Radiology: NZ Institute of Independent Radiologists v. ACC

Concerns about moral hazard and conflicts of interest in Accident Compensation Corporation payments for private sector CT scans and MRI scans were pushed aside by the High Court with blithe acceptance that the Corporation could handle such conflicts despite over five years of inaction.   

Independent radiologists are up in arms about corporate radiologists owned directly or indirectly by medical practitioners who then refer their patients to their own specialist radiology clinic, capturing some of the profits from this referred work.  They argue there is an ethical conflict of interest with a danger of these medical practitioners improperly over-referring patients (booking scans when there is no clinical requirement for one) and sub-optimal referrals (when a different provider would provide a better clinical service).

In 2021, a number of independent radiologists banded together challenging Accident Compensation Corporation payment for referrals to what they claim are radiologists not sufficiently independent. In their sights are Beyond Radiology, Radiology Group and Mercy Radiology all of which are owned to various degrees by doctors or their families.  There are forty radiology units in New Zealand providing high-tech CT and MRI imaging; split roughly 50/50 between the private sector and what were District Health Boards

Independent radiologists claim ACC is not complying with terms of its own Act; the requirement to act in a cost-effective manner. There is a risk of ACC being overcharged where there is commercial relationship between those providing referrals and those doing the work, they say.

The High Court was told that since 2016 the ACC standard-form service contract for radiologists has required service suppliers to disclose any conflict of interest and where a conflict exists that a written agreement with ACC is required setting out how this conflict is managed.  Evidence was given that ACC had taken no interest in enforcing these rules until early 2021 and then spent six months seeking to identify which radiology providers had links to those providing referrals.  Since then, it has identified three medical practitioners with unusual referral patterns.  Their names were supressed.

Justice Cooke ruled that ACC is able to manage conflicts of interest between referrers and providers and that the current management system does comply with ACC requirements to act in a cost-effective manner.

In other areas of the health sector, the rules are more precise.  The Medicines Act prohibits any person who issues prescriptions from owning a pharmacy. 

NZ Institute of Independent Radiologists Inc v. Accident Compensation Corporation – High Court (20.12.22)

23.015

Estate: Bennett v.O'Meara

Darryn Bennett took legal action forcing sister Kim O’Meara out of their late father’s Auckland property where she had been living rent free, refusing to shift.

The two are joint executors of their late father’s estate which includes a property in Regent Street, Papatoetoe.  Their father died in July 2020.  They share his estate equally.

The High Court was told Kim had been living at Regent Street since about 2000, paying rent.  After her father died, she stopped paying rent and refused to move, with his estate left to pay rates and insurance.  Negotiations for her departure to enable sale of Regent Street got nowhere.  Ms O’Meara said covid-19 lockdowns and personal issues prevented any move.

In July 2022, she was given formal notice to vacate.  This was ignored.

Months later, a court order to vacate the property within five working days was issued by Justice Gault.  Ms O’Meara was not entitled to stay, he said.  She had no rights under the Residential Tenancies Act; there was no tenancy agreement and any consent to occupy granted by her late father came to an end on his death.

Bennett v. O’Meara  - High Court (19.12.22)

23.113

House Sitting: Washikita v. Smith

John Smith was ordered to leave a south Auckland home where he had been living rent free for thirty years with the High Court dismissing his claim to have a right of first refusal to buy the Conifer Grove property; a claim which Mr Smith justified by producing invoices which he said required the Japanese owners to pay him $31,000 for the privilege of selling their property to him.  

The High Court was told Mr Smith met the Washikitas during a trip to Japan in 1991.  One year later he sold to them a nearly finished home in Perotti Place, Conifer Grove, for $250,000 which he said at the time was a deal at ‘no profit’ to him.  They intended to use the property as a holiday home, but never lived there.  At time of sale, it was agreed Mr Smith could continue to live in the property, rent free, until asked to vacate.  He was to pay all outgoings and maintenance costs. By 2020, Mr Washikita was impaired by dementia.  His family was looking to sell.  They did not intend to come to New Zealand.  Plans to sell accelerated when Mr Smith stopped paying rates and insurance. Perotti Place was valued in February 2021 at $1.06 million.     

Evidence was given that plans for sale and requests Mr Smith leave the property then bogged down with Mr Smith claiming Mr Washikita had previously agreed that he had the right to buy, subject to ‘conditions.’ Mr Smith never specified what were these conditions but produced invoices for work done on the property, saying these costs had to be set off against the price of $1.06 million.  The invoices came under close scrutiny in the High Court.  There was evidence that invoices dating back to 1993 had been produced on an excel spreadsheet that was not commercially available until 2007 and that the supposed invoices were modified on the same spreadsheet in early 2021.  The total of these invoices had the effect of Mr Smith being owed $31,000 after resuming ownership of the house.  Included as an invoice was a cost of more than $150,000 for ‘property management.’

Associate judge Paulsen ruled there was no evidence to support Mr Smith’s claims to a right of first refusal and to reimbursement of expenses.

The court was told that when Mr Smith got into financial difficulty in 2003, he borrowed $110,000 from Mr Waskikita promising to repay him $120,000 the following month.  Some part-payments were made over subsequent years.  By 2021 Mr Smith was claiming the initial $110,000 was in fact reimbursement for expenses he had incurred.

The Wahikita’s were entitled to possession of their property, Judge Paulsen ruled.  Mr Smith’s licence to occupy had been terminated by notice in February 2022.

Washikita v. Smith – High Court (19.12.22)

23.104

Memelink: Body Corporate 68792 v. Link Trust

Owners of commercial units at 408 Hutt Road/Wakefield Street in Wellington must be ruing the day they ever bought in; tied up in convoluted legal proceedings by now-bankrupt Harry Memelink and trusts associated with him which have refused to pay body corporate levies and have now been injuncted by court order to stop interfering in body corporate affairs.

With Memelink’s payment of body corporate levies in arrears since 2018, other unit holders have been forced to top up corporate funds.  Interests associated with Mr Memelink own seven of the thirteen units.  Mr Memelink alleges ‘fraud and misconduct’ by the body corporate in relation to setting levies and use of body corporate funds. In earlier court proceedings Mr Memelink was described as having a long history of claiming illegalities in respect of levies and using this as an excuse for not paying anything.  In October 2017, the High Court appointed an administrator to take control of the corporate’s dysfunctional management.

