Asset Forfeiture: Commissioner of Police v. McIvor

Accused of downloading and selling pirated movies, Hamilton-based Jaron David McIvor surrendered bank accounts holding $818,000 and control of digital wallets holding crypto-currencies currently worth more than $21 million.

Acting on information from US authorities, police investigated Mr McIvor’s online activity.  A criminal proceeds restraining order was imposed on his bank accounts, and bank accounts controlled by his brother.  The two agreed to forfeit all funds restrained, bar $400,000.  In the High Court, Justice Downs approved the agreed forfeiture under the Criminal Proceeds (Recovery) Act.  While arguably the $400,000 should be confiscated as well, Justice Downs said it would be disproportionately expensive and time consuming to hold a court hearing over this amount when all agreed the overwhelming majority of the restrained funds were forfeit.

The cryptocurrencies were valued at $21 million as at the date of the court hearing.  Cryptocurrency market prices are notoriously volatile.

Commissioner of Police v. McIvor – High Court (30.11.20)

21.004 

Relationship Property: Galante v. Grinberg

Forced liquidation of a family company was refused by the High Court as it would force one spouse out of their Motueka family home.  A court-appointed receiver took control of the company; arguments over the family home left to be sorted out as part of their wider relationship property dispute.

Dorit Galante and Gilad Grinberg are 50/50 owners of Orinoco Organics Ltd which owns 5.6 hectares on Orinoco Valley Road, Motueka. Their family home is on the property. The High Court was told the two separated in 2018, after a twenty year de facto relationship.  Division of relationship property has proved acrimonious. Disputed property includes their company Orinoco Organics, real estate in New York valued at some $6.8 million and a New York cleaning company.

With Ms Galante’s departure from Valley Road, Mr Grinberg said there had been an understanding he would take full ownership of Orinoco Organics and with it, occupation of the former family home.  He was to buy out his spouse with proceeds from selling New York properties.  Mr Grinberg said he is not getting full information about the New York assets. In turn, Ms Galante said her spouse is mismanaging the Valley Road property and is not keeping it fully insured. She threatened to sue Mr Grinberg for $50,000 ‘occupation rent;’ the value of his occupation of Valley Road since their separation.  Mr Grinberg paid.  She then took legal action to have Orinoco Organics Ltd put into liquidation, alleging Mr Grinberg’s effective control of the company prejudiced her interests as a shareholder.  Liquidation could force Mr Grinberg out of Valley Road.

Justice Cull ruled both were to blame for their company’s dysfunctional governance.  Ordering liquidation of Orinoco Organics was a blunt and drastic remedy, she said. Nelson chartered accountant, Geoff Falloon was put in control of the company.  Mr Grinberg was left in occupation of the family home.  Mr Falloon was instructed to determine what was a fair occupation rent payable by Mr Grinberg.  This amount is to be taken into account in the eventual resolution of the relationship property dispute.

Galante v. Grinberg – High Court (30.11.20)

21.003

Asset Seizure: Rodriguez v. Commissioner of Police

Allegedly part of $US119 million embezzled from Venezuela’s state-owned oil company, the Court of Appeal confirmed $US11.85 million held in a BNZ account be restrained pending evidence the funds are proceeds of crime.  Andreina Gamez Rodriguez, wife of a Venezuelan lawyer, claims the BNZ account holds money she earned working as an architect.   

The court was told Ms Rodriguez’ husband, Louis Carlos De’Leon Perez, pleaded guilty in a US court as party to a scheme extracting bribes in relation to oil company transactions.  He was prosecuted in the United States after extradition from Spain. He is yet to be sentenced.  His share of the bribery scheme was $US16.1 million.

Bank of New Zealand made enquiries about the provenance of $US11.85 million transferred into a New Zealand account in March 2019. This account was in the name of Hamilton-based MAP and Associates Trustee Company Ltd; the funds described as being held on behalf of Ms Rodriquez.  The size of the transfer triggered Bank enquiries under money-laundering legislation.  It notified police after Ms Rodriguez made patently false explanations about how she came into possession of the money and could not provide any plausible explanation. She said she earned the money as an internationally recognised architect and had been living separate from her husband for the previous three years.  Further Bank inquiries found none of this true.

Challenging a restraining order imposed by the High Court, Ms Rodriguez said the funds should be released; police used the wrong Criminal Proceeds (Recovery) Act procedure.  The admitted bribery took place overseas; the Act requires any request for a restraining order to come from overseas police authorities, she said.

