GST: Police v. Pure

Goods he shoplifted were not selected on price alone, but the maximum penalty for theft varied from seven years to one year depending upon whether GST was included.

Genesis Pure was charged with theft of an iPhone and SIM pack having a retail value of $1004; shoplifted from the Warehouse. Crimes Act maximum penalties differ depending upon the value of items stolen: seven years if over $1000; one year if between $500 and $1000.  Police asked for a court ruling on which section of the Crimes Act applied.  Pure should be charged with theft of items valued at over $1000, Justice Mallon ruled.  What counts is the monetary value a customer would have paid.

The under or over limit also has ramifications for some resident-only visa holders; conviction for theft of goods valued over $1000 and they are liable for deportation.

Police v. Pure – High Court (28.02.20)

20.040

Tax Evasion: R. v. Chahil & Gupta

Tax evasion by Masala restaurant chain included money laundering.  Rupindar Singh Chahil was fined $50,000 and sentenced to three years two months imprisonment for tax evasion and money laundering; Vijay Kumar Gupta ten months home detention for money laundering.

Wholesale tax fraud was uncovered by an Inland Revenue audit of the Masala Group covering six tax years ending 2014.  Cash sales were hidden.  The High Court was told restaurant managers were ordered to keep a separate accounting record of cash sales, then later told the level of cash sales to be written back into the books so as to allay Inland Revenue suspicions.  Cash held unbanked was picked up on a regular basis on instructions from Chahil, described by Inland Revenue as the ringleader. False GST returns were filed. Income tax returns were not filed. The overall GST tax shortfall was calculated at $702,667.  The amount of income tax lost is not known, the High Court was told.

Inland Revenue put in over 11,600 hours of investigative time, including contact with tax authorities in Australia and India. Sentencing Chahil to imprisonment, Justice Gault described tax evasion as straight theft from the community. Evidence was given that Chahil has a previous conviction for immigration fraud.  He co-ordinated an eight million dollar settlement with government when penalties for Masala’s tax evasion were recovered under the Criminal Proceeds (Recovery) Act. No Masala restaurant assets were forfeited, the court was told. Neither were any of Chahil’s personal assets.

Money laundering charges arose from attempts to cover up Masala’s tax evasion.  Foreign exchange transactions transferring funds offshore and then back again were intended to muddy the money trail.

R. v. Chahil & Gupta – High Court (28.02.20)

20.039

Insolvency: Attractum Ltd v. Chapman

Seeking to keep up appearances in the face of their failing business, the Chapmans claimed a Toyota Landcruiser was their own personal property, quickly changing their mind when liquidators for website developer Attractum then demanded payment of $86,400.

Mark and Pauline Chapman set up Tauranga-based Attractum Ltd in 2008, offering branding and website services.  It was in financial difficulty by 2011, the High Court was told.  Six years later it was in liquidation for unpaid GST and ACC payments.  Evidence was given of steps taken to work round liquidity difficulties.  Inland Revenue agreed two consecutive rescheduling arrangements for overdue GST payments; neither were honoured by the Chapmans.  When signing off on Attractum’s annual accounts, the Chapmans signed support agreements stating they promised to provide financial support for company debts.  In fact, they did not.  The High Court was told they continued to draw down company cash for their own use even though their company was insolvent.

The High Court ordered the Chapmans pay $378,500 to their company: money owed Inland Revenue and Accident Compensation, liquidation fees and funds taken from the company.  After telling liquidators their Toyota Landcruiser could not be seized because it was not a company asset, liquidators added $86,464 to their bill for vehicle costs and expenses charged through Attractum’s books.  The Chapmans then changed their mind; the Toyota Landcruiser was a company asset after all and should be handed over.

Attractum Ltd v. Chapman – High Court (28.02.20)

20.042

Real Estate: Prasad v. Real Estate Agents Authority

Indra Prasad’s licence to sell real estate was cancelled after she failed to tell potential purchasers that part of road frontage on a south Auckland property was to be taken for road-widening and then lied by falsifying her work diary to state all interested parties were told.

