Building Consents: Nuwave Software v. Objective Corporation

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

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

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

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

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

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

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

22.171

Tax Fraud: Sami v. Inland Revenue

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

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

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

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

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

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

Sami v. Inland Revenue – High Court (23.09.22)

22.170

Leasehold: KOL Holdings v. Xu

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

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

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

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

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

22.169

Legal Costs: Criffel Deer Ltd v. ANZ Bank

Facing allegations of fraud from Wellington lawyer and entrepreneur Mike Garnham and his Garnham group of companies, ANZ Bank spent some $250,000 defending claims it said were improper, frivolous, vexatious and totally without merit.  After the claims were struck out, the High Court awarded ANZ $150,900 costs.  

The High Court was told ANZ bank poured considerable resources into preparing its defence to the Garnham claims filed in 2021. Bank records were searched and senior counsel hired.  ANZ said Garnham contributed to these costs by failing to comply with court rules, raising untenable arguments about admissibility of evidence and persisting in pressing forward with litigation in the name of a company which had been struck off.   

ANZ’s loan contract with Garnham Group included an indemnity clause allowing it to recover all costs in exercising and enforcing rights as creditor.  Mr Garnham argued the bank’s litigation costs were attempts to avoid scrutiny of its conduct rather than protection of its loan rights.  Justice Churchman disagreed.

Some, but not all, of ANZ’s costs were recoverable. While defending serious fraud allegations incurred costs, they were not strictly necessary in this case, he said. Final legal argument centred on only two issues, neither of them involving allegations of fraud.  ANZ was awarded $150,900 as its costs of dealing with these two issues: whether the Garnham claims were time-barred and whether there had been an out of court settlement.  ANZ went to extreme lengths in determining whether the Garnham fraud allegations had merit resulting in excessive costs which were not reasonably incurred, Justice Churchman said.  These excessive costs could not be recovered as part of the loan indemnity, he ruled. 

Criffel Deer Ltd v. ANZ Bank – High Court (21.09.22)

22.167

Leasehold: Smith v. Paros Property Trust

Auckland commercial landlord Neil Christian thought he was dealing with just one pesky leaseholder running a hopeless legal argument about lease cancellation when the Court of Appeal ran a bulldozer through the entire case ruling that Christian’s Paros Property Trust invalidly raised rents for all its Freemans Bay leaseholders, failing to follow the correct statutory procedure for its 2018 rent review.  

Occupants of leased townhouses in Auckland’s Freemans Bay look to benefit with substantial rent credits; the 2018 review almost tripled previous annual rents.

Sixty years ago, slum housing in Freemans Bay was demolished by Auckland Council, replaced by townhouses sold on long-term leases. Council subsequently sold its leasehold interests.  Neil Christian’s Paros Property Trust Ltd snapped up the properties.  It now exercises all the rights as lessor previously held by Council.  The leases allow rent reviews every seven years.

Since 2018, Napier Street leaseholder Tim Smith has been waging a quixotic battle with Paros Property over his rights to purchase the freehold.  The Court of Appeal was told the dispute arose after Mr Smith received his 2018 rent review, raising annual rent from $31,000 to $81,375.  He signalled an interest in freeholding.  Neither side could agree on the process.  Mr Smith was adamant he had the right to choose a valuer to determine cost of freeholding; Paros Properties said the lease was explicit, it was for Paros as lessor to choose the valuer.  Mr Smith argued this stalemate meant the lease was cancelled and he was not liable for rental arrears.  The High Court ruled Paros had the right to choose the valuer and ordered Mr Smith pay over $240,000 in rental arrears.

Mr Smith appealed.  The Court of Appeal confirmed the lease was never cancelled, but then put Paros Property’s lawyers in a spin by ruling the 2018 rent review process was not properly carried out.  This had the effect of freezing rents at the pre-2018 rate.  Mr Smith’s liability for rent arrears dropped markedly to some $87,000.

