Management Contract: Ena Holdings v. Admiralty Lodge Motel

 

Brian Johnson sold management rights for Admiralty Lodge motel on Whitianga’s Buffalo Beach for $950,000 in late 2019 being aware revenue was about to plummet.  Buyers Vinod Sharma and Ena Chaudrey claim damages, saying Admiralty management rights they purchased proved worthless. 

When the motel was constructed, resource consent prohibited Admiralty unit owners from living in their units permanently.  Owners gave Mr Johnson’s company the job of managing lets and maintaining the site.  In 2019, the Admiralty body corporate got council consent allowing permanent occupation by owners.  This looked to be an existential crisis for Mr Johnson’s management contract; owners were likely to take up personal residence, no longer renting out their unit.

Evidence was given that Mr Johnson’s company, Admiralty Lodge Motel (2016) Ltd, negotiated a ten year extension of its management rights in August 2019.  Three months later, these management rights were up for sale.  Dr Sharma and Ms Chaudrey bought the rights for $950,000 with a later agreement that $475,000 of the purchase price would be a vendor loan secured over the Admiralty apartment owned as part of the management contract.  Dr Sharma has extensive experience in the hospitality industry, having involvement in VR Group and Kiwi Hospitality LLC.    

The two allege comments about future profitability made by Mr Johnson during negotiations breached both the Fair Trading Act and the Contract and Commercial Law Act.  Each side sued the other; Dr Sharma and Ms Chaudrey alleging misrepresentation; Mr Johnson seeking to enforce his $475,000 vendor loan.

Following a ruling under its fast-track summary judgement procedure, the High Court ordered payment of the $475,000 loan.  This was put on hold by the Court of Appeal.

The Court of Appeal said there is too much unresolved evidence to allow a fast-track decision.  In particular, a need to identify what exactly Mr Johnson said about future profitability and the extent to which there had been appropriate disclosure about motel units potentially being removed from the rental pool.

Ena Holdings Ltd v. Admiralty Lodge Motel (2016) Ltd – Court of Appeal (31.08.23)

23.146

Debt: Keung v. Connolly

 

Desperately short of cash, Christchurch property developer Seng Bou Keung borrowed $90,000 from his then girlfriend and then failed to make full repayment, conjuring up a story that she had agreed to put money into a property development.

Mr Keung, also known as Paul Keung, is recorded on Insolvency Service’s bankruptcy register as having been bankrupted twice: in 1997 and 2010.

The High Court was told Mr Keung was under severe financial pressure in late 2020.  Girlfriend Leisha Connolly came to the rescue giving him $90,000.  The two had been in a relationship since late 2018.  This relationship came to an end shortly after payment of the $90,000.  A dispute over repayment led to a District Court trial and a subsequent High Court appeal.

The trial judge ruled this $90,000 payment was a loan.  Mr Keung had made some repayments.  He was ordered to pay the balance of $49,000.

The High Court confirmed it was a loan, with $49,000 still owed.  Email exchanges subsequent to payment of the $90,000 made it clear it was a loan.  Mr Keung’s protestations that he did not need a loan as he was not under financial pressure at the time were dismissed at trial as ‘totally implausible’ and ‘bordering on farcical.’  His claim that partial repayments were in fact a salary paid Ms Connolly in respect of their supposed joint venture property development was not supported by any evidence.

His further claim that Ms Connolly would be repaid later, having agreed her money was part of a joint venture in development of a property in the Christchurch suburb of Somerfield was dismissed as lacking any evidence in support.

Mr Keung said coding on his bank statement describing the $90,000 payment as an ‘investment’ was evidence that Ms Connolly was making a joint venture investment.  She said this wording was used instead of ‘loan’ at Mr Keung’s insistence; he wanted to hide existence of the loan should banks look at his bank statements as part of their due diligence when he was seeking bank finance.

Keung v. Connolly – High Court (29.08.23)

23.145

Guarantee: Heartland Bank v. Burton

 

Ordered to pay $1.2 million on a guarantee of his company’s borrowings from Heartland Bank, David Burton failed in his claim that the Bank was at fault for not letting him know that fellow director Justin Paul was exceeding previously agreed overdraft limits. 

There is no general rule that banks must keep guarantors apprised of their company’s solvency, Justice Andrew ruled.  And Mr Burton, as a director, was expected to keep abreast of his company’s financial position.

