Property Development: Luo v. Jin

With no written agreement for their multiple property developments and with movements of money between accounts not clearly documented, two Asian investors are in court arguing over who owns what.

Lin Luo and Qian Jin dispute ownership of multiple property developments in Auckland, Hamilton and Rotorua.  Legal title to the properties were taken variously in the names of Ms Luo, Mr Jin and related companies.  Their various projects kicked off in 2011, in part through a company called W & L Ltd. Ms Luo was sole shareholder and director, but acknowledges Mr Jin has a fifty per cent interest in the company. The High Court was told Mr Jin was kept off the share register because he was not a New Zealand resident at the time joint venture operations started.  Four years later, their business relationship fell apart.

A court hearing to settle ultimate ownership of all disputed properties is scheduled for later this year.  Meanwhile, Ms Luo was in court defending her right to lodge a caveat over a property on Farnworth Avenue in Rotorua registered in the name of Mr Jin.  Her caveat has the effect of blocking any dealing in the land until their dispute is sorted out.  Mr Jin says Farnworth Avenue is not part of their joint venture projects; Ms Luo says she put money into Farnworth.  Their dispute is complicated by the fact Farnworth’s subdivision and redevelopment was initially a project jointly undertaken by Mr Jin and a Mr David Lee who was then in a de facto relationship with Ms Luo.

Associate judge Gardiner ordered the caveat remain. There was evidence Ms Luo had contributed some $237,000 to Farnworth: redevelopment costs, mortgage payments and payment of rates. A full court hearing is needed to identify whether this funding was a loan (as Mr Jin claims) or a contribution to joint venture expenditure (as Ms Luo claims) entitling her to share in Farnworth profits.

Luo v. Jin – High Court (31.03.21)

21.063

Insolvent Trading: Yan v. Mainzeal Property

Ground rules for assessing damages following insolvent trading were set down by the Court of Appeal, part of long-running litigation following the 2013 collapse of Mainzeal Property leaving $117 million owed unpaid creditors.

While Mainzeal did have an independent board of directors, primary control lay with entrepreneur Richard Yan.  Liquidators found much of Mainzeal’s cash had been spirited off shore to China in return for what proved to be vague and unenforceable promises by companies associated with Mr Yan to make repayment at a later date.

In 2019, the High Court ruled Mr Yan and fellow directors Peter Gomm, Clive Tilby and Dame Jenny Shipley were liable to pay damages totalling $36 million for breach of directors’ duties.  All parties, including the liquidator, appealed; challenging different parts of the High Court ruling.

The Court of Appeal confirmed Mainzeal directors were in breach of s.135 Companies Act; ‘carrying on business in a manner likely to cause serious loss to creditors.’  But no damages were payable.  Damages for breach of s.135 required proof Mainzeal’s financial position saw a ‘net deterioration’ between the date it was clearly insolvent (2011) and the date of subsequent liquidation (2013), the court said. Arguably, Mainzeal’s net position had improved over this two year period; liquidity was improved by shareholders putting in more cash and final payment was received on completion of a number of construction contracts.

Mainzeal directors were also in breach of s.136 Companies Act; ‘incurring obligations at a time when there were no reasonable grounds to believe the company would be able to perform these obligations.’ Directors were potentially liable for damages totalling some $63.5 million for failure to comply with s.136, the court ruled.  This was ‘new debt,’ incurred after the company should have stopped trading in 2011.

The case was sent back to the High Court to decide the amount of damages Mainzeal directors should pay.  Trial judges have a discretion in assessing insolvent trading damages.

Yan v. Mainzeal Property and Construction Ltd – Court of Appeal (31.3.21)

21.060 

Overseas Investment: Land Information v. West Drury Hldgs

Foreigners holding a residence class visa must be ‘ordinarily resident’ in New Zealand to avoid being caught as an ‘overseas person’ when it comes to buying rural land in excess of five hectares. West Drury Holding, part-owned by Yin Zhufeng, paid a negotiated fine of $125,000 for breaches of the Overseas Investment Act.

In 2017, West Drury Holding Ltd purchased 23.3 hectares of rural land in south Auckland for $9.2 million.  Mr Yin held a 39 per cent shareholding in West Drury.  At the time of the purchase he was living overseas, but held immigration status as a New Zealand resident.  He was unaware that the Overseas Investment Act set out special rules for foreigners holding a New Zealand resident visa but living offshore. Government consent is need for purchases of rural land in excess of five hectares.  The fact Mr Yin, who was an ‘overseas person,’ owned more than 25 per cent of West Drury meant that West Drury was also an ‘overseas person.’