Mr Memelink was bankrupted in 2018.  The standard three year period for automatic discharge from bankruptcy did not start running until September 2022, the date when he filed a complete statement of assets and liabilities with Insolvency Service.  The Link Trust (No.1) through which he owns Hutt Road units was put into receivership by court order to enable sale of the units without interference by Mr Memelink. That is not proving particularly effective.

In December 2022, Mr Memelink lodged a caveat against title to the units, attempting to block any sale.  It took a High Court application by the receivers to have it removed.  Justice Cooke ordered Mr Memelink not to interfere with proposed sales.  The Body Corporate administrator found Mr Memelink had contacted the building’s insurers with further allegations of Body Corporate fraud and theft.  Insurance cover was cancelled.  Bodies Corporate must hold current insurance.  Proposed sale of Mr Memelink’s units would be difficult without current cover.  Evidence was given that the administrator had difficulty in getting new insurance cover written at a reasonable cost.  Justice Grice issued an injunction blocking Mr Memelink or any person associated with him from interfering with the Body Corporate’s insurance arrangements.

Body Corporate 68792 v. Link Trust (No.1) & Memelink – High Court (16.12.22)

23.012

Family Trust: Whale v. Silich

Seven years after they separated, Gary Whale is challenging decisions about family trust farming assets made by his former wife Tanya Silich asking the High Court to remove her as trustee.  Both were removed as trustees and independent trustees appointed with power to investigate trust operations over the previous seven years.   

The High Court was told the two separated in November 2015 after 26 years marriage.  Gary is a builder by trade.  He left wife Tanya in possession of their Waipu dairy farm owned by a family trust.  A farm advisor was employed to act as a go-between assisting with their joint management of the farm.  Evidence was given that over time the advisor either stopped passing on Mr Whale’s views or Ms Silich chose to ignore them.

Mr Whale alleges his former wife has subsequently operated their family trust for her own benefit, failing to account for trust profits and using trust money for her own benefit.  The two have not met in person since they separated in 2015.  Since that time, Ms Silich has sold the Waipu property and transferred operations to a dairy farm near Dargaville.

At the request of Mr Whale, Justice Brewer ordered her removal as trustee as being in the best interests of trust beneficiaries. Mr Whale was also removed as a trustee; the level of estrangement between the two was such that it would be difficult for Mr Whale to be even-handed between all trust beneficiaries, Justice Brewer said.  Named as beneficiaries are Mr Whale, Ms Silich and their two adult sons.  Two retired chartered accountants were appointed as replacement trustees.

Ms Silich did not appear in court to contest her removal as trustee.

Whale v. Silich – High Court (9.12.22)

23.010

Fuel Supply: Chatham Hardware v. Chatham Island Management

The Chatham Islands’ stark beauty is offset by increased costs of transporting essential goods to its small population living 900 kilometres offshore.  A challenge to fuel pricing failed in the High Court; fuel wholesaler Chatham Island Management Ltd was not obliged to price fuel at a level to protect local retail margins.     

Chatham Island Management is a trading subsidiary of the Chatham Island Enterprise Trust, a charitable trust set up in the early 1990s to assist Island residents.  Local concerns about fuel costs led the Trust to extend operations from the importation and wholesaling of diesel into retailing as well.  Diesel is a critical resource on the Islands, not only for transport but also power generation.   

Chatham Hardware Ltd, owned by Monique and Valentine Croon, also retails diesel with the Trust its sole supplier.  They alleged the Trust was exploiting its monopoly position, in breach of the Commerce Act.  In particular, they allege that when a 2016 supply agreement was signed there was a side deal requiring the Trust’s wholesale prices be set at a level allowing Chatham Hardware a nineteen per cent margin on a competitive retail price. The dispute headed for court after Chatham Hardware withheld payment of Trust wholesale diesel invoices totalling some $220,000.

Associate judge Johnston ruled there was no collateral side deal.  Chatham Hardware’s margin at time of the 2016 deal may have been nineteen per cent, but the 2016 contract was explicit; the Trust can vary prices at any time and is not obliged to first consult the Croons.  Judge Johnston also ruled there was no evidence of the Trust misusing its monopoly position.  Chatham Hardware was ordered to pay the withheld $220,000 or face liquidation.

Chatham Hardware Ltd v. Chatham Island Management Ltd – High Court (5.12.22)

23.011

Estate: Glass v. Glass

With family trusts holding assets in excess of twenty million dollars, daughter Lisa Knight claims she has been treated unjustly; promises that all children would receive at least one million dollars in their lifetime have not been honoured and her late mother’s estate has been impoverished by having all assets of any value switched into family trusts, she alleges.

Lisa took legal action in the High Court attempting to crack open the family trusts, hoping to have her late mother’s estate recover assets having them available for her claim under the Family Protection Act.

The High Court was told Lisa is one of three children born to Sally Elizabeth Glass, known as Libby.  Libby married Denver Glass in 1987.  Libby had three children from an earlier marriage; Denver had four children from his earlier marriage.  Libby and Denver had no children.  Libby died in February 2020, suffering from dementia.  Libby’s business interests centred on a fashion boutique called Posh of Holmwood based in the Christchurch suburb of Merivale; Denver developed a meat processing business called FreshPork.  Together, they purchased and renovated multiple properties in and around Christchurch.  These properties were each held in various family trusts.

Libby’s and Denver’s children were told not to expect any inheritance; each would receive one million dollars in their lifetime to help set them up in life.  Libby and Denver intended to give the rest on death to charities of their choice.