Banking into a New Zealand bank account money criminally obtained overseas can lead to criminal charges of money-laundering in New Zealand, the Court of Appeal ruled.  No overseas request is required before New Zealand police can apply for a restraining order.  A further court hearing is required to determine whether in fact the $US11.85 million is proceeds of crime.

Rodriguez v. Commissioner of Police – Court of Appeal (26.11.20)

21.002 

Family Trust: Harrison v. Harrison

In financial difficulty and bankrupt with trustees of a family trust refusing to help, Pauline Harrison challenged actions taken by trustees brother Graeme and sister-in-law Adrienne who set up for their own benefit a Waiheke property owned by the trust.  The High Court ruled the Waiheke deal invalid, but dismissed Pauline’s claim they be sent to jail for fraud.

The Valerie Geard Trust was established in 2005 by terminally ill Valerie Geard, five months before her death.  The Trust’s primary asset was a property in Auckland suburb Mt Albert.  She named her siblings as discretionary beneficiaries; her brother Graeme and his wife Adrienne as trustees.  She expressed the wish that her brother Malcolm be treated as primary beneficiary during his lifetime.  He died in November 2007, following an accident.

The High Court was told Graeme and Adrienne sold Mt Albert during Malcom’s lifetime, using the proceeds to have the Trust complete purchase of a home of Malcolm’s choosing at Causeway Road on Waiheke Island. On Malcolm’s death, Graeme and Adrienne as trustees of the Valerie Geard Trust transferred Causeway Road to a new trust, the Valerie Geard Waiheke Trust giving themselves rights of occupation for life.  In a 2015 ruling, the High Court ruled the Causeway Road transfer to Valerie Geard Waiheke Trust invalid; the property remained an asset of the original Valerie Geard Trust. Adrienne was not a beneficiary of the original Trust and it was a breach of trust for the trustees to engineer a transaction giving themselves a personal benefit not authorised by the Trust.

Following the 2015 ruling, Pauline took legal action claiming the original Valerie Geard Trust had now terminated; she was entitled to a share of Trust assets, she said.  Pauline also sued her brother and sister-in-law for their actions as trustees, demanding ‘punitive ‘damages of $100,000 and asking the High Court to fine them $25,000 for contempt and to jail them.  In a 2019 court ruling, the High Court blocked for five years any further litigation by Pauline over operation of both the original Valerie Geard Trust and the subsequent invalid Waiheke Trust; multiple proceedings brought by Pauline were vexatious the court ruled, re-arguing what had been decided in 2015.

Pauline’s claim for $100,000 damages against brother Graeme and sister-in-law Adrienne was left open, subject to her putting up $20,000 security for their legal costs within a month.

Harrison v. Harrison – High Court (24.11.15 & 19.11.20)

20.181

Mark Ensom: Stark Trustees v. Alliance Diversified Holdings

What was a backdoor attempt to protect a profit share agreement benefitting bankrupt property developer Mark Ensom to the tune of four million dollars was dismissed by the High Court.

Mr Ensom was bankrupted in February 2020.  Insolvency Service expects unsecured claims to total some $2.2 million.  The High Court was told Mr Ensom is entitled to fifty per cent of a profit share agreement with Christchurch-based financier Alliance Diversified Holdings.  They share net profits from both rents and the ultimate sale of nominated properties.  The current value of this profit agreement is disputed; Insolvency Service calculates Mr Ensom is entitled to $178,000 as his share of rents and potentially as much as four million dollars on sale.  It is looking to cash up, for the benefit of Mr Ensom’s unsecured creditors.  Cashing-up requires a tripartite agreement between Insolvency Service (exercising Mr Ensom’s rights), Alliance and Bridgewest Finance – another financier, associated with Alliance.

In the background, Bridgewest is forcing a mortgagee sale of property in Rawene Avenue Westmere Auckland.  The High Court was told $2.6 million was owed as at March 2020. Default notices were issued six months previously.  This property is owned by Stark Trustee Ltd.  Sole director is Mr Ensom’s partner, Stephanie Winitana.

Bridgewest’s interest in the Ensom profit share agreement is tied to its Rawene mortgage; profit share payments received by Mr Ensom go first in reduction of the Bridgewest loan.   Through Stark Trustees, Ms Winitana is attempting to refinance the Bridgewater mortgage, placing in friendly hands both the debt and the contractual rights over Mr Ensom’s profit share agreement.  Stark Trustees asked the High Court to block further sale progress by Bridgewest.  Stark said it has funds in hand to refinance the Bridgewest loan.  It disputes how much Bridgewest claims is owed.