The High Court was told Mr Yin and West Drury ‘fessed up when made aware of the rules.  They co-operated with Land Information and the Overseas Investment Office.  The High Court affirmed a negotiated $125,000 penalty.

Land Information v. West Drury Holdings Ltd – High Court (31.03.21)

21.062

Govt. Grant: Trends Publishing v. Callaghan

With fraud suspected, Callaghan Innovation sued to recover a $383,000 initial instalment on a $17.2 million Science and Innovation grant made to Auckland-based David Alan Johnson and his company Trends Publishing.  Callaghan now seeks to bankrupt Johnson on a $1.2 million court costs order for legal fees incurred chasing down the money. 

Mr Johnson’s Trends Publishing International Ltd applied for a Callaghan grant after a crippling downturn in business following the 2008 Global Financial Crisis.  A subsequent audit found evidence Trends had misled Callaghan; in particular, Trends improperly categorised some of its expenses as research and development.

Their dispute escalated: Callaghan sued to recover its $383,000 initial payment; Trends counter-sued for $61 million, claiming Callaghan’s funding termination caused Trend’s failure.  End result: Trends lost in court; Justice Powell describing its case as hopeless.

He ordered Mr Johnson and his company Thecircle.co.nz Ltd pay Callaghan’s full legal costs and expert witness fees; a total of $1.2 million.  Mr Johnson and his company had managed the claim against Callaghan on Trends behalf and had paid its legal fees.

Unpaid for its $1.2 million costs order, Callaghan served a bankruptcy notice on Mr Johnson and a notice of statutory demand on Thecircle, precursors to triggering bankruptcy for Mr Johnson and liquidation for Thecircle.  Each challenged their notice, saying the failed $61 million claim had been appealed and the High Court costs order should not be enforced whilst an appeal was underway.

The mere fact of an appeal is not grounds to stop a winning litigant from enforcing a High Court order, Associate judge Andrew ruled. It can be enforced, unless the losing litigant first applies for a stay of execution, pending the result of an appeal. Neither Mr Johnson nor Thecircle had applied for a stay, the court was told.

Trends Publishing v. Callaghan Innovation – High Court (10.07.20); Callaghan Innovation v. Johnson – High Court (31.3.21)

21.061 

Maori: Mercury v. Waitangi Tribunal

Waitangi Tribunal powers to order return of land to iwi could not be used to poach land off another iwi, the High Court decided in a ruling which has ramifications for a court battle brewing over commercial control of Maori assets across the Auckland isthmus.  

Ngati Kahungunu seeks Waitangi Tribunal orders to recover land as compensation for Treaty of Waitangi breaches.  It is generally accepted that Ngati Kahungunu were treated shamefully by colonial settlers.  The iwi lost one of its major food sources when settlers illegally drained wetlands around Lakes Wairarapa and Onoke to create farmland.  Government restrictions prohibited leasing of forestry formerly under control of Ngati Kahungunu, forcing its sale as the only means of extracting economic benefit.  As compensation, Ngati Kahungunu were given land in south Waikato; land hundreds of kilometres away from the iwi’s rohe and land which was inaccessible and virtually worthless.  Some 800 hectares of this land was later compulsorily acquired for development of the Maraetai dam.  As a final insult, the level of compensation paid was reduced because creation of a lake behind the dam improved access to their remaining Maraetai land holding.

At the Waitangi Tribunal, Ngati Kahungunu is seeking compensation totalling some $800 million including return of title to Ngaumu forest and the bed of Lake Maraetai.  Mercury Energy objects; a successful claim will see it obliged to pay commercial rent to Ngati Kahungunu for use of land on which its hydro-electric assets sit.  In a preliminary report, the Tribunal indicated it is sympathetic to Ngati Kahungunu demands for ‘resumption.’  Resumption means return of land to Maori ownership.

The High Court ruled Tribunal powers to order ‘resumption’ of land currently held by state-owned organisations like Mercury Energy cannot be used to take land within the rohe of one iwi as compensation for Treaty of Waitangi breaches suffered by another iwi.  Land around Lake Maraetai sits within the rohe of Raukawa and Tuwharetoa.  Tribunal powers to order return of land to specific iwi can only be used to remedy Treaty breaches suffered by that iwi which originally occupied the land, Justice Cooke ruled.

Land privately owned cannot be subject of a ‘resumption’ order; the rules apply only to land held by the state or by state-owned organisations.