Auckland Concrete Ltd, owned by interests associated with Mr Burton, went into liquidation insolvent in April 2023.  The liquidators’ initial report quotes Mr Burton as saying underpricing on construction contracts and unbudgeted increases in material and labour costs led to the company’s failure.  Mr Burton alleges former director Justin Paul was to blame.  Mr Paul resigned as director in 2021, leaving Mr Burton as sole director.

Both had signed guarantees in support of Auckland Concrete’s borrowing from Heartland Bank.

The High Court was that in early 2021 Heartland was keeping a close watch on Auckland Concrete’s account.  Successive emails to Mr Paul expressed concern about borrowings in excess of the company’s agreed overdraft limit.  Small increases in the limit were agreed periodically, and then promptly again exceeded.

Evidence was given that Mr Burton around this time was stepping back from day-to-day management.  Mr Paul was interested in buying him out.

Mr Burton claimed Heartland’s failure to keep him advised as guarantor about the increasing overdraft meant that he was personally liable for only the amount agreed when he signed the guarantee: $748,000.  Mr Burton had his family trust pay this amount to Heartland Bank.  Liability for further payment was disputed.

Justice Andrew dismissed Mr Burton’s claim that Heartland Bank was in breach of its duties under the Credit Contracts and Consumer Finance Act by failing to tell him of increased borrowing limits agreed with Mr Paul.  The Act applies to consumer credit transactions; Auckland Concrete’s borrowings were a commercial loan.

Separately, Justice Andrew dismissed a claim that Heartland owed a general duty to Mr Burton requiring ongoing disclosure of changes to borrowing limits.  The loan contract guaranteed by Mr Burton explicitly contemplated changes.

Heartland Bank v. Burton – High Court (28.08.23)

23.143

Contract: Kingsbeer Transport v. Martin-Brower

 

McDonalds demands high standards from its suppliers, not reciprocated when it left a Tauranga trucking company high and dry without formalising a contract for regular stock delivery runs across Bay of Plenty.  The Court of Appeal ruled Kingsbeer Transport is entitled to compensation for loss of profits on an abandoned contract.  Damages are yet to determined; Kingsbeer claims some $678,000.

Kingsbeer Transport Ltd, operated out of Te Puke by Tony and Nicky Kingsbeer, was contracted for supply runs from Auckland to McDonalds outlets in both Gisborne and Whakatane when offered the opportunity in early 2018 to take up the Rotorua run as well.

It thought a deal had been agreed with McDonald’s then distribution manager Andy Millin promising a long-term five year contract and an agreement to meet short term truck-leasing costs while Kingsbeer had a further refrigerated truck and trailer constructed.  Mr Millin was McDonalds most senior manager in New Zealand.

McDonalds New Zealand, controlled out of Australia and under the watchful eye of head office in Chicago, was in the middle of a staff reorganisation.  Mr Millin was made redundant.  The court was told Kingsbeer was left hanging; picking up the Rotorua contract, incurring substantial short-term leasing costs and making no headway in email conversations with McDonalds about progress on a formal contract.  Kingsbeer needed surety of a long-term contract in order to get some $500,000 finance for an extra truck and trailer.  In addition, there was haggling over the per kilometre rate to be paid for the job.

Frustrated and running into cashflow problems, Kingsbeer bailed out several months later, abandoning the Rotorua contract and suing for breach of contract.

After a High Court hearing, the trial judge ruled Mr Millin had no authority to conclude any contract with Kingsbeer; approval was required from Australia.  Kingsbeer’s claim was dismissed.

The Court of Appeal ruled that while Mr Millin had no actual authority to make the contract, he had ostensible authority: McDonald’s had previously accepted actions taken by Mr Millin outside his actual authority and consequently had to accept the Rotorua Kingsbeer contract as being similar to past practice by McDonalds for the selection and management of contractors.

The Court of Appeal ruled Kingsbeer did have a five year contract for the Rotorua run which it was justified in abandoning when McDonalds did not follow up with a formal contract needed to get funding for an extra vehicle.  The court also ruled Kingsbeer was promised up to $50,000 to cover short-term leasing costs.  Kingsbeer says it spent $91,200 on short-term costs.

The case was sent back to the High Court to assess damages.

Kingsbeer has wound up its business and sold its trucks after giving notice that it was also quitting its Whakatane and Gisborne runs.

