Supply Chain: Adama New Zealand v. Raam Chem

Nelson agrichemical supplier Adama paid thirteen million dollars compensation following crop damage to apples caused by contaminated fungicide.

A 2017 importation of fungicide Mancozeb was found to be contaminated with azoxytrobin.  Adama New Zealand Ltd is suing Singapore-based supplier Raam Chem Pte Ltd.  Raam denies liability.  Claiming only to be a ‘fixer,’ it says the problem lies further down the supply chain. The High Court was told of a comprehensive list of separate India-based companies all involved: supplying raw stock, blending chemicals, packaging and labelling.  Six different companies in India had input into the final product.

Seeking compensation, Adama did not chase companies down a long supply chain into the notoriously problematic India legal system. It sued Raam in the New Zealand courts, alleging breach of contract.  This case has yet to be heard.

Raam in turn is taking legal action in New Zealand against supply chain companies in India it alleges are to blame.  Notices of its claim were served on companies in India. The High Court was told all companies bar one simply ignored Raam’s claim.  Evidence was given that Raam may have trouble enforcing in the India courts a New Zealand court judgment where the defendant did not appear.  One company in the supply chain challenged Raam’s right to sue in New Zealand.  Chemical supplier UPL Ltd said New Zealand courts had no jurisdiction.  Associate Judge Johnston ordered UPL to file a statement of defence; the crop damage occurred in New Zealand and UPL’s alleged role was tied to litigation between Adama and Raam. 

Adama New Zealand Ltd v. Raam Chem Pte Ltd – High Court (29.05.20)

20.094

Family Trust: Ruocco v. Ruocco

Putting fishing ITQ into a family trust was easy, getting out caused heartbreak and heavy legal expenses as Wellington’s Ruocco family found.

Sons of Italian-born Luigi Ruocco followed their father into the fishing industry.  Issued with Individual Transferable Quota when deep sea fishing stocks were privatised, the families’ quota was put into a family trust.  As at 2019, the Trust held ITQ valued at $3.4 million plus $500,000 cash.  The High Court was told one of Luigi’s sons, also called Luigi but universally known as Bidgi, wanted out.  A family scrap followed.  Legal expenses mounted.  Eventually, all family members came to an agreement; Bidgi could take a one fifth share of the Trust’s ITQ plus a similar share of remaining assets, with Bidgi and his family then excluded as future Trust beneficiaries.  Court approval was needed.  Named as Trust beneficiaries are children, grandchildren and great-grandchildren of Luigi.  For those aged under 18, their parents consented.  Children yet born cannot give consent; the High Court stands in their stead, scrutinising changes to Trust arrangements on their behalf.  The High Court does not act as a ‘rubber stamp,’ nodding through anything put in front of it.

Justice Grice approved the deal.  Splitting off a one fifth share was equitable.  It removed stress and disruption within the wider Ruocco family and brought ongoing legal costs to an end.

Ruocco v. Ruocco – High Court (28.05.20)

20.092

Land Subdivision: Northwest Developments v. Zhang

Having agreed collaboration with a neighbouring developer to complete infrastructure works for a Special Housing Area development in west Auckland, Cheng Zhang, Jin Jung and Pill So could not avoid payment simply by selling their interest in the project.  The three were ordered to pay over $4.1 million damages to neighbour Northwest Developments, controlled by David Sun. 

Subdivision of the 65 hectare Huapai Triangle in west Auckland has been underway since 2013.  Mr Zhang together with Mr Jung and wife Ms So were owners of a seven hectare block in one corner of the Triangle.  In June 2015, neighbours joined forces in what was described as the ‘Five Owners Agreement’ spelling out shared liability for costs of roading, water reticulation and sewage to be installed for the benefit of both groups of investors.  This after the collapse of an earlier agreement which stalled with arguments over the placement of roads and services across the subdivision.

The High Court was told Northwest Developments Ltd, controlled by David Sun, bought out one group of the ‘Five Owners’ investors; Zhang, Jung and So later sold their interest in Huapai Triangle to Sanli Group. Sanli denied liability for any share of infrastructure costs; it had never signed the Five Owners Agreement.

Zhang, Jung and So were ordered to pay.  They sold their land to Sanli Group in an unconditional sale, remaining liable to honour the Five Owners Agreement they had signed previously.  Damages were calculated in excess of $4.1 million: their share of infrastructure costs ($1.17 million); interest for late payment ($1.65 million); and damages for extra financing costs incurred by Northwest ($1.34 million).

Zhang, Jung and So said a twenty per cent interest rate for late payment written into the Five Owners Agreement was an unenforceable penalty.  Twenty per cent was not disproportionate, Justice Gault ruled.  It reflected the level of risk in property development plus the need for projects to be progressed and expenditure recovered as quickly as possible.  Liability for penalty interest was reciprocal; Zhang, Jung and So could equally have claimed interest at that rate if they had completed the agreed infrastructure work at their cost and similarly had to wait for reimbursement.

