Property: Xu v.Meng

It took a High Court order to remove intending purchasers Xing Meng and Huimin Guan from an Auckland property after they were allowed to move in before unsuccessfully seeking mortgage finance for a $1.78 million purchase 

The High Court was told Wei Xu had known Ms Guan for over twenty years.  In May 2018, he agreed to sell his property on Bayside Drive, Browns Bay, to Ms Guan and her husband for $1.78 million.  There was no written agreement.  The deal was conditional on the purchasers getting bank finance; meanwhile they were allowed to shift into the property.  They agreed to pay rates and insurance pending final settlement and to hand over a twenty per cent deposit when their own property was sold.  Five months elapsed before a reduced deposit of $200,000 was paid.

Three years on: Mr Meng and Ms Guan were still in occupation; had not been able to get mortgage finance because of Mr Meng’s tenuous job prospects as an airline pilot; had stopped paying rates and insurance; and were refusing to budge until their $200,000 deposit was repaid.

They said they were tenants and could not be removed by High Court order; the Tenancy Tribunal has exclusive jurisdiction over tenancy disputes.

Associate judge Andrew ruled Mr Xu was entitled to possession.  Ms Guan was given 28 days to leave.  Mr Meng is currently in China.  Judge Andrew said they were never tenants. There was never any tenancy agreement; only an agreement to purchase which came to an end when they failed to find finance. Any argument over disputed return of the $200,000 deposit is a separate issue to rights of possession claimed over Bayside Drive, he said.

Xu v. Meng – High Court (29.07.21)

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Financing: Keller v. Daisley

Facing a mortgagee sale, Northland contractor Jimmy Daisley was buoyed by an offer from neighbours the Kellers to step in and help with refinancing.  For the Kellers it set off a decade of disputes over what had been agreed. Ten years on, the Kellers were vindicated in three different sets of litigation on appeal to the Court of Appeal, dealing variously with allegations of Daisley not keeping promises, his removing buildings without authority and creating false invoices to inflate values of contracting equipment. 

In late 2009, Mr Daisley and his companies were under considerable financial pressure.  Westpac was threatening to call up a $1.5 million loan.  Another $110,000 was secured by second mortgage to a solicitor’s trust company.  At risk was Mr Daisley’s depot on Maungakaramea Road and rural properties in the district owned by him or his company SDD Ltd.

The Kellers offered to assist.  A deal was proposed having the Kellers pay off his mortgage debt, with Mr Daisley’s business assets tipped into a new company called Ark Contractors Ltd with shareholding split to reflect their respective contributions after allowance for a 25 per cent discount on the Daisley contribution to recognise he was being rescued from a mortgagee sale.  A taste of what was to come surfaced early when the Kellers learnt belatedly about the second mortgage debt of $110,000.  Westpac agreed to the Ark Contractors bail out and postponed its mortgagee sale, subject to the Kellers paying upfront $200,000 of Daisley’s Westpac debt.

The Court of Appeal was told that one day prior to Daisley’s first property going to mortgagee sale, the Kellers put their contracts for Ark Contractors’ purchase in front of Mr Daisley with an ultimatum: sign; take it or leave it.  He signed. The Kellers then paid the required $200,000 upfront to Westpac.  Balance of Daisley’s debt was to be paid from the Kellers’ savings and a Kiwibank refinancing loan.  Nearly two months later, Mr Daisley baulked on signing off on the Kiwibank loan; he was playing for time, exploring other options.  Mr Daisley used this delay as leverage to amend their prior Ark agreement. This time the Kellers were under pressure; they faced loss of $285,000 already put into the deal unless bank financing was completed.

Their relationship steadily slid downhill.  Mr Daisley failed to agree on or sign a shareholder agreement, needed before issuing to him shares in Ark Contractors. He stopped paying rent to Ark for his occupation of business premises at the Maungakaramea depot.  In September 2010, in league with son Scott, he set about removing office buildings from the depot.  The buildings were on skids; temporary structures not part of the land sold to Ark Contractors, Mr Daisley said.  Police intervened, preventing removal of a third building.  The Court of Appeal confirmed a High Court ruling that the buildings belonged to Ark; they were part of the land, affixed by a permanent electrical connection; and in any event were included in earlier negotiations as being amongst the assets sold to Ark.

Mr Daisley sued Mr Keller for conversion, claiming Mr Keller prevented access to some forty items on site at the depot having a replacement value of $225,000: contracting equipment, a tractor and trailer plus beams and poles.  Mr Keller, already angered by the buildings removal, demanded Mr Daisley provide proof of ownership.  With Mr Daisley’s contracting business then going into liquidation insolvent, Mr Keller was confronted by Daisley’s trade creditors and equipment suppliers all claiming rights of possession over various items on site.  In the High Court, Mr Daisley produced what were ruled to be suspiciously fabricated invoices to justify the value of goods allegedly converted: one for a forklift being held by Mr Keller; another invoice supposedly for the value of steel beams.

At the High Court trial, Mr Daisley was awarded $541,700 for breach of fiduciary duty since he was never issued shares in Ark Contractors. This was calculated as the value of his equity contribution to Ark.  This ruling was overturned by the Court of Appeal.  The Kellers at no point owed any fidicuary duty to Mr Daisley.  Their agreement to have shares in Ark issued to Mr Daisley remains open.  He has to first sign a shareholders’ agreement.  Valuation of his interest in Ark will be problematic given the years of litigation.  The court was told Ark currently has a net worth of about $500,000.

