Director Disqualification: Registrar of Companies v. Bublitz & McKay

Paul Bublitz’ and Bruce McKay’s current disqualifications from acting as company directors were extended to 2026 by the High Court.  Companies Office wanted their disqualifications extended to 2032.

Bublitz and McKay were convicted in 2019 of fraud following a cost to taxpayers of $3.38 million on government guaranteed borrowings by Mutual Finance Ltd; a guarantee offered finance companies to discourage feared runs by depositors during the 2008 world-wide banking crisis.  Their direct and indirect control of several companies enabled losses that would otherwise be suffered by Bublitz’ Hunter Capital to be shifted across to taxpayers through a series of related party dealings; Hunter Capital assets were transferred to Mutual, with Mutual in return providing further funding for property developments.  These related party dealings were specifically prohibited as a condition of Mutual getting a government guarantee for its borrowing from the public.

Conviction for dishonesty resulted in an automatic five year Companies Act disqualification from acting as directors. Their automatic ban expires in February 2024.  Companies Office applied to the High Court for a further twelve year extension.  The court looks to see if past behaviour indicates a future need to protect both the public and the commercial community. Justice Fitzgerald ruled a further extension was necessary, given the seriousness of their dishonesty.  But since the convictions leading to current disqualification arose from their business activities more than a decade ago, a twelve year extension was too long, she said.

Legal argument that any further extension is a ‘penalty’ governed by the Sentencing Act and Bill of Rights Act was dismissed. Australian courts have treated director disqualifications as a penalty. 

Registrar of Companies v. Bublitz & McKay – High Court (30.08.22)

22.154 

Business Valuation: Green v. Gillette

Nelson business owner Thomas Green had difficulty convincing the Court of Appeal that his company now known as Roofpower Installations Ltd was worthless when assessing a buyout valuation after he had previously sold a 49 per cent stake to intended joint venture partner Nathan Gillette for $98,000 and then after the two later fell out sold Roofpower’s assets to a third party for $120,000. 

This chemistry of moving business valuations followed a 2019 High Court hearing which saw Mr Gillette awarded damages of $60,000 for his 49 per cent interest.  Evidence was given that Mr Gillette came to New Zealand from Singapore in 2016 on a visa backed by an employment contract with Roofpower.  The business installed domestic solar power systems.  Part of the deal saw Mr Gillette paying $98,000 to buy a 49 per cent stake in Roofpower.  Plans for him to take a management role came to nothing.  Mr Green alleged Mr Gillette had lied in his CV, lacked the specialist expertise he claimed to have and was incompetent.  Mr Gillette sued.  A claim in the Employment Relations Authority saw Mr Green ordered to pay $20,600 damages; the High Court awarded Mr Gillette $60,000 damages for his minority stake in Roofpower.  Company law rules allow a court to order compulsory purchase of minority interests in closely-held companies where owners have fallen out and their company is deadlocked.

In the Court of Appeal, Mr Green said the trial judge had hopelessly overvalued Roofpower when deciding a 49 per cent stake was worth $60,000.  He produced accounting evidence that at the time of the dispute Roofpower was trading at a loss (valued on an earnings basis it was worthless) and its net assets at that time amounted to a mere $10,900.  The figure to buy out Mr Gillette should have been 49 per cent of nothing, he said.

The Court of Appeal left the buy-out figure at $60,000. Net assets valued at $10,900 did not take into account intangible assets owned by Roofpower such as continuing work flowing from its existing reputation and the benefit of its supply lines.  The fact Roofpower’s assets were sold months later for $120,000 confirmed this point, the court said.  Mr Green’s claim that these intangible assets were not owned by Roofpower but were his own personal property were dismissed.  The price demanded from Mr Gillette to buy into the company and the price paid for subsequent sale of Roofpower’s assets proved the contrary, the court ruled.  In addition, the shareholder agreement between Mr Green and Mr Gillette signed when he joined Roofpower recorded that these intangible assets were part of goodwill owned by the company.   

Green v. Gillette – Court of Appeal (29.08.22)

22.153

Land Subdivision: Ryan v. M & E Ryan & Sons Ltd

Valuable family vineyards now claimed to be worth some $70 million at Seddon carefully set up in 2009 to avoid any tax liability on subdivision are now the centre of a bitter dispute between brothers John and Chris Ryan as they attempt to divide the property into separate ownership.  

Their mother June was a driving force behind development of the vineyards purchasing 204 hectares of rolling barren land near Blenheim in 2000, a decade after her husband’s death.  As the business was developed, title to the land was transferred into the name of a family trust then controlled by herself and son John. The High Court was told a subsequent decision to bring another son Chris into the business saw business entities controlled separately by John and Chris sharing ownership of the vineyards as tenants in common with unequal shares.  A 2009 agreement saw John taking title to a 77.8 per cent share; Chris 22.2 per cent.  Being registered as tenants in common meant at law they were each a part-owner of the entire property, avoiding tax liability then applying to subdivisions of land.  In fact, each had exclusive occupation of separate parts of the vineyard enabling them to run separate businesses; John with the name Sedgemere and Chris with Redgate.

Advised in 2015 that their business interests could be now transformed into separate land titles tax free, preliminary steps were taken to subdivide title.  Seven years later, they are in court arguing over valuations.  While Chris is currently recorded as part-owner with a 22.2 per cent share, the proposed geographic split would see him taking title to only that land where he has exclusive occupation; about 15 per cent of the land.  Ownership defined in the 2009 split was not calculated solely on land area each would control but on value of business assets each would take in setting up their separate businesses.  Any attempt to agree on compensation with a proposed transfer into separate titles has foundered.  Evidence was given of earlier family divisions when John forced his mother out as co-trustee of Sedgemere Trust.  She says John is now ‘upping the ante’ against brother Chris.

