Family Trust: Hingston v. Hingston

Short of cash and under pressure to sell his home in order to pay some $306,000 to his second wife following separation, Keith Hingston turned to son David for financial assistance.  Over a decade later, the High Court ruled David both exercised undue influence over his father in the benefits he extracted and then did not honour terms of their agreement.

A story of pressured bargaining, father and son subsequently falling out and then bizarre behaviour by the son filming his father’s every activity were told to the High Court.

Keith Hingston had worked for the local power board. He designed and built his retirement home in Welcome Bay, Tauranga.  When in his early seventies, his second marriage came to an end.  Keith was desperate to stay in his Welcome Bay home and spoke to son David about ways to get cash needed to pay out his second wife.  David is the child of his first marriage.  He is a doctor.  Justice Gwyn described David as being more financially sophisticated than his father.

Initial discussions centred on Welcome Bay being sold to a family trust set up by David with David his partner and child as beneficiaries, freeing up cash.  The trust in turn would grant Keith the right to occupy Welcome Bay for life.  The deal saw Keith not only selling Welcome Bay to David’s family trust but also transferring his boat, trailer, car and all household chattels to the trust and in addition assigning pension payments from his power board superannuation across to the trust. Keith remained responsible for rates, insurance, power and phone.  Justice Gwyn ruled the contract evidenced undue influence over Keith by his son. Welcome Bay was undervalued at the price nominated for transfer to the trust.  The financial benefit from the Welcome Bay undervaluation and the extra value obtained from including chattels and pension rights meant Keith overpaid for the actuarial value of occupation rights given in return.  Son David exploited a relationship of trust and confidence between himself and his father, Justice Gwyn ruled.

After his second marriage ended, Keith reconciled with David’s mother Gwen.  A further agreement was signed by David’s family trust also giving Gwen rights to occupy Welcome Bay.  Three years later, Gwen left Welcome Bay and a woman named Petra came to live with Keith. David took exception.  Evidence was given of David on one occasion hiding in a cupboard at Welcome Bay, leaping out and surprising them when they returned home.  He remained in the house, uninvited, filming their daily lives.  He attempted to change the locks.  He issued multiple trespass notices.  Keith eventually left, after being served with an eviction notice. David, as trustee of his family trust, was ruled to be in breach of the ‘occupation for life’ agreement with his father.  Having Petra come and live at Welcome Bay was not a breach of Keith’s occupation agreement. David failed to provide alternative accommodation for his father on eviction, as required by the occupation agreement.

The court was not asked to rule on the level of damages due Keith from his son.

Hingston v. Hingston – High Court (23.12.21)

22.028

Post judgment note: The Court of Appeal subsequently ruled there had been no undue influence.  There was a valid explanation for terms of the financial arrangement between Keith Hingston and his son David.  See post dated 22 November 2022 for details.

Ponzi Fraud: re Strahl

The judicial axe fell to decide allocation of ANZ bank compensation for victims of the Ponzi fraud perpetrated by Wellington-based David Ross.  Different investors had differing interests in litigation which propelled ANZ into settlement talks.  They could not agree on how compensation should be divvied up.

Ross was jailed for his fraud in which clients’ money was stolen and investment returns to earlier investors paid out of money put in by later investors.  When the scheme collapsed in late 2012, then current investors potentially waved goodbye to some $440 million.  Diligent work by Ross Asset Management Ltd liquidators looks to have narrowed losses to about $115 million.  Some 550 of Asset Management’s 700 victims banded together in a class action to sue ANZ Bank alleging the bank was party to the fraud.  Because of the irregular manner in which the Ross Asset Management account was operated, the Bank knew Ross was misappropriating client money, they alleged. ANZ has at all times denied knowledge of Ross’ fraudulent activity.  After failing to get the case thrown out before trial, ANZ quietly settled with investors for an amount all agreed to keep confidential.

When signing up for the ANZ class action, all agreed an investor committee could decide allocation between investors of any compensation recovered and that this allocation was to be put to the court for approval.

Investors were divided into two categories: Class A investors who put new money into Asset Management after the date ANZ was presumed to know Ross was acting fraudulently and Class B investors who had previously put money into Asset Management but had since rolled over or amended their investment instructions.  Legal advice was that Class A investors were a slam dunk to get their money back from ANZ, if it could be proved the bank did have knowledge of Ross’ dishonesty.  Class B investors would likely get some compensation, legal advice confirmed, but it was not clear cut.

The investor committee recommended Class A investors share 75 per cent of the ANZ payout (after deduction of legal fees and the litigation funder’s costs) with Class B investors sharing the remaining 25 per cent.  Class B investors objected.  The investor committee was biased, they said.  The committee was dominated by Class A investors.  The ANZ payout should be distributed equally, split pro rata across all Class A and Class B creditors, they said.

Justice Mallon ruled a 67/33 split was more appropriate.  Class A creditors clearly had a better chance of success if the ANZ case had gone to trial.

One critical issue was the so-called ‘knowledge date;’ the date at which the investor committee assumed ANZ Bank would have had knowledge of Ross’ fraud.  New money put in after that date meant you were a Class A investor; money in one day before that date and you were a Class B investor.  For purposes of allocating compensation, the investment committee assumed 31 May 2010 as the knowledge date.  For reasons supressed in the publically-available High Court judgment, Justice Mallon approved this date as the knowledge date.

The amount to be received by investors was also supressed.

re Strahl – High Court (23.12.21)

22.027

Relationship Property: Wu v. Chiu

Jian Wu used powers of attorney given him by two former classmates as cover to hide funding for two south Auckland properties ruled by the High Court to be relationship property.  He was ordered to hand over half the properties’ value to former spouse Yu-Ju Chiu after their marriage of ten years came to an end.

Funding sources for Mr Wu’s 2015 purchase of two adjoining properties in Flat Bush were disputed after the couple separated.  He said funding came from two former classmates, not relationship resources.

