Ruapehu Alpine: Gibson v. Platt

 

Insolvency specialists separately managing skifield operations at Ruapehu joined forces to bat away legal argument from users that government interests are subservient to users rights at a time when taxpayers have provided over $17 million to keep the skifield open while a buyer is found.

A cascade of factors forced Ruapehu Alpine Lifts Ltd into a liquidation: heavy borrowing to fund construction of its $25 million Sky Waka gondola; covid pandemic travel restrictions and border closures keeping visitors off the mountain; and warmer weather meaning less snow.  Ruapehu Alpine owns skifield assets on the central North Island mountain, which coupled with a Conservation licence allow it to run commercial operations in what is a national park.

Its 2023 liquidation saw insolvency specialists at PwC appointed liquidators.

Prior to liquidation, eight million dollars of taxpayer support kept Ruapehu Alpine trading.  This was topped up with another tranche of five million dollars prior to the 2023 ski season; PwC needed to keep Ruapehu Alpine alive both to generate income from sales in the coming season and to maintain a viable business ready for sale.

In the background, financier ANZ Bank bit the bullet and exited what had been a catastrophic deal with Ruapehu Alpine.  ANZ funded the Sky Waka project.  By October 2023, ANZ was owed $16.1 million.  It sold this debt and its rights as secured creditor to government-owned Crown Regional Holdings Ltd for a nominal one dollar plus a deferred entitlement to receive fifty per cent of any funds recovered by Crown, capped at $638,400.  Exercising ANZ’s rights, Crown immediately appointed as receivers insolvency specialists at Calibre Partners.

This receivership annoyed some skifield users, complaining the appointment was invalid.  Members of Ruapehu Alpine’s liquidation committee led the charge.

Company law allows creditors of an insolvent company to band together, appointed as a committee to oversee a liquidation.

Ruapehu’s five person liquidation committee represents groups interested in seeing Ruapehu Alpine revived, including Ruapehu Alpine staff and skifield life pass holders.

The committee had its eyes on some $2.4 million cash in hand generated from Sky Waka ticket sales.  This money belonged to Ruapehu Alpine they claimed.  The cash was available to pay liquidation committee members for ‘actual out-of-pocket expenses necessarily incurred,’ as permitted by the Companies Act, it said.

Both PwC and Calibre Partners faced the possibility these ‘out-of-pocket expenses’ would extend to legal action challenging Crown’s appointment of a receiver, and with it, disruption to any sale of Ruapehu Alpine’s assets.  They jointly asked the High Court to rule on who was entitled to cash from Sky Waka ticket sales.

Justice Campbell ruled the money belonged to Crown Regional Holdings.  It had purchased ANZ’s rights.  These rights included a right to keep ‘after-acquired property’ relating to Sky Waka.  All cash from ticket sales was after-acquired property.

Justice Campbell rejected an argument that any cash coming into the hands of a liquidator must be held for the benefit of unsecured creditors and can be accessed by a liquidation committee.  While the liquidator did receive the cash, first claim on these ticket proceeds goes to any creditor who has security over gondola revenue.  It is similar to the liquidator of a retail store holding a ‘liquidation sale,’ he said.  In a retail context, the liquidator acts as agent for any creditor holding security over stock in store, getting in the cash before handing it over.

The High Court was told PwC and Calibre Partners had agreed between themselves a modus operandi, allowing the receivers to manage day-to-day operations of the skifield.  This arrangement was supported by a further tranche of government funding: $4.3 million.

Gibson v. Platt – High Court (28.02.24)

24.064

Investment Fraud: Huljich v. McCaffrey

 

If it were a film script, it reads like a scam built on a scam.  Entrepreneur Chris Huljich is chasing down proceeds of a USD 1.5 million investment stolen by a Hong Kong based investment broker and now allegedly misappropriated a second time by a UK-based recovery agent who was hired to follow the money.  Following an undefended High Court hearing, recovery agent Patrick John McCaffery was ordered to pay NZD 12.8 million.  There is no evidence McCafferty has any assets in New Zealand available to satisfy this court judgment.