Questions of disclosure came to a head after the buyer tried to onsell.  The High Court was told Ms Prasad marketed the Redoubt Road property in early 2016. She became aware of plans to widen the Redoubt Road/Mill Road corridor.  There was evidence that some, but not all potential purchasers, were told part of the road frontage would go.  A buyer purchased at auction in February 2016, unaware of roading plans. Marketing documents made no mention; it was not highlighted at the auction.  The purchaser spent $40,000 on renovations, selling again by auction within six months.  The second purchaser backed out after finding out about potential road widening. Disciplinary action was taken against Ms Prasad.

The High Court found proved charges of ‘seriously incompetent or seriously negligent’ work for failing to make disclosure and ‘disgraceful conduct’ for retrospectively writing up her work diary stating road widening had been fully disclosed.  Deliberate dishonesty in the real estate industry merits licence cancellation, Justice Brewer said.  Ms Prasad had fifteen years experience in real estate. Her prior work record included two previous findings of ‘unsatisfactory conduct.’

Prasad v. Real Estate Agents Authority – High Court (28.02.20)

20.041

Tax: Rathmore Properties Ltd v. Hawk Packaging Ltd

Hastings based Hawk Packaging was ordered into liquidation by the High Court with special conditions; liquidation is to sit dormant for three years enabling holding company Hawk Group to benefit from tax losses arising from a catastrophic fire. 

A major fire at Hawk Packaging Ltd in January 2012 destroyed the company’s moulded fibre packaging plant causing $2.4 million damage to neighbouring businesses.  Its insurers refused to pay out.  Hawk Group offered a deal to all neighbours suffering losses caused by the fire; Hawke Group would pay over the odds to buy out subsidiary Hawke Packaging assets, recovering this cost by having Packaging tax losses written off against future Group profits.  All Hawke Packaging debts would eventually be repaid.  Neighbours were to be paid off over time using taxpayer money through a tax write off against future Group profits.  The proposed deal would run through to 2023.

Neighbour Rathmore Properties Ltd, having suffered losses totalling $1.7 million, upped the ante suing to have Hawke Packaging put into liquidation.  It had every right to do so; Hawke Packaging owed it $1.7 million and was clearly insolvent. Judges have a residual discretion to refuse liquidation, even when all grounds for a company’s liquidation are proved.

Associate judge Johnstone ordered Hawke Packaging into liquidation, subject to conditions.  There was no risk to the public by freezing the current position; Hawke Packaging was not continuing to trade.  Keeping Hawke Packaging dormant, but legally intact, enabled tax losses to be utilised.

Rathmore Properties Ltd v. Hawk Packaging Ltd – High Court (28.02.20)

20.044

Contract: Croser v. Focus Genetics

Resolution of what started as a multi-million dollar dispute between Landcorp and South Australian sheep breeders Damien and Kirsten Croser stumbled with no final agreement over release of genetic data to the Crosers. 

Lawyers have been busy, with six rounds duked out in the High Court over the last twelve months.  The major issue: release of long run genetic data relevant to breeding stock purchased by the Grosers for their sheep stud at Penola, South Australia.  The Crosers say detailed information is needed to prevent in-breeding.  Landcorp says the Crosers are demanding more data than they are entitled to and that release of long run data will prejudice Landcorps own business operations in Australia.

March 2019 court proceedings kicked off with the Crosers suing Landcorp subsidiary Focus Genetics alleging breaches of contract and the Fair Trading Act; Landcorp counter-sued for unpaid invoices.  Hawkes Bay based Focus provides breeding stock: sheep, cattle and deer.

The High Court was told the two sides got together in Adelaide during September 2019, attempting to resolve their differences out of court.  No agreement was reached.  Negotiations continued over succeeding weeks with an avalanche of emails between New Zealand and Australia.  Crosers claim a binding agreement to settle all differences was reached and they sued to enforce this agreement.  The Crosers said evidence of agreement was contained in a Landcorp email stating all parties had an ‘agreement, subject to documenting the various agreed terms.’ Justice Doogue ruled there was no final agreement.  Not all terms were agreed, particularly the level of genetic data to be made available to the Crosers.  At best, they had agreed on some of the major issues and assumed others would be worked through or refined and that a legal agreement would ultimately be finalised, she said.