Northwest Developments Ltd v. Zhang – High Court (28.05.20)

20.093

Fraud: Malapaka v. Police

Potential deportation was not grounds for India national Krishna Malapaka being discharged without conviction following thefts from credit union customers. 

Malakapa was convicted of multiple thefts from bank accounts belonging to clients of an un-named credit union.  The High Court was told Malakapa obtained bank PIN numbers from customers when they applied for loans, using ATMs to steal from customer accounts.  Credit union customers were predominately Maori and Pasifika.  Over a five week period, some $5200 was stolen.  The credit union promptly reimbursed clients after uncovering the frauds; Malakapa subsequently reimbursed the credit union.

At trial, Malakapa said deportation was likely if convicted; he held a resident visa but was not a permanent resident.  He wanted to stay in New Zealand.  The trial judge was sympathetic, but commented: you have breached the trust that has been placed in you, not only by your employer but also by the people of New Zealand; the normal and natural consequences of conviction should follow.  

On appeal, Justice Lang ruled potential deportation was not out of all proportion to the offending.  The conviction stood.

Malapaka v. Police – High Court (26.05.20)

20.090

Insolvency: re Brown

Marketing meets law: related party debt was used as a teaser to get creditors onside in an Insolvency Act part-payment scheme offering creditors a derisory amount in full settlement of debts. 

Former restauranteur Keppel John Brown’s scheme of arrangement settling his debts with payment at six cents in the dollar received High Court approval despite fifty per cent of debt voted in favour being related party debt which pulled out after the necessary majority of creditors voted in favour.   

The High Court was told Mr Brown’s multiple failed restaurant businesses owed $1.26 million, including $610,000 owed close relatives.  His proposal offered creditors a lump sum payment of $40,000; payment of three cents in the dollar.  The legal twist was that while family creditors owed $610,000 would vote, they agreed to stand back if the proposal was approved, raising payment for remaining creditors to about six cents in the dollar.  Their voting power gave momentum to the deal; once it was on its way, they pulled out.

Insolvency Act schemes of arrangement require High Court approval following votes in favour by a majority of affected creditors holding 75 per cent in value of compromised debt.  The court routinely turns down proposals where voting is gerrymandered by having relatives voting in favour.

At Mr Brown’s creditors’ meeting held using Zoom, a majority of creditors owed 80 per cent by value voted in favour the proposal. In the High Court, Associate Judge Smith discounted related party debt in determining creditor majorities. Notionally removing $610,000 related party debt from the creditors’ meeting saw remaining in favour a majority of creditors by number and a narrow majority of 75.8 per cent by value.  The scheme of arrangement was approved.

Evidence was given that Mr Brown currently manages a commercial cleaning business on a $140,000 salary.

Re Brown – High Court (26.05.20)

20.091

Scene One: Gibson v. Kupe Trustee Company Ltd

Scene One apartment owners on leasehold land in central Auckland failed in their bid to force $35 million remediation costs on to management company Kupe Trustees.

Scene One consists of over one hundred residential apartments together with eight commercial premises.  Built on Ngati Whatua Trust Board land, Scene One has weather tightness issues.  A two-tiered leasing structure exists: Kupe Trustee Company Ltd holds the land on a 150 year lease from Ngati Whatua; Kupe in turn leases to individual apartment owners with each owner leasing from Kupe on similar terms.  Apartment owners have no legal control over Kupe; they are subject to their Kupe lease.  Owners pored over these leases when costs of remediation surfaced.  A November 2019 arbitration determined owners had to foot the bill.  A High Court challenge followed.

Remediation costs were operating expenses, Justice Jagose ruled.  Any operating expenses ‘properly incurred’ could be recovered from apartment holders, as ‘all and any costs’ incurred by Kupe.

Gibson v. Kupe Trustee Company Ltd – High Court (25.05.20)

20.089

Land Subdivision: Xie v. 126 Waimumu Ltd

Seeking to enforce a claimed ten per cent interest in a west Auckland property development, it was not clear whether Chunhong Xie was part-owner of the land or shareholder in a company owning the land.

Confusion followed a failure to have any clear written agreement, Associate Judge Bell said.  A 2.5 hectare property on Waimumu Road, Massey, was purchased in November 2016 for $1.6 million.  Some $666,000 was lent on mortgage by FM Custodians; the balance funded by an ever-changing rota of investors.  The High Court was told status of identified investors changed over time as some contributed money by instalments and several investors bought out the interests of existing investors.  Ms Xie contributed $79,000.  In early 2017, resource consent was granted for subdivision.  Title was held in the name of a corporate: 126 Waimumu Ltd.  By 2019, a company called Luffy Home Ltd had bought out all investors, bar Ms Xie.  She was listed on the company register as a ten per cent shareholder of 126 Waimumu Ltd.       

