Leaky Home: MacFarlane v. Sewell

Mark Sewell was ordered to pay $524,500 damages for negligence after telling a Lower Hutt purchaser that her intended purchase was ‘definitely not a leaky home’ when it was.

Described as a trade-qualified experienced inspector, Mr Sewell was hired by vendor Alex Sim to provide a building report prior to sale of a two-storey townhouse at McBain Grove, Lower Hutt.  His contract with Mr Sim contained a detailed disclaimer stating it would be a visual inspection only with no invasive testing and that the report could not ‘100% guarantee no moisture ingress issues.’  His subsequent report was neutral; describing the property’s overall condition as reasonable, with only minor maintenance issues.  Purchaser Rosemary MacFarlane was to later find there was extensive damage and decay to framing caused by water ingress with the possibility thirty per cent of timber framing would need replacement.      

The High Court was told a real estate agent gave Ms MacFarlane a copy of the building report prior to her purchase, but not a copy of the initial contract with Mr Sim which severely limited the extent of the then promised inspection.  After receiving the report, Ms MacFarlane contacted Mr Sewell direct.  He told her McBain Grove was ‘structurally sound’ and ‘definitely not a leaky home.’  Mr Sewell was to later say he had no recollection of this conversation.

Justice McQueen ruled both Mr Sewell and his company Informed House Inspections Ltd liable for negligent misstatement and also liable under the Fair Trading Act.

The building report stated it was prepared for the sole benefit of the vendor.  The Fair Trading Act is a consumer protection statute and those in trade cannot contract out of the Act, Justice McQueen ruled.  Building inspectors preparing building reports solely for vendors can expect these will be shown to prospective purchasers, she said.

Mr Sewell and his company were held jointly liable to pay $524,500: remediation costs ($414,000); cost of alternative accommodation during repairs ($18,700); general damages for stress and anxiety ($30,000) and legal fees ($61,700).

 

Mr Sewell was present in court but not permitted to defend the claim.  Justice McQueen ruled that his late compliance in lodging a defence and failure to pay a court filing fee on time plus his failure to comply with court orders requiring production of named documents meant the case would proceed without him.  Mr Sewell has to bear the cost of challenging the order to pay $524,500 damages should he claim there was a miscarriage of justice, Justice McQueen said.

MacFarlane v. Sewell – High Court (26.04.23)

23.057

GST: Aggarwal v. DSD Homes

Dalvir Dhaliwal was ordered to repay fifteen per cent of the purchase price on an Auckland house sale after promising his vendor company was not GST registered and hence ineligible to recover GST, when in fact it was.

The High Court was told his company DSD Homes Ltd sold a property in McKean Road Manurewa to Rajesh Aggarwal and Sakshi Khanna in September 2021.  An extra clause was written into the standard-form sale and purchase agreement: DSD stated it was not GST registered; the price was to be reduced by fifteen per sent if it was registered; and both DSD and its director Mr Dahliwal were liable to repay the fifteen per cent if DSD was in fact registered.

Initially Mr Aggarwal and Ms Khanna intended to occupy McKean Road as a family home.  Plans changed.  Considering the house was not ideal for their family, they decided instead to redevelop the property.  They registered for GST one month before completing the purchase.  Only when applying for a GST credit did they learn DSD was in fact GST registered.  The legal effect of both vendor and purchaser being GST registered was that no GST credit was allowed; the transaction was zero-rated.

They sued both DSD Homes and director Mr Dhaliwal.  Justice Tahana ruled terms of the contract were unambiguous.  Mr Dhaliwal and his company were ordered to repay $166,956.  In addition, they were liable to pay interest at 14 per cent; the default interest rate in the sale agreement.

Neither Mr Dhaliwal nor his company appeared in court to defend the claim.

Aggarwal v. DSD Homes Ltd – High Court (24.04.23)

23.055

Farm Sale: PGG Wrightson v. Routhan

Ordered to pay $1.6 million for negligence on sale of a West Coast dairy unit, PGG Wrightson Real Estate had damages reduced to $300,000 on appeal.  While PGG did negligently provide purchaser Phil Routhan with incorrect milk production figures, it was not liable for all losses incurred following the purchase, ruled the Court of Appeal.

