Lease: Parkhurst Corporation v. Bisht

Wrongfully locked out of premises set up as Imaxx Café & Bistro at Parakai near Helensville, Madhan Bisht’s claim to some $66,000 damages was reduced to $11,300 by the High Court.  The opportunity lost of his onselling the restaurant business at any value was speculative given that the restaurant had never traded profitably.

Mr Bisht signed an eighteen year lease in 2015 giving him access to commercial premises on Parkhurst Road.  The High Court was told rent was paid late consistently from the outset.  Outgoings required to be paid under the lease were never paid.  The landlord heard in February 2017 of furniture and stock being taken from the restaurant in the dead of night.  The restaurant business had been shuttered since the previous December. Assuming Mr Bisht had abandoned the premises, the landlord changed the locks, retaking possession.  The District Court was to later rule that Mr Bisht had not abandoned the lease; the landlord had unlawfully locked him out.  Mr Bisht was entitled to damages for breach of contract.     

Damages for breach of a commercial lease can include damages for lost opportunity; the possibility otherwise lost of selling the business as a going concern along with rights to occupy the leased premises. Damages for lost opportunity awarded by the District Court were overturned on appeal.

There was no evidence as to what the restaurant business was worth or whether the landlord would have consented to a replacement tenant, Justice Walker said.  The fact that the business had never traded profitability and had been closed for some months before locks were changed meant any potential sale price was highly speculative.   

Justice Walker stated the landlord did have the right to recover possession of the premises for non-payment of rent, if only it had followed the correct Property Law Act procedure first giving notice. Had this been done, Mr Bisht would have had no grounds to sue.

Damages of $11,300 payable to Mr Bisht were confirmed; the value of chattels wrongly seized by the landlord less rent arrears.

Parkhurst Corporation Ltd v. Bisht – High Court (29.10.21)

21.176

Fraud: New World v. Zhang

Shaojun Wang needed a court order to prevent her Auckland investment property being sold to recover money colleague Qian Zhang stole from New World.

In 2017, New World sued Zhang getting a court order for repayment of some $329,600.  Recovery was not straightforward.  In 2020, it had a charging order placed on title to a property in Moore Street, Hillcrest, registered in Zhang’s name.  Charging orders are used as a precursor to a forced sale.  Ms Wang objected.  Zhang’s name was on the title, but Zhang held title in trust for her, she said. 

The High Court was told Zhang purchased Moore Street in 2016 for $1.18 million putting in $45,000 cash.  Balance of the purchase price came from an ASB loan together with a cash contribution of $309,000 from Ms Wang.  Zhang was registered as the sole owner. The two women agreed the property would be tenanted with Zhang personally liable for any shortfall between rent received and property expenses.  Over the next eighteen months, Zhang personally carried a shortfall of about $20,900.

In late 2017, their business relationship was reorganised.  A formal deed was drawn up and signed in which Ms Wang agreed to accept liability for the mortgage debt and all property outgoings, with Zhang paid $70,000 and agreeing to transfer title to Ms Wang when requested.  The deed stated Zhang now held Moore Street on trust for Ms Wang. Zhang said she wanted out because she intended to return to China.  There was no evidence that Ms Wang knew Zhang was then being pursued by New World for theft. New World claimed it had rights to Moore Street because beneficial ownership was transferred to Ms Wang at less than market value; it was a ploy to defeat New World’s rights as a creditor, it said.  Justice Peters ruled that Ms Wang’s payment of $70,000 was sufficient to cover both Zhang’s initial contribution to the purchase price and any modest capital gain which had accrued since Zhang’s purchase.  She ordered the charging order over Moore Street removed.

New World (New Zealand) Ltd v. Zhang – High Court (29.10.21)

21.178

Marine Insurance: JDA Co Ltd v. AIG

Suspecting some claims underwritten on a marine cargo policy for used cars exported to New Zealand from Japan were for vehicles already damaged, insurers had a close look at terms of cover after a series of typhoons ripped through Japan in 2018. 

In August and September 2018, Japan suffered extensive damage from a series of three typhoons named Cimaron, Jebi and Trami. Used cars held ready for export to New Zealand were damaged.  Claims were made on an open insurance policy known in the trade as the AIMS scheme, underwritten jointly by AIG Insurance, Vero and IAG New Zealand.  AIMS provided vehicle insurance cover from point of purchase in Japan to delivery in New Zealand.  An open policy meant insurance terms operated as an umbrella, with specific vehicles later nominated for cover and premiums paid.  New Zealand distributors using AIMS advised broker Sage Partners Ltd of vehicles they held in Japan ready for export; Sage then advised the insurance consortium of vehicles to be held covered.  This advice came in a monthly summary.

The effect of this open policy was that distributors could have insurance cover for several weeks before insurers were formally advised of the risk they were underwriting.  Insurers’ liability came to a head after typhoons Cimaron and Jebi swept through Japan.  Insurers imposed a moratorium on underwriting any new business in Japan two days ahead of typhoon Trami sweeping ashore in early September 2018.  At issue was the status of insurance for some 27,000 vehicles distributors claimed were held covered for the month of September.