The High Court was told of a December 2019 meeting with Luffy Home where Ms Xie took exception to its development plans and to its proposed management fees.  No agreement could be reached on a price to buy her out.  She lodged a caveat over the land.  This had the effect of preventing 126 Waimumu from refinancing the project, or from selling.  Judge Bell ruled the caveat should stand.  Ms Xie had an arguable case that she was a part-owner of the land, owning ten per cent with 126 Waimumu owning the balance.  She never signed any documentation agreeing to be a shareholder of 126 Waimumu Ltd.  Her name on a list of supposed shareholders in a shareholders’ agreement was unsigned. A full court hearing is needed to determine whether she is in fact part-owner of the land or a shareholder in 126 Waimumu.

While the caveat remains, Judge Bell ordered Ms Xie to sign off on any reasonable refinancing or sale negotiated by Luffy Home. Ten per cent of any sale price is to be held in trust pending a decision on her status as part-owner.

Xie v. 126 Waimumu Ltd – High Court (25.05.20)

20.088

Corruption: R. v. Chand

Sunil Chand was sentenced to six months night time curfew for paying a backhander to an Auckland City employee corruptly pushing office supply contracts in his direction.

City employee Sundeep Kilip Rasila was earlier sentenced to home detention for his part in the fraud.  As procurement officer for Auckland City, Rasila arranged for friend Chand to quote for supply of 22,000 USB devices.  The contract was put to tender.  Rasila supressed bids below Chand’s offered price.  The fraud resulted in Auckland City paying $27,000 more than the better price.  Chand’s business On Time Print stood to make a $57,000 profit.  The High Court was told Chand agreed to pay Rasila a kickback calculated at just under ten per cent of the contract price; $15,000, payable in two instalments.

Justice Lang sentenced Chand to six months community detention, requiring him to remain at home overnight: from 5 pm to 5 am.  At time of sentencing, Chand was working as an Uber driver.

R. v. Chand – High Court (21.05.20)

20.087

Relationship Property: Brown v. Akulinin

Finding that the facts supposedly supporting a one-sided relationship property agreement between a couple married in Russia appeared contrary to the true position, the High Court ordered their case re-opened.  

In 1999, Natalia Brown and Oleg Akulinin married in Vladivostock.  Relocating to New Zealand, they separated in 2014.  Their major asset was a family home in the Auckland suburb Avondale.  Subsequently, a relationship property agreement was agreed with Oleg receiving 0.05 per cent as his share: a total of $2120.  The agreement stated Natalia’s family had provided all the money for purchase of their family home.  Later seeking to overturn the one-sided agreement, Oleg told the High Court he provided one-third of the cash for their home purchase; the balance came from mortgage finance with both contributing to mortgage repayments.  Given confusion over the true financial position, Justice Jagose sent the case back to the Family Court for a full rehearing.

The High Court was told Oleg claimed Natalia had broken an understanding that the Avondale home would be kept by her as a family home for their children: a son and a further child from her earlier relationship. After her relationship with Oleg ended, she sold; lending the money to her new partner for his purchase of a Kerikeri property.  The two later married.  Ownership of the Kerikeri property was registered in her second husband’s name alone.

Brown v. Akulinin – High Court (20.05.20)

20.086

Quantum Meruit: Tervoert v. Scobie

After six years unpaid part-time work on the Scobie family farm in Taranaki, daughter Jan-Marie was awarded $163,500 but could not claim this work allowed her a one-third interest in the farm itself.

Jan-Marie Tervoert was at odds with parents Noel and Marie Scobie over her entitlement to a share of the family farm at Huinga, near Stratford.  Her parents moved from South Canterbury in 2009.  Jan-Marie followed them north the following year, getting a full-time job with Tegel Foods at Bell Block, near New Plymouth.  Marie Scobie told the High Court she was concerned then about her daughter’s financial and mental health following the break-down of her first marriage. Jan-Marie was offered rent-free accommodation in the farm cottage in return for help around the farm.  Over the next six years she worked irregular hours on the farm, fitting work around her Tegel job 62 kilometres away.  In 2017, Jan-Marie’s sister and her husband came to live on the farm, at Mr and Mrs Scobie’s request.  They were paid a weekly wage, working as fulltime farmhands. Evidence was given that this change in circumstances led to major rifts within the family: Jan-Marie said her previous work entitled her to a one-third interest in the farm; her parents belittled the amount of work done, saying she had benefitted from rent-free accommodation in return for this work.

Justice Cull ruled Jan-Marie had made considerable contributions benefitting the farm: first, labouring work around the farm, arranging contractors to come on site and buying in items needed for the farm; and secondly, financial contributions helping pay farm mortgage interest when liquidity was tight.  Most of the money she advanced was recorded in a deed of debt, with interest due on the loan.  There was no agreement Jan-Marie’s work entitled her to a beneficial share in the farm, Justice Cull ruled.  And her contributions did not create a constructive trust, Her Honour said. 