Keller v. Daisley – Court of Appeal (29.07.21)

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Mako Networks: Banks v. Farmer

Having lost $3.2 million lent to Mako Networks, Adam Banks failed in attempts to recover from directors: there was no liability for their representations about Mako’s potential future profitability and while directors did trade Mako whilst insolvent Mr Bank’s investment by that date was already lost.

Mako Networks Holdings Ltd was born out of the help desk at Telecom’s then new internet service provider: Xtra.  Simon Gamble and Chris Massam from Telecom teamed up with Bill Farmer and his business: E-Force.  Their genius was in devising a simplified and cheap procedure for updating network security, a potentially profitable area when businesses worldwide were adapting to internet connectivity.  Telecom provided working capital for what became Mako Networks.  Mako grew rapidly, expanding into the US market; too rapidly, eventually running out of cash.  In 2015, Telecom pushed Mako into receivership, recovering $2.5 million out of $26.9 million owed.

Also out of pocket was Adam Banks, having lent Mako $3.2 million dollars in three separate transactions between 2011 and 2014.  As an unsecured creditor, these funds were lost. He sued Mako directors.

Mr Banks argued Mako directors were in breach of the Securities Act offering investments to the public without first issuing a prospectus. Justice Moore ruled there was never any offer to the public.  Mako did circulate a private placement memorandum.  This was carefully worded, making it clear the target was ‘habitual investors.’  Mr Banks claim not to be a ‘habitual investor’ was prejudiced when forensic evidence identified he forged emails to disguise funds previously sent overseas for investment as supposedly being funding for a university research project.

Justice Moore ruled Mako directors were in breach of the Companies Act by continuing to trade when Mako was insolvent with no chance of recovery.  This point arose in April 2014 when a proposed deal with US telco Sprint fell apart; a deal promising Mako potential revenue of $42 million over two years.  Sprint refused to pre-pay; Mako had insufficient working capital to fund manufacture of the necessary hardware.  Mr Banks could not claim damages because his loans were advanced before this date, Justice Moore ruled.      

Fair Trading Act claims were also dismissed.  Comments made to Mr Banks by Mako director Bill Farmer about Mako’s potential future profitability were honestly held opinion. They were not factual representations. Even if there were breaches of the Fair Trading Act, Justice Moore said, Mr Banks presented himself as a man who thoroughly researched business opportunities and would have advanced funds regardless of what Mr Farmer said.

Banks v. Farmer – High Court (28.07.21)

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Asset Forfeiture: Snowden v. Commissioner of Police

At a time of rapidly escalating property values, the Court of Appeal emphasised proceeds of crime legislation allows any capital gain to also be confiscated when criminal profits are laundered through real estate.

Paul Andrew Snowden was sentenced to six years three months following conviction on methamphetamine supply charges.  He is fighting civil action taken by police under the Criminal Proceeds (Recovery) Act to seize a lifestyle property on Karaka Road in south Auckland owned by a family trust he controls.  Following a High Court trial, the property was ordered to be sold with $743,300 forfeited as proceeds of crime.  After clearing a mortgage over Karaka Road, a surplus of some $90,000 would remain if sold as at January 2018 values.  The property was originally purchased in 2001 for $460,000.

On appeal, Snowden claimed the forfeiture figure of $743,300 was a gross overestimate of cash generated from methamphetamine dealing. In challenging police estimates, proceeds of crime legislation required Snowden to prove what is the correct figure, the Court of Appeal said.  He provided no convincing evidence.  It is uncommon for drug dealers to keep precise accounting records.

Any capital gain derived from ‘tainted’ property is also potentially available for forfeiture as proceeds of crime, the court said.  At the High Court trial, it was determined cash from drug dealing was used in part to pay down the mortgage on Karaka Road; the property was ‘tainted.’

Karaka Road is owned by a family trust.  Snowden and close relatives are named beneficiaries. Police said on appeal that while the trial judge did order sale of Karaka Road to free up cash for a criminal proceeds forfeiture order, it was a mistake for the judge to then rule the property itself was not forfeit on grounds of ‘undue hardship;’ doing so meant Snowden as a Trust beneficiary could access the surplus following sale.

The cash surplus on sale is also forfeit, the Court of Appeal ruled.  Relief from forfeiture on ‘undue hardship’ grounds required proof Snowden as a beneficiary of the Trust would be prejudiced.  No such evidence was given at the High Court hearing.

Snowden v. Commissioner of Police – Court of Appeal (26.07.21)

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Relationship Property: Turkmani v. Mlouk

Attempts to force her husband to the negotiating table in a relationship property dispute failed when the High Court ruled Relationship Property Act notices could not be registered against sixty-six different properties owned by two companies her husband controlled.  Registration would have the effect of blocking sales, with potential to force husband Mohamed Turkmani into negotiations with estranged spouse Salwa Mlouk.

Real estate owned by BW Rentals Ltd and BW (2004) Ltd had a market value in excess of $45 million as at late 2020.  These properties are heavily mortgaged.  Mr Turkmani is sole director and shareholder of the two companies.

The couple came to New Zealand from Syria, separating in 2020 after sixteen years marriage.  The High Court was told attempts to reach a relationship property settlement have been unsuccessful.  Ms Mlouk says her husband has threatened to run down his New Zealand business interests and move to Sydney.  Relationship Property Act notices of claim were registered against title to the sixty-six properties owned by her husband’s companies.  Ms Mlouk says relationship money was used to buy company assets, entitling her to share in their value.

