Family Trust: Enright v. Enright

Unaware they were beneficiaries of their father’s family trust, estranged children of the late Jack Enright were entitled to a share of Dunstan Burn, a 10,000 hectare central Otago sheep station, the Court of Appeal ruled.  Jack acted in breach of trust by unilaterally favouring one son, Tony.  

The JJ Enright Trust was established in 1974. Jack Enright’s six children were named as beneficiaries.  The Trust deed required net income in each tax year to be distributed according to the unanimous decision of the trustees, failing that it was to be appropriated each year equally between Jack’s six children.  The Court of Appeal was told these rules were not followed over the subsequent forty years.  Net income was retained by the Trust; separate beneficiary accounts were not established to record individual beneficiary’s undrawn income.  Jack treated Trust assets as his own.  Trust assets were used in 1988 as part of a ten year project to subdivide properties at Wye Creek on Lake Wakatipu. Subdivision profits were used to complete purchase of a St Bathan’s farm: Two Mile Station.  This was then merged with neighbouring Dunstan Burn Station to create a landholding of more than 10,000 hectares which now runs sheep along with some cattle and deer.

After Jack’s death in 2014, five of his disinherited children came to question how sibling Tony came to own all their father’s assets. Only then did they learn details of the 1974 JJ Enright Trust.

The Court of Appeal ruled Jack had been in breach of trust by failing to comply with trust deed requirements for allocation of income.  Unallocated beneficiary income was represented by Trust assets.  Jack’s children were entitled to trace their income entitlements through cash from the Wye Creek subdivision to the Two Mile purchase and its subsequent incorporation into Dunstan Burn.  The five estranged children were entitled to a forty-three per cent share of that land purchased as Two Mile Station, the court calculated.

Enright v. Enright – Court of Appeal (29.10.20)

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Due Diligence: Melco Property Holdings v. Hall

Black Diamond Technologies’ neighbour on Parliament Street in Lower Hutt was under no obligation to extend time for due diligence on a $1.5 million purchase and was free to sign up a new buyer offering an extra $100,000. 

Black Diamond carries on business at numbers one & three Parliament Street.  It was looking to extend operations, buying number five next door.  In December 2019, neighbour Anthony John Hall agreed to sell number five for $1.5 million to a related Black Diamond company: Melco Property Holdings.  The contract contained a wide-ranging ‘due diligence’ clause.  Black Diamond had fifteen working days, expiring on 9 January 2020, to investigate the merits of its proposed purchase.  It late December, Mr Hall was approached: there would be a delay in getting assessors’ reports; would Mr Hall agree to extending due diligence deadline to 17 January?  Mr Hall indicated that did not seem a problem, but he would first have to get advice from his lawyer when he returned to work in the New Year.

The High Court was told another prospective buyer approached Mr Hall in early January, offering a better price.  Mr Hall told his lawyer not to respond to any request for a due diligence extension.  Telephone calls from Black Diamond’s lawyer went unanswered.  When the deadline passed, Mr Hall cancelled the Black Diamond deal and sold to his second buyer for $1.6 million.

Associate judge Paulsen dismissed Black Diamond’s claim seeking to enforce its contract.  Mr Hall was under no obligation to tell Black Diamond he would not grant an extension.  This advice would potentially have seen Black Diamond waive its due diligence requirement prior to deadline.  Agreements for sale and purchase of land are not contracts requiring good faith, Judge Paulsen said.

The court was told the second sale at $1.6 million fell over following Melco’s refusal to remove a caveat lodged on title to number five seeking to protect what proved to be its unsuccessful claim to ownership. 

Melco Property Holdings (NZ) 2012 Ltd v. Hall – High Court (29.10.20)

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Guarantee: Carters v. Cancian

Danny Cancian, director of failed Tauranga builder Bella Vista Homes Ltd, was ordered to pay Carters $1.078 million on his guarantee of building materials supplied to Bella Vista.

Construction defects at Bella Vista’s Tauranga subdivision led to Tauranga Council paying $14.2 million compensation.  Bella Vista is in liquidation.  Bella Vista creditor Carters sued Mr Cancian on his guarantee. He denied liability; Carters mispresented terms of the guarantee and pressured him into signing, he said.

