Fraud: Drever v. Police

Confirming former Auckland real estate agent Aaron Carl Drever’s sentence of two years and two months imprisonment for fraud, the High Court said any appeal for a sentence reduction on grounds of good character failed because of his previous real estate history of unreliable, inaccurate and reckless behaviour.  

Drever’s real estate licence was cancelled in November 2016 after being found guilty by Real Estate Agent’s Disciplinary Tribunal of professional misconduct: acting for both sides when there was a conflict of interest between buyer and seller, failing to properly account for advertising money and putting improper pressure on clients.

Subsequently, he was convicted in the District Court of two separate frauds.  In December 2016, he arranged the sale of land then belonging to the Avondale Bowling Club in Auckland using a dummy company as purchaser and then immediately on-selling at a personal profit of $466,000.  In September 2019, he bilked organisers of speedway events at Western Springs with a false invoicing scam collecting $101,000.

At sentencing, the trial judge said Drever’s promises of making full reparation are unlikely to be honoured.  Drever was ordered to make partial reparation to his victims on release from prison; $50,000 to Avondale Bowling Club at $150 per week and $25,000 to Auckland Speedway again at $150 per week.

In the High Court, Justice Davison described Drever as being motivated by greed and financial gain with his offending being calculated and premeditated.  Evidence was given of Drever suffering from mental health issues with a diagnosis of attention deficit/hyperactivity.        

Drever v. Police – High Court (30.11.22)

23.008

Early Termination Fees: Commerce Commission v. CallPlus

CallPlus customers cancelling early their fixed term contracts are entitled to refunds for termination fees charged if they were not told the dollar amount when they signed up.  

Now consolidated into Vocus Group, CallPlus came under Commerce Commission scrutiny for its direct selling of broadband and electricity services, cold-calling potential customers.  On offer were 12 month or 24 month fixed term contracts. Potential customers were told a fee ‘may be charged’ for any early termination.  The amount to be paid was not specified.  On early termination, customers were charged between $149 and $250.

CallPlus said fixed term contracts allowed it to offer contracts at a cheaper rate with the early termination fee being compensation if a customer cancelled early.  Commerce Commission said the potential fee is part of the ‘price’ and should be disclosed.

Justice Lang ruled CallPlus was in breach of the Fair Trading Act.  An early termination fee formed part of the total price due, even though this fee might never be charged.  Being aware of the amount that might be charged for early cancellation enabled customers to make an informed choice when entering into unsolicited direct sale agreements.

The court was told CallPlus and the Commission had already negotiated levels of compensation payable should CallPlus lose in the High Court. 

Commerce Commission v. CallPlus Services Ltd – High Court (29.11.22)

23.007

Deathbed Trust: Parbhu v. Parbhu

Defeating property claims by estranged family after death through adroit use of deathbed family trusts is being tested in the High Court.

A burgeoning trusts industry is developing seeing assets shuffled into a family trust just prior to death leaving a deceased estate penniless.  Estranged family members looking to sue under the Property Relationships Act or the Family Protection Act are greeted with news that this is a waste of time and money; the estate is valueless.  Disputed assets are now held separately, protected in a family trust, managed and distributed according to terms of the trust.     

In the first step towards challenging a deathbed family trust, members of the Parbhu family had the High Court appoint an independent lawyer to investigate what had happened to their late father’s assets.

The High Court was told Mohan Parbhu died in 2021. Terms of his will appointed his second wife Lilawati Mohan Parbhu as executrix of his estate.  Lilawati together with a daughter of Mohan and Lilawati are the sole beneficiaries.  Children of his first marriage received no bequests.  Learning that Mohan had transferred all his assets to a family trust shortly before his death, these children challenged Lilawati’s appointment as executrix.  Assets transferred include three residential properties.  They argue these assets should be clawed back into Mohan’s estate, becoming available should their personal statutory claims succeed against their late father’s estate.

