CBL: FMA v. CBL Corporation

 

Source of funds settling multiple claims against directors of failed CBL Corporation have never been made public, but the insurer underwriting D&O insurance for CBL senior management will have taken a hit.

Some $72.5 million had to be found after an out of court legal settlement with CBL’s liquidator and aggrieved investors.  Then civil penalties totalling $4.1 million were ordered against four CBL directors after action was taken under the Financial Markets Conduct Act.

Penalties of one million dollars each were imposed on CBL’s independent directors Sir John Wells, Paul Donaldson and Ian Marsh; $1.1 million against Anthony Hannon, chair of CBL board’s audit and financial risk committee.  This followed Financial Markets Authority’s claim these directors failed to keep the market fully informed in the run up to CBL’s 2018 collapse.  They admitted liability.

A subsequent court hearing determined penalties.

Claims against fellow director Alistair Hutchison were withdrawn.  He died prior to the hearing.

CBL’s final annual report discloses the company paid for insurance cover, indemnifying them for liability.

No mention at the Financial Markets Conduct hearing as to what extent their monetary penalties might be covered by directors and officers insurance carried by CBL.

At the penalty hearing, the High Court was told of the dollar amounts each director had contributed personally to the earlier $72.5 million litigation settlement.  This suggests directors have excesses to pay, or are running up against the maximum limits of their insurance cover.  The amount each in fact paid as part of the $72.5 million settlement was redacted from the publicly available Financial Markets penalty judgment.

At the penalty hearing, failures by CBL directors to keep the market fully informed were spelt out.  They included:

·      a market announcement in August 2017 that CBL needed to make a ‘one-off’ increase to reserves of $16.5 million, providing a buffer for future claims.  This was a misrepresentation.  Directors knew this was not a ‘one-off;’ regulators were already pressing for further provisioning.

·      burying in a note to its 2017 interim financial statements a reference to CBL’s need to further provision for bad debts.  This was a problem which potentially could have an $34.2 million adverse effect on CBL’s solvency ratio.  This incomplete disclosure was compounded by a later failure to fully disclose extent of bad debt provisions as at December 2017.  By that date, CBL’s auditors had told CBL management it could not pretend the potential bad debt write offs had vanished by sale of aged accounts receivable.

·      failing to immediately disclose conditions Irish regulators imposed on CBL’s Irish subsidiary in June and July 2017 imposing a ‘stand-still;’ the subsidiary’s assets could not be sold other than in the normal course of business and transfers of cash were restricted.   

·      further failing to immediately disclose that Irish insurance regulators had demanded in late January 2018 that CBL’s Irish subsidiary immediately increase reserves by approximately $100 million.

Regulators instructions and CBL’s ongoing solvency issues did not become public knowledge until February 2018, after trading in CBL’s shares were suspended.

Financial Markets Authority said these failures to disclose were prolonged, spread over a six month period, and were exacerbated by the misleading August 2017 on-market disclosure stating the then disclosed increase to reserves was a ‘one-off’ issue.

Financial Markets Authority v. CBL Corporation Ltd – High Court (21.12.23)

24.042

Property: re Estate Eric Hart

 

Family financial arrangements enabling a daughter to buy a home came unstuck with a later dispute over ownership.  Cash contributions did not match ownership as registered on title to an Auckland property. 

The High Court was told the Harts agreed in 2006 to assist daughter Marlene to purchase a home on Minerva Terrace, Howick.   She has five other siblings.

A bank loan of $670,000 completed the purchase.  Allocation of this money was less than straightforward.  Parents Eric and Doreen Hart used $300,000 to pay off the current mortgage on their existing home, with the balance going towards purchase of Minerva Terrace. 

Marlene and husband Brian used the remaining $370,000 to pay off a small debt, with again the balance used to buy Minerva Terrace.

The Harts subsequently came to live with Marlene’s family, renting out their own home.

The legal position was that all four were jointly liable to repay the $670,000 bank loan with joint ownership recorded on the title as the Harts holding a half share as tenants in common, Marlene and husband the other half share as tenants in common.  The title did not reflect the differing economic contributions by each family.

Problems followed when Marlene’s parents died within six months of each other, in late 2016 and early 2017.