Croser v. Focus Genetics Ltd Partnership (2548500) – High Court (28.02.20)

20.043

Caveat: Keemati Ltd v. QNZ Ltd

While directors argued about the effect of restructuring their south Auckland property development company, a caveat lodged over company land stayed in place blocking completion of the business reorganisation.  

QNZ Ltd, controlled by Tingsong Qui, and Keemati Ltd, controlled by Keemati Angurala, teamed up to complete property developments in Flat Bush using MR Civil Ltd as their joint venture vehicle.  In November 2017, a forty per cent stake in MR Civil was transferred to Keemati Ltd and Mr Angurala added as a MR Civil director. Within a year Mr Qui and Mr Angurala had fallen out.  Terms of disengagement were hammered out at a September 2018 meeting with bullet point ‘minutes’ written up by Mr Angurala and signed by Mr Qui as a summary of their agreement.  They later disagreed on what had been agreed.

The High Court was told their major point of contention was over ownership of two properties under construction, both in Flat Bush: one in Rashni Road, the other in Skanda Crescent.  Mr Angurala said he was not to lose his forty per cent stake in MR Civil until title came through for the Flat Bush properties with title then transferred to Kemmati Ltd.  He objected to Mr Qui unilaterally removing Kemmati from the MR Civil share register. Mr Qui claims the shares were only ‘on loan’ to Keemati to enhance Mr Angurala’s credibility with suppliers and sub-contractors.  Mr Qui said transfer of title to the Flat Bush properties was conditional on Keemati completing several large developments at another site: Matua Road. Mr Angulara said he was under no obligation to complete Matua Road; he abandoned these projects.

Mr Angulara had Keemati Ltd lodge caveats over title to the two Flat Bush properties, saying the bullet point ‘minutes’ gave him rights to ownership.  A caveat has the effect of blocking any dealings with land without the caveator’s consent, unless a court orders the caveat removed.  Over QNZ Ltd’s objections, Associate judge Paulsen ordered the caveats remain.  Bullet point references in the ‘minutes’ to the two Flat Bush lots going to Keemati Ltd created rights of ownership.  Whether transfer of title was conditional on completion of Matua Road, as Mr Qui claims, requires a full court hearing to clarify the conflicting evidence, Judge Paulsen said.

Keemati Ltd v. QNZ Ltd – High Court (27.02.20)

20.036

Liquor Licensing: Woolworths v. Liquor Licensing Authority

Licensing Authority attempts to stop liquor sales by Auckland supermarkets after 9.00 pm were struck down in the High Court.  Unquestioning adoption of Auckland City proposals meant the Authority had legally made no decision at all.

In October 2017, Auckland City set in train the legal process for limiting liquor trading hours.  Owners of the Woolworths, Supervalue, Fresh Choice, New World, Pak ‘n Save and Four Square brands objected strongly to proposals prohibiting liquor sales after 9.00 pm. 

Auckland City, together with health sector representatives, gave evidence of direct and indirect costs arising from excessive alcohol consumption.  In 2016, fifteen per cent of hospital presentations in Auckland were alcohol related, compared with eight per cent nationally, the High Court was told.

The Alcohol Regulatory and Licensing Authority endorsed Auckland City’s proposals, adopting the ‘precautionary principle.’  Developed in environmental law, the precautionary principle states that a lack of certainty about the threat of harm is no justification for not acting to reduce that harm.  The Licensing Authority misapplied this principle when it simply accepted what Auckland City thinks will best resolve the social costs of alcohol consumption, Justice Duffy ruled.  The Licensing Authority should have looked at the strength of the available evidence and made its own assessment.  In particular, it did not explain why proposed restrictions should treat supermarkets the same as other off-licence outlets.

The Authority’s decision was struck down for failing to provide reasons in support.  Auckland City proposals were referred back to the Authority for renewed consideration.

