'Spencer on Byron:' Body Corporate 207624 v. Grimshaw & Co

Ordered to repay $67,500 received as a ‘wasted costs’ order claiming to be out of pocket following a trial delay, the High Court was told law firm Grimshaw was itself not ready to go to trial at time of the requested delay.  Grimshaw is defending allegations its negligence increased remediation costs for apartments at Auckland’s Spencer on Byron.

On 23 levels, Spencer on Byron suffered weathertightness defects, resulting in a $20.05 million payout in 2013.  Remediation was delayed following a dispute over who benefits. Initially, legal action was taken by Spencer’s body corporate on behalf of only a limited number of residential apartment owners.  At the outset, Auckland lawyers Grimshaw and Co had these owners sign a distribution agreement setting out how any payout would be divided between them as their contribution to remediation costs.  With a twenty million dollar settlement in the pot, other apartment owners piled in, claiming they too were entitled to a share.  It took another court case to rejig the distribution, enabling remediation to progress.

Spencer’s body corporate claims Grimshaw was negligent in not properly drawing up a distribution agreement at the outset. Delays caused by distribution arguments led to increased remediation costs, it says.   Grimshaw denies liability.  This dispute was set down for a July 2021 High Court hearing.  The body corporate asked for a delay; its lawyer was not available on that date.  A new trial date was set.  Grimshaw was awarded a ‘wasted costs’ order; compensation, having prepared for a trial that did not take place. The body corporate promptly paid $67,500 ordered. Six months later, Justice Campbell ordered Grimshaw repay this money.  The High Court was told the body corporate had learnt that Grimshaw was still sitting on some 1800 documents which it says should have been disclosed before the proposed July 2021 court hearing.  Grimshaw had not properly completed pre-trial procedures and was not itself ready for trial in July 2021, Spencer said, whilst implying that it was ready when making its claim for wasted costs.  Grimshaw claims these documents are peripheral to their dispute and of little relevance.  Spencer on Byron disagrees.

Body Corporate 207624 v. Grimshaw & Co – High Court (31.3.22)

22.070

Joint Venture: Young v. Remarkable Exquisite Design

Maria Young forced liquidation of their Queenstown joint venture property company after suspicions colleagues Geoffrey Short and Katrina Wardill were diverting company resources to their own benefit.

In 2019, the three jointly purchased a high-end apartment in Queenstown, intending to earn income renting as Airbnb accommodation. Title was taken in the name of their joint venture company, Remarkable Exquisite Design Ltd, with Ms Young holding a one-third share.  Living in Hamilton, Ms Young came to suspect her Queenstown-based colleagues were rorting the business.  A private investigator was hired.  Ms Young alleged her colleagues were diverting Airbnb income into their personal bank account and at times had been living rent-free in the apartment, charging their cleaning expenses to the joint venture.

The High Court was told Ms Young was refused access to the Airbnb online booking platform.  Her access to Remarkable’s Xero accounting data was blocked for over a year by Mr Short and Ms Wardhill.  The two did not fully respond to allegations raised by Ms Young, Associate judge Lester said.  The investors’ dysfunctional relationship meant their dispute could not be resolved by agreement. This lack of trust meant it was best to put the company into liquidation, Judge Lester ruled.  An independent liquidator was appointed to sell the apartment and sort out the financial dispute.

Evidence was given that the Remarkable Exquisite purchase was the third property owned jointly by the three.  Joint ownership of another Queenstown apartment had led to a welter of mutual recriminations.  Proceeds from selling this apartment are currently held in a lawyer’s trust account awaiting agreement on how the surplus is to be divided.

Young v. Remarkable Exquisite Design Ltd – High Court (31.03.22)

20.069

Ahu Whenua Trust: Walters v. Wikiriwhi

Trustees of a Taupo ahu whenua trust put loyalty to a friend ahead of their duties as a trustee, the Court of Appeal said, confirming removal of trustees from office and ordering review of the benefits gained by fellow trustee Tom Walters.  Maori Land Court had ordered Walters pay $128,000 to the Oruanui Lands Trust.

Beneficiaries of Oruanui Lands alleged trustees Michelle Satchell, Kori Trevelyan and Aperahama Withers had allowed fellow trustee Tom Walters, also known as Eric Walters, to buy trust land on the cheap in a sweetheart deal.

The Court of Appeal was told Oruanui Lands owned some 200 hectares of farm land near Taupo.  It leases the land, collecting rent.  As an ahu whenua trust, Oruanui has some 650 beneficial Maori owners.  In 2013, trustees considered buying adjoining farm land coming up for auction.  The vendor was looking to get $1.6 million; the then rateable value was $1.05 million.  Oruanui did not have sufficient resources to buy at these prices, but the trustees agreed between themselves that Mr Walters would put up one-third of any successful bid, in return getting ownership of a farm house on the land.  At the November 2013 auction, Oruanui was the successful bidder at just $595,000.  Oruanui could fund its purchase at this price with its own resources.  One month later, trustees confirmed Mr Walters could have the farmhouse plus an adjoining four hectares at one-third the bid price: $198,3000. There was no independent valuation of the property being onsold.  Beneficiaries complained Mr Walters was getting trust assets at below market price.