John asked the High Court to subdivide their land 85:15 with no compensation; implementation of the 2009 agreement, he claimed.

Associate judge Paulsen ruled there was nothing in the 2009 agreement setting out any formula for future subdivision of the land. In 2009, their primary concern was to avoid any tax liability.  A Property Law Act court-ordered partition some thirteen years later requires a full court hearing supported by detailed valuations, Judge Paulsen ruled.

Ryan v. M & E Ryan & Sons Ltd – High Court (25.08.22)

22.152

Ormiston Rise: Jackson v. Grant

With unsecured creditors of Auckland’s failed Ormiston Rise development currently claiming $20.9 million, liquidator Damian Grant questions why receivers from Calibre Partners haven’t closed their files and quit.  US funders claiming as secured creditors have been paid in full and the receivers’ job is over, Grant claims.

Plans for Ormiston Rise were broadcast in a blaze of publicity with nearly 800 new homes promised, primarily for first home buyers. Funding was provided by US financiers: Arena Alceon NZ Credit Partners LLC.  What was intended to be a four-stage project started in early 2020. Some fifteen months later, Arena pulled its finance with only stage one civil engineering works nearly complete and stage one houses under construction.  Receivers from Calibre Partners took control on behalf of Arena. They sold off the balance of the land in 2021 to a company related to Arena: The Neighbourhood South Ltd.  Mr Grant claims the $198,000 sale price cleared all of Ormiston’s secured mortgage debt.  The receivers’ job is over, he says.  Remaining company assets including all cash should be handed over to him as liquidator for the benefit of unsecured creditors, he says.  Calibre Partners refuse; the level of unpaid secured debt is not finalised, it says.

The High Court was told legal action is under way to determine how much Arena can claim under its mortgage.  The liquidator claims $18 million claimed by Arena as a ‘final interest payment’ is in reality a ‘success fee’ payable only on successful completion of the development.  The liquidator questions whether ‘preservation costs’ incurred by Calibre Partners are also covered by Arena’s mortgage.  Evidence was given that Arena agreed to stump up an extra $30 million so Calibre Partners could complete partly finished homes at Ormiston and get money from purchasers buying off the plan.

Whether either of these amounts is recoverable by Arena as part of its secured debt is yet to be decided.  In the interim, both Arena and Calibre Partners were ordered to make available to the liquidator all details of the receivers’ construction budget, plus copies of the project’s monthly progress certification and quantity surveyor reports.

Jackson v. Grant – High Court (24.08.22)

22.151

Undue Influence: re estate of Vilmos Gaitz

Vilmos Gaitz arrived in New Zealand as a teenager fleeing the abortive 1956 Hungarian uprising against Russian domination.  On his death in 2021, a daughter of his first marriage successfully challenged benefits Vilmos’ fifth wife Gizella claimed under his will.  Gizella was described as controlling, isolating Vilmos from his family and scheming to take control of his assets.    

The High Court was told of changes to Vilmos behaviour after his 2009 marriage to Gizella.  The two met when Vilmos travelled back to Hungary for a holiday. They were distantly related.  Soon after their marriage, Vilmos transferred a half interest in his Panmure property to Gizella and then in 2011 changed his will to give her a life interest in his estate on death with the balance of his estate to go to his three children on her death.

Evidence was given by daughter Bilynda that after Gizella arrived in New Zealand regular contact with her father was curtailed dramatically.  Gizella refused access to the house, would not answer the phone and declined all invitations for her and Vilmos to attend family gatherings.  Bilynda and her daughter got to see Vilmos in late 2014 after he made an urgent phone call.  They found Vilmos distressed, claiming Gizella was stealing all his money and threatening divorce unless he transferred all his assets into her name. They were told Gizella was sending his money to her adult children living in Hungary.  Bilynda took her father to the bank to have Gizella removed as signatory to his bank account, learning later that Gizella had taken Vilmos back the next day to be reinstated as signatory.  The 2014 meeting between Bilynda and Gizella ended in a screaming match with Gizella throwing a chair at Bilynda’s daughter.           

Discovering in 2019 that Gizella had travelled to Hungary alone on holiday, Bilynda tried to contact her father, failing to find him at his Panmure home.  Nearly two years later, Bilynda learnt he was in a rest home with instructions from Gizella that family members were not to have contact and not to be told when Vilmos’ died.  On her father’s death, Bilynda found there was a 2015 will in existence that left all assets to Gizella.  Bilynda challenged the will.

Justice Lang ruled the 2015 will invalid on grounds of undue influence by Gizella.  She deliberately isolated Vilmos from his family to advance her own financial interests, he said.  Justice Lang was critical of the lawyer drafting Vilmos’ 2015 will who took instructions from Vilmos while Gizella was present and who did not speak to Vilmos alone. Evidence was given that Gizella arranged for a friend to also be present at the lawyer’s office, supposedly to provide English/Hungarian translation for Vilmos benefit.  Bilynda told the court Vilmos spoke English, it was Gizella who was not fluent.