In 2010, Mr Routhan purchased a 105 hectare dairy unit near Hokitika.  He had a high national profile in plumbing and gasfitting.  Farming had been a long-held dream.

The $2.8 million purchase was funded almost entirely with debt finance.  Ten years later, the farm was sold at Rabobank’s insistence for $1.5 million in a forced sale.  Farm-gate milk prices had halved in the five years following his purchase, never returning to 2010 levels by time of the forced sale.

Mr Routhan sued PGG Wrightson, claiming he never would have gone ahead with his 2010 purchase if made aware of the dairy unit’s actual milk production levels.  A PGC Wrightson agent had negligently overstated production levels at time of the sale by about ten per cent.

The Court of Appeal said PGG Wrightson acting as agent on the sale did not underwrite all financial consequences of Mr Routhan’s purchase.  PGG did not advise him on whether to purchase the dairy unit, it merely provided him with information to assess a price at which he might offer to buy.  PGG Wrightson was liable for the direct consequences of providing incorrect production figures.  Overstating milk production by ten per cent resulted in Mr Routhan overpaying $300,000 for the farm, the Court ruled.

PGG Wrightson was not liable for post-sale events which resulted in losses suffered by Mr Routhan such as: market movements (the drop in farm-gate milk prices); and Mr Routhan’s spending on capital improvements, part of his strategy to boost production (building a concrete feed pad, upgrading races, re-fencing and replacing the water supply system).

PGG Wrightson Real Estate Ltd v. Routhan – Court of Appeal (24.04.23)

23.056

Court Delays: PBL Solutions v. AFT Pharmaceuticals

PBL Solutions alleges NZX-listed AFT Pharmaceuticals stole a drug they were jointly developing.  Delays in issuing a court ruling means arguments over the drug’s potential profitability are now affected by a rival’s likely entry into the EU market, confirmed after last year’s High Court hearing.

Called ‘pascomer,’ the drug in dispute treats facial deformities caused by a rare genetic defect.  Pascomer is claimed to be part of an orphan drug programme under development by AFT Orphan Pharmaceutical Ltd, a company owned by AFT and PBL.  Pascomer is yet to receive regulatory approval for sales in the profitable US and EU markets.  PBL is suing to recover its claimed entitlement to a share of the income stream likely to flow from Pascomer sales.

PBL alleges that AFT stole pascomer from their joint venture and that AFT is now developing and commercialising pascomer for its own benefit.  AFT denies any theft and says in any event the present value of pascomer is nil.  PBL values pascomer at between US$53 million and US$67 million; a variance explained by the time it takes to get regulatory approvals and the risk of a rival being first to market.

In 2022, battle was joined in the High Court with hearings concluded early December.  Much of the evidence turned on the statistical possibility of pascomer ever getting regulatory approval or of ever being first.

In February 2023, a rival product cleared the first hurdle for EU regulatory approval.  AFT was immediately back in court.  No judgment had yet been issued subsequent to the December court hearing.  AFT wanted further evidence admitted, requiring the trial judge to take into account that a rival was very likely to beat pascomer into the EU market.  If accepted, this evidence would put a huge dent into any market valuation of pascomer.

Justice Fitzgerald refused to hear further evidence.  The prospect of a rival beating pascomer to market was canvassed at trial, she said.  Experts took this contingency into account when giving their valuations as to the present value of pascomer at date of the trial.

Justice Fitzgerald has yet to hand down her rulings on PBL’s 2022 claim.  Should Justice Fitzgerald rule that AFT did steal pascomer, she has to ignore the fact that at least one contingency affecting future value which was canvassed at trial has come to fruition.

PBL Solutions Ltd v. AFT Pharmaceuticals Ltd – High Court (21.04.23)

23.054

Asset Forfeiture: Commissioner of Police v. Liu

It read as a long rap sheet: smuggling, illegal gambling and loan sharking; none of which led to a criminal prosecution but instead to a court-approved proceeds of crime settlement with payment of $141,480.