The High Court was told the two classmates signed powers of attorney in favour of Mr Wu in 2008.  There was no dispute that these powers of attorney were valid; they were properly executed in front of an Auckland solicitor.  It was intended Mr Wu would act on their behalf whilst they were in China.  In 2012, the two Flat Bush properties were purchased in their respective names, the paperwork signed by Mr Wu.  Three years later, Mr Wu transferred Flat Bush ownership into his own name in what purported to be a sale from his classmates to himself at a price of $680,000 for each property.  In a brief written agreement signed by Mr Wu on behalf of each classmate, they each supposedly left the full purchase price owing as an unsecured debt, payable on demand. Three months later, Mr Wu sold one of the properties for $750,000.  He used the proceeds to pay down personal debts.  There was no evidence of any classmate receiving repayment of the promised unsecured loan.  

In the High Court, Justice Woolford ruled the purchases were a sham; Mr Wu was the true owner from the outset.  There was no evidence of any overseas funding from his classmates for the initial Flat Bush purchases.  The supposed onward sale by these classmates to Mr Wu was a fiction. Leaving in vendor finance without the protection of mortgage security and the fact Mr Wu kept the full proceeds of his onward sale all indicated Mr Wu was always the true owner.

Funding for the initial Flat Bush purchases in 2015 was from relationship resources and the properties were relationship property, Justice Woolford ruled.  Ms Chiu was entitled to half the $750,000 sale price from the Flat Bush property which had been sold and half the value of the second property still owned by Mr Wu.

There was no clear evidence of the source of funds used in 2015 to first purchase the Flat Bush properties.  Ms Chiu alleged it was undeclared income from his business: Master Architectural Design Ltd.

Wu v. Chiu – High Court (21.12.21)

22.024

Negligence: Routhan v. PGG Wrightson

PGG Wrightson Real Estate was ordered to pay $1.6 million damages after one of their Hokitika sales staff negligently provided inaccurate milk production figures to a farm purchaser going so far as including the error while drafting information in support of their Rabobank loan application.

Phil and Julie Routhan bought a dairy farm on the Kaniere-Kowhitirangi Road in 2010 for $2.8 million from Nelson Cook, owner of Cooks Stud Farms Ltd.  The Routhans had not wanted to show their hand when scouting for a farm.  They had a Mr Daly, one of PGG Wrightson’s sales staff, approach Mr Cook.  Mr Daly was working off a brochure prepared by a rival real estate firm advertising details of the Cook property.  This brochure advertised the Cook property as producing an impressive 103,000 kg of milk solids per season from 260 cows off 105 hectares.  Market prices for farms are governed by raw milk prices multiplied by expected milk production for a particular farm.  The Kowhitirangi purchase looked attractive on the advertised production figures.  The Routhans were also looking to buy a neighbouring farm with plans to merge the two. This vendor backed out at the last minute and the second purchase did not go ahead.

After taking over the Kowhitirangi farm, the Routhans found annual milk production was almost twenty per cent below what was advertised.

The High Court was told the Routhans had asked Mr Daly to verify advertised milk production figures before the purchase. Justice Dunningham ruled that Mr Cook never in fact confirmed to Mr Daly that prior production levels of 103,000 kg per season were being maintained in subsequent seasons.  Mr Daly misunderstood comments made.  Mr Daly did not follow up when he subsequently could not reconcile the number of Westland Dairy shares held by Mr Cook with advertised levels of production.  This anomaly indicated Kowhitirangi production levels had fallen.  The Routhans went ahead with their purchase unaware that advertised production levels were not being achieved in recent milking seasons.

Evidence was given that previous high levels of production had been achieved only because of high grass growth; very high levels of fertiliser had been applied and much of the stock had been wintered off site at a run-off.

Lower production levels than expected meant farming was unprofitable, given the level of borrowings taken up by the Routhans to complete their purchase.  Adding to the Routhans’ financial difficulties, milk prices had fallen causing farm prices to fall.  Rabobank told the Routhans they had to sell; the bank wanted its money back.  The Routhans sued PGG Wrightson to recover their losses.

Wrightson was ordered to pay damages of $2.1 million reduced by twenty per cent to $1.6 million.  Money the Routhans spent on capital improvements at a time when the farm was struggling financially could not be recovered.

Wrightson alleged the Routhans losses were all due to their lack of farming experience.  Justice Dunningham said expert evidence showed the Routhans were achieving production levels matching industry levels for the district.

Routhan v. PGG Wrightson Real Estate – High Court (21.12.21)

22.025

Fraud: Luo v. Shiu

Robert Luo and Anny Yip needed High Court assistance to extricate themselves from a Pokeno land development alleging Annie Shiu had dishonestly locked them into a long-term project with false promises they would share in profits.  Ms Shiu was ordered to pay them $2.6 million; this in addition to $2.5 million Annie had already paid Robert Luo in the middle of the High Court hearing. 

Over Christmas dinner in December 2016, Annie Shiu, also known as Annie Chen, discussed with Mr Luo the possibility of him joining her in subdividing land at Pokeno just south of Auckland City boundary.  He was a recent immigrant to New Zealand. Together with other investors, he agreed to help fund purchase of properties in separate titles on Helenslee Road.  Subsequently, Ms Shiu approached Ms Yip about further purchases in the area and Ms Yip agreed to fund the purchase of more land on Helenslee Road.  At this point, neither Mr Luo nor Ms Yip knew of the other’s existence.  Both claimed the deal each was offered involved a profit share in Ms Shiu’s intended residential property development.  Consolidation of land titles in Pokeno west would enable development of 1600 residential sections.

The High Court was told Ms Shiu denied there was any joint venture partnership.  The investors were only providing long-term debt finance with any joint venture agreement extending only as far as getting the land rezoned residential, she said.

Justice Whata ruled Ms Shiu was in breach of the Fair Trading Act.  She extracted from both Mr Luo and Mr Yip several hundred thousand dollars for what she described as brokerage fees or commissions payable to a broker for setting up the respective deals.  This was dishonest.  No fees were payable.  In 2021, Ms Shiu was convicted on two charges of obtaining by deception.   

Ms Shiu also falsely represented to both Mr Luo and Ms Yip that they would share in development profits when there was no intention to involve them as profit-sharing partners, Justice Whata said.

Annie Shiu was ordered to repay $1.04 million to Mr Luo (a balance of $632,800 lent for the project plus interest of $407,200) and $1.6 million to Ms Yip’s investment company (being $1.5 million provided for land purchased and $131,000 in interest).