Jan-Marie was awarded compensation assessed on quantum meruit; legal jargon as payment for the work done.  The value of her farm labour was assessed at $163,506, which included reimbursement of $13,500 for direct farm expenses she incurred.

There was no deduction for the value of her farm accommodation.  Her occupation of a farm cottage was merely part of a general family arrangement, Justice Cull said.  Jan-Marie did not have exclusive occupation; other family members joined her at the property when visiting.  Her sister and husband took over the cottage from 2017 when they came to work fulltime on the farm.

Tervoert v. Scobie – High Court (19.05.20)

20.085

Justice: Faloon v. Planning Tribunal

Access to justice is a human right, but there are limits said the Court of Appeal when facing yet another court hearing in a line of sixty court sittings triggered by a dispute over land owned by the Faloon family near Palmerston North airport.

Clarence Faloon took exception to a stream diversion created in 1977 as part of runway construction at Palmerston North airport. A family company owned land adjoining the airport.  In the course of nineteen separate court proceedings variously involving Palmerston North airport, the Planning Tribunal, Lands, Inland Revenue and the bankruptcy courts Mr Faloon has been bankrupted and told enough is enough. The Court of Appeal dismissed his most recent court application, protesting a High Court order suspending for five years any further litigation.  His continuing claims were an abuse of process and totally without merit, the court ruled.  Finality and Mr Faloon are strangers to each other, the court said.

Civil justice operates under seven basic principles, said the Court of Appeal:

·      Standing: Litigants must have a legitimate interest in the subject matter of dispute.

·      Joinder: Everyone likely to be affected should take part.

·      All-embracing: Everything in dispute must be brought together as one claim; claims cannot be litigated by instalment.

·      Costs: Claimants who fail must contribute to the other side’s costs.

·      Execution: A court judgment determines all issues before the court and must be implemented, unless appealed.

·      Appeal: Generally, there is only one right of appeal; a further appeal is allowed, with court permission.

·      Finality: Once all appeal rights are exhausted, a court ruling cannot be subverted by any collateral challenge litigating the same subject.

Faloon v. Planning Tribunal - Court of Appeal (19.05.20)

20.084

Bankruptcy: Wilson v. Biomex Trustees

Owing some $478,000, part of on an agreed out of court settlement in litigation over Biomex’s Marlborough Sounds mussel farming operation, Philip John Wilson was later bankrupted for non-payment despite his complaints that a claimed set-off of $2.7 million was not covered by the agreed settlement; it was and in any event any set-off was statute-barred as being out of time.

The High Court was told Mr Wilson had managed Biomex’s mussel farm operations since 1996.  Controlled by Australian interests, Biomex took legal action alleging unauthorised expenditure by Mr Wilson and alleging Mr Wilson and interests associated with him had taken Biomex mussel spat using it to operate their own business within Biomex operations.  Biomex alleged resources totalling over $960,000 had been diverted.  Part way through the March 2017 trial, an out-of-court settlement was negotiated.  Mr Wilson agreed he personally owed Biomax $478,000.  Other defendants were also party to the settlement.  Subsequently, companies associated with Mr Wilson were put into liquidation and Mr Wilson’s wife bankrupted.

Mr Wilson resisted bankruptcy; while he owed Biomax $478,000, Biomax in turn owed him some $2.7 million, he claimed.  The court settlement did not block his $2.7 million claim, he said.  Associate judge Lester ordered his bankruptcy.  A ‘full and final settlement’ clause in the out-of-court settlement disposed of any claim he might have.  Even if proved, the claimed set-off was not enforceable; it related to events occurring prior to 2014 and were barred by the Limitation Act as being out of time, Judge Lester ruled.

Wilson v. Biomex Trustees Ltd – High Court (19.05.20)

20.083

Accident Compensation: McKee v. Worksafe

Worksafe attempts to lever greater earnings related compensation for accident victims through Health and Safety prosecutions were knocked back by the High Court; extra compensation is assessed on actual earnings only. 

Perceived deficiencies in Accident Compensation has led to a sideways attack; supplementary payments from ‘wrong-doers’ ordered when sentencing after criminal convictions.

Founded in the 1970s, statutory accident compensation left New Zealand in the novel position of barring legal action for personal injury suffered by accident.  Instead, anyone injured claims against a statutory insurance scheme: Accident Compensation.  As a general rule, ACC earnings related compensation is limited to eighty per cent of pre-accident earnings.  The shortfall is a loss carried by those claiming.

Worksafe has been filling this statutory shortfall, using the Sentencing Act after successful Health and Safety prosecutions to get ‘reparations for consequential loss in relation to earnings.’

