Copyright: Burden v. ESR Group

Ten years on from Customs seizure of imported furniture, Early Settler was ordered to pay $221,000 after selling product held to be in breach of copyright. 

Controlled by Australian interests, ESR Group (NZ) Ltd trades as Early Settler.  The High Court ruled ESR made a net profit in New Zealand of $221,000 selling furniture pirated from the Irish Coast design where copyright is held by Australian Ian Burden.  

What might have been an open and shut case of copyright infringement developed into nearly a decade of litigation.  It was accepted that ESR acted unwittingly in breach of copyright.  ESR ordered the furniture from a catalogue issued by a Vietnam company.  Mr Burden held a controlling stake in this company. He claimed copyright in the furniture and sued personally to recover profits made in New Zealand by ESR.

Copyright law is territorial.  Each country’s rules apply only in that country.  There is no such thing as world-wide copyright.  Justice Downs ruled the New Zealand Copyright Act gives overseas copyright holders the exclusive right to ‘first circulation;’ that is, the right to first bring their product to market in New Zealand.  It does not matter that the product may have been offered previously for sale elsewhere in the world.  Same rules apply to pirated copies of an original; copyright in a pirated product lies with copyright holder of the original.

ESR was first to import the disputed product line, doing so without consent of the copyright holder.  This was in breach of Mr Burden’s right of ‘first circulation.’ ESR protested. This ruling would harm businesses, leaving all at risk of ruinous legal consequences whenever they unwittingly imported products, pirated or otherwise, in breach of first circulation rights.  Importers selling infringing copies can damage both the sales and the reputation of copyright holders, Justice Downs pointed out.  Importers unwittingly acting in breach of copyright are not liable for damages, he said.  But they do have to hand over their net profit on sales.

At a prior court hearing it became apparent the copyright dispute was in part a legal wrangle between former business associates, Ian Burden and Craig Morrow.

Burden v. ESR Group (NZ) Ltd – High Court (29.07.22)

22.133

Harassment: Hooper v. Gee

Social media is awash with intemperate language, but that alone does not amount to harassment under the Harmful Digital Communications Act.  Robust critique and debate is okay, but vicious personal attacks are not, the High Court ruled when banning for one year social commentator Pebbles Hooper from posting any further online comment about Bets Gee, owner of Auckland business Magnolia Kitchen.  She had previously described Ms Gee as a deranged narcissist and a person who abused children. 

A posting war between the two erupted in 2020 at the outset of a nationwide government-imposed pandemic lockdown.  Ms Gee’s posting to Instagram followers about plans to keep Magnolia Kitchen open for trading resulted in an online backlash questioning whether her business was an ‘essential business’ and suggesting her staying open would contribute to spread of covid-19.  Both sides accused the other of being cunts coupled with invitations to fuck off.  The High Court was to later rule that these social media exchanges did not amount to harassment; rather they were a valid debate about lockdown rules and their implementation, though expressed in language not commonly used by a High Court judge.

What was held to be harassment was an extended online campaign by Ms Hooper critical of Ms Gee’s use of family members in posts promoting her business.  Ms Hooper took the view Ms Gee was using her children for commercial gain and this amounted to child abuse.  Ms Gee said photos of family in her posts was because online followers demanded an insight into her life as a small business owner.  Seeing all aspects of my life gave value to the product they are buying from me, she said.

One posting showing her young son being given a small amount of alcohol and another in which he appears to have a black eye led to multiple complaints to Oranga Tamariki about Ms Gee.  Ms Hooper was one of those who complained.  Oranga Tamariki investigated, taking no action.

The High Court ruled that the personal abuse posted by Ms Hooper about Ms Gee amounted to harassment.  Calling Ms Gee an ‘entitled, deranged and panicked narcissist’ and insinuating that she abused her children emotionally and possibly physically was harassment causing emotional distress to Ms Gee.

Ms Hooper was ordered not to post to any social media platform about Ms Gee, or to encourage any other person to do so, for the next twelve months. 

Hooper v. Gee – High Court (29.07.22)

22.132

Construction: Melbourne Ltd v. Bartlett Concrete

Construction Contracts Act ‘pay now, argue later’ rules are designed to protect contractors’ cash flow.  Arguing first and delaying payment by having the disputed amount held in a third party trust account is not allowed, the High Court ruled.

