Bankruptcy: Moxham Milk v. Clark

Failing to return funds mistakenly credited to a bank account led to bankruptcy for Bay of Plenty resident Stephen George Gibson Clark.

The High Court was told Levin-based Moxham Milk Ltd paid some $26,500 into an ANZ bank account in June 2018 mistakenly thinking payment was going into the account of fertiliser supplier Zenith Ltd.  Getting the money back proved difficult.  Moxham Milk claimed an account controlled by Opotiki resident Stephen Clark made a windfall gain and that Mr Clark refused to return the funds.  Mr Clark admitted the account was in his name but said he did not control the account and had never been ‘in possession’ of the mislaid money.  The account was a trading account for Eco-Farm, he said. Moxham Milk was to later learn that much of the missing money was transferred five days after receipt into the account of Eco-Farm Aotearoa Ltd.

Moxham Milk sued in the District Court.  Mr Clark was ordered to repay $34,660; the amount due now increased by fees and legal costs.  Mr Clark disputed Moxham Milk’s High Court application to bankrupt him for non-payment.  Moxham provided email evidence from the Police, ANZ Bank and another fertiliser supplier all confirming that Mr Clark owned and controlled the bank account mistakenly receiving Moxham’s money.

While ultimate control of the account into which funds were mistakenly paid is unclear, this does not relieve Mr Clark from personal responsibility for repayment, Associate judge Taylor said.

Moxham Milk Ltd v. Clark – High Court (21.10.22)

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Reckless Trading: Smartpay Ltd v. Kumar

Liable for reckless trading, Auckland company director Manas Kumar was ordered to pay $850,400 compensation to Smartpay an unpaid creditor of his company Optimizer Corporation Ltd left high and dry with Optimizer having no assets and no income from the day it started trading. 

The High Court was told Mr Kumar established Optimizer in 2013 to exploit a software product called Swipe HQ.  It allowed retailers to process debit and credit card transactions.  When allied with a mobile EFTPOS terminal, transactions could be processed wirelessly. In 2014, Optimizer signed a deal giving Spark the right to market and sell Swipe HQ.  Optimizer was responsible for supplying the EFTPOS terminals.  On behalf of Optimizer, Mr Kumar hired terminals from Smartpay Ltd with an upfront hire charge, monthly rentals for each terminal and an obligation to pay Smartpay 0.35 per cent of transactions processed.  Evidence was given of Optimizer immediately falling behind in payments due to Smartpay.  One year on, Spark had terminated its contract and Optimizer was in liquidation.  Optimizer kept no proper accounting records.  It had received no income; revenue was instead channelled to its holding company.  Payments made by Optimizer to Smartpay were sourced from other companies under Mr Kumar’s control.

Justice Downs ruled Mr Kumar was in breach of his statutory duties as director of Optimizer by trading whilst insolvent. His company had no assets, had no income, and had no legally enforceable promises of financial help from related companies.

Mr Kumar was held personally liable to pay Optimizer’s unpaid Smartpay debt of $850,400 for unpaid fees and lost terminals.  The court was told Smartpay supplied Optimizer with just over 2100 terminals; 1002 were recovered.

Smartpay Ltd v. Kumar – High Court (13.05.22 & 19.10.22)

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Will: re Estate of Adrienne Judith Peacock

Emotionally torn between family members, Judi Peacock left contradictory instructions as to how her assets should be distributed on death causing the High Court to rule an earlier will leaving everything to her now divorced husband was her final will.

Adrienne Peacock, known as Judi, died suddenly in 2021 aged 74.  She worked as a counsellor in the Waikato.  After her death, three documents written across a three year period were found on her computer each marked ‘draft’ with various formulations as to division of her assets between her sons and grandchildren on death.  Also found was a subsequent document, handwritten, which dealt with only one asset, her home.  At the time of her death, she also owned a second property in Tirau.

The High Court was asked to rule if any of these informal documents could be approved as a valid will.  Informal documents which do not comply with strict formalities of the Wills Act can be validated provided the document clearly expresses the deceased person’s testamentary intention at time of their death.

