies register since Inland Revenue has ‘an undischarged claim against the company.’  Inland Revenue alleges Mr Webb is the ‘true owner’ of Arney Road and that title held in the name of Yogi Trustee Ltd is a front to disguise his ownership.

re Yogi Trustee Ltd – High Court (13.09.19)

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Price-Fixing: Commerce Commission v. Ronovation Ltd

The first ever Commerce Commission prosecution of a ‘buyer-side’ cartel saw Auckland property company RonovatioNZ fined $400,000 over operation of its membership rules designed to prevent clients bidding up house prices competing against each other.  

Operated by Ronald Ng Hoy Fong, Ronovation Ltd traded as RonovatioNZ.  It provided advisory services to clients acquiring residential property in Auckland.  From 2011, Ronovation implemented ‘priority rules’ to minimise the risk of clients bidding against each other, driving up prices. After payment of a membership fee, clients had access to a database in which they could mark their interest in a specific property.  This gave priority.  Other members could not negotiate to buy that property nor bid at auction unless the auction price exceeded a ceiling set by the priority member.

The High Court was told Ronovation membership numbers grew from 40 to over 400 in the seven years priority rules were in place. The number of Auckland property sales affected over the seven year period totalled some 470.  More properties than that number are typically sold across Auckland in a single month.

Buyer-side cartels amount to price-fixing, in breach of the Commerce Act.  A buy-side cartel is not always successful.  A non-participating buyer can show up and outbid the cartel.  But even if successful only some of the time, it is profitable for cartel members and damaging for sellers.  Joint-buying operations are exempted by the Commerce Act from liability for price-fixing.

The fine imposed on Ronovation was reduced because of the company’s small size and the fact it co-operated with Commerce Commission investigations.

Commerce Commission v. Ronovation Ltd – High Court (13.09.19)

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Real Estate: Edwards v. Bridge

Real Estate Agents Act fines are not ordered as compensation for agent misrepresentations in property sales. Fines are penalties for unprofessional conduct.

The Real Estate Complaints Assessment Committee ruled Hawkes Bay agent Heatha Edwards demonstrated ‘unsatisfactory conduct’ when facilitating a 2016 residential sale to Graeme Bridge of a property in Bibby Street, Waipawa.  Mr Bridge complained an advertising flyer misrepresented the state of both the property and its boundary fence.  He purchased the property sight unseen; he was living in the Bay of Islands.  He demanded some $49,300; the cost of bringing the property up to standard represented in the flyer.  The Complaints Committee fined Ms Edwards $5000 and ordered remedial professional education.  On appeal, the Real Estate Agents Disciplinary Tribunal ordered Ms Edwards to pay Mr Bridges $10,000 as ‘relief from the consequences of her misrepresentations’.  The order to pay $10,000 was overturned by the High Court.

Justice Doogue said the Tribunal’s power to ‘rectify’ the consequences of an agent’s misrepresentations typically extends to putting the property back on the market with reselling costs falling on the agent. ‘Rectification’ is not an avenue to recover compensation.

The High Court was told Mr Bridge obtained a building report before declaring the Bibby Street purchase unconditional.  This report detailed all faults with the property, including issues misrepresented in the advertising flyer.  This put Mr Bridges on notice that the property’s condition was not necessarily as advertised, Justice Doogue said.  Ms Edwards said Mr Bridges did not in fact spend any money to make good the complained deficiencies and sold Bibby Street at a profit eighteen months after purchase.

Edwards v. Bridge – High Court (12.09.19)

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Company: Fordyce Road Development Ltd v. Khan

Two months after a February 2013 discharge from his second bankruptcy, Feroz Khan embarked on a scheme to buy and subdivide land at Parakai near Helensville resulting in a $339,700 loss to creditors and Khan misappropriating $100,000 cash properly belonging to his development company.  

Bankrupted in 1998 and again in 2010, Mr Khan’s second bankruptcy followed failed attempts to subdivide land at Parakai.  Undeterred by this earlier setback, his new 2013 Parakai proposal envisaged a 65 lot residential development.  His special purpose company Fordyce Road Development Ltd obtained resource consent for the subdivision after an Environment Court appeal. Mr Khan provided no working capital for his company.  Resource consent costs were funded with Fordyce Road borrowing at rates of up to 27 per cent.