Evidence was given of tensions between Denver and his step-daughters Lisa and Nicole.  Denver was described as controlling.  Nicole received financial support totalling one million dollars to assist with her purchase of a property in Sydney.  Expecting to receive the funds as a gift, Nicole found the money was instead advanced as a loan with a mortgage registered against the Balmain property. This was to protect the home from matrimonial property claims, Denver said.  In 2018, he attempted to evict Nicole from the property.  Lisa told the High Court she had received some financial support but always on Denver’s terms.  She had been allowed rent-free occupation of a large Christchurch home in Kotare Street owned by one of the family trusts provided she met the costs of rates, insurance, repairs, and maintenance.  Denver has refused to honour promises made in Libby’s lifetime to transfer ownership of Kotare Street to her, Lisa says.  Lisa has received benefits to the value of $315,000, Justice Dunningham said, but has been left in her mid-fifties with no prospect of financial security or of owning her own home.

Justice Dunningham authorised legal action be taken in the name of Libby’s estate to recover, as relationship property, assets held by family trusts.  If successful, these assets become available for a claim by Lisa against her late mother’s estate.

Glass v. Glass – High Court (5.12.22) 

23.009

Fraud: Drever v. Police

Confirming former Auckland real estate agent Aaron Carl Drever’s sentence of two years and two months imprisonment for fraud, the High Court said any appeal for a sentence reduction on grounds of good character failed because of his previous real estate history of unreliable, inaccurate and reckless behaviour.  

Drever’s real estate licence was cancelled in November 2016 after being found guilty by Real Estate Agent’s Disciplinary Tribunal of professional misconduct: acting for both sides when there was a conflict of interest between buyer and seller, failing to properly account for advertising money and putting improper pressure on clients.

Subsequently, he was convicted in the District Court of two separate frauds.  In December 2016, he arranged the sale of land then belonging to the Avondale Bowling Club in Auckland using a dummy company as purchaser and then immediately on-selling at a personal profit of $466,000.  In September 2019, he bilked organisers of speedway events at Western Springs with a false invoicing scam collecting $101,000.

At sentencing, the trial judge said Drever’s promises of making full reparation are unlikely to be honoured.  Drever was ordered to make partial reparation to his victims on release from prison; $50,000 to Avondale Bowling Club at $150 per week and $25,000 to Auckland Speedway again at $150 per week.

In the High Court, Justice Davison described Drever as being motivated by greed and financial gain with his offending being calculated and premeditated.  Evidence was given of Drever suffering from mental health issues with a diagnosis of attention deficit/hyperactivity.        

Drever v. Police – High Court (30.11.22)

23.008

Early Termination Fees: Commerce Commission v. CallPlus

CallPlus customers cancelling early their fixed term contracts are entitled to refunds for termination fees charged if they were not told the dollar amount when they signed up.  

Now consolidated into Vocus Group, CallPlus came under Commerce Commission scrutiny for its direct selling of broadband and electricity services, cold-calling potential customers.  On offer were 12 month or 24 month fixed term contracts. Potential customers were told a fee ‘may be charged’ for any early termination.  The amount to be paid was not specified.  On early termination, customers were charged between $149 and $250.

CallPlus said fixed term contracts allowed it to offer contracts at a cheaper rate with the early termination fee being compensation if a customer cancelled early.  Commerce Commission said the potential fee is part of the ‘price’ and should be disclosed.

Justice Lang ruled CallPlus was in breach of the Fair Trading Act.  An early termination fee formed part of the total price due, even though this fee might never be charged.  Being aware of the amount that might be charged for early cancellation enabled customers to make an informed choice when entering into unsolicited direct sale agreements.

The court was told CallPlus and the Commission had already negotiated levels of compensation payable should CallPlus lose in the High Court. 

Commerce Commission v. CallPlus Services Ltd – High Court (29.11.22)

23.007

Deathbed Trust: Parbhu v. Parbhu

Defeating property claims by estranged family after death through adroit use of deathbed family trusts is being tested in the High Court.

A burgeoning trusts industry is developing seeing assets shuffled into a family trust just prior to death leaving a deceased estate penniless.  Estranged family members looking to sue under the Property Relationships Act or the Family Protection Act are greeted with news that this is a waste of time and money; the estate is valueless.  Disputed assets are now held separately, protected in a family trust, managed and distributed according to terms of the trust.     

In the first step towards challenging a deathbed family trust, members of the Parbhu family had the High Court appoint an independent lawyer to investigate what had happened to their late father’s assets.

The High Court was told Mohan Parbhu died in 2021. Terms of his will appointed his second wife Lilawati Mohan Parbhu as executrix of his estate.  Lilawati together with a daughter of Mohan and Lilawati are the sole beneficiaries.  Children of his first marriage received no bequests.  Learning that Mohan had transferred all his assets to a family trust shortly before his death, these children challenged Lilawati’s appointment as executrix.  Assets transferred include three residential properties.  They argue these assets should be clawed back into Mohan’s estate, becoming available should their personal statutory claims succeed against their late father’s estate.

Justice Peters removed Lilawati as executrix, appointing an independent lawyer in her place.  Lilawati cannot be expected to act in an impartial manner as executrix when her entitlements as a beneficiary are being challenged, Justice Peters ruled.

Evidence was given that Mohan’s sole asset on death was cash totalling some $19,000.  The independent lawyer was empowered to make a full investigation.

Parbhu v. Parbhu – High Court (25.11.22)

23.006

 

Undue Influence: Hingston v. Hingston

There was a valid explanation for a family financial arrangement looking at first glance to heavily favour a son and his family trust at the expense of his father the Court of Appeal said, overturning a High Court ruling of undue influence.

Litigation followed a 2009 family arrangement enabling Keith Hingston to remain in occupation of his Welcome Bay home in Tauranga following a Family Court order that he pay his then wife $295,000.  Aged in his seventies, Keith was unable to raise finance. In a letter to his father, son David spelt out starkly the options open; financial assistance from David and his family trust or sale of Welcome Bay.  The letter set out pros and cons for each option.

The Court of Appeal was told Keith wanted to remain in Welcome Bay until, in his words, he was carried out in a pine box.  He became determined to take up his son’s offer of financial assistance as the only option.

The agreed arrangement saw sale of Welcome Bay to David’s family trust with his father retaining rights of occupation under an agreement to occupy.  Sale price for Welcome Bay was agreed at a figure the High Court described as being $130,000 less than market value and $55,000 below what a registered valuer determined as being forced sale value.  There was an objective basis for this apparently low sale price, the Court of Appeal said.  Market prices were depressed, sale costs were avoided and son David was also looking to recover legal costs paid by the Trust on behalf of Keith.