Three of Marlene’s siblings said their father’s estate was entitled to half the value of Minerva Terrace, to be divided amongst the six children as set out in their parents’ wills.  A 2022 valuation valued Minerva Terrace at $1.5 million.

To force the issue, the executor of their late father’s estate applied to the High Court for a Property Law Act order that Minerva Terrace be sold.  Justice Tahana gave Marlene and husband Brian first choice to buy out their parents’ share, before ordering a forced sale.

He ruled the financial evidence was that the Harts had contributed 34 per cent of the purchase price; Marlene and Brian 66 per cent.  They could buy out the estate’s share for $419,250; allowing a credit for Marlene’s one sixth share of the estate.

The general rule is that ownership as recorded on the title is proof of ownership shares.  This can be overturned by evidence to the contrary.  In this case, there was evidence of Mr Hart telling his children during his lifetime that Marlene had ‘the documents’ proving she was entitled to a greater share.

re Estate Eric Leslie Hart – High Court (21.12.23)

24.044

Franchise: Waterworld v. Taupo Wake Park

 

The water-borne inflated playground franchised by Kelvin Travers as Waterworld did not excite one High Court judge, indicating the franchise contained little by way of intellectual property rights justifying legal protection when a Taupo company was sued after dumping the Waterworld product with plans to install its own aqua playground equipment sourced from China.

The High Court was told John Hindle and Odette Arthurs have since 2013 operated Taupo Wake Park on an artificial lake excavated near the Waikato River.  Operations initially centred on a wake board facility with customers towed across the lake by cable.  Inflatable slides and trampolines were later added.

In early 2023, agreement was reached with Mr Traver’s Waterworld Ltd for installation of a floating children’s playground.  It was agreed revenue from customers using this playground would be split 50/50.

Mr Hindle was to later tell the High Court he viewed this as ‘a pretty casual arrangement.’  He had in fact signed a 27 page franchise agreement for five year’s use of Waterworld’s equipment and agreed to a restraint of trade promising not to set up in opposition to Waterworld’s services.

Mr Travers deflated the playground at end of the 2023 summer season, returning it to storage in Tauranga.  The product sees little use over colder months and deteriorates if left in the open.

Evidence was given that attempts to discuss with Mr Hindle timings for reinstallation the following summer met with no response.  Mr Travers learnt his customer was planning to go it alone with purchase of a similar product from China.  He sued, claiming their five year agreement prohibited use of an alternative.

Justice Johnstone ruled Mr Hindle could go ahead in the interim with his alternative.  If the restraint of trade is proved to be valid, Waterworld can recover damages, he said.

Waterworld is claiming $1.2 million damages for breach of contract.  Justice Johnstone indicated Waterworld will have an uphill battle to prove it holds property rights of any substance able to be enforced.

Waterworld claims to have created a unique booking system.  There was evidence the system was in fact based on commercially available software.

Waterworld claims there is goodwill attached to its brand.  Justice Johnstone said he considered it unlikely that the branding of the particular waterborne structures upon which the public amuse themselves carried any real resonance in their minds.

Waterworld claims property rights to health and safety standards mandated in its operations manual.  These appear to be drawn from Worksafe’s published requirements, Justice Johnstone ruled.

Waterworld Ltd v. Taupo Wake Park Ltd – High Court (21.12.23)

24.043

Bankruptcy: re Fonagy

 

Persons must be just before they are generous and debts must be paid before gifts can be made; words spoken by an English judge 150 years ago, applied this century in a challenge to a $350,800 gift made by Auckland property developer Andrew Fonagy prior to his 2020 bankruptcy.

Whilst Fonagy is now discharged from bankruptcy, Insolvency Service is still at work sorting out claims from his earlier bankruptcy.  In particular, it is hunting down recovery of a $350,800 loan owed Mr Fonagy which he gifted some four years prior to bankruptcy; a gift to a family trust he then controlled. 

This loan arose from the 2016 purchase of a property in Auckland, at Papakura.  The purchaser was a company then controlled by Fonagy.  The purchase was funded in part by a $350,800 loan from Mr Fonagy, repayable on demand.

Insolvency Service claims the value of this gift should be clawed back to pay creditors in his bankruptcy.

Insolvency law has detailed rules regarding recovery of assets gifted prior to bankruptcy.  There is a history of debtors getting rid of valuable assets before going into bankruptcy.

