Family Trust: Body Corporate 81012 v. Memelink

 

Bankrupt and with his family trust under control of court-appointed receivers, Harry Memelink had no grounds to resume control of trust assets and have receivers removed; part of a long running dispute over corporate body management of a block of Wellington commercial units.  Mr Memelink has failed multiple times in having receivers removed, going so far as challenging sitting judges with allegations of bias.  

Mr Memelink is bankrupt.  Insolvency Service told the High Court resolution of his bankruptcy has been hampered by poor accounting records, with personal transactions and family trust transactions mixed in together.  Chartered accountants from BDO Wellington are in control of his family trust, Link Trust No.1, with High Court instructions to sell assets and identify creditors.

Mr Memelink alleges trust assets are being sold at an undervalue.  Justice Grice ruled there was no evidence to support these allegations.  BDO says asset sales are being hampered by Mr Memelink’s interference.  Insolvency Service told the High Court it appears Link Trust owes Mr Memelink personally some $4.06 million; funds they hope to recover in payment of Mr Memelink’s bankruptcy creditors.  There are doubts whether Link Trust is solvent.

Mr Memelink’s latest application to remove the receivers was dismissed in the High Court.  There were no legal grounds for removal.  Mr Memelink’s current complaints had been dealt with at previous court hearings, the court said.

In two prior instances, Mr Memelink unsuccessfully challenged rulings by trial judges, alleging a conflict of interest in one instance and bias in the other.  He was told that adverse court rulings are not evidence of bias and that our legal system does not allow ‘judge-shopping’ with litigants casting around to get their preferred judge.  Presented as evidence supporting one of Mr Memelink’s allegations was a statement that a trial judge demonstrated bias with the abrupt manner his lawyer was treated in court.  This allegation did not fit the facts, the High Court said.  The lawyer named did not represent Mr Memelink at the court hearing in question.

Body Corporate 81012 v. Memelink – High Court (31.07.23)

23.126

Copyright: ESR Group v. Burden

 

In what is a decade long business dispute fought in the arcane arena of copyright law, a Court of Appeal ruling over the importation and sale of pirated furniture provides a measure of protection for retailers unwittingly importing and selling products previously sold overseas but manufactured in breach of copyright.  

Australian-owned ESR Group (NZ) Ltd trades in New Zealand as Early Settler.  Ian Burden alleged ESR Group sold in 2014 furniture imported from Vietnam pirated from his Irish Coast design.  He claimed copyright to Irish Coast.  He complains that a former colleague set up manufacturing operations in Vietnam, deceitfully ripping off his design.

In New Zealand, the High Court was told ESR Group’s furniture importations from Vietnam were ordered from a published catalogue.  It was unaware that the imported design was pirated, until later challenged.  ESR then placed no further orders.  A 2016 court ruling found the product sold in New Zealand by ESR Group as the Roseberry Collection breached Mr Burden’s claimed Irish Coast copyright.

A subsequent High Court ruling that ESR Group pay $221,000 damages was overturned by the Court of Appeal.  Legal argument centred on Copyright Act rights of ‘circulation,’ better known as ‘distribution rights.’  These rights are allied to Copyright Act provisions allowing reproduction of a copyrighted design.

The High Court ruled ESR Group breached Mr Burden’s distribution rights in New Zealand by importing and selling the pirated product without his approval.  The Court of Appeal subsequently ruled the fact that distribution of the pirated Vietnam product had previously occurred elsewhere in the world was relevant.  This meant the copyrighted product was already ‘in circulation’ and no direct liability lay with ESR Group for extending that ‘circulation’ to New Zealand.

ESR Group however remains liable for its net profit on sales made from the point it was aware that the furniture was pirated – a figure assessed at $9316.

An earlier appeal decided Mr Burden personally did not hold copyright in the pirated furniture; copyright is held by two overseas companies: PGT Reclaimed (International) Ltd and Plantation Grown Timbers (Vietnam) Ltd.

ESR Group (NZ) Ltd v. Burden – Court of Appeal (31.07.23)

23.125

Legal Services: Memelink v. Haines

 

Having agreed to a legal services contract described as ‘highly unorthodox’ by the High Court with a client agreeing to guarantee loans for a property purchase as part payment of legal fees, former Wellington lawyer Quentin Haines has become entangled in his client’s octopus-like grip with no sign of immediate resolution.