Also questioned in the High Court was the $115,700 owed by Keith for purchase of his lifetime right to occupy Welcome Bay. Based on sale price for Welcome Bay and Keith’s life expectancy, this figure was fairly and objectively calculated, the Court of Appeal said.  This $115,700 debt owed David’s family trust includes a contingent liability to pay interest at 4.25 per cent, if demanded.

The arrangement also saw Keith transfer future Jacques Martin pension payments and all his personal property to his son’s family trust.  This was explained as providing security for the $115,700 debt.  Keith retained possession of his personal property.  Pension payments were in reduction of the debt. David’s family trust had borrowed to buy out Keith, having an interest bill to meet and no income since Keith had rent-free occupation of Welcome Bay.

There was conflicting evidence as to whether unnecessary pressure was put on Keith at the time he signed.  He said in evidence that son David was present when he signed. The Court of Appeal said the weight of evidence was that David and Keith were in different rooms and in different cities when Keith signed.        

There was no undue influence, the Court of Appeal ruled. Keith received independent legal advice. The Court of Appeal emphasised it was ruling only on whether there had been undue influence; it was not commenting on overall fairness of the transaction or whether it was commercially a ‘good deal.’

Separately, the case was sent back to the High Court to resolve disputed claims by each side that the other had not fully honoured terms of the agreement.

Hingston v. Hingston – Court of Appeal (22.11.22)

22.178 

Agent: Nelson Honey & Marketing v. Gu

Facing the legal problem of suing a customer in China for $1.7 million allegedly unpaid, Nelson Honey & Marketing turned its guns on Grace Gu in New Zealand claiming she had guaranteed payment.  The claim was thrown out.  She acted merely as consultant to Nelson Honey and incurred no personal liability for customer’s unpaid accounts.

In 2013, Nelson Honey & Marketing (NZ) Ltd met with Ms Gu for advice on marketing its product in China.  She provided contact with a Mr Jack Wang. Through Mr Wang’s company Horizon, Nelson Honey’s product was sold online through a trading company called VIPShop.  Over a five year period some $8.7 million of product was supplied to Horizon.  In early 2018, Nelson Honey claimed about $1.7 million remained unpaid.  Threats to sue Mr Wang and Horizon in China were put on hold; Ms Gu was sued.

The High Court was told a formal consultancy agreement between Nelson Honey and Ms Gu had been drafted, but never signed.  For a period, a company controlled by Ms Gu was used as a conduit for the export transactions.

Associate judge Johnston ruled there was no evidence that Ms Gu had guaranteed payment of Horizon invoices.  In fact, part of the unsigned draft consultancy agreement indicated Ms Gu would never be liable for Horizon accounts.

Nelson Honey & Marketing (NZ) Ltd v. Pureality Trading Company Ltd & Gu – High Court (16.11.22)

23.005

Directors' Duties: Viranda Partners Ltd v. Guest

Alleging Andrew Guest and Stephen Donovan diverted potential benefits from a multi-million dollar Auckland land development into their own pockets, joint venture partner Tim Chen is in the High Court seeking to work around legal roadblocks Guest and Donovan are exploiting to prevent legal action.   

The three are directors of a company called Viranda Partners Ltd.  Investors represented by Chen allege Viranda Partners was robbed of a business opportunity near Warkworth just north of Auckland valued variously between $25 million and $54 million.  The land in question sold in 2021 for $200 million.

Guest and Donovan deny any wrongdoing.  Legal rules require court action over the dispute to be taken in the name of their joint venture company: Viranda Partners Ltd. It is Viranda which has been allegedly harmed.  Viranda has no money; it cannot pony up cash to pay lawyers.  An investors agreement requires unanimous consent from all Viranda directors before any calls are made to raise further cash from shareholders. The High Court was told Guest and Donovan have made it clear; they will veto any call for cash from shareholders to fund legal action by Viranda against them.

Associate judge Lester granted Chen’s company Veritas Capital Company Ltd status to bring legal action in Viranda’s name against Viranda directors Guest and Donovan.  Veritas Capital is a Viranda shareholder.  While Veritas will fund the litigation, it has a right to claim reimbursement from Viranda should Guest and Donovan be found liable for breach of directors’ duties and ordered to pay damages to Viranda.

The effect of the High Court ruling is to shift control of current legal action against Guest and Donovan from their joint venture company Viranda where they can veto any progress to shareholder Veritas Capital and Veritas’ investors where Guest and Donovan have no say. 

Viranda Partners Ltd v. Guest – High Court (14.11.22)

23.004

Directors' Duties: Haines v. Bassett-Burr

After improperly triggering insolvency procedures attempting to force payment of a disputed debt claimed by Lynx Trustees Ltd, Wellington director Roy Barrett-Burr was held personally liable for $21,600 court costs subsequently levied against Lynx which is currently in liquidation. 

The costs order against Mr Barrett-Burr personally arose out of a long running dispute between Lynx Trustees and Quentin Haines.  Each claims money is owed by the other.  This dispute is further complicated by an equally long running personal dispute between Mr Haines and Harry Memelink who is Mr Barrett-Burr’s brother-in-law.  Mr Memelink is bankrupt.

In 2019, Mr Barrett-Burr signed five formal statutory demands in name of Lynx Trustees claiming sums from Mr Haines and from companies associated with Mr Haines for amounts ranging between $140,800 and $421,300.  This was a preliminary legal step seeking to bankrupt Mr Haines and to put his companies into liquidation.  The courts take a dim view of insolvency procedures being used when there is still a dispute over debts claimed.

In the High Court, Mr Haines had these statutory demands set aside.  How much was owed was still in dispute.  Following a further formal court application, Mr Haines got a court order holding Mr Barrett-Burr personally liable to reimburse his costs of $21,600.  The demands were issued in the name of Lynx Trustees, but Mr Barrett-Burr as Lynx director was personally liable for not acting prudently and for improperly issuing in Lynx Trustees’ name statutory demands for debts that were clearly in dispute.