Any gift received two years prior to bankruptcy has to be returned, handed over to Insolvency Service.  Gifts received further back in time, three years through to five years prior to bankruptcy, also have to be surrendered, unless the person receiving the gift can prove the bankrupted donor was solvent.     

Mr Fonagy’s family trust asked the High Court to dismiss under its fast-track summary judgment procedure attempts by Insolvency Service to call back the $350,800 loan.  It was an open and shut case, the Trust claimed.  There was no dispute Mr Fonagy was solvent at the time, it said.

The High Court was told Mr Fonagy was heavily involved in Christchurch’s post-earthquake rebuild at time rights to repayment of the $350,800 loan were gifted to his family trust.  His company, Colombo Projects Ltd, was building in Christchurch’s central business district.

For Insolvency Service, the central issue turned out to be the status of a personal guarantee Mr Fonagy had given for borrowings by Colombo Projects.

Insolvency Service said the full dollar value of Colombo’s guaranteed debt counted as a personal debt of Mr Fonagy.  It was a contingent liability.  No claim had been made on the guarantee at time of the gift, but it was a Fonagy debt nevertheless, it said.  On this assessment, Mr Fonagy personally, was at best, over five hundred thousand dollars in the red after gifting the $350,800.

Mr Fonagy’s family trust said any valuation of liability on the guarantee should include an assessment of Colombo’s then solvency.  Colombo could meet its debts when the gift was made, the Trust claimed.

Associate judge Sussock ruled the dollar amount of guaranteed Colombo debt counted as a personal debt of Mr Fonagy in assessing his solvency at time of the 2016 gift.  It was as if the guaranteed debt were due and owing at that time.  Solvency of Colombo itself was not relevant.

Colombo later proved to be insolvent.  The High Court ruled in 2020 that a debt of $1.4 million was owed by Mr Fonagy’s bankrupt estate on his guarantee, being the shortfall on a mortgagee sale by a Colombo Projects’ secured creditor.

re Fonagy – High Court (20.12.23)

24.041

Estate: Waite v. Waite

 

Stepson was pitted against stepmother when Graeme Waite found as residuary beneficiary of his late father’s estate that it consisted of little more than two bank accounts holding some $18,000.  He challenged stepmother Ngaere’s right to take full ownership by survivorship of a Kihikihi property near Hamilton, valued at about $770,000, previously part-owned by his father.

The High Court was told Graeme was aged five when his parents separated.  His mother died five years later.  His father Jack remarried.  Jack was widowed fifteen years later.  His subsequent marriage to Ngaere lasted 33 years.

Graeme was named as executor of his father’s estate.  He had received nothing on the death decades previously of his mother.  And while named as residuary beneficiary in his father’s estate, again there was little prospect of a financial benefit.

Evidence was given that his father’s will contains a specific bequest of $25,000 to his widow Ngaere.  This is to be paid first before stepson Graeme receives any financial benefit.

As executor of his father’s estate, he sued under the Property Relationships Act, setting in train a circuitous legal process to bring back into the estate property that his father had jointly owned with his now widow Ngaere.  If successful, this litigation would benefit Graeme personally as residual beneficiary of his father’s estate.

Title to land recognises two types of joint ownership: ownership as ‘tenants-in-common’ where each owner’s share remains their separate property on death and is passed on according to terms of their will (or if there is no will according to the rules on an intestacy); or joint ownership, described in legal jargon as a ‘joint tenancy,’ where ownership of a joint interest passes automatically to the survivor on death.

Use of the words ‘tenant’ and ‘tenancy’ in this context have nothing to do with contemporary landlord/tenant rental agreements; they are archaic terms describing forms of land ownership, a residue of feudal English land law.

The Property Relationships Act allows survivorship rules to be reversed in exceptional circumstances.  It requires proof that a ‘serious injustice’ would otherwise arise.

It has been used when a father stated in his will that proceeds of a life assurance policy would go to his children.  Before his death, he cashed in the policy.  The proceeds were paid into a joint bank account.  The full content of this account passed to his widow by survivorship when he died.  His children were held entitled to the value of the cashed-in policy.

Graeme Waite argued there had been a ‘serious injustice’ when his stepmother assumed full ownership by survivorship of the Kihikihi property she owned jointly with Graeme’s father.