The High Court was told this September total was not advised to insurers within seven days of the end of the month as required by the policy.  Insurers agreed it was not fatal that the September monthly declaration was a few days late, there had been a regular past pattern of accepting late declarations. Those distributors insuring under the AIMS scheme all vehicles shipped out of Japan kept their September cover, provided the vehicle had been correctly declared in the appropriate end of month declaration.  There was a penalty for sloppy paperwork.  There was no insurance cover on vehicles acquired in previous months which had been added to a later month’s schedule of vehicles insured, Justice Gault ruled.  There was also no back-dated open insurance cover for those distributors who did not insure all exported vehicles, instead taking ‘spot cover,’ opting into AIMS blanket marine cover for specific vehicles on a sporadic basis.  Their cover did not start until insurers received actual notice of the risk and agreed to provide cover.  

Insurers agreed to refund premiums paid on those vehicles the High Court ruled were not covered.  The High Court was told the insurance consortium cancelled in October 2018 its participation in the AIMS scheme.

JDA Co Ltd v. AIG Insurance – High Court (29.10.21)

21.177

Investment: Huang v. Huang

With extended Chinese family spread across several generations and living in four different continents, the High Court ruled legal dispute over $7.8 million generated from an Auckland subdivision should best be heard by courts in the People’s Republic of China. 

In 1999, the Huang family in Guangzhou formed a business group known in English as the Heli Group.  It has grown into a conglomerate with multiple investments held in the names of various Huang family members.

At issue was profits from a very profitable investment in an Auckland Silverdale subdivision by a company called Grand Silverdale Development Ltd.  JieHao Huang put in funds amounting to a 3/11ths share.  Grand Silverdale struck gold.  Its land purchase in 2017 for $32.8 million generated a $38.4 million profit two years later.  A dispute followed within Heli Group as to who was entitled to Huang’s ten million dollars profit share from Grand Silverdale.

The High Court was told that as Heli Group expanded, ‘first generation’ members gradually loosened control giving greater autonomy to ‘second generation’ members in making investment decisions. JieHao Huang is a second generation member.  Heli Group’s first generation members said the Grand Silverdale investment was funded with retained business profits which would otherwise have been distributed to them as dividends.  The entire ten million Grand Silverdale profit was theirs, they said.  JieHao Huang said the 3/11ths Grand Silverdale investment was funded not only by Heli Group but also by other investors he had assembled.  He had taken steps to return some three million dollars to first generation owners, but was withholding the rest.  That money was owed other investors, he said.    

Justice Campbell said this was not a dispute which could be decided in New Zealand courts.  China courts better understood the context and were best placed to rule on business practices within Heli Group and the significance of multiple WeChat messages between members of the extended Huang family regarding their Grand Silverdale investment.

Huang v. Huang – High Court (29.10.21)

21.178

Holiday Pay: Metropolitan Glass v. MBIE

Discretionary bonuses do not form part of gross earnings for calculation of holiday pay where the employer truly has a discretion whether to make bonus payments or not, the Court of Appeal ruled in a test case.

A discretionary bonus scheme established by Metropolitan Glass in 2016 wended its way to the Court of Appeal in a test case on calculation of holiday pay.  The Holidays Act requires employee holiday pay to be calculated on ‘gross earnings.’ Labour inspectors from Business, Innovation and Employment argued all discretionary bonus payments formed part of gross earnings and should be included in calculation of holiday pay.  The Metropolitan Glass scheme set specified financial targets as triggers for bonus payments.

The Court of Appeal ruled there is a Holidays Act distinction between payments subject to specific conditions being met (which are included in gross earnings) and payments where an employer may choose to make no payment even if specified conditions are met (which do not fall within the definition of gross earnings).    

Metropolitan Glass was not contractually bound to pay bonuses.  Its short-term incentive bonus scheme did set specific targets before payment of bonuses might be considered but the scheme specifically stated that the company retained a discretion to not make any payment even if all conditions were met.

Labour inspectors said this ruling will result in some employers paying a deliberately low salary and topping it up with regular so-called discretionary payments to both reduce liability for holiday pay and to discourage staff from taking holidays.  This scenario is an extreme example that cannot detract from a correct interpretation of the Holidays Act, the Court said.

Metropolitan Glass & Glazing Ltd v. MBIE – Court of Appeal (26.10.21)

21.174

Halifax: Loo v. Halifax NZ Ltd

Allowing customers to keep derivative trading positions open when Halifax went bust did not mean they personally kept investment gains accruing after liquidation.  Trading gains went into the pool to meet deficiencies owed all customers because Halifax’ records of customer holdings did not match securities supposedly held on their behalf.