The court ruled rent reviews required a prior valuation by three independent valuers to set market rates.  Both Mr Smith and Paros Property had assumed valuation was required from one valuer only.

After doing its own homework and then marking it as correct, the Court of Appeal ruled that supposedly repealed valuation procedures in the Municipal Corporations Act still applied.  This anomaly arose because of the legal history of Freemans Bay’s gentrification; properties were compulsory purchased and the area redeveloped by Auckland Council using 1945 legislation: the Urban Renewal and Housing Improvement Act.

Smith v. Paros Property Trust Ltd – Court of Appeal (21.09.22)

22.168

De facto director: NZ Causeway International v. Wang

Whilst living back in China, Jie Cao left fellow shareholder Yi Wang in sole charge of their Auckland health food store.  Ms Wang was ordered to hand over $157,244 wrongly taken from the business and to account for profits from $370,700 stock she diverted to her own rival business.  

Cao and Wang agreed to join forces in 2017 setting up a health supplement store when Mr Cao as a recent immigrant met Ms Wang working as store manager on Dominion Road in Mt Eden.  NZ Causeway Bay International Trading Ltd was registered with Mr Cao as sole director and shareholding split 70:30 between Mr Cao and Ms Wang.  Unbeknown to Mr Cao, Ms Wang joined with another investor within months to set up a rival business trading as Oceania Health Care Product which set up shop over the road from Causeway Bay’s retail store.

The High Court was told Mr Cao spent most of his time in China, leaving Ms Wang in full control of Causeway Bay operations.  He became suspicious when she stopped providing financial information.  He later discovered she was diverting company cash for personal expenses, used her own WeChat barcode at Causeway Bay’s counter to divert store revenue into her own bank account and also transferred Causeway’s stock to Oceania Health across the road.

Justice Tahana held Ms Wang liable for a breach of directors’ duties as if she were a director of Causeway Bay.  She was not in fact a director, but treated at law as a ‘de facto’ director since she had complete control of Causeway’s management decisions in the absence of Mr Cao.  As a de facto director she did not act in good faith and she did not act in the best interests of Causeway Bay, Justice Tahana ruled.

Ms Wang did not appear in court to defend the claim.

NZ Causeway International Trading Ltd v. Wang – High Court (20.09.22)

22.166

Stonewood: Boult & Merrick v. Cain

Creditors can be told details of a $3.5 million confidential settlement between liquidator of Stonewood Homes and directors James Boult and Brent Mettrick which resulted in no payment for unsecured creditors, the High Court ruled. 

In 2016, Stonewood Group went into liquidation.  Reports filed by the liquidator identify $3.5 million recovered in an agreed out of court settlement with directors.  Stonewood’s secured creditor has not been paid in full. There is nothing available for unsecured creditors.

In 2022, unsecured creditor Geoff Ball applied to the High Court for access to settlement details.  Associate judge Paulsen said the better course of action was to ask Stonewood’s liquidator to release the information.  Mr Ball is a member of Stonewall’s liquidation committee.

In any insolvent liquidation, unsecured creditors can vote for a liquidation committee.  It provides oversight, both protecting creditor interests and assisting the liquidator.  Unpaid creditors can provide industry insights, helping with the location and sale of company assets.

Mr Ball was joined by two other creditors on Stonewood’s liquidation committee requesting terms of the confidential settlement. When the liquidator indicated his intent to allow disclosure, Mr Boult and Mr Mettrick were back in front of Judge Paulsen claiming that disclosure was in breach of their settlement agreement and that the request was being made for an improper purpose, being the potential for legal action taken by individual creditors.

The liquidation committee has Company Act rights to inspect all liquidation records and documents, subject only to a liquidator having reasonable grounds to believe this would prejudice the company’s liquidation, Judge Paulsen ruled.  There was no such prejudice here, he said.

The High Court was told the liquidator proposed members of the liquidation committee be allowed to read the file, but not take notes or make copies.