The Maori Land Court removed all the Oruanui trustees from office, ruling there was a conflict of interest in selling to a fellow trustee.  This ruling was confirmed by the Court of Appeal.  Mr Walters said he took no part in the decision.  He excused himself from that part of a meeting at a lawyer’s office when the contract was signed, he said.  The fact he excused himself from one part of one meeting did not counterbalance the vast volume of evidence that shows Mr Walters was intricately involved from beginning to end in Oruanui selling trust property to himself, the court said. 

The Maori Land Court also ruled Mr Walters pay $128,000: the value of the property transferred less the price paid together with a sum of $200,000 Mr Walters claimed to have spent upgrading the property.  A review of these figures was ordered.  In dispute is the value of the farmhouse and the extent of claimed improvements.

Walters v. Wikiriwhi – Court of Appeal (29.03.22)

22.068

Family Trust: re I.K. and D.L. Jury Family Trusts

High Court approval was needed to amend terms of two Taranaki family trusts to avoid a potential $320,000 tax liability and to protect assets from relationship property claims.

Ian and Debbie Jury transferred business assets into two family trusts in 1992.  Acting on accounting advice, the trusts were given termination dates of March 2022. Tax law has changed in the intervening thirty years; each of the trusts incur a $160,000 tax liability if wound up this March.

Following a last minute Trusts Act court application, the High Court agreed to extend the trusts’ lives to 2072, being eighty years from date the trusts were created.  Court approved changes are possible where circumstances have arisen which could not have been foreseen when a trust was established.

Beneficiaries in the Jury family trusts include children not of full legal age and children yet born.  This category of beneficiaries cannot give their consent to changes. The High Court gave approval on their behalf.  Extended family will benefit from management of the trusts’ potential tax liability, Justice Cull said.

The trusts were also amended to remove as beneficiaries the spouses and partners of Jury family beneficiaries.  Justice Cull commented it is now the norm with inter-generational family trusts to not include spouses and partners as possible beneficiaries, ensuring assets are protected for lineal descendants and not vulnerable to relationship property claims.

The High Court was told the Jurys have two adult married daughters.  The husband of one gave written consent to his removal as a beneficiary.  The other had not given consent; he is separated but the marriage is not yet dissolved.  Justice Cull waived the requirement to get his consent.  He is a discretionary beneficiary only.  He would only qualify for a discretionary payout if his estranged spouse died before March 2022.

re I.K. and D.L. Jury Family Trusts – High Court (24.03.22)

22.067

Land Title: Scott v. Rawenata

Looking to refinance their King Country farm, Cameron and Sue Scott were flabbergasted to find they no longer owned part of their property.  Maori Land Court mistakes had seen a chunk of their farm transferred to 58 individuals they had never heard of.  It took a High Court order to untangle the mess.

Registration against title is gold standard proof of land ownership.  The sorry tale of an ownership mix-up only came to light in 2021 when the Scotts looked to change banks.  As is the norm, lawyers checked title to land being offered as security.  The Scotts were no longer recorded as owners of what is called Block 2C, part of their farm near Pirongia.  Anthony Rawenata and 57 others were recorded as owners.

The High Court was told Maori Land Court had supplied documents to Land Information in 2009 for title registration which in error transferred Block 2C out of the Scotts’ names; the wrong title identifier was supplied.  Maori interests now recorded as owners of Block 2C knew nothing of their windfall; the Scotts similarly did not know part of their farm had been snatched away.

Correcting the mistake required a court application and notice given to each of the 58 new Maori owners, giving them the opportunity to challenge their removal from the title as owners of Block 2C.  None objected.  The High Court ordered re-registration of title in the Scotts’ name. They are entitled to compensation for costs and disruption.  Maori Land Court and Land Information were given three months grace to sort out who bears these costs and to agree suitable compensation with the Scotts.

Scott v. Rawenata – High Court (24.03.22)

22.066

Estate: Morais v. Catholic Church

Twice, nearly five years apart, Colin Morais took to the courts claiming rights to his late sister’s Christchurch property, both times without success.

His sister Carol died in 2016 owning a residential property on Harewood Road in Bishopdale.  Her will left the property firstly to the Catholic order of nuns, Sisters of Mercy; alternatively going to the Christchurch Roman Catholic Diocese if Sisters declined the gift. Elsewhere in her will, Carol stated the property was to go to her brother Colin if neither the Sisters nor the Diocese took up the gift.

The High Court was told that despite having Colin named in her will as a residuary beneficiary, Carol left a separate document with her lawyers saying she did not want Colin to inherit Harewood Road.  She referred to funds Colin had previously received from both herself and their parents which he had put towards the purchase of four separate properties.

