Construction: Cancian v. Tauranga City

As project manager for multiple Tauranga housebuilds, Danny John Cancian was liable to ensure work complied with building consents.  He was fined $36,000 for breaches of the Building Act.

Cancian and his company Bella Vista Homes Ltd gained notoriety when Tauranga Council closed down as dangerous, building sites in a subdivision known as The Lakes.  Poor construction forced demolition of some homes; remediation for others.  Cancian was charged with breaches of the Building Act in respect of eight properties.  After a trial and several appeals, convictions and fines stood in respect of two properties.

Justice Lang confirmed conviction and a $20,000 fine in relation to an Aneta Way build.  Poorly finished cladding breached the Act.  Cancian could not lay the blame on an apprentice working on site.  As the licenced building practitioner responsible, it was Cancian’s job to supervise his apprentice, Justice Lang said.

Building Act charges in relation to one Lakes Boulevard build centred on foundation footings for a rear wall.  Footings poured were inadequate for a consented wall one metre high and were in fact used to support a wall that was nearly three metres high.  Cancian was held liable as project manager, even though another licenced building practitioner personally supervised pouring of the inadequate footings.  A $20,000 fine was reduced by $4000 after Cancian’s further Lakes Boulevard conviction for filing with Tauranga Council an incorrect record of the completed work was overturned on appeal; filing a record of work is not ‘building work’ as defined by the Act, Justice Lang ruled.

Cancian was ordered to pay Tauranga City ninety per cent by value of the fines imposed. 

Cancian v. Tauranga City Council – High Court (28.3.22 & 29.04.22)

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Bankruptcy: re Clarke

Bankrupted more than eight years ago and sentenced to two years three months imprisonment during that time for Insolvency Act offences, former Auckland chartered accountant Stuart Francis Clarke was released from bankruptcy on condition that he not act as a trustee or director until August 2024.

Clarke was bankrupted in March 2014 on a Westpac guarantee for money used to purchase a Hamilton commercial building.  In the normal course of events, he would expect to be discharged from bankruptcy three years later.  But the three year clock does not start ticking until a bankrupt files with Insolvency Service a personal budget together with details of all assets and liabilities. The High Court was told Clarke provided incomplete information and refused to answer Insolvency Service questions. The clock never started.  He was imprisoned after pleading guilty in 2018 to multiple Insolvency Act offences including managing a business whilst bankrupt, concealing assets and contributing to the extent of his insolvency with extravagant spending around the time of his bankruptcy.  Evidence was given that he spent some $84,000 on personal expenses over a 21 week period.

Insolvency Service did not challenge his court application for discharge.  The High Court was told Clarke is now aged 65, his only income a state benefit.  He has no assets, but holds assets in his name as an independent trustee of client family trusts.

Associate judge Sussock ruled that it is not in public interest to leave a person perpetually in bankruptcy.  There is a point where they have to get on with their life. She discharged Clarke from bankruptcy with immediate effect, subject to the condition he not act as a director or trustee before August 2024.

re Clarke – High Court (29.04.22)

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Sofitel Auckland: Een v.Body Corporate 384911

Investors allege Pandey-controlled CP Group running the Sofitel Auckland Viaduct Harbour Hotel put on the squeeze; blocking disgruntled absentee apartment owners from earning revenue hosting Airbnb guests, forcing some to sell at reduced prices to CP Group.    

Viaduct Harbour has 175 residential units; the majority under control of the Pandey family.  About eighty apartments are managed privately with owners mostly living offshore, predominately in Singapore and Malaysia.  These private owners refuse to lease their apartments into CP Group’s Sofitel hotel operations.  Each are having to pay annual body corporate levies of some $24,000 a year.  They dispute the size of annual levies and are challenging CP Group’s use of common areas for hotel operations.

The High Court was told CP Group used its majority voting in September 2020 to amend body corporate rules, stopping private apartment owners from using other providers to let out their apartments. This left them with no revenue while still liable for corporate levies, disgruntled owners said.  Five gave up, selling to a Pandey-controlled company for prices ranging between $150,000 and $170,000.  CP Group has since conceded the new rules are invalid and cannot be enforced.

Litigation over disputed use of common areas carries on. CP Group stalled, demanding private owners stump up security for its legal costs.  They live overseas and may not pay if they lose, it said.  Associate judge Taylor ruled against security for costs. Offshore owners own assets in New Zealand; their apartments at Viaduct Harbour.  CP Group’s attempt to block private owners from earning letting revenue counted against its demand of security for costs, Judge Taylor said.