The High Court was told Mr Huljich placed USD 1.5 million for investment in 1999, only to see the funds disappear within a year; part of a multi-million dollar theft by a Hong Kong based investment broker described in court only as ‘Mr H.’  Twenty-five years on, all Mr Huljich has is promises by a recovery agent that the proceeds have been tracked down.

Evidence was given that Mr Huljich signed up in 2003 with a fraud detection service called TASK International Ltd.  It undertook to trace where the stolen money had gone; in return for twenty per cent commission on any assets recovered, plus expenses covered in part by a USD 30,000 retainer.  TASK was recommended by the same adviser who recommended placement of the earlier stolen investment; a Mr Olliver.

Mr McCaffrey was the TASK contractor on the job.  He reported that some of the stolen money was used to buy valuable collectables: paintings, rare watches and pens, plus gold coins.  He said TASK did not have the resources to recover any of these items.

Subsequently, Mr McCafferty offered personally to recover the assets, sell them and account to Mr Huljich for the proceeds.  A formal contract was signed in 2012, after Mr McCafferty stated he was holding the assets in a UK warehouse, ready for sale. 

The 2012 contract was not straightforward.  A string of individuals stood in line to receive payment from any funds recovered: first a 7.5 per cent commission payable to Auckland barrister Charles Sturt (who witnessed the agreement); $100,000 due Mr Olliver for past expenses; then thirty per cent of the remainder for Mr McCafferty.  Any surplus after full repayment of Mr Huljich’s USD 1.5 million was to be split between Mr Huljich and Mr Olliver on a sliding scale.

Mr Huljich was provided with an inventory of assets seized, together with presumed values.  Mr Olliver reported that in the company of Mr McCafferty he had sighted the assets in warehouse storage in the UK.

A 2021 asset schedule sent to Mr Huljich valued the collectables in storage at GBP 8.8 million.

He was told intended sales of these collectables and conversion to cash had been complicated by death of one of the warehouse owners.  Mr Huljich told the High Court current whereabouts of these assets is now unknown.

In New Zealand, Justice O’Gorman ruled Mr McCafferty liable for breach of contract; failing to sell the reportedly seized assets and to account for the proceeds as promised in their 2012 contract.  Damages were calculated at NZD 12.89 million; being seventy per cent by value of the assets listed in the inventory supplied as valued by Mr McCafferty.

Huljich v. McCaffrey – High Court (28.02.24)

24.063

Relationship Property: Alalaakkola v. Palmer

 

Copyright in works of art produced during a relationship amount to relationship property, the Court of Appeal ruled.  But these copyrights need not be shared equally when a relationship ends.  Copyright can be valued with the artist buying out their former spouse’s half interest. 

Artist Sirpa Alalaakkola took strong exception to former spouse Paul Palmer exercising any control over commercial exploitation of her work saying her artistic output amounted to a personal brand; ‘I am my art and my art is me,’ she said.  Uncontrolled and unsanctioned exploitation of her work would affect ‘my good name, my identity and my soul,’ she explained.     

Ms Alalaakkola is renowned for her colourful artwork, much of it depicting holiday activities.

Relationship property law governs both works of art and copyright in reproductions.  The physical representation of a painting by itself is a chattel; an item of property.  The right to make reproductions is also a property right; an example of intangible property with exercise of these intangible rights prescribed by copyright law.

Ms Alalaakkola objected to copyright in various paintings being transferred to Mr Palmer as part division of their relationship property.  He indicated plans to make and sell reproductions.

Recognising that her art is highly personal, the Court of Appeal ruled that it was inappropriate and unfair to impose a transfer of copyright in selected paintings from Ms Alalaakola to her former spouse as part of a disputed relationship property claim.  A primary principle in the Copyright Act is that the artist personally controls any transfers of copyright.

The court ruled that copyright in all of Ms Alalaakkola’s artistic output held at the date their relationship ended be valued.

This will require some heroic assumptions as to the potential future income stream likely from sale of any reproductions.  The Court of Appeal delegated this task to a future Family Court hearing.