Australian financial services provider Halifax Investment Services Pty Ltd went into liquidation insolvent in November 2018, followed days later by its New Zealand affiliate.  Investigations found there was a $A19 million shortfall between securities supposedly held on behalf of customers and the stated value of individual customer accounts.  Customer funds were supposed to have been kept separate.  Instead, Halifax management used trust funds for working capital in breach of trust.

In a novel legal approach, judges in both New Zealand and Australia jointly heard evidence as part of the legal wash-up.  Judges on each side of the Tasman issued separate court rulings in respect of investors in each country, but with similar legal rules operating in both countries their final rulings were not contradictory.      

Evidence was given that administrators did not immediately close out customers’ open derivative positions when Halifax went into administration.  Some customers at that point argued they could trace rights of ownership to specific securities held by Halifax.  Others threatened to sue administrators if they did not first get a court ruling to close positions.  Leaving positions open meant some investors saw their derivative holdings decline in value, others saw an increase.

A derivative contract fixes a price today for performance at a later date.  Derivative values move daily as the market value of underlying assets move.  A derivative contract is closed, and the profit or loss crystallised, with the purchase of a derivative contract netting off the earlier obligation to perform. 

One Halifax customer holding open positions valued at $A361,500 as at November 2018 saw these same open positions worth $639,700 two years into Halifax’ liquidation.  As a gain arising from his greater investment skills this gain should be paid out to him personally, he said.  The investor was bearing no downside risk, Halifax liquidators pointed out.  Should value of his open derivative contracts have dropped, he would still be recorded as a Halifax creditor at the higher previous November 2018 value. 

Investment gains arising from open positions were not ‘owned’ by individual investors, the Court of Appeal ruled.  Customer accounts as at November 2018 were book-keeping fictions that did not accurately correspond with securities Halifax held on behalf of clients.  Once Halifax went into administration, unpaid investors had a shared equitable interest in the realised value of securities held by Halifax on their behalf.  Investor proportionate entitlements were to be assessed on the amount each was owed as at the November 2018 date of administration, the court ruled.

Loo v. Halifax New Zealand Ltd – Court of Appeal (26.10.21)

21.175 

Bankruptcy Notice: Calypso No.11 v. Fistonich

Three years on from the collapse of Accent On Construction Ltd’s new build in Auckland for Housing New Zealand, Accent director Ian Fistonich is fending off threats of personal bankruptcy on his guarantee of office rents.  

Accent on Construction is in both receivership and liquidation with a list of unpaid creditors a mile long and no promises of early resolution.  Accent on Construction leased office premises in Henderson, west Auckland.  Mr Fistonich guaranteed the rent.  In 2019, the landlord got a court order that he pay some $180,000 for rent unpaid after Accent on Construction went into liquidation. The landlord is having difficulty finding any assets owned by Mr Fistonich personally.  It registered charging orders against titles to two properties in Henderson having names of Ian Fistonich and Graeme Halse listed as owners. Charging orders against land are used to secure payment of court orders.  Mr Fistonich protested.  He and Mr Halse are registered on the titles as trustees of a family trust, he said. The properties are not owned personally, he said.  They cannot be sold to meet a personal debt.  The landlord removed the charging orders one week later.

The High Court was told the landlord then served a bankruptcy notice on Mr Fistonich for the unpaid $180,000 rent.  Bankruptcy follows failure to pay the amount claimed in a bankruptcy notice.  Mr Fistonich applied to have the bankruptcy notice set aside.  He had a valid cross-claim against the landlord, he said. Each owed the other money; he was quits on the unpaid guaranteed rental, he claimed.

Mr Fistonich told the court proposed refinancing of one of the trust properties was disrupted by the charging order registration.  This led to a loss of substantial profits anticipated on a new project, he said. Finance was being sought for a proposed build of four houses in west Auckland.  Financiers were scared off by the sudden appearance of a charging order on title to the property being offered as security, he alleged.  The landlord was liable for this loss of profits, he claimed.

Associate judge Gardiner ruled Mr Fistonich did not have a genuine, triable cross-claim.  His claim against the landlord was based on pure speculation, Judge Gardiner said.  Speculation as to the possibility of successfully raising finance, speculation as to the possibility of the project going ahead and speculation as to the possibility of the project being profitable.

The fact Mr Fistonich did not proceed with proposed refinancing after the charging order was removed, despite the intended project being described as ‘certain and potentially lucrative,’ emphasised how speculative was his cross-claim, Judge Gardiner ruled.   

The bankruptcy notice remained in place.

Calypso No.11 Ltd v. Fistonich – High Court (20.10.21)

21 172

Tax: Inland Revenue v. Husman Ltd

Lockdown restrictions keeping an Auckland restaurant closed was no defence to Inland Revenue forcing liquidation for unpaid tax debts totalling $348,200 when tax payments were in arrears before the pandemic struck and the restaurant had little prospect of paying arrears since it had persistently traded at a loss.  