Mercury NZ Ltd v. Waitangi Tribunal – High Court (30.03.21)

21.059

Peer-to-peer Lending: Commerce Commission v. Harmoney

As a negotiating tactic, it failed. Challenged by Commerce Commission that its platform fee was an unreasonable credit charge, Harmoney asked what might be considered reasonable.  That is for the court to decide, the Commission responded. 

In 2018, the High Court ruled Harmoney’s ‘platform fee’ charged on each ‘peer-to-peer’ loan formed part of the loan contract, being part of the cost of credit.  Harmoney argued unsuccessfully that it did not make loans; it was merely a ‘match-maker’ bringing together lenders and borrowers.  This litigation is ongoing.  The Commission alleges Harmoney’s charges levied as a platform fee are unreasonable in that they exceed its costs for establishment of a loan contract.  Harmoney responded, requesting a detailed analysis by Commerce Commission as what might be a reasonable charge.  Ostensibly, this request was to narrow the issues before heading back to court.  In practice, it would enable Harmoney to sharpen its pencil in offering an out-of-court settlement.  Commerce Commission refused to play ball.  It does not have details of Harmoney’s cost structure, it said.  That is for Harmoney to disclose.  The High Court agreed.

Commerce Commission v. Harmoney Ltd – High Court (30.3.21)

21.058 

Money-Laundering: Customs Service v. Jeon

Attempting to smuggle cash out of the country should generally result in all the money being confiscated the High Court ruled, sending back to the District Court consideration of $24,800 found on a traveller flying out of Auckland for Sydney. 

Dohyun Jeon was charged with breaches of both the Customs Act and money-laundering legislation when checking in for a Sydney flight in September 2019.  He did not complete a border cash report required when taking more than $10,000 out of the country.  He belatedly made disclosure when a search of his baggage was underway.  He declared $13,700 in cash.  A total of $13,800 was found in his baggage and his wallet.  He denied having any more cash.  Another $11,000 cash was found in an envelope in his pocket.  He told Customs the money came from casino winnings, money given him by his parents and proceeds from sale of a watch.

At a District Court hearing, Jeon pleaded guilty saying the money came from employment as a project manager for property development company On Point Construction Ltd and that conviction for money-laundering would affect his work since many construction projects require project managers to first get a clean police report.

The judge discharged Leon without conviction, ordering all but $3000 be returned.  Customs appealed.  Forfeiture of only $3000 was too lenient, it said, weakening the legislation’s effectiveness.

In the High Court, Justice Wylie agreed Jeon’s offending was at the lower end of the scale; discharge without conviction could stand. But the question of forfeiture was sent back to the District Court for reconsideration.  Return of any money at all requires evidence of disproportionate hardship resulting from forfeiture.

Customs Service v. Jeon – High Court (24.03.21)

21.057

Elder Abuse: Scott v. Garnham

Sisters Jazz and Ann Scott want to know what happened to between $200,000 and $400,000 of their mother’s assets that disappeared when under control of brother Paul.  Legal action has been taken.

Mary Patricia Scott-Smith died in February 2015, diagnosed with dementia.  Her net estate was valued at some $250,000.  Circumstances in which everything was left to daughter Ann came to light in a Family Protection Act claim by sister Jazz.

The High Court was told their mother sold the Wellington family home at Seatoun in 2003, buying a new home in Strathmore Park. Six months later, Paul moved in. The financial surplus on sale of Seatoun is unaccounted for.  Five years later, Strathmore Park was sold with the proceeds shifted offshore as part of a plan for her move to Thailand with Paul and his wife Kenzie.  Six months later she was back in New Zealand, buying back her Strathmore property at the price she sold it for, but with insufficient funds to complete the purchase.  Paul said some $227,000 had been spent in the previous six months. The Strathmore re-purchase was completed with mortgage finance in the names of Paul, his mother Mary Patricia, and wife Kenzie.  All three names went on the title.  Over subsequent years, Mary Patricia lived variously with daughter Ann and also Paul.  Aged Concern intervened in 2011, after a physical altercation between Paul and his mother.  She was admitted to Wellington hospital.

Leaving everything to Ann in her 2009 will, their mother explained Paul ‘had had enough already’ and that Jazz was ‘not owed anything’ because there had been minimal contact between them.

Ann agreed Jazz was entitled to a share of their late mother’s estate, offering ten per cent.  After a Family Protection Act hearing, entitlement to a ten per cent share was confirmed.  The court ruling explicitly stated Jazz was also entitled to receive ten per cent of any recovery in legal action underway against brother Paul.