Mr Palmer is entitled to a credit for half the value of these copyrights in the final division of their relationship property.

Alalaakkola v. Palmer - Court of Appeal (21.02.24)

24.062

Contract: Heartland Bank v. Internet Business Systems

 

Described as a Heartland Bank delaying tactic, its claim that a $2.77 million disputed invoice should be argued in the New Zealand courts rather than Australia was dismissed.  IT company Internet Business Systems gets to have its claim heard in the state of Victoria.

The disputed invoice relates to an aborted Heartland project to set up a new online platform for its retail consumer car loan business.  Its previous dealings with Internet Business Systems Australia Pty Ltd had been successful; delivering software tracking inventory for Heartland’s lending to car dealerships. 

This initial project led to Heartland in 2021 issuing a ‘request for proposal’ to set up a retail platform.  Internet Business was again engaged, but terms and extent of this engagement are disputed.  Heartland cancelled the project expressing concerns whether Internet Business could deliver on time, or at all.

Internet Business sued in Australia for work done to date.  Both sides agreed there had never been any formal contract signed; the disputed work had progressed in tandem with an initial scoping ‘discovery’ phase.  Heartland paid an agreed $100,000 upfront for this discovery phase.

A preliminary legal issue arose; did New Zealand law or Australia law apply to their $2.77 million dispute?

The Trans-Tasman Proceedings Act governs jurisdictional disputes.

In the New Zealand High Court, Justice Andrew ruled Australia was the better jurisdiction.  Internet Business will likely succeed in a claim for quantum meruit; compensation for work done in the absence of any contract.

Quantum meruit compensation is specifically demanded by Internet Business in its Australia claim.  In New Zealand, Heartland is narrowly arguing no contract existed at all, ignoring any quantum meruit entitlement.

The High Court was told a Heartland executive emailed Internet Business at a time when the project was being put on hold, stating that Heartland would ‘mahi tika;’ do the right thing, paying for work done.

Heartland Bank Ltd v. Internet Business Systems Australia Pty Ltd – High Court (20.02.24)

24.061

Misrepresentation: Munroe Trustee v. Wang

 

Auckland property purchaser, Dabin Wang, says a $1.07 million claim for loss on resale following his default on an Auckland purchase is far too high; misleading information about the level of buyer interest caused him to bid too high in a closed tender offer, he says.  The vendor has to accept responsibility for misrepresentations by its real estate agent, he claims.

Mr Wang defaulted on a $2.96 million purchase, losing his deposit.  The vendor later resold at $1.78 million.

Munroe Family Trust put its North Shore property at Forrest Hill up for sale in July 2021.  Barfoot & Thompson’s Milford branch was appointed agent.  Kai Deng from Barfoot drew Mr Wang’s attention to the listing.  The property had potential for subdivision into townhouses.

Mr Wang is an immigrant from China.  He speaks poor English.  Dealing through Mr Deng had the advantage they could converse in Mandarin.  The High Court was told Mr Wang had previously purchased at least three properties through Mr Deng.

When tenders closed for Forrest Hill in July 2021, Mr Wang’s $2.96 million was the highest offer.  He was to later learn the next highest bid was $610,000 less.

When sued for Munroe Trust’s loss on resale, Mr Wang claimed Barfoot’s Mr Deng had misled him.  He claims Mr Deng talked up the level of buyer interest alleging he was told active buyers were offering in the range $2.7 million to $2.9 million.  He alleges Mr Deng said a bid near three million dollars would be needed to secure the property.

Mr Deng says he has ‘no memory’ of making such comments.

After a High Court fast-track summary judgment hearing, Associate judge Brittain ruled it was arguable that Mr Deng was acting as agent for vendor Munroe Family Trust when making the alleged pre-contract misrepresentation and that the Trust had to accept responsibility, if the comments are true.     

A full court hearing is needed to resolve the conflict in evidence between Mr Wang and Mr Deng, Judge Brittain ruled.  The nuances of what Mr Deng said speaking in Mandarin needs to be considered when translated into English, he said.