Justice Fitzgerald refused to block Bridgewest’s mortgagee sale.  If Stark does have the money, buy out Bridgewest’s interest, she said.  Evidence was given that previous promises to repay the Bridgewest loan had come to nothing.

Stark Trustees Ltd v. Alliance Diversified Holdings NZ Limited Partnership & Bridgewest Finance (New Zealand) – High Court (20.11.20) & (22.07.20)

21.001

Corruption: Guangzhou Dongjiang Petroleum v. Kang

Yongnan Kang, former director and shareholder of Auckland-based One Pure International Group Ltd, claims a $1.7 million court judgment issued against him by a Guangzhou court was tainted by the litigant’s bribery and corruption.  Conclusive evidence of corruption was needed before a New Zealand court would refuse enforcement.

Mr Kang lives in Auckland.  In 2017, One Pure was looking to raise further working capital from investors in China.  It exports drinking water to China.  The High Court was told a deal was struck with Guangzhou Dongjiang Petroleum, owned by Hong Kong-based Pun Chung Hing.  RMB fifteen million was offered, as a loan.  Interest was payable at 0.8 per cent per month.  Repayment was secured over Mr Kang’s shareholding in One Pure. This loan would be converted to equity if an equity investment was decided after a period of due diligence.

Mr Kang told the New Zealand High Court all was not above board.  There was a side agreement; RMB three million was to be diverted in sponsorship of the Canton golf team.  Mr Kang said the full RMB fifteen million was never advanced; he received only RMB eight million, of which RMB 2.25 million went to the Canton golf team.  No due diligence was carried out by Mr Pun.  In China, Dongjiang Petroleum sued in the Guangzhou courts to recover its loan plus interest. Mr Kang was ordered to pay the equivalent of NZD 1.7 million.  Finding Mr Kang had no assets in China, Dongjiang applied to have the court judgment enforced by the High Court in New Zealand.

Mr Kang said the $1.7 million court judgment should not be enforced; it was tainted by corruption, he said.  Mr Kang alleged the golf team sponsorship was part of a scheme by Mr Pun to curry favour with Mr Xu Deli, former deputy governor of Guangdong province.  Mr Xu had an interest in golf.  It was alleged Mr Xu’s influence would assist in having Mr Pun’s company obtain a lucrative petrol resellers licence.

Mr Kang said the Guangzhou court was deceived, it was never made aware of the golf club side deal.  It would be too dangerous to tell the court, he said.  That was tantamount to accusing Mr Xu of bribery as a senior government official.

Whilst corruption in gaining an overseas court judgment is grounds to refuse enforcement in New Zealand, said Associate judge Bell, this requires clear and cogent evidence of corruption.  Mr Kang did not provide such evidence, he ruled.

Guangzhou Dongjiang Petroleum Science and Technology Development Co. Ltd. v. Kang – High Court (20.11.20)

20.182

Family Trust Arbitration: Ryan v. Lobb

Trust beneficiary rights arise from trust law, not contract law.  Verena Ryan was entitled to her day in court arguing the effect of a family trust owning ‘Lothbury,’ a multi-million dollar property on Orakei Road in Auckland suburb Remuera.  The High Court dismissed claims by estranged spouse Stuart Lobb that the trust deed required any disputes first go to arbitration.   

They separated in 2016, after sixteen years marriage.  Verena claims half share of family trust assets.  Stuart argues contributions to the family trust should be taken into account. They were joint owners of Lothbury when transferred to their family trust in 2005 at a value of $1.1 million. Stuart says it is financial contributions to the original 2003 purchase of Lothbury which count.  Verena’s then contributions were negligible, he says. The trust deed contains an arbitration clause.  It states any dispute about the trust deed must be referred to an arbitrator ‘to avoid family disagreements and any consequential family ill will.’ Negotiations over a possible arbitration have come to nothing.  Stuart claims they have yet to sort out what is in dispute.  He protested Verena’s going to court.

Associate judge Smith ruled the dispute was between the two as beneficiaries.  An arbitration clause in a family trust did not bind them as beneficiaries.  Verena’s application for a court hearing on trust deed interpretation could proceed at a date to be fixed, he ruled.

Ryan v. Lobb – High Court (20.11.20)

20.184

 

Post-judgment note: In February 2021, the Trusts Act 2019 comes into effect.  It provides a mechanism for arbitration of trust disputes.  For family trusts with multiple discretionary beneficiaries, the courts must approve arbitration settlements affecting rights of minors and children yet to be born.