Stephen Cohen’s Christchurch company Melbourne Ltd paid a disputed $110,000 debt into his lawyer’s trust account, telling supplier Bartlett Concrete Placing Ltd that the money would sit there until their dispute over allegedly defective work was sorted out.  The High Court was told this followed Bartlett Concrete’s earlier suspension of further onsite work at a job in Byron Street triggered by their dispute over quality of work done.

Bartlett Concrete then made a Companies Act statutory demand against Melbourne Ltd for the $110,000 claimed.  Statutory demands are a precursor to forcing companies into liquidation and often used as a tactic to force payment of a debt.

Melbourne Ltd then argued there had been no formal demand for payment as required under the Construction Contracts Act; with no formal demand the ‘pay now, argue later’ rules did not apply, it said. Bartlett’s request by email for payment of the $110,000 did comply with the Act, Associate judge Paulsen ruled. Bartlett had made five previous progress payment claims by email, all of which were paid.  This pattern meant the further emailed progress claim for $110,000 did comply with the Act.

Claiming to be solvent with a disputed payment held in a lawyer’s trust account could not be used by Melbourne Ltd to block forcible liquidation of the company for non-payment of a Construction Act debt, Judge Paulsen ruled.

Melbourne Ltd v. Bartlett Concrete Placing Ltd – High Court (26.07.22)

22.131

Share Valuation: Williamson v. Smalley

Christchurch investment adviser Hamilton Hindin Greene alleges former director James Small is stringing out legal action over a disputed $2.15 million payout as revenge, angered after having been pushed out. He disputes EY’s valuation on a compulsory buy-out for his thirty per cent stake.  He keeps receiving dividends while the dispute continues.

In September 2018, Mr Smalley ceased working for Hamilton Hindin.  So long as he still holds shares, Mr Smalley is entitled to share in profits with dividends from the business.  Since his 2018 departure, he has received dividends totalling about $899,000.  

The High Court was told a Hamilton Hindin shareholders’ agreement required his shareholding to be valued on his departure by an independent valuer and that no challenge to the valuation was permitted. Ernst & Young was appointed valuer. Mr Smalley alleges its $2.15 million valuation failed to comply with professional standards.  He refused to accept the valuation and refused to sign off on a transfer of his shareholding.  Evidence was given that other Hamilton Hindin shareholders had taken out personal loans to fund the compulsory purchase; they are paying interest on these loans in the interim.

After a High Court hearing, Mr Smalley was ordered to sign the share transfer, failing that the High Court registrar was to sign on his behalf.  Mr Smalley failed in a High Court application to block the registrar from signing.  The court was told Mr Smalley was likely to appeal this failed application.  Hamilton Hindin has given notice that payment of further dividends is suspended.

Williamson v. Smalley – High Court (26.07.22)

22.130

Website: re Olsen

If catfishing on dating sites is not sufficiently rewarding, scammers are now catfishing clients of professional service firms.  Auckland lawyer James Olsen found his name and photo had been copied on to the profile of another lawyer in what was suspected to be a scam orchestrated out of Nigeria.  Getting the site taken down was not straightforward.  

Catfishing originated online with dating sites hosting fake identities set up to scam victims.  Romance scams have proved the most pernicious; online grooming followed by persistent requests by fraudsters for money to alleviate growing lists of personal and family catastrophes.

In June 2022, Auckland barrister James Olsen learnt of a website having a URL with spelling almost identical to his own, displaying a page containing his name and photo but with the remaining content entirely unrelated to his own business.  Visitors to the site were directed to an online source unrelated to Mr Olsen’s law practice.  He suspected a scam: his name and photo being used in an advance fee fraud with contacts asked to pay upfront for services which would never be provided.  Mr Olsen also found a false LinkedIn profile using his name and photo.

The High Court was told the fake website was registered with US company NameSilo LLC and was hosted out of Belize in central America. NameSilo required an order from a US court before it would take down the site.

In New Zealand, police inquiries identified that the fake site was probably being operated out of Nigeria.  Justice Moore issued a take-down order.  The website was plainly false and potentially misleading, he said.  Perpetrating a fraud appeared to be its only purpose.  Enforcement of a New Zealand court order against websites hosted overseas was left to Mr Olsen.

Re Olsen – High Court (22.07.22)

22.127

Trustee Liability: USAR v. Lunn

Napier lawyer Stephen Peter Lunn is challenging bankruptcy proceedings brought against him personally for a debt owed by Thackery Trust held liable to pay $510,000 damages following litigation over management of a Napier hotel.