Justice Gault affirmed a District Court ruling there had been no ‘serious injustice.’  Stepmother Ngaere had not received an undeserved windfall.  Source of funds for the Kihikihi purchase could be traced back to separate property they each sold to fund construction of a large new home at Whatawhata used first as a rest home and later as a bed and breakfast.  This property, which they owned as ‘tenants in common,’ was sold to buy their final home at Kihikihi.  There was evidence that their ownership of Kihikihi was registered as joint tenants with full understanding that this gave each the right of survivorship.

Simply having an estate with insufficient funds to meet a bequest, does not, on its own, amount to a ‘serious injustice’ justifying reversal of a part-owner’s rights of survivorship Justice Gault ruled.

Waite v. Waite – High Court (20.12.23)

24.040

Family Trust: Noyce v. Prendrell Investments Ltd

 

Last ditch efforts to prevent sale of a family trust’s prime asset in Auckland suburb Remuera were overridden by High Court orders that five caveats be removed and that aggrieved beneficiary Stuart Lobb and members of his wider family are not to further interfere in the sale.

The 2016 separation of Stuart Lobb and his then wife Verena Ryan has been followed by a bitter dispute over their former family home in Orakei Road held in a family trust: the Lothbury Trust.

A series of cases saw the High Court place control of Lothbury in hands of Auckland chartered accountant Digby Noyce.  He has orders to sell Orakei Road and divide the net proceeds.  Mr Lobb has fought the process every step of the way.

Final resolution looked close with a sale at auction for $3.69 million to buyer Pendrell Investments Ltd.  Settlement was scheduled for October 2023.

The High Court was told use of Pendrell Investments as a front enabled Lobb family interests to register and bid at the auction.  At time of the auction, Pendrell’s owner, according to Companies Office records, was a Philip Hardiman.  Ownership was transferred to interests associated with Mr Lobb after the auction and some three weeks before Pendrell had to pay.

Pendrell Investments failed to settle on due date.  The sale was cancelled. Pendrell forfeited its deposit.

Mr Noyce then negotiated a further sale, selling to an unsuccessful auction bidder at a price of $3.05 million.  This second sale was due to settle on 20 December 2023.  Settlement was at risk, with five caveats registered against title to Orakei Road; caveats lodged by Mr Lobb personally, his father and entities related to Mr Lobb.  The second buyer was not going to hand over payment while facing a legal morass with others claiming an interest in the property.  Mr Noyce applied to have the caveats removed.

A court hearing was delayed by a bomb threat directed at the Auckland High Court.

Justice Powell handed down his ruling later, one day prior to scheduled payment by the second purchaser.  All five caveats were ordered removed.  The various claims to an interest in Orakei Road had either already been dismissed following earlier court hearings, or were not supported by any evidence, or the claimants had no legal rights against the property.  Mr Lobb, members of the wider Lobb family and any entities of which they are directors or shareholders were prohibited from lodging further caveats against title to Orakei Road.

Noyce v. Pendrell Investments Ltd – High Court (19.12.23)

24.039

Property: Wu v. Tan

 

It was a clash between Chinese custom and legal property rights in a cross-cultural chasm as a relationship property dispute saw Chinese cultural norms taking priority over signed documents with an inter-spousal gift of an Auckland house ruled to be not a gift, the house remaining relationship property.

Yanlan Wu and Kai Tan married in 2013, separating just over three years later.  The High Court was told they purchased an Auckland home and later a Palmerston North motel, in both cases with financial assistance from Mr Tan’s parents.

The Auckland property was initially registered in both their names.  Mr Tan later transferred his half interest to his spouse, having Ms Wu listed on the title as sole owner.  He told a Family Court hearing that this was done because their relationship was unstable; he wanted to make Ms Wu happy.  It was to satisfy her vanity, he said.

Legal documentation for the transfer described the transaction as a gift.  Mr Tan acknowledged it was a gift when asked directly.  Generally, a specific gift by one spouse to another removes that asset from the pool of relationship property; it becomes separate property.

In the High Court, Justice Grice declined to overturn a Family Court ruling that the Auckland property remained relationship property.  Mr Tan did not intend to gift his ownership share.  In Mr Tan’s view, removing his name from the title was purely cosmetic.  Rentals from the Auckland property continued to go into their joint bank account; income from their Palmerston North motel business continued to be used to cover the difference between Auckland rental income and the property’s outgoings; he remained liable for the Auckland mortgage debt as guarantor. 