Luo v. Shiu – High Court (21.12.21)

22.026

Employee/Contractor: Labour Inspector v. Southern Taxis

Owners of a Dunedin taxi company face personal liability for $80,000 due four drivers held to be employees, not independent contractors.  A test case before the Court of Appeal ruled business owners are personally liable where they knew factually that a supposed contractor could be viewed as an employee even if the owners did not know the precise legal rules defining what is an employment relationship.

Southern Taxis Ltd stopped trading in 2016, short of funds needed to pay an Employment Relations Tribunal order it pay $80,000 to four drivers for unpaid holiday pay and to make good wages less than the minimum wage.  The Tribunal ruled these drivers were employees, not independent contractors.  Southern Taxi owners Ronald and Maureen Grant said the drivers were hired as independent contractors. The four drivers had worked on commission: forty per cent of fares.

It is administratively tidier for businesses to hire in contractors rather than take on staff; minimum wage rules, holiday pay, sick leave and rest break requirements are not obligations of any business that hires contractors.

If a business does not pay employee entitlements, labour law holds owners personally liable to make good payments if they were ‘knowingly concerned in’ breaches of employment legislation.  The Grants said they genuinely believed the working relationship between the company and its drivers meant the drivers were independent contractors, not employees.  The drivers thought they were employees.  Drivers worked to a roster fixed by Southern Taxis.  They were not registered for GST.  Southern owned the vehicles and met all running costs.  Drivers could not sub-contract their rostered work to anyone else.

The Court of Appeal was asked to rule in what circumstances would a business owner be ‘knowingly concerned’ in any breach, and hence personally liable.  Knowledge of the essential facts is sufficient, the Court ruled.  It is immaterial whether the owner had any knowledge of the relevant law as it applies to these primary facts.

The case was referred back to the Employment Court to determine whether the Grants personally did have knowledge of the ‘essential facts’ causing their drivers to be viewed as employees.

Labour Inspector v. Southern Taxis Ltd & Grant – Court of Appeal (20.12.21)

22.023

Liquidation Fees: Toon v. Quinn

Auckland insolvency specialist Victoria Toon walked unwittingly into a family scrap when she took on the job of winding down a solvent property investment company.  Shareholders related by both blood and marriage had been at each other’s throats for nearly twenty years.  Majority shareholder, former chartered accountant Clive Quinn, soon turned his attention to Ms Toon, unsuccessfully challenging fees and expenses she charged for the company’s liquidation.  

Investacorp Holdings Ltd owned a commercial building in Auckland’s central business district and half share in commercial premises at Papatoetoe.  Interests associated with Mr Quinn held a controlling 50.2 per cent stake in Investacorp; the minority holding being family interests of fellow investor Bruce Thompson. Mr Quinn is married to Mr Thompson’s sister.  Mr Quinn occupied Investacorp’s Papatoetoe building, paying rent.  Investacorp paid fees to Mr Quinn’s accounting practice for tax and management services provided.

The High Court was told of a history of bad blood between Mr Thompson and Mr Quinn.  Mr Thompson alleged Mr Quinn was milking money out of Investacorp, charging excessive fees for his professional services.  A 2011 court case saw Quinn interests ordered to pay Investacorp $291,300 compensation following arguments that Mr Quinn was paying below market rentals for use of the Papatoetoe office.  Mr Thompson complained to the New Zealand Institute of Chartered Accountants about Mr Quinn’s conflict of interest in charging professional fees to Investacorp whilst also being a director and shareholder.  The Institute censured Mr Quinn and he agreed to stop.  Evidence was given that Mr Quinn then handed on the work to a chartered accounting firm run by relatives; his daughter and son-in-law. He then took steps to augment his remuneration from Investacorp by increasing directors’ remuneration. Quinn interests used their voting majority to fire Mr Thompson as a director in 2015.

In the face of legal action taken by Mr Thompson to force liquidation of Investacorp, the two sides signed a settlement document agreeing to wind up their company with Ms Toon appointed liquidator.  Mr Thompson was of the view that the settlement agreement required Ms Toon as liquidator to investigate the level of fees received by Mr and Mrs Quinn.  By contrast, the Quinns were of the view that their settlement agreement precluded any enquiry; a quick cashing-up of company assets and distribution to shareholders was all that was required.  Mr Thompson soon alerted Ms Toon as to his view of the deal.

With $3.6 million banked from realisation of company assets, final distribution was delayed as Ms Toon faced down Mr Quinn’s blank refusal to hand over company records.  Finally forced to hand them over and learning that Ms Toon had decided it was uneconomic to challenge any excessive fees allegedly taken, he sued Ms Toon complaining that she had charged too much in liquidation fees for what should have been a quick liquidation.  She should have ignored Mr Thompson’s allegations, he said.  Mr Quinn challenged steps she had taken and the level of legal fees incurred.

The Court of Appeal ruled it was proper for Ms Toon as liquidator to take an independent line, following up on Mr Thompson’s allegations.  Investacorp was not a party to the settlement agreement between shareholders.  The Court approved her fees of some $101,700 for work as liquidator spread across four years.

Toon v. Quinn – Court of Appeal (17.12.21)

22.022 

Family Trust: Kain v. Public Trust

Anger within the Hawkes Bay Couper-Kain dynasty has not subsided with ongoing litigation claiming the late Tom Kain got more than his fair share of family money to fund his problematic Canterbury Applefields projects and that some Kain descendants should take a cut in the final winding up of Hawkes Bay family trusts.

For over two decades, branches of the Couper & Kain families have been disputing family trust financial benefits provided Tom Kain for his Canterbury adventures.  In 1994, Tom and brother Charles had trustees agree the trusts would guarantee a one million dollar Westpac advance, funding for their Applefields orchard development on Christchurch outskirts.  It was meant to be a short-term loan, refinanced after one year with the guarantee then lapsing.  The Westpac loan was not refinanced on due date and Applefields itself went on to keep lawyers very busy: an investigation into Applefields’ financial reporting by the then Securities Commission; legal disputes with the then Apple & Pear Marketing Board and later involvement in unprofitable land development.  Tom Kain died in 2013.