The $510,000 debt arose from out-of-court negotiations settling a dispute over cancellation of hotel management rights then held by USAR Napier Ltd.  Thackery Trust was the hotel developer.  A negotiated agreement saw Thackery Trust agreeing to pay damages.  The legal rule is that a trust has no legal persona.  It describes a relationship.  Trustees are personally liable for trust debts, unless they have limited or excluded any personal liability.

The High Court was told Stephen Lunn is a trustee of Thackery Trust.  USAR is looking to recover from the trustees personally the $510,000 still owed.  As an opening gambit, it issued a bankruptcy notice against Mr Lunn.  Failure to pay becomes proof of insolvency, a precursor to having someone bankrupted. Mr Lunn claims his liability to USAR is limited to the extent of Thackery’s assets.

Associate judge Johnston refused to set aside USAR’s bankruptcy notice.  There was no evidence that Mr Lunn limited his personal liability when signing the out-of-court settlement agreement leading to $510,000 debt.  Only after the agreement was signed did he advise USAR that he signed as a professional trustee, accepting no responsibility for payment beyond what was available from Thackery Trust assets.  That claim to limit his personal liability came too late. 

USAR Napier Ltd v. Lunn – High Court (22.07.22)

22.129

Bonus Bonds: Sen v. Public Trust

Colin Friend won one million dollars in a 2015 bonus bonds draw, at age 88.  His death one year later resulted in litigation over who benefits.  Over family objections, the High Court ruled his caregiver was entitled to full ownership of a Nelson house he purchased for her and her family. 

Latika Sen and her family immigrated to Nelson from Fiji in 2011.  She met Colin outside a local dairy one morning as they both waited for the shop to open.  Over time, they became good friends.  Latika and her family provided him with both friendship and support.  The High Court was told Colin was widowed in 2007.  He had three children.  One son had died, another was well off and his daughter had not been in touch for nearly a decade.  Needing care following some weeks in hospital during 2013, Latika and her family took him in for several months while he recovered.  Then, Colin’s social support evaporated.  Latika and her family shifted to Wellington for better work opportunities.  After the million dollar win, Colin made cash gifts to his grandchildren and his surviving children and contacted Latika.  He had bought a second house in Stoke.  Latika was told the house would be hers on his death if the family moved back to provide care and support in his old age.  She agreed. Legal paperwork was completed having Latika and Colin recorded as joint owners of the $425,000 property.  He had his own bedroom in the house, staying overnight weeknights.

Weeks before Colin’s death from cancer, his family learnt for the first time details of ownership for the Stoke property.  His son used a power of attorney in his father’s name to change the joint ownership status from joint tenants (which would see Latika assume full ownership on Colin’s death) to tenants in common (which would have Colin’s half share of Stoke remain as an asset in his estate). Latika sued to gain full ownership.

Justice Cooke ruled Latika had a contractual right to full ownership.  The promised deal was for the family to return from Wellington and to care for Colin; in return she would get half ownership of Stoke up front and the remainder on Colin’s death.  Latika had performed her part of the contract.  It was a breach of contract for Colin’s son to change Stoke’s ownership status, defeating Latika’s claim to the other half.  Colin’s children said Colin suffered from mild dementia, lacking the capacity to understand what he had agreed.  Justice Cooke said Colin’s actions in successfully negotiating a house purchase and putting in place plans to bring back Latika and her family from Wellington demonstrated a degree of sophistication that indicated he knew what he was doing.

Justice Cook dismissed claims Latika had exercised undue influence over Colin.  If anything, it was the other way round, he said.  It was Colin who manipulated Latika to have her return to Nelson.

Sen v. Public Trust – High Court (22.07.22)

22.128

Leaky Home: Bhargav v. First Trust Ltd

Buying their first home, Ameet Bhargav and Renu Khajuria were assured it was not a leaky home and provided with a building report confirming there were no water ingress issues.  The High Court awarded $861,000 damages.  Vendor Davinder Singh Rahal had made cosmetic repairs to cover up leaky home defects before selling at a price $115,000 above what he paid for the Auckland property nine months previously.

The High Court was told Mr Rahal had earlier purchased the Goodwood Heights property on Ribbonwood Crescent in 2019 in the name of his family company First Trust Ltd, buying with full knowledge it was a leaky home. He then set about concealing evidence of leaks by opening up an exterior wall, replacing timber and placing a new bottom plate on top of the existing plate.  Damaged ceiling gib board was replaced.  Bitumen tape was laid across joints where exterior cladding met an upper deck.  A building inspection report was provided by Vinay Mehta of Metsons (NZ) Ltd.  His report described the house as ‘generally in good condition’ and ‘chances of water ingress are almost nil’.