In 2016, nineteen year old Sophia Malthus was left a tetraplegic after thrown from a race horse when working as a stable hand. She was a novice rider; at the stables to gain work experience, part of a riding course intending a career as a jockey. The owner of the stables was convicted under the Health and Safety at Work Act.  He did not make proper enquiry of her experience or supervise her riding.

At issue in the High Court was calculation of the statutory shortfall on her earnings related compensation imposed as a fine under the Act; her actual earnings on the 37 per hours worked weekly, said the owner; the higher figure of the minimum 40 hours per week adult wage, said Worksafe: A difference of $106,000.

Calculation on actual earnings was correct, Justice Powell ruled.

McKee v. Worksafe New Zealand – High Court (15.05.20)

20.082

Fraud: Avon Parnell Ltd v. Basecorp Finance Ltd

Gulled by an apparent fraud, Basecorp Finance is turning on its head the company law ‘indoor management’ rule seeking to enforce a million dollar mortgage.  If Basecorp is proved correct, a new fraud industry will develop hijacking corporates in a novel form of identity fraud.

Peter Chevin is alleged to have orchestrated a mortgage fraud after altering Companies Office records to get control of Auckland property company, Avon Parnell Ltd.  Mr Chevin has been bankrupted four times.  He has criminal convictions for dishonesty.  It is alleged Mr Chevin acted without authority changing Companies Office records online in May 2019 naming Russell PKR Trustee Ltd as Avon Parnell’s new sole shareholder and also naming his associate Clark Valmont as sole director.  On its 2015 incorporation, ultimate ownership of Avon Parnell lay with Auckland property developer Tim Edney.

The High Court was told Avon Parnell under its new ‘ownership’ borrowed one million dollars from Basecorp Finance Ltd with mortgage security given over Avon Parnell’s real estate in Auckland inner city suburb Parnell.  Most of the money was quickly funnelled out of Avon Parnell’s control.  Two months later, Mr Edney was back in control of the company with some $310,000 recovered and paid back to Basecorp.  It threatened a mortgagee sale to recover the loan balance plus accrued interest.  Basecorp said it was entitled to rely on the Companies Office public record; its mortgage against Avon Parnell assets was valid.  The ‘indoor management’ rule meant it did not have to inquire into the authority of those purporting to act for Avon Parnell, it said.

A legal rule since the 1850s, the ‘indoor management’ rule makes companies liable for acts of agents acting within the scope of their apparent authority.  To be liable, the company must have held out the person as having status as its agent; as director, manager, or employee.  Basecorp argues the traditional rule has been overturned by Companies Act law changes made several decades ago.

Justice Muir ruled full legal argument was now needed on whether a person who through fraud appears to be director of a company, has authority to commit that company to contracts.  Meanwhile, Basecorp was temporarily blocked from enforcing its mortgage. Justice Muir commented: the only likely solvent parties who will be left bearing losses from the alleged fraud are Avon Parnell Ltd, Basecorp Finance Ltd and Auckland lawyer Graeme Skeates who purported to act for Avon Parnell on the Basecorp loan agreement.

Avon Parnell Ltd v. Basecorp Finance Ltd – High Court (14.05.20)

20.081

Debt Factoring: Fabri-Cell International v. Avanti Finance

Chaos followed in the wake of Bimlesh Ram, an entrepreneur described as having ‘a spotty business record.’  A debt factoring contract was valid even though signed by the wrong company; a related company had adopted the contract by its conduct, performing its terms.

Mr Ram was discharged from bankruptcy in 2015. Within a year, he was in control of a company called Fabri-Cell International Ltd, a company nominally under the control of his spouse Ashika Kant.  One year later, it was in receivership and liquidation with a reported shortfall of some $1.5 million.  Liquidators Gerry Rea Partners sued financiers Avanti Finance Ltd claiming it should return some $811,000, money it was allegedly not entitled to.  Legal confusion over Mr Ram’s operation of Fabri-Cell was spelt out in the High Court.  In 2016, an agreement was signed with JSR Group Ltd, controlled by Mr Ram, buying assets owned by Fabri-Cell.  It was signed back-to-front: Ms Kant signed on behalf of JSR ‘as seller;’ Fabri-Cell signed ‘as buyer.’ JSR was buying; Fabri-Cell selling.  Equally unusual, JSR subsequently purchased all the shares in Fabri-Cell (having previously separately bought all Fabri-Cell’s assets) with these shares later transferred into sole ownership of Mr Ram.

The High Court was told a debt factoring agreement with Avanti was also surrounded by confusion.  Mr Ram arranged financing having his business sell its invoices to Avanti for eighty per cent of their face value with Avanti taking a mortgage over these debts as security for repayment.  This loan facility was limited to $350,000; interest charged at 18 per cent. The financing agreement was signed between Avanti and JSR Group. JSR at no time issued any invoices; Fabri-Cell did.  Over subsequent months, invoices raised by Fabri-Cell were passed on to Avanti with cash advances made by Avanti to JSR Group, a different company.  When Fabri-Cell went into liquidation, liquidators said Fabri-Cell was not party to any Avanti debt factoring arrangement and had given away its invoices for nothing; Avanti had recovered payment due on Fabri-Cell invoices while the cash went elsewhere, to JSR.