Gizella did not attend court to defend Bilynda’s claim. Striking down the 2015 will leaves the earlier 2011 will as Vilmos’ final will.  Gizella receives a life interest in his estate; on her death Vilmos’ children inherit a half share of the Panmure home.

re Estate of Vilmos Gaitz – High Court (24.08.22)

22.150

Joint Venture: Carrington Resort v. van den Brink

Theo van den Brink walked away from a proposed joint venture with Shanghai-based interests who control Carrington Resort at Northland’s Matai Bay leaving a planned Ngawha coffee plantation part-finished.  He was ordered to account for money used, hand over all equipment and was held liable by the High Court to pay damages.

In 2021, Mr van den Brink was in negotiations with Carrington over plans for a project germinating green coffee beans to produce seedlings for planting.  Mr van den Brink described himself as having coffee plantation expertise from his time in New Caledonia.   Financial projections on offer were tantalising: after an initial three years of negative cash flow, projections offered positive cash flow of $6.6 million from year four through to $34.8 million from year eleven.  No profits ever eventuated.

The High Court was told Carrington advanced $80,000 cash to Mr van den Brink in late 2021 and purchased equipment at his request costing close to $700,000.  Carrington baulked at requests for further funding, questioning a lack of progress. Mr van den Brink had agreed to propagate up to one million seeds ready for planting out within one year. Carrington representatives were trespassed from the project site when attempting to meet with Mr van den Brink. It was all downhill from there.

Mr van den Brink said the project was on hold until such time as their relationship was ‘normalised’ with signature of a formal joint venture agreement.  To date, their business relationship had been set out in a signed ‘memorandum of understanding’ in which Carrington agreed to provide funding taking a proposed 60 per cent stake, Mr van den Brink to provide expertise and having a 35 per cent stake.  The High Court was to later rule it was irrelevant that no formal joint venture agreement was ever signed.  Business proceeded as if one were signed.

Carrington obtained a High Court order freezing Mr van den Brink’s project bank account and a further order that Mr van den Brink hand over all equipment purchased.  After another High Court hearing that Mr van den Brink chose not to attend, Justice Tahana ruled that Mr van den Brink: breached fiduciary duties owed Carrington (by failing to account for money used and refusing to hand over equipment paid for by Carrington); and made statements both negligently and in breach of the Fair Trading Act (with his representations of expertise in procuring and germinating coffee seeds).  Calculation of damages was deferred for a further court hearing.  Carrington says it has been left to absorb full cost of the failed project after Mr van den Brink walked away.

Carrington Resort Jade LP v. van den Brink – High Court (23.08.22)

22.149

Property Sale: Mao v. Singh

 Xieyan Mao sold an Auckland property ripe for redevelopment supposedly free of any tenancy then argued it was the purchaser’s problem to remove a fixed term tenant.  Legal argument that purchaser Hargun Singh was the one in breach of contract failed in the Court of Appeal. 

The court was told Ms Mao sold her Te Atatu property on Yeovil Road for $1.55 million in August 2020.  There was a tenanted dwelling on site.  The property was advertised as ripe for development with resource consent for up to seven townhouses.  Neither the sale agreement nor the real estate advertising made reference to a sale being subject to the existing tenancy.  Mr Singh gave evidence that he was aware the property was tenanted when he viewed it, but assumed tenants would have vacated by settlement date. Ms Mao said the real estate agent was told there was a fixed term tenancy expiring in July 2021 and she claimed Mr Singh had been told.

Emails flew between lawyers on settlement date.  Ms Mao said Mr Singh had to pay the full price and the tenancy was his problem.  He said he had the money and was ready to settle, but would not pay until Ms Mao removed the tenants.  Ms Mao said Mr Singh being ‘ready’ to settle was not enough; the contract required formal offer to pay and since Mr Singh had not done this he was in breach of contract and she was legally justified in cancelling the sale.

The Court of Appeal ruled it was futile for Mr Singh to formally tender payment; Ms Mao herself was not in position to transfer Yeovil Road free of the tenancy and had made it clear she was not going to do so. It was Ms Mao who was in breach of contract, the court ruled.

Ms Mao was ordered to perform the contract as agreed. There was evidence that the tenants might have packed up and left if paid $18,000 compensation for an early end to their fixed term tenancy.

Mao v. Singh – Court of Appeal (22.08.22)

22.148

Will: re Meyer

Instructions to be acted on after death entered on a Microsoft Excel spreadsheet were validated as a will by the High Court.

The Wills Act prescribes detailed technical requirements as to signature and witnessing for a will to be valid.  A court may ignore these technical requirements provided intentions are clearly expressed.

The High Court was told Hendrik Jeffrey Meyer was unable to leave his Auckland home during the covid-19 pandemic.  Suffering from aplastic anaemia, he was at high risk of bleeding and infection because of his bone marrow’s inability to produce new cells.  He prepared a spreadsheet on his home computer, detailing how his assets were to be divided on death.  Daughter Samantha was entrusted with computer access.  This Excel document was never formally reconstructed as a will satisfying technical requirements of the Wills Act.  He died in February 2022.

On Samantha’s application, Justice Lang approved the Excel spreadsheet as being her late father’s valid will.  The High Court was told their family home was owned jointly with his wife; she gained full ownership by survivorship on her husband’s death.  The balance of his estate, valued at less than $70,000, was distributed according to instructions in Mr Myer’s spreadsheet.

re Meyer – High Court (19.08.22)

22.147

Passing Off: Pure Dew Water v. Pantranz

Auckland water bottler Pure Dew claims distributors Kyle and Selina Paniora have stolen Pure Dew customers and have been selling their own rival product in Pure Dew bottles.  The two were ordered to provide Pure Dew with a list of all customers sold water in the three months prior to an April 2022 cancellation of their distribution rights and Pure Dew was given High Court authority to contact these customers direct.