In March 2020, Ameet and Renu signed up to buy at $665,000.  The day after completing their purchase it rained heavily; they found water leaking into a downstairs bedroom.  A building surveyor identified multiple defects and failures to comply with the building code.  Ameet and Renu sued.

Justice Hinton ruled First Trust Ltd was liable for breach of contract; work done without obtaining necessary building consents. Mr Rahal and Mr Mehta, together with their respective companies, were all held liable for a breach of the Fair Trading Act; engaging in misleading and deceptive conduct.  None of them appeared in court to defend the claim. All four were jointly liable to pay damages of $861,000: the estimated cost of repairs; the cost of alternative accommodation while repairs were underway; loss of rental income, together with general damages of $30,000 for the stress and anxiety caused.

Bhargav v. First Trust Ltd – High Court (20.07.22)

22.126

Bankruptcy: Young v. Official Assignee

Fifteen years after discharge from bankruptcy, Hamilton accountant Phil Young asked the High Court to annul his earlier bankruptcy giving him a clean slate as if he had never been bankrupt. Annulment was refused; his personal creditors had received no payment at all.

Mr Young was bankrupted in 2003 after his finance company Baywater Finance Ltd went into receivership following allegations that the company was being mis-managed and that breaches of the Securities Act were putting company depositors at risk.  The receiver’s final report five years later stated depositors got back 84 cents in the dollar.  Mr Young held partly paid shares in Baywater.  As part of the receivership, Mr Young was sued on this uncalled share capital; held liable to pay $350,000.  He was bankrupted for non-payment.  He was subsequently prosecuted for breaches of the Securities Act and ordered to pay reparations totalling some $123,000.  Breaches of the Securities Act centred on soliciting funds from the public after an earlier Securities Act prospectus had expired.

In 2022, he took legal action against Insolvency Service seeking to have this earlier bankruptcy annulled.  The effect of annulment is to declare there was never any prior bankruptcy.  For professional purposes, Mr Young would no longer have to disclose his earlier bankruptcy.

Mr Young said all debts ‘were satisfied.’  Payment of court-ordered reparations meant all Baywater depositors had been repaid in full, he said.  The court was told Insolvency Service collected no money from Mr Young’s bankruptcy and his personal creditors received nothing at all in repayment of their debts.  While Baywater debts owed depositors may have been paid, all his personal bankruptcy debts remained unpaid. 

Associate judge Andrew refused annulment.  There were no grounds for annulment, he said. And even if there were, waiting fifteen years is too long.

The court was told Mr Young operates an accounting services business from his home in Crosby Road, Hamilton.

Young v. Official Assignee – High Court (14.07.22)

22.125

Misfeasance: Daisley v. Whangarei District

Jimmy Daisley was awarded $5.7 million damages following Whangarei District Council incompetence in dealing with a quarrying consent, including award of extra damages for misfeasance. The High Court ordered payment of a further $510,400 as contribution towards his legal expenses.

In 2004, Mr Daisley purchased a rural property on Knights Road near Whangarei which contained a quarry.  He intended to extract further aggregate for farm use and also sell aggregate to local farmers and other contractors.  Not so fast, Council said.  There was no resource consent for operation of a quarry, it claimed.  An abatement notice was issued and legal action taken to block further quarrying.

The High Court was told research by his then lawyers subsequently discovered that there was a 1988 resource consent allowing quarrying at Knights Road; it had been misfiled in Council records.  Council then said the 1988 consent was no longer valid. Despite this, Council subsequently decided that the resource consent was still alive, allowing a new quarry owner to later commence operations.  By then, Mr Daisley had sold up getting a lower price than if quarrying were permitted.

It was 2022 before Mr Daisley got his day in court. Justice Toogood ruled Whangarei District negligent in its filing of resource consent records and similarly negligent in failing to find the 1988 consent over a five year period when Mr Daisley was seeking information.  Council’s behaviour was so outrageous that Justice Toogood held Council liable for misfeasance in public office; recklessly misinforming Mr Daisley about existence of the consent and failing to make amends after the consent was found. There was evidence Council misled a Hearings Commissioner about the resource consent’s existence when Mr Daisley applied for a new resource consent at a 2006 hearing.