Een v. Body Corporate 383911 – High Court (29.04.22)

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Royalties: Talley's Group v. MacLab

Talley’s claim MacLab is not properly paying royalties for supply of mussels resulted in a counterclaim by MacLab for $3.4 million alleging overcharging for stock supplied.

A 2014 supply agreement saw Talley’s Group Ltd and MacLab (NZ) Ltd joined at the hip in a long-term arrangement.  MacLab processes raw mussels, producing powder for health products having claimed anti-inflammatory properties.  The deal sees Talley’s receiving five per cent of MacLab’s gross revenue as royalties.  Talley’s disputes the amount paid in royalties and the manner in which it is paid.  It was envisaged payment would be made in kind, through issue of shares in a company holding MacLab assets, Talley’s claims.  It has been refused access to MacLab’s internal records to allow verification of royalty payments, it says.

When sued by Talley’s, MacLab kicked back, alleging Talley’s overcharged for mussels supplied.  MacLab has to prove what was the market price.  The New Zealand market is dominated by Talley’s, MacLab and Sanford. MacLab dragged Sanford into its litigation seeking a court order for release of Sanford pricing information.

Sanford agreed to release pricing schedules and invoices covering mussel sales to its customers for the six year period ending December 2018.  It refused to release aggregated data.  That could identify pricing strategies developed over time and could be extrapolated to determine current pricing strategies, it said.  In the High Court, Associate judge Sussock agreed, refusing to order disclosure of aggregated information.  Judge Sussock also ruled Sanford was not obliged to disclose any information it held regarding pricing by other suppliers.  If MacLab wants this information, it should be approaching these other suppliers, Sanford said.

MacLab has to pay Sanford’s costs in assembling pricing information being released.

Talley’s Group Ltd v. MacLab (NZ) Ltd – High Court (20.03.20, 29.10.21 & 28.04.22)

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Property: van der Byl v. van der Byl

Family confusion over financial assistance to support their mother came to a head when Robin van der Byl needed a High Court order to force sale of her Palmerston North home in order to buy a home for himself.  Justice Simon France dismissed family suggestions that Robin had muddied the waters in gaining part share of their mother’s home.

The High Court was told of van der Byl family discussions in 2006 about support for their parents.  Son Robin suggested construction of a granny flat alongside the family home with their parents shifting into the granny flat and Robin with his then wife shifting into the main house.  Neither his parents nor his siblings were in a position to provide financial support for the build.  Robin put up $100,000.  He told the court his parents offered to transfer a one-third share of the property to him ‘to protect’ his contribution.  The High Court was told this amount roughly equated to one-third of the then market value of the property.  Each had separate lawyers finalise the transaction.  His father died whilst granny flat construction was underway.  Three years later, in 2009, Robin moved out of the main house.  Other members of the wider family subsequently shifted in; some paying rent, some not.

Some twelve years later, Robin was living in Australia in straightened circumstances.  His only income was a national pension.  His accommodation was a bedroom rented from a relative.  Attempts to realise his share of the Palmerston North family home was met with more than dismay; some relatives were outraged that his 88 year old mother should be required to sell up and buy elsewhere in order to pay out his share. Robin should wait until his mother died, they said.  Questions were raised about how Robin came to be part-owner.

Justice Simon France ruled there was nothing sinister in Robin becoming part-owner.  The transaction was clearly documented.  He was entitled to cash-out his part share.  While his mother had lived at the property for nearly thirty years and any question of a move was stressful, Robin faced financial hardship in looking to buy a home for himself, Justice France said.  Robin’s mother was offered the opportunity to buy out her son’s share of the Palmerston North property at a court-ordered valuation, failing that it is to be sold.

An online valuation values the property at $850,000. Evidence was given that Robin had accidentally wound up as half owner of the Palmerston North property after his father’s death because of a lawyer’s mistake in naming Robin as a joint owner rather than owner as tenant-in-common with a one-third share.  In the High Court, Robin asked to be cashed-out at a one third share, being the intent of the 2006 financial arrangement.

van der Byl v. van der Byl – High Court (28.04.22)

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Insolvency: Scutter v. Tawa LP

Fiddling the books to avoid payment of $391,000 GST came at a cost; liquidator of Wellington-based Matrix Homes clawed back $2.1 million as a voidable payment after Matrix went into liquidation insolvent.  What were claimed to be pre-payments on a building contract were Matrix shareholder loans, the High Court ruled.