Mr Haines took on Mr Memelink as a client when setting up practice as a lawyer on his own account.  Mr Haines surrendered his practising certificate in 2018, but the tangled state of his former relationship with Mr Memelink lives on.  The courts have been kept busy with argument over the level of fees charged Mr Memelink and his family trust together with an as yet unresolved dispute over Mr Memelink’s assistance in the purchase of a property occupied by Mr Haines in Eastern Rise at Manakau, near Levin.

The High Court was told Mr Memelink agreed to guarantee loans raised by Mr Haines to purchase Eastern Rise.  When the two fell out, interests associated with Mr Memelink took ownership of a second mortgage registered over the property.  Interests associated with Mr Haines then bought out the first mortgage.  A sale by the first mortgagee left Mr Memelink unsecured; the sale did not clear enough to repay monies owed Mr Memelink’s family trust.

This resulted in Link No.1 Trust, Mr Memelink’s family trust, challenging circumstances of the Eastern Rise mortgagee sale.  The property was sold by private sale, not auction.

Meanwhile, Link No.1 Trust was put into receivership by the High Court with a further court order blocking all legal actions against Link No.1 without court approval.  This had the effect of removing Mr Memelink from day to day control of his family trust.  A de facto liquidation of Link No.1 is underway.

Mr Haines then asked the High Court to strike out Link No.1’s challenge to the Eastern Rise mortgagee sale.  Receivers had no interest in pursuing the claim, he said.  And in any event, it was a frivolous and vexatious claim with no chance of success, he claimed.

The strike-out application was set down for a brief one hour hearing slot at the High Court.  The hearing took a little longer.  Mr Memelink turned up.  As a trust beneficiary of Link No.1, Mr Memelink emphasised he had rights to share in any surplus after all Trust creditors have been repaid.

Justice Grice dismissed Mr Haines strike out application.  All legal actions were on hold so receivers could sort out Link No.1’s financial position.  This did not stop residual litigation recommencing after the receivership ended.

Memelink v. Haines – High Court (31.07.23)

23.124

Relationship Property: Sroubek v. Bozhenko

 

Convicted drug dealer and former kickboxing champion Karel Sroubek, also known as Jan Antolik, is in court claiming part interest in an Auckland property owned by his former parents-in-law.  At the same time he is challenging deportation after sneaking into New Zealand under a false identity.

Mr Sroubek is a Czech citizen.  His New Zealand resident status is uncertain. He gained media notoriety after gaining entry under a false name.  His receipt of New Zealand residence became a political circus.  This residency was annulled in 2018.  He is currently appealing a deportation order.

In New Zealand, he came to the attention of police, jailed in 2016 for drug offences.    

Mr Sroubek’s property dealings are now part of a relationship property claim.  The High Court was told he began a relationship with Ekatarina Bozhenko in 2011.  They married in 2016; that marriage dissolved four years later.  In dispute is a 2015 purchase of a property in Abbotts Way, Ellerslie, for $1.7 million.

Evidence was given of the two buying Abbotts Way at auction, but not completing the purchase.  Title was taken in the name of her parents, who live in Russia.  The purchase was funded in part with a $1.1 million ASB Bank loan.

There were family discussions about subdividing the property into three lots.  Nothing came of this. Mr Sroubek was jailed and his potential cash contribution was seized by police under the Criminal Proceeds (Recovery) Act.

On release, Mr Sroubek lived at Abbotts Way.  He carried out renovations.  The value of this work is disputed.  With Ekatarina, he was involved in a joint enterprise under the name Relax (NZ) Ltd, importing fruit juices.  This company was propelled into liquidation in early 2019.  The liquidators’ first report states Relax’s demise was caused by its bank closing the company account and withdrawing funding.  No other banks were willing to accept Relax as a customer.

Following separation from Ekatarina, Mr Sroubek claimed an interest in Abbotts Way by reason of the renovations he managed.  He claims a 25 per cent share.  The property is claimed to be now worth some $3.3 million.  Mr Sroubek registered a caveat against the title to protect his claimed interest.

The High Court was told this claim is tied in with a relationship property dispute with his former spouse.  It was agreed the caveat is to remain; Mr Sroubek’s claim to a share in Abbots Way to be decided as part of pending relationship property litigation.

