Ticket Rocket: BNZ v. Davey

 

Unsympathetic to claims he had no assets, the High Court bankrupted Ticket Rocket entrepreneur Matt Davey owing BNZ more than $4.7 million.  Associate judge Lester queried what happened to ticket buyers’ money which was apparently not held in trust.  Mr Davey is currently in Australia.

Mathew Robert Davey controlled Fortress Information Systems Ltd which traded as ticketing company Ticket Rocket, competing against Ticketek and Ticketmaster.  Ticket Rocket collapsed following event cancellations forced by covid pandemic lockdowns. Prior to that, Ticket Rocket was a ten million dollar company, Mr Davey claimed.

Fortress had funding from Bank of New Zealand; repayment supported by Mr Davey’s personal guarantee.  The High Court was told Mr Davey responded to lockdown event cancellations by repaying ticket holders with BNZ money; overdrawing Fortress’ BNZ account without BNZ agreement to the tune of $1.7 million.  Receivers took control of Fortress.  BNZ sued to bankrupt Mr Davey on his guarantee.

Mr Davey said bankruptcy was pointless (he had no assets, he claimed) and would hamper attempts to restart his life in Australia (he was having trouble getting credit, he said).

He claimed BNZ should be held responsible for alleged negligence by Fortress’ receivers, reducing the amount owed BNZ.  Judge Lester said chances of making a successful claim against BNZ were limited.  As a general rule, secured creditors are not responsible for the actions of any receiver they appoint to recover a secured debt.  Claims must be made against the receiver directly.  Judge Lester said he was unwilling to defer Mr Davey’s bankruptcy for the several years it would take to get to trial on a speculative claim against BNZ.  Following bankruptcy, it is for Insolvency Service to decide whether there is any merit in continuing such a claim for the benefit of Mr Davey’s creditors.

BNZ v. Davey – High Court (31.05.23)

23.083

Family Trust: Official Assignee v. Black

 

As bankrupt creditors of their family trust, any pretence that use of a trust protected their lifestyle block from creditors quickly collapsed when Insolvency Service got a High Court order allowing sale of Nigel and Joanne Black’s north Canterbury property at Cheviot.

The High Court was told the Blacks were bankrupted in August 2020.  Circumstances had conspired against them; first suffering earthquake damage to their 7.32 hectare Munro Road lifestyle property, and then losing earthquake damage compensation received when attempting to prop up their failing business.  Munro Road is owned by their family trust: Mountain Meadow Trust.  They are the trustees. 

Insolvency Service review of Meadow Trusts financial statements identified that the Trust owed Nigel some $291,500 and Joanne a similar amount.  Suggestions from Insolvency Service that the two, acting in their capacities as Meadow Trust trustees, might arrange for sale of Munro Road and repay the debts owed came to nothing.

Exercising the Blacks’ rights as creditors of Meadow Trust, Insolvency Service obtained a High Court order ordering sale of Munro Road to recover funds to pay the Blacks’ bankruptcy creditors.  The right to sell Munro Road arose from the general rule that any trustee has the right to sell trust assets to meet debts owed by a trust.

The High Court was told that Munro Road is mortgaged.  Net proceeds of sale are unlikely to repay in full the $583,000 owed the Blacks.

Official Assignee v. Black – High Court (30.05.23)

23.082

Maori: Poukani Claims Trust v. Attorney-General

 

Still fighting for recognition of customary rights over Waikato riverbed underneath the Maraetai and Whakamaru hydroelectric dams, Pouakani scored significant protection for a future claim to water resource rights with a High Court ruling that Mercury Energy’s water rights at the dams are subject to any successful Treaty of Waitangi claim. 

Mercury Energy was spooked by Treaty claims over that portion of the Waikato river running through the central North Island.  A successful claim could lead to demands for resource rentals over water running through Mercury’s hydroelectric dams, increasing Mercury’s costs.

A 2014 Supreme Court ruling left open the possibility of Pouakani claiming customary rights to the riverbed.  This requires proof of continuing use by Pouakani not lost by sale of riverbank land or by passage of time.

