Accident Compensation: Hamlton v. ACC

Accident Compensation needs to reconsider weekly compensation payments due an Auckland hairdresser after the High Court overruled repayments demanded totalling $655,000.  With her company employing up to 25 staff at any one time, business net profitability could not simply be imputed to her as income for ACC purposes.

By rich-world standards, New Zealand has a high proportion of closely-held companies.  Director/shareholders have a discretion as to how resources are extracted from their company: shareholder salary; loans; directors’ fees; or dividends. Sandy Hamilton, owner of Auckland hairdresser Olette, challenged Accident Compensation assessment of earnings related compensation payable while she worked part-time recovering from injuries suffered during childbirth in 1999.

The High Court was told Accident Compensation alleged Ms Hamilton restructured benefits she received from Olette after 2004 to increase accident compensation payments.  Previously, she was paid by Olette as a shareholder/employee, with earnings related compensation supplementing her income for the reduced hours worked.  Restructuring in 2004 saw the shareholder/salary removed and Ms Hamilton instead being paid an agreed hourly rate for hours worked.  At one point, Accident Compensation had Ms Hamilton under covert surveillance to check she was working only the hours she said she was working; this investigation revealed nothing untoward. 

In response to the 2004 restructuring, Accident Compensation reduced compensation payable, arguing there had been no loss of earnings in any real sense; benefits received as an Olette director should be included as ‘income’ received.  It calculated 75 per cent of company net profit should be imputed as income received for Accident Compensation purposes.  This had the effect of reducing ongoing weekly compensation.  For the income years in question, company net surpluses were in six figures, exceeding $200,000 some years.  Accident Compensation alleges Ms Hamilton was ‘overpaid’ $655,200 in earnings related compensation for the years 2004 to 2015.

Justice Edwards ruled it was too simplistic to assume 75 per cent of net profits is income received by Ms Hamilton.  She is one of two directors of Olette.  A family trust is majority shareholder.  Accident compensation legislation requires assessment of ‘reasonable remuneration’ for shareholder/directors in closely-held companies.  Any surplus beyond this is a ‘dividend’ imputed to shareholders; in this case imputed to the Hamilton family trust.

Accident Compensation made no attempt to determine what should be ‘reasonable director’s remuneration’ for a person in the position of Ms Hamilton managing a business with income derived from a substantial staff roster.  Former levels of weekly compensation were reinstated until such time as Accident Compensation reviews its assessment.

Justice Edwards commented any distributions received by Ms Hamilton as beneficiary of her shareholder family trust were not to be treated as ‘income’ from her hairdressing business when calculating earnings related accident compensation.

Hamilton v. Accident Compensation Corporation – High Court (27.11.19)

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Land: Koro Pue Whanau Trust v. Tapatu

After issuing trespass notices and calling for police assistance over an eight year period, all to no avail, owners of Taranaki Maori freehold land took to the High Court for an order clearing relatives off land near New Plymouth.  

In 1955, Renata Te Pue gifted part of his land on Everett Road to daughter Peggy and her husband Raymond Tapatu.  Te Pue later sold the balance of his holding to son Koro. The High Court was told of long-standing differences over the boundary division between brother and sister.  Trustees of the Koro Pue Whanau Trust, now holding Koro’s share, complain that Tapatu whanau have encroached on about one acre of Trust property having built a boundary fence enclosing a small residential building, shed, caravan and septic tank all sited on Trust land.  Trustees also complain water supply on its property is being diverted to the Tapatu property.

Back in July 2011, the Maori Land Court ordered the Tapatu family shift off disputed Trust land.  Enforcement procedures were ignored.  At the Trust’s request, a High Court possession order was issued to force compliance with the Maori Land Court order.

Koro Pue Whanau Trust v. Tapatu – High Court (20.11.19)

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Shop Vouchers: Commerce Commission v. Home Direct

Unless there is a countervailing customer benefit, retail vouchers which cannot be exchanged for cash or which expire after twelve months are prohibited following a Commerce Commission test case. 

The Commission challenges unfair terms in standard form consumer contracts.  It took legal action against New Zealand’s largest mobile shop trader, Home Direct Ltd. Home Direct sells clothing, toys, electronics, furniture and whiteware on credit.  The High Court was told Home Direct credit contracts allowed it to continue debiting customer accounts after payment of the original debt.  The resulting credit balance was converted into a ‘voucher entitlement.’  Vouchers could be used only for Home Direct purchases.  They could not be converted to cash. They expired after twelve months. Some $644,000 was forfeited to Home Direct over several years of the scheme’s operation.

Home Direct accepted these terms were unfair.  A High Court ruling under the Fair Trading Act was needed to formally declare such terms unfair.  This court ruling affects the retail operations of any ‘person,’ not just Home Direct.

Commerce Commission v. Home Direct Ltd – High Court (12.11.19)

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Bankruptcy: Yoonwoo C&C Development v. Huh

Chased to New Zealand on debts allegedly arising from his failed Korean construction company, Jae Ho Huh hid from pursuers appearing in court only when threatened with bankruptcy.  He was given time to dispute a $2.1 million debt allegedly owed; bankruptcy averted.