Haines v. Bassett-Burr – High Court (11.11.22)

23.003

Freezing Order: ANZ Bank v. Lee

Hearing its customer Jinwon Lee had returned to Korea after a fire sale of business assets, ANZ Bank got a freezing order over his Auckland home and further court orders that other financial institutions disclose any financial dealings they had with Lee, otherwise known as James Lee.

The High Court was told Mr Lee had guaranteed finance provided to his import businesses, Hanyang Corporation Ltd and Hanyang International Ltd.  These businesses imported food products from Korea for retail sale in New Zealand.  He disappeared off the bank’s radar after ANZ called up its loans.  The Bank discovered his warehouse and retail store were left scattered with debris after a quick-fire discount sale of stock held.  A container of food with an invoice value of US$60,000 had been left abandoned at Port of Auckland.  His landlord had seized remaining business chattels to cover unpaid rent.  His home at Sartors Avenue at Browns Bay on Auckland’s North Shore was listed for sale.

Fearing sale proceeds from Sartors Avenue would be transferred out of New Zealand, ANZ Bank got a High Court order freezing any proceeds of sale.  The Bank also got disclosure orders against CFML Lending, Kookman Bank, Heartland Bank and Westpac requiring disclosure of their recent dealings with Mr Lee.  ANZ said this might identify other assets Mr Lee may have in New Zealand.

ANZ Bank v. Lee – High Court (9.11.22)

23.002

Money Laundering: R. v. Jiaxin Finance

 Failing to comply with customer due diligence as required by money-laundering legislation when transferring some $53 million from China saw Qiang Fu fined $180,000, his foreign exchange business Jiaxin Finance Ltd fined $2.55 million and his mother Fuqin Che fined $202,000.  Remitted via 311 separate transactions, the $53 million is alleged to be illicit proceeds from a fraudulent pyramid selling scheme in China engineered by Xiao Hua Gong, also known as Edward Gong.   

The High Court was told Che, also known as Lily Che, had dealings with Mr Gong as far back as 2011.  She was then managing a business owned by her son called Global Concept Capital Investment and Finance.  This relationship continued when Fu’s new business, Jiaxin Finance, subsequently took over Global Concept’s client base.

They were convicted of failing to carry out customer due diligence and failing to keep adequate records.  Justice Walker said the sheer volume and frequency of remittances processed through Jiaxin Finance on behalf of Mr Gong should have raised suspicions.  There was no stated commercial objective for the foreign exchange transfers other than laundering funds from China.

Using Mrs Che as a buffer creating the appearance that she, not Mr Gong, was Jiaxin’s customer did not excuse Jiaxin from looking beyond Che to identify and to undertake due diligence on the actual customer.

Police said Mr Fu has convictions in China dating back to March 2013 for foreign exchange trading offences.  Their relevance to an increased penalty when sentencing in a New Zealand court for similar offences cannot be taken into account without formal proof of conviction from China authorities, Justice Walker said.      

R. v. Jiaxin Finance Ltd, Qiang Fu & Fuqin Che – High Court (3.03.22) & Supreme Court (4.11.22)

23.001

Negligence: Sharma v. Foster-Bohm & Corbin

Nelson lawyer Anjela Sharma was ordered by the District Court to pay $37,500 damages for negligently failing to file clients’ employment claims within time limits and in addition was unsuccessful in suing for unpaid fees.

Her High Court appeal against both rulings was dismissed.

The courts were told clients Gail Foster-Bohm and Andrew Corbin retained Ms Sharma to bring a personal grievance claim against IHC New Zealand after they both lost jobs in 2015, part of IHC restructuring. In 2016, the Employment Relations Authority dismissed their unjustified dismissal claims as being filed out of time. Employment law imposes a strict ninety day time limit.

They then sued Ms Sharma in the District Court for professional negligence.  The trial judge assessed chances of success in their IHC employment dispute as being 75 per cent if the dispute had gone to an Employment Relations hearing.  Mr Corbin was awarded $20,000 damages; Ms Foster-Bohm $17,500.  The differing amounts reflected their respective lengths of IHC employment.

Ms Sharma said the filing deadline was missed because she thought the two were working out four weeks’ notice ending early September 2015.  IHC in fact made payment in lieu of notice and their employment was terminated immediately.

The trial judge ruled Ms Sharma had been made aware of the early termination and failed to act promptly or to request a time extension for filing.  This ruling was upheld on appeal.

There was evidence that Ms Sharma acted unprofessionally towards her clients with delays in responding and also in failing to disclose she did not have professional indemnity insurance.

Ms Sharma’s claim for unpaid fees was dismissed in both the District Court and the High Court.  The trial judge said justice in this case meant the clients should not be required to pay for negligent legal work.  Ms Sharma was fired in May 2017.  This was after she had arranged for mediation between her clients and IHC, then telling her clients she would not be attending.

Sharma v. Foster-Bohm & Corbin – High Court (3.11.22)

22.181

Asset Forfeiture: R. v. Duthie

Unable to prove that a south Waikato lifestyle property was purchased from proceeds of crime, police instead used the Sentencing Act to claim half Richard Alan Duthie’s equity in the 5.1 hectare property as an ‘instrument of crime.’  A house on the property was used as a clandestine lab to cook methamphetamine.

Duthie pleaded guilty in February 2022 to charges of possessing equipment for manufacture of meth, manufacturing meth and possession of meth for supply.  Charges followed a search of his Lichfield property.  Forfeiture of the property under the Criminal Proceeds (Recovery) Act would require proof the property was ‘tainted’ in that income from illegal sources was used to purchase Lichfield or to pay down a mortgage.  Police inquiries identified that Duthie purchased Lichfield in 2019 for $300,000 with 100 per cent mortgage financing from Avanti Finance. About $297,000 was still owing.

Police laid claim to the equity in Lichfield; manufacturing methamphetamine on site meant the property was an ‘instrument of crime.’ On the basis of valuations before the court, Justice Campbell assessed Duthie’s current equity in the property as being some $650,000.  One half of this value was forfeit to the government, he ruled.  The property was not used solely for the purposes of crime. The fact Lichfield was also Duthie’s residence meant all equity in the property was not forfeit.