Justice Toogood was particularly critical of Council’s defence in court that Mr Daisley was in some way negligent for relying on false information provided by Council and for failing to establish the correct position regarding entitlement to quarry.  It does not appear to have occurred to Council, he said, that the court would never accept as a defence Council criticism of Mr Daisley for not proving the existence of a consent, the record of which it held and the existence of which it denied.

Daisley v. Whangarei District Council – (14.07.22)

22.124

Tax: Eversons International v. Stewart

Evan Stewart alleges liquidators of Eversons International are acting as puppets of Inland Revenue chasing him down for $3.7 million owed by Eversons in unpaid taxes and late payment penalties. His court application for access to Eversons’ IRD tax files was dismissed; secrecy provisions in tax law bar disclosure to third parties. 

In 2018, Eversons International Ltd went into liquidation, put out of business after a governmentvolte faceoutlawed its then business of selling legal highs.  Mr Stewart was sole director and shareholder.  Eversons financial statements show net assets of more than three million dollars and overseas investments of $6.5 million. These reported overseas assets have apparently disappeared into thin air.  Liquidators are finding Mr Stewart unhelpful.  Legal action is currently underway alleging Mr Stewart: borrowed funds from the company now due for repayment; breached directors’ duties owed his company; and took dividends from the company at a time when it was insolvent.

In pre-trial wrangling, Mr Stewart demanded access to correspondence between Inland Revenue and the liquidators.  This may help shed light on the missing overseas assets, he said.  Liquidators are also acting unfairly in taking legal action against him for the benefit of Inland Revenue, he claims.

Associate judge Paulsen ruled emails between Eversons’ liquidators and Inland Revenue concerned ‘sensitive revenue information.’ As such, they could not be disclosed to third parties.  Mr Stewart is a third party.  Once in liquidation, liquidators act on behalf of a company and have access to company IRD records.  Mr Stewart as director of Eversons no longer acts on his company’s behalf since it is liquidation.

Eversons International Ltd v. Stewart – High Court (13.07.22)

22.123

Will: re Estate Shannon Rastrick

The same day that police constable Shannon Rastrick filled out a document she considered to be her last will, she died in a single vehicle crash hitting a tree on state highway five at Tapapa east of Tirau in the Waikato.  A High Court hearing followed because this document did not comply with strict legal requirements for a will.

The High Court was told the day she died in June 2022 Ms Rastrick filled out a standard-form document sold as a New Zealand will kit.  She had not signed the document nor had it witnessed; formalities required by the Wills Act for a valid will.

Strict legal formalities govern wills.  Once a person is dead, they cannot be called back to confirm that a particular written statement expressed their final wishes regarding disposal of assets or that the signature on the document is theirs.  The statutory requirement for a signature and a requirement that this signature be witnessed by two others who themselves are not to inherit under the will is intended to provide certainty and to minimise fraud.

Similar rules in the United States came into play with long-running litigation in 1978 over a handwritten document claimed to be the last will of reclusive billionaire Howard Hughes.  After a seven-month trial, the will was ruled a forgery.  No valid will was ever found.

In New Zealand, the Wills Act allows the High Court to validate some testamentary documents which do not strictly comply. Evidence was given that the document left by Ms Shannon was in the form of a will, disposed of all her assets and was in her handwriting.  It was not signed or witnessed.  Justice Venning ruled the document clearly expressed her intentions.  It was formally validated as a will.  Terms of her will were not disclosed in the court ruling.

If the will were not validated, she would have died with no will and her assets would have been divided between blood relatives according to a statutory formula; default rules set out in the Administration Act. In this case, that would mean division of her assets between her estranged parents. 

re Estate Shannon Rastrick – High Court (13.07.22)

22.122

Fua'amotu Hotel: Commercial Factors v. Scenic Hotels

In 2011, Terry Haydon’s Commercial Factors converted its $5.7 million unpaid mortgage advance over Tonga’s Fua’amotu Hotel into ownership of the hotel buying in at a receivership sale.  At a subsequent ‘fire sale’ it sold the hotel for a pittance, described to the Court of Appeal as being either $100,000 or $65,000. Tantalising out of reach, is a disputed claim to share in a $3.3 million insurance payout for hotel damage suffered in 2018 by cyclone Gita.