Legal attention immediately turned to the extent of Mercury’s water rights.  Beds of both the Whakamaru and Maraetai lakes are owned by the Crown.  Power generation assets were transferred to Electricity Corporation of New Zealand in 1988 as part of state trading assets corporatisation.  In 2010, the Whakamaru and Maraetai assets were transferred to what is now Mercury Energy.  Easements were registered against Crown lakebed title to protect Mercury’s use of water for power generation.

Poukani complained that creation of these easements did not comply with the State-Owned Enterprises Act.  Crown assets subject to potential Treaty of Waitangi claims can be sold, but with a tag.  This tag gives notice to subsequent owners of as yet unresolved Treaty claims over the asset.

Pouakani said the easements registered against title to the lakes in favour of Mercury Energy should have been tagged.  Government was sympathetic, agreeing to amend the easements.  Mercury objected.  The 2010 transfer of assets to Mercury was not part of the 1980s process of corporatisation, it said.  The State-Owned Enterprises Act and any requirement to tag assets with potential Treaty claims was of no relevance, it claimed.

In the High Court, Justice Churchman ruled in favour of government and Pouakani.  Mercury’s easements should have been tagged. While the easements were created in 2010, this was part and parcel of the original process of corporatisation, he ruled.  The subsequent easements simply formalised an initial 1988 sale agreement which corporatised state-owned power generation assets.

Pouakani Claims Trust v. Attorney-General – High Court (30.5.23)

23.081

Realtionship Property: Lobb v. Ryan

 

Bitter that his wife was claiming a half share of relationship property when he had provided the bulk of relationship assets, Stuart Lobb attempted to end run a court-ordered 50/50 split of the value of an Auckland home held by their family trust by later claiming former spouse Verena Ryan had to contribute to half the cost of repaying a $1.4 mortgage.

Their family home named ‘Lothbury’ on Orakei Road in Auckland suburb Remuera was held by a family trust at time of their 2016 separation.  They personally remained jointly liable on a Westpac mortgage secured over the property despite ownership being held separately by trustees of the family trust.

The High Court was told Mr Lobb lived at Lothbury after separation.  Under pressure from Westpac, Mr Lobb subsequently repaid the mortgage with financial assistance provided by his father.  Mr Lobb claimed his former spouse was liable to pay him half the cost of the repaid Westpac mortgage.  She was liable to contribute half the cost because his full repayment had removed her personal liability to repay, he said.

There is a backstory.

While Mr Lobb’s claim for an equitable contribution to the mortgage repayment was underway, separate relationship property proceedings saw Ms Ryan awarded a half share of family trust assets with her half share being settled on a new trust in Ms Ryan’s name.  As part of the calculation, Ms Ryan was acknowledged as being jointly liable under the Westpac mortgage; $700,000 was deducted from her share of trust assets.  Now, Mr Robb was in the High Court separately arguing she was still liable for this $700,000 share.

As a general rule, all claims regarding relationship property start in the Family Court.  Having assets tied up in family trusts can create complications.  Justice Walker dismissed Mr Lobb’s High Court claim for an equitable contribution following the family trust’s refinancing of the Westpac mortgage.  Both Mr Lobb and Ms Ryan were liable on the Westpac mortgage.  This debt was a ‘transaction’ governed by the Property (Relationship) Act, she said.  The Family Court had jurisdiction to deal with this debt and had done so, she ruled.

Lobb v. Ryan – High Court (29.05.23)

23.080

Maori: Shearing Services Kamupene v. Tarahau Farming

 

Facing possible sale of ancestral land, Pessiman Te Whata attempted to use the Companies Act voluntary administration procedure not to benefit creditors but to thwart them.  He was unsuccessful.

Shearing Services Kamupene Ltd is in liquidation owing Inland Revenue $4.3 million.  Liquidators sued related company Tarahau Farming Ltd to recover loans made by Shearing Services between 2013 and 2016.  Mr Te Whata is a director of both companies.   Tarahau currently owes Shearing Services about $232,500.

Tarahau’s main asset is a dry stock farm south of Kaikohe, situated on land historically associated with Mr Te Whata’s hapu.  This land is currently mortgaged to ANZ Bank.  It is at risk of a forced sale by Shearing Services’ liquidators seeking to recover the $232,500 debt.