Duthie’s sentencing following his earlier guilty plea was deferred, allowing any forfeiture imposed under the Sentencing Act to be taken into account.

R. v. Duthie – High Court (2.11.22)

22.179

Money Laundering: Commissioner of Police v. Shahidan

Funds totalling $1.8 million held frozen in BNZ bank accounts were seized as proceeds of crime following a High Court ruling the bank accounts were used for money laundering by Shahidrawadey Bin Shahidan, part of an investment fraud operating out of Malaysia.  

Police inquiries were triggered by Bank of New Zealand after it blocked further activity by Shahidan on two bank accounts in May 2016 after he failed to respond adequately to Bank ‘please explain’ requests.  Suspicious of the flow of funds into these accounts, BNZ asked Shahidan for the source of deposits.  He claimed to own a business providing software services but was unwilling to provide any documentatary support.  In the High Court, Justice Katz described as simply not credible Shahidan’s claim to have generated more than two million dollars selling software services over a seven month period while having no records to corroborate his claim.

Shahidan’s day job ostensibly was chief operating officer for a business called VenusFX.  Its website advertised investment advice on foreign investments and claimed to have over 2,000 clients.  Its Facebook page profiled large profits received by Venus investors. VenusFX falsely claimed to have registration within New Zealand as an authorised broker, displaying as evidence on its website the certificate of incorporation issued as a matter of course to all companies registered in New Zealand.  It also falsely claimed to be a member of the Financial Services Complaints dispute resolution scheme.

Ordering the frozen $1.8 million be forfeit to government, Justice Powell described VenusFX as a fraudulent investment scheme based in Malaysia with evidence indicating BNZ accounts were set up to launder profits from the fraud.

Commissioner of Police v. Shahidan – High Court (8.06.21 & 2.11.22)

22.180

Bankruptcy: Moxham Milk v. Clark

Failing to return funds mistakenly credited to a bank account led to bankruptcy for Bay of Plenty resident Stephen George Gibson Clark.

The High Court was told Levin-based Moxham Milk Ltd paid some $26,500 into an ANZ bank account in June 2018 mistakenly thinking payment was going into the account of fertiliser supplier Zenith Ltd.  Getting the money back proved difficult.  Moxham Milk claimed an account controlled by Opotiki resident Stephen Clark made a windfall gain and that Mr Clark refused to return the funds.  Mr Clark admitted the account was in his name but said he did not control the account and had never been ‘in possession’ of the mislaid money.  The account was a trading account for Eco-Farm, he said. Moxham Milk was to later learn that much of the missing money was transferred five days after receipt into the account of Eco-Farm Aotearoa Ltd.

Moxham Milk sued in the District Court.  Mr Clark was ordered to repay $34,660; the amount due now increased by fees and legal costs.  Mr Clark disputed Moxham Milk’s High Court application to bankrupt him for non-payment.  Moxham provided email evidence from the Police, ANZ Bank and another fertiliser supplier all confirming that Mr Clark owned and controlled the bank account mistakenly receiving Moxham’s money.

While ultimate control of the account into which funds were mistakenly paid is unclear, this does not relieve Mr Clark from personal responsibility for repayment, Associate judge Taylor said.

Moxham Milk Ltd v. Clark – High Court (21.10.22)

22.177 

Reckless Trading: Smartpay Ltd v. Kumar

Liable for reckless trading, Auckland company director Manas Kumar was ordered to pay $850,400 compensation to Smartpay an unpaid creditor of his company Optimizer Corporation Ltd left high and dry with Optimizer having no assets and no income from the day it started trading. 

The High Court was told Mr Kumar established Optimizer in 2013 to exploit a software product called Swipe HQ.  It allowed retailers to process debit and credit card transactions.  When allied with a mobile EFTPOS terminal, transactions could be processed wirelessly. In 2014, Optimizer signed a deal giving Spark the right to market and sell Swipe HQ.  Optimizer was responsible for supplying the EFTPOS terminals.  On behalf of Optimizer, Mr Kumar hired terminals from Smartpay Ltd with an upfront hire charge, monthly rentals for each terminal and an obligation to pay Smartpay 0.35 per cent of transactions processed.  Evidence was given of Optimizer immediately falling behind in payments due to Smartpay.  One year on, Spark had terminated its contract and Optimizer was in liquidation.  Optimizer kept no proper accounting records.  It had received no income; revenue was instead channelled to its holding company.  Payments made by Optimizer to Smartpay were sourced from other companies under Mr Kumar’s control.

Justice Downs ruled Mr Kumar was in breach of his statutory duties as director of Optimizer by trading whilst insolvent. His company had no assets, had no income, and had no legally enforceable promises of financial help from related companies.

Mr Kumar was held personally liable to pay Optimizer’s unpaid Smartpay debt of $850,400 for unpaid fees and lost terminals.  The court was told Smartpay supplied Optimizer with just over 2100 terminals; 1002 were recovered.

Smartpay Ltd v. Kumar – High Court (13.05.22 & 19.10.22)

22.176

Will: re Estate of Adrienne Judith Peacock

Emotionally torn between family members, Judi Peacock left contradictory instructions as to how her assets should be distributed on death causing the High Court to rule an earlier will leaving everything to her now divorced husband was her final will.

Adrienne Peacock, known as Judi, died suddenly in 2021 aged 74.  She worked as a counsellor in the Waikato.  After her death, three documents written across a three year period were found on her computer each marked ‘draft’ with various formulations as to division of her assets between her sons and grandchildren on death.  Also found was a subsequent document, handwritten, which dealt with only one asset, her home.  At the time of her death, she also owned a second property in Tirau.

The High Court was asked to rule if any of these informal documents could be approved as a valid will.  Informal documents which do not comply with strict formalities of the Wills Act can be validated provided the document clearly expresses the deceased person’s testamentary intention at time of their death.

The 2017 handwritten document stated that one of her sons, Jamahl Sean Khan, could purchase her home at a price of $150,000 with this money to go in its entirety to her other son, Saleem Paul Khan.  In 2021, this property had a rating valuation of $1.46 million.  Saleem is now known as Samuel Jay Steel.  He has served terms of imprisonment for what the High Court was told were indecencies with children.  The two brothers are estranged.