Scott v. Garnham – High Court (23.03.21)

21.056

Fraud: Taimoori v. Anmol Residential

Anmol Seth, falsely representing himself to Auckland’s Hindu community as Lord Anmol, was ordered to refund $239,320 to Mirza Taimoori, money advanced for a property development which never took place.

On social media, Mr Seth presented himself as a successful business man with interests in hotels and resorts.  His Facebook page was replete with images of expensive cars and a private jet.

The High Court was told he invited Mr Taimoori to take part in a joint venture for the development of Mr Taimoori’s property in Gray Avenue, Papatoetoe south Auckland.  The deal involved sale of Gray Avenue to Anmol Residential Ltd, a company controlled by Mr Seth.  Mr Taimoori was to put in $300,000 cash; Mr Seth to manage development of the site into three properties.  Mr Taimoori did not have the ready cash; Mr Seth steered him towards his own legal advisers who arranged a loan for Mr Taimoori.  Other than Mr Seth getting resource consent for the proposed subdivision, little progress was made over the next three years.  Evidence was given of progressively more desperate requests by Mr Taimoori for news about progress, all of which were fobbed off by Mr Seth.  Anmol Residential went into liquidation in October 2108.

Mr Taimoori sued.  Mr Seth said all cash had been used in payment of stage one preparatory expenses.  Invoices were produced, many with critical details blacked out; to protect the identity of those providing services, Mr Seth said.  After the originals were later produced in court, Justice Downs found the larger sums claimed related to entirely different property developments Mr Seth was involved in and that the largest claimed invoice for $138,000 was a complete fabrication.  Justice Downs ordered details of the forgery be passed on to police.

Mr Taimoori was awarded damages of $239,320; the money he had advanced less some minor payments returned by Mr Seth when Mr Taimoori needed funds for household expenses.  Mr Seth was in breach of a fiduciary duty owed Mr Taimoori, Justice Downs ruled.  Mr Seth held himself out as a business adviser and successful property developer, took complete control of the development, used his own legal advisers to set up Mr Taimoori’s cash contribution; all the while promising the money would be used solely to redevelop Gray Avenue.

Taimoori v. Anmol Residential Ltd & Seth – High Court (18.03.21)

21.055 

Parkview on Hagley; Unit Titles: Foreshore Equities v. Body Corporate 396688

Minority investors in Christchurch’s Parkview on Hagley successfully challenged moves by VR Group to corral hotel common area for its own benefit.

Based in Auckland, VR Group controls self-catering accommodation at venues throughout New Zealand.  Its website boasts over one thousand rooms being available.  At Parkview on Hagley, situated on Riccarton Road in Christchurch, it controls through associate company Travellers Inn Ltd 28 of the 40 apartments available for short-term accommodation.  VR Group also controls two commercial units forming part of Parkview, manages the hotel business and has its representative Arvinda Saluja chair Parkview’s Body Corporate.  Mr Saluja describes his role as ‘revenue manager’ for Parkview.

The High Court was told Parkview apartment owners were advised in early 2020 of a proposed Body Corporate resolution: eight car parks forming part of Parkview’s common property were to be leased to VR Group at a rate of fifty dollars per week per car park.  This was described as benefitting guests checking in, enabling them to park closer to reception.

Two unit owners requested further information, asking for: a valuation of the parking spaces; details of the proposed lease; a report on how the changes would affect unit owners use of the site and advice on whether Council resource consent was required.  Without responding, VR Group through Travellers Inn pushed through the Body Corporate resolution, using its majority control: 28 votes out of 40.

Minority owners banded together; objecting to the resolution, issuing a section 213 notice on the Body Corporate under the Unit Titles Act. The Body Corporate had favoured the interests of one owner, they said.  In effect, VR Group had granted a lease to itself of what was common area intended for use of all unit owners.

In the High Court, Justice Osborne struck down the lease resolution as not being ‘just and equitable.’

Foreshore Equities Ltd v. Body Corporate 396688 – High Court (16.03.21)

21.054 

Restraint of Trade: Christensen & Purdom Family Trusts v. Gordon

Within months of selling Trans-Space Industries for $1.92 million and agreeing not to set up a rival business within the next three years, Tim Gordon was selling aluminium office partitioning in direct competition.  The High Court ordered he stop immediately, with a further court hearing looming to assess damages.