Husman Ltd operated a restaurant in Auckland’s central business district.  The High Court was told it had cashflow difficulties from the outset, having commenced trading in late 2018.  Payments due Inland Revenue were not made for GST and PAYE.  Trading stopped during government-mandated pandemic lockdowns in 2020 and 2021.  By time of the first lockdown, tax arrears already totalled $160,800.  Government wage subsidies accessed during the lockdowns totalled some $222,000.  Husman had failed to account for PAYE on these wages, Inland Revenue said.

With Inland Revenue threatening liquidation for non-payment, Husman made a series of escalating offers to pay arrears: first to pay arrears then totalling $267,000 in $2000 weekly instalments; later to pay continuing arrears at $2500 per week.  Inland Revenue rejected all offers.  The business had no chance of making offered payments and still meeting continuing tax obligations, it said.   

Justice Robinson ordered Husman into liquidation. Inland Revenue is justified in forcing liquidation where there has been flagrant and on-going failure to comply with tax obligations and where proposals to pay by instalments are of dubious commercial merit, he ruled.

Claims that Inland Revenue’s liquidation application was blocked by the Civil Defence Emergency Management Act were dismissed. Quarantine restrictions were not an ‘emergency’ as defined by the Act, Justice Robinson ruled.  And even if they were, the Act does not relieve taxpayers from their tax obligations, he said.

Inland Revenue v. Husman Ltd – High Court (20.10.21)

21.173

Sale by Text: Gittos v. The Toy Shop

Auckland surgeon Mark Gittos was ordered to pay $33,900 damages after backing out of an agreement to sell a McLaren Formula One body shell.  A valid contract of sale was agreed by exchange of text messages, but the buyer’s identity was disputed. 

Looking to sell the Formula One body shell in March 2019, Mr Gittos approached Max Fletcher, a specialist selling European marque vehicles through his Auckland business: The Toy Shop.  Mr Fletcher contacted the previous owner in Canada and found a willing buyer.

Having agreed on a price at $125,000, Mr Gittos had second thoughts and refused to go ahead.  When sued by Toy Shop, Mr Gittos argued he had no contract with Toy Shop; Toy Shop’s Mr Fletcher was acting on his behalf in a sale to an undisclosed buyer, he said.  

In court, text messages between the two were closely analysed.  Mr Gittos pointed to a text from Mr Fletcher stating he would receive a ‘commission’ and another text from Mr Fletcher claiming to have ‘moved the guy up’ to a higher price. Mr Fletcher was acting as his agent, Mr Gittos said.  It could equally mean Mr Fletcher was acting as agent for an undisclosed principal, in this case his company Toy Shop, Justice Gault said.  The word ‘commission’ could be viewed as a loose expression by Mr Fletcher referencing his estimated profit.

Acknowledgement that there was a sale to Toy Shop was highlighted by one text interchange where Mr Gittos referred to GST benefits for Mr Fletcher’s Toy Shop as buyer.  If Mr Gittos personally was selling off-shore in a transaction arranged by Mr Fletcher as his agent, the sale would be zero-rated as an export transaction.

Damages of $33,900 were assessed as the profit lost by Toy Shop when Mr Gittos refused to hand over the body shell for onward sale to Toy Shop’s Canadian buyer.

Gittos v. The Toy Shop (Auckland) Ltd – High Court (19.10.21)

21.171

Fraud: Panoptic v. Lisbet

Failing to push on with a court case filed some nine years previously alleging embezzlement was dismissed for want of prosecution; part of a series of inter-family disputes also involving arguments over child access and a home improvement loan.

All names were supressed following a hearing in the High Court at Whangarei.  In 2006, a family business was established, given the name Panoptic for the court record. Directors were given aliases as a Mr Acker with his son-in-law as a Mr Lisbet.  They were 50/50 shareholders.  The two fell out spectacularly when Mr Acker accused his son-in-law of stealing Panoptic property and setting up a rival business in competition.  In 2012, Panoptic took legal action against Mr Lisbet alleging a breach of directors’ duties.  This court case was put on hold when Mr Acker laid complaints of theft with police.  Police charged Mr Lisbet with theft in 2014 after a search warrant was executed at his home.  They later decided not to proceed; charges were withdrawn.  Mr Acker then hired a private investigator. This led to police laying one further charge against Mr Lisbet for theft.  Police offered no evidence when the case was called; the charge was dismissed and a suppression order imposed. Yet another criminal charge against Mr Lisbet in 2020 was withdrawn by police five months later.

In the interim, Mr Acker pursued a series of court cases against his son-in-law: judgment ordering repayment of monies lent for home improvement; a successful application to gain access to his grandchildren; and a conviction for contempt of court after Mr Lisbet failed to surrender a company laptop.

Then in 2021 new life was breathed into Panoptic’s 2012 case alleging Mr Lisbet’s breach of directors’ duties with an amended claim filed in court.  Mr Lisbet applied to have the case thrown out; his father-in-law was being vindictive, he said.

Associate judge Bell dismissed Panoptic’s claim for want of prosecution.  The long delay hampered Mr Lisbet’s ability to defend the case.  In dispute were events taking place between 2008 and 2012. He could not be expected to remember in detail events occurring that far back, Judge Bell ruled.  There was a real risk that there would not be a fair hearing.