Mr and Mrs Bozhenko, as owners of Abbotts Way, asked that Mr Sroubek be ordered to pay money into court as security for payment of their legal costs should his claim be unsuccessful.  Associate judge Brittain declined their request.

The Bozhenkos claim Mr Sroubek owes them rent for time he lived at Abbotts Way and further claim he owes $61,000 for a loan they made to him.

Sroubek v. Bozhenko – High Court (28.07.23)

23.123

Commerce Act: Commerce Commission v. NGB Properties

 

Mitre 10 agreed a $500,000 penalty with Commerce Commission after buying up nearby property in Tauranga to prevent Bunnings opening in opposition and then registering a restrictive covenant against the title in what proved to be an ineffective attempt to prevent the site ever being used by a competitor.  To clinch its purchase, Mitre 10’s opening offer at $850 per square metre was eventually pumped up to $1,046 square metre.

Mitre 10 enjoys a local monopoly for its central Tauranga MEGA store at Gate Pa.  Competitor Bunnings’ closest outlet is some ten kilometres away in Mount Maunganui.

The High Court was told Mitre 10 was shaken to learn in 2018 that Bunnings had paid $7.9 million to buy a site five hundred metres down the road in central Tauranga.  For Bunnings, this site was big enough for only a home improvement store.  Land next door was needed, with the combined sites being large enough for a Bunnings Warehouse.  A bidding war ensued between Mitre 10 and Bunnings, with each trying to get control of this adjoining land. Mitre 10 came out on top with its offer of $10.8 million.  Looking towards a future onwards sale, Mitre 10 registered a restrictive covenant against title to its purchase, prohibiting any future owner from running a business on the site in direct competition with Mitre 10’s business.   

Evidence was given that Mitre 10’s legal advisers were unaware of the Commerce Act rule prohibiting such restrictive covenants.  They are anticompetitive; restricting competition, reducing consumer choice.  The Act states such covenants cannot be enforced.

Mitre 10 removed its restrictive covenant before putting the property back on the market in 2021, selling to Kainga Ora at the original $10.8 million purchase price.

While Mitre 10’s adventure had limited direct financial cost, there was the economic cost of management time, reputational damage and the opportunity cost on $10.8 million which could have been put to more profitable use in the interim.

A $500,000 penalty for breach of the Commerce Act was approved by the High Court.  The maximum penalty is ten million dollars.

Justice Cooke commented that simply purchasing land to stop a competitor getting a local foothold can, by itself, be considered anticompetitive behaviour in breach of the Commerce Act.   

Commerce Commission v. NGB Properties Ltd – High Court (28.07.23)

23.122

Family Trust: Kinnon v. Hong

 

Lawyer Boon Hong was struck off in 2020 for disgraceful conduct after taking ownership of a client’s Kerikeri property without the client’s knowledge and contrary to his client’s interests.  Three years on, the High Court has ruled Hong keeps title, but as trustee, and has to pay damages yet to be assessed.

Mr Hong had been Douglas Kinnon’s family lawyer since the 1990s.  In 2005, Mr Kinnon and his then wife agreed to buy a property on Rangitane Loop Road at Kerikeri as their family home.  Things got complicated.  Final settlement was delayed nearly three years in a dispute over the final price, while the family variously lived at the property or rented it out.  With the family short of cash to complete settlement, Mr Hong provided about $600,000 to finalise the purchase.  There was some talk of Mr Hong becoming part owner.  Nothing came of initial discussions. 

After settlement, title was taken in the name of a family trust with Mr Hong as one of the trustees.

The High Court was told title to Rangitane Loop was later transferred with approval of his fellow trustee into the name of a nominee trust company controlled solely by Mr Hong.  This was for administrative reasons, he explained; to better manage numerous trusts of which he was a professional trustee.

Subsequently, Mr Hong transferred Rangitane Loop from the nominee trust company into his own name and borrowed money from ASB Bank on security of the property.  Mr Hong justified these steps to a Law Society disciplinary hearing on grounds that he ‘needed the money.’  The High Court was to later state that Mr Hong bizarrely rationalised his actions on the basis that he held a common law mortgage over Rangitane Loop in respect of his $600,000 loan and that the property was now his; this loan having been ‘repaid’ with notional rent charged the Kinnon family for their occupation of Rangitane Loop offsetting the loan.  Justice Harvey pointed out that if a loan is repaid, the debt is then cleared.  There can no longer be any claim over an asset supposedly available as security.