Matrix Homes Ltd was in the business of assembling homes from factory-built modular units, a departure from the usual practice of on-site builds.  After its 2018 liquidation, Matrix liquidator John Scutter challenged transactions that saw Tawa LP, controlled by Matrix’s Sean Murrie and Joseph Hannah, wind up with ownership of a Matrix property development in Tawa without payment. Matrix had agreed to build eleven duplex style modular apartments at William Earp Place for a fixed price of $2.75 million.

The High Court was told Matrix was insolvent from the get-go.  Banks refused to fund the project.  Working capital was drip fed by Mr Murrie and Mr Hannah.  Deposits paid by purchasers were recorded as pre-payments, with GST payable. Evidence was given that Mr Murrie’s and Mr Hannah’s working capital contributions for Matrix were supposedly Tawa LP pre-payments but were recorded in Matrix accounting system as shareholder loans to Matrix.  Mr Murrie told the High Court that Matrix accounting staff had made a mistake. Justice Gwyn ruled there had been no mistake; Mr Murrie had instructed staff to record the transactions as Matrix shareholder loans to avoid liability for GST.

Shortly before Matrix was propelled into receivership by Sean Murrie himself, a flurry of accounting entries saw the shareholder loans transformed into payments by Tawa LP of the purchase price for Earp Place apartments.  Tawa LP took ownership.  Matrix liquidator challenged this arrangement; Tawa LP had gained a Matrix asset but had not paid for it, he said. Tawa LP was ordered to pay Matrix $2.16 million; the face value of credit invoices drawn up to re-categorise the Matrix shareholder loans as Tawa LP pre-payments.

Scutter v. Tawa Limited Partnership – High Court (28.04.22)

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Fraud: Hu v. Yu

Wei Hu alleges he was defrauded by foreign currency dealer Chunglin Yu.  He now has a further problem; she is detained in prison in China.

The High Court ruled Dr Hu had to sue in the China courts.  That created yet another complication; if successful, he would face difficulties enforcing any decision made by China courts in New Zealand to seize the one asset Ms Yu appears to have in this country, a property in Auckland suburb Dannemora. The High Court refused a freezing order over Dannemora.

Dr Hu appealed.  He cannot take legal action in China, he said.  Government policy in China does not allow private citizens to sue for losses following financial scams, he claims.

Ms Yu said she cannot attend any trial in New Zealand because she is in prison.  Her imprisonment similarly causes difficulties for any court hearing in China, the New Zealand Court of Appeal pointed out.

There is no point in requiring Dr Hu to sue in China should his case not be accepted by courts in that country, the Court of Appeal said.

Meanwhile, the Court of Appeal imposed a freezing order over Dannemora.  The case was returned to the High Court to allow any challenge by Ms Yu to the freezing order.

Hu v. Yu – Court of Appeal (27.04.22)

22.076 

Annuity: re Lifetime Income Ltd

Low interest rates are starting to bite in the life assurance sector.  Lifetime Income Ltd paid out annuity holders leaving them to fend for themselves, saying it could not meet increased solvency requirements demanded by the Reserve Bank.    

Annuities are sold on the premise that you are leaving experts to make your investment decisions; pay a capital sum up front and the insurer will make agreed monthly payments for the rest of your life.  It is a gamble.  Die earlier than your actuarial-assessed lifespan and the insurer wins; die later and the insurer bears the cost.  To cover this risk, life insurers create a liquidity buffer, typically adding a few extra years to every customer’s actuarial lifespan and investing customers’ capital contributions in ultra-safe interest-earning investments.   

Lifetime Income’s annuity business was established by Ralph Stewart in 2015.  Its customer base was boosted with a 2017 purchase of annuity policies originally issued by Government Life.  Lifetime is part of Mr Stewart’s Retirement Income Group.

The High Court was told Retirement Income was broadsided by an August 2020 Reserve Bank edict requiring increased solvency margins; required capital reserves were doubled from five million dollars to ten million.  Solvency margins are designed to protect investors, should costs outstrip earnings. Lifetime was Retirement Income Group’s biggest problem.  It faced the same problem as annuity providers worldwide; income earned from short-term debt investments plummeted as interest rates fell dramatically after governments poured billions into their economies, responding to the covid-19 pandemic.