Woolworths v. Alcohol Regulatory and Licensing Authority – High Court (27.02.20)

20.037

Contract: Wang v. Wang

Li Wang now lives in Hong Kong. Chao Wang’s whereabouts are unknown, but he claims to be living in China.  New Zealand courts are the better venue to hear their personal dispute over a claimed $500,000 debt, the High Court ruled.

Mr Wang married Li Wang in 2016.  They separated after eight months.  She now works as an investment analyst in Hong Kong.  Two years before their marriage, he borrowed from her half a million dollars to set up a nightclub in Auckland.  His earlier nightclub venture had just fallen apart. When this business also failed, Mr Wang left the country.

Ms Wang faced several legal roadblocks in attempts to recover her claimed half a million dollars.  With Mr Wang having gone to ground, a High Court order was needed to have notice of legal proceedings made by substituted service: delivery to his former solicitor; notice to Mr Wang’s email address and on his facebook page. Mr Wang applied to have the case dismissed.  With both parties living in Asia, Hong Kong courts were the better venue he said.  Ms Wang said she had no confidence that Mr Wang would front up the Hong Kong courts if her New Zealand claim was dismissed.

Their contract has a ‘real and substantial connection’ with New Zealand, Associate judge Smith ruled.  The loan was made in New Zealand with funds transferred from Ms Wang’s ASB bank account to a BNZ account nominated by Mr Wang.  The funds were intended for a business established in New Zealand.  A written contract signed by both parties promising repayment was signed in New Zealand, according to Ms Wang.  The document specifies default interest at 25 per cent for late payment.  Mr Wang claims his signature on the document is a forgery.  He does not deny that he borrowed $500,000, but claims this was ‘repaid’ with expenses he incurred on behalf of Ms Wang and her parents; expenses including travel costs between Hong Kong and New Zealand, plus renovation of three apartments in New Zealand purchased by Ms Wang’s parents.  All this expenditure was reimbursed, Ms Wang says.

Wang v. Wang – High Court (27.02.20)

20.038

Fair Trading: Property Brokers v. Hastings McLeod

After opposing a $4.5 million sale of Ashburton-based Hastings McLeod Real Estate to franchisor Property Brokers, Clark McLeod was blocked from setting up a rival business with wife Susie using the name Hastings McLeod. 

Hastings McLeod has a long history in Canterbury real estate circles.  The business was founded in 1974 by Clark McLeod’s father, Colin.  Company staff later took over, with a management buyout nearly three decades later after Colin died.  In 2007, son Clark bought into the business, coming to hold a twenty per cent stake.

The High Court was told Hastings McLeod become a franchisee of Palmerston North-based Property Brokers Ltd in 2010.  Their franchise agreement required Hastings McLeod to use Property Broker’s name, logo and trademarks in day-to-day business. In fact, Hastings McLeod branding was used co-extensively with Property Brokers.  Clark McLeod consistently opposed Property Brokers offers made through 2018-19 to buy out the business.  He was one of four directors.  A sale was forced through in August 2019, after Hasting McLeod’s company constitution was changed to override his objections.

Evidence was given that Clark McLeod then set about establishing his own business under the Hastings McLeod brand: advertising in the local press; setting up a facebook page; and registering a new domain name.  Property Brokers sent a ‘cease and desist’ letter, then sued.  Justice Wylie granted an injunction ordering Clark McLeod to stop use of the Hastings McLeod brand.  There is an arguable case that continued use of the name is misleading and deceptive, he said.  Property Brokers claims it owns the name, following its $4.5 million purchase of the business.  It is for Clark McLeod to go back to court and to prove rights to the name Hastings McLeod were not sold.

Property Brokers Ltd v. Hastings McLeod Real Estate Ltd – High Court (26.02.20)

20.035

Relationship Property: Rehu v. Moke

Relationship property disputes involving Maori Land must be heard in the Maori Land Court, causing delays when disputes over other relationship assets are decided separately in the Family Court.

Final resolution of a relationship property dispute between Manaia Inia Rehu and Edie Hunapo Moke ground to a halt because one of Mr Rehu’s assets was Maori land, a home at Rapaki on the shores of Lyttelton Harbour.  Ms Moke owned a house in the Christchurch suburb of Spreydon.  