In response, Mr Te Whata unilaterally put Tarahau Farming Ltd into voluntary administration.  Companies Act voluntary administration procedures provide a breathing space for businesses in financial difficulty.  A short-term moratorium is imposed on creditor claims, allowing an independent administrator to take stock of company prospects.

In court, Mr Te Whata claimed he was acting under authority of his hapu’s marae which had issued orders cancelling all tax debts owed by Tarahau Farming and had further cancelled ANZ rights as secured creditor.  Tarahau’s voluntary administration blocked attempts by Shearing Services liquidators to recover the $232,500 debt owed by Tarahau Farming, he said.

The Court of Appeal ruled Tarahau Farming was not in voluntary administration.  Companies Act rules had not been followed; there had been no resolution by Tarahau directors as required to initiate voluntary administration and the person appointed as administrator was not qualified to act as such.

Shearing Services Kamupene Ltd v. Tarahau Farming Ltd – Court of Appeal (26.5.23)

23.079

Family Trust: Hemara v. Lowe

Expecting that the family home would remain within their family, it was a shock to find descendant Kellee Lowe had borrowed money against the Hikurangi property in Northland and was trying to sell it.  The High Court removed her from the title for breach of trust.

The court was told children of the late Joe and May Hemara agreed after their parents’ deaths that the family home at Waro Drive should remain within the family and ultimately be passed on to the next generation.  This Maori tradition proved difficult to fit within current land ownership registration rules.  Initially, all nine children were registered as owners.  Subsequently, ownership was transferred into the name of Kellee only.  She is the daughter of one of the Hemara children.   Kelle agreed not to mortgage or sell the property and to hold it in trust for descendants of Joe and May.

Legal action was taken when family discovered Kellee had mortgaged Waro Drive and was now looking to sell.  She did not appear in court, but sent a message from Perth denying any trust had been agreed and saying she would ‘never agree to the house being taken off her.’  She claimed to have rebuilt and extended the home at a cost of ‘hundreds of thousands of dollars.’

Justice Jagose ruled Waro Drive had been transferred to Kellee on trust and the terms had been breached.  Kellee was removed from title to Waro Drive, replaced by two other Hemara descendants as trustees.  The new trustees are required to prepare a formal deed of trust and then have it approved by the court.

Hemara v. Lowe – High Court (26.05.23)

23.078

Building Works: Waikato Region v. Poseidon Holdings

New owners cannot be forced to comply with a Building Act ‘notice to fix’ ignored by a previous owner, the High Court ruled in a test case where owners of a pig farm sold out within a week of being ordered by Waikato Regional Council to fix an effluent pond.

The High Court was told NZ Pork Ltd as owner of a pig farm on Rawhiti Road at Te Aroha was issued in September 2016 with a ‘notice to fix.’  Waikato Region was concerned about stability of an effluent pond embankment.  Within days, NZ Pork sold the farm to Poseidon Holdings Ltd.  Companies Office records identify that Paparoa Trustees Ltd is a major shareholder in both companies.

Waikato Region challenged a District Court ruling that Poseidon Holdings as the new owner could not be held liable for the default of previous owner, NZ Pork.

In the High Court, Justice Wylie ruled there is no blanket Building Act obligation forcing a new owner to remedy non-compliance by a past owner.  There are specific Building Act rules where a current owner has to make good previous owner’s defaults.  Examples include: fire alarm and sprinkler systems; earthquake proofing; swimming pool fencing and maintenance of a building warrant of fitness.

Waikato Regional Council v. Poseidon Holdings Ltd – High Court (26.05.23)

23.077

Director: Henderson v. Companies Office

Auckland-based David Stewart Henderson was banned from managing any company for three years expiring March 2025 after mismanaging a Christchurch apartment earthquake remediation leaving creditors unpaid.  A claim that his company Cambridge on the Avon Ltd was simply acting as a neutral trustee in the project cut no ice with either the Companies Office or the High Court.

In 2017, Cambridge on Avon purchased six earthquake-damaged apartments on Carlton Mill Road in Christchurch suburb Merivale.  The High Court was told a short-term loan was sourced; $2.1 million for six months at 16.75 per cent.  Repairs were not completed within this short timeframe.  Cambridge on Avon was put into receivership when refinancing fell through and then put into liquidation by an unpaid trade supplier.