Justice van Bohemen ordered the notices of claim be removed from all property titles.  Mr Turkmani is sole director and shareholder of the companies, but his ownership interest is in the company shares he owns.  He has no direct ownership interest in the sixty-six properties; they are assets of his two companies.  At law, both BW Rentals and BW (2004) are legal persons separate from Mr Turkmani. The fact Mr Turmani has absolute control over each company’s operations does not mean the companies’ assets become his own, Justice van Bohemen ruled.

Ms Mlouk’s claim in respect of relationship money used for business purposes was restricted to a claim against the value of shares held by her husband in BW Rentals and BW (2004).  

Turkmani v. Mlouk – High Court (26.07.21)

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Greg Olliver: BBG Holdings v. CIT Holdings

Auckland developer Greg Olliver ran into legal difficulties trying to pick and choose how best to extract money claimed from his failed Auckland property development.

A Waimarie Street project in Auckland suburb St Heliers had to be restructured in 2009 when Mr Olliver ran into financial difficulty. A multitude of court cases followed involving Mr Olliver, his then spouse Sarah Sparks and secured creditor Bank of New Zealand.  A rising property market helped.  A decade on: the Waimarie properties were sold to Oceania retirement group for $20.5 million; BNZ was repaid in full; and liquidators of CIT Holdings Ltd (former owner of the Waimarie site and the vehicle established in 2009 to steer around Mr Olliver’s then financial difficulties) are holding some $3.8 million available to pay unsecured creditors who between them claim $5.8 million. Mr Olliver has been shopping around, to identify the best way to benefit from this $3.8 million.

The High Court was told Mr Olliver is owed $836,000 for earthworks carried out on Waimarie Street prior to CIT’s liquidation. Initially, Mr Olliver used BBG Holdings Ltd (a company he controlled) to make the $836,000 claim against CIT. This claim as an unsecured creditor was accepted by CIT liquidators after receiving paperwork in support. One year later and before CIT liquidators had made any payment to unsecured creditors, BBG Holdings itself was in liquidation with insolvency practitioner Damien Grant appointed liquidator. Mr Olliver told Mr Grant BBG owed him some eight million dollars.  Mr Grant required proof.  He did not accept as sufficient evidence accounting spreadsheets supplied by Mr Olliver. Detailed documentation with formal proofs of debt were required.

Mr Olliver changed tack.  He said BBG had carried out the earthworks when it had no right to be on site.  He contacted CIT liquidators telling them the $836,000 unsecured claim put in by BBG Holdings should be rejected.  As a consequence, Mr Olliver would likely achieve a higher payout, the High Court was told. Mr Grant responded with a High Court order that BBG’s claim against CIT Holdings for $836,000 stand.

Associate judge Sussock ruled a contract did exist between CIT and BBG for the earthworks.  As an unpaid creditor, BBG was entitled to claim $836,000 in CIT’s liquidation.

JG Civil Ltd, owned by Orewa contactor Joel Giddy, in turn claims $836,000 as an unsecured creditor in BBG’s liquidation; it carried out the earthworks at Waimarie Street under contract to BBG Holdings.

BBG Holdings Ltd v. CIT Holdings Ltd – High Court (23.07.21)

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Bride Price: Almarzooqi v. Salih

Marrying in Dubai under Sharia law, Rafid Salih paid an immediate bride price of $12,700 to his new wife Rahla Almarzooqi, promising a deferred bride price of $212,000 should they later divorce. They divorced three years later. An order of the Dubai courts that Mr Salih pay the deferred amount could not be enforced in New Zealand because he did not appear at the Dubai hearing.

New Zealand courts have signalled a willingness to follow the practice in England courts and recognise Islamic traditions around marriage and divorce, but Ms Almarzooqi’s claim in the New Zealand courts to a deferred bride price foundered on technical issues of jurisdiction: rules governing enforcement of an order made by a foreign court.

In New Zealand, the Court of Appeal said the Dubai court order pronouncing their divorce would be recognised (this was a change of status) but not the order Mr Salih pay a sum of money (that required him to have been under jurisdiction of the Dubai court).       

The two live in New Zealand.  They first met on an Islamic dating website, when she was living in Australia and he in New Zealand.  She is a UAE citizen and a NZ resident; he is Iranian and a NZ citizen.  They travelled to Dubai, marrying according to Sharia law with their marriage contract providing for payment of both an immediate and a deferred bride price.  They separated within six months.

As a UAE citizen, Ms Almarzooqi applied to the Dubai courts for a divorce.  Divorce papers were served on Mr Salih in New Zealand.  The Dubai court rejected papers filed by Mr Salih in response; he had to either appear in person or have a lawyer appear on his behalf, the court said. Mr Salih did neither.  The divorce hearing proceeded without any further input from him.

In New Zealand, the Court of Appeal ruled Mr Salih had never submitted to Dubai jurisdiction; having court papers rejected by Dubai courts and then doing nothing did not bring him under Dubai jurisdiction.   The Dubai court judgment ordering payment of the deferred bride price could not be enforced in New Zealand. 