Mr Gordon purchased Trans-Space in 2012.  It manufactures and supplies office partitioning. Seven years later he sold out to Trans-Space employees: Tony Christensen and Woody Purdom.  He agreed to a restraint of trade, not to compete against Trans-Space for a period of three years. The High Court was told Mr Gordon, his wife Angela and their son Joshua continued working for Trans-Space immediately following the sale. Evidence was given that Mr Gordon was actively seeking new business opportunities at that time.  He denied any plans to set up in opposition.  Within five months of signing a three year restraint of trade he agreed to buy competitor Autex PSL.  After taking control he changed the company name to Aluminate Solutions Ltd.  Mr Gordon immediately resigned from Trans-Space as an employee. Wife Angela was fired.  Son Joshua later left.

When challenged, Mr Gordon said he was not competing directly with Trans-Space.  Aluminate sold aluminium components which customers then assembled. Trans-Space was in a different line of business, he said; it manufactured and installed complete interior fit-outs.

Justice Palmer ruled Mr Gordon was in breach of the agreed restraint of trade.  Wording of the restraint prohibited ‘distribution’ of partitioning systems; distribution of components was a breach.

An injunction was issued prohibiting Mr Gordon from competing with Trans-Space.  He was ordered to hand over all profits earned.

Christensen & Purdom Family Trusts v. Gordon – High Court (16.03.21)

21.053

Ethical Investments: Mohamed v. NZ Superannuation

Complaints that investments by Guardians of New Zealand Superannuation in the disputed territory of Western Sahara are unethical failed in the High Court.  The courts are unwilling to review broad policies of government-controlled organisations; courts will intervene if a specific decision is unlawful.

Guardians of New Zealand act as investment manager of government superannuation assets.  It manages assets totalling $44.7 billion, according to its most recent annual report.  Legislation requires Guardians to invest ethically, avoiding prejudice to New Zealand’s reputation.   

Polisario Front for Australia and New Zealand together with Western Sahara Campaign New Zealand are the public faces of local support demanding independence for Western Sahara, an area defined by the UN as a non-self-governing territory.  Previously under control of Spain, Morocco now exercises de facto control in the Western Sahara.  The area holds substantial phosphate deposits.

In June 2016, Morgan Stanley flagged OCP bonds issued by a Moroccan state-owned phosphate company as raising potential reputational concerns for investors, given political tensions surrounding phosphate mining in disputed Western Sahara.  Polisario said it was unethical for Guardians to hold OCP bonds.  Guardians had moved in and out of the OCP bond market; in 2019, it held OCP bonds for four months.  OCP bonds are on its ‘watchlist,’ Guardians told the court.

Polisario also criticised Guardians’ investments in companies operating in Western Sahara; predominately equity investments in European-based companies providing wind-based renewable energy and mining equipment, all utilised in the phosphate industry.

Guardians has developed and published a policy document; a responsible investment framework.  As an equity investor, it is in a position to engage with management in those companies where there are ethical concerns, the Guardians said. Interconnected global markets means there are very few businesses that cannot be linked in some way through supply and customer chains to undesirable ethical practices.  Too liberal an application of its responsible investment framework would exclude most investments, it said.

Judicial review procedures cannot be used to carry out a ‘merits-based’ review of Guardians’ investment decisions generally, Justice Woolford said.  Judicial review was not available as a challenge to investments in all companies that simply operated in Western Sahara.  There was no evidence that Guardians had failed to comply with its own responsible investment framework or had caused reputational damage to New Zealand. Guardians’ responsible investment framework properly complied with the New Zealand Superannuation and Retirement Income Act, Justice Woolford said.

Mohamed v. Guardians of New Zealand Superannuation – High Court (15.03.21)

21.050

Insolvency: re Scott

Financially overstretched, Simon Francis Scott and Leone Margaret Scott of Beckenham in Christchurch have done a deal with creditors paying eighteen cents in the dollar.  The two have interests in a swathe of businesses, primarily in the hospitality sector according to Companies Office records.

In October 2020, a deal was put to creditors owed some $1.44 million.  Negotiations were put on hold when a further creditor surfaced. claiming $600,000 on guarantees for unpaid commercial rent.

The High Court was told of a reconvened creditors’ meeting two weeks later offering eighteen cents in the dollar on creditors’ claims of just over $978,000.  In the interim, claims by some creditors had been refined and the Scotts had agreed to kick in some more money.  All up, $100,000 was promised from their family trust with the Scotts paying a further $75,000 over time.