Kingsbeer Transport Ltd v. Martin-Brower New Zealand – Court of Appeal (23.08.23)

23.143

Accounting Information: Johnson v. Johnson

 

They separated in 2014 and have kept lawyers very busy with a multitude of claims and accusations.  Maria Johnson has been ordered to pay $1.13 million to former spouse Craig; he asked for a suspended arrest warrant as leverage when seeking information about her business assets.

Before separation, the two jointly invested in a number of preschool businesses.  As part of their relationship property settlement, they agreed to divvy up the seven schools owned by their company, Little School Ltd: Ms Johnson took control of five; Mr Johnson two.

The market value of these schools is in dispute.

Armed with a court ruling in his favour for $1.13 million, Mr Johnson applied for a court-ordered examination of his former spouse’s net worth.  Court examinations on oath are used to identify assets that can be seized in payment of court judgments.

Included in the assets disclosed was Ms Johnson’s shareholding in Little School Ltd.  Mr Johnson questioned the value disclosed; it was the same dollar amount as an earlier December 2021 valuation he was aware of.  He asked to see the financial information used to derive the share value.  Ms Johnson refused.  The asset she owns is shares in the company; the company itself is a separate legal entity and it is not under examination in court, she said.

Further, her former spouse is seeking information about profitability for a collateral purpose, she said.  He is a business rival, operating his own preschool business.

Financial information about the company is necessary to determine an appropriate value for the company’s shares, Justice Gwyn ruled.  She ordered this information be disclosed for analysis by an accountant nominated by Mr Johnson’s lawyer.  Mr Johnson personally is not allowed access.

To ensure disclosure, Mr Johnson asked an arrest order be made, suspended pending production of the required accounting information within two weeks.  Justice Gwyn said it is for the court to decide later on any arrest if the required information is not provided.

Johnson v. Johnson – High Court (22.08.23)

23.142

Power of Attorney: Dijkstra v. Tierney

 

With authority transferred to Public Trust, Henry Dijkstra was stripped of authority to act under an enduring power of authority in respect of his father’s finances and ordered to account for expenses paid from his father’s money.  Rather than appeal, he belatedly and unsuccessfully sought judicial review of the Family Court decision saying court failures to properly advise of a hearing date caused lack of a fair hearing and a breach of natural justice.

The Court of Appeal was told Henry’s sister Martha took exception to Henry’s management of their father’s finances before his death.  Their father Gezinus died in 2020.

In 2012, Gezinus appointed Henry as his personal attorney under the Protection of Personal and Property Rights Act.  By 2015, he was sharing his time between Martha’s household in Tawa and Henry’s in Carterton.

Henry subsequently took control of his father’s finances after having a doctor write a letter stating Gezinus no longer had the capacity to make decisions.  Unbeknown to Henry, this did not trigger operation of the power of attorney; the doctor had not examined Gezinus at the time.

From August 2016, Gezinus went to live in Masterton care facilities.  Queries by Martha about her father’s finances led to a closer examination of Henry’s use of the 2012 power of attorney.  Henry was supposed to have consulted family before exercising any powers.  He was prohibited from gaining any personal benefit.  His failure to provide any information led eventually to a Family Court application to remove him.

Meanwhile, Henry had his father sign a replacement power of attorney: the 2017 document.  A doctor confirmed he had the capacity to sign.  The 2017 power of attorney did allow self-dealing and specifically allowed Henry and his family to live at Gezinus’ home and to pay their living expenses out of his bank account.

The court was told of Henry putting pressure on his father, threatening to shift overseas with his family if Gezinus did not sign.

A series of preliminary court hearings followed as Martha sought details of payments made and Henry sought validation of the 2017 version.  Initially Henry had a lawyer represent him, later choosing to represent himself.

Once all issues had been clarified, a date could be set for a full Family Court hearing.  Administrative errors at court meant Henry got four days notice only of the hearing.  He did not attend, later claiming a breach of natural justice.

The Court of Appeal said Henry had known for months a court fixture date was pending.  He had ample time to prepare even if he had short notice of the actual date.  Henry could have appealed the Family Court decision made in his absence; an appeal would be a full rehearing.  He had twenty working days to appeal.

The court ruled there had been no breach of natural justice.  The Family Court decision stood.

With Henry still refusing to provide details of expenses paid out of his father’s money, the accounting evidence was that Henry had benefitted personally by about $136,700.  This amount is to be deducted from Henry’s share of his father’s estate, the court said.