The 2017 handwritten document stated that one of her sons, Jamahl Sean Khan, could purchase her home at a price of $150,000 with this money to go in its entirety to her other son, Saleem Paul Khan.  In 2021, this property had a rating valuation of $1.46 million.  Saleem is now known as Samuel Jay Steel.  He has served terms of imprisonment for what the High Court was told were indecencies with children.  The two brothers are estranged.

Justice Brewer ruled that none of the draft documents on her computer nor the 2017 handwritten document represented Judi Peacock’s testamentary intentions at time of her death.  There was evidence that whilst alive she vacillated between how family should be treated and whilst she wished to treat her sons equally she had grown exasperated at son Samuel’s criminal behaviour.  Telling her lawyers in 2019 that she did not want one of the early computer drafts finalised as a formal will was strong evidence that she had not reached any final decision, Justice Brewer ruled.

Approved as her final will was a 2005 will naming her then husband as sole beneficiary.  They separated in 2013 and divorced in 2017, but remained friends. Her former husband told the court that he recognised he had no valid moral claim to his former wife’s assets. Both sons are claiming for a share of their late mother’s estate under the Family Protection Act.  Justice Brewer recommended everyone get around the table and agree in an out of court settlement how her assets are distributed using as a guiding principle Judi Peacock’s long history of treating family members as equally as possible.

re Estate of Adrienne Judith Elizabeth Peacock – High Court (6.10.22)

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Maori Land: re Totoro Trust

When the Peacocke family looked to sell their King Country farm red flags popped up; the land was designated Maori land.  Part of the farm was Maori land, the Court of Appeal ruled, following administrative mistakes way back in 1980 with Maori Land Court consent still needed for any future sale.

Ownership of Maori land has a troubled history in New Zealand ranging from outright confiscation following invasion by colonial troops, through quasi-legal manipulation of land purchases by the colonial government followed by paternalistic intervention with Maori Land Court consent required to validate sales.

Most land in New Zealand is now general land with ownership recorded on Land Information’s electronic register.  Ownership of land remaining in customary Maori ownership is recorded separately on registers held by the Maori Land Court.  For administrative convenience, some Maori land is now recorded on the Land Information electronic register where it is denoted as Maori freehold land.  For the Peacockes, sale of their King Country farm ran into legal difficulties when it was discovered ownership recorded on the Land Information register did not match Maori Land Court records.

The Court of Appeal was told the Maori Land Court in 1976 consolidated ownership of customary Maori land in the Maniapoto known as Puketiti 2B2B1 as being owned by Raimona Lee as to 44.8 shares and Puku Doherty as to 9.2 shares.  Maori custom sees land pass to descendants on death, resulting in ownership splintering into ever smaller shares over time.  This rule does not apply to general land owned by Maori; they are free to sell, mortgage and bequeath this land as can any other owner of general land.

In 1980, Ms Lee sold her 44.8 shares in Puketiti to an Ian Walsh.  He did not purchase Mr Doherty’s smaller share.  As was required, approval from the Maori Land Court was given to the Walsh purchase from Ms Lee.  In an administrative error, Maori Land Court authorisation for ownership to be also recorded on the Land Information register with issue of a certificate of title saw Mr Walsh being recorded as sole owner, having ownership of both Ms Lee’s and Mr Doherty’s interest in the land.  Ownership of Puketiti has subsequently passed through several hands, each purchaser unaware of Mr Doherty’s descendants having rights as part-owners and also unaware that Maori Land Court consent was needed for each subsequent sale.

Asked to unravel the shambles, the Court of Appeal ruled legislation in force at time of the 1976 Walsh part-purchase meant Puketiti was and remained Maori freehold land.  Maori Land Court consent was needed for any further sale and also for any re-description of the land from Maori freehold status to general.