Commercial Factors must rue the day it agreed to finance construction of Fua’amotu by entrepreneur Sam Wong.  When Wong defaulted on his loan, Commercial Factors sought to recover its money by acquiring the hotel, setting up a joint venture with Hagaman family Scenic Hotels and then selling off the business.  Tonga’s tourism industry took a hit in 2013.  Air Chathams stopped its regular services after Tonga decided to start its own airline with a plane supplied by China. New Zealand government warned passengers not to book tickets; there were concerns about the aircraft’s airworthiness.

Fua’amotu hotel operations never ran at a profit.  Commercial Factors allowed Scenic occupation rent-free; Scenic provided management services.  Occupancy rates were dismal. Commercial Factors looked to wind down its joint venture with Scenic Hotels.  The two were immediately in court arguing what were terms of their joint venture.  Commercial Factors said it was owed $6.25 million as the purchase price of the hotel sold to the joint venture.  The High Court ruled their joint venture never purchased the hotel; Commercial Factors remained owner.  It further ruled there had never been agreement as to how hotel operating losses would be split.  These rulings were confirmed by the Court of Appeal.

Evidence was given that Commercial Factors discovered just prior to this High Court trial of $3.3 million due to Scenic; an insurance payout for material damage and business interruption after cyclone Gita. Scenic had paid the initial annual premium of some $202,000.  Most of this claim arose from damage to the hotel.  An interim payment of one million dollars was made.  In separate court proceedings, the two dispute who is entitled to the $3.3 million payout.  The one million dollars interim payment is currently frozen, held in a trust account.

Commercial Factors Ltd v. Scenic Hotel Group Ltd – Court of Appeal (8.07.22)

22.121

Club Rules: Frewer v. Canterbury Radio Car Club

Aggrieved that Canterbury Radio Control Car Club would not sanction his plan to allow tyre modifications for model racing, long-time enthusiast Kevin Frewer called the High Court in aid, only to be black-flagged; changing the rules is a decision for members.  

Now aged 72 and retired, Mr Frewer helped found the Canterbury model Car Club in 1975.  The Club races radio controlled cars, off road.  Racing rules are specified for each class; imposed internationally by the International Federation of Model Auto Racing and nationally by the New Zealand Radio Car Association.  The High Court was told Mr Frewer sought to promote use of foam tyres for what was described as the 1/8^thscale GT class; more expensive than rubber tyres but more durable.  Fellow Club members were not supportive.  An informal poll of Club drivers in 2019 ruled out their use.  Mr Frewer was briefly suspended from the Club after allegations he had intimidated other Club members.

In the face of threats of litigation by Mr Frewer, the question of tyre choice got a hearing at the Club’s 2021 annual meeting. He then sued, alleging he didn’t get a proper hearing at the meeting and that proper meeting procedure was not followed. Justice Dunningham said what rules should apply to hobby car racing is quintessentially an internal matter for the Club, not for the courts.  Clubmembers decide.

The court was told the New Zealand Association has also voted to ban foam tyres for the GT class.  Mr Frewer complains this was the result of individual Canterbury members lobbying the National Association.

Defending a High Court claim does not come cheap. Club financial statements for the year prior to Mr Frewer’s High Court hearing itemise some $10,600 spent by then on Club legal expenses.

Frewer v. Canterbury Radio Control Car Club Incorporated – High Court (7.07.22)

22.120

Asset Forfeiture: Commissioner of Police v. Milosevic

Four years prior to conviction for money-laundering profits from cannabis dealing, Irene Raki gifted a Kawerau house to her son.  The house was seized from son Te Ohorere as proceeds of crime; the High Court ruled that he was aware the house had been purchased by his mother from criminal profits and that his claim to have personally funded his mother’s purchase lacked credibility.   

Raki came to own the house in Newall Street after bidding $39,000 at a 2015 mortgagee sale.  Two years later, Raki and her extended family were under police surveillance as part of Operation Notus investigating members of the Kawerau Mongrel Mob.  Raki’s spouse Frank Milosevic and son Slobodan were convicted and imprisoned in 2020 on charges of dealing in cannabis.  Raki herself was convicted of money laundering and sentenced to two years six months’ imprisonment.  Her other son Te Ohorere, charged with cultivating cannabis, was found not guilty.

Police claimed Newall Street and a Ford Ranger now both owned by Te Ohorere were ‘tainted,’ liable to confiscation as proceeds of crime.  A criminal conviction is not necessary to have assets seized as proceeds of crime; knowledge that assets were purchased from proceeds of criminal activity is sufficient.