Back in Hawkes Bay, a web of family trusts had been established from 1951 by Ernest and Helen Couper to hold their farming interests. Further family farming trusts were established by their children Janet Kain and Tom Couper.  Tom Kain is Janet’s son.  These trusts typically gave to trustees complete discretion over distribution of capital and income; what lawyers call massively discretionary trusts. Differing trusts have different family members and their descendants as nominated beneficiaries.  With consolidated farming interests spread across multiple trusts, farm accounts contain a mass of inter-trust loans.  It is proving a nightmare to unwind.

As part of the unwind, Janet Kain’s children argue brothers Tom and Charles have already received an outsized share of family trust money and this should be taken into account in the final distribution.  Back in 1997, Tom and Charles signed a document acknowledging the benefits received and agreed that this should be taken into account: the so-called ‘equality agreement.’  Implementation of this agreement has seen everyone back in court multiple times seeking court rulings.  Family feelings ran so high that the High Court appointed the Public Trust as a neutral trustee in 2004, removing family members as trustees.

The Public Trust asked the Court of Appeal for directions on how trust assets from two family trusts established by Tom Couper should be distributed.  The two trusts have some beneficiaries in common, but some are beneficiaries of one trust only.  One trust has an estimated value of some ten million dollars, the other about three million. 

Arguments over distribution of trust assets have been ongoing since 2004.  Some family members want the strict legal provisions contained in each family trust ignored, with all assets and liabilities chucked into one bucket and the net balance distributed equally.  The Applefields contributions should count as a prior distribution to Tom and Charles, they say.

The Court of Appeal ruled the Public Trust must comply with terms of each individual trust.  Since the two trusts are discretionary trusts, the Public Trust can make unequal distributions from a particular trust so as to achieve a measure of global equality, but it is entirely within the discretion of the Public Trust as trustee to make these decisions, the court ruled.  The 1997 ‘equality agreement’ signed by some family members is not binding on the Public Trust as trustee, it said.

Kain v. Public Trust – Court of Appeal (16.12.21)

22.021

Construction: Rangitahi Ltd v. Pemberton Civil

Making a construction contract progress payment claim after issuing a final completion certificate arguably takes the progress payment outside the Construction Contracts Act ‘pay now, argue later’ regime, the High Court ruled.

Rangitahi Ltd is developing a 550 section subdivision at Raglan.  It disputes a $973,000 invoice submitted by Hamilton civil engineers: Pemberton Civil Ltd.

The High Court was told Pemberton issued a final completion certificate for its subdivision work in June 2021.  Three days later, it sent Rangitahi a progress payment claim totalling some $973,000.  There had been a history of arguments between Rangitahi and Pemberton over previous progress payment claims; some items had not been approved, others approved and later rejected, others rejected and then later approved.  The Construction Contracts Act rules provide that failure to promptly challenge a progress payment claim means it must be paid; the ‘pay now, argue later’ regime.  Rangitahi did not pay and did not challenge the $973,000 claim issued three days after Pemberton’s signing off on final completion.  Rangitahi later said terms of the contract made it clear payment claims made after signing off could only be final ‘wash-up’ claims which can be disputed without having to first pay.  Rangitahi challenged Pemberton’s attempts to wind up the company for non-payment of the $973,000 debt.

Pemberton did give formal notice to Rangitahi of its final wash-up claim one month after issuing its final completion certificate. This final claim explicitly stated that the amount did not include the previous $973,000 progress payment claim which it said was separate and remained outstanding.

Associate judge Andrew put on hold Pemberton’s attempt to wind up Rangitahi for non-payment.  Further legal argument is required about terms of their construction contract.  Rangitahi says any payment claims after the June 2021 completion certificate can only be final wash-up claims.

Rangitahi Ltd v. Pemberton Civil (Hamilton) Ltd – High Court (16.12.21)

22.020

Earthquake Prone Building: Wellington City v. Lakhi Maa Ltd

Local authorities can force strengthening of ‘earthquake-prone’ buildings with the cost falling entirely on building owners.  Wellington property owners tested application of the new rules.

Prompted by Christchurch earthquakes in 2010 and 2011, Building Act rules were imposed requiring identification and remediation of earthquake-prone buildings.  Existing buildings are measured against the seismic standard required for a new building. Existing buildings having a seismic rating less than 34% of a new build are regarded as earthquake-prone. Strengthening is mandatory.  How soon the work has to be done depends on the seismic risk for the area in which the building is located: 35 years for areas of low seismic risk; seven years for priority buildings in a high seismic area.

Wellington is a high seismic area.  Building owners are testing how the new rules apply. Owners of properties in Wellington central suburbs Mt Cook and Te Aro challenged Council plans to force mandatory strengthening of their two heritage-listed buildings.  The Building Act allows councils, with court approval, to carry out required strengthening if owners do not act and to charge the entire cost back to the property owner.  The High Court was told the two Wellington owners did not comply with Council orders to strengthen.  They instead demanded Council specify the work it intendeds to undertake.  That would enable the owners to identify what was the least amount of work needed to satisfy council requisitions and also enable them to carry out a cost-benefit analysis; it might be cheaper to demolish and rebuild.       

Justice Ellis said the Act does not require councils to give a prior assessment of costs.  In practice it would be unworkable, she said.  Councils have no right to access private property and carry out preliminary assessments.  Earthquake strengthening rules are intended to protect the public.  Public safety takes priority over both private property rights and economic considerations, Justice Ellis said.  There are currently over five hundred Wellington buildings on the national Earthquake-Prone Buildings Register.

Concerns that councils might undertake ‘Rolls Royce’ standard strengthening at owners’ expense are lessened by Supreme Court suggestions that strengthening to the required 34% rating would suffice, Justice Ellis said.

Wellington City v. Lakhi Maa Ltd & Scoter Ventures Ltd – High Court (14.12.21)

22.019

Moola: Commerce Commission v. Moola

Christchurch-based consumer credit provider Moola surrendered to Commerce Commission complaints that a deal it stitched up with competitors to limit online Google advertising was anti-competitive, reducing consumer choice.  Moola consented to a High Court order that its conduct was in breach of the Commerce Act.  No fine was ordered.

In a vigorous legal campaign starting in 2015, Moola targeted rival credit providers bidding for ad space on Google, alleging they were infringing its registered trademark by adding Moola to their keyword search function.