Dijkstra v. Tierney – Court of Appeal (21.08.23)

23.141

Lease: Sahar Ehsani Investment v. Retyred (2020) Ltd

 

Having guaranteed lease obligations of his company Retyred (2020) Ltd, director Warren Sinclair was ordered to pay $1.6 million anticipated costs of removing tyres stacked across some seven hectares of a south Auckland commercial site.   

The High Court was told Retyred leased a commercial site on Dominion Road at Red Hill for what was described as ‘recycling tyres and [as] a show home display yard for modular house business.’  Landlord Sahar Ehsani Investment Ltd ran an auto parts business from an adjoining site.  There was little neighbourly love.

Sahar grew concerned about the ever-increasing stack of tyres dumped next door with little evidence of recycling operations commencing.  A trespass notice was issued after Retyred trucks persistently encroached on Sahar’s driveway when delivering tyres.  Retyred stopped paying rent.

Retyred ignored a court order that the volume of tyres on site be limited to one hundred cubic metres.  Sued for damages, Retyred and Mr Sinclair did nothing until the case was set down for an undefended hearing.  Justice Campbell refused their application for late filing of their defence; the case went ahead without them.

Evidence was given that it would cost about $1.7 million to remove all tyres and remediate the site.  Terms of the lease gave landlord Sahar the right to carry out repairs should the lessee default and to recover all expenses as a debt.

Rules governing damages for breach of a lease come from English land law, measuring damages as a reduction in the property’s value should the lease run its full term.  Retyred’s lease has less than four years to run.  It was possible that Retyred might remove the tyres before its lease ended.  The current cost of reinstatement was discounted to $1.64 million.

Separately, Retyred was ordered to pay damages of $5000 for its persistent trespass on Sahar’s neighbouring driveway plus another $20,000 exemplary damages for actions of its employees in ignoring a trespass notice and then cutting a chain installed to prevent continued trespass.

Sahar Ehsani Investment Ltd v. Retyred (2020) Ltd – High Court (2.12.22 & 21.8.23)

23.140

Fraud: Purucker v. Huebler

 

Iris Huebler was ordered to repay $869,000 stolen from long-term friend Alexandra Purucker.  A grossly one-sided relationship property agreement with husband Rainer signed after the fraud was discovered was set aside by the High Court as a stratagem designed to prevent recovery of money owed.

Ms Purucker emigrated to New Zealand from Germany in 1996 where she later purchased a well-known Takaka café called The Dangerous Kitchen.  A close relationship developed with fellow German national Ms Huebler who ran a consulting business from her home near Collingwood.

Ms Purucker came to place complete trust in Ms Huebler to run the accounting side of her business, giving her access to business and personal bank accounts.  The Kitchen was sold in 2010.  Ms Huebler then provided investment advice, managing term deposits and recommending investments in businesses associated with Ms Huebler.  The amount requiring investment grew as a result of inheritances Ms Purucker received following the deaths of her parents.

Investments included a $100,000 loan for Ms Huebler to set up a business called The Super Food Academy.  The High Court was told much of this money was used by Ms Huebler to purchase an online management course provided by a Calfornia-based company.  Ms Purucker’s bank did contact her to verify approval for the offshore payments, causing her to check with Ms Huebler.  Ms Purucker told the High Court she was misled as to the reason for the off-shore payments and would never have approved them if told the real reason for the bank transfers.     

When Ms Purucker was travelling through Europe in 2018, she received a phone call from Ms Huebler saying Ms Purucker’s bank accounts had been hacked in a massive internet fraud.  Ms Purucker laid a complaint with police after returning to New Zealand, finding her bank accounts had been emptied.

Ms Huebler was subsequently convicted of theft, sentenced to four year’s imprisonment.

Within days of learning that Ms Purucker was taking legal action, Ms Huebler and her husband transferred all funds held jointly into a bank account controlled by Mr Huebler alone and signed a document stating they had agreed to separate.

Later, a formal relationship property agreement was signed dividing their assets: 97 per cent to Mr Huebler; three per cent to Ms Huebler.  The High Court was told this ratio represented the relative value of their assets on emigration to New Zealand some twenty-five years previously.

Justice Isac ruled the relationship property agreement invalid, signed for the dominant purpose of defeating Ms Huebler’s creditors.

He doubted whether the two had in fact separated.  There was evidence they continued to live at the same property in Golden Bay after supposedly separating and had been seen locally in one another’s company.  This apparent cohabitation ended only when Ms Huebler was taken into custody.