The High Court was told that after sale of the partly-finished project, there was nothing left for unsecured creditors owed about $405,000.  A subsequent tax investigation resulted in Cambridge on Avon receiving a tax assessment for $181,200 plus penalties of $36,200. 

A Companies Office investigation followed.  Mr Henderson was in breach of his duties as a director by trading recklessly and failing to keep proper accounting records, it said.

Mr Henderson challenged Companies Office imposition of a three-year disqualification.  He claimed Cambridge on the Avon Ltd was not in business, did not have to keep any records and was not required to pay tax since it had tax registration as ‘non-active.’

Justice Davison ruled Cambridge on Avon was in business.  It may have held the Merivale property as trustee, he said, but contracts for repair work were negotiated by Mr Henderson in the company’s name.

The earlier arrangement negotiated with Inland Revenue that Cambridge on Avon was a ‘non-active’ taxpayer was a red herring, the court was told.  The company’s supposed tax status was of no relevance to questions of Companies Act compliance.

Justice Davison ruled Mr Henderson had traded Cambridge on Avon recklessly, with insufficient working capital.  It was reckless to assume the remediation could be finished and the apartments sold within six months.  It was also reckless to assume that no replacement funding would be needed.  Failing to keep any accounting records had exacerbated the loss to creditors; no cashflow forecasts were possible.

Henderson v. Registrar of Companies – High Court (24.05.23)

23.076

 

Note: David Stewart Henderson, referred to in this blog post, is not to be confused with South Island property developer and serial bankrupt David Ian Henderson who was prohibited by the High Court from managing any business until December 2022.

Memelink: Haines v. Official Assignee

 

Censured by the Law Society for professional misconduct in what was alleged to be sham billing designed to increase voting power at a client’s creditors meeting, solicitor Quentin Haines was subsequently in court for a ruling on how much was in fact owed by now bankrupt client, Harry Memelink.

When in 2017 Mr Haines struck out on his own as a young solicitor, he took on Mr Memelink as a client.  It proved to become a very fraught relationship.

The High Court was told Mr Memelink faced bankruptcy in mid-2018.  An Insolvency Act proposal was put to creditors, to avoid bankruptcy.  Mr Haines voted, claiming he was owed one million dollars in unpaid fees.  The proposal failed.  Mr Memelink was bankrupted in August 2018.  Insolvency Service is handling his bankruptcy.

In light of the Law Society ruling that the one million dollar invoice was a sham, Insolvency Service refused to accept Mr Haines’ claim to be a creditor in Mr Memelink’s bankruptcy.  Mr Haines sought a High Court ruling to set a dollar figure on his claim.

Mr Memelink appeared in court, challenging Mr Haines entitlement to any payment at all.  He alleged Mr Haines had failed to do his job properly and had not fully carried out client instructions.  The court was told Mr Haines had acted for Mr Memelink on 38 separate legal matters.  Mr Memelink further alleged their fee arrangement was to have Mr Haines collect payment only from any costs award made in his favour following successful court actions.

The Insolvency Act allows the High Court to make an assessment of the value of work done for a bankrupt prior to bankruptcy where their contract lacks an agreed rate of remuneration.  Associate judge Johnston ruled the value of unpaid work done by Mr Haines amounted to $525,000.  Insolvency Service was directed to accept this amount as an unsecured claim by Mr Haines in the Memelink bankruptcy.

Haines v. Official Assignee – High Court (24.05.23)

23.075

Freezing Order: River Oaks Mews v. Meurant

 

Alleging that Ross Meurant had emptied their company bank account without authority, trustees of a family trust had a High Court freezing order placed on an Auckland property owned by Mr Meurant and his wife.

Alexey Potter and Egor Petrenko alleged in the High Court that Mr Meurant and entities associated with him had been charging excessive management fees to their company River Oaks Mews Ltd.  They claimed he had breached duties as a director when taking some $1.6 million from company bank accounts.  The amount owed as management fees is disputed.  Following a River Oak audit, Mr Meurant was told to provide evidence supporting fees claimed, or complaints of theft would be laid with police.  It is alleged at least $736,000 was taken in excess of fees legitimately charged.