There had been inordinate delay by Panoptic in progressing the case, Judge Bell said.  Civil action alleging breach of directors’ duties and criminal action alleging theft are not alternatives, he said.  Civil action by Panoptic against Mr Lisbet claiming damages could have proceeded in parallel with attempts to have police prosecute.

Panoptic v. Lisbet – High Court (18.10.21)

21.170

Land Sale: Meates v. Topliss

She ran a string of racehorses and managed the Kumara town dump.  Now long-time West Coast identity Eileen Topliss claimed she was harassed and bullied into selling a 75 hectare block of pasture and scrub to relative Chris Meates and wife Donna.  Not so, ruled the High Court ordering the sale go ahead.  She manufactured evidence seeking to escape the sale after immediate family felt she could do better than selling to the Meates at $400,000, Justice Osborne decided.

Aged in her early eighties and widowed for nearly thirty years, Mrs Topliss had plans to separate off the 75 hectare block adjoining her home in Fifth Street, freeing up cash on sale.  In the close-knit Kumara community, her intentions soon became common knowledge.  Subdivision plans were prepared and ‘for sale’ signs went up.  An oral offer was made at her indicative price of $500,000 but interest waned when she tried to renegotiate at a higher price.    

The High Court was told her nephew Chris Meates subsequently expressed interest.  After getting a valuers’ report indicating a market value of $415,000 the Meates offered to buy at $400,000.  Eileen was content to sell to them at that price, they said.  No immediate progress was made.  There were delays in getting subdivision plans approved by Westland Council, Eileen claimed.  Seven months later in late 2017, Donna Meates met with Eileen.  Each subsequently disputed what transpired during a meeting at Eileen’s home.  Donna said the purpose of the meeting was to make some progress on firming up the earlier oral agreement.  Eileen signed a short note confirming details of the sale and was given $10,000 cash as a deposit.  Donna said that it was an amicable meeting and that both agreed putting the deal in writing protected everyone.  Eileen said that Donna stood over her in a threatening manner, forcing her to sign. Eileen said she refused the cash, but Donna left it behind when leaving.  It was not banked for some months.

Evidence was given that Eileen subsequently baulked at carrying through any sale after her brother and her two sons learnt of the 2017 written agreement with the Meates.  She claimed to have signed under duress and that the Meates had taken advantage of her advanced age to drive an unconscionable bargain.

Justice Osborne said that when committing to sell to the Meates she was her ‘own woman’ and knew what she was doing.  Her evidence denying there was any sale showed a tendency to invent explanations which were either not correct or took liberties with the truth, he said.

The piece of paper she signed in 2017 was sufficient to identify the parties, the price and the land to be sold.  It was an enforceable contract.

Meates v. Topliss – High Court (11.10.21)

21.169

Mutual Wills: Clarke v. Clements

When Denise Ellis died in 2019 she bequeathed $4.2 million to her brother Martin.  Siblings of her late husband sued.  She had agreed with her husband that the survivor of the two would split assets half in half with each side of the family, they said.  It was a fraud on her late husband for Denise to bequeath all her assets to only her side of the family, they alleged.

Graeme and Denise did not have children.  He worked as a builder in Christchurch; she owned a hairdressing salon.  Successive wills signed during their 45 years marriage made differing arrangements for distribution of their assets on death.  Wills signed four years prior to Graeme’s death saw each intend to leave all assets to the other with a gift over if their spouse was already dead; the estate of the surviving spouse was to be divided one half to Denise’s only sibling, her brother Martin, and one quarter each to Graeme’s siblings, Velma and Mervyn.

Denise inherited all assets on Graeme’s death.  After Denise died, Graeme’s siblings sued when they learned she had signed a new will twelve months after Graeme’s death with her brother Martin now sole residuary beneficiary.  This breached an agreement made with her late husband, they alleged. Each side of the family was to inherit half, they claimed.  The High Court was told of comments made by Graeme at social occasions in Denise’s presence about the ‘half in half’ arrangement he and Denise had written into their wills.

The High Court was asked to determine whether their wills were corresponding wills (wills with similar terms) or mutual wills (wills with similar terms coupled with an agreement not to depart from those terms).  Subsequent wills can be overridden if there is a prior mutual will.  It is a fraud for someone to inherit benefitting from terms of a mutual will and then fail to honour terms of the mutual agreement. Courts require clear evidence that mutual wills were agreed.  Mutual wills create considerable inflexibility.  They tie up assets after one spouse’s death in a manner which may not be tax effective, failing to anticipate future changes to taxes and estate duties.

Justice Osborne ruled the prior wills signed by Graeme and Denise had similar terms but were not mutual wills.  There was at that time a ‘mutual expectation or desire’ that assets would be divided ‘half in half’ when both were dead but this was no more than an ‘honorary agreement.’  There was no binding enforceable agreement that the survivor would split assets equally between each side of the family.