Shortly after Carol died, Colin contested her will claiming each had exchanged promises that the survivor of the two would have the right to live in the other’s home for the rest of their life.  This claim under the Law Reform (Testamentary Promises) Act was dismissed.  The High Court ruled Carol had never made such a promise.

Colin then started again, claiming the Diocese (who had taken ownership after the Sisters declined) was not using the property as specified in Carol’s will and by implication had renounced the gift.  The property should go to him as residuary beneficiary, he said.

Terms of Carol’s will came under close examination in the High Court.  Her bequest to the Diocese stated the property was to be ‘for the exclusive use’ of clergy.  Putting tenants in the property and collecting rent did not satisfy this condition, Colin said.  Justice Mander ruled clergy did enjoy ‘exclusive use’ in that rental revenue was used to support their pastoral activities and to provide funding for housing retired priests.

Morais v. Christchurch Roman Catholic Diocese – High Court (21.03.22)

22.065

Tax: Li v. Inland Revenue

Agreeing to pay $575,000 to Ministry of Justice as proceeds of crime, Zhiwei Li failed in his argument that this sum should be credited to his tax liability.  Inland Revenue needs to be brought to the negotiating table when settling proceeds of crime litigation, Justice Wylie observed.

Li was caught in a sting after a journalist enrolled undercover for a business course offered by a private training establishment and was awarded his diploma without attending any classes or completing any course work.  Media publicity resulted in Li being convicted for fraud in 2015 and sentenced to four months’ home detention.  This publicity attracted attention of both police and Inland Revenue.  Police inquiries identified $1.8 million banked into accounts in the name of both Li and his wife over a three year period. Cash totalling $135,000 was seized following a search of their North Shore home in Auckland.  Police took action under the Criminal Proceeds (Recovery) Act alleging these assets came from both the diploma fraud and tax evasion. Li claimed much of the money was sourced from his accounting practice, AA Taxation & Accounting Service Ltd, paid into their personal bank accounts.  He acknowledged income tax from his accounting practice was underpaid.

In 2017, Li and police negotiated a court-approved settlement of the proceeds of crime claim.  Li paid $575,000.  Two months previously, Li had written to Inland Revenue making a voluntary disclosure of underpaid tax by both himself and AA Taxation.  Inland Revenue inquiries were still under way when the proceeds of crime settlement was signed.  Inland Revenue was not party to the settlement.  The document specifically stated it was for Inland Revenue to decide on the tax status of the $575,000 payment.

One year later, negotiations with Inland Revenue saw Mr Li agreeing to pay tax arrears of some $242,600; AA Taxation $211,800.  Inland Revenue refused to allow a tax credit for the $575,000 paid earlier to Ministry of Justice.  Mr Li sued.  He was being forced to pay twice over, he complained.

The proceeds of crime settlement made it clear the $575,000 payment was to have no bearing on Mr Li’s potential but as then unascertained tax liability to Inland Revenue, Justice Wylie ruled.  Police and Mr Li were at that time content to let Inland Revenue decide.

Rules in the United Kingdom prohibit double recovery. 

Li v. Inland Revenue – High Court (18.03.22)

22.064

Asset Forfeiture: Wu v. Commissioner of Police

With no source of legitimate income and having lived for twelve years with a spouse later convicted of drug dealing whilst accumulating an Auckland residential property, a Ferrari 458, a Porsche Cayman, a collection of designer handbags and jewellery plus having unbanked cash lying around the house meant Chien-Hui Wu must have been aware her assets were purchased with proceeds of crime, the Court of Appeal ruled when confirming a court order to pay $5.3 million.

After Ka Kit Yim was sentenced to eleven years and six months’ imprisonment on conviction for possession and dealing in methamphetamine, his spouse Chien-Hui Wu challenged seizure of her assets as proceeds of crime.  Ms Wu came to New Zealand from Taiwan as a student in 1994, later gaining New Zealand citizenship.  She met Yim in 2003.  She said purchase of her assets were funded with gifts from her parents, successful foreign exchange trading and a one million dollar loan from a Hong Kong friend: Lilian Liu.  The existence of Ms Liu was challenged at a High Court hearing when a loan document supposedly prepared by Ms Liu misspelt her name.  A person at the contact address provided for Ms Liu declined to admit to her existence.

Under the Criminal Proceeds (Recovery) Act assets are ‘tainted’ if purchased with proceeds of criminal activity.  It is not necessary to prove owner of the assets was responsible for, or aware of, the criminal activity.  Separately, assets can be seized and sold as part of a ’profit forfeiture order’ where owner of the assets benefitted from significant criminal activity, whether or not the assets were ‘tainted’ or not.

Ms Wu challenged a High Court ruling that assets she owned be seized; the assets were not ‘tainted’ and she was not aware of any criminal activity by her husband, she said.