The High Court was told of meetings in 2016 between Mr Cancian and Carters.  Bella Vista was looking to transfer its business from Placemakers.  It asked Carters for a $700,000 credit line. Carters offered a $50,000 credit limit to ‘open the account’ and contributed $10,000 towards IT support marrying Bella Vista’s accounting system with Carters information system.  Bella Vista’s current account debt with Carters blew out dramatically from $46,700 to $1.078 million in the five months prior to liquidation.  When sued, Mr Cancian claimed he was only liable as guarantor for the first $50,000. He was never told Bella Vista’s credit limit had been increased to $800,000 soon after the account was opened, he said.

Justice Wylie dismissed as unreliable Mr Cancian’s evidence as to what was said at the introductory 2016 meetings.  Mr Cancian was not a naïve businessman, Justice Wylie said.  He was no stranger to personal guarantees; he knew the effect of what he was signing. Guarantee terms allowed Carters to change Bella Vista’s credit limit at any time without notice.  This included increases in credit limit.

Carters v. Cancian – High Court (29.10.20)

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Asset Forfeiture: Commissioner of Police v. Harrieder & Hamilton

Overseas tourists’ plans to finance their holiday around New Zealand with profits from drug dealing came unstuck when Sven Stephen Harrieder and Justin Christopher Hamilton were convicted of dealing and then had cash confiscated as proceeds of crime.

In July 2020: Harrieder pleaded guilty to possession of cannabis and LSD for supply; Hamilton guilty to cannabis for supply. About $118,000 in cash was seized during a police search of Deco Backpackers in Queenstown, along with cannabis packaged for sale.  Justice Dunningham ordered confiscation of the cash as ‘tainted property’ under the Criminal Proceeds (Recovery) Act.

No explanation was provided for the large cash holding.  The High Court was told Harrieder had no known legal income during his period of time in New Zealand.  Hamilton had legitimately earned some $2600 since his June 2019 arrival.

Commissioner of Police v. Harrieder & Hamilton – High Court (23.10.20)

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Memelink: Body Corporate 68792 v. Memelink

Notorious Wellington debtor Harry Memelink, now bankrupt, remains trustee of a family trust owning commercial units on Hutt Road/Wakefield Street in Lower Hutt.  If outstanding body corporate levies are not paid by mid-November, court-appointed receivers take control.

For year ended March 2020, his family trust received gross rentals of $466,800. The Body Corporate has been long frustrated in its campaign to recover levies due from Memelink’s family trust.  Mr Memelink claims a set off; the Trust is entitled to reimbursement for work done on the Body Corporate’s behalf, he says.  Levies also include amounts not properly chargeable to unit holders, he claims.  Resolution is compounded by Mr Memelink’s current bankruptcy.  Mr Memelink says he is owed $4.064 million by his family trust.

Payment of outstanding body corporate levies will likely require sale of one of the units or some form of refinancing, Justice Dobson commented. This will require Insolvency Service agreement.  He appointed BDO Wellington’s Iain Shephard and Jessica Kellow as receivers to take control of Trust assets for payment of outstanding levies.  Effect of the court order was suspended until mid-November.

The Body Corporate canvassed possibility of having Mr Memelink removed as trustee of his family trust.  Bankrupt trustees can be removed by court order.  The Trustee Act requires evidence that a bankrupt trustee as acting contrary to beneficiaries’ interests.  Trust beneficiaries in this case were described as members of Mr Memelink’s family and friends.

Body Corporate 68792 v. Memelink – High Court (13.10.20)

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GST: Inland Revenue v. Pootinun

Inland Revenue dismissed as forgeries contractors’ invoices supplied by Surasak Pootinun to support his GST claim when bankrupting him on tax debts totalling $2.4 million.

Pootinun provided labour for crop harvesting; primarily individuals working on short-term restricted work visas. In May 2018, Inland Revenue issued assessments for GST and withholding payments due for 2015 and 2016 tax years.  Tax law required Mr Pootinun to deduct withholding tax from payments to hired labour. He did not respond to Inland Revenue assessments.  He offered no defence when Inland Revenue sued to recover the assessed tax debt. As at September 2020, Mr Pootinun was liable for tax debts totalling $2.4 million (including interest and penalties) of which some $527,100 was GST.