River Oaks asked the High Court to impose a freezing order over a Meurant property in the Auckland suburb of St Johns after learning it was on the market.  It was alleged Mr Meurant was cashing up with the risk proceeds would be salted away out of River Oak’s reach.

Justice Jagose imposed a time-limited freezing order.  Any sale was blocked for one week, with the freezing order to then be reviewed.  Mr Meurant had no warning that River Oaks had applied for a freezing order.

Companies Office records show Mr Meurant resigned as director on the day scheduled for court review of the freezing order.

River Oaks Mews Ltd v. Meurant – High Court (23.05.23)

23.074

Land: Sofinowski v. Makan

 

Falling Auckland house prices saw a buyer ordered to pay $553,300 damages covering loss on resale after he defaulted on a $1.38 million agreement to purchase a west Auckland home.

The High Court was told Piyush Makan agreed in September 2021 to buy a Simpson Road property in Ranui from Marc and Katherine Sofinowski.  Contract price was initially $1.4 million; reduced by agreement one week later to $1.385 million.  Settlement of his purchase was not required for eleven months.

One month prior to settlement, Mr Makan said he had been unable to raise finance.  He again requested a reduction in price.  The Sofinowskis refused, cancelling the contract when he failed to settle on due date.  Simpson Road was put back on the market.  Four offers were received, with a price differential of $80,000 between highest and lowest offer.  They resold at $871,800.

Mr Makan was ordered to pay $553,300 for breach of contract.  This included the difference between the original price and the price at subsequent sale, plus real estate expenses and interest on late settlement.

Sofinowski v. Makan – High Court (18.05.23)

23.073

Defamation: Spring v. Browne

 

Under investigation for accessing the NZTA vehicle register without authority and having his home searched by police, Marc Spring then unsuccessfully sued former bosses Cory Browne and Glenn Tulloch for defamation.

This followed Mr Spring’s search of the NZTA register in February 2020 to identify registration of a Range Rover seen driven by a Mr Mathew Blomfield.  The two were in the middle of a personal dispute.  Mr Spring discovered the vehicle was registered to Mr Blomfield’s wife.  He earned the ire of Mr Blomfield after reporting this fact to the liquidator of a company Mr Blomfield was involved with.    

The High Court was told Mr Blomfield then laid a complaint with police, suspecting Mr Spring had improperly accessed the NZTA register as part of their personal dispute.  Police learnt that Mr Spring had been previously employed by Corporate Cars Ltd, now known as Clearance Cars Ltd.  At Corporate Cars, he had logon authority to the NZTA register for work purposes.  After March 2019, he worked with Corporate Cars as a contractor.  A company administrator facilitated his continued use of Corporate Cars access to the register.

Evidence was given that the then directors of Corporate Cars, Cory Browne and Glenn Tulloch, were not fully aware of Mr Spring’s ongoing access. 

When asked by both Mr Blomfield and police if Corporate Cars had authorised the Blomfield search, each said no.  Mr Spring sued, claiming $800,000 for injurious falsehood.  He had access to the NZTA register with permission of Corporate Cars and it was defamatory for Mr Browne and Mr Tulloch to suggest otherwise, he said.      

Injurious falsehood is an economic tort.  It requires proof false statements were made recklessly or maliciously to a third person causing monetary loss.

Justice Tahana ruled neither Mr Browne nor Mr Tulloch were liable.  They did not make any false statement. When asked if Corporate Cars had authorised the improper Blomfield search, they answered no.  This was true.

Corporate Cars only became aware of Mr Spring’s misuse of the register after NZTA cut off access.  This followed a complaint by Mr Blomfield to NZTA that Corporate Cars workplace access was being used for unauthorised purposes.

Spring v. Browne – High Court (17.05.23)

23.072

Business Sale: Directus South East Asia v. Beattie

To settle their ongoing family dispute, Charles Beattie agreed to take ownership of father Anthony’s fruit and vegetable concentrates business Directus valued at $935,000.  In return, Charles gave up all claims as beneficiary of family trusts and the estates of his father Anthony and Anthony’s deceased wife.  It did not prove to be an amicable settlement.  A subsequent dispute over the level of Directus’ debts saw the two in court.