Boult & Merrick v. Cain – High Court (20.09.22)

22.165

Construction: United Builders v. MKOD Developments

It seemed like a good idea at the time; have an acquaintance hold deposits as a stakeholder for later onward payment to a builder.  Now both builder Munesh Chand and property owner Mavis Wolfgramm are having trouble extracting their money from stakeholder Chandar Prakash in payment for building work completed.

The High Court was told Mr Prakash assisted Ms Wolfgramm following a fire at an Auckland home in Mt Roskill owned by her company Wolfgramm Contracting Ltd.  He drafted plans for renovations and arranged with Mr Chand’s United Builders Ltd to do the job.  United Builders quoted $529,000 in May 2022 for the work.  Ms Wolfgramm was unwilling to pay upfront a requested deposit of $211,600. She asked Mr Prakash to act as ‘middleman.’  

Evidence was given that Mr Prakash then offered an alternative payment schedule to Ms Wolfgramm with the initial deposit being only $69,000 on a full contract price of $529,000.  She paid the $69,000 deposit to his company: MKOD Developments Ltd. At the same time, Mr Prakash confirmed a payment schedule with United Builders which specified a higher contract price payable: $667,000.

Three months on, United Builders complained its invoices were not being paid, with only $40,000 received to date.  Ms Wolgramm said she had paid $219,000 across to Mr Prakash’s MKOD Developments.  There was $179,000 unaccounted for that should have been passed on to United Builders, she said.

Mr Prakash said payments were held back because of concerns about quality of the work done and a need to get Council signoffs.           

Learning that Mr Prakash had been convicted of GST offences for a failure to pay some $170,000 to Inland Revenue and that he was in that habit of travelling overseas to Fiji, the two asked the High Court to put MKOD Developments into liquidation immediately to preserve what assets it holds. Associate judge Gardiner refused. A formal court hearing is necessary to establish exactly what were the terms on which MKOD held funds as stakeholder. The fact that there is no written agreement between United Builders and MKOD or Wolfgramm Contracting and that their respective payment schedules do not reconcile means all sides need to be heard in court, she said.

United Builders Ltd v. MKOD Developments Ltd – High Court (16.09.22)

22.163

Lease: Tobem Holdings v. Kid Country Holdings

Sued for more than one million dollars in a dispute over lease of commercial space intended for use as a childcare facility, tenant Kid Country Holdings pulled the plug just prior to a scheduled court hearing; acting hand in hand with the liquidator using liquidation to stifle its claim, landlord Tobem Holdings alleges. 

The High Court at Auckland was told Tobem Holdings Ltd purchased the commercial property in February 2019 and along with it an existing lease to tenant Kid Country Holdings Ltd with Kid Country committed to annual rental payments of $390,000.  Tobem never received any rent.  Kid Country disputes how rentals are assessed and also disputes the area of usable space potentially available for operation as a childcare facility.

Tobem cancelled Kid Country’s lease in June 2020. It is now suing Kid Country for over one million dollars: arrears of rent; the cost of finding a replacement tenant; and the shortfall in rent between what Kid Country agreed to pay and what the new tenant is paying.

Two years after Tobem filed its claim and two weeks before trial date, Kid Country shareholders put their company into liquidation.  This killed the litigation stone dead. Ongoing litigation can continue after liquidation only with approval of either the liquidator or the court.  Kid Country’s chosen liquidator refused approval. Tobem’s attempts to remove the liquidator failed.  There are only three unpaid Kid Country creditors, it says: two each owed less than $7000 voted for the existing liquidator to remain; Tobem voted for removal. It was outvoted 2:1. The liquidator refused to identify who were the two creditors who kept him in office.        

In the High Court, Justice Gordon ruled the one million dollar litigation could continue.  All parties were ready for trial when liquidation intervened.  The claim can be dealt with immediately.