Justice Peters removed Lilawati as executrix, appointing an independent lawyer in her place.  Lilawati cannot be expected to act in an impartial manner as executrix when her entitlements as a beneficiary are being challenged, Justice Peters ruled.

Evidence was given that Mohan’s sole asset on death was cash totalling some $19,000.  The independent lawyer was empowered to make a full investigation.

Parbhu v. Parbhu – High Court (25.11.22)

23.006

 

Undue Influence: Hingston v. Hingston

There was a valid explanation for a family financial arrangement looking at first glance to heavily favour a son and his family trust at the expense of his father the Court of Appeal said, overturning a High Court ruling of undue influence.

Litigation followed a 2009 family arrangement enabling Keith Hingston to remain in occupation of his Welcome Bay home in Tauranga following a Family Court order that he pay his then wife $295,000.  Aged in his seventies, Keith was unable to raise finance. In a letter to his father, son David spelt out starkly the options open; financial assistance from David and his family trust or sale of Welcome Bay.  The letter set out pros and cons for each option.

The Court of Appeal was told Keith wanted to remain in Welcome Bay until, in his words, he was carried out in a pine box.  He became determined to take up his son’s offer of financial assistance as the only option.

The agreed arrangement saw sale of Welcome Bay to David’s family trust with his father retaining rights of occupation under an agreement to occupy.  Sale price for Welcome Bay was agreed at a figure the High Court described as being $130,000 less than market value and $55,000 below what a registered valuer determined as being forced sale value.  There was an objective basis for this apparently low sale price, the Court of Appeal said.  Market prices were depressed, sale costs were avoided and son David was also looking to recover legal costs paid by the Trust on behalf of Keith.

Also questioned in the High Court was the $115,700 owed by Keith for purchase of his lifetime right to occupy Welcome Bay. Based on sale price for Welcome Bay and Keith’s life expectancy, this figure was fairly and objectively calculated, the Court of Appeal said.  This $115,700 debt owed David’s family trust includes a contingent liability to pay interest at 4.25 per cent, if demanded.

The arrangement also saw Keith transfer future Jacques Martin pension payments and all his personal property to his son’s family trust.  This was explained as providing security for the $115,700 debt.  Keith retained possession of his personal property.  Pension payments were in reduction of the debt. David’s family trust had borrowed to buy out Keith, having an interest bill to meet and no income since Keith had rent-free occupation of Welcome Bay.

There was conflicting evidence as to whether unnecessary pressure was put on Keith at the time he signed.  He said in evidence that son David was present when he signed. The Court of Appeal said the weight of evidence was that David and Keith were in different rooms and in different cities when Keith signed.        

There was no undue influence, the Court of Appeal ruled. Keith received independent legal advice. The Court of Appeal emphasised it was ruling only on whether there had been undue influence; it was not commenting on overall fairness of the transaction or whether it was commercially a ‘good deal.’

Separately, the case was sent back to the High Court to resolve disputed claims by each side that the other had not fully honoured terms of the agreement.

Hingston v. Hingston – Court of Appeal (22.11.22)

22.178 

Agent: Nelson Honey & Marketing v. Gu

Facing the legal problem of suing a customer in China for $1.7 million allegedly unpaid, Nelson Honey & Marketing turned its guns on Grace Gu in New Zealand claiming she had guaranteed payment.  The claim was thrown out.  She acted merely as consultant to Nelson Honey and incurred no personal liability for customer’s unpaid accounts.

In 2013, Nelson Honey & Marketing (NZ) Ltd met with Ms Gu for advice on marketing its product in China.  She provided contact with a Mr Jack Wang. Through Mr Wang’s company Horizon, Nelson Honey’s product was sold online through a trading company called VIPShop.  Over a five year period some $8.7 million of product was supplied to Horizon.  In early 2018, Nelson Honey claimed about $1.7 million remained unpaid.  Threats to sue Mr Wang and Horizon in China were put on hold; Ms Gu was sued.