Asset Forfeiture: James v. Commissioner of Police

Hiding criminal profits in a family trust did not prevent forfeiture.  Trust assets were confiscated as proceeds of crime because trustee and convicted drug dealer Brett Wallace James had absolute control and treated trust property as his own.  Used as his home, the trust property at Sunset Road on Unsworth Heights in Auckland was purchased with cash generated by drug dealing, the High Court ruled.

In 2018, James was sentenced to three years seven months’ imprisonment on conviction for drugs and firearm offences.  He came under suspicion when police investigated chemicals leaking from a storage unit.  Precursor chemicals for methamphetamine manufacture were found, along with $400,000 cash.  Subsequent searches of Sunset Road and another storage unit uncovered equipment for methamphetamine production.

Police applied for a profit forfeiture order totalling $776,900 under the Criminal Proceeds (Recovery) Act.  Sunset Road was ordered sold.  It was ‘tainted’ property, Justice Gordon ruled.  Cash generated from methamphetamine manufacture was used to pay interest on a Sunset Road mortgage and to complete renovations.  The court was told Sunset Road had a market value of some $600,000 as at July 2019, with equity of $387,000 after allowance for balance owed on the mortgage.

Trustees of a family trust were registered owners of Sunset Road: James together with corporate trustee GDP Trustee Ltd.  James had unfettered control of Sunset Road, Justice Gordon ruled.  The trust deed named James as settlor, trustee and beneficiary with power to alter or amend the trust deed at any time.  

The $400,000 cash was ordered confiscated.  James said the money was not his; it was cash advanced from Hong Kong-based Wilson Chee for a planned joint property project.  At James’ criminal trial, Mr Chee gave evidence by visual link from Hong Kong stating the cash was gambling winnings. Mr Chee in fact made substantial losses when gambling according to evidence extracted from Sky City casino records.  An IOU purporting to record a loan of $400,000 from Mr Chee to James was dismissed by Justice Gordon as a fabrication.

Commissioner of Police v. James – High Court (20.11.20)

20.183

Relationship Property: Young v. Young

A relationship property claim to a $700,000 home in Auckland suburb Avondale failed because her former spouse was not absolute owner of his recorded half share, he held title in trust for his mother.

Jina Kim claimed a share of the Mead Street property after her five year marriage to Shane Young came to an end.  Shane was recorded on the title as part-owner together with his elderly mother.

The High Court was told Mead Street was purchased in 1993.  Shane’s mother and now deceased father struggled to get mortgage finance.  Both were beneficiaries.  ASB Bank lending criteria at the time required at least one of the registered owners to have a job, working at least forty hours per week. Shane then lived away from home, working fulltime in Northland.  At his parents’ request, Shane agreed to join them on the title, effectively guaranteeing their mortgage repayments.  Shane did not make any mortgage payments.

After his father’s death, Shane returned home, living rent-free at Mead Street, making occasional contributions towards household outgoings.  One consequence of his father’s death was that Shane’s registered legal ownership of the house increased from one-third share to one half.  

Jina Kim told the High Court she was always left with the impression that Shane was part-owner of the house.  They lived there after marrying.  They didn’t pay rent.  She put some of the $13,000 wedding gift provided by her Korean parents towards house renovations.

Justice Gordon ruled Shane’s ownership interest was held in trust for his mother.  Mead Street was not relationship property.  The intention in 1993 when Shane’s name was put on the title was that he held title on behalf of his parents.  He was a trustee.  A Property Law Act order was made having his mother alone registered as owner of Mead Street.  Her mortgage was paid off in 1999, just after the death of her husband.

Young v. Young – High Court (19.11.20)

20.180

Reckless Trading: Watts & Hughes v. Biala

Angry that it was the only outside creditor not paid in full, construction company Watts & Hughes took over from liquidator of Christchurch company La Di Da Ltd the right to sue director Vijay Biala for reckless trading.  The High Court found Mr Biala had not traded recklessly.

It is very unusual for unpaid creditors of an insolvent company to take an assignment of liquidators’ rights to sue directors. This right to sue is usually exercised by liquidators alone, acting on behalf of all unpaid company creditors; a right liquidators seldom choose to exercise for economic reasons.  Costs of litigation are high, often for little return.

The High Court was told Watts & Hughes tendered for the 2014 fit out of Mr Biala’s new restaurant in Victoria Street, Christchurch.  Contract price was $124,000, plus GST.  Scheduled completion date was September 2014.  The company funded construction by borrowing.  Completion ran over two months late.  There were disputes over reasons for the delay and whether certain contract variations had been approved.  In December, Watts & Hughes claimed $48,000 was outstanding. It pushed La Di Da into liquidation for non-payment.  Insolvency Service was appointed liquidator.