The alternative would see the liquidator assessing Tobem’s claim.  Tobem said its expectation was that the liquidator would reject its claim, causing further delays while it waited for a new court hearing date to challenge any adverse decision by the liquidator.

Companies Office records name David Lowry and Paul Hamlyn as directors of Kid Country; Narendra Patel as director of Tobem Holdings.

Tobem Holdings Ltd v. Kid Country Holdings Ltd – High Court (16.09.22)

22.162

Land: CSR Pokeno Ltd v. Yes Investments

It was a game of high stakes poker. Interests associated with Annie Shui and her much litigated attempts to develop a residential subdivision at Pokeno south of Auckland were on the hook for late settlement interest running at $3830 per day when taking out a short term loan to complete a $12.5 million purchase. A call option imbedded with the loan saw South Island-based investors seize control of the entire project which now has a reputed value of $150 million.

Ms Shui was convicted on two charges of fraud and ruled to be in breach of the Fair Trading Act in separate civil litigation as she worked to combine several land holdings in Pokeno West for an intended 1600 lot subdivision. By 2022 she was left with a one per cent stake in CSR Pokeno Ltd, with Andrew Shui as a named director.  The High Court was told CSR committed in January 2017 to paying $12 million for its Pokeno purchase.  After failing to settle the purchase in May 2022, settlement was deferred to the following August at an increased price of $12.5 million.  Part payment was then made.  This left default interest running at $3830 per day with CSR still nine million dollars short.

Evidence was given of a deal subsequently struck with Yes Investment NZ Ltd, getting money in the door completing the purchase.  Companies Office records show Yes Investments owned primarily by investors based in Christchurch and Dunedin.  Yes put up some four million cash for a thirty per cent stake in the project, coupled with a $4.9 million two year loan.  A call option was attached to the loan; Yes Investment could call for transfer of CSR’s seventy per cent stake in Pokeno West at no cost other than forgiveness of the $4.9 million loan.  Yes Investment exercised this option in August 2022 when the two year loan fell due, unpaid.

In the High Court, CSR challenged exercise of this option. It claims seizing control amounts to a penalty; taking assets valued well in excess of the unpaid $4.9 million loan. There was evidence of a third party conditional offer to buy Pokeno West’s assets for $150 million.  CSR also claims Yes Investments improperly blocked attempts to refinance the loan.

Justice Jagose refused to block the call option. At best, CSR is entitled to damages if successful following a hearing of its claims at a later court hearing, he ruled. CSR should not be allowed to tie up Pokeno West’s valuable resources pending trial, he said.

Companies Office records show Yes Investments assuming full ownership of Pokeno West twelve days after the High Court ruling.  Andrew Shui resigned as director the day of the ruling.

CSR Pokeno Ltd v. Yes Investments NZ Ltd – High Court (16.09.22)

20.164

Class Action: Body Corporate 91535 v. 3A Composites GmbH

German manufacturer of aluminium cladding alleged to be high fire risk fended off litigation funders saying there was no ‘commonality of interest’ to support a class action; experts are divided on whether 3A Composites’ product is a fire risk. 

Risk of fire spreading through aluminium cladding in high rise buildings came to public attention after the 2014 Lacrosse Tower fire in Melbourne and the 2017 Grenfell Tower fire in London.  In New Zealand, a three story Mount Maunganui resort apartment was reclad with 3A Composites product in 2008 at a cost of nine million dollars.  Now joined by Argosy Property, they both are suing for damages claiming the product is not fit for purpose.  Argosy made use of the product for commercial buildings in Auckland suburbs of Albany and Mangere.

The High Court was told both the resort and Argosy have entered into litigation funding agreements with investors providing cash to fund legal expenses in return for a share in any recovery.  Terms of the agreements were not disclosed.  They applied for court approval to label their court proceedings as a representative action; colloquially known as a class action. This would have owners of other properties with the same aluminium cladding tied into the litigation.  Class actions require a ‘commonality of interest’ such that a decision from a single court case can be applied across a multiple of disputes; saving time and costs.