The High Court was told a formal consultancy agreement between Nelson Honey and Ms Gu had been drafted, but never signed.  For a period, a company controlled by Ms Gu was used as a conduit for the export transactions.

Associate judge Johnston ruled there was no evidence that Ms Gu had guaranteed payment of Horizon invoices.  In fact, part of the unsigned draft consultancy agreement indicated Ms Gu would never be liable for Horizon accounts.

Nelson Honey & Marketing (NZ) Ltd v. Pureality Trading Company Ltd & Gu – High Court (16.11.22)

23.005

Directors' Duties: Viranda Partners Ltd v. Guest

Alleging Andrew Guest and Stephen Donovan diverted potential benefits from a multi-million dollar Auckland land development into their own pockets, joint venture partner Tim Chen is in the High Court seeking to work around legal roadblocks Guest and Donovan are exploiting to prevent legal action.   

The three are directors of a company called Viranda Partners Ltd.  Investors represented by Chen allege Viranda Partners was robbed of a business opportunity near Warkworth just north of Auckland valued variously between $25 million and $54 million.  The land in question sold in 2021 for $200 million.

Guest and Donovan deny any wrongdoing.  Legal rules require court action over the dispute to be taken in the name of their joint venture company: Viranda Partners Ltd. It is Viranda which has been allegedly harmed.  Viranda has no money; it cannot pony up cash to pay lawyers.  An investors agreement requires unanimous consent from all Viranda directors before any calls are made to raise further cash from shareholders. The High Court was told Guest and Donovan have made it clear; they will veto any call for cash from shareholders to fund legal action by Viranda against them.

Associate judge Lester granted Chen’s company Veritas Capital Company Ltd status to bring legal action in Viranda’s name against Viranda directors Guest and Donovan.  Veritas Capital is a Viranda shareholder.  While Veritas will fund the litigation, it has a right to claim reimbursement from Viranda should Guest and Donovan be found liable for breach of directors’ duties and ordered to pay damages to Viranda.

The effect of the High Court ruling is to shift control of current legal action against Guest and Donovan from their joint venture company Viranda where they can veto any progress to shareholder Veritas Capital and Veritas’ investors where Guest and Donovan have no say. 

Viranda Partners Ltd v. Guest – High Court (14.11.22)

23.004

Directors' Duties: Haines v. Bassett-Burr

After improperly triggering insolvency procedures attempting to force payment of a disputed debt claimed by Lynx Trustees Ltd, Wellington director Roy Barrett-Burr was held personally liable for $21,600 court costs subsequently levied against Lynx which is currently in liquidation. 

The costs order against Mr Barrett-Burr personally arose out of a long running dispute between Lynx Trustees and Quentin Haines.  Each claims money is owed by the other.  This dispute is further complicated by an equally long running personal dispute between Mr Haines and Harry Memelink who is Mr Barrett-Burr’s brother-in-law.  Mr Memelink is bankrupt.

In 2019, Mr Barrett-Burr signed five formal statutory demands in name of Lynx Trustees claiming sums from Mr Haines and from companies associated with Mr Haines for amounts ranging between $140,800 and $421,300.  This was a preliminary legal step seeking to bankrupt Mr Haines and to put his companies into liquidation.  The courts take a dim view of insolvency procedures being used when there is still a dispute over debts claimed.

In the High Court, Mr Haines had these statutory demands set aside.  How much was owed was still in dispute.  Following a further formal court application, Mr Haines got a court order holding Mr Barrett-Burr personally liable to reimburse his costs of $21,600.  The demands were issued in the name of Lynx Trustees, but Mr Barrett-Burr as Lynx director was personally liable for not acting prudently and for improperly issuing in Lynx Trustees’ name statutory demands for debts that were clearly in dispute.