The High Court ruled that the agreed deal required son Charles to clear a USD 227,300 Directus business debt, putting a severe dent into his cashflow at a time when Charles said he was short of cash.

The High Court was told father and son signed a sale agreement in 2020 described as full and final settlement of their business and personal disputes.  Son Charles was gifted ownership of the Directus business and its south-east Asian customer base.  In return, he promised not to claim any rights as a beneficiary of his father’s family trusts or as a potential beneficiary of his father’s estate on death.

The Directus deal involved transfer of all business assets and liabilities to a Hong Kong company controlled by son Charles.  His father retained his shareholding in Directus South East Asia Ltd, which was left as an asset-less shell.  Charles was later to dispute his liability to pay a Directus debt of some USD227,300 owed to US company Directus USA Inc.  His father Anthony owned Directus USA.

Associate judge Taylor ruled son Charles was personally liable to pay this debt.  The 2020 sale specifically included sale of Directus’ business debts as well as assets.  The contract gave Charles twenty working days to challenge the value of any debts Directus owed; it was too late to dispute the amount of a debt 18 months later, Judge Taylor said.  Transfer of all business assets and liabilities was part of a wrap-up deal intended to end a family dispute in what was a full and final settlement.

Charles could not belatedly reopen the deal claiming he did not expect to pay cash over and above giving up his disputed family claims.

The court was told Directus South East Asia, still owned by father Anthony, had paid Directus USA the amount claimed.  As a matter of law, liability on a debt cannot be assigned without creditor agreement.  Primary liability for the debt still lay with Directus South East Asia, owned by father Anthony.  It was Directus South East Asia under father Anthony’s control which sued son Charles to recover the amount paid.  In the 2020 sale agreement, Charles agreed to indemnify Directus South East Asia for any debts left unpaid.

Directus South East Asia Ltd v. CNG International Ltd & Beattie – High Court (16.05.23)

23.071

Relationship Property: K. v. K.

 

Failing to properly engage with his wife’s relationship property claim resulted in the High Court removing a Taranaki dairy and takeaway proprietor as trustee of a family trust and ordering him to vacate their trust-owned family home.

In dispute were family trust assets including a five hectare rural lifestyle block containing a small pine plantation, a dairy and takeaway business, boats, motor vehicles and motor-cross bikes, valued in total at $987,000.  

The names of husband and wife were anonymised as Mr & Mrs K in published court proceedings.  They separated in 2017, after a relationship lasting sixteen years.  A family trust was established after they had been in a relationship for four years.  Both were named as trustees, together with an independent trustee from a local accounting firm.  Assets accumulated during their relationship went into this family trust. 

The High Court was told Mrs K was continually frustrated in attempts to resolve her relationship property claim after the 2017 separation and subsequent divorce.  She was no longer living in the family home.  Repeated offers by Mr K to buy out his spouse came to nothing after efforts to raise finance stalled.  His failure to implement procedures agreed in the Family Court led to High Court intervention.  The same pattern of behaviour was repeated.  Mr K blamed his failure to engage with the court process on ‘being busy’ and on ‘not doing email.’  He had provided an email address as his point of contact for court documents.

In November 2022, Mr K did turn up in court on the day set down for a decision on his wife’s relationship property claim.  He repeated proposals to buy out his spouse, proposals which he had failed to implement in the past.  Justice Gwyn decided it was time to press on, given what she described as Mr K’s failure or unwillingness to act on previous court rulings or his own proposals.

Mr K was removed as trustee of their family trust.  He was ordered to facilitate a valuation of trust assets and to co-operate in marketing the family lifestyle block.  If bank financing could not be retained over the dairy and takeaway business, it too was to be sold.  Mr K was to pay the Trust $47,500 rent on account of his occupation of the family home since separation.  On sale of Trust assets, the net proceeds were to be divided in half, with each half going to new family trusts controlled separately by Mr & Mrs K.

Six months later, Mrs K was back in court.  Her husband was obstructing attempts to sell the family home, refusing to allow real estate agents’ access.  Justice Gwyn ruled Mr K to be an unlawful occupier, giving him two weeks to leave.