Ms Wu’s extensive trading in foreign currencies through money remitters was evidence the money was more likely than not derived from significant criminal activity, the Court of Appeal said.  Significant amounts of cash available to pay off her house mortgage and possession of luxury items evidenced her knowledge of criminal activity, the Court ruled.

Collectively, Yim and Ms Wu were ordered to pay $5.3 million.

Wu v. Commissioner of Police – Court of Appeal (18.03.22)

22.063

Maori: Aorangi Awarua Trust v. Maori Carbon Collective

Catering to Maori sensitivities about further loss of land, Maori Carbon Collective offered a chance to exploit the value of carbon credits on forested land with what it called no risk of losing ancestral land.  Aorangi Awarua Trust is now facing a $43.7 million claim on a Carbon Collective deal that went sour. 

Aorangi Awarua owns land in the North Island hinterland near Taihape.  In early 2020, it signed a deal with Maori Carbon Collective Ltd designed to exploit carbon credits generated under New Zealand’s emissions trading scheme.  It was proposed some 2000 hectares of Aorangi Awarua land would be planted in forest with Maori Carbon managing the forest for the next thirty years and value of resulting carbon credits shared. Within one year, it had turned to custard.  Aorangi alleges Maori Carbon unlawfully misappropriated part of its share in the joint venture, unilaterally transferring units valued at a little over $300,000.  Aorangi cancelled the project.  Maori Carbon sued, seeking a court ruling that the project still stood; failing that an order for loss of profits totalling $43.7 million.

At a preliminary hearing, Aorangi asked the High Court to strike out Maori Carbon’s loss of profits claim.  Their joint venture agreement specifically excluded any claims for consequential loss, it said.  Associate judge Johnston dismissed the strike out application.  A full trial is needed to determine whether any proved loss of profits could be considered a recoverable direct loss, rather than an excluded consequential loss.

Aorangi Awarua Trust v. Steedman & Maori Carbon Collective Ltd – High Court (17.03.22)

22.060

Charitable Trust: Malthus v. Laura Fergusson Trust

Individuals aggrieved at closure of the Laura Fergusson rehabilitation centre in Auckland and angry that they were refused membership of Fergusson Trust will get their day in court.  Trust attempts to strike out their claims were dismissed by Justice Hinton.

For over fifty years, Laura Fergusson Trust provided residential accommodation and rehabilitation for the disabled.  The Trust is named after and grew out of concerns raised by the spouse of a former governor-general who was dismayed to see hospital geriatric wards being the only accommodation available for disabled patients.

In 2019, the board decided to close down Laura Fergusson’s operations on its valuable Epsom site, selling the land for development as residential apartments.  Sale price has not been publically disclosed beyond reference in Trust 2021 financial statements to receipt of a $9.9 million deposit, $186,000 from sale of furniture, equipment and motor vehicles and $116,000 paid board chair Chris O’Brien for ‘provision of advice’ in relation to the Epsom sale.

Friends of Laura Fergusson have been campaigning against the sale and proposed use of the proceeds.  In particular, they say the Board is acting contrary to its own constitution should it enter into a proposed joint venture with Autism New Zealand. 

Friends allege existing board members of Laura Fergusson Trust are improperly protecting their own position by refusing Trust membership to any person likely to vote them out of office.  Friends claim up to 135 individual applications for membership have been declined, without giving a reason.

Justice Hinton allowed Friends to continue with court proceedings against the Trust alleging that it is in breach of contract by refusing membership applications and that it is restricted as to how it uses Epsom sale proceeds.  Friends are also asking for a formal inquiry into Trust management and Trust operations.

Malthus v. Laura Fergusson Trust Inc. – High Court (17.03.22)

22.062

Fraud: Business Control (Schweiz) v. Shibalova

Conviction in an Italian court for a US$10 million dollar fraud has its denouement in a New Zealand court with a disputed claim for US$3.36 million as commission for recovery of the funds.

In 2012, Andrey Ivanov was convicted in Italy of embezzling almost US$10 million from his then partner, Inna Shibalova.  Previously, Ms Shibalova signed a contract with Australian investigators MPOL Group agreeing to pay 35 per cent commission on all money recovered.  Following Ivanov’s conviction, seven million euro frozen in an Italian bank account was ordered returned.  Swiss company Business Control (Schweiz) AG claims MPOL’s commission contract was assigned to it and that it is entitled to payment of US$3.36.

Round one was fought out in the High Court at Auckland.

Ms Shipalova says she is not liable to pay any commission.  She never received the money she says.  It was paid to her father, she claims.  She also claims Business Control (Schweiz) has no right to sue.  The assignment of MPOL’s rights to Business Control is a fiction and never took place, she alleges.  

Business Control in turn wants access to Ms Shipalova’s financial records.  It alleges the recovered funds were eventually returned to her and suspect they were used to buy property in Auckland and Taipa.  The High Court ordered disclosure of Shipalova’s bank statements for the eight year period commencing 2012 and further ordered disclosure of source of funds used to buy the two properties.