For an Insolvency Act part-payment scheme to stick, a majority of creditors owed 75 per cent of debt by value must agree, with High Court approval subsequently given.  The High Court was told two creditors out of thirteen voted against. Approval by value only just reached the 75 per cent hurdle.  In giving approval to the part-payment scheme, associate judge Lester commented proposed Insolvency Act schemes of arrangement should not be structured as a joint proposal like the Scotts; instead there should be two mirror proposals, each conditional on approval of the other.  Insolvency Act rules govern individual insolvencies, not joint insolvencies.

re Scott – High Court (15.03.21)

21.052 

Medical Practice: Glassey & Associates v. Takanini Surgery

Dr Sarah Glassey was blind-sided when she found fellow medical professionals Drs Luc Wee and Anitha Nair had gone behind her back setting up a side deal cutting her out of managing their supposedly jointly-run south Auckland medical practice.  Dr Glassey forced the business into liquidation, over their objections.

The three set up practice as Takanini Surgery Ltd in 2019.  Each was a director of the company and each owned a one-third share.  They each put in some $100,000 working capital as loans to the company. The High Court was told Dr Glassey was the primary doctor in attendance; the other two also had medical practices in Karaka and Pokeno.

Shortly after setting up business, Dr Glassey learnt her fellow professionals had jointly signed a shareholders’ agreement setting out, amongst other things, how they would vote their shares.  Between the two, they held a controlling 66 per cent interest.  Dr Glassey left the practice shortly after, saying she was cut out of management control. She sued to have Takanini Surgery Ltd put into liquidation, a strategy to recover her $100,000 working capital lent to the company.

Evidence was given that Drs Wee and Nair then transferred Takanini Surgery’s patient list to another company they owned.  Dr Glassey’s $100,000 debt was not ‘owing,’ they said.  There was an agreement repayment of shareholder advances was deferred until Takanini Surgery was profitable, they said.

Associate judge Andrew ruled Dr Glassey’s $100,000 loan was repayable on demand.  Dr Glassey had not seen and had not signed the shareholder agreement specifying a ‘non-withdrawal period.’  Since Takanini Surgery had no prospect of earning further income it was clearly insolvent; Dr Glassey as an unpaid creditor was entitled to force liquidation.

Glassey & Associates Ltd v. Takanini Surgery Ltd – High Court (15.03.21)

21.051

Tax Debt: Inland Revenue v. NSTK Investments Ltd

Inland Revenue had Auckland property company NSTK Investments Ltd, owned by Navjot Singh Sidhu and Tanvir Kaur, restored to the Companies Register after being wound up with a replacement liquidator then appointed to find out why a $206,100 GST debt was not paid by NSTK when the company was sufficiently financial to transfer $1.17 million to shareholders and a shareholder company just prior to liquidation.

NSTK changed its name from Khanda Developments Ltd, just prior to shareholders putting it into liquidation in October 2019. Auckland-based Craig Young was appointed liquidator.  The liquidation was wrapped up six months later, with no indication of any investigation into the company and with creditors receiving no payment.

The High Court restored NSTK Investments to the companies register on Inland Revenue’s request, returning NSTK’s status to that of a company in liquidation.  Mr Young told the court he would resign as liquidator.  Insolvency specialists from KPMG have been appointed liquidators. 

Inland Revenue v. NSTK Investments Ltd – High Court (12.03.21)

21.049 

Contempt of Court: Spark v. Spud Consulting & Lester

Fines totalling $5000 were imposed on Melbourne-based consultant Mark Lester and his company Spud Consulting for contempt of court following failure to disclose information demanded by Spark in a disputed arbitration.  Spark alleges they overcharged for services provided.

Their dispute went to arbitration, with little result.  Spark claims Mr Lester and Spud Consulting Ltd are withholding information.  It got High Court orders demanding disclosure, again with little result.  Spark wants to see receipts for disputed consultancy expenditure.  Mr Lester says he cannot recall the transactions: ‘they could have been [mortgage payments], buying racehorses or putting funds into a development project as an investment,’ he said.  Mr Lester and Spud Consulting ignored an earlier court order that they pay to Spark its then court costs of some $56,700 incurred seeking disclosure.  Mr Lester said ‘payment’ has been made; $56,700 has been deducted from the amount Spud claims it is owed by Spark.

Justice Jagose fined Mr Lester and Spud Consulting $5000 for contempt of court and repeated the earlier High Court order to disclose required information.  They were ordered to pay interest on Spark’s $56,700 costs not yet paid and further ordered to pay Spark’s full legal costs in getting a contempt of court order.