Inland Revenue applied to bankrupt Mr Pootinun. He complained.  Having paid GST on contractor invoices, he should be allowed a GST credit, Mr Pootinun said.  The High Court was told Inland Revenue dismissed the contractor invoices as forgeries; handwriting analysis suggested they were all prepared by the same person. Individuals who supposedly provided the invoices are no longer in New Zealand.

Mr Pootinun asked the High Court to dismiss Inland Revenue’s bankruptcy application, giving him time to challenge its treatment of GST.

Mr Pootinun was too late to challenge the 2018 disputed tax assessment, Associate judge Lester ruled.  Bankruptcy was ordered.  Even if Mr Pootinun’s GST claim were to be successful, he would still be insolvent given the size of his remaining tax debts, Judge Lester said.

Inland Revenue v. Surasak Pootinun – High Court (8.10.20)

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Guarantee: Gill & Jammal v. Northland Region

Required to pay $860,580, Harkirat Gill and Maher Jammal challenged their guarantee of a Northland Regional Council loan for a Marsden Point sawmill.

Advanced in 2015, the loan was intended to support employment in Northland with Resources Enterprises Ltd milling industrial grade timber for export to the Middle East.  The project folded four years later, following a drop in demand. Director Maher Jammal, resident in United Arab Emirates, and Auckland-based shareholder Harkirat Gill guaranteed a $750,000 Regional Council loan.  The amount owed reached $860,580 by late 2019.  Council sued on the guarantee.

Gill and Jammal said the guarantee was not enforceable; they had been prejudiced by a re-ordering of loan priorities in which the Council agreed to rank behind a later multi-million loan advanced by ASB Bank. As a general rule, guarantors are discharged if there is a material alteration to terms of the loan guaranteed. With the Council loan dropping to a second ranking security, rights of subrogation were harmed they said.  ASB had first claim on sawmill assets and they were left with the crumbs after paying on the guarantee and then standing in the shoes of Regional Council.

The guarantee was enforceable, Justice Whata ruled.  The Council loan stated guarantors remained liable even if there were subsequent variations.

Northland Regional Council v. Gill & Jammal – High Court (8.10.20)

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Lawyer's Conflict of Interest: Hong v. Auckland Standards Cttee

Auckland lawyer Boon Gunn Hong was refused leave to appeal his striking off for what was described as disgraceful, unprincipled and wrongful acts to the detriment of his client.

Mr Hong provided financial support to a client when a 2005 property transaction ran into difficulty, eventually taking title to the property in his own name and attempting to evict his client.  Lawyers are expected to act in the best interests of their clients; not act against their clients’ interests.  Heavy penalties are imposed on lawyers continuing with work when there is a conflict of interest.

Mr Hong said he made no profit on the deal and that his client had suffered no financial loss.    The question of profit was irrelevant, Justice Gordon said.  Mr Hong failed to comply with disclosures required and safeguards imposed when a lawyer is acting both for a client and in his own interests.

Striking off means Mr Hong can no longer continue in business as a lawyer.

Hong v. Auckland Standards Committee No. 5 – High Court (7.10.20)

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Family Trust: Little v. Little

When her marriage ended, Leanne Little was not entitled to a half share in the net worth of her husband’s funeral business since it was owned by a family trust, but she was entitled to share in any increase in value during their relationship, the High Court ruled.

Peter Little owned C Little & Sons funeral directors based in the Auckland suburb Epsom.  The business has been in family hands since 1875.  The business was sold to a family trust in October 1993: the Marble Arch Trust.  Prior to their marriage, Peter and Leanne could not agree on a ‘contracting-out’ agreement to avoid the 50/50 division imposed by relationship property law. Peter’s sale of the funeral business to a family trust meant the business was no longer relationship property; it was not owned by either spouse.  Marble Arch beneficiaries were named as Peter Little and his children; Leanne was not a beneficiary.