The litigation funders argue 3A Composites’ product is inherently incapable of meeting building code requirements.  This is disputed.

Justice Jagose ruled there is no commonality between affected building owners.  Fire risk code compliance for cladding differs from building to building depending on when it was built, where it was built, how high it was built and the building’s use. Any argument that the product is inherently in breach of the Code is a ‘potentially contrived allegation’ designed to get around issues of commonality, Justice Jagose said.  The application for class action status had the appearance of being primarily for the benefit of litigation funders, he said.

Drawing more property owners into the current litigation would potentially increase the payout for litigation funders; the bigger the pot the bigger the litigation funders’ return as a share of that pot. The court was told there are at least thirty buildings across New Zealand supplied with the disputed product. Terms of the class action application would have seen these property owners automatically included as part of the class action, unless they formally opted out, leaving the litigation funder controlling terms of any potential out of court settlement and the size of their pay out.  

Body Corporate 91535 & Argosy Property v. 3A Composites GmbH – High Court (14.09.22)

22.161

Fraud: Pome'e v. Inland Revenue

Confirming Sione Na’aniumotu Pome’e 27 months’ imprisonment for a $1.8 million tax fraud, the High Court said this sentence was generous given that a promised $200,000 voluntary reparation was never paid. 

Pome’e pleaded guilty after an Inland Revenue audit uncovered a long running seven year tax fraud.  He was sole director and shareholder of labour hire company Pome’e Engineering.  Returns filed with Inland Revene understated levels of employee PAYE deductions.  Payment deadlines to Inland Revenue were met late or missed altogether.  The court was told over one million dollars was diverted to a joint account held in the name of Pome’e and his uncle.  Money was used for: overseas travel; personal expenditure; and gifts to a wide social circle including family members, employees and $25,000 to support a nephew’s burgeoning music career.

Evidence was given that Inland Revenue recovered some $224,000 from liquidation of Pome’e Engineering and a further $125,000 from bank accounts.  Pome’e voluntarily paid back some $366,200.  Pome’s promise prior to sentencing by the trial judge to make a further voluntary payment of $200,000 came to nothing.

Pome’e v. Inland Revenue – High Court (14.09.22)

22.160

Fraud: Vuniduvu v. R.

Litia Rokele Vuniduvu’s conviction for fraud after stealing over $360,000 from Ports of Auckland in a false invoicing scam was upheld by the Court of Appeal.  She was guilty of dishonestly ‘using’ a document, even when most of the fifty false invoices in what was a three-year long scam were concocted by her lover, Ports of Auckland senior ICT manager Paul Bainbridge. 

Bainbridge pleaded guilty when charged.  Vuniduvu was found guilty after a District Court trial and sentenced to three years’ imprisonment.  She claimed there was no dishonesty.  She had done the work and was entitled to payment, she said.  The jury did not believe her.  There was evidence she had not declared the supposed income for tax.

On appeal, Vuniduvu said facts of the case did not support a Crimes Act conviction for ‘dishonestly using a document.’  She was not the principal offender, she said.  It was Bainbridge who prepared and processed the false invoices.  Bainbridge alone ‘used’ the documents to engineer a fraud, she said.

Vuniduvu’s actions in providing information to Bainbridge necessary to compile the false invoices and her actions in personally creating and submitting some of the invoices amounted to ‘using’ a document to perpetrate a fraud, the Court of Appeal ruled.

Bainbridge was sentenced in 2017 to three years and one month’s imprisonment for his part in the fraud.  By the time of her appeal against conviction, Vuniduvu had served her sentence.  Failing to overturn her conviction for fraud affects her ability to remain in New Zealand as an immigrant.    