A June 2021 combined police and customs search of Yanxian Liu’s home in the Auckland suburb Favona unearthed large sums of cash together with smuggled Chinese cigarettes and tobacco.  A search of his phone proved enlightening; images of individuals gambling with large sums of cash together with a ‘tick list’ which appeared to be a list of debtors owing gambling debts to Mr Lui.  The cash was from gambling on mah-jong games at a Chinese restaurant in Newmarket, Mr Lui admitted.  He also admitted to loan sharking; lending to gamblers.

Customs told the High Court there was no evidence that Mr Lui had paid excise duty or GST on the imported tobacco and cigarettes.  Internal Affairs said no gambling licence had ever been issued for mah-jong gambling in the Newmarket area.  There was no evidence of his registration as a financial services provider permitted to make loans.  No income tax had been paid on these various business activities.

The High Court approved an agreement between police and Mr Liu that the $141,480 seized from his home be forfeit under the Criminal Proceeds (Recovery) Act as proceeds of crime.

The court was told no criminal charges have been laid.

Commissioner of Police v. Liu – High Court (21.04.23)

23.053

Partnership: Moses v. Stark

With their Waikato farming partnership dissolved automatically on George Stark’s death in 2020, family complain son Keith is running down the Ohinewai farm treating farm assets as his own.  Receivers were appointed to take control of farm management and to recover partnership loans made to Keith, his former wife Linda and their company Keilin Farms Ltd.

Juliet Moses was appointed executor of George Stark’s estate.  She is also a partner in the GJ & EM Stark Partnership in her own right.  This partnership farms on Tahuna Road at Ohinewai.  The other partner is George’s widow, Eileen.  Son Keith controls Eileen’s interest in this partnership through a power of attorney triggered after Eileen was judged unable to manage her own affairs.  The High Court was told Keith manages the partnership farm in conjunction with a neighbouring farm he owns through a family company.

Juliet told the High Court that discussions with Keith over farming operations were deadlocked.  She alleges Keith is selling partnership livestock without correctly accounting for the proceeds and further alleges he is taking excessive fees for partnership management.  There was evidence from a farming consultant that the farm is run down and poorly maintained.   As a further complication, there is an application before the Family Court to have Keith removed as Eileen’s property manager.

The Partnership Law Act states partnerships come to an end automatically on the death of any one partner, unless the partnership agreement states otherwise.  The court was told the Stark partnership agreement was signed in 1965.  It was initially for a six year period, terminable on one month’s notice after this six year period finished.   

The GJ & EM Stark Partnership ended on the death of George Stark in July 2020.  In the normal course of events, it is for surviving partners to wind up a partnership.  No agreement could be reached because of the deadlock between Juliet as one partner and Keith acting as attorney for Eileen as the other partner.

Associate judge Brittain ruled appointment of a receiver was necessary because of Keith’s conflict of interest.

Moses v. Stark – High Court (20.04.23)

23.052

Legal Costs: New World v. Wang

A rap over the knuckles for New World, ordered to pay the full legal costs of Shaojun Wang who needed court assistance to extract her Auckland property from a forced sale triggered by the supermarket’s claim that Wang was simply hiding assets owned by a former New World employee who had stolen over $300,000.

Ms Wang was dragged unwillingly into New World’s orbit after its employee Qian Zhang was ordered to repay money stolen from the supermarket chain.  Looking to recover its losses, New World registered a charging order over an investment property in Auckland suburb Hillcrest recorded in Zhang’s name.  New World refused to accept that Ms Wang was the beneficial owner, with Zhang on the title as trustee.  When New World took steps to sell, Ms Wang was forced into court.

The High Court was told Ms Wang and Zhang both provided cash contributions which together with an ASB mortgage funded their 2016 purchase of the property.  One year later, the two agreed Ms Wang would buy out her partner.  She paid $70,000 to buy out Zhang’s share of the equity. There was no dispute that this was a fair market price.  Both signed a deed acknowledging that during such time as Zhang’s name remained on the title, Ms Wang was the sole owner.  This paperwork was drawn up at a time when New World was about to take legal action against Zhang.  There was no evidence that Ms Wang was aware of Zhang’s New World thefts.  New World refused to accept that Zhang no longer had any financial interest in the Hillcrest property.  New World’s unsuccessful argument that Zhang’s shared liability on the ASB mortgage amounted to an interest in the Hillcrest property was taken all the way to the Court of Appeal.