The High Court provided a solution; court orders over division of the increased value of Ms Moke’s house remained on hold until such time as a Maori Land Court decision was given over Mr Rehu’s Maori land, then the net effect of the two judgments would then apply.

The two first met in late 2007, shortly after Mr Rehu’s previous relationship broke up.  Mr Rehu worked on oil rigs out of Singapore; Ms Moke as a company director.  They married in August 2010, separating four years later.

The High Court ruled that the properties owned by each of them remained separate property, but each was entitled to a half share in any increase in value of the property owned by the other.  On figures before the court, this would likely require Mr Rehu to pay some $40,000 to $45,000.  But the High Court could not order payment.  The Maori Land Court has exclusive jurisdiction over Maori land; it is the better venue to analyse and apply Maori customary law as it applies to land left in Maori hands after European colonisation.

As a separate issue, Mr Rehu disputed Ms Moke’s claim for repayment of $350,000 he received in early 2008.  Mr Rehu said it was a gift; Ms Moke called it a loan. The funds were used variously by Mr Rehu to complete the purchase of a Porsche, pay off a bank loan and make relationship property payouts to his previous partner.  This $350,000 was advanced before the two entered into a de facto relationship, Justice Dobson ruled.  The two were then not living together continuously as a couple.  The amount of the loan was not relationship property.  While it was a significant amount to hand over early in their relationship, said Justice Dobson, it signalled Ms Moke’s commitment to the relationship.  There was no evidence of a gift; it was a loan, repayable on demand.  The court was told Mr Rehu was miffed when Ms Moke demanded repayment.  He made a greater financial contribution whilst they were together: Mr Rehu earned some $1.2 million over the period; Ms Moke $288,000.   

Rehu v. Moke – High Court (24.02.20)

20.034

Biosecurity: Van Leeuwen Group v. Attorney-General

Supported by fellow farmers, Van Leeuwen Group is challenging Primary Industries stance on recoverable expenses following a nationwide mycoplasma bovis cull.  In dispute: finance costs and professional fees incurred when preparing compensation claims.

Some 1500 farmers claimed government compensation after stock infected with M.bovis were culled.  Van Leeuwen Group Ltd was paid $6.3 million.  It claims a further $428,000.  Van Leeuwen operates 13 dairy farms and six dry stock farms.  The Biosecurity Act requires government pay compensation after ordering compulsory culls.  The extent of compensation payable has never before been before the courts.  Primary Industries said the Act requires Van Leeuwen’s disputed claim first go to arbitration.  Lawyers argue arbitration imposed by statute is not true arbitration; farmers did not agree to arbitrate.  Arbitration is forced on them.  Farmers fear Primary Industries might game the system; expecting individual farmers to abandon disputed claims over small monetary sums rather than bear costs of arbitration.  Better that the High Court give a judicial ruling on the Act’s interpretation, Van Leeuwen Group argued, establishing a ruling which can then be applied across all claims made.

Justice Cooke ruled the High Court should first look at the Act’s application, despite Primary Industries’ demands Van Leeuwen Group go to arbitration.

Van Leeuwen Group Ltd v. Attorney-General – High Court (19.02.20)

20.033

Caveat: Topa Partners v. JWL International Group

Unpaid, Christchurch electrical contractor Topa Partners could not be forced to give up its protected position having a caveat registered over title to a building site, but Topa took the risk of paying for any losses caused by construction delays.

JWL International Group Ltd, controlled by Jun Zhi, is constructing a motel, hotel and restaurant in Salisbury Street, Christchurch.  Topa Partners Ltd had a $222,700 contract for the electrical fitout.  Initially, progress payments were made.  JWL International later stopped further payments, disputing the work done.  Topa Partners registered a caveat over the land.  The signed contract gave it a right to caveat.  A registered caveat gives unpaid suppliers considerable leverage; no further dealings can be registered against the title without consent. Typically, re-financing grinds to a halt.