Almarzooqi v. Salih – Court of Appeal (23.07.21)

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Deadlock: McGehan v. Clarke

With conflicting aims for their joint venture project, Michael McGehan and Jeffrey Clarke fell out, coming to blows over plans for their Te Hoe subdivision in north Waikato.  With no agreement on a price at which either would buy out the other, Te Hoe Dairies Ltd was ordered into liquidation by the High Court.   

Te Hoe lies in rolling farmland between Huntly and Morrinsville.  In 2017, the McGehans and the Clarkes joined forces with plans to purchase a local farm and subdivide the property into lifestyle blocks.  Jeff Clarke had farming experience; Michael McGehan had previously been his bank manager.  Te Hoe Dairies Ltd was set up as a joint venture company, owned 50/50 by the two families.  The property was leased to the Clarkes for farming whilst subdivision plans were progressed.

The High Court was told differences arose over marketing plans after council approval was given to split off three rural lifestyle sections.  These were eventually sold in early 2020.  The Clarkes leased the remaining 35 hectares as a run-off dairy unit.  The Clarkes had separately purchased a neighbouring farm, intending to amalgamate the two.  Things got ugly, with Mr McGehan alleging the Clarkes were using joint venture resources for capital works benefitting a future farm amalgamation. Police were called after a physical confrontation over arguments about ownership and use of machinery on site. Mr McGehan was arrested and issued with a pre-charge warning.  The Clarkes trespassed Mr McGehan from the farm.  The Clarkes later stopped paying farm lease rentals to the joint venture company. There were complaints the Clarkes were renting out a farmhouse on the joint venture property and were keeping the rent.  No agreement could be reached over a price for one to buy out the other because of disagreement over what each owed the company or is owed by the company.  Each side accuses the other of acting in their own interests, to the detriment of the other.

Associate judge Andrew ruled the only way out of the impasse was to order Te Hoe Dairies Ltd into liquidation with an independent liquidator appointed to sell the remaining 35 hectares and sort out who owes who how much.

McGehan v. Clarke – High Court (22.07.21)

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Charitable Trust: Lusty v. Thorburn

Six hectares of land on the Weiti River near Whangaparaoa Peninsular was settled on a charitable trust by Andrew Weatherspoon in 1901.  His descendants improperly treated the land as their own, in breach of trust, ruled the High Court when current trustees challenged a lease over the property.

The land on Duck Creek Road at Stillwater was transferred by Andrew Weatherspoon on trust to his two sons Robert and Andrew in July 1901. Terms of the trust required the land to be used as a burial ground generally for local inhabitants and specifically for members of the Weatherspoon family.  The trust allowed part of the land to be leased, earning income for upkeep and maintenance of the burial ground.  At the time the trust was created, Andrew’s first wife and their eldest daughter had pre-deceased him and were both buried on the property. Andrew (senior) joined them, buried on the land when he died a few months after setting up the trust.  

The High Court was told Andrew senior’s sons as trustees made little effort to comply with terms of the trust.  They leased out the land, but rentals were not used to maintain the burial sites.  Headstones were at one point buried to accommodate stock management.  Following Andrew senior’s burial, no one else was ever interred at the site.  The Trust was left without trustees after Robert and Andrew junior died without appointing replacement trustees.

Attempts to sell the land in 1987 triggered a recognition that the land was held in trust.  High Court orders followed; Fred Thorburn, a descendant of Andrew senior, was appointed as replacement trustee.  The Trust was confirmed to be a charitable trust.  It promised a benefit for the local community as a burial ground, though in fact it had never been used as such.

More than a century after the Trust was established, current trustees Craig (son of Fred Thorburn) and Carly Thorburn challenged terms of a lease signed by Craig’s father as prior trustee.  It transpired Fred had leased the Duck Creek property in perpetuity at a below market rental coupled with a side deal in which he received $250,000.  This side deal roughly equated to the then market value of the property, but was described as being compensation to Fred for his costs in maintaining the land and payment of rates.  On Fred’s death, Duck Creek lease payments were paid to his widow.  In the High Court, Justice Powell ruled the in perpetuity lease breached terms of the Trust: it did not physically separate the burial ground from farming activities and a requirement to fence blocked public access. A below market rental frustrated aims of the Trust.  Current trustees indicated they were open to negotiating new lease terms which did comply with the Trust.

Lusty v. Thorburn – High Court (15.07.21)

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Mining: Bathurst Resources v. L&M Holdings

Having warned against the danger of judges departing from the plain wording of commercial contracts, a majority of judges in the Supreme Court decided a US$80 million contract dispute between Bathurst Resources and L&M Holdings was in part resolved by making some judicial assumptions about the mining companies commercial motives.  

Two Supreme Court justices decided Bathurst was in breach of contract with US$80 million still owing for its 2010 purchase of West Coast coal mining concessions.  Three justices decided otherwise; US$40 million only was outstanding. 

Bathurst purchased the Denniston and Stockton mining permits on the West Coast with the international price for coking coal peaking at US$330 per tonne in mid-2011, sinking to a low point of US$80 over the next five years.  When Bathurst was looking to raise capital to finance mine expansion, its potential revenue stream was shrinking.

Bathurst’s 2010 purchase from L&M Holdings required payment of US$40 million upfront with subsequent payments triggered when stated volumes of coal were ‘shipped’ from the permit areas.  Claims by Bathurst that ‘shipped’ meant exported offshore were dismissed by the Supreme Court; ‘shipped’ meant sold and transported from the mine site.  Domestic sales of 25,000 tonnes of coal counted, triggering a US$40 million payment.