As a side issue, Mr Wang claims Mr Deng was also at fault for not explaining at time of the sale any potential consequences of defaulting.  Mr Wang said in China the only penalty is loss of deposit.  The New Zealand rule is that a defaulting buyer loses not only the deposit paid but is also liable for any loss on resale.

Munroe Trustee Ltd v. Wang – High Court (19.02.24)

24.060

Family Trust: Logan v. Bishop

 

There is no public registry providing details of family trusts, forcing Auckland insolvency specialists Larissa Logan and Rhys Cain to get High Court orders requiring shareholders of insolvent Auckland recruitment agency BF7 Trading Ltd to identify trustee names for their family trust.

Without trustee names, BF7 liquidators cannot start legal proceedings to recover a $315,000 family trust debt allegedly owed the company.

BF7 was propelled into liquidation by Inland Revenue in 2021, claiming unpaid tax debts of some $480,000.  The recruitment company has gained unwanted media publicity over migrant worker employment issues.  Spencer Bishop is currently listed as BF7 director; Spencer together with Raymond Bishop as shareholders.

The High Court was told company financial statements list the Bishop Family Trust as a BF7 creditor owing some $315,000.  A liquidators’ letter requesting repayment was ignored.

At a liquidators’ formal interview, Spencer Bishop declined to name trustees of his family trust; needing time to check the documents, he said.  Follow-up requests for the information were ignored.  BF7’s bank did not know the trustees’ names.

Liquidators were in a bind.

To get into court and sue for recovery of the claimed loan, the person or persons being sued need to be identified and served with court papers.  Family trust records are private documents.  There is no public record listing trustees of family trusts.

Both Spencer and Raymond Bishop were sued to force disclosure.  They said it was a breach of privacy to force disclosure of private information about a family trust.

Associate judge Sussock said liquidators are under a Companies Act duty to realise and distribute company assets in a reasonable and efficient way.  The Bishops were ordered to disclose written documents in their control that identified terms of the $315,000 family trust loan together with the trustee’s names and contact details.

To forestall responses by the Bishops that they have no relevant documents ‘under their control,’ Judge Sussock said in the circumstances of a family-owned company dealing with a family trust it did not matter in what capacity the Bishops had access to relevant documents, disclosure was required.

If Spencer and Raymond are beneficiaries, they are in a position to know names of the trustees; the Trusts Act requires disclosure to beneficiaries of ‘basic trust information’ which includes details of who are the trustees.   

The disclosures required do not extend to disclosure of any assets held by the Bishop Family Trust, Judge Sussock emphasised.

Logan v. Bishop – High Court (16.02.24)

24.059

Asset Forefeiture: McFarland v. Commissioner of Police

 

Gang culture with its strong ethic that you do not rip off fellow gang members saw police make use of Christchurch Head Hunters hand-written cash records in a Court of Appeal ruling confirming criminal proceeds confiscation of its Wigram gang pad; a property worth some half million dollars that Head Hunters inherited at no cost from previous owners, the disestablished Epitaph Riders.  

The court dismissed Head Hunter claims that the Vickerys Road property had not been renovated with funds generated by illegal activity and that confiscation would amount to undue hardship.

Evidence was given that West Auckland chapter of Head Hunters set up what in effect was an operating subsidiary in Christchurch following the 2015 demise of local gang, Epitaph Riders.  Most members of the Riders had left gang life; others ‘patched over,’ welcomed into Head Hunters.

At that time, Epitaph Riders headquarters in Wigram was all but abandoned.  Title to the property was held in name of Lincoln Property Investments Ltd.  Head Hunters’ members assumed ownership with a change in company personnel as directors and shareholders.

After senior members of Christchurch Head Hunters were jailed for drug dealing, police applied to have Vickery Road confiscated as ‘tainted property’ under the Criminal Proceeds (Recovery) Act.

Police claimed the gang headquarters was extensively renovated with profits from sale of methamphetamine, money extorted using standover tactics and profits from pokie machines sited at Vickery Road operated without a Gambling Act licence.

At a High Court hearing, evidence from a quantity surveyor valued cost of the renovations at some $180,000 on the assumption work was done by contractors at commercial rates.