JWL International disputed Topa’s right to register a caveat.  It said first there had to be a failure to pay ‘money due’ and there was no money due; payment was disputed.  Associate judge Paulsen said contract wording permitted caveat registration when there was money ‘owing.’  Potentially, money was owing; Topa says it has a valid claim for work done.  Plus, it claims damages for being kicked off the site, alleging JWL is in breach of contract.

JWL International offered to pay $30,000 into a solicitor’s trust account, to be held in trust until the dispute was sorted out. Topa refused the offer.

Judge Paulsen ruled the caveat stood, but Topa Partners is liable for any consequential damages should a later full court hearing find there was no justification for lodging the caveat.  Mr Zhi said the caveat has delayed construction, increasing costs.  Difficulties in project refinancing has forced sale of his own home to get ready cash, he said.

Topa Partners Ltd v. JWL International Group Ltd – High Court (17.02.20)

20.032

Copyright: Layaway Depot Ltd v. Oakmont Ltd

Selling furniture, phones and electrical goods online by instalment plan, Layaway Depot alleges competitor Buzz Value controlled by Simrat Kaur has stolen its 55,800 membership customer list and is poaching customers both with door-to-door canvassing and with cold calling from an India-based call centre named Buzz Value India.  Buzz Value denies stealing confidential client information and says it is cutting links with Buzz Value India. 

Buzz Value, the trading arm of a company called Oakmont Ltd, consented to an interim High Court order promising not to contact Layaway customers pending a full trial.

Layaway Depot Ltd started as a door-to-door sales company with retail stores in the upper North Island.  Since 2017, it has operated online only.  Layaway’s business model has customers purchase goods making payments by weekly or fortnightly instalments with delivery made after payment of a specified number of instalments.  It is vulnerable to customers making no further payments after delivery.

Layaway became suspicious that its client transaction list had been stolen when customers reported being contacted by Buzz Value or Buzz Value India with sales reps who seemed to have detailed knowledge of their previous Layaway purchases.  This extended to a cold call made to a Layaway executive who had previously made a dummy transaction, testing Layaway’s operating system.  This dummy transaction left a database record as him being a Layaway customer.  Layaway alleges Buzz Value staff have been telling customers that Layaway is now called Buzz Value and is having customers sign new bank authorities to redirect payments still due.

Layaway alleges Buzz Value is in breach of confidence, in breach of copyright as regards its customer transaction list and in breach of the Fair Trading Act.  These claims are denied.

The High Court was told Buzz Value sales manager Gurpreet Singh previously worked for Layaway before being made redundant in February 2018 after Layaway stopped selling door-to-door.

Agreeing to the High Court interim order, Buzz Value said it was ‘no skin off its nose’ promising not approach Layaway customers. Buzz Value is adamant that it did not have, and never have had, access to Layaway’s customer records.  Layaway has back-office operations in India with access to the company’s New Zealand database.

Layaway Depot Ltd v. Oakmont Ltd – High Court (17.02.20)

20.031

Copyright: Summit Building v. Baxter

Group builder Summit Building Services sued for breach of copyright when a customer handed on Summit plans to another builder for construction of a Pokeno home.

The Baxters held discussions with Summit Building Services Ltd starting late 2012 over building designs for their retirement home at Kilbryde Crescent in Pokeno, north Waikato.  Over the following months, Summit prepared and refined six sets of house plans.  The High Court was told the Baxters never in fact signed up to have Summit complete the build, handing on the plans to another builder.  The replacement builder was told the Baxters had ‘paid’ for the plans and were free to pass them on.  These plans were clearly marked with a Summit logo together with statements identifying Summit as copyright holder.

Summit sued the Baxters, claiming damages for loss of profit on the building contract and damages for breach of copyright.  No damages were awarded for loss of profit; no contract to build was ever signed with Summit.

Summit held copyright in the plans, Justice Davison ruled. Industrial design drawings can amount to a Copyright Act ‘artistic work.’  Damages for breach of copyright were calculated as if a licence fee was notionally charged for use of the drawings.  This fee was assessed at $5500; duplicating the same dollar amount the Baxters had paid Summit under a ‘preconsent agreement’ for the preliminary design work.  Summit unsuccessfully claimed it was entitled to ten per cent of the total construction cost as an appropriate notional licence fee.