Associate judge Bell ruled Fabri-Cell was party to the debt factoring contract.  JSR had signed, but Fabri-Cell performed the contract and by its conduct had adopted its terms.  Avanti’s release of finance to JSR was for Fabri-Cell’s benefit; JSR was paying Fabri-Cell’s bills.

Fabri-Cell International Ltd v. Avanti Finance Ltd – High Court (13.05.20)

20.080

Zespri: Shanghai Neuhof Trade v. Zespri

With legal costs in excess of $2.5 million after facing down now abandoned legal action over unpaid Chinese import duties, Zespri International is playing pin the tail on the donkey trying to find someone, anyone, liable to pay compensation.

After allegations by Chinese authorities that Shanghai Neuhof Trade Company Ltd had underpaid duty payable on kiwifruit imports, Shanghai Neuhof said Zespri was to blame.  Allegations and counter-allegations flew.  Shanghai Neuhof sued Zespri claiming it acted simply as agent for Zespri and China’s import duties were Zespri’s responsibility.

The High Court was told Xiongjie Liu, then managing director of Shanghai Neuhof, has since been sentenced to 13 years imprisonment by Shanghai Peoples’ Court for underpaying import duty.  Shanghai Neuhof was also convicted; fined about $8.7 million.

Shanghai Neuhof’s abandoned its New Zealand litigation against Zespri.  Now, Zespri is casting around to find who should be contributing to its costs. Shanghai Neuhof appears to be worthless: it has not paid the fine imposed in China; its business licence has been revoked by Chinese authorities.

Zespri demanded to know who funded Shanghai Neuhof’s litigation; members of Liu’s family using an inheritance received on the death of Liu’s father was the response.  Zespri demanded details of this inheritance plus metadata from email correspondence with Shanghai Neuhof’s New Zealand lawyers.  Metadata would identify who contacted the lawyers, without disclosing the content of any discussions, much of which would be protected by solicitor/client legal privilege.  Zespri suspects Liu’s nephew Lijun Si, living in New Zealand, was in control of the litigation.  If so, it would be looking to recover its costs from him.

Justice Wylie ordered disclosure of the names and source of funds of any person, trust or company which funded Shanghai Neuhof’s New Zealand litigation.  He refused forced disclosure of email metadata and the named inheritance.

Shanghai Neuhof Trade Co Ltd v. Zespri International Ltd – High Court (13.05.20)

20.079

Corruption: R. v. Rasila

Former Auckland City employee Sundeep Kilip Rasila was sentenced to five and a half months home detention for corruption after giving a friend the inside running on a procurement contract and suppressing better bids.

The High Court was told Rasila had Council responsibility to get the best deals for office supplies over a five year period ending 2016.  He manipulated the Council tender process for bulk purchases of USB devices, purchased to replace compact discs previously used as digital copies of property files purchased by the public.   

Aware of the planned Council switch to USB devices, Rasila personally got quotes from Chinese manufacturers for a bulk order. Armed with this information, he approached acquaintance Sunil Chand recommending he put in a tender for supply. Rasila had previously boarded with Mr Chand’s family and the two previously worked together.  Mr Chand quoted in the name of his business: On Time Print Finishers Ltd.  Mr Chand’s bid for the supply of 22,000 USB devices was accepted by Council management as the lowest bid.  The High Court was told Rasila supressed one lower bid in his recommendation to Council and did not disclose his earlier direct enquiries of Chinese suppliers. Rasila was paid $7500 by Mr Chand after the first consignment was delivered; payment for ‘facilitating’ the contract.  A further $7500 was due following a subsequent delivery of a second consignment. Receiving payment amounted to corrupt acceptance of a bribe, in breach of the Crimes Act.

R. v. Rasila – High Court (12.05.20)

20.078

Bequest: Unkovich v. Clapham

Bowing to demands by niece Lara Unkovich that a $65,000 bequest from of her late grandfather’s estate be paid out early to support a tennis scholarship at a US university left the estate executor personally liable for litigation costs after the High Court ruled initial refusals to pay out were not justified. 

Margaret Clapham was appointed executor of her father’s estate following his death in 2016.  The will distributed his estate equally between three children and three grandchildren.  Granddaughter Lara’s share was not payable until she reached age 21.  The will did allow for an earlier payout provided the funds were used for her maintenance or education.  Lara sought immediate release of the money to further her education in the United States.  The High Court was told Lara was a pupil at Sydney’s Mosman High School, ranked then in the top two hundred tennis players in her age group for Australia. Prospects of a US tennis scholarship were promising.     