Head Hunters claimed the work cost no more than $10,000.  Materials were gifted, or picked up cheap on TradeMe, they claimed.  Much of the work was done by gang members, using their trade skills, they said.

The renovations clearly cost more than $10,000, the Court of Appeal ruled.

At issue was source of the funds.

In evidence were notebooks seized by the police; a written record of gang cash transactions.  The gang had an appointed bookkeeper, keeping a tally of cash received and cash expended.  This was to ensure no member ‘ripped off’ their own gang.

The notebooks recorded sale of motor vehicles (which police wire taps identified as vehicles sold after being seized from its then owner), bar takings, raffle receipts, and pokie revenue, together with book entries of cash with no source references and other entries claimed to be donations.  In court, Head Hunters’ lawyer acknowledged the likelihood of anyone making cash donations to Head Hunters was ‘pretty slim, but not impossible.’

Notebooks’ content was accepted by the Court of Appeal as evidence of cash generated from illegal activities.  Attempts by Head Hunters to have the notebooks excluded as unreliable evidence were not successful.

Claims that confiscation of Vickery Road amounted to undue hardship was also dismissed.

Head Hunters said seizure of their half million dollar property was out of proportion to any illegally obtained cash spent on renovations. In contrast, ‘white-collar’ criminals having assets confiscated for tax evasion lose assets only to the value of the benefit wrongly obtained, they said.

Confiscation was no hardship, the Court said.  Head Hunters paid nothing when gaining ownership of Vickery Road from Epitaph Riders.         

McFarland v. Commissioner of Police – Court of Appeal (16.02.24)

24.058

Maori: re Estate Sapasui Fred

 

It had been the family home for some sixty years.  Following the death of their surviving parent Sapasui Fred in 2003, four children have been in conflict over continued use of their Auckland home; son Nooroa living at the property saying cultural traditions require the home stay in the family; his three siblings saying it should be sold to realise their joint inheritance.

A High Court application under the Property Law Act saw a sale ordered, but an actual sale delayed five months to give all siblings a chance to talk.

The court was told Ms Fred died without leaving a will.  Default rules in the Administration Act see her estate divided equally between her four biological children.  Other members of the family raised as whangai adoptions do not qualify for a share.

Son Nooroa currently occupies the family home in Auckland suburb Otara, together with his two whangai sisters, his son and two nephews.  Rates are in arrears.  Nooroa has not been charged rent by his late mother’s estate for the near two decades he has been in occupation.

Ms Fred was born in Niue; her late husband was Cook Island Maori.

Maori cultural norms see land as a cultural heritage, not a commodity to be bought and sold.  Land is expected to be passed from generation to generation; current occupiers are merely custodians.

Justice Tahana commented that these cultural views do not necessarily elevate individual economic benefits above family relationships and future generations.

The Otara property is not customary Maori land; it is held as general land with ownership registered under the Land Transfer Act.  Currently, all four siblings are registered as owners, holding title as trustees of their late mother’s estate.

Justice Tahana urged the four siblings meet to resolve their differences, suggesting a rental arrangement might be considered.

Failing any agreement, Nooroa and his extended family are required to vacate the property in June 2024 and the property sold.  Net proceeds of sale is to be divided equally between all four siblings.

re Estate Sapasui Fred – High Court (16.02.24)

24.057

Mortgage Fraud: Westpac v. New Dawn Holdings

 

The property deal did not go ahead, but lawyer Jesse Nguy still drew down $1.3 million bank finance supposedly to complete the purchase and then misappropriated the money.  Despite never seeing the money, borrower New Dawn Holdings Ltd and guarantor Colin Chu were still liable to repay Westpac, the Court of Appeal ruled. 

Liability for borrowings on the aborted Auckland property purchase turned on questions of agency law; who was bent lawyer Jesse Seang Ty Nguy acting for?

The court was told New Dawn Holdings committed to its purchase in late 2019.  Paperwork for a Westpac home loan was signed, with approval given for $1.32 million mortgage finance; a thirty year secured loan.  New Dawn and Mr Chu nominated as their lawyer Mr Nguy, a sole practitioner then operating out of Auckland’s central business district and trading as Jesse & Associates.