Spark New Zealand v. Spud Consulting Ltd & Lester – High Court (10.03.21)

21.048 

Access Easement: Teece v. Veint

Station at Waitiri Ltd controlled by developer Tim Edney has upped the ante claiming default interest at $4500 per day from last December after US-based New Zealander David Teece failed to resolve rights to use an airstrip near Glenorchy.

Economist Dr Teece teaches at Haas School of Business, Berkeley.  In 1997, he purchased Paradise block at the foot of Lake Wakatipu, part of a larger property known as Arcadia Station.  The deal allowed use of Arcadia’s airstrip should construction of an airstrip on what was described as blocks one & two of Paradise prove unfeasible.  The two blocks did not prove suitable, but an aviation expert identified other parts of Paradise as potential sites for an airstrip.

Complications arose after 82 year old Jim Veint subsequently sold the balance of Arcadia to Edney’s Station at Waitiri for a reported sum of near $15 million.  Lodged against title to Arcadia is a caveat in favour of Dr Teece’s family trust claiming an easement over Arcadia allowing access to its airstrip.  Station at Waitiri says Mr Veint is in default by not having the caveat removed to provide clear title.  Default interest is due for late settlement, it says.

The High Court was told Dr Teece’s caveat was lodged over seventeen years ago, part of negotiations over permanent access to Arcadia’s airfield. Negotiations petered out, with no resolution.  Mr Veint said the caveat should be removed.  Dr Teece has done nothing in the interim.  He has never used Arcadia’s airfield.  Any claim has lapsed by reason of delay, Mr Veint says.

Associate judge Paulsen ruled the caveat remain, but indicated Dr Teece should move promptly to prove in court his claimed right of continued access to Arcadia’s airfield.

Teece v. Veint – High Court (9.03.21)

21.047

Joint Venture: TDP 2018 Ltd v. Godfrey & Co Ltd

Thrown together with an overwhelming workload following the Christchurch earthquake sequence, loss adjusters Thomas Pasley and Godfreys were then over $2.7 million dollars apart in a dispute over allocation of costs when their shotgun joint venture came to an end. After seven expensive days argument in the High Court, Godfreys was ordered to pay $589,000 to balance costs.

The two businesses had informally discussed merger possibilities before the Christchurch earthquakes forced co-operation to deal with a massive workload assessing damaged properties.  The initial September 2010 quake led to some informal co-operation; the catastrophic February 2011 quake led to overnight negotiations agreeing an operational merger.

There was no formal written agreement.  The High Court was told their working relationship developed ad hoc in the face of practical realties on the ground.  It was not until three months after merger that it was agreed all invoicing would be made through Godfreys’ accounting system with net proceeds divided 62.5 per cent to Godfreys and 37.5 per cent to Thomas Pasley & Associates.  In determining ‘net proceeds’ each business was to carry its own costs, with each reimbursing the other for increased costs arising from their combined operations. Labour costs were a big component. Arguments later arose as to which staff were permanent employees (a cost to the employing business) and which were new staff or contractors (potentially assessed as increased costs of combined operations).  Demand for experienced loss adjusters had seen staff leaving to work on their own account.  Much of the High Court time was spent analysing the employment status of individual loss adjusters.  Godfreys claimed a $111,200 adjustment for managing director Mark Godfrey’s management time; it was agreed he would have overall management responsibility for joint operations and this cut into hours available for billable work, Godfreys said. This claim was disallowed.  There was never any agreement for this adjustment.

TPD 2018 Ltd v. Godfrey and Company Ltd – High Court (9.03.21)

21.046

Caveat: Katu v. Seth

Lodging caveats over title to land are a powerful legal weapon, but cannot be used when the dispute is simply about payment, as Vicki Katu found when she agreed to sell her south Auckland family home, part of a deal to bail out a failing business.

Ms Katu alleged Auckland accountant Anmol Seth acted fraudulently, welshing on payments promised as part of the sale.  The High Court was told Ms Katu’s family home in Gray Avenue, Papatoetoe, was owned jointly with her business partner Kevin Elliott.  Liquidity difficulties led them to Mr Seth who recommended they sell Gray Avenue to him, freeing up cash.  The agreed deal proposed a sale to Mr Seth with Ms Katu staying in occupation under a residential tenancy agreement.  A schedule of creditors to be paid out of net sale proceeds was agreed.  Payment of $140,000 to Ms Katu and Mr Elliott was to be deferred, paid after Mr Seth had subdivided the site, part of a new development.