Insolvency Service’s investigation raised suspicions that company assets sold by La Di Da just days before liquidation were sold at below market price.  Watts & Hughes complained it was hung out to dry, left unpaid at a time when Mr Biala had ensured La Di Da’s trade creditors were paid in full.

Watts & Hughes sued Mr Biala personally as director of La Di Da alleging he had mismanaged the company, trading recklessly. Company law holds directors personally liable for reckless trading.

Justice Cull ruled Mr Biala had not mismanaged his company.  La Di da was a new venture.  Finance for the fit-out was arranged in advance from both restaurant trade financiers and family sources.  There was a reasonable expectation business would trade profitably if the fit-out were completed on time and on budget.  Late completion meant the business missed increased sales expected from visitors to Christchurch for ‘Cup Week.’  Cost overruns and disputed variations added financial pressure.

Watts & Hughes Construction Ltd v. Biala – High Court (17.11.20)

20.179

Class Actions: Southern Response v. Ross

With legislation clarifying class actions making little progress since 2008, Supreme Court stepped in allowing flexible use of High Court procedural rules to expedite legal action by over two thousand Christchurch AMI policyholders who allege mismanagement of their earthquake insurance claims.  An ‘opt-out’ class action procedure is best, the Supreme Court ruled.  Insurers and litigation funders argued for an ‘opt-in’ procedure.

Class actions overcome a David and Goliath problem.  Large corporates hold an economic advantage when challenged by a customer.  They have the legal muscle and the financial resources to stonewall threatened litigation, tying up one individual in petty legal time-wasting until the litigant runs out of ready cash and gives up.  Where there are multiple similar complaints against a large corporate, each affected customer has to reinvent the wheel, at personal expense, to pursue a legal remedy. Most aggrieved customers do not bother; the potential return is outweighed by the cost in time and money. Australia, Canada and the US devised rules allowing similarly affected consumers to band together, taking legal action in one combined class action.  Insurers are no fan of class actions.  Large corporates insure against litigation risk, leaving insurers to fight their battles in court.  In New Zealand, insurers have been working hard to stall development of class actions in this country.  The first major class action in New Zealand was filed by aggrieved investors following Feltex’s 2006 collapse.  Millions have been spent to date on legal fees.  This class action remains unresolved.  

Litigation funders get involved. They co-ordinate and control class actions; signing up affected consumers and charging a sizeable proportion of the final payout as their fee.  Litigation funders compete to get work.  It becomes a ‘beauty parade’ as rival funders tout their litigation skill and expertise when seeking to sign up customers.  Since CBL Corporation went into liquidation in 2018, two class actions have been filed in court, each funded by a different litigation funder.

 

Several thousand Christchurch AMI policyholders allege Southern Response mismanaged their earthquake claims.  Taxpayer-funded Southern Response is meeting the insurance obligations of insolvent insurer, AMI Insurance.  The High Court agreed these multiple AMI claims be consolidated into one class action.  Legal argument followed on whether the class action should be ‘opt-in’ or ‘opt-out.’  Opt-in means only those who specifically sign up at the outset of the class action benefit from the legal outcome.  Anyone else with a similar legal complaint is excluded and has to mount their own separate legal action, at their own cost.  In contrast, opt-out means in court documents the class of litigants is described generally and anyone fitting this description is included; individuals ‘opt-in’ at a later stage, signing up in order to get a share of the pie.

Litigation funders do not like opt-out schemes. Opt-out increases administrative costs, with identification of and advertising for those entitled to benefit cutting into funder returns.  And there is the problem of free riders; litigants who appear out of the woodwork, opting-in at the last minute claiming a share of the payout without having contributed any funding along the way.  Opt-out also complicates out-of-court settlements.  Negotiation of a global settlement sum is clouded by the possibility of free riders arriving late, reducing the individual payout to existing members of the class.

 

In providing a general framework for class actions, the Supreme Court ruled: opt-in class actions are best suited where the potential class is small; opt-out for larger numbers, particularly where the cost of individual legal proceedings outweighs the individual’s potential financial return. In the absence of government legislation governing class actions, courts will have to work through legal issues in specific cases as they arise, the Supreme Court said.

AMI policyholders’ litigation is to proceed as an opt-out class action, the court ruled.

 

Southern Response Earthquake Services Ltd v. Ross – Supreme Court (17.11.20)

20.178

Shotcrete: Tira v. McLay

Construction company Shotcrete (Auckland) is in liquidation with police assistance sought to recover company equipment forcibly removed to Black Power premises in Mangere.  High Court evidence revealed arguments over debts for supply of methamphetamine.