Police analysis of Te Ohorere’s bank records showed there was insufficient overt income available to support his family, let alone fund purchase of Newall Street or a Ford Ranger.  Te Ohorere said his declared income was supplemented with cash transactions from legitimate businesses: trapping opossums for their skins and breeding puppies.  Police inquiries of Bay of Plenty commercial fur traders found none had dealt with Te Ohorere and in any event none paid suppliers in cash; payments were made into bank accounts.  Claims to have earned income as a puppy dealer foundered when police identified Te Ohorere had registered only one dog with the local council and had used local vet services to treat only one animal.

Justice Gordon ruled Te Ohorere’s claim to have legitimate but undeclared sources of cash was not plausible.  His cash income was derived from Milosevic family cannabis operations, she said.  Assets purchased with this cash were tainted and forfeit under the Criminal Proceeds (Recovery) Act.

Commissioner of Police v. Milosevic – High Court (6.07.22)

22.119

Hotel Lease: Herbert v. USAR

The Court of Appeal dismissed out of hand claims by brothers Malcolm and Anthony Herbert that they were no longer liable to pay $510,000, the unpaid balance of compensation promised after they cancelled a lease to the Sarin Group for a Napier hotel then under construction.

Auckland-based Sarin family manage a chain of hotels throughout New Zealand in conjunction with recognised international hotel brands. USAR Napier Ltd, a Sarin investment company, agreed to lease a Napier building under construction by Thackery Trust. USAR intended to operate under the Hilton brand.  Anthony Herbert and Stephen Lunn control Thackery.  The deal turned sour when Thackery cancelled USAR’s lease; it was pursuing a more favourable deal with hotel chain Swiss-Belhotel with Swiss-Bel to receive a management fee and the Herberts retaining all other income.   USAR sued.

The court was told of last hour negotiations prior to a December 2020 court hearing.  Thackery agreed to pay USAR $625,000 damages in instalments for cancelling the lease with payment guaranteed personally by the Herbert brothers.  The first tranche of $115,000 was paid.  Subsequent tranches were not.  Malcolm Herbert said payment was delayed because of circumstances beyond his control.  He did not respond when asked what were these circumstances.  Delayed payment with money sourced from Fiji was offered.  A request for proof of funds held in Fiji was ignored.

USAR sued for recovery of the $510,000 settlement balance plus agreed interest for late payment running at 18.25 per cent.  The Herberts alleged USAR itself was in default; failing to promptly take down online listings for future hotel accommodation bookings under the Hilton brand prejudiced attempts by Swiss-Bel to take forward bookings, they said.  If Swiss-Bel were able to take online bookings sooner, they would have been able to borrow against this anticipated future income stream to finish construction of the Napier hotel quicker, the Herberts said.  Malcolm Herbert claims delays in taking down the Hilton listing cost Swiss-Bel one million dollars in forward bookings.

The Court of Appeal questioned why the Herberts brought up this issue only after being sued.  If the status of listings were critical, why was it not included as part of the negotiated settlement agreement, it asked.  The court was told Hilton removed its Napier listing promptly when requested. Malcolm Herbert’s assessment of the volume of pre-bookings Swiss-Bel might have attracted and the possibility of then getting finance to complete hotel construction lacked credibility, the Court of Appeal said.  New Zealand borders were closed and local covid-19 lockdowns were in effect while the hotel was under construction.

Now open, the hotel operates as Swiss-Belboutique Napier.

Herbert v. USAR Napier Ltd – Court of Appeal (4.07.22)

22.118

Tax: Clearmont v. Redwood Group

Tony Gapes’ Redwood Group unsuccessfully argued it was entitled to an extra $1.6 million from Queenstown’s Five Mile project.  In dispute was terms of a 2019 mediation agreement with Mr Gapes using legal gymnastics to claim Inland Revenue confirmation of when sales might be tax free to justify an extra slice of the pie even when sales were liable to tax.

Auckland property developers Craig Greenwood and Tony Gapes, embroiled in multiple court cases over their joint venture at Frankton near Queenstown, thrashed out their differences at a mediation in 2019 finishing at 1.00 am shortly before having to appear in court.  All appeared done and dusted; an agreement to settle their differences and divvy up profits from their Five Mile project.  Not so.  They later disagreed over what was agreed.