The High Court was asked to rule on who has ownership of Rangitane Loop.  Justice Harvey ruled title remains in the name of Mr Hong, but he holds ownership as trustee of the Kinnon family trust.  As trustee, he has to account for any personal benefit enjoyed.

A later court hearing is needed to identify what the ASB loan was used for.  This loan was made to Mr Hong personally but secured over a trust asset.  If these funds generated a profit, this profit belongs to the family trust, not Mr Hong.

Mr Hong provided $600,000 to purchase Rangitane Loop as a trust asset.  He has a claim against trust assets for repayment.

Kinnon v. Hong – High Court (27.07.23)

23.121

Management Contract: Body Corporate 406198 v. Property Opportunities

 

While rent subsidies for apartment managers are common, linking a rent discount to management’s right to control letting for all apartments in the building proved fatal for Shiraz Holiday as manager of ‘Bianco off Queen,’ in Auckland’s central business district.  Shiraz had no lawful right to exclusive control over apartment lets.

Bianco’s two towers include a mix of owner occupiers, investors with their apartment held in a pool for hotel lets and Kainga Ora social housing.  Masoud Bassamtabar’s Shiraz Holiday Ltd purchased Bianco’s management rights in 2014 for $1.46 million.

A dispute over Shiraz’ management rights led to a High Court ruling in 2022 that a Unit Titles Act body corporate has no authority to give exclusive letting rights to anyone.  The right to let is a personal right held by each apartment owner.  That right cannot be usurped by a body corporate, selling the rights to someone else.

This High Court ruling led to a further dispute over rent subsidies allowed by the body corporate to Shiraz.  The Court of Appeal ruled invalid a Shiraz rent subsidy in respect of a unit it used for an office and hotel reception area.  Wording of the rent subsidy was linked in the management contract to exclusive control of letting rights.  Since Shiraz had no valid right to exclusive control of apartment letting, the linked rent subsidy was also invalid.

The case was sent back to the High Court to determine how much Shiraz should refund the Bianco body corporate for previous years’ rent subsidies.

Body Corporate 406198 v. Property Opportunities Ltd – High Court (19.07.23)

23.119

Company Deadlock: Stewart v. Stewart

 

With each blaming the other for deadlocked management of their Katikati kiwifruit and avocado orchard, Justice Harvey ordered Lijia Stewart co-operate to ensure creditors were paid.  Estranged spouse Peter Stewart has a protection order out against his wife and has been paying Peter Stewart Holdings Ltd’s business creditors out of his own pocket, the High Court was told. 

Lijia, also known as Luwina Guo, has been deliberately obstructive, blocking ongoing operation of Stewart Holdings, Peter Stewart claims.  She disputes his entitlement to a $196,000 annual salary.  The two are currently embroiled in a relationship property dispute, having separated in early 2021.

Meanwhile, payment of Stewart Holdings employee wages, trade creditors and tax has been prejudiced.  Mr Stewart says he spent some $600,000 of his own money to pay company debts.

Ms Stewart says she lives on a benefit and is receiving no money from a family trust which is majority shareholder of Stewart Holdings.  The protection order prevents her from attending meetings proposed to resolve their differences, she says.

The stalemate cannot continue, Justice Harvey said.  Stewart Holdings viability is under threat.  A temporary Companies Act injunction was imposed, enabling Stewart Holdings to keep trading pending a full court hearing.

Ms Stewart was ordered to sign off on payment of company debts.  Included as a company debt is Mr Stewart’s salary.  Justice Harvey ruled only fifty per cent of Mr Stewart’s $196,000 salary package is payable whilst their dispute continued.

Stewart v. Stewart – High Court (19.07.23)

23.118

Contract Variation: Oakland Dairy v. Flooks

 

A family dispute over interest on a loan secured over a Hauraki Plains farm exemplifies legal contortions needed to enforce contract variations.  Variation of an existing contract is itself a contract and legal principles require both sides to receive a benefit to have an enforceable variation.  Lawyers could borrow from economists: if the varied outcome makes you feel good; it is a benefit.

Lawyers often search in vain for a quantifiable benefit justifying a contract variation.  Agreeing to accept less than previously agreed is simply a gift to the other side; the donor receives no financial benefit (consideration in legal jargon) and the variation is not enforceable.  In jargon used by economists, benefits are measured by the ‘utility’ received.  A gift is not valueless for a donor; warm fuzzies and enhanced social reputation enjoyed by the donor are an economic benefit.