Shotcrete Auckland Ltd specialises in spraying wet concrete in construction of swimming pools and retaining walls.  The forced relocation of its equipment came to light as part of a dispute between Shotcrete’s 50/50 owners: Duncan McLay and Glenn Tira.  Over the last decade, the two operated a joint venture company: Mr McLay in charge of finances; Mr Tira in charge of operations.

The High Court was told negotiations had been underway since October 2019 for them to go their separate ways.  Mr Tira alleges Mr McLay concocted a fraudulent scheme to push him out and take control of Shotcrete and their related company Watertite. Mr Tira claims he is owed $1.25 million. In June 2020, Mr Tira obtained High Court orders freezing Shotcrete assets and authorising searches of Mr McLay’s home. Following a subsequent High Court hearing, Justice van Bohemen ruled no freezing order should have been made; Mr Tira was less than frank when telling the court Mr McLay had pushed him out of the business and that Mr McLay had refused him access to company equipment. When unilaterally asking the court for a freezing order without Mr McLay’s knowledge, Mr Tira did not disclose their ongoing discussions about a possible sale and Mr Tira did not disclose that he had already forcibly removed Shotcrete equipment from the company yard. Evidence was given that unnamed people accompanying Mr Tira broke into Shotcrete’s premises, ignored the protestations of security guards and smashed their way out the closed yard, taking company equipment to Black Power premises in Mangere.

The High Court was told that former Shotcrete employee Shane Waaka is alleged to have involved Mr Tira in a drug deal, advancing funds to purchase methamphetamine taken south to Christchurch.  There is a dispute over whether this debt has been repaid.

Mr Tira said he is negotiating with Shotcrete’s liquidator to purchase the relocated equipment.

Tira v. McLay – High Court (12.11.20)

20.176

Legal Highs: re Bionutrient Customs Ltd

Christchurch businessman Evan Stewart transferred $3.1 million to Australia over a twelve month period; cash generated from sale of legal highs.  He is challenging attempts to recover this money.

Bionutrient Customs Ltd manufactured legal highs. Government permission for retail sales proved a commercial bonanza.  Mr Stewart’s business model collapsed overnight in May 2014, after an abrupt reversal in government policy.  A related company, Eversons International Ltd, is now in liquidation.  Liquidators allege the $3.1 million sent to Australia by Bionutrient more properly belongs to Eversons and they want it back.  Mr Stewart controlled both companies. Inland Revenue claims Eversons owes $3.7 in unpaid taxes and penalties.

In the High Court, Bionutrient failed to file in time a statement of defence to Eversons’ demand for $3.1 million.  Normally, liquidation follows promptly after a failure to file. Associate judge Paulsen granted Bionutrient an extension for filing.  Defence was filed only a few days late.

Bionutrient says the money remitted to Australia was an investment in Mr Stewart’s father’s Australian health food business. Eversons’ liquidators say there is no evidence of Bionutrient holding an equity stake in any Australian business.

Even if there were no legal basis for sending the money to Australia, the liquidators are too late, Mr Stewart says.  The last payment was sent to Australia in April 2014. Liquidators did not take legal action before April 2020, after which the Limitation Act six year rule blocked any claim. The six year clock was reset in October 2018, the date when Mr Stewart signed a letter acknowledging $3.1 million had been transferred to Australia, the liquidators say.  

The High Court is yet to rule on either the liquidators’ claim or Bionutrient’s claimed defences.

re Bionutrient Customs Ltd – High Court (12.11.20)

20.177

Misrepresentation: Anderson v. de Marco

Convicted fraudster Eugene de Marco was ordered to return a $120,000 deposit paid on a $1.2 million cancelled sale of his Wellington three-level home after misrepresenting weather-tightness issues. 

In December 2017, Norman Hugh Anderson and Rebecca Alice Carrasco signed up to buy Mr de Marco’s property on Fortification Road, Karaka Bays.  Their $1.2 million purchase was unconditional, with a five month delay before settlement.  The High Court was told they subsequently received an anonymous tip-off that Mr de Marco was not to be trusted.  Nearly two years later, a Serious Fraud Office prosecution saw Mr de Marco sentenced to two years five months imprisonment for fraud offences.