Google runs a second-price auction for spot bids on its ad rankings.  Google Ads posts paid advertisements at the top of user’s searches.  Advertisers place their maximum bid on specific words or phrases acting as keywords to gain ranking exposure when a consumer enters that search term in an online search.  Relevant ads are ranked on the consumer’s search page according to the amount of the advertiser’s bid price.  When a consumer does click on the ad, the advertiser pays Google the ‘price per click’ offered by the second ranking advertiser, not the price per click that advertiser in fact bid for the ranking.  Within the Google-sphere, competitive advertising sees competitors bidding on their rivals’ brand names as key words.  This will ensure their own ad appears when any consumer searches using the rival’s brand name.

The High Court was told Moola’s aggressive strategy saw competitors threatened with legal action when bidding on ‘Moola’ as a keyword.  Moola alleged this was not only a breach of its registered trademark but also amounted to the tort of passing off and was in breach of the Fair Trading Act.  In all cases but one, the competitor folded and an informal agreement was struck agreeing that neither would use the other’s brand name as a Google Ads keyword.  The one competitor that held out also folded when Moola sued in the High Court.

The Commerce Commission claimed these informal agreements amounted to cartel behaviour, reducing competition between suppliers of consumer credit.  Promises not to bid reduced advertising costs; everyone had agreed not to bid on their rival’s brand as a keyword.  This was a breach of the Commerce Act; controlling the price paid for Google Ads services.  An agreement not to advertise reduced consumers’ access to information; potential customers of Moola would be less likely to receive Google Ads advertisements from rival providers.  This lessened consumers ability to compare prices.

After the Commerce Commission challenge, Moola wrote to its competitors stating that their prior agreement over advertising would not be enforced and Moola then consented to a High Court ruling that its commercial behaviour was in breach of the Commerce Act.

Commerce Commission v. Moola.co.nz Ltd – High Court (13.12.21)

22.018

Franchise: DEVGNZ Ltd v. The Depths LP

Facing termination of his Richmond Hell Pizza franchise near Nelson, Seerat Singh went on the attack alleging Hell Pizza head office had manipulated delivery data that he was accused of fraudulently altering.  It was all part of a head office campaign of bullying and intimidation designed to drive him out, Mr Singh complained.

The High Court allowed immediate termination of Mr Singh’s Richmond franchise.

Through their company DEVGNZ Ltd, Seerat Singh and Ajit Kaur paid $330,000 in 2019 for rights to the Richmond Hell Pizza franchise. Their franchise rights were renewed eighteen months later for a further five years after paying a $20,000 renewal fee. One year into the renewal and they were at logger-heads with head office over operation of their franchise. Mediation came to nothing. Primary issues were the level of customer complaints and marketing rebates payable for prompt pizza order deliveries.  Hell Pizza franchise operators receive financial rebates as long as a specified level of home deliveries is achieved on time.

Hell Pizza head office suspected its Richmond franchise was falsifying customer order requests to set a delivery time later than the delivery time set by a customer, ensuring franchise records showed deliveries on time when in fact they were later than customers specified.    

The High Court was told there can be legitimate reasons for altering expected delivery times; customers may ring after ordering, requesting a later delivery.  A head office audit of the Richmond’s store data for a six month period through 2021 identified delivery times for 335 orders were manually altered at point-of-service by someone using Seerat Singh’s user ID.  This rate of modification was seventeen times higher than the average for all Hell Pizza stores.

Mr Singh said head office also had access to his point-of-sale data.  He alleged head office had made the changes; part of a plan to unlawfully terminate his franchise, he alleged.  He also alleged head office had orchestrated a campaign of harassment with one instance of an individual attending at the store who hurled abuse and intimidated staff while claiming to know people at head office.  Mr Singh refused to supply head office with shop CCTV footage which would have captured images of the incident.  The footage had been erased, Mr Singh said.

Requests from head office for an explanation as to why quoted delivery times for so many orders did not match customer orders were met by Mr Singh’s allegation that it was head office who had changed the figures.

Justice Isac declined Mr Singh’s application for an injunction to block termination of his Richmond franchise.  A franchise relationship requires trust and confidence between all parties, he said.  If Mr Singh’s allegations are true, it is expected he would instead want the business relationship to come to an end and damages paid, Justice Isac said.  It is open for Mr Singh to sue for damages.

DEVGNZ Ltd v. The Depths LP – High Court (10.12.21)

22.017

Lease: Go Lounge Ltd v. OECL Ltd

Ryan Laird, owner of Go Vino restaurant and bar at Cooks Beach near Whitianga, took to the High Court to block a rival business owned by Hamilton-based Louise Stainthorpe seeking to boot him out and take over the site.

Since 2007, Go Vino has leased the ground floor of its Cooks Beach site through Mr Ryan’s company Go Lounge Ltd, with owner Ryan Laird living above in residential accommodation on a separate lease.  The restaurant lease currently has rights of renewal running through to 2030.  The High Court was told the landlord sold the premises by auction in July 2021.  New owner, OECL Ltd, has Hamilton entrepreneur Louise Stainthorpe as sole director and joint shareholder.  OECL took ownership subject to Go Lounge’s existing lease.  Soon after buying, OECL gave notice that there would be no lease renewal in August 2021 and Go Vino had to be out by Christmas.

In the High Court, Justice Lang ordered a halt two weeks before Christmas, giving Go Lounge time to challenge OECL’s refusal to grant a further three year renewal.  Go Lounge was up to date on rent.  Its request that OECL go to arbitration as required by the lease was ignored by OECL. The Property Law Act gives lessees only three months to challenge notice by a lessor to end a commercial lease. OECL’s claim that Go Lounge was outside the three month time limit was dismissed by Justice Lang.  OECL’s email to Go Lounge refusing a renewal did not provide all information required by the Act and did not qualify as notice of refusal to renew.

OECL was ordered to pay an increased contribution to Go Lounge’s legal costs.  OECL had no justification for playing hardball, forcing Go Lounge to get a High Court injunction, Justice Lang ruled.

Go Lounge Ltd v. OECL Ltd – High Court (9.12.21)

22.016

Partnership: Mahasivam v. Thuraisingham

Kumar Thuraisingham was a tenant in one of Shyama Mahasivam’s investment properties.  He thought he was borrowing from his landlord to bridge the gap before bank finance became available for a property development; she claims to be a partner in the project and produced in court a signed document supposedly supporting her version of events.