Business Control was ordered to pay into court before trial a total of $40,000 as security for Ms Shipalova’s legal costs should she be successful after a full court hearing.

Business Control (Schweiz) AG v. Shibalova – High Court (17.03.22)

22.061

Asset Forfeiture: Commissioner of Police v. McMahon

Craig Anthony McMahon’s home in Fitzherbert Street, Featherston, together with his 2007 Ford Mustang were seized as profits of crime with McMahon sentenced to 23 months’ imprisonment for possession and supply of cannabis, money laundering and theft of electricity.

The High Court was told McMahon banked over $470,000 through bank accounts over a three year period, a time when he was in no paid employment.  He admitted to using proceeds of crime to pay down his mortgage and to buy the Ford Mustang. In a negotiated settlement with police, it was agreed $470,000 represented his gross revenue generated from drug dealing.

The High Court ruled McMahon’s assets to a value of $470,000 were forfeit as proceeds of crime, starting with sale of the Ford Mustang and confiscation of $27,200 cash found at Fitzherbert Street.  The balance was to come from $12,700 McMahon held in sundry bank accounts and the equity in his home.

If a loan cannot be raised on security of his home to pay the balance, a forced sale is likely.

Commissioner of Police v. McMahon – High Court (16.03.22)

22.059

Market Manipulation: FMA v. Meng & Qian

Meng & Associates’ web page proudly states integrity is a core component of its business.  Sean Meng and Sam Qian, two chartered accountants with Meng & Associates, were each fined for market manipulation over share trading in Oceania Natural Ltd: Meng ordered to pay $180,000; Qian $130,000.

Oceania listed on the NXT small-cap market in 2016, delisting in 2018 before NXT stopped operating as a separate trading platform in 2019.  The company specialised in health foods and health supplements.  Financial Markets Authority is currently prosecuting majority shareholder Walker Zhong and wife Regina Ding alleging market manipulation of Oceania shares.  Fellow shareholders Sean Ming and Sam Qian admitted FMA charges, saying they had no intention of manipulating market prices but that their trading had this effect.

The High Court was told of share trading between related parties in 2016 which ramped up Oceania’s share price.  Shares in small-cap companies are thinly traded.

Evidence was given of backstage messaging between Zhong, Meng, Ding and Qian which saw above market buy orders matched with sell orders to create the illusion of active trading, driving up Oceania’s share price.  A rise in market price increased the value of Meng’s and Qian’s Oceania holdings.  Oceania is now in liquidation, insolvent.

Financial Markets Authority v. Meng & Qian – High Court (16.03.22)

22.058

Lease: Kuoch v. Morar Trust

Described as an opportunistic attempt by Auckland landlord Morar Trust to pass increased Watercare capital levies onto a commercial tenant by refusing a lease renewal, the High Court ordered renewal of a laundromat lease.

The High Court was told Johnlee Kuoch signed up in 2018 for lease of premises used as a laundromat in Chartwell Avenue, Glenfield. Unbeknown to Mr Kuoch, landlord Morar Trust had recently received a Watercare notice advising capital charges of $103,780 were being levied as a consequence of increased water use on site following installation of the laundromat; what Watercare called an infrastructure growth charge, a contribution towards upgrading its network.

Over the next three years Morar trustees just ignored the Watercare notice, springing into action only after receiving Watercare’s $103,000 invoice.  They first tried to push the full cost onto Mr Kuoch, later retreating when asked why he should be responsible for a levy imposed before he took up the lease. When Mr Kuoch inadvertently overlooked giving formal notice seeking a 2021 renewal of his lease, Morar Trust seized the opportunity to demand payment towards the Watercare levy as a pre-condition for renewal.

Mr Kuoch sued under the Property Law Act, asking the High Court exercise its discretion to order renewal.  Justice Powell said Mr Kuoch was a good tenant who had simply overlooked the requirement to give notice.  Loss of his lease would result in loss of his business.  Justice Powell ordered renewal of the lease, allowing Mr Kuoch to remain in business, but made it clear it was still for the two parties to negotiate terms of the continuing lease.

Kuoch v. Morar Family Trust – High Court (14.03.22)

22.057

Medical Practice: Singh v. Care Group

Imprisoned after conviction for unlawful sexual connection with a patient, Dr Kul Vant Singh was later rapped over the knuckles for misleading the court in a dispute over the value of his share in Auckland medical service provider then known as East Care Ltd.

East Care, now known as Care Group, owns and operates a number of medical centres across Auckland.  It has about fifty shareholders, predominately general practitioners.  Prior to his conviction, Singh held 6809 shares; a 4.46 per cent shareholding.  In 2019, he was sentenced to two years ten months imprisonment.  Care Group gave notice to compulsory purchase Singh’s shareholding on grounds he was in breach of the company’s constitution.  His conduct was ‘prejudicial to the best interests of the company,’ it said.