Justice Peters criticised New World for failing to properly consider all the evidence provided by Ms Wang’s solicitors and for pursuing a forced sale in the face of clear evidence as to Ms Wang’s sole ownership. Ms Wang was entitled to recover her legal costs in full, Justice Peters ruled.  The court was told she had spent over $55,000 in legal costs blocking New World’s forced sale.

New World (New Zealand) Ltd v. Wang – High Court (20.04.23)

23.051 

Guarantee: Sika (NZ) v. Lawry

Crossing out references to a guarantee on his company’s credit application with supplier Sika (NZ) Ltd meant company director Gavin Lawry was not personally liable to pay $244,100 owed by his company.

The High Court was told Mr Lawry’s Canterbury company Pegasus Engineering Ltd used Sika (NZ)’s product for fire retardant coatings on steel installed at a Lincoln University site.  About $244,100 of the bill was left unpaid.  There was an unresolved dispute over on-site application of the product.  Sika sued.

In the High Court, Associate judge Paulsen ruled terms of the supply contract required Pegasus Engineering pay the agreed contract price on time and in full.  Any disputed set-off claim had to be sorted out after full payment.

Sika also argued Mr Lawry was personally liable as guarantor. Evidence was given of Sika’s standard term supply contract: a two page document combining both a credit application and a guarantee.  Mr Lawry had signed the credit application on behalf of his company Pegasus Engineering next to the notation director.  He deleted the word ‘guarantor’ when he signed and he also crossed out in the body of the credit application some, but not all, references to the word guarantee. Mr Lawry told the court he does not give personal guarantees on his company’s credit applications and that is why he amended the document.

Judge Paulsen dismissed summary judgment against Mr Lawry on the guarantee.  It was clear no guarantee was intended, he said.  A full court hearing is needed if Sika wants to pursue a detailed claim arguing the document’s amended wording meant a valid guarantee still existed.

Sika (NZ) Ltd v. Lawry – High Court (19.04.23)

23.050

Asset Forfeiture: Commissioner of Police v. Marshall

As the proceeds of crime regime beds in, it is becoming a simple cost/benefit analysis as police and dealers negotiate over the dollar amount to be forfeit as revenue from drug dealing; police are never exactly sure how much cash dealers took in and the cost of any detailed investigation to get a better picture just chews up police resources.  Payment of $200,000 satisfied all parties following one week’s police surveillance of dealing from a Waiuku property.

Evlyn Dawn Marshall, David Simon Marshall and Zach Marshall faced proceeds of crime forfeiture orders after police surveillance of their Waiuku property.  Police told the High Court that on average nearly 120 people each day visited the property over the four full days and two half days of surveillance.  It was conservatively assumed twenty dollars was paid for a drug purchase on each visit.  Police said that if this level of dealing had started three years previously, revenue over three years would total $1.67 million.

Police found $26,700 cash at the property.  The Marshalls’ bank accounts contained unexplained banking of some $47,000.  Restraining orders were placed over the Waiuku house and all their bank accounts.

Forfeiture of assets requires High Court approval.  In approving the $200,000 proceeds of crime settlement, Justice Jagose said he was in no position to second guess the parties’ calculation of $200,000 as being the value of income unlawfully received by the Marshalls.

If the Marshalls cannot pay $200,000 from cash resources including their frozen bank accounts, the Waiuku property is to be sold to make up the shortfall.

Commissioner of Police v. Marshall – High Court (18.04.23)

23.049

Sham: Maryland Bassett Co. v. Taihe Innovation

Auckland mortgage funder Taihe Innovation Management Ltd is in receivership with receiver Chris McCullagh left trying to enforce a deal which appears to have Taihe director Lei Zhang party to a sham transaction with a third party used as trustee to hide Zhang’s increased equity investment in Australian listed company MIE Pay paid for with Taihe’s money.