The High Court was told Lifetime had some 160 life annuitants.  With fixed annual operating costs in excess of $250,000, it could not magic up a further five million in capital.  Lobbying Reserve Bank to reduce the increase was unsuccessful.  A public capital raise through Forsyth Barr fell over; minimum subscription levels were not achieved.  Attempts to sell its annuity customer base failed.  The High Court approved a Companies Act scheme of arrangement giving a lump sum payout to each annuitant, cancelling their annuity.

Not all annuitants were happy.  One pointed out she would have to find investments paying 9.6 per cent in order to match her former annuity paying to an assumed actuarial age of ninety.  Others said that at their advanced age they did not want to be making difficult investment decisions on investment of the capital sum now falling into their laps.

Evidence was given that Lifetime’s average annuitant was aged 89 receiving an annual annuity before cancellation of some $7000. One (aged 89) was receiving $94,300 per year; two others (aged 79 and 81 respectively) were sharing $58,250 annually.

re Lifetime Income Ltd – High Court (20.04.22)

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

Selling parts for cars is a different market segment to a dealership selling cars, the Court of Appeal observed when ruling Tim Gordon was not in breach of a restraint of trade when selling aluminium products after his earlier $1.92 million sale of office fit-out specialist Trans-Space Industries.

When selling Trans-Space in 2019, Mr Gordon agreed not to compete against his former business for the next three years.  Trans-Space specialised in manufacturing and installing complete fit-outs for the likes of schools, hospitality venues and commercial offices.  Within months, Mr Gordon bought partition supplier then known as Autex PSL. Trans-Space purchasers promptly got a High Court order aimed at stopping Mr Gordon in his tracks.  He was setting up in competition, in breach of the agreed restraint of trade, they claimed.

Generally, courts frown on restraints of trade; they limit competition.  Restraints on future business activity are acceptable if they protect a property right. On purchase of a business, that property right frequently is goodwill, paid to protect an existing customer base; the vendor is paid extra in return for a promise not to turn around and immediately poach previous customers.

There was no dispute that a restraint of trade was legally acceptable when Mr Gordon sold Trans-Space.  Terms of this restraint came under forensic examination in the Court of Appeal.

Mr Gordon agreed not to operate a rival business for: ‘the manufacture … distribution … of …partitioning systems or door systems.’ The court ruled Mr Gordon’s new business was not involved in ‘manufacture’ or ‘systems.’  It supplied components to building contractors who then completed a fitout to client instructions.  His business held only four items in its product line, most selling for less than one hundred dollars each.  In contrast, Trans-Space manufactured components for bespoke fitouts, at an average value of $20,000.

Mr Gordon was not in breach of the agreed restraint of trade when immediately buying Autex PSL, the Court of Appeal ruled.

Gordon v. Christensen & Purdon Family Trusts – Court of Appeal (12.04.22)

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Caveat: Cowan v. Cowan

Christine and Te Rahui Cowan’s attempts to stop their father selling the Wellington family home to a property developer have foundered while litigation piles up exposing both of them to claims for hundreds of thousands of dollars damages.

After their mother’s death in 2019, tensions in the Cowan household coalesced around their father’s sale of the Lyall Bay family home to property developer Kurt Gibbons.  Having purchased five neighbouring sections, Mr Gibbons $1.1 million purchase of the Cowan family home enabled his property development to be extended from 21 townhouses to thirty.  All thirty townhouses have been pre-sold, the Supreme Court was told.

Christine and Te Rahui claim their late mother intended the family home be retained as papakainga; a home base.  Christine has lived at the property nearly all her life. The house was purchased by their parents in 1974 with loan assistance from the then Maori and Island Affairs Department.  Their mother Marama was Maori; her widowed husband John is Pakeha.

Learning of their father’s sale, Christine and Te Rahui lodged a caveat over title to Lyall Bay.  This had the effect of blocking the sale, pending a court case arguing claims of papakainga.

The Supreme Court was told this caveat lapsed inadvertently.  It took a court case to get a replacement caveat registered.  And with it came a court-ordered requirement that Christine and Te Rahui compensate their father for any financial damages suffered should their claim fail.  Potential personal liability spiralled.  John’s contract for sale has a penalty interest clause for late settlement with penalty interest in excess of $120,000 already due.  Any delay in completing the sale also exposed John to damages for Mr Gibbon’s increased building and financing costs.

Regardless of the outcome of their papakainga claim, Christine and Te Rahui face liability for substantial damages; compensation to their father.  They applied to the Supreme Court for a cap on liability, limited to the sum of $10,000 Christine lodged in a lawyer’s trust account.  Rules around registering a second caveat require substantial protection for the property’s owner should a claim not succeed, the Supreme Court stated.  Christine and Te Rahui remain fully liable for all losses their father faces whilst the caveat remained, the court ruled.