After being warned about Mr de Marco’s honesty, Anderson and Carrasco followed up on a weather-tightness report presented as part of the 2017 sale process.  This report described the property built in the early 1990s as being in good condition, meeting current building code requirements and having no apparent weather-tightness issues.  These statements amounted to misrepresentations, Justice Cooke ruled. Since his purchase of the property in 2005, Mr de Marco had undertaken considerable work to deal with water ingress, much of it described as ‘band-aid’ repairs.  An attempt to sell in 2011 failed when the then purchasers cancelled after obtaining an adverse building report.  A building report obtained by Mr de Marco in 2011 also highlighted significant weather-tightness issues.  Anderson and Carrasco cancelled their 2017 purchase after learning about the 2011 report.

Mr de Marco refused to repay the purchasers’ $120,000 deposit.  They chose to sign an unconditional contract without any due diligence and were advised before signing to get their own building report, he said.  It does not stand well for a person accused of misrepresentation to blame the other person for believing the misrepresentation, Justice Cooke said.

Evidence was given that Mr de Marco, by now in prison, subsequently sold Fortification Road in a private sale for $1.1 million with the sale agreement allowing Mr de Marco’s partner to continue living at the property paying a below market rental.

Anderson v. de Marco – High Court (11.11.20)

20.175

Corrections: Corrections v. Decmil Construction

Corrections problematic ‘rapid deployment’ of modular prison cells agreed with Decmil Construction in 2017 winds its way through the courts.  Decmil is in liquidation insolvent claiming Corrections owes $64 million.  In turn, Corrections demands $69 million it claims are costs to complete the contract. 

Touted as a practical solution to a then rapidly rising prison muster, the modular units were to be fabricated in China for installation at low security prisons around New Zealand.  A $196 million contract was awarded to a New Zealand subsidiary of ASX-listed Decmil Group.  The project was a financial disaster.  Decmil walked off the job in February 2020, pointing the finger at Corrections.  In turn, Corrections blamed Decmil alleging failures to meet contract progress targets.

Two months later, Decmil Group put its New Zealand subsidiary into liquidation appointing Perth-based insolvency specialist Dermott McVeigh as liquidator.  The liquidator’s most recent report states Decmil has 170 unsecured creditors claiming $130 million.  The liquidator disputes Corrections’ status as a creditor; Decmil is looking to recover damages from Corrections.

Corrections wants to arbitrate their dispute, as required by the 2017 contract.  The liquidator refused; liquidation freezes contractual rights.  In the High Court, Justice Dobson ordered arbitration proceed. Ground rules for the arbitration had been established before Decmil went into liquidation.  Arbitration rather than litigation was viewed as a better method to cut through their complex construction dispute.  Arbitration could result in a clear definition of who owes whom how much, Justice Dobson, indicated.  The High Court was told Correction’s detailed claim against Decmil runs to 47 pages.

Corrections v. Decmil Construction NZ Ltd – High Court (11.11.20)

20.174 

Distributorship: Sky Scrapers v. Zoono

Dubai distributor Sky Scrapers claims $US3.6 damages alleging Auckland company Zoono stopped supplying sanitiser when covid-19 spread, instead supplying product to Sky Scraper’s competitors in breach of a distributorship agreement. 

Based in Auckland, Zoono Ltd’s ultimate owner is ASX listed Zoono Group.  It manufactures commercial sanitising products.  Sky Scrapers General Trading LLC is registered in Dubai.  It told the High Court a ten year exclusive distributorship agreement was signed with Zoono in late 2018, covering United Arab Emirates, Oman and Lebanon.  Sky Scrapers paid $US250,000 as advance payment for product to be delivered later. It took Sky Scrapers more than fifteen months to exhaust this credit.  At the beginning of the covid-19 pandemic, Zoono stopped supplying Sky Scrapers claiming its Dubai distributor had failed to make minimum annual purchases required under the distributorship agreement.  This is disputed by Sky Scraper.  There is confusion over what are the exact terms of their distributorship agreement.  Zoono said it signed, without checking, what it presumed was its standard distributorship agreement at a 2018 signing ceremony in Dubai.

In the High Court, Justice Hinton dismissed Sky Scraper’s application for an injunction forcing Zoono to supply product.  An injunction would be practicably unworkable, she said.  The court is not in a position to police ongoing disputes over the supply of goods. Zoono said it has in excess of seven million dollars cash, available to pay damages if Sky Scraper succeeds at trial.

Sky Scrapers General Trading LLC v. Zoono Ltd – High Court (10.11.20)

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Corporate Criminal Liability: Commerce Commission v. Steel & Tube

Increased penalties for regulatory offences led to a Court of Appeal review of sentencing rules for corporate offenders.  Harshness of fines now hinge less on failures of managerial oversight and more on the direct actions of individual employees getting a business into legal trouble.