The Supreme Court was told of further agreements negotiated between Bathurst and L&M Holdings intended to assist Bathurst in its capital raising:  failure to pay on time lump sum scheduled amounts as Bathurst ramped up production would not be treated as a ‘default;’ payments were rescheduled with royalty rates increased as compensation for late payment.  The effect of these further agreements was thrashed out in the Supreme Court after Bathurst suspended mining on the West Coast, concentrating on other mining concessions taken over after the break-up of government-controlled Solid Energy.  The earlier rescheduling assisted Bathurst when raising some A$165 million through two equity raising rounds in the 2010/11 financial year.

In the Supreme Court, two justices ruled Bathurst still owed L&M US$80 million, unpaid as part of the purchase price. The other three justices ruled only US$40 million was due for the tonnage ‘shipped;’ the remaining US$40 million was not part of the purchase price but rather a scheduled ‘performance payment’.  L&M was not bargaining up front for an agreed purchase price payable by instalments; its economic return was tied to Bathurst’s ability to exploit the mining concession, they decided.    L&M Holdings’ motive in agreeing to reschedule further performance payments was to assist Bathurst’s capital raising, they said. It was in L&M’s interest to see Bathurst increase mine production.  As part of the rescheduling, L&M did not impose any legal obligation on Bathurst to actually ramp up production on the West Coast.  No further payment was due if production stopped.  It was up to an experienced mining investor like L& M to protect itself from that potential downside, the majority said.  It was not for the court to read extra terms into the contract to protect L&M against that eventuality, they ruled.

Of the US$120 million potentially payable by Bathurst: US$40 million was paid on signing the 2010 contract; US$40 million was ordered to be paid with Bathurst having ‘shipped’ 25,000 tonnes of coal following domestic sales; the final tranche of US$40 million was not payable because Bathurst shut down production.

Bathurst Resources Ltd v. L & M Holdings Ltd – Supreme Court (14.07.21)

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Fraud: Tollemache v. R

With a low risk of reoffending and having taken steps to deal with methamphetamine and gambling addictions, Kelly Samantha Tollemache’s prison sentence for a $187,000 social welfare fraud was reduced to home detention.

Tollemache was sentenced to two years three months’ imprisonment in May 2021 after pleading guilty to a ten year benefit fraud. She claimed to be single when living in a de facto relationship.  It was not a particularly sophisticated fraud: her public social media pages showed she was living in a de facto relationship; benefits paid separately to both her and her partner were paid into the same bank account.

The High Court was told Tollemache’s partner had to resign from his job following her imprisonment in order to look after a twelve year old daughter.  Now back on a benefit, reparation deductions were being made for his earlier benefit fraud. Tollemache gave birth just weeks before being sentenced to prison.

Justice Gault ruled the trial judge failed to give sufficient weight to Tollemache’s low risk of reoffending and personal steps taken towards rehabilitation.  Her partner could return to paid work should Tollemache’s prison sentence be quashed. She was resentenced to nine months’ home detention together with sixty hours community work.  The period of home detention took account two months of her initial sentence served in prison.

Tollemache v. R. – High Court (14.07.21)

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Millbrook: X-Ray Trust v. Millbrook Country Club

Free membership of Millbrook Country Club near Arrowtown with access to its golf course plus a $5000 monthly membership credit were the opening gambit by neighbours Nathan Branch and Brian Cartmell challenging Millbrook’s plans to build an on-course halfway house refreshment facility one hundred metres from their property.  Millbrook called their bluff, seeing off their High Court challenge to construction plans.   

Through their company X-Ray Trust Ltd, neighbours Nathan Branch and Brian Cartmell already had some leverage over Millbrook. In 2014, Millbrook purchased the adjoining Dalgleish Farm as part of its golf course expansion.  Golf course construction required rezoning Dalgleish Farm; rural general to Millbrook resort zone.  X-Ray challenged the rezoning, claiming it would destroy the rural character and privacy of its property.  A deal was thrashed out.  X-Ray withdrew its objection.  In turn, Millbrook registered covenants over the Dalgleish land, holding it to specified building restrictions and landscaping requirements. 

Subsequent negotiations saw a further agreement in June 2018. X-Ray agreed to Millbrook’s construction on the golf course of a halfway house; a small toilet block and service building limited to forty square metres. In return, Cartmell and Branch were given the right to play golf at Millbrook free of charge.  X-Ray later argued Millbrook’s plans to construct a café with outdoor seating alongside a toilet was outside the 2018 agreement.  Legal action was threatened. X-Ray offered to back off if free membership and a $5000 monthly credit was extended to anyone owning the property currently owned by X-Ray.  This would extend the playing concession previously granted to Cartmell and Branch personally and would markedly increase the resale value of X-Ray’s land.

In the High Court, Justice Nation refused X-Ray’s application for an injunction seeking to stop Millbrook’s construction of the half-way house.  Only the ridgeline of the proposed halfway house would be visible from X-Ray’s land. Landscaping already in place provided extensive privacy.  X-Ray Trust was seeking to gain a commercial advantage from the agreements it had originally negotiated, using them as leverage for monetary gain, Justice Nation said.

X-Ray Trust Ltd v. Millbrook Country Club Ltd – High Court (13.07.21)

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Sacred Hill: Mason v. McKay

Last ditch attempts by David Mason to rescue his Sacred Hill group failed as he pinned hopes on continuation of a US wine supply contract he claimed was generating annual profits of twelve million dollars.