Associate judge Gardiner ruled Mr Thuraisingham had a credible argument that there was never any partnership.  A full court hearing was needed to establish exact terms of their agreement.

The High Court was told Mr Thuraisingham had plans in 2019 to develop two adjoining properties at McKinstry Avenue in Mangere East, Auckland.  He needed bridging finance; a bank loan was not available until he took title to the properties.  He said his landlord agreed to stump up $830,000 bridging finance with the promise of a fixed return of $55,000.  She paid across the $830,000 in stages through April-September 2019, only after she had Mr Thuraisingham first sign a document which she said recorded their agreement.  Mr Thuraisingham never read the document before signing.  He told the court he cannot understand long complex documents and did not think it necessary to get a lawyer involved; he trusted Ms Mahasivam.

Evidence was given that the document signed was a template partnership agreement downloaded from the internet by Ms Mahasivam. She filled in the blanks.  Judge Gardiner said the signed document did not match up with either Mr Thuraisingham’s understanding of their deal or what in fact subsequently transpired.  The document said Ms Mahasivam would put $880,000 into the project; in fact, she put in $830,000.  No partnership bank account was opened or IRD number obtained as required by the agreement. The common partnership rule that partners share profits and losses was changed with Ms Mahasivam amending the template to have them both sharing profits, but Mr Thuraisingham liable for all losses.  Ms Mahasivam’s interest costs on a loan she had taken out to fund the project were paid by Mr Thuraisingham.  Her demand that Mr Thuraisingham repay the $830,000 before the project was finished did not square with terms of the written agreement describing her funding as a partnership capital contribution.

Judge Gardiner said there was no evidence the two ‘carried on business in common’ as required to be in partnership.  It was likely that neither was aware of the legal significance of the document signed, since they both acted without legal advice, she said.

Ms Mahasivam’s claim to be partner in the McKinstry Avenue project was put on hold until further evidence was provided about details of their business relationship.

Mahasivam v. Thuraisingham – High Court (8.12.21)

22.015 

Nuisance: First Gas v. Gibbs

It took a court order for First Gas to gain access to farmland north of New Plymouth for urgent work on its natural gas pipeline.  The Gibbs family at Pariroa blocked access, intimidating contractors and demanding extravagant payments for overseeing work.

First Gas owns the 300 kilometre pipeline delivering natural gas from Taranaki to upper North Island.  North of New Plymouth, the line runs along the coast through geologically unstable land.  A 2018 inspection discovered a buckle in the underground line at Pariroa, on land farmed for generations by the Gibbs family.  With the Gibbs’ agreement, an above ground diversion was put in place as a temporary fix with regular payments made for use of land occupied by the bypass. There was subsequent disagreement over extra compensation claimed by the Gibbs.  First Gas refused to pay all that was claimed.  Three years later, tempers flared when First Gas sought access to install a permanent underground repair.

The High Court was told the Gibbs and their allies blocked access.  They issued trespass notices against contractors.  Forced to allow access by temporary court order, they intimidated contractors demanding information about work proposed, filmed work and posted to social media videos of contractors at work together with derogatory comments.  First Gas sued.

Justice Grice ruled members of the Gibbs family committed the tort of nuisance by unlawfully interfering with First Gas’ rights of access to maintain and repair the pipeline.  First Gas has statutory rights of access across private property set out in a petroleum easement certificate issued under the Petroleum Act.  These rights extend to storage of vehicles and equipment onsite during maintenance.  A permanent court injunction was issued ordering the Gibbs family not interfere with ongoing work.  It was agreed the Gibbs were entitled to compensation assessed by a registered valuer for disruption to farming activities.  Repair work was expected to take two to three months.  Justice Grice indicated payment of $100 per hour for a member of the Gibbs family to be on site overseeing work would be appropriate. Evidence was given that landowners in similar situations are usually paid between $60 and $80.

First Gas Ltd v. Gibbs – High Court (3.12.21)

22.014

Relationship Property: Paul v. Mead

Relationship property rules on separation apply also to polyamorous relationships the Court of Appeal ruled recommending an equal split between a threesome who lived together for fifteen years. In dispute was an Auckland property valued at $2.1 million in 2017. 

Lilach and Brett married in 1993.  Lilach met Fiona in 1999.  All three formed a polyamorous relationship three years later.  Their joint relationships were marked by a private ceremony in which Fiona received a ring identical to the wedding rings worn by Brett and Lilach. They lived on a four hectare property in Kumeu purchased in Fiona’s name.  All three contributed to household outgoings.  They slept together most nights.  At law, it was a triangular relationship: Brett and Lilach married; Lilach and Fiona de facto partners; Brett and Fiona de facto partners.

Over a period of months some fifteen years later, all three relationships came to an end.  Fiona remained living at Kumeu.  Disputes over relationship property followed.

The Property (Relationships) Act has ‘coupledom’ as its focus.  But this coupledom need not be exclusive, the Court of Appeal ruled in a test case.  An individual can be in more than one relationship simultaneously, it said.  Such an arrangement would arise where an individual is married and lives with that partner most of the time but is also in a de facto relationship with another living with that person several days most weeks.  All three can claim relationship property rights.  Different start and end dates for the relationships are relevant when determining division of relationship property, the court ruled.

The Property (Relationships) Act applied similarly to the three-way polyamorous relationship between Lilach, Brett and Fiona the court ruled.

Paul v. Mead – Court of Appeal (3.12.21)

22.013

De facto Relationship: Sutton v. Bell

Transferring potential relationship assets to a family trust prior to a developing de facto relationship becoming permanent does not stop those assets being clawed back as relationship property if transferred with intent to defeat a spouse’s claims, the Court of Appeal decided in a landmark ruling. 

In March 2004, Joanna Bell shifted in with Todd Sutton at his Auckland Point Chevalier home.  Both were aware of the relationship property implications; if their relationship became permanent and extended beyond three years, she would have the right to share in the Point Chevalier property.  She suggested in an email to Todd that he take steps to get Point Chevalier transferred to a family trust, so ‘it can never be counted as relationship property.’

The two lived together at Point Chevalier for the next eight years.  Their relationship ended in September 2012.  Joanna laid claim to a share of Point Chevalier as relationship property.