A two million dollar Fair Trading Act fine imposed on Steel and Tube Holdings Ltd was reduced on appeal to $1.56 million.  A senior employee testing steel mesh to earthquake standards thought his testing protocols were as good as prescribed testing when they were not. 

Holding a corporate liable for criminal activity faces philosophical problems; a corporate has no physical existence, it is an artificial legal construct.  Courts get around the problem with a crude analogy; a corporate is like a human.  Management are the brain; staff the hands.  Determining penalties for regulatory offences, courts have usually looked at management’s role.  Did management specify clear operating procedures; was implementation of these procedures checked?  Wrong question, the Court of Appeal said.  Look first at the employee’s state of mind when breaking the rules; second, look at the company’s systems and compliance culture.

The Commerce Commission took legal action against Steel and Tube over steel mesh sold between 2012 and 2016 labelled as SE62. The ‘E’ in SE62 signalled the mesh was better able to maintain strength when stretched during earthquakes.  Steel and Tube admitted liability.  The problem lay with a former senior technical staff member, it said.  Unbeknown to management, the staff member utilised his own protocols for strength testing, sending only a few samples for independent testing and then attaching copies of an independent test label to all SE62 mesh sold.

The High Court said management was ‘grossly careless’ for not ensuring its prescribed testing process was audited.  Culpability lay with management; reflected in a two million dollar fine.

Start first with the senior technical staff member’s state of mind, the Court of Appeal said.  He believed the SE62 mesh tested using his protocols did comply with regulatory standards; there was no deliberate or wilful attempt to pass off non-seismic mesh as earthquake grade.  But, the staff member did knowingly misrepresent SE62 as being independently tested where independent certification labels were attached to product not in fact tested independently.

Steel and Tube management could be excused if this was an isolated instance, the Court of Appeal said.  But given the size of Steel and Tube’s operations and the fact mesh mislabelling continued for several years meant the level of fine should reflect management’s failure to properly audit testing procedures.

In reducing the fine, it was not a case where a business knowingly passed off its product as something else or deliberately duped consumers about their rights, the Court of Appeal said.  Steel and Tube’s offending as a corporate was misguided, rather than deliberate.

Commerce Commission v. Steel & Tube Holdings Ltd – Court of Appeal (9.11.20)

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Drug Dealing Profits: Commissioner of Police v. Wisely

Street prices for meth at seventy times the price for same quantity of cannabis were quoted by police getting High Court approval for a forced sale of Kelvin Bruce Wisely’s lifestyle block on Circle Hill Road, Clutha, under the Criminal Proceeds (Recovery) Act following convictions for dealing in both methamphetamine and cannabis.

In 2018, Wisely was sentenced to seven years ten months imprisonment for dealing in methamphetamine and cannabis.  The High Court ordered sale of Circle Hill Road as ‘tainted property’ being the site of a commercial cannabis operation and methamphetamine dealing with $199,800 from sale proceeds to be confiscated as proceeds of crime.

Police estimated the level of Wisely’s dealing from an analysis of cash movements through his bank account together with information from intercepted phone calls.  How long Wisely operated a commercial cannabis operation behind a false wall in his barn was estimated from electricity records; monthly usage jumped four-fold over a fourteen month period.  Gross revenue from dealing was assessed using street prices charged in 2017: cannabis was selling at $400 an ounce; methamphetamine (usually sold by the gram) was selling at a price equivalent to $27,000 per ounce.  Evidence was given that Wisely could sell at $27,000 per ounce methamphetamine supplied to him wholesale at about $10,000 per ounce.

Under the Criminal Proceeds (Recovery) Act, gross revenue from illegal activities can be confiscated; no allowance is made for expenses incurred.  The onus is on those charged to prove gross revenue was less than that calculated by police.

Wisely failed to prove how much methamphetamine was actually supplied to him and the prices at which he sold, Justice Nation said. Wisely’s explanation for cash receipts were dishonest and a fabrication, he said.  Wisely’s claim to be a novice cannabis grower unable to produce a good commercial crop was dismissed.  He has prior convictions for cultivation and supply.

Evidence was given that Wisely was contacted by a Hamilton meth supplier in January 2017 whilst working as a digger operator at Waitahuna Goldmine and asked if wanted to ‘sell some stuff with an enticing profit margin.’  It was then arranged he would get two to three ounces of meth ‘on tick’ and have three weeks to pay.

Commissioner of Police v. Wisely – High Court (6.11.20)

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