Land Transfer Act rules mean the Peacockes are now legal owners of all the land.  They purchased in good faith, unaware of the earlier mistake.  Mr Doherty’s descendants are entitled to compensation. The Maori Land Court and Land Information each blame the other for the 1980s error.

re Totoro Trust – Court of Appeal (5.10.22)

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Guarantee: Borlase v. Robertson Engineering

Liability on a personal guarantee all depended on interpretation of a dangling pronoun; did ‘you’ refer to a director or to his company?

When Charles Borlase’s company Command Aviation Ltd went into liquidation in 2020 following an aircraft accident, he was sued by creditor Robertson Engineering Ltd for Command’s unpaid helicopter lease commitments.

In 2018, Mr Borlase had sent an email to Robertson Engineering’s director Maurice Wooster giving ‘an unconditional Personal Guarantee in regards any moneys owed by [Command] to you.’

When sued by Robertson Engineering on the guarantee for some $82,500 Mr Borlase said the wording only covered debts owed by Command Aviation to Mr Wooster personally and Command did not owe Mr Wooster anything; its debt was owed to Robertson Engineering.

There was potentially some ambiguity in wording of the guarantee, Justice Churchman said.  Left dangling, the pronoun ‘you’ could apply to either Mr Wooster or his company.  Any ambiguous wording is resolved against the party who wrote it, he ruled.

Given the context in which Mr Borlase as director of Command Aviation was writing to Mr Wooster as director of Robertson Engineering, the debt Mr Borlase was guaranteeing personally was the $82,500 debt Command owed to Robertson Engineering, Justice Churchman ruled.

There was never any debt owed by Command to Mr Wooster. Giving a guarantee for a non-existent debt made no commercial sense.

Borlase v. Robertson Engineering Ltd – High Court (4.10.22)

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Timeshare: re 'The Retreat'

Declining demand for timeshare holiday accommodation sees ‘The Retreat’ sitting on 4.7 hectares of land overlooking the marina at Lake Taupo joining other local timeshares being sold up.  Owners at The Retreat can anticipate a return of about $11,800 for each timeshare week sold.

In recent years, other local timeshares have been wound up and sold: Village Resort, Phoenix and Turangi Leisure.  Increased maintenance and refurbishment costs plus the strictures of fitting holidays around timeshare availability has seen owners selling or abandoning their timeshare ownership.  Winding up a timeshare resort under the Unit Titles Act requires a 75 per cent vote plus High Court approval.

High Court approval to wind up The Retreat was delayed following objections from the Ray Thorpe Trust, owner of two timeshare weeks. With eight accommodation units, The Retreat has ownership spread across 408 timeshare weeks.  A 2021 vote to windup received 86 per cent support. Included in this majority was Murcia Holdings Ltd owned by the Clark family. Murcia alone carried votes for 225 timeshare weeks.  Nearly 180 of these weeks were purchased when the original developer went bust.  Over the years, Murcia had bought out owners looking to quit their interest in The Retreat.  Holding 225 timeshare weeks meant Murcia was now having to pay some $216,500 in annual maintenance levies.  The Clarks said they had supported The Retreat financially for over thirty years and it was time to wind up what was an uneconomic and unworkable model.

In the High Court, Ray Thorpe Trust challenged the manner of the vote.  They alleged Murcia Holdings had gained control by buying up cheaply weeks offered for sale and further alleged the Clarks could benefit as insiders from any sale because they lived in accommodation on site.  There was a power imbalance, the Trust said, which disadvantaged minority time-shareholders looking to co-ordinate objections.

Justice Cooke approved dissolution of the timeshare scheme subject to conditions.  A $510,000 credit balance in the timeshare’s refurbishment account is to be distributed only between owners of timeshare weeks for the eight accommodation units; the unit occupied by the Clarks had not contributed to this fund.  And neither the Clarks, Murcia Holdings or any interests associated with them could buy the 4.7 hectare site without first applying to the court and establishing that there were no other buyers offering a better price.

Sale by tender rather than by auction was approved by the court.

re Body Corporate 39826 – High Court (3.10.22)

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