Sacred Hill Marlborough Vineyards Ltd and Sacred Hill Vineyards Ltd, both controlled by Hawkes Bay vintner David Mason, were pitched into receivership by Westpac in May 2021.  Property Law Act notices demanded payment of $53 million by mid-July; precursor to a forced sale by Westpac.

The High Court was told Sacred Hill receivers agreed to sell company assets to Marlborough wine processor, Vinlink Marlborough Ltd for some $41 million.  This was a back-up deal, conditional on Mr Mason being unable to refinance the Westpac loan by its mid-July deadline.  Same day as the Westpac deadline expired, Mr Mason was in court demanding the Westpac deadline be extended.  This would have the result of blocking sale of Sacred Hill assets to Vinlink.  The receivers’ sale to Vinlink was at an undervalue, he claimed.  It did not include the value of a long-term Sacred Hill contract for the supply of product to a Louisiana company in the United States which in turn supplied the Costco chain, he said.  This supply contract had at least five years to run, carrying a potential profit of sixty million dollars over the next five years, he claimed.

Mr Mason claimed to have third party support in hand offering sufficient funding to pay Westpac.  Justice Lang ordered the Westpac deadline for repayment extended by two days.

Mason v. McKay – High Court (13.07.21)

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Post judgment note: Two days later, Mr Mason was back in court claiming he had conditional interest from Japanese investors willing to recapitalise Sacred Hill.  Justice Jagose dismissed Mr Mason’s further attempt to extend the Westpac deadline saying this offshore expression of interest ‘carries little more weight than the paper on which it is written.’ Companies in the Sacred Hill group went into liquidation three weeks after the extended deadline expired.

Leaky Building: Roberts v. Jules Consultancy

It was an innocently misleading statement which resulted in Wellington property manager Jules Leloir being held liable for Michael Roberts’ losses when overpaying for a leaky apartment, but the Court of Appeal reduced damages by forty per cent for Mr Roberts’ failure to carry out his own proper due diligence.

In 2014, Mr Roberts signed up to buy a three-bedroom apartment in Wellington’s Sirocco Apartments for $397,000.  The building was then managed by Ms Leloir’s Jules Consultancy Ltd.  She responded to a phone query from Mr Robert’s lawyers stating that Sirocco’s weather tightness issues related only to walkways and that had been rectified. His lawyers were following up on Council records suggesting Sirocco had potential weather tightness issues.  Minor works carried out on the building exterior a few months after Mr Roberts’ purchase led to suspicions there were serious weather tightness problems.  As it turned out, the eleven story Sirocco building proved to need major rectification.

In the High Court, Ms Leloir was ordered to pay Mr Roberts $93,500 damages for breaching the Fair Trading Act.  Mr Roberts challenged the calculation of damages; estimated repair costs for Sirocco had more than doubled to $22.7 million between the date of his Sirocco purchase and the High Court hearing.  Damages of $671,000 better reflected his loss, Mr Roberts said.

Damages required a calculation of the difference between what Mr Roberts agreed to pay and the value of what he got, assessed at the date of purchase, the Court of Appeal ruled.  This difference was calculated by the trial judge as being $110,000 taking into account Sirocco apartment sales around the time of Mr Roberts’ purchase.  Ms Leloir had no legal responsibility for Mr Roberts’ share of ongoing Sirocco repair costs.

Ms Leloir said Mr Roberts should shoulder a greater share of responsibility for his losses than the fifteen per cent contributory negligence fixed by the trial judge.  The Court of Appeal increased Mr Roberts’ responsibility to forty per cent. The Council LIM report raised a red flag; Mr Roberts should have obtained a specialised building report. Such a report would have identified Sirocco design features led to a high probability that it was a leaky building, the Court of Appeal ruled.  Mr Roberts’ purchase was conditional on his being entirely satisfied with Sirocco body corporate records.  He did not ask for copies.  Committee minutes at that time showed minor leaks in a number of apartments, believed at the time to be plumbing issues from apartments above.

Increasing Mr Roberts’ liability to forty per cent meant Ms Leloir was ordered to pay $66,000 for her misleading statement about Sirocco’s weathertightness.

Roberts v. Jules Consultancy Ltd – Court of Appeal (9.07.21)

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Loan: Goldstone v. Sheath

It started with May Kam Kiu Sheath asking her then seventy year old neighbour for a loan to bail her estranged husband from jail.  Over the years, requests for loans grew more frequent.  The High Court has ordered her repay $589,450 to a former Remuera neighbour who is now aged 82 and living in a retirement village.

The High Court was told of repeated failures by Ms Sheath to repay borrowed monies and subsequent failures to make repayments required by an agreed repayment schedule.

Ms Sheath befriended her neighbour when at home raising two young children while her husband worked long hours, operating a wine bar.  The first request for a loan came after Ms Sheath had separated from her husband and she was seeking funds to post bail when he was imprisoned in Australia.  The neighbour continued to assist financially over a period of several years, believing Ms Sheath’s Hong Kong parents were extremely wealthy.  In the six years to 2014, Ms Sheath borrowed $400,000.  There were always reasons offered explaining failures to repay.  Sporadic partial repayments were made.