As executor, Margaret initially refused to release any money.  There were concerns a tennis career was too speculative.  Later concerns were expressed about the financial stability of Lara’s parents.  They would be taking control of the money on Lara’s behalf.  There was legal advice, later found to be erroneous, that the full bequest could not be paid out before age 21.  With legal threats flying and legal proceedings underway, an offer was made to Lara in late 2019: the sum of $63,000 would be handed over, but she would have to bear her own legal fees.  Lara declined the offer. By this time Margaret’s legal fees had reached more than $40,000.

Then everyone fronted up at court.  Margaret dropped all opposition to payment being made. The only issue: who had to bear the legal fees.  This turned on whether Margaret had acted appropriately as executor. Margaret had not acted dishonestly, Justice Whata said.  But she had allowed herself to be distracted by views over the merits of a career as a professional tennis player.  The money sought was to go towards Lara’s tertiary education in the United States, something permitted by the will.  It was reasonable Margaret sought legal advice regarding Lara’s request.  These legal costs come out of the estate, Justice Whata ruled.  But Margaret was personally liable for legal costs once litigation was underway up to the point where the $63,000 offer was made in 2019, he ruled.

Unkovich v. Clapham – High Court (11.05.20)

20.076

Trademark: Fokker Brothers Inc v. Fokker Brothers

High profile restauranteur Leo Molloy failed in attempts to use trademark law’s ‘use it or lose it’ rules in a backdoor attempt to prise the Fokker Brothers trademark from estranged spouse Ingrid after she refused to sell. 

The two separated in 2014 after a fourteen year marriage.  Their Fokker Brothers brand was used to promote pizza.  Menus offered big Fokkers, little Fokkers and Mother Fokkers, amongst others.  Fokker Brothers Ltd held trademark rights to the brand.  Ingrid controlled the company as sole shareholder.

The High Court was told Leo helped his sister Julie Christie set up a new company after the split: Fokker Brothers Inc Ltd.  This new company applied for registration of the Fokker Brothers brand, saying brand use by Leo’s estranged wife’s company had lapsed.  Trademark law causes a brand to lapse if not used in commercial operations for a period of three years.

The High Court ruled there were special circumstances keeping original registration alive.  Ongoing commercial operation by Ingrid’s Fokker Brothers Ltd was seriously hampered by their relationship breakdown, Justice Palmer said.  The court was told Ingrid was suffering financially.  Attempts by an estranged spouse to develop the same trademark through a competing business amounted to special circumstances outside the control of Ingrid’s Fokker Brothers Ltd allowing that company to retain rights to the trademark, he ruled.

Evidence was given that Ingrid is looking to see Fokker Brothers Ltd and the brand valued as part of a relationship property settlement. She had previously refused to separately sell the trademark to Leo’s sister. 

Fokker Brothers Inc Ltd v. Fokker Brothers Ltd – High Court (11.05.20)

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Breach of Trust: re Estate Raymond Smith

Used by long time friend Raymond Smith as a foil to hide property development profits from Inland Revenue and also to hide assets from his former spouse, Roger Ball claimed on Raymond’s death the assets were his alone.  He was ordered to hand over properties in Takapuna on Auckland’s North Shore and to account for rental income received.

Raymond Smith and Roger Ball went back a long way, meeting in the 1970s as employees with the Housing Corporation; Raymond in town planning and Roger then as a survey drafting cadet.  Four decades on, Roger Ball was ordered to return properties on Dominion Street in Takapuna which he had retained in breach of trust.     

The High Court was told Mr Smith acquired Dominion Street from a family member in 1975.  It had subdivision potential.  Attempting to avoid personal liability for tax on development profits, Mr Smith sold the property to Crystal Mint Developments Ltd, a company controlled by Mr Ball.  Mr Smith’s accountants were to later query the financial benefits of the complex web he created.  A letter outlining subdivision plans he wrote to his legal advisers said he ‘would not like this memo to be read by any IRD wallah.’  Mr Ball was to later claim his company Crystal Mint was the absolute owner.

Evidence was given that the Dominion Street sale to Crystal Mint was coupled with a power of attorney back giving Mr Smith complete authority to manage the redevelopment.  He used his own property and assets to finance the project.  When Mr Smith suffered a series of strokes starting in 2004, Mr Ball used an enduring power of attorney to exercise Mr Smith’s rights.  Using this enduring power, Mr Ball sold a Castor Bay property inherited by Mr Smith and transferred the bulk of the proceeds into Crystal Mint.  This money came to be described in Crystal Mint’s accounts as being a loan from Mr Ball.  He later said this was ‘an accountant’s error’ changing the notation to instead being a loan from Mr Smith.

Mr Smith died in 2010.  Daughter Sahra was the sole beneficiary of his estate.  The will named Mr Ball as executor.  He told Sahra the net worth of her father’s estate was some $18,000.  She challenged this assessment.