Allegations of a sham loan were front and centre when the receiver had Taihe Innovation sue Weidong He’s Auckland company Maryland Bassett Company Ltd for nearly $660,000 claimed to be principal and interest due on a loan made by Taihe Innovation in October 2019.  Maryland said the loan was a sham, disguising Zhang’s increased investment in MIE Pay Ltd just prior to its listing.

The High Court was told Taihe Innovation’s Zhang and Maryland Bassett’s He had a business relationship stretching back to 2015 when Alibaba’s online payment platform got underway in New Zealand.  Zhang gifted He an equity interest in his business then known as IE Money in appreciation of He having helped him obtain a New Zealand licence for Alipay.  

Plans to list IE Money on the then secondary NXT market in New Zealand later morphed into a listing as MIE Pay on the Australian National Stock Exchange.

He told the High Court that as part of MIE Pay’s listing process, he was asked to buy shares on Zhang’s behalf with money provided by Zhang.  Zhang wanted to keep this increased equity investment hidden from fellow MIE directors to avoid revealing his increased voting power, He said.

This proposal was documented as a loan from Zhang’s Taihe Innovation to He’s Maryland Bassett with Maryland acknowledging it was holding the shares purchased as bare trustee for Zhang.  Backup documentation required Zhang to indemnify Maryland Bassett for its costs.

Receiver Chris McCullagh told the High Court he had no evidence of any backdoor deal between Taihe Innovation and Maryland Bassett. As far as he was concerned, the loan was a straight-forward commercial debt owed by Maryland Bassett to Taihe Innovation. Taihe’s director Zhang had been uncooperative, the receiver disclosed.  Zhang did not give evidence.

Associate judge Sussock ruled it was arguable that the loan was a sham transaction.  The disputed debt could not be used as part of fast-track summary judgment procedure to have Maryland Bassett Ltd forced into liquidation.

Maryland Bassett Company Ltd v. Taihe Innovation Management Ltd – High Court (17.04.23)

23.047 

Squatter: Pascoe v. Ngati Tama Custodian Trustee

Squatters rights do not exist under New Zealand law, defeating claims by a North Taranaki farmer that his long-term use of neighbouring land for grazing was sufficient to disrupt Waka Kotahi’s plans to develop a bypass around Mt Messenger. 

The Pascoe family has farmed in Mangapepeke Valley for nearly seventy years.  They object to construction of a Mt Messenger bypass through the valley, realigning part of the state highway running between Hamilton and New Plymouth.  Part of Pascoes land has been compulsorily acquired under the Public Works Act for road construction.

The High Court was told the Pascoes had grazing rights over about 3.2 hectares of neighbouring land from the 1950s.  In 1985, the Minister of Forests issued the Pascoes a formal licence, allowing grazing for a six year period expiring in 1991 at a cost of $50 per year.  Subsequently, this land came under control of Department of Conservation.  The Pascoes were offered the opportunity to continue grazing under a Conservation Act concession.  They did not take up the offer.  With the earlier licence having expired, the Pascoes were at law trespassing by continuing to use the land for grazing.

Ownership of the land passed to Ngati Tama in 2003 as part of its Treaty settlement, negotiated with government as compensation for breaches of the Treaty of Waitangi.  At the time, it was recognised that the Pascoes were exercising informal grazing rights over 3.2 hectares of the land.  The Pascoes had long since stopped paying any $50 annual fee.

Justice Grice said the Pascoes had no legally enforceable right to graze stock on the land.  At best, they had informal permission to use the land, permission which had been revoked by Ngati Tama in 2019 when it gave formal notice that grazing rights were at an end.

The Pascoes’s request for a High Court injunction preventing Waka Kotahi from blocking their continued access for grazing was refused by Justice Grice.

Pascoe v. Ngati Tama Custodian Trustee Ltd – High Court (17.04.23)

23.046

Asset Forfeiture: Commissioner of Police v. McQuade

Seized by police as proceeds of crime, Alan McQuade protested that his Holden motor vehicles should not be sold ahead of next year’s scheduled forfeiture hearing.  They were appreciating in value as collectibles now that Australia no longer manufactures Holdens, he claimed.