In November 2015, there were attempts to put all previous loans on a more formal footing with written agreement as to how much was owed, provision for interest and fixed repayment dates.  Repayment deadlines were not met, resulting in loans being rolled over and new repayment terms agreed.  A December 2020 written agreement fixed the full amount then due and set out a schedule of monthly payments.  Only one scheduled payment of $10,000 was made, and that was paid late.

In the High Court, Justice Woolford entered judgment against Ms Sheath for $589,450 unpaid.  She did not attend the court hearing.

Goldstone v. Sheath – High Court (7.07.21)

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Land: Inspire Holdings v. JSM Properties

Claims by Auckland real estate agent Anyos Gonczy that his purchase of three Pukekohe sites was in the bag were dismissed by the High Court; price at $2.4 million was agreed, but GST liability was never finalised.

Over a two week period in early January 2021, Mr Gonczy was negotiating with JSM Properties Ltd for purchase of adjoining sites in Seddon Street and Dublin Street, Pukekohe. Through his company Inspire Holdings Ltd, he offered ‘$2.4 million inclusive of GST.’  JSM countered with its offer to sell at ‘$2.4 million inclusive of GST (if any).’

The High Court was told JSM Properties is owned by a consortium of private investors.  They were aware Inspire might be claiming a GST refund on any purchase. As protection against a potential loss of $313,000 from the purchase price, JSM Properties wanted the contract worded as including GST ‘(if any).’

Mr Gonczy subsequently sent back an amended version of the previously amended agreement for sale and purchase with the bracketed phrase ‘(if any)’ struck out and with that change initialled.  The High Court was to later rule this amended document amounted at law to a new offer; terms offered by JSM in the previous interchange had now lapsed.    

Evidence was given of a flurry of emails then resulting in a consensus that the bracketed phrase ‘(if any)’ could stay, with the addition of a GST warranty clause, terms of which were yet to be agreed. Mr Gonzcy promptly sent off a reprint of the JSM counter offer from days previously, duly signed and initialled. He claimed there was now a binding contract at $2.4 million, with the price inclusive of GST (if any).

There was never any agreed contract Associate judge Andrew ruled.  Signing a reprint of the earlier JSM counter offer was not an acceptance of that counter offer; the counter offer was not capable of acceptance since it no longer existed, it had lapsed when Mr Gonzcy made a subsequent offer striking from the document the phrase ‘(if any).’  The flurry of emails did not create a contract either; agreement was conditional on negotiating a GST warranty clause and that had not been finalised. Contract negotiations made it clear there was no binding deal until everything was reduced to writing and signed off by both sides, Judge Andrew said.

Inspire Holdings Ltd v. JSM Properties Ltd – High Court (7.07.21)

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Land: McCaw v. Owen

Susan McCaw’s aunt agreed to sell her half a 33 hectare block of family land at Moerewa in Northland, left her with the job of getting separate titles surveyed off and then refused to go ahead with the sale after already receiving half the purchase price and letting them start building a home on site.  The High Court ordered Mary Owen honour the sale. 

In 2018, Aunt Mary told Susan and John McCaw to leave the Moerewa property.  She planned to keep the $42,250 already received as part payment for purchase of the land, claiming the money as rent for occupation of her property.  The McCaws stayed put, suing to prove ownership.

The High Court was told Mary Owen owned in conjunction with her late husband’s estate a 33 hectare block of poorly managed farmland near Moerewa.  A March 2016 contract was signed with her niece Susan and husband John McCaw selling a fifteen hectare slice for $90,000.  It transpired there was no resource consent for a subdivision and no survey yet completed to determine title for the McCaws’ fifteen hectares.  A new deal was struck: the McCaws would arrange and pay for costs of the subdivision; the purchase price was reduced to $85,000; Mary would receive the $20,000 deposit directly even though there was as yet no clear title; and the McCaws could shift on site immediately and start building their family home.

Council subdivision requirements took longer than expected.  Meanwhile, Mary demanded payment of the full purchase price.  By early 2017, the McCaws had paid her half the purchase price and were holding the consents required from Far North District Council. All that was required was Mary’s signature as registered owner of the land being subdivided.  She refused to sign, blocking the issue of new titles.

In the High Court, Justice Woolford ruled there was a binding contract for sale of fifteen hectares to the McCaws.  Mary Owen was ordered to sign the approved subdivision plan. If she refused, the registrar of the High Court at Whangarei was authorised to sign the paperwork necessary to have title issued and land transferred to the McCaws.

McCaw v. Owen – High Court (7.07.21)

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Estate: Wakefield v. Wakefield

Helena Wakefield moved into the family home and cared for her mother in the last eight years of her life, then failed to carry out terms of her late mother’s will, leading to court orders removing her as an executor of the estate and evicting her from the family home in Remuera, Auckland.

Her mother, also named Helena, died in 2019.  Her last will named daughter Helena and son Larry as joint executors and left a half share in her estate to each of them. The High Court was told Helena refused to co-operate with her brother.  Two years later a High Court order saw her brother appointed as sole executor of their mother’s estate.  Helena was ordered to pay the $21,800 legal costs incurred sorting out appointment of an executor.

Helena refused to co-operate with her brother as executor and refused to leave their late mother’s home in Dempsey Road, Remuera. In June 2021, she was given formal notice to leave in the next three months with an offer of $600 per week as an interim payment for six further months to help with alternative accommodation, these payments to be deducted from her share of their late mother’s estate.