A series of cases through the Family Court and High Court determined their de facto relationship clearly started sometime between December 2004 and January 2005.  By that time, they presented to families and friends as a couple, not simply as ‘friends with benefits.’  The two had visited Todd’s sister in Australia, spent Christmas with his parents, holidayed around New Zealand together and taken an overseas holiday to Malaysia.

In late November 2004, Todd had transferred ownership of Point Chevalier to a family trust, the Court of Appeal was told. Point Chevalier could not be relationship property, he said, since he no longer owned the property when the legally confirmed start date for their de facto relationship was a couple of months later.

Property disposed of ‘in anticipation’ of a de facto relationship could be clawed back if disposed of ‘with intent to defeat’ a de facto partner’s rights, the Court of Appeal ruled.  The Property (Relationships) Act emphasises rights as a couple.  Steps taken prior to a de facto relationship becoming permanent can impact on subsequent rights as a couple.  At the time Todd transferred Point Chevalier to a family trust, a permanent de facto relationship was contemplated.  Transferring the asset was done with the intent of defeating her claim to share in the property, the court ruled.  Point Chevalier was treated as relationship property.

Joanna’s email in early 2004 suggesting Todd might transfer Point Chevalier to a family trust was treated by the Court of Appeal as evidence that as at that date she was willing to sign an agreement contracting out of any rights to the property.  No such agreement was signed.  Todd’s subsequent transfer of Point Chevalier to a family trust proved ineffective.  At time of the transfer, they had been in an exclusive relationship for about sixteen months and had been living together for over eight months.

Sutton v. Bell – Court of Appeal (2.12.21)

22.012

Struck Out: Memelink v. Body Corporate 68792

Serial Wellington litigator Harry Memelink alleged struck-off lawyer and convicted fraudster Patrick Renshaw had no authority to spend $130,000 on behalf of a Lower Hutt body corporate because Renshaw did not own a unit in the development as required by body corporate rules, forgetting that he had in fact purchased three of the units jointly with Renshaw through 2011 and 2012.   

Engaged in a long-running dispute with the body corporate, Mr Memelink refuses to pay current annual levies stating levies payable should be set off against refunds he is allegedly due for body corporate money he claims was spent without authority.  He alleges funds set aside for long-term maintenance were improperly used to challenge Transit New Zealand’s compulsory purchase and subsequent demolition of some units; work undertaken to realign the main highway through Petone.

Mr Memelink alleges fraud by Renshaw, spending some $130,000 of body corporate money on legal fees challenging Transit’s plans.  Renshaw was convicted of fraud and jailed in 1992 for stealing client funds from his Wellington law firm.  In 2015, Renshaw was convicted of tax fraud and sentenced to home detention.

Mr Memelink is bankrupt.  Six units in the Lower Hutt development are held in his name as trustee of a family trust.  As trustee, he is suing body corporate management to recover compensation for the allegedly unauthorised payments.

The Court of Appeal confirmed a High Court ruling that Mr Memelink’s claim be struck out.  The claim was first filed in 2016.  In dispute is Renshaw’s activities prior to 2013 as then secretary of the body corporate. The case was struck out for want of prosecution because of Mr Memelink’s inexcusable delays.

Memelink v. Body Corporate 68792 – Court of Appeal (2.12.21)

22.011

Class Action: Strathboss Kiwifruit v. Seeka

Kiwifruit growers class action against government claiming losses of $400 million after PSA bacteria ravaged orchards resulted in a payout of 6.3 cents in the dollar following a government out of court settlement at $40 million and payment to litigation funders of $14.7 million for their costs and fees.

In late 2010, PSA spread from Te Puke orchards resulting in many orchards having to rip out vines and replant.  Growers sued government, alleging the bacteria was introduced through pollen imported from China and negligently cleared for domestic use by Primary Industries.  A total of 214 growers banded together in a class action, seeking compensation.

The High Court held government liable; a ruling reversed in the Court of Appeal.  With a further appeal to the Supreme Court in the offing, government settled out of court at $40 million.  Government now sits in the box seat.  It has a Court of Appeal ruling in its favour to wave at future litigants seeking compensation for failures at the border, having paid a price of $40 million to avoid the possibility of this ruling being reversed in the Supreme Court.

Terms of the PSA class action required High Court approval before distribution of any successful damages claim to growers.  Individual grower’s positions varied depending upon severity of the PSA outbreak, type of kiwifruit grown, remedial action taken and any insurance recoveries received.

The High Court approved a distribution schedule that first saw initial claimants getting back $1.32 for each dollar paid for their initial class action registration fee (first growers to join paid registration back in 2015) with the balance divided on a ‘broad brush’ approach based on number of hectares temporarily lost to production with claimants separated into two ‘loss groups’ dependent upon the kiwifruit variety grown by each particular grower.  The average payment made to claimant growers amounts to about $10,000 per hectare.

Strathboss Kiwifruit Ltd v. Seeka Ltd – High Court (30.11.21)

22.100

Estate: re Thomas Gemmell

Patricia Gemmell was removed as administrator of her late husband’s estate after selling his farm at Raupunga between Napier and Wairoa to his nephew at less than market price leaving estate beneficiaries in the cold.  The High Court appointed a new administrator and ordered recovery of the land.

Thomas Gemmell died in 2008, leaving no will.  Statutory rules in the Administration Act saw his 79 hectare Raupunga farm and a home in Masterton divided between his widow Patricia and his four children, three of whom were children from a previous relationship.  The High Court appointed Patricia to act as estate administrator.  As such, she was registered on title to the properties.

Evidence was given that Patricia came to the view that since she was registered as the owner, the properties were hers.  Advice from lawyers that she held title as trustee were ignored.  Instead of having title later re-registered in names of estate beneficiaries she proceeded to transfer title over the Raupunga farm to her sister-in-law’s son: Padre Phillips.  The farm was valued at $325,000 two years after Thomas’ death.  The sale to Padre nearly a decade later was at a price of $150,000 with the only cash changing hands being a $15,000 deposit, money paid by Padre’s mother Bessie.  Padre said money he had spent managing the farm served as a credit for the balance of the purchase price.  The price paid was low because the farm was run down, he said.