Belinda and Tony Gillion’s bottled water business has operated for nearly three decades, using the trademark Pure Dew since 1996. Product is sold through supermarkets and direct to homes and businesses.  Sales are also made through franchised distributorships.

The High Court was told Kyle Paniora and Selina Paniora, also known as Selina Rutherford, purchased two Pure Dew distributorships from the then franchise holders: a North Shore and central Auckland distributorship in 2016 for about $55,000; and a south Auckland distributorship in 2019 for $150,000.  In early 2022, staff at Pure Dew’s East Tamaki processing plant noticed that some of the bottles returned for refilling by the Panioras had different coloured tops from those used by Pure Dew.  This, coupled with the fact that the numbers of bottles they returned for washing and refilling had recently reduced by about fifty per cent, led Pure Dew to suspect the Panioras were running a parallel rival business using Pure Dew bottles. A flyer distributed by the Panioras to customers advertising future deliveries of their own product branded as OraWai Pure Still Water confirmed suspicions.  Pure Dew sued, claiming damages.

In a preliminary High Court hearing, Justice van Bohemen ruled there was an arguable case that the Panioras had passed off their own product as Pure Dew.  They were ordered to disclose their customer lists.  Pure Dew was permitted to contact these customers, advising them product recently sold in Pure Dew branded bottles may not have matched Pure Dew’s exacting standards.  Expert evidence identified that Pure Dew’s product is processed to a standard of less than one milligram of dissolved solids per litre; similar tests of the OraWai product identified up to nine milligams of dissolved solids per litre. Pure Water distils its product; OraWai uses filtration.  Pure Dew believes between 200 and 300 of its customers were affected.

Pure Dew Water Company Ltd v. Pantranz Ltd – High Court (17.08.22)

22.146

Gulf Harbour: Inert Holdings v. Gulf Harbour Marine Village

It was a lawyers’ delight: the original developer of Gulf Harbour subdivision on Auckland’s Whangaparoa Peninsular was wound up at a loss; its supposed successor folded owing Westpac money; and then developer Inert Holdings Ltd boldly argued it was now the designated Gulf Harbour developer holding ‘super-voting’ rights with power to take control of disputed marina berthing rights.  No it didn’t, the Court of Appeal ruled.

Inert Holdings Ltd and related company Western Arm Marina Ltd are both controlled by Whangaparoa resident Ian McKay.  In 2014, Inert Holdings purchased 3.7 hectares of Gulf Harbour land and with Western Arm constructed 23 marina berths as part of a residential subdivision.  Mr McKay’s right to allocate berthing rights is disputed by the Gulf Harbour residents association.  To push his point, Mr McKay argued his companies had inherited the status of Gulf Harbour project developer and ‘controlling member’ giving them super-voting rights under Gulf Harbour’s constitution enabling him to outvote everyone else.   

Lawyers blew dust off some ancient files as they dug into the history of Gulf Harbour.

Gulf Harbour’s original developers in the mid-1990s were Singaporean interests trading as Gulf Harbour Development Ltd.  A residents’ association was created as part of the project.  Each property owner has one vote, but the project developer, and its successors, hold super-voting rights which enable it to outvote all residents.  This was necessary to block objections from current residents as Gulf Harbour was developed in stages.  Singapore developers bowed out in 2008, their company liquidated with unsecured creditors receiving just under 26 cents in the dollar. Included as an unsecured creditor was Singapore project finance of some four million dollars not recovered from land sales.

A November 2012 rewrite of the Gulf Harbour constitution saw a company called Gulf Harbour Marlin Ltd described as the project developer and ‘controlling member.’  This was a mistake.  There was never any residents’ vote to install Harbour Marlin as ‘controlling member.’ In any event, Harbour Marlin was later removed from the companies register in 2016 after a three year receivership leaving Westpac out of pocket; it financed this receivership to the tune of $72,000 for a nil return.

Gulf Harbour residents’ association owns the marina waterway.  To get voting control of residents’ association decisions about marina berths, Mr McKay said his companies now filled the role of ‘controlling member.’ Both the High Court and the Court of Appeal ruled that Gulf Harbour currently has no developer with overarching control of the project.  The land has been subdivided and sold.  Mr McKay’s companies are not carrying out the development of Gulf Harbour; they are carrying out a development within Gulf Harbour, the courts decided.  His project covers less than four per cent of Gulf Harbour land area.  He had no status as ‘controlling member’ to override resident rights to control marina allocations, the courts ruled.

Inert Holdings Ltd v. Gulf Harbour Marine Village Residents’ Association Inc – Court of Appeal (15.08.22)

22.143

Construction: Davies v. K M Smith Builder Ltd

Having a letter from builder of their high-end Queenstown home to get release of bank funding did not give owners Simon and Judith Davies grounds to sue when the letter understated completion costs, the Court of Appeal ruled.

The court was told the Davies were under financial pressure in 2016 to complete construction of their architect designed home on a lifestyle block at Closeburn Station.  It was not a fixed price contract; the Davies were paying for labour and materials.  During construction, there were multiple alterations to draft plans at the Davies’ request with inclusion of what builder Kerry Smith described as more expensive products than normally included in an average high-end build.  The Davies were under pressure; they needed release of bank funding.  The builder was under pressure; he needed progress payments from the Davies.