Vuniduvu v. R – Court of Appeal (7.09.22)

22.159

Fraud: Rosebud Corporate v. Bublitz & Cook

Judges frequently chide litigants for failure to follow the rules.  You might expect the High Court to be a paragon of virtue when it comes to compliance. You would be wrong.  Requests from Hong Kong for evidentiary assistance into alleged fraud by directors Paul Bublitz and Chris Cook lay in court unprocessed for over a year before action was taken.   

In June 2021, the Solicitor-General asked on behalf of Hong Kong police for access to court documents relating to a property development on Auckland’s North Shore.  Hong Kong investors had provided project funding.  They were soon to become wary of Paul Bublitz and Chris Cook who were in charge of the project.  Hunter Gills Road Ltd was wound up insolvent in 2013.  The liquidator negotiated confidential settlements totalling $312,000, including settlements with an unnamed insurer and an unnamed Hunter Gills director.

Unpaid Hong Kong investors allege Paul Bublitz and Chris Cook were party to a conspiracy to defraud.  They laid a complaint with Hong Kong police.  As part of its investigations, New Zealand courts were asked to provide details of New Zealand litigation involving the two.

This request for copies of the court record was filed in June 2021.  Nothing happened.  Follow up requests on progress made a few weeks later and then eight months later again saw no result.  One year on, the request for access was finally set down for immediate hearing before the trial judge; three months later, release of the Hunter Gills court record to Hong Kong authorities was approved, over the objections of Mr Bublitz and Mr Cook both of whom deny any wrongdoing.

Release of the court documents is conditional on Hong Kong authorities’ prior written agreement to using this information only in relation to their criminal investigation.

Rosebud Corporate Trustee Ltd v. Bublitz, Cook & Hunter Gills Road Ltd – High Court (6.09.22)

22.158

Discovery: Andrews v. Lomax

Described by Judge Lester as an attempted ‘gotcha’ moment in highly charged pre-trial challenges to document discovery, Arrowtown hoteliers Rob and Kerry Andrews allege Auckland publican Paul Lomax is falsifying evidence in a dispute over management fees charged their joint venture company.   

In 2018, Rob and Kerry Andrews joined with Paul Lomax in leasing Arrowtown’s New Orleans Hotel.  It has not been plain sailing.  Associate judge Lester was moved to remark that litigation between two sides has become acrimonious.  There is a complete lack of trust, he said.

This lack of trust was underscored in a pre-trial discovery dispute.  Discovery procedures are intended to have each side disclose in advance all relevant documentary evidence they hold, supposedly sharpening the issues in dispute and reducing court hearing time.

The Andrews asked for disclosure of specific accounting information relating to management costs for their joint venture company Arrow Hospitality Ltd, including employee names and remuneration, cash distributions made and all documents relating to covid-19 wage subsidies.  Also requested was email correspondence between Paul Lomax and management staff.

The Andrews pounced after sighting the information provided.  Apparently unbeknown to Paul Lomax, Kerry Andrews still had access to Dropbox subfolders storing employment files.  She alleges some files have been deleted and others altered before disclosure.  Paul Lomax countered that the Andrews themselves were in breach of rules for discovery; they did not disclose that documents under their control included their access to the Dropbox files.

Judge Lester ordered a forensic examination of the disputed files by an independent IT specialist.  If the Andrews allegations are proved to be true, Mr Lomax is liable for investigation costs.  If a reasonable explanation is found for the file changes, the Andrews pay.

Also in dispute is: release of accounting records for Arrow Hospitality held by the company’s former accountants; and what the Andrews complain is a paucity of disclosed email traffic between Mr Lomax and his staff relating to management services they provided to Arrow.  Mr Lomax says much of this communication was verbal; there is no written record.  

Andrews v. Lomax – High Court (5.09.22)

22.157

Joint Venture: Matvin Group v. Crown Finance

Chris Arbuckle’s Crown Finance Ltd was ordered to compensate Matvin Group after unilaterally taking over a joint property development at Auckland’s Hobsonville Point, using all of Matvin’s planning and preliminary work for a retail and residential development. 