Justice Brewer ruled that none of the draft documents on her computer nor the 2017 handwritten document represented Judi Peacock’s testamentary intentions at time of her death.  There was evidence that whilst alive she vacillated between how family should be treated and whilst she wished to treat her sons equally she had grown exasperated at son Samuel’s criminal behaviour.  Telling her lawyers in 2019 that she did not want one of the early computer drafts finalised as a formal will was strong evidence that she had not reached any final decision, Justice Brewer ruled.

Approved as her final will was a 2005 will naming her then husband as sole beneficiary.  They separated in 2013 and divorced in 2017, but remained friends. Her former husband told the court that he recognised he had no valid moral claim to his former wife’s assets. Both sons are claiming for a share of their late mother’s estate under the Family Protection Act.  Justice Brewer recommended everyone get around the table and agree in an out of court settlement how her assets are distributed using as a guiding principle Judi Peacock’s long history of treating family members as equally as possible.

re Estate of Adrienne Judith Elizabeth Peacock – High Court (6.10.22)

22.175

Maori Land: re Totoro Trust

When the Peacocke family looked to sell their King Country farm red flags popped up; the land was designated Maori land.  Part of the farm was Maori land, the Court of Appeal ruled, following administrative mistakes way back in 1980 with Maori Land Court consent still needed for any future sale.

Ownership of Maori land has a troubled history in New Zealand ranging from outright confiscation following invasion by colonial troops, through quasi-legal manipulation of land purchases by the colonial government followed by paternalistic intervention with Maori Land Court consent required to validate sales.

Most land in New Zealand is now general land with ownership recorded on Land Information’s electronic register.  Ownership of land remaining in customary Maori ownership is recorded separately on registers held by the Maori Land Court.  For administrative convenience, some Maori land is now recorded on the Land Information electronic register where it is denoted as Maori freehold land.  For the Peacockes, sale of their King Country farm ran into legal difficulties when it was discovered ownership recorded on the Land Information register did not match Maori Land Court records.

The Court of Appeal was told the Maori Land Court in 1976 consolidated ownership of customary Maori land in the Maniapoto known as Puketiti 2B2B1 as being owned by Raimona Lee as to 44.8 shares and Puku Doherty as to 9.2 shares.  Maori custom sees land pass to descendants on death, resulting in ownership splintering into ever smaller shares over time.  This rule does not apply to general land owned by Maori; they are free to sell, mortgage and bequeath this land as can any other owner of general land.

In 1980, Ms Lee sold her 44.8 shares in Puketiti to an Ian Walsh.  He did not purchase Mr Doherty’s smaller share.  As was required, approval from the Maori Land Court was given to the Walsh purchase from Ms Lee.  In an administrative error, Maori Land Court authorisation for ownership to be also recorded on the Land Information register with issue of a certificate of title saw Mr Walsh being recorded as sole owner, having ownership of both Ms Lee’s and Mr Doherty’s interest in the land.  Ownership of Puketiti has subsequently passed through several hands, each purchaser unaware of Mr Doherty’s descendants having rights as part-owners and also unaware that Maori Land Court consent was needed for each subsequent sale.

Asked to unravel the shambles, the Court of Appeal ruled legislation in force at time of the 1976 Walsh part-purchase meant Puketiti was and remained Maori freehold land.  Maori Land Court consent was needed for any further sale and also for any re-description of the land from Maori freehold status to general.

Land Transfer Act rules mean the Peacockes are now legal owners of all the land.  They purchased in good faith, unaware of the earlier mistake.  Mr Doherty’s descendants are entitled to compensation. The Maori Land Court and Land Information each blame the other for the 1980s error.

re Totoro Trust – Court of Appeal (5.10.22)

22.174

Guarantee: Borlase v. Robertson Engineering

Liability on a personal guarantee all depended on interpretation of a dangling pronoun; did ‘you’ refer to a director or to his company?

When Charles Borlase’s company Command Aviation Ltd went into liquidation in 2020 following an aircraft accident, he was sued by creditor Robertson Engineering Ltd for Command’s unpaid helicopter lease commitments.

In 2018, Mr Borlase had sent an email to Robertson Engineering’s director Maurice Wooster giving ‘an unconditional Personal Guarantee in regards any moneys owed by [Command] to you.’

When sued by Robertson Engineering on the guarantee for some $82,500 Mr Borlase said the wording only covered debts owed by Command Aviation to Mr Wooster personally and Command did not owe Mr Wooster anything; its debt was owed to Robertson Engineering.

There was potentially some ambiguity in wording of the guarantee, Justice Churchman said.  Left dangling, the pronoun ‘you’ could apply to either Mr Wooster or his company.  Any ambiguous wording is resolved against the party who wrote it, he ruled.

Given the context in which Mr Borlase as director of Command Aviation was writing to Mr Wooster as director of Robertson Engineering, the debt Mr Borlase was guaranteeing personally was the $82,500 debt Command owed to Robertson Engineering, Justice Churchman ruled.

There was never any debt owed by Command to Mr Wooster. Giving a guarantee for a non-existent debt made no commercial sense.

Borlase v. Robertson Engineering Ltd – High Court (4.10.22)

22.173

Timeshare: re 'The Retreat'

Declining demand for timeshare holiday accommodation sees ‘The Retreat’ sitting on 4.7 hectares of land overlooking the marina at Lake Taupo joining other local timeshares being sold up.  Owners at The Retreat can anticipate a return of about $11,800 for each timeshare week sold.

In recent years, other local timeshares have been wound up and sold: Village Resort, Phoenix and Turangi Leisure.  Increased maintenance and refurbishment costs plus the strictures of fitting holidays around timeshare availability has seen owners selling or abandoning their timeshare ownership.  Winding up a timeshare resort under the Unit Titles Act requires a 75 per cent vote plus High Court approval.