Separately, Justice Grice confirmed funds totalling $520,000 received from Mr Tan’s parents put towards purchase of both the Auckland and Palmerston North properties were loans, not gifts, to be deducted from relationship assets before division between Mr Tan and Ms Wu.

There was detailed evidence in the Family Court about circumstances of this funding.

Ms Wu produced a ‘gift certificate’ supposedly signed by Mr Tan’s mother evidencing the first tranche of funding provided by Mr Tan’s parents.  It transpired this document had been manufactured by Mr Tan to identify available funds already held when seeking bank finance for purchase of the Auckland house.

Also at issue, was written loan documentation supposedly acknowledging all the funding from his parents were loans.  Mr Tan later admitted in court that he had created these documents after the deal was done; the loan arrangement was previously agreed orally with his parents.

Justice Grice ruled evidence from Mr Tan’s mother of a prior oral agreement that funds she provided were loans was conclusive, in the absence of any evidence to the contrary.  An oral agreement fitted with Chinese custom that family financial deals are seldom in writing.

Wu v.Tan – High Court (18.12.23)

24.038

Property: Kereopa v. Brunsha Ltd

 

It was a family transaction designed to keep former Maori land at Raglan within the family Rangimonehu Kereopa claims, having the High Court agree a caveat should remain on the title preventing her son’s company from selling while their family dispute is sorted out.

The High Court was told Rangimonehu and her since deceased husband Piripi had land containing their family home on Wainui Road transferred from the Maori land register to the general land register years ago.  This proved useful when their daughter in 1999 was looking to purchase a nearby property on Government Road; they allowed the daughter’s bank loan to be secured over their Wainui Road as additional security.

Three years later, Rangimonehu and Piripi were in financial difficulty with unpaid rates and the possibility of a forced mortgagee sale of Wainui Road.  They were reduced to living in a shed on the property without running water or toilet facilities while the main house was rented out.

Son Dennis organised a rescue.  He borrowed funds to buy out his parents taking ownership of Wainui Road; his parents in turn took ownership of their daughter’s property on Government Road; and the then existing bank mortgage was repaid.  Rangimonehu and Piripi received no money.

Circumstances of this rescue package were canvassed in the High Court over twenty years later after Rangimonehu learnt her son had put Wainui Road on the market.  Lawyers acting for Dennis had done all the paperwork for the rescue package, she said.  She had acted on the faith that Denis was acting to keep Wainui Road in the family and that would remain the case, she said.

There was an arguable case that Denis took title to Wainui Road on terms of a trust, Associate judge Brittain ruled.  A full court hearing is needed to determine if a trust exists and what are its terms.  Meanwhile, the caveat remains.

Six years after the rescue package was implemented, Denis transferred ownership of Wainui Road to a company he controlled: Brunsha Ltd. 

Judge Brittain ruled it is arguable Denis engineered a sale to his company Brunsha Ltd, as a supposedly innocent third party purchaser, in an attempt to exploit Land Transfer rules so as to side step Rangimonehu’s claim there was an enforceable trust over Wainui Road requiring ownership be kept within the family.

Land Transfer Act rules allow subsequent owners to keep ownership free of any prior trust, provided the new owner did not have actual knowledge of or was ‘wilfully blind’ to the existence of a prior trust affecting the land.

Kereopa v. Brunsha Ltd – High Court (18.12.23)

24.037

Property: NZ Tourist Investments v. Vast Investments

 

Auckland property investor Vast Investments Ltd, controlled by Dabin Wang, was held liable for a $800,000 loss on resale after defaulting on agreement to buy a Herne Bay property for $5.7 million.  Interest for late settlement now sees total damages payable exceeding $1.2 million.

In March 2022, Vast Investments agreed to buy the Hamilton Road property with settlement due in three months.  After Vast failed to settle, vendor NZ Tourist Investments Ltd put the property back on the market, listing with Ray White Remuera as agent for the resale.

The High Court was told of eight potential buyers inspecting the property.  Two made offers.  One, a conditional offer, was later withdrawn during negotiations over price.  The second was accepted; an unconditional offer at $4.9 million.