Justice Isac ruled Ms Huebler was liable to repay Ms Purucker $868,900 for money stolen together with exemplary damages of $50,000 for the manner of her systematic fraud carried out at a time when she pretended to have Ms Purucker’s best interests at heart.

Justice Isac dismissed Ms Huebler’s claim that no money was ever stolen.  Any ‘missing’ money had been repaid, she said.  And any losses were due to Ms Purucker’s lavish spending on overseas travel and improvements to her home, she claimed.  No evidence was provided to support these claims.

Her husband Rainer Huebler was held jointly liable to repay $155,100; funds belonging to Ms Purucker banked to the Hueblers’ joint account or received in cash.  This joint bank account was used to pay household expenses and supplies for his electrical business.

Purucker v. Huebler – High Court (18.08.23)

23.139

Secret Trust: Hita v. Hita

 

Emora Hita’s claim that sister Sam held assets from their late father’s estate on a secret trust for the benefit of all their siblings was dismissed in the High Court, but Emora was awarded $55,000 in a Family Protection Act claim.

Justice Anderson expressed dismay at family ructions caused by a do-it-yourself will completed online from a template downloaded from the internet.  Getting advice from a Community Law Centre or Citizens Advice Bureau before signing could have avoided the subsequent fallout between members of the Hita family, she said.

Edward Hita died in 2020, aged 61, leaving an estate valued at about $360,000 with the main asset being his home on Awakino Street in Te Kuiti.  His wife Ngapoko had died the previous year.  The High Court was told Ngapoko died without a will.  Legal complications that followed led family members to prod Edward into drawing up a will for himself.

Evidence was given of daughter Samantha (known as Sam) assisting her father to draw up a will.  She found a template on line, leaving her father to fill in the details.  He listed his five children under the heading of ‘children’ but made no further mention of them, other than listing Sam as sole executor and effectively leaving her as sole beneficiary; the will made no gifts to any person, leaving the ‘residue’ to Sam.   

Sam was the family ‘organiser.’  After her mother’s death, she made sure her father kept on top of things and paid bills on time.  She remonstrated with sister Emora after Emora and family shifted in with their father for a period, paying rent sporadically.

The fact Edward’s will left everything to Sam caused a family dispute.  Sam said their father had left everything to her, relying on her to ‘sort out his stuff.’  Meetings between Sam and her siblings came up with various options on how their father’s assets might be divided, ranging from a straight division between Edward’s five children and two step-children to a list of specific assets going to specific individuals.  No agreement was reached.  Lawyers got involved.

A claim Edward’s will should be invalidated on grounds of undue influence by Sam was dismissed.  Justice Anderson said that while Sam had been very ‘hands on’ in assisting their father with his finances, there was no evidence of any undue influence when the will was prepared.

Emora said a secret trust existed; an agreement between Sam and their father at the time the will was prepared that while all assets were going to Sam she held those assets on behalf of her siblings.

A secret trust is an agreement between will-maker and trustee, made to take effect on death, in which the trustee agrees to use estate assets for the benefit of a person not named specifically in the will; historically used to benefit extra-marital partners or children born out of wedlock enabling them to inherit without their existence disclosed to immediate family.

Emora claimed there was a secret trust requiring Sam to distribute estate assets equally between all siblings.  Justice Anderson said there were no events either before or after Edward’s death to support the existence of a secret trust, stipulating how his assets were to be distributed.

Separately, Emora made a Family Protection Act claim against her father’s estate.  Completely excluding her from his will breached a legal duty to provide maintenance and support owed children by a parent, she claimed.  The court was told Emora was unemployed at the time the will was signed.  She subsequently got a job.  Her only asset of substance is a car.  She was awarded $55,000, calculated at about fifteen per cent of her late father’s estate.

Hita v. Hita – High Court (15.08.23)

23.138

Overseas Investment: Winton Property v. Minister of Finance

 

Described as an attempt by under-bidder Winton Land to reopen negotiations for 69 hectares of undeveloped prime residential land sold near Havelock North, a challenge to Overseas Investment approval given for CDL Land’s $58 million purchase in 2020 was dismissed by the Court of Appeal.

Litigation followed sale by the Lowe family of a large block of land west of Havelock North.  Following deaths of Mr and Mrs Lowe senior, family members had the land rezoned for intensive residential subdivision named as the Iona Special Character Zone.  It was a valuable prize for developers.