Justice Isac expressed doubts about justifications provided for the deal.

Patricia was removed as administrator with one of Mr Gemmell’s sons appointed as replacement.  Title to the farm was transferred into his name as administrator.  Both Patricia and her sister-in-law Bessie were in breach of trust for selling the land at undervalue, Justice Isac ruled.  Padre was also liable, having arranged with mother Bessie for the deal to be done.

Patricia was penalised for her breach of trust as administrator with Justice Isac ruling she was not to share in the value of the Raupunga farm as a beneficiary; the value of the farm was to be split only between Thomas Gemmell’s four children as beneficiaries.

re Estate Thomas Gemmell – High Court (30.11.21)

22.009

Estate: re Estate Robyn Andrews

Robyn Andrews wrote into her will that loans made to each of her sons were to be taken into account before dividing her estate equally between the three of them.  On her death, son Stephen argued that his borrowings of $439,700 could be ignored; he had been bankrupted and these debts were no longer owing.

The High Court was told of their mother’s detailed estate planning, given her then serious concerns about Stephen’s financial circumstances.  His company NZNet Internet Services Ltd had gone into liquidation insolvent some six years before she signed her final will.  She had lent his company about $340,500 as a secured creditor.  She got back about $9000 following liquidation.

Robyn Andrews signed her final will in 2017.  The document stated loans made to each son were to be taken into account before making any distribution.  Her will listed how much each son owed at that date: Richard ($115,000); Evan ($8900) and Stephen ($439,700). The will specified Stephen’s share of the estate was not to be paid to him personally, but paid to a trust named the Andrews-Runnymede Trust which listed as beneficiaries Stephen and his children, but not his wife.

Unbeknown to his mother, Stephen was bankrupted seven days before she signed this will.  He was discharged from bankruptcy in March 2020, three months before her death. The effect of bankruptcy discharge is to write off all unsecured pre-bankruptcy debts; no legal action can be taken to enforce them.

Stephen challenged plans to include the $439,700 as a debt he owed his late mother’s estate before dividing the estate residue three ways.  Justice Gordon ruled use of words in the will such as ‘loans’ and ‘amount outstanding’ were to be read as a proxy for money provided to her sons during her life and not as debts legally due.  Further, lawyers’ file notes recorded that when giving instructions for her will, she made it clear that she wanted to treat her three sons equally, having regard to money they had already received.

The $439,700 lent to Stephen was to be taken into account, Justice Gordon ruled.  The size of Robyn Andrews’ estate was not disclosed.

re Estate Robyn Andrews – High Court (29.11.21)

22.008

Lease: Stylo Medical Services v. Hum Hospitality

Roseanne Armitage’s company Hum Hospitality Ltd persistently failed to pay rent on time for its lease of 123 Grafton Road in central Auckland.  The High Court ordered her arrest for contempt of court following a failure to vacate Grafton Road after the lease was cancelled.

Landlord, Stylo Medical Services Ltd has spent many hours in court trying to lever its tenant out of the property.  Hum Hospitality operated the site as a community drop-in centre with advertised plans to renovate the century-old villa. In November 2020, Hum Hospitality’s rent was over $150,000 in arrears.  Threatened with cancellation of the lease, Hum paid the arrears but then regularly failed to pay GST on subsequent rental payments.  In February 2021, the High Court ordered the lease cancelled.  Hum Hospitality had to shift out.  Ms Armitage unsuccessfully challenged cancellation in the Court of Appeal.  By August 2021, further rent arrears were in excess of $93,000.  Stylo Medical’s attempts to retake possession with police in attendance were called off in the face of a hostile response from demonstrators in support of Ms Armitage.    

In November 2021, the High Court issued a warrant for Ms Armitage’s arrest following her ‘wilful and inexcusable disregard’ of the order to vacate.  At the request of Stylo Medical, Justice Downs suspended operation of the arrest warrant until February 2022, giving her a final chance to leave.

Stylo Medical Services Ltd v. Hum Hospitality Ltd – High Court (26.11.21)

22.007

Open2View: On-Line Digital Solutions v. Riddick

Australian-owned business Open2View took its time challenging New Plymouth real estate photographer Deane Riddick’s actions in setting up in competition, causing Justice Isac to suggest there was some ulterior motive behind its deferred legal action when he refused an interim injunction to bring Riddick’s new business to a halt. 

In 2006, Mr Riddick bought into an Open2View franchise for the Taranaki.  Over subsequent years this extended to all of the lower North Island, excluding Wellington. After 14 years operation, Open2View’s New Zealand franchisor On-line Digital Solutions Ltd terminated Mr Riddick’s franchise rights on one month’s notice and sued, alleging he was in breach of a restraint of trade prohibiting him from setting up in competition.

The High Court was told there had been ongoing niggles between Open2View and Mr Riddick for a period of time.  Mr Riddick said attempts to sell off his franchise rights were being thwarted by Open2View.  Mr Riddick set up business on his own, initially continuing to use an Open2View Facebook page and mobile phone contact.  There was evidence that some New Plymouth real estate agents were sympathetic to Mr Riddick, expressing the view he was being ‘screwed over’ by Open2View.  Over thirty former Open2View clients transferred their business to Mr Riddick personally.  Lawyers fronted up in court.  

Open2View said the 2006 franchise agreement required renewal every five years.  Mr Riddick had never given notice of renewal.  After the first five year term expired, the franchise simply ran on as a monthly agreement and could be terminated on one month’s notice, it said.

Mr Riddick said Open2View had never required formal notice of renewal.  It was in breach of contract by firing him on one month’s notice and a consequence of this breach was that any restraint of trade did not apply.

Justice Isac said Mr Riddick has an arguable case that Open2View was in breach of contract by giving only one month’s notice. He questioned why Open2View took so long to take legal action, waiting for nine months after firing Mr Riddick before challenging his right to set up a rival business.  He was critical of it not disclosing evidence supporting Mr Riddick’s case.  He ruled Mr Riddick could continue operating his rival business pending a full trial into the dispute.

A restraint of trade clause in the Open2View franchise agreement supposedly prohibits Mr Riddick from ever working again anywhere in New Zealand in real estate photography.

On-Line Digital Solutions Ltd v. Riddick – High Court (26.11.21)

22.006