Summit Building Services Ltd v. Baxter – High Court (12.02.20)

20.030

Fraud: Wood v. R.

By voluntarily blowing the whistle and quickly pleading guilty to Serious Fraud Office charges, foreign exchange trader Kelvin Clive Wood was entitled to a reduction of nine months imprisonment, the Court of Appeal ruled.  Investors with Forex NZ Ltd, now in liquidation, await final payouts whilst Wood serves a term of imprisonment now reduced to five years six months.

Wood offered financial services from his Half Moon Bay business, in Auckland.  Clients were offered both retail foreign exchange deals and financial investments. The court was told over $22 million passed through Wood’s business from 2008.  Clients were told their capital was protected.  Foreign exchange speculation on client accounts by Wood ran at a loss. By late 2008, there was a shortfall. Wood kept trading through to May 2017. The court was told fictitious trading reports were sent to clients, falsifying account balances.  A ‘Ponzi scheme’ evolved; new investment money and rolled over investments were used to pay clients asking for repayment.         

In 2017, Wood himself blew the whistle, telling authorities of the fraud.  Client transactions were conducted through two companies.  Investigations identified there are 28 creditors owed $9.7 million by one company; four owed just over three million by the other.

Wood v. R. – Court of Appeal (11.03.20)

20.055

Employment: TUV v. Defence

Employment disputes settled out of court are binding, but as contracts promising not to sue the normal rules of contract law apply; they can be challenged.  A former Defence employee argued that the agreed outcome of her mediated employment dispute was invalid because she was mentally ill at the time.

The unnamed employee alleged discrimination and workplace bullying.  She agreed to a confidential out of court settlement in December 2015.  The Court of Appeal was told there was no formal mediation process.  After correspondence between her lawyer and Defence, a mediator from Business, Innovation & Employment spoke to her by phone to confirm settlement details.  The mediator then issued a ‘section 149 certificate.’  Under the Employment Relations Act, these certificates block any further legal proceedings, other than legal steps necessary to enforce an agreement.

The certificate bars any further legal dispute over agreed terms of settlement, the Court of Appeal said, but that pre-supposes there has been an agreement.  There is no ‘agreement’ if the terms were unconscionable, the employee lacked contractual capacity or acted under duress.  There was no evidence that the out of court settlement in question was unconscionable, or the result of duress.  Suffering mental illness at the time of settlement, the Defence employee did not have any contractual capacity to agree to its terms.  However, general rules of contract law require the other contracting party be aware of any mental incapacity before a contract is set aside. Without this rule, businesses would demand letters from doctors and lawyers vouching for their client’s mental status before entering into significant transactions, the Court of Appeal said.  Neither Defence nor her lawyer were aware of the employee’s mental illness.  She had been on extended leave for stress.  The confidential out of court settlement stood.

TUV v. Defence – Court of Appeal (11.02.20)

20.029

Joint Venture: Whata v. Hughes

Claims that profits from Hells Gate tourist attraction near Rotorua are not being shared properly ground to a halt in the High Court when it was found a 1996 commercial joint venture was not properly set up; legal eagles registered the wrong names at the Companies Office.

Trustees for the Tikitere Trust, representing some 1200 Maori beneficiaries, allege they have been ripped off by fellow investors who have not properly accounted for profits from Hells Gate’s operations.  In 1996, Tikitere’s then trustees agreed to a joint venture arrangement with neighbouring Maori.  Their written agreement envisaged creation of a new holding company split 50:50 between Tikitere Trust and Tatou Holdings Ltd, the corporate vehicle representing their neighbour.  Tatou was required to chip in $120,000 cash; Tikitere its management control of 32 hectares of geothermal land at Tikitere.