The High Court was told part of the mediation centred on whether tax would be payable on profits from sale of Five Mile properties; a mixture of retail, commercial and light industrial.  While there were plans to hold some Five Mile properties long term, it was recognised some sales were necessary to pay down bank debt and further sales to buy out Mr Gapes 24.9 per cent interest held through Redwood Group Ltd. Redwood is a property developer.  In the normal course of events, its share of profits on sale would be taxable.  Tax law catches companies associated with any developer as also being liable to tax; they are ‘tainted.’  Mr Greenwood considered his company was ‘tainted,’ triggering a tax liability for both investors on all immediate Five Mile sales. Profits on sale of properties held long term can be held tax free; application of the so-called 10-year rule.

Evidence was given that Greenwood and Gapes at their 2019 mediation conference could not agree on whether a potential tax liability on sales should be taken into account when valuing Redwood Group’s share of profits.  A compromise was reached: Redwood was entitled to an extra $1.638 million if in the next two years it obtained from Inland Revenue a binding ruling that ‘all of the properties in the Five Mile project are held on capital account.’

Redwood subsequently asked Mr Greenwood to sign off an application to Inland Revenue for a binding ruling that if the properties were held for ten years no tax was payable.  He refused to sign.  This was not consistent with the mediation agreement, he said.

Justice Katz agreed.  Both sides were aware at the time of mediation that holding properties for ten years would reduce tax otherwise payable.  Inland Revenue confirmation of the ten year rule could not justify an extra payout of $1.6 million in the context of property sales to be made immediately after mediation, Justice Katz ruled.      

Mr Greenwood had doubted whether Five Mile could avoid paying tax on profits for sales within ten years.  The agreed compromise was to give Mr Gapes an opportunity to get an Inland Revenue ruling stating otherwise.

Clearmont (Queenstown) Ltd v. Redwood Group Ltd – High Court (4.07.22)

22.117

Iridium: Tracplus Global v. v2track

Accused of putting Queensland park and wildlife staff at risk, Cambridge-based Bevan and Kylan Diprose were ordered by the High Court to disconnect Iridium GPS tracking connections for the Queensland park authority currently managed by their company v2track.  It was alleged the connection dispute is part of a simmering argument between the brothers Diprose and US-based Tracplus including disputed allegations that Bevan Diprose dishonestly took over some Tracplus clients.

The High Court was told Tracplus Global Ltd agreed in May 2020 to buy out v2track which then managed about 600 Iridium GPS client connections.  Hardware installed in aircraft, vehicles and boats linked to the Iridium satellite constellation enables tracking of precise GPS locations.  A valuable income stream exists for companies providing real-time tracking services, recording and managing this data.  In December 2021 some nineteen months after its purchase of v2track’s client base, Tracplus agreed to sell some of its client connections back to a new company set up by the Diproses: v2track (2022) Ltd.  The two sides have differing views about what has been sold.  Tracplus alleges Bevan Diprose misrepresented himself to the Iridium consortium as a Tracplus employee, covertly arranged the transfer of an excessive number of Iridium client connections from Tracplus to v2track (2022) doing so slyly over a long weekend.  He denies any wrongdoing.  

Evidence was given that their dispute reached a head when one client, Queensland Parks and Wildlife Services, requested v2track disconnect its service which at that time tracked 109 park service vehicles and aircraft; it wanted to use Tracplus.  Queensland Parks says v2track’s service was inadequate.  It was losing connections for various amounts of time.  With staff working in the outback, any connection downtime could prove fatal in the wrong circumstances.  

v2track stalled on the requested disconnections. Its dispute with Tracplus over terms of the 2021 contract had first to be clarified, it said.  When Tracplus complained that delay meant Queensland staff were being put at risk, v2track said the remedy lay with Tracplus; it could replace Iridium hardware in Queensland Parks vehicles with its own product. This was estimated to cost about $250,000.  Instead, Tracplus sued in the New Zealand courts, claiming v2track was causing loss by unlawful means.  It alleged v2track is wrongly retaining Queensland Parks’ existing Iridium connections with the intent of preventing Tracplus from earning income with its alternative service.  

Justice Campbell ruled that on preliminary evidence before the court, Queensland Parks was no longer under contract to v2track and was free to find a different provider.  In the interim, v2track was ordered to disconnect its Queensland Parks’ Iridium tracking connections.  v2track was left to come back to court to sort out its dispute with Tracplus.

Tracplus Global Ltd v. v2track (2022) Ltd – High Court (1.07.22)

22.116