At a subsequent High Court hearing, she was ordered to give up possession of Dempsey Road as an ‘unlawful occupier’ and further to pay an occupation rent at $575 per week from end of March 2021 to the date she vacates.  Helena did not appear at the court hearing.

Wakefield v. Wakefield – High Court (6.07.21)

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Land Dispute: Robertson v. Robertson

Manoeuvring by one brother to get a price advantage over the other was cut short by the Court of Appeal; 8.3 hectares in the centre of Warkworth valued in excess of seven million dollars owned by Conrad and Martin Robertson is to be sold at auction with each entitled to bid.

The two purchased the land in early 1980s, carrying on a family boat building business alongside the Mahurangi River.  In 1995, Martin left to continue boatbuilding from other sites.  He remained co-owner of the Mahurangi site with brother Conrad; the two as landlords leased the site to Conrad’s business.  The Court of Appeal was told each at various times offered to buy out the other, with nothing ever agreed.  In 2007, the lease to Conrad expired, running-on as a monthly tenancy at the previous rent.  Over time, this rental began to diverge markedly from market rents.

Discussions over what to do with the land stalled. Conrad wanted full ownership so he could expand his boat building business operating from the site; Martin had plans for development as residential housing.  Conrad’s court application to have the land partitioned under the Property Law Act saw a court ruling the land be sold at auction with each entitled to bid and each receiving half the net proceeds on sale.  Conrad appealed. He variously wanted: that the court fix a price at which he would buy out his brother; that part of land occupied by his boatyard be carved off for him to take sole ownership; that he be entitled to buy out his brother at a earlier 2020 valuation.

Criticising what it called a kaleidoscope catalogue of changing proposals from Conrad, the Court of Appeal confirmed the earlier court ruling that the land be sold at public auction.  This was the best method to determine current market value. Either brother could bid; each had the bidding advantage of receiving back half the price paid.

Robertson v. Robertson – Court of Appeal (5.07.21)

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Kelstworural Ltd v. Mounsey-Ross & Ross

Former owners of Red Fox Tavern at Maramarua were ordered to pay $936,000 for trading whilst insolvent and also using company cash for personal expenses.  In addition, Kelly William Ross and Kelly Michelle Mounsey-Ross siphoned off $216,000 proceeds from selling the business by channelling their sale through a company controlled by Mr Ross’ mother.

Operating through their 50/50 company Kelstworural Ltd, the two took over Red Fox Tavern in 2011, closing down and selling the business six years later.  The High Court was told the business was under-capitalised from the start and was trading whilst insolvent almost from the get-go.  They paid trade creditors to ensure the Tavern was supplied on order, but defaulted on PAYE and GST payments due Inland Revenue.  By the time Kelstworural was forced into liquidation by Inland Revenue, tax arrears pus interest and penalties totalled some $610,000. Inland Revenue was the only creditor in Kelstworural’s liquidation.

Liquidators PriceWaterhouseCoopers sued them for breach of directors’ duties.  Justice Jagose ordered the two pay $609,700 to the company for trading whilst insolvent. There was no evidence they made any effort to ensure Inland Revenue was paid on time, he ruled.  Unpaid PAYE and GST was used as working capital.  At a time when Inland Revenue was unpaid, the two benefitted from $326,000 company cash used to pay personal expenses.  The liquidators also sued them to recover these personal drawings.

Kelstworural Ltd v. Mounsey-Ross & Ross – High Court (2.07.21)

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Freezing Order: Millionaire Makers v. Portman Project

Peter Chevin, currently disqualified from acting as a company director, is alleged to have used false advertising to lure investors into a proposed property development.  Investors had $260,000 held in a Kiwibank account frozen by High Court order.

Portman Project Ltd was set up in September 2020 as a single purpose company to carry out a fifteen lot subdivision.  Stephen Lunn was sole director, holding a five per cent stake through his company Lunbros Ltd; balance of the shares were held by a company called Totara Sea Trustee Ltd, a company described as holding shares on trust for Mr Chevin.

The High Court was told a November 2020 Trade Me advertisement called for a new investor willing to put up $260,000 to replace a current Portman investor who wished to sell out for personal reasons.  Reference to a ‘current investor’ was a complete fiction; cash was needed urgently to pay a deposit on the land to be subdivided.  Mr Lunn challenged Mr Chevin about the fact of the Trade Me advertisement and its content.  He had never been consulted.  Investors who had seen the advertisement had by then already met with Mr Chevin, later signing an investor agreement and paying $260,000.  These investors demanded their money back.  There was no binding contract with the company, they said.

At a time when Mr Lunn was sole director, the investors’ contract was signed on behalf of Portman Project by an Alexander Russell Constable.  Described by Mr Lunn as being a ‘mere bookkeeper’ for Portman, Mr Constable had no authority to sign on behalf of the company, he said.  Evidence was given of Mr Chevin and Mr Constable conniving to change the company register to show Mr Constable as Portman’s sole director.  This change to the register was filed one day after the date of the investors’ disputed contract.  Mr Constable was never validly appointed as a director, the investors say. Mr Lunn disputes Mr Constable’s claim to be a director.

Investors also claim the funding arrangement was based on a misleading advertisement in breach of the Fair Trading Act.

Justice Duffy ruled the investors have a good arguable case for return of their money.  Pending trial, the $260,000 freezing order was confirmed.

Millionaire Makers International Ltd v. Portman Project Ltd – High Court (1.07.21)

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