As is usual practice, Westpac sent instructions to the nominated lawyer to act as its agent in completing the paperwork, getting all legal documents signed and have the bank protected as first mortgagee with a mortgage registered against title to the property after settlement date.

Evidence was given that after receiving the lawyer’s signed certificates that all was ready to go, Westpac paid the loan finance into Mr Nguy trust account ready for settlement.  Unbeknown to the Bank, the purchase never went ahead.  The Bank continued to remain in the dark because interest was paid on the loan for some twelve months.  When interest payments stopped, the Bank discovered its supposed secured home loan was an unsecured loan with the money misappropriated by Mr Nguy.

Westpac sued.

In High Court fast-track summary judgment proceedings, Mr Nguy was ordered to pay damages to Westpac.  As agent for Westpac, he had failed to apply the mortgage funding as instructed.

The positions of borrower New Dawn Holdings and guarantor Mr Chu were less straightforward.  New Dawn had never received any money.  There was nothing to repay, they said.

The Court of Appeal ruled New Dawn as borrower and Mr Chu as guarantor were liable to make repayment to Westpac simply by terms of their Westpac loan contract.  Any failure by Mr Nguy to pass on the money was a matter between Mr Nguy and them.  Mr Nguy was acting as agent for New Dawn and Mr Chu at the time he misappropriated their money.

Mr Nguy was struck off the roll of solicitors in October 2021.

It came out in evidence that there was a close business relationship between Mr Chu and Mr Nguy at time of the aborted purchase.

While the loan application led Westpac to believe Mr Chu was sole shareholder of New Dawn Holdings, there was a side deal; Mr Chu held a 25 per cent stake only.  He held 75 per cent of New Dawn’s shareholdings as trustee for Mr Nguy.  The interest payments made to Westpac for just over a year were funded by both Mr Chu and Mr Nguy, the court was told.

Westpac v. New Dawn Holdings Ltd – Court of Appeal (14.02.24)

24.055

Property Sale: Blackwater Properties v. Crawford Group

 

Less than twenty four hours after Christchurch developer Crawford Group Ltd was ordered to pay more than $1.4 million damages for defaulting on a property purchase, director Harry Shand tried to bury the corpse, changing Crawford Group’s name to CHCH Group Ltd. 

CHCH Group (formerly Crawford Group) took a punt on profitable redevelopment in Christchurch’s eastern suburbs in November 2021 with a deal landbanking four adjoining Phillipstown residential properties.  Settlement of the $3.5 million deal was due twelve months later.

The High Court was told CHCH Group found itself on the wrong side of a rapidly declining market.  Tentative discussions six months out from settlement date seeking a contract extension came to nothing.

Come the November 2022 payment deadline, CHCH Group defaulted.  The company accepted liability for breach of contract.  The High Court was asked to rule on damages; the difference between market prices at date of cancellation and the agreed purchase price.

Evidence was given that the market for residential property peaked in late 2021/early 2022, declining from that date.  The court was asked to rule on valuation of the Phillipstown properties as at May 2023, date the contracts were formally cancelled.  

Vendors’ valuer said the properties’ market value had declined by some forty per cent.  CHCH Group’s valuer said the drop was nearer twenty five per cent.

Associate judge Paulsen accepted the vendors’ valuation.  Recent sales in the suburb had been taken into account.  Judge Paulsen criticised CHCH Group’s valuer for relying on sale prices drawn from neighbouring suburbs at a time when the market was still near its peak and for assuming that a current sale could be made with all four properties sold as a job lot.  

CHCH Group’s failed Phillipstown purchase had seen it agreeing to buy three properties on Ollivers Road from Blackwater Properties Ltd for $2.5 million plus an adjoining property from homeowners Andrew and Yvonne Smith for $1.05 million.