The Littles separated in 2009, after a sixteen year marriage.  The Family Court awarded Leanne half the net value of Marble Arch Trust.  This was overturned by the High Court.

The Trust was not relationship property.  The equal sharing rule did not apply.  Leanne claimed a share of Trust property using ‘trust-busting’ rules in the Family Proceedings Act.  The Act allows payment out of trust property where the trust was established as a nuptial trust; a trust intended to benefit family.  Marble Arch was established as a nuptial trust, Justice Jagose ruled.  It was intended to protect the business should the marriage fail with trust benefits favouring Peter and his children.  Leanne was expected to benefit only so long as the marriage continued.  She was entitled to share in any increase in the net worth of the Trust during the marriage, Justice Jagose ruled.  Once their children were of school age, Leanne had assisted in the business, especially day-to-day accounting functions. Calculation of any increased net worth for the business during their marriage required further evidence.

Little v. Little – High Court (6.10.20)

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Bankruptcy: Official Assignee v. Yarrow

Assets in family trusts controlled by now-bankrupt businessman Paul Yarrow have been frozen by court order. Insolvency Service alleges assets are being hidden from creditors.

Paul Steven Yarrow was bankrupted in 2017 on a $14.8 million Westpac guarantee following the collapse of iconic Taranaki company, Yarrows.  A decade earlier, his family trust purchased a property on Auckland’s Northcote Point for the then substantial price of $1.3 million.  Mr Yarrow lives there.

The High Court was told of a series of transactions over a ten year period prior to his bankruptcy which saw movement of assets between successive family trusts, changes of trustees, forgiveness of debts owed to Mr Yarrow by various family trusts and favourable terms of an ‘on demand’ loan by Mr Yarrow to one family trust postponing until 2026 trust liability for repayment to Mr Yarrow.

All Mr Yarrow’s personal rights are now controlled by the Official Assignee, acting on behalf of creditors.  Insolvency Service complains the extent of Mr Yarrow’s rights against his family trusts was not fully disclosed.  It alleges earlier forgiveness of debts and changes to loan maturities were made at a time when Mr Yarrow was insolvent and were intended to defeat creditors, preventing Insolvency Service recovering from his family trusts.  It alleges plans are afoot to sell Northcote Point and to hide the proceeds. Northcote Point was briefly listed for sale.

Justice Campbell imposed a freeze over family trust assets.

Official Assignee v. Yarrow – High Court (2.10.20)

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Company: Orana Trust v. Vey Group

High Court warnings to Leslie Fugle that control of Wellington property company Vey Group Ltd would be taken from him if he did not co-operate in buying out minority shareholders have come to pass; the company goes into liquidation if no agreement is reached in the next two months. 

Vey Group Ltd owns an investment property in Webb Street, Wellington.  A family trust called Orana Trust representing Turvey family interests holds a minority 49 per cent interest.  Interests associated with Palmerston North director Leslie Fugle purchased a majority shareholding in a forced sale following Family Court litigation between Turvey family members.  This left Orana in a minority, stranded with no voting leverage.  Litigation between Orana and Mr Fugle has been to the High Court, Court of Appeal and back to the High Court.  Orana alleges Mr Fugle is using Vey Group assets for his own benefit and is being obstructive.  The primary dispute is over a loan to Vey Group claimed by Orana but disputed by Mr Fugle.  This money was loaned by Turvey family interests to fund purchase of Webb Street. Mr Fugle claims the loan is a Turvey family tax deal; nothing to do with Vey Group.

In July 2019, the High Court ordered an independent valuation of Orana’s minority interest with Orana then to be bought out. One year later, a High Court special appointment of receivers was needed to force access to company records. Receivers assessed Orana’s loan to Vey Group at $1.04 million.  Mr Fugle disputes this amount is due.

Justice Mallon said Mr Fugle has two months to reconsider his position.  Failing that, a court ordered liquidation kicks in.  The court-appointed receivers have been appointed liquidators. The $1.04 million Orana debt is likely to be accepted as a claim in the liquidation. Webb Street has a current market value in excess of two million dollars.

Orana Trust v. Vey Group Ltd – High Court (2.10.20)

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