Evidence was given that the Lyall Bay caveat was removed after a court hearing in 2021, enabling the property to be transferred to Mr Gibbon’s property development company.  The court ordered net proceeds of sale be held in a solicitor’s trust account until the papakainga claim is resolved. 

Cowan v. Cowan – Supreme Court (12.04.22)

22.073

Fraud: Kidd v. van Heeren

Alex van Heeren has spent in excess of $11 million dollars on legal fees in twenty five years of litigation in which he was found to have defrauded his then business partner, the late Michael Kidd. The Court of Appeal ruled van Heeren could not dip into funds held in court to pay further legal expenses; this money is held on Mr Kidd’s behalf pending final calculation of damages payable by Mr van Heeren.

Mr Kidd died two weeks after Mr van Heeren paid into court US$25 million being a preliminary estimate money owed Mr Kidd. Mr van Heeren paid this money belatedly into court, some six years after he was ordered to make payment within one month.  Within days, most of the money was disbursed to Mr Kidd for payment to his ligation funder. There is about US$6.8 million left sitting in court.  Mr van Heeren applied to have his continuing legal expenses paid out of this money.

The High Court was told Mr van Heeren currently lives in South Africa.  He disputes how much is owed Mr Kidd’s estate following a 2013 South Africa court ruling that he defrauded Mr Kidd out of a half share of their steel trading business. Following an initial New Zealand High Court hearing, their business was calculated to be worth US$50.8 million as at 1991.  Payment of half this amount into court was ordered.  A final hearing is pending on calculation of interest; conflicts between South Africa law and New Zealand law on calculation of interest are at issue. Interest claimed is in excess of US$20 million.

Mr van Heeren asked he be allowed to recover US$2.5 million dollars in payment of ongoing legal expenses from the US$6.8 million sitting in court.  Assets he previously owned are tied up in trusts over which he has no control, he said. These legal obstacles were erected entirely by Mr van Heeren himself, the Court of Appeal observed.  The funds held in court are for the benefit of Mr Kidd, not Mr van Heeren, it ruled.

Kidd v. van Heeren – Court of Appeal (7.04.22)

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Mistake: Greymouth Holdings v. Lundon

Greymouth Holdings’ director Robert Dunphy claims there was no mistake when his company agreed to buy an Auckland property for $5.9 million but having to pay the vendor only $4.1 million.  The vendor claims Mr Dunphy is exploiting what was an obvious mistake. 

The Herne Bay property in Argyle Street is owned by Ariki Trust, part of the estate of philanthropist and business man the late Adrian Burr.  Ariki owns the leasehold interest; the freehold was owned by a company called Swanson Land Ltd.

The High Court was told of negotiations in 2021 with Ariki rejecting Greymouth’s written offer to buy the leasehold interest.  That same day, Greymouth signed a deal with Swanson Land, agreeing to buy the freehold interest for $1.8 million.  Just over a week later, Ariki made a written offer to Greymouth offering to sell at $5.9 million.  This offer was for sale of the freehold interest, and with it a right to rents from the leasehold.  Greymouth accepted that day.  Ariki replied within an hour, saying there had been a mistake; it was offering to sell its leasehold interest only at $5.9 million, it did not own the freehold.  Greymouth says there was no mistake.  Since Greymouth now owned the freehold, Ariki was told it had to pay $1.8 million to buy the freehold from Greymouth in order to transfer the freehold back to Greymouth.  This legal roundabout has the effect of reducing payment to Ariki by $1.8 million with Greymouth then owning Argyle Street absolutely with the leasehold cancelled.

Ariki wants the contract cancelled.  Greymouth registered a caveat against title to Argyle Street to protect its claimed rights.

After reviewing each sides disputed views of who knew what at the time the contract was entered into, Associate judge Gardiner ruled the caveat stay in place pending a full court hearing.  Judge Gardiner said it was objectively clear that Ariki had made a mistake.  But the legal consequences of this mistake depends upon the state of Mr Dunphy’s knowledge.  Formal evidence in court is needed to resolve this question.  There had been market gossip of Ariki considering buying the freehold when putting Argyle Street’s leasehold on the market in order to maximise its market value.

Greymouth Holdings Ltd v. Lundon – High Court (1.04.22)

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