The High Court was told Kevin Clark and Matt Ellingham at Matvin Group spent much of 2013 dealing with zoning and consent requirements for a project at 122 Hobsonville Road under a loose arrangement with Crown Finance, expecting Crown to join them providing project funding.  Matvin was squeezed out at the last minute with Crown taking over the project through related company, Viscount Investment Corporation Ltd.  Matvin was incensed.

The High Court heard several weeks of evidence with Crown Finance arguing it was merely a bystander providing mezzanine finance rescuing the project while Matvin said Crown was a joint venture partner which had misused confidential information.

Matvin Group purchased the former Buljan vineyard in Hobsonville for $14.5 million in July 2013; 4.5 hectares of undeveloped land. Both the purchase and a later payment of a $1.45 million deposit was conditional on due diligence.  Evidence was given of earlier discussions with Crown Finance over potential funding and then of ongoing communications as Matvin reported on progress with planning and consent issues plus potential retail leasing prospects.  All looked encouraging.  The first hint for Matvin that not all was going to plan arose when Crown Finance was late in providing the necessary $1.45 million deposit.  Matvin paid a holding fee to get time extended.  Matvin was also concerned about increasingly onerous loan requirements Crown was putting forward as part of negotiations for a formal joint venture agreement.  In late October, Buljan told Matvin its purchase was cancelled.  Stalled negotiations with Crown about joint venture terms meant Matvin did not have the funds to complete a $14.5 million purchase. Matvin then learnt Viscount Investment had signed up the next day to buy 122 Hobsonville with an unconditional contract at the same price as the cancelled Matvin deal.

Justice Duffy ruled Crown Finance had misused confidential planning and consenting information provided by Matvin and that Viscount Investment had knowingly used that confidential information for its own benefit. Mr Arbuckle controls both Crown and Viscount.  It was only because of the preparatory work undertaken by Matvin that Viscount was able to sign up so quickly, Justice Duffy ruled.  Viscount also knew Matvin had no other source of funds; a squeeze was on. Crown Finance could not claim to be a disinterested arms-length financier when it was actively involved from the outset in planning the proposed development.

A further court hearing is required to determine profits made by Crown Finance and Viscount from the Hobsonville development and to establish how this profit is to be shared with Matvin.

Matvin Group Ltd v. Crown Finance Ltd & Viscount Investment Corp Ltd – High Court (2.09.22)

22.156

Relationship Property: Capper v. Dallinger

It came as a surprise to Steven Dallinger when accountants holding a High Court order told him they were now in charge of Murupara farming decisions, part of an ongoing dispute with his former partner Tania Capper over control of their relationship property.

The two jointly own Riverside Pride Ltd, a 160 hectare dairy farm near Murupara in Bay of Plenty.  The High Court was told Steven and Tania had been together since 2001, starting out as sharemilkers and progressing to ownership of their own farm as shareholders in Riverside Pride.  Their relationship has ended; the two separated in late 2019 after she was physically assaulted.  Steven was charged and convicted; Tania obtained a protection order against him. They now communicate only through their lawyers.

Tania alleges that Steven is running down Riverside assets; part of a scheme to reduce the value of her half share in the farm, she says.  There are allegations of company assets being sold at an undervalue to a separate business owned by Steve, of Fonterra milk payouts being diverted to a bank account he controls and of livestock sales not being credited to the farm account.

Tania asked the High Court to appoint interim liquidators to take control of Riverside.  Steven was not told of the court application.  Tania said it had to be done quickly and quietly because of her ongoing concern about Riverside’s value being eroded.  Associate judge Taylor appointed insolvency specialists from KhovJones to take control of all company assets and to report back to the court on Riverside’s current financial position.

The court was told there is also a subsidiary dispute over Riverside’s lease of farmland owned by a Tapper family trust.  Tania is a trust beneficiary.

Capper v. Dallinger – High Court (1.09.22)

22.155