Haines v. Bassett-Burr – High Court (11.11.22)

23.003

Freezing Order: ANZ Bank v. Lee

Hearing its customer Jinwon Lee had returned to Korea after a fire sale of business assets, ANZ Bank got a freezing order over his Auckland home and further court orders that other financial institutions disclose any financial dealings they had with Lee, otherwise known as James Lee.

The High Court was told Mr Lee had guaranteed finance provided to his import businesses, Hanyang Corporation Ltd and Hanyang International Ltd.  These businesses imported food products from Korea for retail sale in New Zealand.  He disappeared off the bank’s radar after ANZ called up its loans.  The Bank discovered his warehouse and retail store were left scattered with debris after a quick-fire discount sale of stock held.  A container of food with an invoice value of US$60,000 had been left abandoned at Port of Auckland.  His landlord had seized remaining business chattels to cover unpaid rent.  His home at Sartors Avenue at Browns Bay on Auckland’s North Shore was listed for sale.

Fearing sale proceeds from Sartors Avenue would be transferred out of New Zealand, ANZ Bank got a High Court order freezing any proceeds of sale.  The Bank also got disclosure orders against CFML Lending, Kookman Bank, Heartland Bank and Westpac requiring disclosure of their recent dealings with Mr Lee.  ANZ said this might identify other assets Mr Lee may have in New Zealand.

ANZ Bank v. Lee – High Court (9.11.22)

23.002

Money Laundering: R. v. Jiaxin Finance

 Failing to comply with customer due diligence as required by money-laundering legislation when transferring some $53 million from China saw Qiang Fu fined $180,000, his foreign exchange business Jiaxin Finance Ltd fined $2.55 million and his mother Fuqin Che fined $202,000.  Remitted via 311 separate transactions, the $53 million is alleged to be illicit proceeds from a fraudulent pyramid selling scheme in China engineered by Xiao Hua Gong, also known as Edward Gong.   

The High Court was told Che, also known as Lily Che, had dealings with Mr Gong as far back as 2011.  She was then managing a business owned by her son called Global Concept Capital Investment and Finance.  This relationship continued when Fu’s new business, Jiaxin Finance, subsequently took over Global Concept’s client base.

They were convicted of failing to carry out customer due diligence and failing to keep adequate records.  Justice Walker said the sheer volume and frequency of remittances processed through Jiaxin Finance on behalf of Mr Gong should have raised suspicions.  There was no stated commercial objective for the foreign exchange transfers other than laundering funds from China.

Using Mrs Che as a buffer creating the appearance that she, not Mr Gong, was Jiaxin’s customer did not excuse Jiaxin from looking beyond Che to identify and to undertake due diligence on the actual customer.

Police said Mr Fu has convictions in China dating back to March 2013 for foreign exchange trading offences.  Their relevance to an increased penalty when sentencing in a New Zealand court for similar offences cannot be taken into account without formal proof of conviction from China authorities, Justice Walker said.      

R. v. Jiaxin Finance Ltd, Qiang Fu & Fuqin Che – High Court (3.03.22) & Supreme Court (4.11.22)

23.001

Negligence: Sharma v. Foster-Bohm & Corbin

Nelson lawyer Anjela Sharma was ordered by the District Court to pay $37,500 damages for negligently failing to file clients’ employment claims within time limits and in addition was unsuccessful in suing for unpaid fees.

Her High Court appeal against both rulings was dismissed.

The courts were told clients Gail Foster-Bohm and Andrew Corbin retained Ms Sharma to bring a personal grievance claim against IHC New Zealand after they both lost jobs in 2015, part of IHC restructuring. In 2016, the Employment Relations Authority dismissed their unjustified dismissal claims as being filed out of time. Employment law imposes a strict ninety day time limit.

They then sued Ms Sharma in the District Court for professional negligence.  The trial judge assessed chances of success in their IHC employment dispute as being 75 per cent if the dispute had gone to an Employment Relations hearing.  Mr Corbin was awarded $20,000 damages; Ms Foster-Bohm $17,500.  The differing amounts reflected their respective lengths of IHC employment.