Three potential buyers were in the running: CDL Land New Zealand Ltd, owned by listed company Millennium & Copthorne, being part of a Singapore-based corporate group; Winton Property Investments Ltd, owned by listed company Winton with majority control in the hands of interests associated with CEO Chris Meehan; and a Tumu Merchants/Greenstone Land joint venture.

The Court of Appeal was told Lowe interests sold to CDL Land for $58 million.  As under-bidder, Winton Property made two signed offers: $32 million subject to due diligence; $25 million subject to board approval only.

CDL Land’s purchase required government approval under the Overseas Investment Act given the level of offshore ownership held through its parent company.  Approval requires evidence that the overseas investment provides economic benefits not otherwise available through a local purchaser.

Winton Property sued six weeks after learning CDL had overseas investment clearance, seeking judicial review of government’s decision.  Judicial review is not an appeal.  It is a challenge to the process by which a decision is made.

Winton claimed a clearance report prepared by Overseas Investment Office for government consideration did not present a fair and accurate summary of the sale and its consequences.

In the course of its judicial review hearing, evidence surfaced that Winton attempted to sabotage CDL’s overseas investment application by submitting an anonymous complaint that CDL had failed to disclose the fact a New Zealand based entity (being Winton) was in the running and had made an unconditional offer to purchase the land.         

The Court of Appeal dismissed Winton’s application for judicial review.  The court said that even if there had been errors in process it would not have overturned CDL’s investment clearance.  There was no realistic prospect of the Lowe family reopening negotiations with Winton Property; its best offer was barely half that offered by CDL.  And Winton itself had caused or contributed to many of the issues raised on judicial review by failing to openly engage with Overseas Investment Office at time of CDL’s application.

Winton Property Investments Ltd v. Minister of Finance – Court of Appeal (15.08.23)

23.137

Partnership: Cole v. Cole

 

A court order was needed to dissolve a Christchurch husband and wife farming partnership because she refused to engage in any discussions to wind up the business.

Doctors David and Katriona Cole purchased a twenty hectare lot on Beltons Road at Leeston just outside Christchurch in 1999.  The property provided a family home.  The adjoining farm was initially stocked with deer.   

The High Court was told the two separated in 2012 and their marriage dissolved in 2016.  She continued to live at the property running the farm while her husband lived in Christchurch.  She was convicted under the Animal Welfare Act in 2021 after stock died, left without adequate food or water.  The sentencing report described her as suffering excessive anxiety and worry which led to her incapacity to make decisions and complete tasks.

Throughout this time Mr Cole ensured Beltons Road property costs were paid.  Earthquake damage could not be made good because no agreement could be reached on repairs.  An insurance payout following the Christchurch earthquake sequence was parked in a nominated partnership bank account requiring signatures from them both to fund any repairs.

Proposals over many years to wind up their business partnership and to sell Beltons Road came to naught.  Mrs Cole failed to respond.

Partnerships are created by agreement.  The most common way a partnership comes to an end is similarly by agreement between partners.  Partnership Law Act provides a backstop when partners cannot agree.

In the High Court, Justice Dunningham ruled there were grounds to dissolve the Cole family partnership under any one of three grounds: the business could only be carried on at a loss, Mrs Cole had acted in such a way that it was not reasonably practicable for Mr Cole to remain in partnership with her, and it was just and equitable to dissolve the partnership.

Mrs Cole did not attend court to challenge dissolution of their partnership.

She was ordered to give up possession of Beltons Road.  Justice Dunningham ordered the property be sold with proceeds of sale divided equally with a deduction from Mrs Cole’s share for costs incurred by Mr Cole to maintain the partnership assets and to remove dead stock.

The High Court registrar was authorised to sign all necessary legal documentation on behalf of Mrs Cole if she failed to do so.

Cole v. Cole – High Court (14.08.23)

23.136

Family Trust: NZ Bloodstock v. Jones

 

NZ Bloodstock pulled up short in attempts to recover $645,000 owed by Auckland lawyer Greg Jones with its attempt to force sale of shares held by Jones’ family trust.  NZ Bloodstock allege the trust does not exist and is being used to camouflage Jones ownership of shares in a company called Harlow Holdings.