When Tikitere Trust later sued complaining about operation of their joint venture, Tatou Holdings said there was no enforceable joint venture agreement.  Companies Office records had their joint venture company shareholdings recorded with Tatou Holdings correctly holding half the shares and Tikitere Trust incorrectly holding half.  Company law does not allow a trust to be recorded as a shareholder; shares must be held in the names of the trustees.  This meant half the shares in the joint venture holding company was held by a legally non-existent entity.  The holding company still existed.  But in the eyes of the law, Tatou Holdings was sole shareholder.  Justice Duffy refused to add Tikitere trustees to the holding company’s share register with a wave of the judicial pen.  It is not for a court in 2020 to depart from the words of the official record to cure an error made in 1996, she said.  The supposed 1996 written joint venture agreement is a legal nullity; it was never implemented.  Tikitere Trust is now required to tackle the hard yards; prove through Tikitere’s and Tatou’s conduct over subsequent decades that a joint venture did exist and from this conduct prove what are its terms.

Whata v. Hughes – High Court (10.02.20)

20.028

Insurance: Inicio Ltd v. Tower Insurance Ltd

Six year time limit for earthquake insurance claims started afresh when Tower Insurance sent one Christchurch client a February 2018 letter offering extra payment following a managed rebuild.

Inicio Ltd’s property on Cashel Street in Linwood was written off after the February 2011 earthquake.  Insurer Tower agreed to pay some $321,800 under its obligation to pay full replacement cost.  Calculation was assessed on a notional rebuild.  Inicio rebuilt, but did not replicate the former building.  Nearly five years after the rebuild was complete, Inicio demanded further payment from Tower.  It complained the insurer’s original contribution did not cover full replacement cost for a notional rebuild of the damaged house.  In particular, no allowance had been made for ornate leaded windows and rimu joinery destroyed in the quake.  In a February 2018 letter, Tower offered a further $55,000 noting that in its offer it had not deducted additional professional fees it said were recoverable for its role in the managed rebuild.  Tower’s offer was withdrawn, after being extended three times.  A second offer was made; $28,200, this time deducting the additional professional fees. 

Inicio sued, claiming $708,870 for Tower allegedly failing to pay full replacement cost as required by the insurance policy and alleging Tower was in breach of the Fair Trading Act.  Using the High Court fast-track summary judgment procedure, Tower asked for a court ruling in its favour; Inicio was out of time, it said. The Limitation Act sets a six year time limit for claims.  An ‘acknowledgement of liability’ made outside the six year period, can re-start the clock.  Tower’s February 2018 letter revived Inicio’s right to sue, Associate judge Paulsen ruled. A full court hearing is needed to establish the validity of Inicio’s claim.

Inicio Ltd v. Tower Insurance Ltd – High Court (7.02.20)

20.027

Bankruptcy: Clarke v. Business, Innovation & Employment

Bankrupt Auckland chartered accountant Stuart Francis Clarke's imprisonment for three years after pleading guilty to Insolvency Act offences committed six years ago was reduced by nine months on appeal.  Clarke was convicted of: increasing creditor losses through extravagant living; concealing assets; failing to co-operate with Insolvency Service and managing a business whilst bankrupt. 

The High Court was told Clarke went on a spending spree as Westpac closed in, threatening bankruptcy on a $322,300 debt.  Over a five month period in early 2014, shortly before his bankruptcy and immediately after, he spent a total of $84,160 at restaurants and bars together with other cash purchases; an average of some $4000 per week.  He attempted to disguise his one-quarter interest in the then family home at Trinity Street, Ponsonby and to muddy an ownership interest in his sole practice accounting firm: CK Accountants.  Whilst bankrupt, he continued to operate his accounting business salting away income in a $78,000 bank account hidden from Insolvency Service. He was unco-operative when questioned about trusts and other entities apparently under his control.

On appeal, Clarke said the trial judge had overstated assets concealed from Insolvency Service.  The true total, he said, was the $78,000 eventually uncovered.  His business CK Accountants was worthless, he said. All clients had transferred to other tax and business advisers.  His quarter share in the former family home was identified by Insolvency Service and was now under its control.  Nine months reduction in imprisonment was justified, Justice Woolford ruled.

Clarke v. Business, Innovation & Employment – High Court (4.02.20)

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