The High Court was told Parakai vendors cancelled their contract of sale in 2015 after Fordyce Road failed to pay a required deposit or to settle what was an amended purchase price at $3.25 million.  The sale price was renegotiated over the two year period it took to get resource consent.  Mr Khan disputed the vendors’ right to cancel.  Fordyce Road received $100,000 in settlement of all claims it may have had over the disputed cancellation.  Evidence was given that this payment did not go through Fordyce Road’s books; Mr Khan diverted payment to his own bank account.

With Fordyce Road in liquidation, the liquidator sued Mr Khan and his spouse.  Justice Lang ordered Mr Khan to pay $339,700 to Fordyce Road, for debts incurred by the company when it was insolvent and now left unpaid.  The company was insolvent from the off.  It had no capital, no present source of income and was totally reliant on borrowed money.  Mr Khan was personally liable for his company trading whilst insolvent.

In addition, both Mr and Mrs Khan were ordered to repay a portion of the $100,000 misappropriated from the company: Mr Khan $62,200 (of the $100,000 taken, he passed on some $35,000 to Peters Property Holdings Ltd left unpaid by Fordyce Road); Mrs Khan $29,000 received from her husband which she knew properly belonged to Fordyce Road, said Justice Lang.  Mrs Khan is only liable to repay $29,000 if her husband fails to pay the ordered $62,200.  They did not appear in court to defend the liquidator’s claims.

Prior to the High Court hearing, Fordyce Road liquidator froze a Kiwibank account in the Khans’ names holding $125,300.

Fordyce Road Development Ltd v. Khan – High Court (12.09.19)

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Debt: 90 Nine Ltd v. Luxury Rentals NZ Ltd

Bankruptcy judges cannot block a debtor company winding up just because the amount owed is small, the Court of Appeal ruled.  Creditors frequently use threats of winding up to force payment from debtor companies.

Internet marketer Pure SEO Ltd was owed $1000 by Auckland vehicle rental company Luxury Rentals Ltd for search engine marketing. Luxury Rentals didn’t pay.  Pure SEO sold the debt to collection agency, 90 Nine Ltd.  

Chasing the debt, 90 Nine asked the High Court to put Luxury Rentals into liquidation under Companies Act rules winding up insolvent companies.  The bankruptcy judge refused: forcing liquidation on a $1000 debt was disproportionate, he said.  Other debt recovery steps should first be taken.  It is often uneconomic or not practical for creditors to try and seize debtor company assets, said 90 Nine.  It simply increases recovery costs and creates delays.

The bankruptcy judge was perturbed that 90 Nine had nominated as potential liquidator an insolvency specialist intending to charge $500 per hour.  Two hours charged out at this rate would consume the amount owed.  Liquidation is disproportionate, given the indebtedness, the bankruptcy judge said.

90 Nine has a statutory right to apply for Luxury Rentals’ winding up, the Court of Appeal ruled.  It is not for courts to question the economic rationality of legal action taken, it said.  Bankruptcy judges cannot refuse a winding up order on the simple ground that the debt claimed is a small amount.  Current regulations set a minimum debt of $1000 for a winding up order.  Once appointed, a liquidator takes control of all company assets.

The court was told Luxury Rentals’ sole director Adam Bsisou has left New Zealand, with no intention of returning.  Luxury Rentals has been struck off the companies register for failing to file an annual return.

90 Nine Ltd v. Luxury Rentals NZ Ltd – Court of Appeal (11.09.19)

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Dowry: Tian v. Zhang

Kelly Tian and Anson Zhang became engaged after meeting as mortgage brokers working in the same Auckland office. His contribution of over half a million dollars towards a $5.14 million purchase of four properties on Auckland’s North Shore was a dowry she could keep when the marriage did not go ahead, said Kelly. Not so, Justice Toogood ruled. The money advanced was predicated on their marriage going ahead and must be repaid       

The High Court was told the relationship began in May 2014.  Ms Tian’s mother was suspicious of Mr Zhang.  There was a thirteen year age difference between the couple, with Ms Tian then aged 24.  Mr Zhang had been married previously.  He lived a showy lifestyle, resplendent with upmarket Porsche.  Ms Tian had rejected his first proposal of marriage, agreeing to marry eight months later.  In the interim, the two negotiated the purchase of three residential properties and a vacant residential section.  Mr Zhang put some $568,000 towards the deposits; Ms Tian had to put in her own money plus money borrowed from her mother and other relatives when Mr Zhang delayed on promises to further fund the deposits – temporary cashflow difficulties, he said.  Mortgage finance completed the purchases.  At her mother’s insistence, title was taken variously in the names of Ms Tian and her mother.  Ms Tian took responsibility for meeting outgoings on the properties, three of which were rented out.