Sued for the $800,000 loss on resale, Vast Investments said Ray White Remuera had prejudiced the sale price before resale by setting a low appraisal; between $4.5 million and $5.0 million.  Vast Investments claimed a registered valuer it hired had appraised the property on resale at $5.4 million with that appraisal including a markdown acknowledging a market decline over previous months.

Associate judge Brittain ruled a $4.9 million resale represented the current market price.  It was a sale to a buyer unrelated to the vendor.  Ray White Remuera conducted a conventional marketing programme.  It helped negotiate an increased offer, obtaining for the vendor an extra $100,000 over an initial offer made.

In addition to the $800,000 loss on resale, Vast Investments was ordered to pay costs of resale and interest at a rate of fourteen per cent, as specified in the sale agreement, until the debt is cleared.  By date of the court hearing, interest currently due was calculated at some $405,000.  Part of the debt due was cleared by the vendor keeping a $570,000 deposit Vast Investments paid.

NZ Tourist Investments Ltd v. Vast Investments Ltd – High Court (18.12.23)

24.036

Property: Xu v. Meng

 

Wei Xu and Huimin Guan went to school together in China.  Two decades later they were facing off in the New Zealand High Court arguing over a residential property deal that fell apart.

Mr Xu agreed to let Ms Guan and her husband take occupation of a residential property in Browns Bay on Auckland’s North Shore with a May 2018 handshake deal. They agreed to buy at $1.78 million, paying Mr Xu’s property outgoings until such time as they got finance to complete their purchase.

Applications for a bank loan were unsuccessful.  No bank would lend on an oral agreement to buy; a written contract was required.  The deal collapsed when Mr Xu wanted to increase the price.

It took a court order for Mr Xu to regain possession in September 2021, followed by a dispute over who owed what.  Ms Guan demanded return of a $200,000 deposit paid.  Mr Xu said they had not paid in full all property outgoings as agreed.

Property outgoings included interest on successive bank loans Mr Xu had secured over the property.  Ms Guan complained the amount claimed included interest on a mortgage over Mr Xu’s private home; the bank mortgage took security over both Browns Bay and Mr Xu’s family home.

In the High Court, Justice Woolford calculated Browns Bay interest unpaid amounted to some $16,500.  This was the amount Ms Guan was required to pay, not the $153,600 Mr Xu claimed.

In turn, Mr Xu was ordered to refund the $200,000 deposit.  He had agreed to refund the balance left after all property outgoings were cleared. 

Separately, Mr Xu demanded Ms Guan hand over $70,380 received from boarders at the property while they were in occupation.  This was income derived from use of his asset, he said.

Justice Woolford ruled Ms Guan was entitled to keep the income.  There was evidence that Mr Xu had agreed to boarders being taken in, to help Ms Guan meet property outgoings.

Mr Xu’s further claim for rent was dismissed.  He claimed rent for a 96 week period at just on $1700 per week; the period from when Ms Guan stopped contributing to outgoings and their subsequent departure from the property.

Justice Woolford ruled Mr Xu could not claim there was tenancy with rent unpaid after earlier getting a High Court order that Ms Guan leave the property by stating there was no tenancy agreement in place and there was no continuing right to her occupation.

Xu v. Meng – High Court (18.12.23)

24.035

Property Sale: Harsono v. Fang

 

High Court fast-track summary judgment following default on a $3.5 million Auckland property purchase was refused on grounds vendor and purchaser had discussed an extended settlement date.  Whether a variation of the original contract is enforceable requires a full court hearing

Fast-track procedure is available for ‘open and shut’ cases where there is no valid dispute that a claimed debt is due.

In 2021, Lin Fang bought at auction a property on Dunkirk Road in Auckland suburb Panmure for $3.5 million.  It was agreed the deposit would be paid by instalments, with final settlement due in eight months.

The High Court was told she did not pay the final deposit instalment of $187,500.  Short of cash, she pleaded with the vendors for an extension.  Settlement date was pushed out a further seven months.  A new date was set for payment of the deposit final instalment.  

The vendor sued for the balance of the unpaid purchase price when the revised settlement date passed without payment.  The High Court was told the market value of the property had fallen to $2.1 million by this date; a drop of some forty per cent over an eighteen month period.