Evidence was given that Mr Davies requested a letter from their builder stating that the estimated costs of completion would be $700,000.  The builder was told this was needed for release of bank funding.  The content of this letter subsequently led to a Fair Trading Act claim.  The Davies said the builder’s letter was inaccurate; building costs to completion proved to be well in excess of $700,000.  They sued. Mr Davies accepted the letter was inaccurate as a statement of final costs; not all labour costs and subcontractor costs were included, and the extent and design of hard landscaping were yet to be agreed.

In the High Court, the trial judge ruled it was disingenuous of the Davies to claim the builder had represented $700,000 to be the final completion costs when this was a figure put forward by the Davies themselves in order to uplift bank funding.  Dismissal of the Fair Trading Act claim was upheld by the Court of Appeal. The letter was not a promise by the builder that completion costs would not exceed $700,000; it was an estimate of completion costs to release bank funding.  The letter was not deceptive or misleading from the Davies’ perspective, the Court of Appeal ruled.

The court was told Kerry Smith stopped work after the Davies moved in with the project not fully complete.  To this point, build costs had reached $3.6 million.  The High Court ordered the Davies pay $99,300 for the builder’s remaining unpaid invoices.  Against this, the Davies were permitted to deduct $4400 for faulty work.

Davies v. K M Smith Builder Ltd – Court of Appeal (15.08.22)

22.145

Joint Venture: Elon Ltd v. Agrotrust Ltd

Mount Maunganui-based Jorge Arizaga and Coromandel supplier Erion Figueiredo are disputing whether a joint venture exists in their argument over who paid for what in a $10.7 million project developing a 45 hectare kiwifruit orchard at Pakaraka, near Kawakawa in Northland.    

The High Court was told Mr Arizaga initially planned to establish an avocado orchard.  On the advice of Mr Figueiredo, plans switched to kiwifruit.  Starting with purchase of the first block of land in 2020 by Mr Arizaga’s company Agrotrust Ltd, costs began to accelerate: three million for the first block of land; one million dollars for a neighbouring property in order to get access to water for irrigation; nearly four million dollars for cost of materials and labour to establish the orchard and then nearly three million dollars for windbreaks.

Other than cash put in, project financing came from vendor mortgages on the properties purchased and from Mr Figueiredo billing only half the costs for labour and materials his business provided converting a former dairy farm to an orchard.

From the outset, there was an ill-defined understanding that this would be a joint project.  Mr Figueiredo says each were to pay half of set-up costs and operating costs, splitting profits 50/50.  Mr Arigaza says there was agreement only as to the future possibility of a joint venture. A joint venture agreement signed in late 2020 was conditional on a raft of requirements including agreement as to contributions to date made by each.  No agreement was reached.  The joint venture agreement collapsed.  There are allegations that Mr Figueiredo’s companies overcharged for work done; he says he undercharged.

In a preliminary High Court hearing, Associate judge Sussock confirmed Mr Figueiredo’s registration of a caveat over the orchard land.  The land is owned by Agrotrust Ltd, Mr Arizaga’s company.  Mr Figueiredo has an arguable claim to an interest in the land, she ruled.  Work done by his companies increased the land value.  Mr Arizaga says there is no joint venture and that Mr Figueiredo has no greater status than as supplier of labour and materials.  The court was told legal proceedings are underway to sort out who owes whom what.  Meanwhile, the caveat blocks any further transactions involving the land. 

Erlon Ltd v. Agrotrust Ltd – High Court (12.08.22)

22.141

Family Dealings: Abchal Investments v. Saini

In 2019, Parminder Bawa purchased an Oamaru dairy from the wife of Aman Saini.  Aman’s brother Akashdeep Saini paid Bawa $35,000, part of a Saini family arrangement intended to get the sale finalised.  Now everyone is in court with no agreement as to basic details of the business purchase and a dispute whether the $35,000 was a transfer of funds or a loan.

The High Court was faced with differing views as to purchase price for the dairy, whether any vendor finance was involved and circumstances surrounding signature of documents.  Associate judge Taylor declined to order liquidation of Mr Bawa’s businesses for non-payment of the disputed loan, ruling there was considerable dispute as to what was owed.  With credibility issues at stake, a full trial was needed with witnesses cross-examined, he ruled.      

Evidence was given of Mr Bawa seeking to drive down the Saini family’s initial $250,000 asking price for the dairy on grounds he was having trouble getting sufficient bank finance to bridge the gap from $100,000 cash he had available.  Hurried negotiations prior to Christmas left each side having a different view of what was agreed.  Lawyers were not involved.  Akashdeep Saini says Mr Bawa signed an agreement clearly recording as a loan his $35,000 intended as family vendor finance augmenting Heartland Bank funding for Mr Bawa’s purchase of the dairy.  Mr Bawa denies being made aware of the content of documents put to him by the Saini family for signature.  He says he was under the impression that the $35,000 Saini family money given him was to go straight back to the Saini family in reduction of the purchase price – in effect having the Saini family paying part of the purchase price itself. Saini family says this interpretation is a commercial nonsense. Akashdeep claims he is now owed $54,500 on the original $35,000 plus interest.  

Both sides disagree on what was the supposed final purchase price for the business: Saini family says it was $250,000; Mr Bawa $200,000. Documentary evidence held by each side cannot be reconciled.  Mr Bawa says he has paid in full all that is owing. He alleges business turnover was exaggerated in negotiations during the purchase and that he has already paid too much.