McQuade was sentenced to five years three months imprisonment in March 2022 for methamphetamine offences.  On his arrest, police seized five vehicles alleging they were purchased with proceeds of crime, including a 2013 Holden HSV Clubsport, a 2016 Holden HSV GST and a 2003 Holden Monaro.

Police applied for an order the cars be sold ahead of a scheduled 2024 proceeds of crime court hearing with the sale proceeds meanwhile to be held in trust.  The High Court was told storage costs are running at $14.30 per day for each vehicle. In addition, market values based on Inland Revenue depreciation rates are falling by thirty per cent each year, police said.

McQuade challenged police assessments of future value. He said Holden vehicles were appreciating in value, as evidenced by asking prices for similar vehicles advertised on Trade Me.

Police had the vehicles inspected by an industry expert. He reported they were not all in the condition claimed: the Holden Clubsport had evidence of previous accident damage and was probably imported from Australia as an insurance write-off; the Holden GTS had double the odometer reading claimed.  Values for second-hand Holden vehicles viewed as collectibles had climbed sharply throughout 2020/21, the expert said, but had since shown a steady decline with vehicles marketed at premium prices remaining unsold for long periods.

Justice Woolford approved the vehicles’ early sale.

Commissioner of Police v. McQuade – High Court (17.04.23)

23.048

P&I Insurance: Maritime Mutual v. Silica Sandport

In December 2018, the barge NRC Resolute capsized and sank in international waters north of Trinidad in circumstances yet to be fully explained. A disputed insurance claim now sees the warring parties in court; one side suing in New Zealand, the other in Guyana.

Silica Sandport Inc, had insured its barge with a New Zealand-based P&I Club: Maritime Mutual Insurance Association. Unlike a typical marine insurance company which is owned by its shareholders, a Protection and Indemnity Club (P&I) is a member-only club with members agreeing to pool risk according to their P&I rules.  No dividends are paid.  If claims in any one year exceed premiums collected, a ‘call’ is made on all members to top up the kitty.  Silica Sandport’s claim for total loss of its barge at USD1.176 million resulted in a call on members.

The High Court was told Silica has not paid its call. Insurance cover was cancelled. Silica then sued Maritime Mutual in the High Court of Guyana for loss of its barge together with further claims against Maritime alleging misrepresentation, fraud and professional negligence.  In Guyana, Maritime is challenging whether the dispute should be heard in that country.

Meanwhile in New Zealand, Maritime Mutual got a High Court ‘anti-suit’ injunction telling Silica it had no right to take legal action in a foreign country without first submitting to the arbitration rules set out in their P&I agreement.

Silica alleges Maritime Mutual has refused to go to arbitration; a claim Maritime disputes.

Maritime Mutual is owned by interests based in Gibraltar.  Its directors are based variously in Guernsey, Liechtenstein, Hong Kong, Switzerland and New Zealand.

Maritime Mutual Insurance Association (NZ) Ltd v. Silica Sandport Inc – High Court (14.04.23)

23.045 

Market manipulation: FMA v. Zhong & Ding

Wei Zhong and Regina Ding face fines for market manipulation in breach of the Financial Markets Conduct Act after the High Court ruled they organised phony on-market trades to prop up the market in shares for their now delisted Oceania Natural Ltd.  Business acquaintances and Ding’s parents were used to set up pre-arranged buy/sell matched orders.  

Oceania Natural listed on the then separate NXT board in 2016.  It operated as an exporter, primarily manuka honey and Cook Island noni juice.  Husband and wife, Zhong and Ding both hold MBA degrees from Singapore.  He was executive director and chief executive officer for Oceania; she headed up sales and marketing.  Their combined 61.6 per cent holding in Oceania Health at time of listing was valued at $10.2 million.  Oceania is now in liquidation with unsecured creditors claiming $1.22 million.

The High Court was told of a series of on-market transactions through 2016 and 2017 having the effect of propping up Oceania’s share price.