High Court approval to wind up The Retreat was delayed following objections from the Ray Thorpe Trust, owner of two timeshare weeks. With eight accommodation units, The Retreat has ownership spread across 408 timeshare weeks.  A 2021 vote to windup received 86 per cent support. Included in this majority was Murcia Holdings Ltd owned by the Clark family. Murcia alone carried votes for 225 timeshare weeks.  Nearly 180 of these weeks were purchased when the original developer went bust.  Over the years, Murcia had bought out owners looking to quit their interest in The Retreat.  Holding 225 timeshare weeks meant Murcia was now having to pay some $216,500 in annual maintenance levies.  The Clarks said they had supported The Retreat financially for over thirty years and it was time to wind up what was an uneconomic and unworkable model.

In the High Court, Ray Thorpe Trust challenged the manner of the vote.  They alleged Murcia Holdings had gained control by buying up cheaply weeks offered for sale and further alleged the Clarks could benefit as insiders from any sale because they lived in accommodation on site.  There was a power imbalance, the Trust said, which disadvantaged minority time-shareholders looking to co-ordinate objections.

Justice Cooke approved dissolution of the timeshare scheme subject to conditions.  A $510,000 credit balance in the timeshare’s refurbishment account is to be distributed only between owners of timeshare weeks for the eight accommodation units; the unit occupied by the Clarks had not contributed to this fund.  And neither the Clarks, Murcia Holdings or any interests associated with them could buy the 4.7 hectare site without first applying to the court and establishing that there were no other buyers offering a better price.

Sale by tender rather than by auction was approved by the court.

re Body Corporate 39826 – High Court (3.10.22)

22.172

Building Consents: Nuwave Software v. Objective Corporation

The boys from Sydney sneaked into New Zealand under cover of darkness, incurring a $1.54 million Commerce Act fine, planning to seize control of local authorities’ use of online systems for processing building consents.  A High Court injunction blocked poaching.

Wellington-based Nuwave Software Ltd alleges Australian-owned Objective Corporation Solutions is party to illegal commercial conduct attempting to dominate online building consents.

The High Court was told Nuwave joined with Master Business Systems in 2016 to develop an end-to-end online system for processing building consents.  Their joint venture company GoCouncil provides bundled software to about twenty local authorities under the brand GoGet.  Terms of the joint venture prohibit both Nuwave and Master Business from hiring each other’s employees or poaching clients; to protect each company’s goodwill and know-how, the agreement says.

In June 2022, Master Business along with three other companies was merged into Objective Corporation Solutions NZ Ltd, under ultimate control of Sydney-based investors.  This merger fell foul of the Commerce Act.  In the course of a Commerce Commission investigation, Objective Corporation acknowledged the merger was likely to substantially lessen competition.  It was fined $1.54 million.  Commerce Commission did not seek to reverse the merger.  Divestment would likely disrupt building consents filed throughout the country.

This left Nuwave with the risk that Master Business staff operating their joint venture GoCouncil portal would be used to staff up Objectives’s operations, stealing clients and leaving GoCouncil to wither. Justice Palmer issued an injunction prohibiting Objective from approaching GoCouncil customers.  Objective is free to offer its services to local authority consenting authorities that are not current GoCouncil customers.  

Objective claims Nuwave’s non-poaching agreement is itself anti-competitive.  This claim requires a further court hearing.

Nuwave Software Ltd v. Objective Corporation Solutions NZ Ltd – High Court (30.09.22)

22.171

Tax Fraud: Sami v. Inland Revenue

The High Court refused Rajesh Sami leave to appeal his 2017 conviction for tax fraud; his last ditch effort to avoid deportation to Fiji.

Sami pleaded guilty in 2017 to Inland Revenue charges of tax fraud totalling some $669,800; failing to declare cash jobs for income tax and failing to register for GST or to pay GST over a seven year period. Sami worked as a builder.  He was sentenced to two years ten months imprisonment.

On his release, Sami was issued with a deportation order.  He is a Fiji citizen and a New Zealand resident, but is not a New Zealand citizen. The High Court was told Sami unsuccessfully appealed his deportation to the Immigration and Protection Tribunal. A claim to refugee status was also unsuccessful.

He then asked the High Court for leave to appeal his conviction for tax fraud; an attempt to remove the reason for his deportation.  His appeal rights had lapsed four years previously.

Sami said he would never have pleaded guilty if he had known conviction would result in deportation.  He has lived in New Zealand for about 24 years.  His wife and three children also live in New Zealand.

Sami said there had been a miscarriage of justice; his lawyer did not warn him that conviction could result in deportation.  Sami’s defence lawyer advised him to plead guilty in order to get a sentencing discount.  This was appropriate advice, Justice Davison said.  Even if the possibility of deportation had been raised at sentencing, there was never any realistic possibility that the trial judge could be persuaded to discharge Sami without conviction, he said.  Any appeal against conviction was hopeless, Justice Davison ruled.

Sami v. Inland Revenue – High Court (23.09.22)

22.170

Leasehold: KOL Holdings v. Xu

Owners of twenty-one leasehold apartments on Auckland’s Remuera Road have had their leases cancelled following a rent strike when annual rents more than doubled in 2021 on a seven-year rent review.

The High Court was told owners had abandoned their leased properties with power subsequently cut off for unpaid arrears. Freehold title to the apartments at 267 Remuera Road is held by property company KOL Holdings Ltd with Anthony David Frith and Anna Kristina Frith named as both directors and shareholders.

Lease terms permit KOL to review rent every seven years. The 2021 review saw annual rent for the block of predominately small studio apartments rise from $250,000 to $645,000 with GST to be added.  Leasehold owners walked away.  Legal action was taken against eight owners who had not done a deal for surrender of their lease. The High Court ruled these eight were jointly and severally liable for rent arrears of some $1.03 million and rates arrears of just over $115,000. Joint and several liability leaves each of the eight leaseholders liable to contribute equally to the amount due, but if one does not pay then the other leaseholders have to make good the difference. At a minimum, each is liable to pay more than $140,000 with no compensation for loss of their leasehold interest. 

At KOL Holdings’ request, the High Court cancelled all twenty-one apartment leases giving KOL complete control of the site. A hotel advertising itself as the Devereux Boutique Hotel sits to the rear of the property, partially obscured by the studio apartments.

KOL Holdings Ltd v. Xu – High Court (22.09.22)

22.169