Abchal Investments Ltd v. Saini & Value Save Ltd v. Saini – High Court (12.08.22)

22.142

Asset Forfeiture: Commissioner of Police v. Shakib

Convicted in 2017 of customs fraud, Amar Raouf Shakib’s assets including an Auckland property with net equity of some $1.2 million have been restrained by police as proceeds of crime ahead of potential forfeiture.   

Shakib was jailed for three years and four months following a double-invoicing scam used to reduce duty payable on flavoured tobacco imported from the Middle East.  Lower value invoices were provided for consignments crossing the border; invoices stating the higher price for actual payment were sent separately.

Police applied under Criminal Proceeds (Recovery) Act to have restraining orders placed on his Mercedes-Benz car, a bank account holding about $1500 and his property in Auckland suburb St Johns. The High Court was told the car’s whereabouts is unknown.  Shakib has left New Zealand.

Police say the St Johns property is liable to confiscation as ‘tainted property’ because profits generated from the customs fraud were used to pay down the mortgage. 

Prior to his conviction, Shakib paid in full all customs duties owed totalling some $313,000.  His parallel application to have all seized tobacco returned was refused.

Commissioner of Police v. Shakib – High Court (11.08.22)

22.140

Family Trust: re M & R Cooper No. 2 Trust

For Jane Austen devotees, it has the making of a thousand page novel; a moving story of a blended family, inheritances and a multi-million dollar family trust with one son benefitting but not the other.

Successful Christchurch businessman Merv Cooper built the Kauri Lodge Retirement Village in Riccarton selling up in 2008 with sale proceeds of some $3.5 million put into a family trust.  He and wife Rona had married fifty years previously.  They had two children, Lilly and Amanda, now known as Miffy.  Terms of the family trust named as beneficiaries ‘children of the settlors,’ that is: children of Merv and Rona.

There was a family secret.  The High Court was told Rona had two children from a prior marriage: sons Rob and Ray.  Rona’s first husband abandoned her and the two boys.  This left Rona destitute in an era when there was no government welfare payments to support solo mothers.  Rob went to live with Rona’s mother; Ray with Rona’s aunt.  The past was buried.  Ray was raised by Rona’s aunt Edna and her husband with Ray unaware that they were not his natural parents.  Roy was brought back into Rona’s household after she married Merv; Rob was told that Merv was not his natural father, but the secret was kept from his half-sisters Lilly and Miffy.  Rob was not told that he had a brother Ray.

Ray learnt part of the family secret when marrying at age 21; told he needed to use his legal registered birth name on his marriage certificate.  Even then, he was not told who were his birth parents.

It was Ray’s wife Helen who was first to discover the sibling connection, having learnt through friends of her parents. Rob and Ray were in their forties before their respective spouses eventually achieved a reunion of the two brothers for the first time since childhood separation, in what the High Court was told was a chance meeting with the two families dining at the same time at the same Christchurch restaurant.  Several previous attempts by their spouses to broker a meeting between the two had failed with one or other of the two brothers being ambivalent about meeting after so many years apart.  News of their meeting came as a huge shock to Rona; it took some time before she was willing to meet with Ray.   Once they had met, the two maintained occasional contact.

This complicated family history meant that after Rona’s death Merv wanted clarification as to who could benefit from their family trust.  Legal documents were signed intended to clarify that Rob was a beneficiary. Nothing similar was done in respect of Ray.  After Merv’s death, the surviving trustees were left with a multitude of legal opinions offering multiple options as to who were supposed beneficiaries of the family trust.  The High Court was asked to rule.          

Justice Dunningham ruled beneficiaries as ‘children of the settlors’ covered the natural children of Merv and Rona (Lilly and Miffy) and also any child bought up in the household unit as if a natural child of the two settlors (Rob).  This ruling excluded Ray.

The High Court was told that in her will Rona left a fixed sum of $50,000 to each of her four natural children.  This included Ray.  Ray did not receive any inheritance from the relatives he presumed were his mother and father; ultimately their assets went to a daughter his supposed father had with a subsequent wife.

Ray told the High Court the fact that he was treated as an equal member of his mother’s family in her will and that he was specifically acknowledged as her ‘birth son’ in a touching letter written by her and delivered after her death had reaffirmed his place in the family.

re M & R Cooper No. 2 Trust – High Court (10.08.22)

22.144 

Family Mortgage: Able Ventures Ltd v. Bolton

Allegations of fraud and loss of family money lent on mortgage featured in what Justice Duffy called a unique case. Members of the Bolton family are left with mortgage securities registered over a Mount Maunganui property giving them some legal leverage even though their recorded loan of $1.7 million plus interest arrears is supposedly irrecoverable. 

The saga begins in 1992 when Nelson and Judith Bell borrowed $250,000 from members of the Bolton family to finance their business. Ken Bolton negotiated the deal and helped prepare the paperwork, but provided no money himself; funds came from other family members: his mother, his brother and a niece.  Lawyers were not involved in completing the paperwork, but the documents were signed off by a lawyer prior to registration of the mortgage against title to several Mount Maunganui properties.  The High Court was told no interest was ever paid; loans were rolled over with unpaid interest capitalised into a series of replacement loans, with a further mortgage being registered.  This culminated in a 2005 mortgage in Ken Bolton’s name securing a $1.7 million loan over a Bain Street property owned by the Bells’ company: Able Ventures Ltd.  The Bells personally guaranteed repayment.