Justice Gordon ruled that Mr Ball held the Dominion Street assets in trust for Mr Smith’s estate.  The sale to Crystal Mint with Mr Smith having absolute control of the development and using his own assets to fund the development provided evidence that Mr Smith was the beneficial owner.  Improper use of this trust arrangement to claim a GST refund on the sale to Crystal Mint and to hide assets from Mr Smith’s former wife did not detract from the legal position that an express trust was created, Justice Gordon ruled.  

Mr Ball’s claim that Crystal Mint was the absolute owner amounted to fraud, Justice Gordon said.  She ordered return of the assets to Mr Smith’s estate.  In 2016, the High Court replaced Mr Ball with Sahra as executor.

Re Estate Raymond Smith – High Court (8.05.20)

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Sale of Land: Auton v. Auton

While parents had gone a long way in supporting a son with personal and mental health issues, the High Court ruled his mother did not have to sell him a house debt free when there was never any agreement for sale. 

The family lived in Christchurch.  The parents owned a number of investment properties.  The mother herself owned a property on Aorangi Road in Bryndwr.  Their son owned a Merivale property, financed in part with a $100,000 loan from his parents. The High Court was told Merivale was uninhabitable after the Christchurch series of earthquakes.  Family agreed their son could live at Aorangi Road.  Family plans evolved through uncertainties following the earthquake but solidified into what was loosely called a ‘land swap.’ Merivale would be redeveloped with family money, the son getting a credit for the land value and taking ownership of one of two units to be built on the site.  When it became clear he would not have sufficient financial resources to buy in, it was proposed the son buy Aorangi Road instead.  This stalled when the son demanded he get Aorangi Road debt free and without having to pay the $100,000 borrowed when buying Merivale. He was trespassed from Aorangi Road following incidents of violent behaviour.

Son took to court, claiming ownership of Aorangi Road. There was an oral agreement to sell, he said.  Under the Property Law Act, contracts for sale of land are not enforceable unless in writing.  There is an exception; the doctrine of part performance.  Oral agreements for sale of land are enforceable where the critical terms have been agreed and one party has carried out their part of the bargain.

Mother and son had never agreed terms for Aorangi Road, Judge Paulsen ruled.  There had been discussions for a sale at $500,000 but repayment of the $100,000 borrowed for his previous Merivale purchase was the sticking point.  When the son refused to sign a contract for the Aorangi Road purchase which acknowledged $100,000 was still owing from Merivale, his mother abandoned proposals for the sale, Judge Paulsen said.  There was never any contract for sale of Aorangi Road to the son, oral or written.

Auton v. Auton – High Court (7.05.20)

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Construction: Electrix Ltd v. Fletcher Construction Ltd

Fletcher Construction was ordered to pay contractor Electrix an extra $7.4 million dollars, the consequences of Fletcher’s mismanagement of its government contract to design and build Christchurch’s CBD Justice precinct.

The High Court was told of chronic mismanagement with design work barely keeping pace with construction, work completed out of sequence and supposedly finished work being ripped out and later reinstated. Electrix claimed it was underpaid seven million dollars; Fletcher said it had paid seven million too much and was due a refund. 

In 2014 Fletcher Construction signed a $240 million contract to design and build the Justice precinct, the first major rebuild in Christchurch’s earthquake damaged business district.  It nominated French-owned Electrix Ltd as preferred contractor for electrical services.  Evidence was given that electrical design at this point was still a work-in-progress with Opus International and Beca contracted to draw up the electrical works. Beca was later fired from the project. Opus and Electrix were left to muddle through, both responding to ever-changing demands from Fletcher.  Fletcher was under pressure.  Daily penalties fell due if the project was late.  It did run over time, with Fletchers incurring what were described as ‘substantial penalties.’

Electrix told the High Court that detailed design of the project’s electrical works was never completed.  Scope changed throughout the project.  Electrix described the whole process as a shambles. Ceilings and walls were closed up before services were installed, later reopened and then rebuilt.  Areas were wired, then had wiring removed only to later be rewired.

At project conclusion Electrix and Fletcher were at loggerheads over what was due.  Justice Palmer ruled there was never any contract between Fletcher and Electrix. They expected to reach agreement at some point, but never did.  Work proceeded on ever changing letters of intent.  With no contract agreed, Electrix was entitled to payment on ‘quantum meruit;’ legal jargon for payment ‘as much as deserved.’  Electrix gets compensation for the reasonable cost of services provided, Justice Palmer ruled.  The key issue was extra compensation for cost blowouts beyond the $21.6 million payout envisaged by successive letters of intent.  Justice Palmer accepted expert evidence that 13 per cent of the cost blowout was caused by scope creep initiated by Fletcher, 27 per cent due to Fletcher’s delays and 60 per cent directly caused by Fletcher’s project mismanagement.  Payment of an extra $7.4 million was ordered.

Electrix Ltd v. Fletcher Construction Company Ltd – High Court (6.05.20)

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