K. v. K. – High Court (28.11.22 & 15.05.23)

23.069

Company: Walters v. Neale

 

Tani and Margaret Neale were told to cough up $177,000 proceeds from sale of Wanaka-based TMC Transport’s trucks with the High Court saying the company would be put into liquidation if they did not sort out their differences with fellow shareholder Luke Walters.

The court was told two trucks and a flat deck trailer previously owned by a company controlled by Mr Walters were sold in 2018 to a new company called TMC Transport 2018 Ltd.  TMC was owned 50 per cent by Mr Walters and 50 per cent by Tani and Margaret Neale.  Their business relationship fell apart in a little over a year.  The Neales fired Mr Walters as one of the two directors.  He left the company.  The High Court subsequently ruled this supposed dismissal of Mr Walters was invalid; correct company procedures for removal of a director had not been followed.

The trucks and trailer were sold after Mr Walters departed.  The Neales kept the $207,000 net sale proceeds; saying initially this was in repayment of money they had lent the company, later saying they were holding the money in ‘safe-keeping’.  There was no evidence that the money was being held on deposit, in trust.

Mr Walters sued, complaining the Neales had taken for themselves all proceeds from sale of company’s assets leaving him with nothing.  Some $30,000 of this money was used by the Walters to pay TMC Transport’s GST obligations.

Associate judge Lester ruled the Neales’ unilateral removal of Mr Walters as director amounted to prejudicial behaviour in breach of the Companies Act.   If the two sides cannot agree on how the sale proceeds should be divided, a liquidator will be appointed, he said.

The Neales were given seven weeks to sort out their differences with Mr Walters.  Failing that, a court appointed liquidator takes control.  If automatic liquidation kicks in, the Neales must repay $177,000 to the company within ten days.

Walters v. Neale – High Court (15.05.23)

23.068

'Spencer on Byron:' Body Corporate 2017624 v. Grimshaw

 

Leaky home specialists, law firm Grimshaw & Co, was ordered to pay $3.2 million damages after failing to properly advise on distribution of a twenty million dollar 2013 settlement for remediation of Spencer on Byron in Takapuna, Auckland.

Cost increases incurred while apartment owners fought over division of the pie were a direct result of Grimshaw not properly identifying owners’ rights, the High Court ruled. 

Twenty storeys high, Spencer on Byron stands out on the North Shore skyline.  It was plagued by construction defects.  The Spencer body corporate hired Grimshaw as legal adviser.  Grimshaw negotiated a twenty million dollar out of court settlement with builder Multiplex and Auckland City Council.

As is common with expensive remediations, a legal claim was first filed forcing both Multiplex and the Council into mediation.  Named as plaintiffs were both the Spencer body corporate and named apartment owners.

Not all apartment owners signed up, though all were levied for payment of ongoing legal and consultancy fees.  Arguments over whether apartment owners who had not joined the legal action were entitled to share in the twenty million dollar settlement led to remediation delays.  On Grimshaw’s advice, the court was asked to rule on apartment holders’ entitlements.  This delay resulted in further legal costs and an increase in remediation costs.  Grimshaw was held liable for these increased costs: $3.2 million.

In anticipation of the 2013 settlement, Grimshaw had prepared three years prior a distribution agreement setting out a formula for division between apartment owners who had signed up (compensation for cost of apartment repairs) and the body corporate (for repair of common areas).  Apartment owners who did not sign up took the view that they would benefit at least from the body corporate repairing common areas that all made use of.

But Unit Titles Act rules changed between the time a draft distribution agreement was floated and the time it was actioned; apartment owners no longer shared ownership of common areas, ownership lay with the body corporate.  Apartment owners who had not joined the legal action missed out, the body corporate said.  All settlement money would go to those who signed up.

Justice Tahana ruled Grimshaw was negligent in not advising a redraft of the distribution agreement in light of the Unit Titles rule change.  Legal costs disputing application of the distribution agreement and subsequent remediation delays were a direct result of this failure, she said.

The court was told a mediation agreed between all apartment owners in 2015 resulted in eighty per cent of the twenty million dollar settlement directed to remediation of common areas, the balance to apartment holders who had signed up for the initial litigation.  Those who had not signed up did not receive a payout.