The relationship ended in late 2016.  Mr Zhang had caveats lodged on titles to the four properties when Ms Tian refused to repay his contributions towards their purchase.  A caveat prevents any dealings with the property.  Ms Tian said her fiance’s payments were a dowry paid according to Chinese custom and need not be returned.  Justice Toogood said no independent evidence was provided to the court about Chinese dowry customs.  He declined an invitation to ‘look it up on Google’.  There was no clear evidence of Mr Zhang intending to make a gift of the funds advanced.  The payments were in contemplation of and conditional on his subsequent marriage to Ms Tian, Justice Toogood ruled.  Since no marriage eventuated, Mr Zhang was entitled to repayment.

Tian v. Zhang – High Court (9.09.19)

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Fiduciary Duty: Perera v. Singh

Srilal Perera trusted his sister and brother-in-law to look after his property when he left for Australia.  In his 24 year absence, they mismanaged rental income, misappropriated funds raised on security of the Wellington rental property while attempting unsuccessfully to transfer title into their own names and raised a loan on Srilal’s life policy without his authority.

Avninderpal Singh and Chamali Supriya Singh were ordered to pay over $600,000 for their breach of fiduciary duty.  The High Court was told Mr Perera left for Melbourne in 1991. He left the Singhs in charge of his New Zealand assets: they were to receive eight per cent of the gross revenue on letting his home in the Wellington suburb of Northland; six per cent on the gross for managing his then partner’s separate Wellington property.  They were also to keep up monthly payments on his life policy.

Mr Perera learnt nearly a decade later that the Singhs had pooled together revenue from both properties, using his cash to pay interest on his then partner’s more heavily mortgaged property.  The Singhs promised to make good the difference.  By then, Mr Perera and his partner were estranged. He signed a power of attorney in favour of Mr Singh, on the understanding this would assist the Singhs in handling his New Zealand affairs.  Evidence was given that the Singhs attempted to sell the rental without Mr Perera’s knowledge.  This was inadvertently thwarted by Mr Perera’s former partner lodging a caveat against the title as part of a relationship property dispute.  Evidence was also given of Mr Singh borrowing against the rental and transferring funds into accounts he controlled.  A loan raised against Mr Perera’s life policy also went into accounts controlled by Mr Singh.  Claims these transfers were made with Mr Perera’s authority were dismissed by Justice Cull.  Mr Singh resisted attempts to get access to bank records, producing some bank records with compromising transactions deleted.  Mr Singh was either dishonest, or inept, Justice Cull said.  Either way, he was in breach of his duty to properly account for use of Mr Perera’s assets.

The Singhs were jointly held in breach of good faith in respect of their obligations to manage Mr Perera’s property and to account for the proceeds.  Mr Singh was in breach of his duties to act in good faith when using the power of attorney. The two were ordered to pay Mr Perera $604,500 damages with further damages yet to be assessed in respect of an unauthorised $19,900 loan taken on Mr Perera’s life policy.

Perera v. Singh – High Court (6.09.19)

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Fraud: Worldwide Holidays Ltd v. Wang

Finding over $1.4 million had been stolen over ten years, Worldwide Holidays Ltd sued former employee Xiaoning Wang, her mother Bu Jun and Wang’s friend Haimeng Lin to recover its losses. During the decade ending 2017, Wang and Lin lost $3.5 million gambling at Sky City casino.

The High Court was told Wang started work for Worldwide Holidays’ Auckland Newmarket branch as a travel consultant in 2010, later promoted to branch manager of its Auckland Albany branch.  Worldwide became aware of financial discrepancies in early 2017, when Wang was on holiday.  A detailed investigation uncovered a ‘teeming and lading’ fraud: client money was stolen, covered by payments from later customers.  Worldwide was alerted by a large number of customer transactions recorded as payment by post-dated cheque; a very uncommon form of payment now.  It discovered Wang had been invoicing Worldwide customers with payment directed to her personal bank account, simultaneously supressing any account receivable in Worldwide’s accounting system.  Worldwide suspects more than the $1.4 million it sought to recover was stolen.