With no advance notice to Care Group, Singh got a High Court temporary injunction to block the compulsory purchase.  Justice Venning subsequently ruled there was no need for urgency; it was not disputed that Care Group could take back the shares, it was just an argument about price.  Care Group had been put to unnecessary legal cost.  Singh was ordered to pay an increased contribution towards Care Group’s court hearing legal costs when he later withdrew his application for a permanent injunction.

Care Group says Singh’s shareholding was worth $904,100. Singh claims $1.13 million, based on a revaluation of Care Group shares near the time compulsory purchase was triggered.  Justice Venning ordered the shares be compulsorily purchased at the lower figure of $904,100.  Singh can recover damages if able to prove his shares had a higher value.  Legal argument will turn on timing of the compulsory purchase notice.

Singh v. Care Group Ltd – High Court (14.03.22)

22.056 

Bankrupt: Coupe v. Remmington

Aaron Peter Coupe has a flair for self-publicity but this was of no avail as he was bankrupted a second time, this time following a failed hotel development in Auckland’s CBD.

Mr Coupe had high hopes for a proposed joint venture to develop and operate a hotel in Auckland’s Greys Avenue.  Funding was expected from US investor Gary Oda, with a hotel management contract inked with Castle Group, a Hawaii-based company.  It did not turn out well.  A US court has ordered Mr Coupe pay $US 2.07 million damages to his joint venture partner.  Mr Coupe disputes the validity of this case.  In New Zealand, Bank of New Zealand sold Greys Avenue in a mortgagee sale.

Steps were taken to bankrupt Mr Coupe.  Rather than register their US judgment in the New Zealand courts and use this to bankrupt Mr Coupe, his former joint venture partners instead took a cheaper route; relying on unpaid costs orders for some $42,500 Mr Coupe was ordered to pay following unsuccessful action taken in the New Zealand courts.  The High Court dismissed Mr Coupe’s claim that these costs have been paid; part of a deal with his former business partners.

He was bankrupted with effect from 11 March 2022. Mr Coupe was previously bankrupted in October 2010.

Coupe v. Remmington; Coupe v. NZ Castle Resorts – High Court (11.03.22)

22.054

Overseas Investment: Land Information v. Hur & Choi

Covering up his client’s Overseas Investment Act breach when purchasing a Helensville property cost lawyer Dr Jaeho Choi a $62,500 fine for obstruction followed by a $30,000 penalty for breaching the Act and suspension from legal practice for nearly six months. 

Auckland lawyer Choi is a Korean citizen holding a New Zealand permanent resident visa.  Fellow Korean Won Joo Hur agreed to buy a 18.5 hectare Helensville rural property in 2016 for three million dollars.  Dr Hur is a medical practitioner.  He had previously purchased property in New Zealand.  He also is a New Zealand permanent resident.  Lawyers then acting for Dr Hur advised very late in the piece that he would require Overseas Investment consent for his Helensville purchase, despite being a permanent resident, because he was no longer ‘ordinarily resident’ having spent too much time outside New Zealand.  Dr Hur took his legal problem to Choi who recommended setting up a dummy company as interim purchaser until the question of consents was sorted out.  The Overseas Investment Act prohibits these tactics.

When Overseas Investment Office made enquiries, Choi and Hur produced false documents purporting to show the interim purchaser was an independent third party.  They later pleaded guilty to obstruction: Choi fined $62,500; Hur $100,000.

The two later negotiated civil penalties to be paid for admitted breaches of the Act in purchasing Helensville rural land in excess of five hectares without Overseas Investment consent.  Hur was ordered to pay a further $100,000; Choi $30,000.  Choi pleaded poverty, saying a greater fine would leave him bankrupt.  The High Court was told Land Information had previously agreed it would accept Choi’s payment of his fine by instalments at $500 per month.  Hur separately asked that his $100,000 fine be deferred for one hundred years, or alternatively paid by instalments at $100 per month.  Justice Fitzgerald left any question of instalment payments to be negotiated between the two and Land Information as Overseas Investment Act regulator.

Choi was suspended from legal practice after a professional disciplinary hearing.

Land Information v. Hur & Choi – High Court (11.03.22)

22.053 

Receivership: Owens v. Dong

Complaining to the Banking Ombudsman and trespassing receivers from a workshop were of no effect against Bank of New Zealand’s claim to be owed $788,000 by Auckland manufacturer NZDMG Ltd and director Lili Dong.  The High Court ruled BNZ receivers Deloitte were entitled to seize machinery on site which were security for BNZ’s loan.

NZDMG negotiated a five year Bank of New Zealand loan in 2018, with Ms Dong signing as guarantor.  The High Court was told it defaulted on ancillary overdraft arrangements in 2020, triggering repayment of the five year loan and giving BNZ the right to seize twelve items of machinery used by the business and mortgaged to the Bank.