Some involved use of ASB Securities customer accounts held in the separate names of Ding’s parents.  Zhong traded on Ding’s father’s account, masquerading as her father to place orders.  Zhong also made use of a phone registered to his five year old daughter in an attempt to muddy the trail.  Ding traded on her mother’s account, posing as her mother.  As is common custom in China, Ding’s parents do not share the same last name.  ASB Securities came to suspect collusion when it realised matching buy/sell orders came from client accounts with near adjacent numbers and then twigged that the accounts were in the name of husband and wife: Ding’s parents.  These two accounts were then suspended.

Evidence was also given of Zhong and Ding liaising with business associates to execute phony trades.  The court was told of a repeated pattern seeing a series of short phone calls and WeChat messages from Zhong or Ding to business associates followed by matching buy/sell orders.  These business associates were compensated for their costs.

Zhong’s and Ding’s enthusiasm in boosting the market price fell foul of trading rules; one buy order was not forwarded to the stock exchange because it would have had the effect of increasing the then market price by fourteen per cent in one trade.  Buy/sell prices are expected to move incrementally.

All the matched trades had the effect of increasing the market price for Oceania’s shares.

Fines for Zhong’s and Ding’s market manipulation require a further court hearing.

Financial Markets Authority v. Zhong & Ding – High Court (6.04.23)

23.044

 

Post-judgment note: Zhong was subsequently ordered to pay a $1.33 million penalty; Ding $760,000.

Legal Costs: Cayman Spectrum v. 2Degrees

Alleging that collusion between Spark and 2Degreees prejudiced its chances to acquire wireless spectrum rights, off-shore bidder Cayman Spectrum has been penalised, forced to pay 2Degrees full legal costs after abandoning attempts to get sensitive commercial information out of 2Degrees.

Part of ongoing and yet to be finalised litigation between Cayman Spectrum and Spark, 2Degrees was dragged unwilling into the fight as a non-party following allegations Spark assisted 2Degrees in its bid for wireless spectrum to the commercial disadvantage of Cayman Spectrum.

As part of pre-hearing manoeuvres, Cayman demanded disclosure of documents held by Spark.  As an aside, it demanded similar disclosures from 2Degrees.  This demand was abandoned by Cayman on the day of a scheduled court hearing disputing what was demanded and what was appropriate given that 2Degrees was not a party to the Cayman/Spark legal bunfight.

Justice Lang ordered Cayman pay 2Degrees full legal costs of some $47,100.  2Degrees was justified in lawyering up taking a ‘belts and braces’ approach, he said. The breadth of Cayman’s disclosure demand was forcing 2Degrees to disclose confidential and commercially sensitive information which potentially included management and board reports, budgets, predictions and strategy papers.

Cayman Spectrum (NZ) Co v. Spark New Zealand Trading Ltd – High Court (5.04.23)

23.043

Property: Tadd Management v. Ruth Weine Family Trust

A Wellington family trust was ordered to pay $592,000 damages after marketing material prior to auction of a commercial building highlighted a ‘good NBS rating’ when later seismic surveys identified the building was an earthquake risk. 

Wellington sits on a recognised earthquake fault. Purchasers are wary of potential costs to bring buildings up to standard.  Buildings in Wellington assessed at less than 67 per cent of New Building Standard (NBS) are treated as an earthquake risk.

The High Court was told Ruth Weine Family Trust sought to allay purchaser concerns by including a seismic report in its marketing pack when selling by auction in 2017 a three-storey commercial building on Queens Drive in Lower Hutt.  This included an engineering report assessing the building at 60 per cent NBS and the later addition of a covering letter which said a 70 per cent NBS assessment was possible following a more detailed assessment.

Tadd Management Ltd bought at auction, paying $1.22 million.  It intended to upgrade the building.  Engineering reports Tadd Management subsequently obtained assessed the NBS rating at time of purchase as being between ten per cent and thirty per cent. Tadd Management sued.  It was awarded damages for both misrepresentation and mistake.

Justice Gwyn ruled the Ruth Weine Family Trust was liable for misrepresentation by stating in publicity material as an ‘investment highlight’ that the building had a ‘good NBS rating.’  This was a misstatement of fact, entirely independent of the engineering report and covering letter supplied in the publicity pack, she ruled.