Variations to a loan, part of an inter-generational transfer of a Flook family farm on the Paeroa-Kopu Road, are better described as benefits falling into the warm-fuzzies category, rather than needing lawyers to scrabble around looking for evidence of a financial benefit for both borrower and lender.

The High Court was told Kay and Kevin Flooks passed on the family farm to son Trevor in 2008 at a price of $6.77 million.  Of the purchase price, Kay and Kevin left in $3.4 million secured by second mortgage security.  This loan was repayable in June 2018, with a formula for interest to be paid on a band between eight per cent and twelve per cent per annum.

The loan was simply rolled over in 2018, with no new repayment date fixed.  Interest charged was reduced progressively over the years in line with market rates.  Ever since 2015, interest charged has been below the minimum eight per cent specified in the mortgage document.

A family dispute arose on their father’s death in 2020.  Daughters Tracey and Debra took exception to the financial concessions that had benefitted their brother.  As one of the estate administrators, Tracey refused to sign off on a discharge of the mortgage.  She disputed the amount needed to repay the loan.

Separately, both Tracey and sister Debra are challenging terms of the family farm’s sale to their brother.        

Justice Edwards ruled there was an oral agreement between Trevor and his parents to both roll over the loan and to reduce interest payable below the contract rate.  These variations were enforceable on grounds of the ‘practical benefit’ to the family, she ruled.

Estate administrators were ordered to sign a discharge for their father’s half share of the mortgage since the debt to him had been repaid in full.  If Tracey refuses to sign, the High Court registrar was authorised to sign in her stead.

Oaklane Dairy Ltd v. Flooks – High Court (17.07.23)

23.117

Directors Duties: Auckland Trotting Club v. Canam Group

 

Holding in its favour what appears to be a worthless $85.6 million arbitration ruling against insolvent contractor Canam Construction Ltd, Auckland Trotting Club’s disastrous foray into property development now sees it suing Canam directors Loukas Petrou, Nicholas Page and Andrew Clark.

In 2015, Auckland Trotting awarded Canam Construction a $78.3 million contract for building residential apartments at its Alexandra Park track in Green Lane.  Canam was fired from the job three years later.  Another company completed the work.

A liquidators’ report filed after Canam put itself into liquidation describes as primary causes of the company’s collapse problems over Auckland Trotting’s supply of steel from China and a stop work notice imposed by Auckland Council.

Auckland Trotting’s dispute with Canam went to arbitration. Canam was ruled liable to pay $85.6 million; primarily costs of delayed completion and the extra amount Auckland Trotting had to pay for completion by another contractor.

With Canam Construction not worth suing, Auckland Trotting has fired writs far and wide claiming damages from: Canam’s directors; Canam’s holding company; and other Canam subsidiaries where it is alleged Canam stashed money.

In a preliminary High Court hearing, Associate judge Gardiner dismissed some, but not all, of the claims made against director Loukas Petrou.  If Auckland Trotting can prove that Mr Petrou failed to properly perform his Companies Act duties as director of Canam Construction, then Auckland Trotting as an unpaid creditor can recover from him directly, Judge Gardiner ruled.  Auckland Trotting alleges Canam directors were reckless.

Auckland Trotting also alleges Mr Petrou and fellow director Nicholas Page breached the Fair Trading Act, making misleading representations about Canam Construction’s financial viability.  The High Court was told of tender documents in 2015 stating Canam as having a strong balance sheet, healthy cashflows and no debt.  In contrast, a specialist report prepared partway through construction when Canam sought to renegotiate the contract described the company as facing an unsurvivable $14.8 million loss on the project, while the Canam Group claimed to be solvent.

It was Canam Construction’s failure to get a parent company guarantee within five days of being awarded the contract and its subsequent refusal make good on its promise to get a guarantee that justified subsequent cancellation by Auckland Trotting.

Auckland Trotting Club Inc v. Canam Group Ltd – High Court (13.07.23)

23.116

Tax: Aokautere Land v. Inland Revenue

 

Having fought to the bitter end litigation by Vey Group minority shareholders with a High Court order eventually forcing sale of an investment property in Wellington, company director Leslie Fugle then saw Inland Revenue snatch his $1.18 million payout in part-payment of $2.7 million tax debt owed by a Manawatu land development company he owned.