Evidence was given that Worldwide’s managing director went to Beijing, confronting Wang and her mother Ms Jun.  They promised repayment; Wang signing an acknowledgement of debt for $1.4 million, Ms Jun signing as guarantor.        

The High Court held Wang and Ms Jun jointly liable to repay $1.4 million together with interest at five per cent specified in the acknowledgement of debt.  Both said they signed under duress, but did not attend court to defend Worldwide’s claim.

Wang’s friend Haimeng Lin was held jointly liable for $526,700 of the money stolen.  This was money transferred by Wang to Ms Lin’s bank account.  Wang told her this was done on a mortgage broker’s advice; frequent high value ATM withdrawals at Sky City showing up on her banking records would prejudice her ability to get a home mortgage.   Ms Lin attended court, saying she was unaware the money was stolen and that she held the money only temporarily for Wang. Banking records showed only $20,000 was clearly repaid to Wang.  Justice Gault said the evidence was that Ms Lin spent the balance of the transferred funds gambling with Wang and for her own personal use.

Worldwide Holidays Ltd v. Wang – High Court (5.09.19)

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Dairy: Pure Elite Holdings v. Bodco Ltd

Strung along with lies from Ever Health Group promising $5.3 million immediate funding for a proposed infant milk project, Brian Wagstaff and Richard Young were justified in dumping intended Chinese investors from a proposed joint venture and looking elsewhere.   

The High Court was told Pure Elite Holdings Ltd, short of cash through 2014, made empty promises about its joint venture cash contribution being readily available.  Desperate to make money from the deal, Pure Elite attempted to on-sell the proposed project before completion and Pure Elite executive David McCann lost US$30,000 in an advance fee scam whilst trying to raise money. Pure Elite is part of the Ever Health Group.

Messrs Wagstaff and Young joined with Pure Elite in a joint venture intended to produce canned infant formula for the China market.  Heads of Agreement signed in 2014 envisaged an all-up cost of $10.4 million.  Agreement on a detailed business plan and budget was left for later.

In the background, Pure Elite was looking to fund its joint venture contribution with borrowing.  It failed to raise the necessary cash.  In one instance, Pure Elite’s David McCann was led to believe he had a deal with the wealthy Wang family, based in Singapore.  He paid personally the $US 30,000 demanded in advance as first interest payment on the loan.  There was no Wang loan.  His payment disappeared through untraceable contacts in Italy and Romania.       

Evidence was given of Wagstaff and Young funding joint venture company Danpac (NZ) Ltd for the dairy project’s initial engineering and regulatory work, all the time prompting Pure Elite that its share of the cash was needed promptly.  Promises were made by Pure Elite, but no cash arrived.  Unbeknown to Messrs Wagstaff and Young, Pure Elite at that time was struggling to meet its monthly payroll.  Still without any cash delivered, Pure Elite management convinced Wagstaff and Young to transfer a 51 per cent share in the project to Pure Elite in anticipation of funding being delivered within days.  It never arrived.  Pure Elite then used its controlling shareholding in Danpac to try and forward-sell the project; have a buyer fund the construction and take ownership on completion.  No buyer was found.  

Frustrated with the lack of funding from Pure Elite, Wagstaff and Young declared the joint venture at an end, unilaterally dumping Pure Elite from the project.  Pure Elite sued, claiming $282 million damages.

Justice Wylie ruled the Heads of Agreement unenforceable.  It was no more than an aspirational declaration of mutual intent.  It left out critical issues regarding a business plan and budget, leaving hanging the question of when funding was required and the proportion in which shareholding would be taken.  It left for further agreement, issues that went to the heart of a joint venture, providing no mechanism to settle any disagreement. There was no enforceable joint venture and Pure Elite was not entitled to retain its 51 per cent shareholding, Justice Wylie ruled.

The High Court was told Randolph van der Burgh and David McCann from Pure Elite have now joined other investors in Happy Valley Milk Ltd, with plans to build an infant milk plant in Otorohanga.

Pure Elite Holdings Ltd v. Bodco Ltd – High Court (3.09.19)

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