Ms Sharma said the filing deadline was missed because she thought the two were working out four weeks’ notice ending early September 2015.  IHC in fact made payment in lieu of notice and their employment was terminated immediately.

The trial judge ruled Ms Sharma had been made aware of the early termination and failed to act promptly or to request a time extension for filing.  This ruling was upheld on appeal.

There was evidence that Ms Sharma acted unprofessionally towards her clients with delays in responding and also in failing to disclose she did not have professional indemnity insurance.

Ms Sharma’s claim for unpaid fees was dismissed in both the District Court and the High Court.  The trial judge said justice in this case meant the clients should not be required to pay for negligent legal work.  Ms Sharma was fired in May 2017.  This was after she had arranged for mediation between her clients and IHC, then telling her clients she would not be attending.

Sharma v. Foster-Bohm & Corbin – High Court (3.11.22)

22.181

Asset Forfeiture: R. v. Duthie

Unable to prove that a south Waikato lifestyle property was purchased from proceeds of crime, police instead used the Sentencing Act to claim half Richard Alan Duthie’s equity in the 5.1 hectare property as an ‘instrument of crime.’  A house on the property was used as a clandestine lab to cook methamphetamine.

Duthie pleaded guilty in February 2022 to charges of possessing equipment for manufacture of meth, manufacturing meth and possession of meth for supply.  Charges followed a search of his Lichfield property.  Forfeiture of the property under the Criminal Proceeds (Recovery) Act would require proof the property was ‘tainted’ in that income from illegal sources was used to purchase Lichfield or to pay down a mortgage.  Police inquiries identified that Duthie purchased Lichfield in 2019 for $300,000 with 100 per cent mortgage financing from Avanti Finance. About $297,000 was still owing.

Police laid claim to the equity in Lichfield; manufacturing methamphetamine on site meant the property was an ‘instrument of crime.’ On the basis of valuations before the court, Justice Campbell assessed Duthie’s current equity in the property as being some $650,000.  One half of this value was forfeit to the government, he ruled.  The property was not used solely for the purposes of crime. The fact Lichfield was also Duthie’s residence meant all equity in the property was not forfeit.

Duthie’s sentencing following his earlier guilty plea was deferred, allowing any forfeiture imposed under the Sentencing Act to be taken into account.

R. v. Duthie – High Court (2.11.22)

22.179

Money Laundering: Commissioner of Police v. Shahidan

Funds totalling $1.8 million held frozen in BNZ bank accounts were seized as proceeds of crime following a High Court ruling the bank accounts were used for money laundering by Shahidrawadey Bin Shahidan, part of an investment fraud operating out of Malaysia.  

Police inquiries were triggered by Bank of New Zealand after it blocked further activity by Shahidan on two bank accounts in May 2016 after he failed to respond adequately to Bank ‘please explain’ requests.  Suspicious of the flow of funds into these accounts, BNZ asked Shahidan for the source of deposits.  He claimed to own a business providing software services but was unwilling to provide any documentatary support.  In the High Court, Justice Katz described as simply not credible Shahidan’s claim to have generated more than two million dollars selling software services over a seven month period while having no records to corroborate his claim.

Shahidan’s day job ostensibly was chief operating officer for a business called VenusFX.  Its website advertised investment advice on foreign investments and claimed to have over 2,000 clients.  Its Facebook page profiled large profits received by Venus investors. VenusFX falsely claimed to have registration within New Zealand as an authorised broker, displaying as evidence on its website the certificate of incorporation issued as a matter of course to all companies registered in New Zealand.  It also falsely claimed to be a member of the Financial Services Complaints dispute resolution scheme.

Ordering the frozen $1.8 million be forfeit to government, Justice Powell described VenusFX as a fraudulent investment scheme based in Malaysia with evidence indicating BNZ accounts were set up to launder profits from the fraud.

Commissioner of Police v. Shahidan – High Court (8.06.21 & 2.11.22)

22.180