Denise’s brother was entitled to retain all her assets.

Clarke v. Clements – High Court (11.10.21)

21.168

Liquidation Fees: re Quantum Grow Ltd

High profile insolvency practitioner Damien Grant gained wide publicity and some sympathy fighting for registration as an insolvency specialist in the face of fraud convictions from his youth. Now, the High Court has disallowed fees of $20,000 and disbursements of $28,800 for poor record keeping in the liquidation of hydroponics company Quantum Grow Ltd and for his quixotic but ultimately fruitless chase after company assets.

Controlled by Alan Canavan, Christchurch-based Quantum Grow Ltd was put into liquidation by court order in 2012 for unpaid debts. The High Court was told Mr Canavan proved obstructive.  Search warrants were needed to seize company records.  Suspecting that Mr Canavan had shifted business assets across to another company called Lotus Gardens Ltd, Mr Grant took legal action against Lotus. Mr Canavan was by then giving as his home address a Northland address in Kaiwaka.  Hundreds of thousands of dollars for in-house legal fees were incurred chasing Lotus through the High Court and on to the Court of Appeal for what amounted to a $25,500 claim.  End result: nothing was recovered from Lotus.

All court-ordered liquidations require High Court approval for fees and costs incurred.  The first round of paperwork filed by Mr Grant was turned back. Having recovered $210,100 in cash for creditors in the Quantum liquidation, he was claiming out of this $189,100 in fees and costs.  The High Court asked for a detailed analysis.  This was not forthcoming.  The best Mr Grant could do was provide summary information.  He did say that not all time incurred was being claimed; $340,500 in billable hours had been written off.

Associate judge Lester trimmed $56,300 off the $189,100 claimed for fees and costs as being unexplained.  This $56,300 is to be paid to Quantum Grow’s creditors. Quantum has preferential creditor claims totalling $75,000; unsecured totalling $111,000.

Re Quantum Grow Ltd – High Court (8.10.21)

21.164

Estate: re Estate Reginald Bolton

Over a period of 28 years Ken Bolton not only failed to finalise his late father’s estate but lived in one of the properties rent free while raising a mortgage on the property for a bank loan he did not repay and transferred a second property into the name of a company he controlled instead of transferring ownership to his brother as agreed by all beneficiaries.  Removed by the High Court as estate administrator, his behaviour was described as being at best negligent, at worst being arguably fraudulent.   

His father Reg Bolton died in 1975 owning three properties in Tauranga: an empty section plus two houses; one house on Bellevue Road, the other on Sutherland Road.  His will named daughter Wendy as executor.  Brother Ken came to administer their late father’s estate in 1993 after Wendy died.  Whilst Wendy had made little headway in finalising their father’s estate, further progress stalled with Ken’s appointment.

The High Court was told all beneficiaries had agreed that their sibling Alan could buy Sutherland Road from their father’s estate for $85,000.  While the deal was finalised back in 1986, title was never transferred into Alan’s name. In 2000, Ken transferred title for Sutherland Road to a company called Minka Co Ltd with himself as sole director and shareholder.  Two decades on, Tauranga City was demanding payment of rates arrears.  Evidence was given that Alan had been giving money to brother Ken for payment of Sutherland Road rates, but Ken had stopped forwarding the money to Tauranga City.

Since 1986, Ken had been living at Bellevue Road rent free. In 2014, he used the property as security for a $250,000 loan; money used to buy another property in Tauranga.  Failure to keep up payments on this $250,000 loan led to formal notice in 2020 threatening sale of Bellevue Road in a mortgagee sale. Rates were also in arrears.    

The High Court removed Ken as administrator. Perpetual Trust Ltd was appointed to take control and to implement terms of Reg’s will.  Title to the three Tauranga properties was transferred into Perpetual’s name.  Reg’s will named his three children Ken, Alan and Wendy as beneficiaries.  On Wendy’s death, Rachel her only child inherited her share.  Rachel is now aged 49.

re Estate Reginald Bolton – High Court (8.10.21)

21.163

Dirty Dairying: Woolley v. Fonterra

Convicted of failing to properly manage effluent discharges from his Marlborough dairy farms, Philip John Woolley sued Fonterra for some two million dollars alleging breach of contract for suspending milk collection.  Fonterra was justified in stopping collection, the High Court ruled. Woolley had failed to remedy effluent complaints and he couldn’t complain Fonterra failed to pick up milk when cows were milked in breach of environment orders to stop until remediation was complete.

From 2011, environmental issues arose from multiple dairy units operated by Woolley.  He was not sympathetic to concerns raised by Marlborough District Council.  Police accompanied council staff on some inspections. Resource management enforcement orders were issued by the Environment Court.  Woolley was convicted of resource management offences.  In 2015, he was prohibited from day-to-day management of any dairy farm for a period of ten years.