The High Court was told Mr Huh previously controlled Korean property company Dae Joo Group with annual turnover in excess of seven billion dollars.  The business collapsed.  Mr Huh left Korea for New Zealand, unwilling to return for fear Korean authorities might take action for alleged breaches of tax law.

Meanwhile, Yoonwoo Development Corp took action in Korean courts for breach of contract.  Under Korean law, litigants can reach a settlement over a dispute and have their agreement filed in court, having effect of a court order.  Litigants acknowledge acceptance by affixing their seal to the agreement.  There is a register of seals to identify ‘signature’ of formal documents.  Armed with a Korean court order for $2.1 million ostensibly marked with the seals of Mr Huh’s companies and Mr Huh’s personally, Yoonwoo sued in the New Zealand courts to get an enforceable New Zealand court judgment for $2.1 million.  Evidence was given that Mr Huh proved evasive, avoiding personal service of intended New Zealand court proceedings.  Notice was given by advertisement.  Mr Huh made no court appearance.

When Yoonwoo then attempted to bankrupt Mr Huh in New Zealand courts on the $2.1 million court judgment, he appeared in court claiming he was unaware of the Korean court case and that the seal affixed to the agreement was not his; he did not owe Yoonwoo anything.  Associate judge Bell dismissed the bankruptcy application; a full court hearing is needed to establish the validity of Yoonwoo’s claim against Mr Huh.  Judge Bell stymied further evasive tactics; Mr Huh is to place on the court file details of his residential address and his lawyers are authorised to accept on his behalf service of all legal documents.

Yoonwoo C&C Development Corporation v. Huh – High Court (11.11.19)

Insurance: Frucor v. Blumberg

Insurance industry tactics of ‘deny, delay and dispute’ saw the Court of Appeal sharply criticise industry attempts to run out of town start-up operations by Right2Drive which provides temporary car rentals to ‘not-at-fault’ drivers waiting for insurers to repair damaged vehicles.  Insurance companies were told to read the law and comply with the rules, rather than being obstructive.

Right2Drive took to the courts owed $4.9 million in claims denied by Vero, AMI Insurance and AA Insurance.  Tower, YOUI and AIG had similarly refused to meet Right2Drive claims.

Using a business model available in Australia and the United Kingdom, Right2Drive specialises in hiring replacement cars to ‘not-at-fault’ drivers whilst their damaged vehicle is under repair.  It started New Zealand operations in 2016.  Car repairers typically refer car-less drivers to Right2Drive as it is more convenient than having the repairer provide a courtesy car as a temporary fix.  The Court of Appeal was told Right2Drive has the driver sign a hire contract, but there is an understanding that it will waive recovery of any hire charges not recovered from insurers.  Temporary hire of a replacement vehicle is a natural consequence of the ‘not-at-fault’ driver’s car being damaged by a negligent motorist.  The negligent motorist’s insurer is in the gun for this cost; a third party claim in insurance jargon.

Vero argued the insurance industries side: the ‘not-at-fault’ driver had incurred no expense; the cost of Right2Drive hire was too expensive; no interest should be paid on late payment to Right2Drive.  All these defences were rubbished by the Court of Appeal.

The ‘not-at-fault’ driver is contractually committed to paying Right2Drive hire charges (though in fact they are not going to be demanded); the daily hire rates together with delivery and pick-up charges were reasonable; interest on late payment was reasonable – insurers get a free ride otherwise by delaying payment.

Vero told the Court of Appeal drivers could first approach insurers to get use of a replacement vehicle.  This is an option not advertised on insurance company websites and insurance companies do not make a habit of taking the initiative offering temporary replacements to not-at-fault drivers, the Court pointed out.

Operation of the business model used by Right2Drive had survived challenges in the courts of Australia and the United Kingdom, said the Court of Appeal.  Instead of being seemingly intent on knocking Right2Drive out of business, it is to be hoped New Zealand’s motor vehicle insurers will now accept Right2Drive is providing a service that should be available to not-at-fault drivers, the Court of Appeal said.

Frucor Beverages Ltd v. Blumberg – Court of Appeal (11.11.19)

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Unsolicited Emails: Internal Affairs v. NZ Trustees Association

Errol Anderson, founding trustee and former registrar of NZ Trustees Association, was ordered to pay $8000 and the Association itself pay $36,000 as penalties for sending thousands of unsolicited emails, part of a marketing campaign. 

The Unsolicited Electronic Messages Act prohibits mass email marketing campaigns without recipient consent. 

NZ Trustees Association Charitable Trust was established in 1997 offering information for trustees and company directors in performance of their legal duties.  In 2016, it chose to deregister as a charity after a bruising legal battle over its advertising methods.  The High Court was told NZ Trustees commenced a membership drive in October 2015 aimed at 26,000 charities offering what it called a ‘donation of membership.’  NZ Trustees offered twelve months free membership to subscribers with annual membership fees payable in subsequent years. Members received a website listing, access to an 0800 number, an email helpdesk, support services and copies of NZ Trustees publications.  On eight separate occasions, a total of more than 53,000 unsolicited emails were sent to over 14,000 recipients.  More than one hundred complaints were made to Internal Affairs.  As a membership drive, the campaigns were moderately successful; revenue increased by $48,500.