Harlow Holdings Ltd has a chequered history.  Mr Jones is listed as holding personally a one-third interest in Harlow.  The company was voluntarily de-registered in 2012, taken off the company register.  Nine years later it was miraculously re-incarnated, restored to the register following a court application by Mr Jones.  This re-incarnation occurred the year after Mr Jones was held liable to repay NZ Bloodstock loans.  

Mr Jones is fiercely resisting attempts to enforce repayment.  NZ Bloodstock has court proceedings underway attempting to bankrupt him.

Separately, it sought a court order forcing sale of Mr Jones shareholding in Harlow Holdings.  The value of these shares is unknown.  Mr Jones says he does not own these shares personally; he holds them as trustee of a family trust: the MOF2 Trust.  NZ Bloodstock alleges the Trust is a fiction.

Mr Jones produced to the High Court a trust deed dated 1995, together with financial records dated back in 2007.  Justice Downs said the documents are authentic.  There is no doubt that a trust exists and that it owns the Harlow shares, he ruled.

NZ Bloodstock then challenged the Trust’s validity, claiming it was a sham and no more than Mr Jones alter ego. NZ Bloodstock provided no evidence to support these claims, Justice Downs said.

Justice Downs said a better argument is that the Trust is simply invalid and that the Harlow shares are Mr Jones’ personal assets.  Trust deed wording gives Mr Jones complete control of all trust aspects such that it could be said no trust exists at all.  But it is not for the judge to argue NZ Bloodstock’s case on its behalf, he said.

While NZ Bloodstock’s attack against the existence of Jones’ family trust failed, Justice Downs did impose a charging order in favour of NZ Bloodstock against Mr Jones interest in MOF2 Trust assets as a named beneficiary.  A charging order tags an asset; the first step to a forced sale.  NZ Bloodstock’s application for a forced sale of the Harlow shares was declined.  Mr Jones is a discretionary beneficiary of the Trust.  The interests of other beneficiaries must be identified before any sale can be ordered, Justice Downs said.

NZ Bloodstock Finance & Leasing Ltd v. Jones – High Court (10.08.23)

23.135

Tax: re Onslow Trust

 

Tax law overran tax planning with High Court approval needed to change terms of a family trust to avoid a $252,000 tax liability.

Warwick Peers set up his Onslow Family Trust in 1992 with the Trust later becoming one of two partners in a business partnership established in 2006.

The High Court was told the Trust’s tax adviser later found an expensive fishhook; the 2006 partnership agreement specified this partnership automatically came to an end on the same date either of the two trusts making up the partnership themselves came to an end.

Vesting date for the Onslow Trust is 22 November 2024.  That meant the Trust (and the partnership) would wind up on that date, with an expensive $252,600 tax bill immediately kicking in.

This potential tax bill arises from tax rules requiring a write back of depreciation allowed as a tax expense on assets owned by the partnership.  Tax rules force a clawback when defined assets are sold within a prescribed number of years from date of purchase.

Extending Onslow Trust’s vesting date was one solution.  This created its own problems.  Included as potential beneficiaries are unborn children of the Peers family.  Adult beneficiaries could consent to Trust deed amendments, extending the vesting date; beneficiaries not yet born could not.  

Using powers in the Trusts Act, Justice Osborne consented to an extension on behalf of unborn beneficiaries.  As a traditional New Zealand family trust, the Onslow Trust was intended to see trust assets preserved and grown for benefit of future generations, he said.

Vesting date for Onslow Trust was extended to 2117.

re Onslow Trust – High Court (9.08.23)

23.133

Insurance: Catherwood v. Asteron Life

 

An early insurance payout in excess of $1.2 million hung on one of two meanings for the phrase ‘regardless of’ as Christchurch lawyer Hugh Catherwood unsuccessfully challenged Asteron Life’s refusal to pay out on the terminally-ill option of his life insurance.

In 2018, a routine medical examination identified Mr Catherwood as having an oesophageal adenocarcinoma with a tumour at the top of his stomach.  The Court of Appeal was told he had for nearly fifty years paid for life cover.  The policy in operation at time of his 2018 cancer diagnosis was an Asteron ‘SmartLife Policy’ offering several types of cover: trauma cover following major surgery, life cover payable on death, and terminal illness cover where the amount payable on death could be paid out early on becoming terminally ill resulting in a life expectancy of less than twelve months.

Mr Catherwood underwent comprehensive surgery to remove his tumour, followed by chemotherapy.  Asteron paid $564,000 for a claim under his trauma recovery option.