In 2021, Able Ventures applied to the High Court to have all the Bolton mortgages taken off title to Bain Street.  Justice Duffy ruled time had expired; loans covered by the various registered mortgages were no longer recoverable.  Limitation Act time limits, as they stood when the loans were made, specified that failure to take legal action within six years of failing to pay interest and within twelve years of failing to repay principal meant no money could be recovered.  But Justice Duffy refused to remove the mortgages from title to the properties. The mortgages remained as statutory land charges, she said.   The right to claim mortgage security remained, as did the right to force a mortgagee sale to recover what was owed.  Leaving the mortgages registered prevents the Bells from refinancing without first negotiating terms for removal of the existing Bolton registered mortgages.

In parallel High Court proceedings, Justice Duffy ruled the Bolton family mortgages registered in Ken Bolton’s name be transferred into the names of those Bolton family members who had actually made the loans. They had left Ken to handle the details, but it was alleged he subsequently attempted to claim the loan money was his. He told the Bells he had ‘taken over’ the family loan when demanding in 2011 that the Bells pay $350,000 cash direct to him.  The Bells refused, saying they had not borrowed anything from him.  Justice Duffy ruled Ken Bolton held the mortgage securities on trust for family members.  He did not appear in court to defend their claim.

Able Ventures Ltd v. Bolton – High Court (9.08.22)

22.139

Company Deadlock: re Kiwi Sheds Northland Ltd

Northland construction business Kiwi Sheds Northland Ltd is being wound down under court supervision after directors Robert Gauld and Deane Rosewarne fell out, with each accusing the other of taking money from the company without authority and of taking on build contracts more properly belonging to their company.

Their company was set up in 2017, taking over Mr Gauld’s previous business operations erecting kitset garages.  Ownership of the new business was split 50/50 between Mr Gauld and his former wife on one side and Mr Rosewarne and his wife on the other.

The High Court was told this arrangement began to run downhill with Mr Gauld complaining that he had no access to financial information other than raw bank account details and that Mr Rosewarne had seized his work laptop and all client files.  The company bank account was subsequently frozen.  Mr Gauld said he had no knowledge of whether their business was solvent or not.  The practice developed of each taking on new clients separately, with Kiwi Sheds’ operations being run down.

At Mr Gauld’s request, the High Court appointed interim liquidators to take control of Kiwi Sheds’ assets.  Liquidators were authorised to take control of company records and to determine Kiwi Sheds’ solvency.  They were empowered to sell company assets if the company was not trading profitably.  The court was told one of the business assets is land at Kerikeri with a current net worth of some $280,000.

Evidence was given of the two sides failing to settle their differences after a marathon twelve hour mediation.  Agreement on a price to buy out Gauld interests was a sticking point.

re Kiwi Sheds Northland Ltd – High Court (8.08.22)

22.138

Beer Spot: The Beer Spot Ltd v. Payn

Jason Payne and Laurence van Dam, co-founders of Auckland’s Beer Spot, fell out and Payne is entitled to immediate payment of $171,500 lent to their business as an unsecured loan the High Court ruled.  Van Dam is resisting payment, needing free cash flow to finance expansion including purchase of their Morningside site near Eden Park.

Beer Spot was founded in 2014 to sell keg-fresh, independently brewed beer from around New Zealand.  Outlets at Huapai and Morningside were opened in 2019.  Payne and van Dam are 50/50 owners with separate companies handling various parts of their Beer Spot operations.  The High Court was told refinancing in 2016 saw the two giving personal guarantees for new funds from Westpac with van Dam in addition giving Westpac a mortgage over his family home.  This mortgage became a bone of contention; van Dam saying use of his home as security and the differing level of funding each put in meant their ownership ratios should be adjusted.  No agreement was reached.

Payn was dismissed as an employee and van Dam’s offer in 2021 to buy him out at $1.2 million was turned down.  Payne demanded $2.1 million.

Early 2022, Payne made formal demand for repayment of $171,500 standing to his credit in the accounts of various Beer Spot companies. Van Dam said this money was part of Payne’s capital contributions to the business, not loans repayable on demand.

Justice van Bohemen ruled Payne’s $171,500 were loans from him as a shareholder, repayable on demand.  The amount was recorded in the various companies’ financial statements as shareholder’s advances and listed as a liability, not as capital contributions. There was no evidence of an agreement between shareholders that this money could not be withdrawn as and when demanded, Justice van Bohemen ruled.

The companies were given thirty working days to make payment or otherwise face court-ordered liquidation.

The Beer Spot Ltd v. Payn – High Court (8.08.22)

22.137

Money Laundering: R. v. Wilson

Spending money generated by her then partner’s drug dealing resulted in Joanne Lisa Marie Wilson’s conviction for money laundering.  Sentenced to six months community detention, Justice Lang said jail time would be counterproductive for Wilson; she had overcome an addiction to methamphetamine having been drug free for nearly two years and now had a steady job with her employer speaking highly of her work ethic. 

Wilson was caught up on the periphery of a 2020 police operation known as Operation Emoji.  Her then partner Calebh Simpson was arrested.  Police seized cash in excess of $1.7 million.  Police inquiries identified that Wilson assisted Simpson in getting rid of cash generated from selling methamphetamine.  Evidence was given of her banking cash into her bank account, using the money to buy clothing, buy a vehicle and meet living expenses plus making payments at Simpson’s direction: to rent storage sheds in Auckland and Whakatane; to cover a friend’s legal expenses; and, to put in credit prisoner personal accounts with Corrections.  These activities amounted to money laundering.  At law, it was not money laundering to use cash from Simpson for living expenses without first banking this cash through a bank account, Justice Lang ruled.