NZ Trustees compounded its legal difficulties by sending out further unsolicited emails requiring payment of annual subscriptions after being warned by Internal Affairs that it was under investigation and that mass solicitation should stop.  NZ Trustees subsequently retracted these emailed invoices and apologised to recipients.       

Both NZ Trustees and Mr Anderson were fined for breaching the Act.  Mr Anderson received no direct financial benefit from the mass mailout, but was largely responsible for its implementation, Justice Lang said.  Mr Anderson’s application for name suppression was dismissed.  Embarrassment on publication is not grounds for suppression, Justice Lang said.  Mr Anderson has more than two decades involvement in the trust sector.

Internal Affairs v. NZ Trustees Association Charitable Trust and Anderson – High Court (21.10.19) & (8.11.19)

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Asset Forfeiture: Commissioner of Police v. D'Esposito

Fines in excess of one million dollars imposed for breaches of the Fisheries Act were followed with proceeds of crime penalties totalling $318,900.  Marcus D‘Esposito, Joe D’Esposito and Nino D’Esposito did a deal to have their real estate holdings in the Hawkes Bay released from a government restraining order in return for a cash payment.

Along with related fishing interests, the three pleaded guilty in February 2019 to breaches of fisheries regulations, under-reporting catches.  They personally paid $324,900 in criminal fines for fisheries breaches.

Legal action was also taken under the Criminal Proceeds Recovery Act with freezing orders placed on real estate, motor vehicles and cash. The High Court approved a settlement negotiated under the Act with payment of $318,900 representing the commercial value of 27 tonnes of misreported bluenose fish and 1100 kilograms of paua shellfish unlawfully received.

Commissioner of Police v. D’Esposito – High Court (7.11.19)

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Contract: Oxygen Air Ltd v. LG Electronics Australia

LG Electronics Australia was awarded $583,100 damages in a counter claim against Auckland air conditioning installer Oxygen Air Ltd after their distribution agreement ended acrimoniously. Oxygen Air failed in a claim against LG for $1.54 million damages with director Eddy Rotteveel alleging LG Electronics failed to perform its side of the distribution agreement.  

Oxygen Air and LG Electronics joined forces in 2009 with Oxygen given exclusive distributorship rights for heat pumps and ducted air conditioning units within New Zealand and Pacific islands.  The High Court was told of ongoing complaints by Oxygen about product supply and provision of technical support.  Matters reached a head in February 2015; Mr Rotteveel made it clear Oxygen Air no longer wanted any dealings with the LG brand, current deliveries would not be paid for and stock in store would be sold with proceeds going towards legal action against LG Electronics.

Legal action centred on calculation of damages. Oxygen Air said its distribution agreement entitled it to damages for loss of profits.  Justice Powell ruled this formula applied only if LG Electronics were in breach of contract.  It wasn’t in breach, he said.  Oxygen Air instead owed LG Electronics $583,100 for units delivered but unpaid.

Part of Oxygen Air’s claim for $1.54 million damages was an allegation that it was shut out of a distribution agreement held with LG Electronics for installation of solar panels.  Evidence was given of Oxygen Air lobbying to get the distributorship and acting behind LG Electronics’ back in setting up a website claiming to be a distributor.  There was no appointment.  LG Electronics internal documents showed Oxygen Air had been considered as a distributor but rejected; it was proving a difficult customer over supply of air conditioning units and had no expertise in solar panel installation.

Oxygen Air Ltd v. LG Electronics Australia Pty Ltd – High Court (6.11.19)

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Family Trust: Young v. Hunt

In the four years prior to his death in July 2015, John Hunt as trustee of the Twiss Family Grandchildren’s Trust misappropriated $181,000 with payments into his own bank accounts.  His widow was ordered to repay $146,000, trust monies which her late husband paid into a joint account she had access to.  

The Twiss Family Trust was established in 1991 by Margaret and Richard Twiss.  It came to an end in August 2016 with descendants Thomas and Simon Young final beneficiaries.  They discovered substantial defalcations made by the late John Hunt when he was a trustee. They sued his widow, Jennifer Hunt. Associate judge Johnstone ruled she was liable to repay $146,175 paid by her late husband into a joint account he shared with her.  On her husband’s death, she gained sole ownership of the account by survivorship. Ms Hunt said she had no knowledge of her late husband’s theft.  She was an innocent party, she said.  On her husband’s death she was left in a poor financial position; was forced to sell the family home and is now living in rented accommodation with a pension her only income.

Judge Johnstone said Ms Hunt was liable to repay the $146,000 jointly received on grounds she had been unjustly enriched. Any lack of knowledge about where the money came from was of no relevance.

Legal action is pending against Mr Hunt’s estate for the remaining $35,000 he paid into a bank account in his sole name.

Young v. Hunt – High Court (1.11.19)

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