In respect of his Glenmae dairy unit in the Upper Wairua Valley, the major issue centred on containment wall permeability at effluent ponds.  Woolley said an engineer’s certificate he obtained in 2014 approved the containment system as being compliant.  Fonterra’s failure to collect milk from that date was a breach of contract, he said. At this stage, up to 20,000 litres of milk was being dumped each day.

Justice Isac ruled the certificate did not meet Environment Court requirements.  A central issue was the level of clay used to create an impermeable pond wall. Certifying engineers were aware of the animosity between Woolley and Marlborough Council.  This resulted in an engineering report which proved to be both ambiguous and heavily qualified.

By restocking Glenmae and resuming miking without a valid compliance certificate, Woolley was in breach of both an Environment Court order and his resource consent.

Woolley v. Fonterra Co-Operative Group Ltd – High Court (8.10.21)

21.166

Asset Forfeiture: Commissioner of Police v. Law

Raymond Law was nicked mid-afternoon breaking into machines at a self-service laundromat carrying in his bag a chisel, hammer, crowbar and … two gold bars valued then at $73,200.  The gold bars were not ‘proceeds of crime’ ruled the High Court; yes they were said the Court of Appeal. 

Law pleaded guilty to stealing $11,000 in cash after breaking into machines at five Auckland laundromats.  The gold bars in his bag were not stolen property, he said. He told police the gold bars were gifted to him, picked up by his father from Law’s grandmother in Canada.  Law said he was carrying them around for safekeeping after an argument with his girlfriend.

When police applied to have the gold bars confiscated as ‘proceeds of crime,’ Law did not bother to appear in court to contest the claim. Nevertheless, Justice Palmer in the High Court ruled police had not proved their case.  While Law had multiple convictions for driving, drugs and dishonesty offences there was no clear evidence the gold bars were acquired or derived from criminal activity, Justice Palmer ruled.  The police appealed.

It was implausible that gold bars were being carried in the course of a burglary because of an earlier domestic argument, the Court of Appeal said.  Law’s claim that his father received the gold from his grandmother lacked credibility. Law said his father was given the gold bars in 1993.  This did not fit with evidence that the gold bars had a Perth Mint brand stamp which was first used in 2010.  Law could produce no documentary evidence proving ownership.  It was irrelevant that there had been no reports of stolen gold bars, the Court of Appeal ruled.  Gold bars are a useful store of wealth derived from criminal activity.

Circumstantial evidence pointed to the gold bars being proceeds of crime, the Court of Appeal ruled.  They were confiscated under the Criminal Proceeds (Recovery) Act.

Commissioner of Police v. Law – Court of Appeal (8.10.21)

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China: Hebei Huaneng Industrial v. Shi

Attempts to enforce in New Zealand a $23 million judgment of a China court has New Zealand courts in a bind. Can it be considered a court judgment fit for enforcement when in China there is limited reverence for legal principles; judges are ‘guided’ by political directives.   

Deming Shi has assets in New Zealand but lives in the People’s Republic of China.  He is defending in New Zealand courts attempts to enforce a $23 million court judgment issued by the Higher People’s Court of Hebei Province.  The Hebei court held him liable on his guarantee of debts owed a China state-owned enterprise by coal supplier Qinhuangdao Boen Trading Co Ltd. Boen Trading sourced coal for China’s state-owned electricity company.  Because off-shore coal suppliers require payment up-front, state authorities provided Boen Trading with a revolving cash ‘float;’ working capital for Boen Trading which was treated as pre-payments against future deliveries.  When state authorities switched coal supplier, return of $23 million pre-payments was demanded.  Claiming Mr Shi’s companies in China had no assets, state authorities sued to enforce the Hebei court judgment against Mr Shi in New Zealand.

China has no reciprocal treaty with New Zealand for enforcement of each country’s court judgments.  For enforcement in New Zealand, rulings by a court in China must first be ‘recognised.’  Litigants need to prove judgment of the court in China is ‘final and conclusive’ and is a judgment issued by a ‘court.’  Courts in England have refused enforcement of foreign judgments from countries where judges lack impartiality and independence and where court decisions simply implement centralised state policy.  A court is not a judicial body when it just implements political decisions.

The High Court in Auckland refused fast-track summary judgment for enforcement of the $23 million Hebei court judgment.  Detailed evidence on the status of courts in China is first required, Associate judge Sussock ruled.

Clive Ansley, a Canadian lawyer who speaks and reads Chinese and has significant experience of Chinese civil, criminal and maritime law told the High Court it was his experience that judges in China ‘hear’ cases, but do not decide them.  A judicial committee within each court system influences the outcome of those cases having political or economic consequences.  Any issue which may involve the reputation of the ruling Communist Party or result in public disenchantment with government policies will get special attention.

Hebei Huaneng Industrial Development Ltd v. Shi – High Court (8.10.21)

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Set Off: Settlers Honey v. First Honey

Wairarapa beekeeper First Honey NZ Ltd has been ordered to hand over $492,800 to Whanganui honey producer Settlers Honey Ltd, proceeds of an export order.  First Honey’s claim to a set off was dismissed; money it claimed to be owed was not owed by Settlers Honey but by a related company. 