A subsequent million dollar claim under his terminal illness option was disputed.  Mr Catherwood’s surgeon considered likelihood of death within twelve months following surgery as being low; less than ten per cent.            

Mr Catherwood said wording of his terminal illness cover was plain; payment was due where life expectancy, ‘regardless of’ any available treatment, was not greater than twelve months.  Doctors had told him that without surgery he would be dead within a year.  He was diagnosed with a terminal condition.  That fact qualified him for a terminal illness payout, he said.  It was a contractual entitlement, despite his successful surgery and survival beyond twelve months, he claimed.   

‘Regardless of’ has two dictionary meanings, the Court of Appeal said.  It could mean ‘disregarding’ or ‘despite.’  Mr Catherwood said ‘regardless of’ meant death was likely within twelve months disregarding available medical intervention; Asteron said ‘regardless of’ meant a payout was made if death was imminent despite possible medical treatment.

Asteron policy wording used the phrase ‘regardless of’ in other places, used in each instance to mean ‘despite,’ the Court of Appeal said.  The same meaning applied to the policy’s terminal illness option, it ruled.  Mr Catherwood did not qualify for a terminal illness payout.  A terminal illness was diagnosed, but available medical treatment meant death was unlikely within the next twelve months.

Mr Catherwood, or his estate, may still collect in the future.  The court was told his policy remains in force as he has continued paying premiums when due.

Catherwood v. Asteron Life Ltd – Court of Appeal (9.08.23)

23.134

Estate: re Estate Denis Chambers

 

She started her working career operating a trench digger, progressing over two decades to become general manager and a director of family-owned earthwork contractor Chambers & Jackett Ltd based in Tasman.  Following the 2020 death of her father Denis Chambers, daughter Cindy found his forty per cent shareholding valued at $3.4 million had been left to her stepmother Lynette, contrary to a family understanding that Cindy would inherit.  The High Court ruled Cindy was entitled to take ownership of the shares, with stepmother Lynette to receive an annual allowance from the company during her lifetime.

The High Court was told the Chambers and Jackett families’ contracting business was founded nearly one hundred years ago.  Cindy is a third generation Chambers now working for the business.  She served her apprenticeship as a machine operator, before moving into management.  As with other family members, she was paid below market rates, being given shares in the company as time progressed.

At the time of her father’s death, Cindy and her family trust had a ten per cent shareholding in Chambers and Jackett.  Relatives expected that her father’s forty per cent shareholding would be passed to her on death.  The tradition had been for shares in the family-owned company to be left by will to blood relatives, preserving the family legacy.  Evidence was given that Denis had frequently stated his shares would go to Cindy.  She was ‘the son he never had.’  Evidence was given of comments confirming that Cindy would inherit made by Denis to both extended family and his accountant at the time of his terminal illness.

However, terms of Denis’ 2007 will left the residue of his estate, which included his Chambers and Jackett shareholding, to his second wife, Lynette.  Denis’ accountant told the court that Denis had a poor understanding of the value of his business and how his business affairs were structured, being more interested in hands-on work out in the field.  His accountant was surprised to learn that Denis died owning jointly with wife Lynette listed shares valued at over two million dollars.  As Denis’ accountant, he had never been told of income received on these shares when filing his tax returns.

Justice McQueen ruled Cindy was entitled to her father’s forty per cent shareholding in Chambers and Jackett under the Law Reform (Testamentary Promises) Act.  Denis had promised in his lifetime the shares would be hers.  Her work for the company went beyond payment received at the time.  Her sustained and dedicated commitment over a period of two decades had increased the company’s value and fulfilled her father’s aspirations for the business, Justice McQueen said.

One complication was Denis’ expressed wish to ensure that after his death Lynette personally would receive income from the company.  Justice McQueen ruled this wish should be honoured, asking both Cindy and executor NZ Guardian to indicate how this wish could best be implemented with an annual payment to Lynette of $40,000 - $50,000.  This was a figure mentioned by Denis to his accountant in earlier discussions.

The court was told Lynette holds business assets in her own right.  She inherited by survivorship listed company shares with a value of some two million dollars that she owned jointly with Denis.  Cindy inherited by will a half share in the family home at Cushendall Rise in Richmond owned by Denis at time of his death, with Lynette having a right of occupation until her death.

re Estate Denis Chambers – High Court (7.08.23)

23.132