Mr Fugle is sole director and shareholder of Manawatu company: Aokautere Land Holdings Ltd.  In February 2021, Inland Revenue assessed Aokautere to $2.71 million tax on sales of land over the previous five years.  Aokautere had filed no tax returns for the period.  It did not challenge the default assessment.  It did not pay the tax.

Nearly two years later, Mr Fugle’s Aokautere Land was expecting to receive a payout on the court-ordered sale of Vey Group’s Webb Street property in Wellington.  Mr Fugle gained a controlling interest in Vey Group after initial investors fell out.  He engineered a secured loan from Aokautere to Vey Group, after gaining control.  A sum of $1.185 million was owed Aokautere following sale of Webb Street.  Inland Revenue pounced, claiming this money in part-payment of Aokautere’s earlier default tax assessment.

Aokautere is belatedly challenging Inland Revenue’s earlier default tax assessment and with it the right to seize cash expected from the Webb Street sale.

Mr Fugle claims Inland Revenue is not playing by the rules.  He says Inland Revenue did not comply with its own 2020 policy statement: The Disputes Resolution Process and Fair Trial Rights.

Under this policy, Inland Revenue waives timelimits for challenges to tax assessments where a related criminal tax prosecution is likely.  At time of the default assessment, both Mr Fugle personally and a company related to Aokautere Land were under investigation with allegations of GST fraud.  The High Court was told this fraud investigation has since been dropped.

There was no evidence of Inland Revenue ever considering a criminal prosecution against Aokautere.

Meanwhile, Aokautere asked the High Court to order disclosure of internal Inland Revenue documents justifying steps taken to snatch the $1.18 million from sale of Webb Street.

Justice Gwyn stated this demand was no more than a ‘fishing expedition,’ with Aokautere trying to build a judicial review case to overturn Inland Revenue’s seizure of the expected $1.18 million payout.  Disclosure was refused.

Aokautere Land Holdings Ltd v. Inland Revenue – High Court (13.07.23)

23.115

Trademark: Zuru v. Lego

 

A local skirmish in what is a world-wide assault by the Mowbray family business Zuru to dis-establish Lego’s trademark foundered in the New Zealand courts.  In the US, Zuru is arguing that the word Lego has lost trademark protection, going the same way by common usage as trademarks Cellotape and Velcro.

Marketing can be too successful, with a trademarked name becoming common usage as a name used to describe comparable products. 

One of Mowbrays’ manufacturing strategies for toys has been to take an existing product, produce a close clone and then market its product as being compatible with and able to be used in conjunction with the existing market leader.  Mass production in China keeps costs down; promised compatibility boosts market share, bootstrapping Zuru’s product to the market leader’s commercial reputation.

Lego came down hard on Zuru’s infiltration of its market.  Lego has been in existence for nearly ninety years.  The Danish company has long since lost copyright protection for its product.  Trademark of the name Lego is used to protect its market value.

The High Court was told Zuru sounded out US retailing giant Walmart in 2017 about stocking a Lego-compatible plastic building brick.  Walmart was enthusiastic, but rejected sample packaging describing the Zuru product as being compatible with Lego bricks.  Walmart approved packaging stating the product was ‘compatible with major brands.’

Following success with the Walmart launch, Zuru stocked its product in New Zealand the following year through The Warehouse.  New Zealand packaging described the bricks as ‘Lego bricks compatible’ with a notation over Lego to acknowledge it was a trademarked name.  Lego immediately fired off a ‘cease and desist’ letter, threatening legal action.  The Warehouse dropped the product until this issue was sorted out.  Zuru sent Lego samples of proposed packaging, seeking prior approval for any of several offered options using the word ‘Lego.’  It did not receive a favourable response. 

Zuru and Lego then fronted up to ten days of evidence and legal argument in the High Court at Auckland over use of Lego-compatibility wording on packaging.

Justice Lang ruled any use of the word ‘Lego’ on Zuru packaging was a breach of Lego’s trademark.  Zuru’s claim that ‘Lego’ had become a generic descriptive term describing interlocking toy blocks was dismissed.  Zuru’s claim that using ‘Lego’ on packaging was an honest attempt to provide consumer information about the use and quality of its product was also dismissed.

Use of Lego’s trademark was an aggressive attempt by Zuru to obtain leverage for its product, Justice Lang said.