Associate judge Gardiner ruled a fast-track court judgment was not available.  A two hour WeChat exchange after the revised settlement date passed indicated that a further settlement extension was canvassed, with Ms Fang stating it was to the vendors’ benefit to later get the agreed contract price rather than take a loss re-selling in a falling market.

Harsono v. Fang – High Court (15.12.23)

24.034

Building: Body Corporate 91535 v. 3A Composites GMBH

 

German manufacturer 3A Composites GMBH has been forced to face in the New Zealand courts complaints that its aluminium cladding marketed as Alucobond is a fire risk.  Building owners are seeking a court order that Composites pay upfront for cost of replacement.

Cutterscove Resort apartments in Mount Maunganui was reclad with Alucobond in 2008.  Argosy Properties has two commercial properties in Auckland with Alucobond installed.  Both demand 3A Composite bear the cost of any replacement.

Internationally, industry concerns about the safety of exterior aluminium cladding followed high-rise fires in Melbourne and London.  New Zealand building owners with the product already installed argue Alucobond is not fit for purpose.

3A Composites challenged attempts to sue it in New Zealand, claiming New Zealand courts had no jurisdiction against 3A as an off-shore manufacturer.

The Court of Appeal ruled overseas manufacturers are liable under the Consumer Guarantees Act for consumer goods supplied in New Zealand, but the Act did not apply in this case; Alucobond cladding installed on a building is not a consumer product.

The Court of Appeal further ruled 3A Composite does have to answer claims that it breached the Fair Trading Act and that it was negligent in both its description of the product’s attributes and its failure to warn about the product risk.

These claims have yet to be decided.  Marketing material promoting the product is expected to come under close judicial examination.

Body Corporate 91535 v. 3A Composites GMBH – Court of Appeal (15.12.23)

24.033

Banking: Co-Operative Bank v. Opai

 

The High Court put on hold attempts by Co-Operative Bank to enforce a $375,000 personal loan, first requiring evidence that the Bank had acted responsibly in dropping a co-borrower from the loan when refinancing.

Melissa Jean Opai claims Co-Operative Bank was in breach of the Credit Contracts and Consumer Finance Act in its consolidation of three loans into one, when two of the consolidated loans were joint loans to both Ms Opai and her now deceased mother.  She is now being held solely responsible for not only her own debts but also her mother’s debts, she says. 

The High Court was told the first loan was taken out in 2016, with both Ms Opai and her mother as co-borrowers.  Ms Opai said she signed to provide financial assistance for her mother who had been widowed three years previously.  The Bank took mortgage security over her mother’s home in Papakura, south Auckland.

In early 2017, this loan was refinanced under what the Bank styled a ‘home loan’ facility.  Ms Opai’s mother died five months later.  As co-borrower, Ms Opai initially kept up the mortgage payments until losing her job in 2019.  Bank threats to call up the mortgage led to discussions about refinancing.

It was circumstances of a 2021 consolidation of existing debt which led to a subsequent High Court hearing.  The previous debts, including debts now owed by Ms Opai’s mother’s estate, were consolidated into what became a personal loan to Ms Opai alone.  Bank staff, sighting online records showing Ms Opai as owner of her late mother’s Papakura home, were blissfully unaware that she held title as trustee of her late mother’s estate; it was not her property.

Associate judge Sussock put on hold attempts by Co-Operative Bank to recover a total of $375,000.  The Bank said it had been more than accommodating to Ms Opai; giving detailed evidence of steps taken to accommodate her previous financial difficulties with loan extensions and periods of interest only payment.

Judge Sussock said there is little doubt Ms Opai is liable as borrower to pay the principal sum still outstanding, but she recommended the Bank reconsider both the legal costs it now seeks to recover and the amount sought as unpaid interest given its conduct at time of the 2021 debt consolidation.  This debt consolidation saw the Bank lose its rights as secured creditor over the Papakura property.

The court was told Ms Opai’s mother died without leaving a will.  Intestacy rules will see her estate divided between her three children.  How much each inherits depends upon whether Ms Opai bears repayment costs alone or her mother’s estate makes an equitable contribution towards repayment of the now consolidated debt.

Co-Operative Bank Ltd v. Opai – High Court (15.12.23)

24.032

Teaxas shoot out: Karikaas Natural Dairy v. Arundel Farm Holdings

 

The High Court was called to unravel attempts by shareholders to game a ‘Texas shoot out’ clause triggered in a shareholder dispute over repayment of loans to their joint venture company.