Ms Katu alleges Mr Seth has not paid all scheduled creditors, as required.  She further alleges Mr Seth is lying when he claims the promised final payment of $140,000 has been paid.  A document supposedly signed by herself and Mr Elliott purporting to acknowledge receipt of the $140,000 is a forgery, she alleges.  They challenge a $40,000 fee charged by Mr Seth for what are described as liquidation expenses.

Ms Katu registered a caveat over title to Gray Avenue. Caveats give notice to the world of a claimed legal interest in the land.  Further dealings in the land are blocked.  Associate judge Bell dismissed the caveat.  Ms Katu’s dispute was about consequences of her sale of Gray Avenue, not a claim to Gray Avenue itself.  Title to land could not be blocked over what was a personal dispute over payment.

Katu v. Seth – High Court (8.03.21)

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Liquidation Fees: re Pauanui Mountain Estate

Attempting to salvage something out of a problematic Pauanui subdivision, property developer Gregory Needham found all cash recovered was swallowed up by liquidator’s fees and expenses.

Based in Germany, Mr Needham ran short of cash completing a planned 66 hectare subdivision at Pauanui on the Coromandel coast. The first stage, with 42 fully serviced sites, was fully sold.  The second stage needed more working capital.  Funding in 2012 from financier John Samy saw subdividable land held by Mr Needham’s company Pauanui Mountain Estate transferred to a special-purpose company ultimately controlled by Mr Samy: Pauanui Dream Estate Ltd.  Bitter legal argument between the two resulted in a 2016 High Court ruling that Mr Needham had no management control of Pauanui Dream and was only a minority shareholder.

Meanwhile, Mr Needham put his vendor company Pauanui Mountain Estate into liquidation.  Seven years later, he was in the High Court criticising the actions of liquidator Kelera Nayacakalou.  Cash receipts in the liquidation amounted to some $107,000; the bulk of this arising from a $100,000 out-of-court settlement with Pauanui Dream Estate after Ms Nayacakalou claimed Pauanui Mountain’s land was transferred to Pauanui Dream at less than market value.

Of the $107,000 cash held, Ms Nayacakalou paid out about $57,000 in legal fees and billed $50,000 as her liquidation costs. Mr Needham challenged her fees as not being reasonable.

Conduct of a liquidation can be reviewed by the High Court.  Ms Nayacakalou’s performance raised questions: she was seriously ill for many months following surgery for a brain bleed; there were suspicions substantial hours billed at a higher rate in her name were for work done by a colleague. Her time records required some explanation.  One time sheet recorded a sixteen hour day drafting legal papers.

While Mr Needham criticised the liquidator’s $100,000 out-of-court settlement as being ‘soft,’ Associate judge Andrew ruled it was speculative as to whether there could have been any better outcome.  It is unlikely any adjustment would be made to the fee charged if there were a full review by the court, he said.  Time records supported a fee recovery in excess of that taken.

re Pauanui Mountain Estate Ltd – High Court (5.03.21)

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Medical School: Roe v. Auckland University

Auckland University criteria limiting entry to its Medical School was upheld in the High Court.

Kelly Roe sued claiming she was entitled to automatic enrolment into Medical School on the basis she was a domestic student aged twenty or above and as such entitled as of right to enrol at university in a course of her choice.  This after she was denied Medical School entry for 2019 and 2020.  The High Court was told Auckland University admits 257 medical students each year.  For 2019, 864 applied; 2020 saw 903 applications.

Ms Roe was told by Auckland University that competitive entry for Medical School required her to either: complete the first year of an undergraduate health science or biomedical science degree; or have completed a fulltime degree at any New Zealand university in the last five years with a grade point average of at least six.  She did not satisfy this ‘recency’ requirement, having graduated from Waikato University back in 2006 with an MA degree.  In 2015, she enrolled in a health science degree, but withdrew after failing a paper.  She subsequently enrolled in the MPhil programme at Waikato University.  She completed this programme, but received a fail grade.

Justice Fitzgerald ruled there is nothing in the Education Act which prohibits universities from setting minimum academic criteria for determining which students will be enrolled in an oversubscribed limited entry programme.  This is consistent with the Act’s object of giving institutions as much independence as possible and is consistent with the efficient use of national resources, she said. Imposing a ‘recency’ requirement has a clear academic purpose, she said.  It ensures applicants have current expertise.

While Ms Roe was ‘eligible’ to enrol at Auckland University being a domestic student aged over twenty, she was not ‘entitled’ to consideration for entry to medical school because she did not satisfy criteria for the limited entry course.

Roe v. University of Auckland – High Court (3.03.21)

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