The Trust was also liable in mistake.  Both the Trust and Tadd Management as parties to the sale were labouring under the common mistake that the NBS was at least 60 per cent.  The result of this mistake was that Tadd Management paid too much.

Damages of $592,000 were assessed as the difference between the price paid by Tadd Management and the actual value of the building when sold.

Tadd Management Ltd v. Ruth Weine Family Trust – High Court (5.04.23)

23.042

Loan Fees: Mega Capital v. Pearlfisher Capital

With a seven million dollar deposit paid and penalty interest running at $10,000 per day for late settlement on its 2022 purchase of land in south Auckland ripe for redevelopment, Mega Capital was desperately shopping around for finance to cover its thirteen million dollar shortfall.

Mega Capital was held liable to pay initiation fees totalling some $627,700 on proposed borrowing from Pearlfisher Capital after abandoning the Pearlfisher deal in favour of alternative funding. 

The High Court was told Mega Capital Group Ltd agreed to buy land at Karaka for $19.8 million with the prospect of creating 180 residential lots to be on-sold for some one hundred million dollars.  In the seven month gap between agreeing to buy and having to pay, Mega Capital found it was unable to get bank funding.  It turned to Pearlfisher Capital Ltd.  A deal was struck for a $10.2 million six month bridging loan at eight per cent.  The loan was never taken up.  Mega Capital borrowed elsewhere.  Pearlfisher sued for fees totalling $627,700 covering establishment fees and brokerage. Mega challenged the amount as being harsh and oppressive; in breach of the Credit Contracts and Consumer Finance Act.

Associate judge Taylor ruled Mega Capital liable to pay. Mega Capital was not a vulnerable consumer, he said.  It was an experience property developer.  The deal was negotiated with the assistance of professional advisers.  During loan negotiations, fees due were specifically discussed and it was made clear these fees were payable after initial documentation was signed even if Mega did not subsequently draw down the loan.

Mega Capital Group Ltd v. Pearlfisher Capital Ltd – High Court (5.04.23)

23.041

Debt: Multistop v. Innovate Civil & Construction

Sued for $442,000 unpaid on two construction contracts, it was not credible for director Jason Campbell to defend a summary judgment claim by simply stating his company was not liable and that the wrong company was being sued.

The High Court operates a fast-track summary judgment procedure for debt claims.  Provided there are no disputed facts, unpaid creditors get a prompt court ruling giving the creditor extra leverage when chasing payment.  Judges are wise to contrived factual conflicts designed by debtors to re-route a fast-track summary decision into a slow-track process forcing delays with a full court hearing.  

Auckland plasterer Multistop Ltd was left chasing just over $442,000 for work done during 2020 and 2021 on building sites in Mangere and Te Atatu.  There was no written contract.  Multistop thought it was working for a company called Innovate Civil and Construction Ltd.  Directors at the time were Jason Campbell and Barry Hayes.  Companies Office records show Mr Hayes resigned as director in October 2021.  When Multistop later sued, Mr Campbell said it was not an Innovate Civil debt; the money was owed by a separate company controlled by Mr Hayes.   

Multistop told the High Court that agreement to do the job was made on site in discussions with Mr Campbell.  He was wearing a high-vis vest carrying the Innovate Civil logo and on-site signage advertised the work as an Innovate Civil project.  Interim invoices, which were never paid, were addressed to Innovate Civil.  Emails promising payments, which never came, were sent from an Innovate Civil email address.

It was only when Innovate Civil was sued that Mr Campbell said payment was his former business partner’s responsibility.  Multistop was suing the wrong company; Mr Hayes company B&R Property Maintenance Ltd was liable, he said.

Associate judge Lester ruled there was no direct evidence of any contract between Multistop and Mr Hayes’ company.  Mr Campbell at no time during contract discussions explained that he was acting as a ‘go-between’ or was acting as an agent on behalf of Mr Haye’s company, Judge Lester said.  It was an Innovate Civil debt.  Summary judgement was entered against Innovate.

Multistop Ltd v. Innovate Civil and Construction Ltd – High Court (5.04.23)

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