John and Heather Lamers joined with Alan and Diana Hawkins in their 2004 purchase of a Canterbury cheese making business: Karikaas Natural Dairy.  The Lamers hold a sixty per cent stake; the Hawkins forty per cent.

The High Court was told the Lamers provided working capital for the business over time by way of various shareholder loans currently standing at some $656,000.  They want their money out.

An early step was formal notice by the Hawkins that their joint venture business relationship with the Lamers was to end unless terms of repayment were resolved.  The Hawkins claim shareholder advances are not to be repaid if this raises a liquidity issue; these loans are ‘locked in.’

Their formal notice in turn triggered provisions in Karikaas’ joint venture business agreement requiring one party or the other to assume full ownership of Karikaas, provisions described in legal circles as a ‘Texas shoot out.’

As the name suggests, a Texas shoot out requires each shareholder to separately submit a sealed bid stating the price offered to buy the other’s shares.  The sealed bids are simultaneously revealed, with the higher bidder required to buy out the other at the bid price.

The High Court was told the Hawkins bid a price of one dollar (stating that this bid was a ‘reserve price’); the Lamers bid stated ‘no bid.’  The High Court was asked to rule what was the legal effect of these two apparently non-binding bids.

Associate judge Lester required the Hawkins to confirm within 48 hours whether their one dollar bid stood as a genuine bid.

If so, the Hawkins assumed full ownership of Karikaas for one dollar and terms of the joint venture agreement required all Lamers’ loans to be repaid in twelve months.

If not, the Lamers could immediately take steps to force Karikaas into liquidation for non-payment of their shareholder advances.

Karikaas Natural Dairy Products Holdings Ltd v. Arundel Farm Holdings Ltd – High Court (14.12.23)

24.031

Unit Titles: McIntyre v. Body Corporate 80146

 

Having botched a re-allocation of insurance costs between residential apartment owners and then hampered attempts to remedy the problem, a central Wellington body corporate is facing an order to pay increased court costs as a penalty.

In 2022, management of a body corporate governing apartments on the Terrace in central Wellington set about re-apportioning ‘utility interests’ between owners, intending to adjust contributions towards insurance costs.

These efforts became a playbook on how not to do the job: the necessary resolutions were not included in notices mailed out prior to the members’ annual meeting; the resolution passed did not actually assign to owners the proposed new proportionate utility units; minutes of the meeting did not match what had in fact occurred.

Michael McIntyre owns one of the apartments: unit 14.  This apartment is unusual in that it is a stand-alone house of a different character and construction from its neighbours.

The Unit Titles Act starts with the presumption that ‘ownership interests’ and ‘utility interests’ are of the same proportionate value.  Owners’ utility interests provide the formula for allocating overhead costs like insurance.

It is open to unit title owners collectively to re-apportion utility interests where relevant benefits and costs may depart from their ownership interests.  The key legal point is that any change to utility interests must be recorded on the land register since it constitutes a change to the legal title.

Mr McIntyre objected to proposed changes.  Body Corporate management proposed that he bear 19.06 per cent of replacement insurance premium costs.  Council’s rating valuation valued unit 14 at 12.46 per cent of the total value of all apartments.  His registered utilities interest proportionate share stood at 8.3 per cent.

In the High Court, Justice Palmer pointed out that a quick way to resolve the issue would be to have ownership ratios (and with it, utility interests) re-determined.  But this was blocked by a body corporate resolution stalling any revaluation and re-allocation of ownership interests until Mr McIntyre’s objection had been resolved.

Justice Palmer cut through the knot by setting aside the disputed resolution and directing body corporate management to obtain valuation reports necessary to update registered ownership interests.

Costs are yet to be assessed, but Justice Palmer signalled the body corporate would likely be ordered to pay an increased contribution to Mr McIntyre’s legal costs since it had forced unnecessary court proceedings to get things moving.

The body corporate indicated unresolved issues will still remain as Mr McIntyre’s contributions to long term maintenance costs are also disputed.  Since his apartment stands alone, it does not form part of the integrated building infrastructure framing conjoined apartments.

McIntyre v. Body Corporate 80146 – High Court (14.12.23)

24.030