Wilson’s sentence of six months community detention imposed a 6.00 pm to 5.00 am curfew.

R v. Wilson – High Court (5.08.22)

22.136

Construction: Dalton v. Mico Development

Paying subcontractors direct at a time when the head contractor was having cashflow difficulties had a cost for Tony Gapes Mico Development Ltd looking to push ahead with its $10.4 million Queenstown apartments project; Mico was still liable to pay its head contractor for $505,800 of sub-contractors’ work when the head contractor subsequently went into liquidation, in effect having to pay twice.  

The High Court was told Christchurch-based Acium Construction Ltd, controlled by Craig McConnell, signed up as head contractor for construction of the Queenstown apartments.  The project did not run smoothly.  Covid-19 lockdowns intervened.  There were disputes over what were valid variations to the construction contract and further disputes over items alleged to have been ‘de-scoped;’ that is, work removed from the contract.  Up front, Acium had agreed to a fixed price construction at $10.4 million. 

Evidence was given that a number of sub-contractors became concerned about Acium’s ability to pay for work done.  They either refused to work for Acium Construction or walked off the job unless arrangements were made for Mico Development to pay them direct.  Mico was under pressure.  Buyers of pre-sold apartments could cancel if the job was not finished by 10 December 2020. Mico agreed to pay direct those subcontractors critical to getting apartments finished. Practical completion was achieved on 9 December.  Two months later, Acium was in liquidation, insolvent. 

Acium liquidators sued, claiming Mico Developments still owed $1.34 million.  Associate judge Lester ruled $804,000 of this claim was a good old-fashioned breach of contract dispute which required a full court hearing.  A set-off for the $505,800 paid direct to sub-contractors was a different story; this was a voidable transaction dealt with under the fast-track Companies Act insolvency rules.

Transactions in a period six months prior to liquidation can be reversed. ‘Transaction’ is widely defined.  Money need not have changed hands.  Judge Lester ruled Mico Development received an advantage when it paid subcontractors direct knowing that Acium was having cashflow difficulties and then sought to deduct these payments from progress payments payable to Acium under its head contract.  In economic terms, Mico was being ‘paid’ its costs of getting the job finished by in turn making deductions from the agreed contract price payable to Acium.  As a voidable ‘transaction,’ Mico was ordered to pay Acium the sub-contractor payments of $505,800 it was attempting to deduct from the contract price, paying twice for the same work.

Dalton v. Mico Development Ltd – High Court (4.08.22)

22.135

Real Estate Commission: Soft Technology v. Jones Lang

Behind the banal puffery of Auckland Council-controlled ATEED promoting its 2017 lease of film studios in west Auckland lay a dispute over fees claimed for negotiating ATEED’s lease.  Jones Lang won in the High Court; losing its right to commission in the Court of Appeal because it failed to complete proper written authorities to act as leasing agent.  The dollar amount claimed as commission was supressed.

In 2015, Peter Ryoo of Soft Technology JR Ltd was being lobbied by real estate agents keen to get a listing for lease of the company’s 27 hectare property in Kumeu.  It was an open secret that the site was a likely prospect for offshore filmmakers seeking to produce films in New Zealand exploiting government rebates on offer.  Through the agency of Jones Lang Lasalle Ltd, Warner Brothers took a twelve month lease. Evidence was given that Mr Ryoo drove a hard bargain, forcing down the commission due Jones Lang before agreeing to Warner Brothers lease.  Soft Technology paid Jones Lang the agreed commission.  At the conclusion of this lease, ATEED (Auckland Tourism, Events and Economic Development Ltd) stepped in, deciding to become a player in the film industry rather than a facilitator.  In 2017, ATEED agreed to lease the Kumeu site from Soft Technology on a four year lease.  Soft Technology refused to pay Jones Lang’s invoice for commission on this lease.

Both the High Court and the Court of Appeal ruled that Jones Lang had ‘introduced’ ATEED to Soft Technology.  In real estate parlance, Jones Lang was entitled to a commission; provided it had complied with rules in the Real Estate Agents Act. The Act requires real estate agents to have a signed agency agreement in place before carrying out the work for which they claim commission.  This is a consumer protection rule, the Court of Appeal ruled.

The court was told Mr Ryoo had signed a general agency agreement in 2015 which would have entitled Jones Lang to payment, but for the fact that the agency agreement was not signed at the time by Jones Lang and a signed copy was never provided to Soft Technology; both requirements of real estate legislation.  A Jones Lang staffer belatedly signed the agency agreement months later, only after Jones Lang internal procedures required signature to justify commissions claimed on the initial Warner Brothers’ lease.  A signed copy was never provided to Soft Technology until the original turned up years later as evidence at an initial High Court hearing.  Failure to provide a signed copy of the agency agreement to Soft Technology before doing any work was fatal to Jones Lang’s claim for commission on the follow-up work leasing to ATEED, the Court of Appeal ruled.

Jones Lang’s claimed commission was to be calculated as two months gross rent plus a share of rent from naming rights and parking income. Jones Lang asked for the dollar amount of its claimed commission to be disclosed; ATEED requested suppression of the details ‘to protect commercially sensitive information,’ it said.

Soft Technology JR Ltd v. Jones Lang Lasalle Ltd – High Court (15.11.21) & Court of Appeal (4.08.22)

22.134