The High Court was told of a symbiotic relationship between the two honey producers.  They placed hives on each other’s land, stored honey belonging to each other and either processed sale orders on behalf of the other or purchased their end of season stocks.  This led to a mass of contra accounting entries as debts each owed the other were periodically set off.

It was against this background that Settlers Honey alleged First Honey had unlawfully intercepted payment on a US export contract, keeping the money as part of a claimed set off.  Evidence was given that a container load of medical grade manuka honey was shipped from Settlers Honey to United States-based First Honey US in late 2020.  There is a family link between First Honey NZ and First Honey US.  First Honey NZ staff helped prepare the consignment for export, but it was Settlers Honey product that was exported.  Settlers billed First Honey US, later discovering payment had instead been made to First Honey NZ.  It held on to the money, claiming a set off against money it alleges Settlers owes.

In the High Court, Associate judge Lester ordered First Honey NZ hand over $492,800.  It knew the export receipt was Settlers’ money.  It could not claim a set off.

Evidence was given that a company related to Settlers called Land and Bee’s Ltd at one point owed First Honey NZ some $800,000. This is being paid at the rate of $6500 per week.  If it wants to accelerate payment, First Honey has to take legal action directly against Land and Bee’s, Judge Lester said.  It cannot set off this claim by wrongly holding on to Settlers money. 

The $492,800 First Honey NZ owes Settlers was calculated as recovery of the original $648,200 export price less $155,400 ‘profit margin’ on the product exported.  This profit margin recognises that First Honey NZ disputes whether Settlers took ownership of First Honey’s stocks it held at close of the previous season and at what price.  It was left open for Settlers to dispute in a further court hearing whether First Honey was entitled to this ‘profit margin.’

Settlers Honey Ltd v. First Honey NZ Ltd – High Court (6.10.21)

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Receivership: Reynolds v. Finnigan

It was a pre-packaged deal: Dayle Walker called up her loan to the Learning Ladder early childhood centre in Auckland that she ran jointly with Joanne Young, ejected Joanne and shifted business assets across to a new company she controlled called Learning Ladder (2018) Ltd. For customers, business sailed on as before.  For Joanna, she claims to have been robbed, alleging business assets were transferred at a $290,000 undervalue.  

In 2015, Walker and Young set up their company Learning Ladder Ltd to operate an early childhood centre in Howick.  Working capital was provided with a $430,000 on-demand loan from Dayle Walker and her husband.  They took security over company assets through their company: Red 9 Ltd. In March 2018, Red 9 demanded repayment. Joanne Young says Learning Centre was always up to date with loan payments.  The Walkers say a management dispute with Ms Young was adversely affecting the business, putting their loan at risk.

It took one day to appoint receivers and arrange a sale with Dayle Walker buying company assets for $470,000 in the name of her newly registered company.  Ms Young claims their business was worth $760,000.  It was sold at a grossly undervalued figure, she alleges.

Ms Young is suing the receivers alleging they sold at an undervalue.  She is also suing Mr Walker alleging breach of contract and breach of fiduciary duty. His accounting firm provided accounting services for Learning Ladder.

Told the earliest date available for a predicted two week trial is August 2022, the two sides asked the High Court for an abbreviated trial: a quick court ruling on what was the value of the business.  With that sorted, the case could be settled out of court.

Associate judge Bell agreed it was a case where assessment of loss could be argued without first determining liability for any loss.  A short hearing was timetabled for end of November 2021.

Reynolds v. Finnigan – High Court (6.10.21)

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GST: Marr v. Mills

Incorrectly denying she was registered for GST on sale of a commercial property in Auckland cost vendor Caroline Marr $121,600; the irrecoverable GST refund which was intended to provide working capital for new owners starting a business from the site.  

In 2014, Ms Marr sold to the Mills a Royal Oak property consisting of a house, shop and workshop all with off-street parking. The price was $1.45 million; described as ‘GST inclusive, if any.’  In the contract, Ms Marr stated she was not registered for GST and would not be so registered at settlement.  This was to the Mills’ advantage.  They proposed running a small manufacturing business from the site.   By becoming GST-registered, they could recover GST on the price paid.  By contrast, sales of commercial property between GST-registered parties are zero-rated for GST.  

In fact, Ms Marr was GST registered at settlement date. The Mills could not claim a GST refund. They abandoned plans to run a business from the Royal Oak property, saying this was not viable without the budgeted working capital expected from a GST refund.  They sued.

At three hearings through the District Court, High Court and Court of Appeal all courts ruled Ms Marr was liable in damages for the unrecoverable $121,600 GST.  To deny she was GST registered was a breach of contract.  It was irrelevant that the Mills did not continue with their proposed business plans; that was thwarted by her breach of contract.  It was also irrelevant that the Mills later subdivided the property, profitably selling off part.

Marr v. Mills – High Court (12.11.20) & Court of Appeal (4.10.21)

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