Deloitte staff were trespassed from premises in Ascot Avenue, Mangere, where the machinery was in use.  Only a few machines were repossessed.  The High Court was to later rule that the loan agreement gave BNZ and the receivers right to break into any premises occupied by NZDMG where machinery was held.  Trespass notices were of no effect.

Ms Dong’s complaint to the Banking Ombudsman was not successful.  She alleged BNZ acted oppressively, having failed to properly consider offers to repay. The Ombudsman decided BNZ had acted reasonably.  There was a twelve month delay between NZDMG’s overdraft default and the Bank taking formal steps to call up all loans.  During that time, the Bank was in negotiations with Ms Dong, but refused to accept her offer of rescheduled payments.  BNZ said her business was in poor financial position prior to the dislocation of covid-19 lockdowns and lacked a viable business plan for any recovery. Rescheduling involved granting a further loan on top of loans currently not being serviced.

Ms Dong also alleged the overdraft facility was misrepresented by BNZ.  It was offered as a temporary arrangement before being converted to a long-term government-guaranteed loan under a taxpayer funded business finance scheme, she said. NZDMG’s tax accountant told the court she provided reports and supporting documents for BNZ as part of an application for a $500,000 government-guaranteed loan, learning later the application was not approved.  BNZ denied ever stating the overdraft would be replaced by a long-term loan.  It had recommended NZDMG take steps to recover unpaid customer accounts and to apply for a government covid-19 wage subsidy.

Owens v. Dong – High Court (11.03.22)

22.055 

Management Contract: Bianco off Queen

Built off the back of Blue Chip misrepresentations about financing, the 157 unit ‘Bianco off Queen’ in central Auckland is back in the news with allegations developer Tim Manning improperly loaded Bianco’s property management contract with excessive charges having unit owners subsidise the building’s use as a hotel.  This management contract was left largely intact after a High Court challenge. 

Bianco off Queen was born out of a speculative boom prior to 2008 with retail investors offered attractive deals on what they thought were loans over real estate.  In fact, they had signed up to buy Bianco apartments off the plan and were forced to complete. Buried in the fine print, investors were told their apartment would be managed on their behalf if the developer could not find a replacement buyer.

Some fifteen years on, residents of Bianco’s two towers include owner occupiers, investors with their apartment held in a pool for hotel lets and Kainga Ora using apartments for social housing. Management of hotel operations lies with Shiraz Holiday Ltd, controlled by Masoud Bassamtabar.   

The management contract now held by Shiraz was set up in 2008, when Tim Manning was in control.  Shiraz bought out these mangement rights in 2014, paying $1.46 million. Unit owners allege Shiraz’ management fee is excessive, when compared with fees charged for comparable apartment complexes.  This excess amounts to a subsidy towards running the hotel, a business activity not related to a property manager’s role of property maintenance, they complain. Expert evidence indicated fees currently charged each Bianco owner at about $2025 annually were some one thousand dollars higher than fees charged by the most expensive comparable apartment complexes.

The body corporate’s application to strike down Shiraz’ management contract failed.  It is not for the High Court to question the level of fees charged in what is an application to strike down a management contract in its entirety, Justice Campbell said.  Two provisions in the management contract were struck out: Shiraz Holiday’s exclusive rights to provide letting services in the building and exclusive rights to provide hotel management services.  These are exclusive rights no body corporate has the power to grant, Justice Campbell ruled. Removing these rights from the management contract will have little practical effect on Shiraz Holiday’s monopoly of hotel lettings, Justice Campbell pointed out.  The management contract gives Shiraz sole right of occupancy over that part of the building containing the hotel’s lobby and check-in facilities.

The High Court ordered that $64,400 be refunded to the body corporate for Shiraz Holiday outgoings wrongly charged. 

Body Corporate 406198 v. Property Opportunities Ltd – High Court (10.03.22)

22.052

Freezing Order: Powernet v. Arthur

Otago-Southland electricity supplier Powernet got a High Court order freezing assets of Tapanui employee Joshua Grant Arthur alleging he defrauded the company of $440,000 by charging separately for work he was paid to do as an employee.

Mr Arthur and his spouse jointly own a company called Applied Intelligence Ltd.  The High Court was told Powernet turned down Mr Arthur’s request that he bill his employer through Applied Intelligence for pre and post earthing testing he does on Powernet projects.  This would create a conflict of interest and was in breach of the company’s code of conduct, Powernet said.

The High Court was told Powernet learnt that Mr Arthur subsequently billed civil engineering contractors directly through his company for inspection work on Powernet projects, telling contractors to onbill the invoice to Powernet, hiding the fact that he had done the work. The economic effect was to have Powernet pay twice: first in salary paid Mr Arthur for inspections to be done as a Powernet employee and second for the work done in fact by Mr Arthur’s company.  As Powernet’s project manager, Mr Arthur approved for payment invoices submitted by contractors.