Zuru New Zealand Ltd v. Lego Juris A/S – High Court (12.07.23)

23.114

Rates: Bushmere Trust v. Gisborne District

 

SunGold kiwifuit attract a premium price at retail; a premium reflected in market prices on sale of orchards.  This premium impacts on rating valuations where councils assess rates on ‘capital value,’ even though Zespri licences to grow SunGold are held personally in the name of the grower, the Court of Appeal ruled in a test case.

Bushmere Trust grows SunGold on just over half its 5.86 hectare property near Gisborne.  In 2020, valuers nationwide implemented new guidelines on valuation of SunGold orchards.  Bushmere was one of the first affected.  Its rating valuation jumped by some forty per cent to $4.1 million.

SunGold is grown under licence from Zespri.  Zespri is a monopsony, being the sole buyer of SunGold production.  Marketing and sales are co-ordinated by Zepri.  It controls the number of licences and specifies the areas to be planted.  Licences are personal to the grower, with Zespri approval needed for sale or transfer of any licence.

Given this background, Bushmere argued the right to produce SunGold lies with the grower personally and cannot be assessed as part of the land for rating purposes.  Bushmere land should be valued at $2.8 million, not $4.1 million, it said.

Rating legislation allows local authorities to use one of three possible methodologies to assess rates: capital value, land value and annual value.  Gisborne District uses capital value.

‘Capital value’ broadly equates with market value, the Court of Appeal ruled.  If Bushmere were to be sold, its 2020 market value would be $4.1 million, it said.  The right to grow SunGold on the property was directly relevant to Bushmere’s market value.

The court was told Zespri has never refused consent to the sale or transfer of an existing SunGold licence.

The Court of Appeal indicated value of SunGold licences is to be deducted where a local authority instead uses ‘land value’ for rating assessments.  Value of vines is deducted because they can be removed at any time, not forming part of the land.

‘Land value’ is often described colloquially as assessing rates on unimproved value.  By contrast, ‘capital value’ has property valued at its highest and best use.  This captures as part of a property’s value not only the right to plant SunGold on a rural property, but also new zoning rules in an urban environment permitting more intensive development.

Bushmere Tust v. Gisborne District Council – Court of Appeal (11.07.21)

23.113

Real Estate Agent: Goldline Properties v. Marsh

 

It is a warning to real estate agents looking to profit from purchasers’ difficulties on long term agreements to buy.  Strict disclosure rules governing real estate agents having a personal interest beyond their commission saw contracts for sale of land in south Auckland cancelled; Counties Realty director Ian Croft stepped in as joint buyer after a contract was signed but before later settlement.

The Court of Appeal was told Counties Realty acted as agent for property developer Goldline Properties Ltd in its 2020 sale of four vacant lots to Maree Dawn Marsh, with an agreed delayed settlement.  Finding herself short of finance to complete plans of shifting relocatable houses on to the properties, Ms Marsh joined forces with Mr Croft.  Over a twelve month period prior to settlement, three separate contract variations were negotiated with Goldline Properties, including a partial reduction in price.       

Goldline later cancelled the contracts.  Mr Croft’s subsequent involvement as joint purchaser taking a thirty per cent interest in the project was in breach of the Real Estate Agents Act, it said.  Cancellation was disputed.   

Consumer protection rules in the Act require real estate agents get fully informed consent from vendors whenever they have a personal interest in a sale beyond their commission.  These rules focus on the outcome of transactions, the court ruled.

The Court of Appeal said Mr Croft’s Real Estate Act obligations continued after the original contract was signed.  When terms were renegotiated prior to settlement, there was a conflict; Goldline was still Mr Croft’s client at a time when he had become joint purchaser and was negotiating variations for his own benefit.

Goldline could cancel, the court ruled.

With cancellation, it was agreed that the Marsh/Croft joint venture was entitled to compensation for work it had done; fencing and landscaping plus relocation of houses on two of the four lots.  Goldline disputes their claim for $500,000 compensation.

Goldline Properties Ltd v. Marsh – Court of Appeal (7.07.23)

23.112

Duress: Tang v. Sunbow Ltd

 

Sentenced to 18 years jail for the 2020 murder of business associate Elizabeth Zhong, Fang Sun used stand-over tactics to force signature on a document claiming $2.07 million.  In the High Court, this contract was ruled not enforceable on grounds of duress.