Body Corporate 2017624 v. Grimshaw & Co – High Court (28.4.23 & 15.05.23)

23.070

Insurance: Polladio Holdings v. New India Assurance

A $745,000 insurance claim was denied after a commercial property owner lied about the circumstances in which weather damage was first discovered.

Polladio Holdings Ltd owns the Grosvenor Hotel in Timaru.  Director Ping Lim claimed on a New India insurance policy for hail damage to the roof.  A hail storm passed over Timaru in November 2019.  It was not until September 2020 that a claim was made.

New India queried the delay.  Mr Ping said he was not aware of the damage until the roof was inspected one year later, prior to planned renovations.  It came out in evidence at the High Court that Mr Ping was aware of hail damage back in November 2019 when contractors made temporary repairs to the roof.

New India’s policy invalidates claims made dishonestly and further requires that ‘true statements’ are made when claiming.  Justice Wylie ruled Mr Ping’s false statement about when the damage was discovered, by itself, was sufficient ground for New India to refuse payment.

Changes to insurance law in 1977 prohibited insurance companies from denying cover on the sole ground of delay in making a claim.  The amount paid out can be adjusted if any delay increases costs for the insurer.  For Polladio Holdings, the justification for non-payment was not the delay in reporting damage, but the fact of lying about the delay.    

Separately, Justice Wylie ruled there were two further grounds for New India to refuse payment.  A policy exclusion for damage caused by ‘marring and scratching’ was sufficient to deny payment; cosmetic pitting and scratching to the roof caused by hail damage fell within this exclusion.  Where severity of the hail storm had punched holes in the roof, this was due to rust and corrosion in the roofing material, again an excluded condition.

Polladio Holdings Ltd v. New India Assurance Co Ltd – High Court (12.05.23)

23.067

Theft: Purucker v. Huebler

 

Common sense suggests conviction for theft quickly leads to an open and shut claim to recover funds stolen.  But the law and common sense are often strangers, as experienced by Takaka café owner Alexandra Purucker trying to recover $873,300 she said was stolen by erstwhile friend Iris Huebler.

Huebler was sentenced to four years imprisonment after pleading guilty to five counts of theft.  The High Court was told Ms Purucker travelled regularly to her native Germany over the period 2011-2018, leaving Huebler in charge of business affairs.  Huebler was subsequently charged with theft following a forensic accountant’s analysis identifying suspicious transactions totalling $873,364.

As part of plea bargain negotiations between Huebler and prosecutors prior to sentencing, the amount allegedly stolen was reduced to $700,000.  Jumbled in with these negotiations were allegations of theft by Huebler against another person.  Charges in respect of this further theft were withdrawn.

One year on, Ms Purucker took legal action against Huebler seeking to recover $873,300 as a civil debt.  Huebler challenged the debt claim, saying any money supposedly taken had been paid back.  This lead to a legal tussle in the High Court as to the status of her prior theft conviction when applied to a civil claim for recovery.

The general rule is that conviction is proof only of a conviction, not the factual circumstances surrounding an offence.  Criminal liability requires proof beyond a reasonable doubt; civil liability, proof on the balance of probabilities.  The differing rules has led to the Gilbert & Sullivan situation of two trials, one criminal the other civil, with conflicting outcomes.  High profile cases overseas have seen a person found not guilty of murder in criminal proceedings ordered to pay damages for unlawful killing in a subsequent civil case.

In New Zealand, the Evidence Act rule is that while conviction is proof that the person committed an offence, that fact can be challenged in subsequent civil cases.  In any subsequent civil case, a judge must first assess whether there are sufficient grounds to challenge the fact of the conviction.

Justice Isac ruled Huebler had no grounds to challenge her recorded conviction for theft of $700,000.  She provided no evidence at the time of her plea negotiation that there had been no theft.  In the time since conviction, she had not taken any steps to disprove evidence of theft provided by the forensic accountant.

Consequently, Huebler’s theft conviction is evidence that that she is liable to repay Ms Purucker, but only up to $700,000; the amount agreed in the plea negotiations.  That leaves a shortfall of $173,000 allegedly stolen.  It is open for Huebler to dispute in a civil debt recovery claim whether this further amount is owed, Justice Isac ruled.

Purucker v. Huebler – High Court (11.05.23)

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