A High Court freezing order was imposed over land and motor vehicles Mr Arthur owned.  Justice Dunningham ruled a freezing order was necessary against the possibility that these assets might be sold up and the cash shifted off-shore.

It has yet to be decided at trial whether Mr Arthur did act fraudulently.

Powernet Ltd v. Arthur – High Court (8.03.22)

22.051

Memelink: Road Runner 2012 Ltd v. Memelink

After giving notice, a tenant of frequent Wellington litigant Harry Memelink then became embroiled in repeated litigation over lease payments allegedly due.  After the expense of a third court hearing, the High Court ruled Memelink’s tenants were not liable for body corporate levies payable by Memelink as their landlord.

Road Runner 2012 Ltd took lease of a café in Wakefield Street Lower Hutt in 2014.  Its landlord was Link Trust No. 1; a trust controlled by Harry Memelink.  The trust owns multiple units in the 14-unit commercial building.  This trust has for years been disputing body corporate levies payable not only for the unit occupied by the café but also similar levies payable for five other units owned by Memelink’s trust.

The High Court was told Road Runner gave notice in late 2019, terminating its lease, disputing Memelink’s trust claim that the café make increased contributions towards Memelink’s outgoings as landlord.  What started initially as a claim against Road Runner in the Disputes Tribunal by Memelink’s trust for some $10,400, escalated to a District Court claim for $12,400.  After this District Court claim was struck out, Memelink’s trust filed an amended claim in the District Court for about $75,000.  The bulk of this claim was a demand that Road Runner under its lease was liable to pay landlord costs for body corporate levies and Hutt City rates covering the five years it was in occupation of the café.  In June 2021, a District Court ruling found Road Runner liable to pay outstanding rent only, assessed at $3726.  Part of the claim dismissed was a claim the tenant should pay an insurance premium to Memelink’s trust for insurance it supposedly provided Road Runner.  Memelink’s trust is not an insurer; it did not provide insurance cover.

Next stop, the High Court.  Memelink’s trust claimed the District Court ruling was an interim ruling applying to unpaid rent only; it left open the possibility of still pursuing a claim for landlord’s share of body corporate levies and Council rates.  Road Runner protested; this amounted to taking a third bite of the cherry, causing Road Runner to become entangled in what was in essence a dispute between Mr Memelink and the body corporate.  Justice Gwyn ruled that the District Court decision over outgoings was conclusive.  A decision stating arrears of rent only totalling $3726 was still due amounted, by implication, to a ruling that the tenant was not liable for any of the outgoings claimed by Memelink’s trust.

Road Runner 2012 Ltd v. Memelink – High Court (2.03.22)

22.050 

Subdivision: NDM Construction v. North Ridge Living

Golden Homes lodged caveats against a Christchurch project alleging developer North Ridge was fabricating excuses for not proceeding with an agreed contract, trying to freeze it out and then resell in a rising market.

The High Court was told developer North Ridge Living Ltd purchased in 2020 a Bayswater Crescent site in Bromley with plans for subdivision.  Nineteen lots were then on-sold to Golden Homes franchisee, NDM Construction Ltd. North Ridge undertook to get Council resource consent for the subdivision.  Meanwhile, Golden Homes sold off eighteen of its sites in land and building packages with on site progress dependent on North Ridge getting titles issued for each lot.

In October 2021, North Ridge advised Golden Homes that Council consent required conditions to be registered against all titles warning of potential sea level rises and with that the possibility of managed retreat with dwellings removed.  This would be unpalatable to homebuyers North Ridge told Golden Homes, with an implication Golden Homes should back out of its purchase.  North Ridge then cancelled its sale to Golden Homes; not only because of the sea level condition but also because of its claimed inability to obtain all Council consents for subdivision within the six month time frame required in its Golden Homes contract.     

Golden Homes made enquiries.  It found the sea level condition, while initially required by Council, had been dropped as a consent requirement three weeks before the North Ridge letter using this as an excuse to cancel.  Golden Homes also found North Ridge had made little progress in seeking Council consent for the first ten weeks of its six month time frame. Further time was lost by North Ridge delays in paying required Council consent fees.

Associate judge Paulsen ruled North Ridge failed to take reasonable steps to progress its resource consent application.  Golden Homes was justified in lodging caveats to protect its interest.  The sale to Golden Homes has a ‘no caveat’ clause, prohibiting Golden Homes from registering any caveat against the land.  Such clauses are common, enabling a subdivider to complete legal steps necessary to issue separate titles without legal interference.  Judge Paulsen ruled Golden Homes registration of a caveat over top of the ‘no caveat’ clause was a valid response to what it considered North Ridge’s wrongful repudiation of its contract.  The caveat prevents North Ridge selling to another buyer without Golden Homes prior agreement.

NDM Construction Ltd v. North Ridge Living No. 3 Ltd – High Court (1.03.22)

22.049