A curtain was lifted partially on the business dispute leading to Ms Zhong’s death when the High Court was asked to rule on validity of a 2019 contract signed in the year before she was murdered in her east Auckland Sunnyhills home.

Her business relationships were complicated.  The fact she held New Zealand citizenship was a major asset.  There were claims Ms Zhong held assets in trust for offshore investors.

Evidence was given of Sun transferring substantial sums from China to New Zealand; money placed with Ms Zhong for property investment.  She came to be involved with a company called Sunbow Ltd which owned land and a vineyard on Waiheke Island.  She guaranteed Sunbow debts and was paying interest on a mortgage over Waiheke securing borrowings from a company called DBR Ltd.  With Sunbow and related companies under pressure, Sun provided financial assistance.  It was not clear whether this was a loan or an equity investment in the business.  This financial support was in addition to some $1.3 million provided two years previously, described in court by Sun as pre-payment for purchase of Waiheke and its vineyard.  The $1.3 million purchase was not finalised.  Getting Overseas Investment Office consent proved a stumbling block.

The High Court was told Sun then demanded repayment of funds provided to Sunbow.  At the same time, DBR was threatening a forced sale to recover its loan.  A deal was negotiated between Zhong and Sun: Waiheke was to be sold to interests associated with Sun for $4.5 million, with a deduction of $2.07 million stated as funds previously provided.  Circumstances in which this agreement was signed led to the later High Court hearing about the agreement’s validity.

In affidavit evidence provided by Ms Zhong in court proceedings underway before her death, she stated she was pressured into signing with threats she would otherwise be killed.  Ms Zhong told of being continually harassed with phone calls and of being threatened more than once.

She did sign, but it was not in her commercial interest to sign.  As guarantor of Waiheke debts, it was more advantageous for her to find a third party buyer, getting the full price in cash and clearing business’ debts, rather than getting a lesser sum of $4.5 million minus $2.07 million on a sale to Sun.

Waiheke was sold to a third party for $4.3 million.  Ms Zhong was murdered eleven months later.

Sunbow liquidators asked for a High Court ruling on whether the $2.07 million agreement evidenced a debt Sunbow had to pay.  Justice Tahana ruled it was not a Sunbow debt; it was signed under duress with Ms Zhong signing on behalf of Sunbow with her life threatened.

Insolvency Service records show she was bankrupted by an unpaid creditor in the weeks after her death.

Tang v. Sunbow Ltd - High Court (5.07.23)

23.111

Director Disqualification: Olliver v. Registrar of Companies

 

Auckland property developer Greg Olliver’s disqualification from company management was reduced by one year, leaving him free to act as a company director from October 2024.

Mr Olliver has been a frequent visitor to the High Court; primarily litigation surrounding ownership and control of properties at Waimarie Street in Auckland seaside suburb St Heliers.  Ownership eventually passed to Oceania retirement group.

Management of initial site works for a then proposed subdivision by Mr Olliver resulted in a Companies Office ruling banning him from managing any company until October 2025; a four year ban.  His first court challenge to this ban was dismissed eight months later.

Undeterred, Mr Olliver again challenged the ban.  Legal argument centred on reasons for liquidation of BBG Holdings Ltd; a company controlled by Mr Olliver intended as the legal vehicle for his ultimately unsuccessful efforts to redevelop Waimarie Street.

Companies Office complaint was that Mr Olliver was a risk to creditors.  He had traded BBG whilst insolvent, it said; in particular, by starting earthworks on land it did not yet own, without a firm price for the work to be done, and allowing the work to continue knowing BBG did not have the funds to pay.

There was evidence of this work extending to neighbouring land for the benefit of Mr Olliver personally.

Mr Olliver said Companies Office had inflated and overstated the extent of his supposed mismanagement.  Companies Office failed to take into account references provided as to his business acumen, he said.  It was also taking a punitive stance, he argued.  In its report, Companies Office said: ‘anything less than a substantial period of prohibition would be a slap in the face for all law-abiding directors.’

Reducing the period of disqualification to three years, Justice Tahana said that while Mr Olliver was a risk to creditors and had acted to protect his own interests to the detriment of creditors, the extent of mismanagement was not as serious as the Companies Office found.   

BBG liquidator’s final report states unsecured creditors totalling $919,900 received 27 cents in the dollar.

Olliver v. Registrar of Companies – High Court (5.07.23)

23.110