CHCH Group was ordered to pay Blackwater Properties $942,000 damages; the Smiths $476,000.  Damages for the Smiths includes wasted expenditure of legal fees and a lost deposit on their intended purchase of a replacement home.  CHCH Group was aware that the Smiths would look to buy elsewhere and that CHCH’s failure to pay would cause these losses, Judge Paulsen ruled.

Evidence was given that Blackwater Properties had Mr Shand sign a personal guarantee at the time CHCH agreed to buy.  Judge Paulsen ruled Mr Shand personally is liable to pay Blackwater Properties $942,000 should CHCH Group go into liquidation insolvent.  The Smiths do not have a guarantee.

Blackwater Properties Ltd v. Crawford Group Ltd & Smith v. Crawford Group Ltd – High Court (14.02.24)

24.056

Bankruptcy: re Terry Alexander Davison

 

New Zealand and Australia are joined at the hip when it comes to trans-Tasman debtors looking to hide from creditors.  Insolvency Service has been appointed as agent to track down assets held in New Zealand by a Kiwi bankrupted in Australia.

In May 2019, Terry Alexander Davison was declared bankrupt by the Australian Federal Court sitting in Adelaide.  A representative of Oracle Insolvency Services Pty Ltd was appointed to handle his bankruptcy.

Enquiries identified that Mr Davison owned half share of a property in Queensland at Victoria Point, jointly with his spouse.  The two had recently separated.

Mr Davison’s claim that all his bankruptcy debts could be cleared by having his former spouse buying out his share of Victoria Point ran into a snag; a previously undeclared $55,559 debt unexpectedly surfaced.

Oracle Insolvency learnt the $55,559 was owed Avanti Finance Ltd in New Zealand, a loan raised by Mr Davison to buy a Mitsubishi Triton.  It also learnt this was not the only New Zealand asset potentially available to pay bankruptcy creditors; Mr Davison has property in New Zealand, a share in Maori freehold property.

Oracle Insolvency applied to the New Zealand High Court under the Insolvency (Cross Border) Act to have Mr Davison’s Australian bankruptcy ‘recognised,’ allowing Mr Davison’s New Zealand assets to be seized.

In New Zealand, Insolvency Service was appointed agent to act on Oracle Insolvency’s behalf.

Ownership of Mr Davison’s interest in freehold land is identifiable from the land title register.  The court was told the Mitsubishi Triton is currently in the possession of a New Zealand logging company, which itself is in liquidation.

re Bankruptcy of Terry Alexander Davison – High Court (13.02.24)

24.054

Money Laundering: Hailemichael v. Police

 

Described as a somewhat idiotic cog in a much bigger money laundering machine, Sophonias Hailemichael’s conviction for money-laundering was overturned on appeal subject to him paying full reparation and completing 80 hours of voluntary community work.

The High Court heard Hailemichael was sucked into a ‘get rich quick scheme’ touted on Tiktok.  Aged in his early twenties, he was described as vulnerable in that he was suffering from mental health issues.  He had recently lost his job.  A long-term relationship had recently ended.

When questioned by police, Hailemichael admitted he knew the Tiktok scheme was a scam and that he was being used as a money mule.

Hailemichael recruited two acquaintances who provided their bank account details.  Subsequently, online fraudsters transferred $3000 into each account.  His acquaintances then withdrew the money: keeping some as reward for their involvement; handing the rest to Hailemichael.

Hailemichael passed on the balance to his Tiktok contact, receiving $1450 in payment.

After Hailemichael pleaded guilty in the District Court, the trial judge emphasised that the victim had lost a total of $41,000 in the scam and that Hailemichael’s involvement was made worse by the fact he had previously worked in the banking sector.

On appeal, Justice Becroft said the gravity of Hailemichael’s offending was better described as low, or low to moderate.  The victim’s total losses of $41,000 should not be pinned on Hailemichael alone; only a small part of this loss was attributable to Hailemichael’s involvement as a money mule.  And his banking sector experience was not sophisticated, Justice Becroft said.  He had worked at an ASB bank call centre as first point of contact for customers seeking to refinance.         

Justice Becroft laid considerable emphasis on recent work by the NZ Work Research Institute highlighting that males with a first-time conviction suffer a sharp decline in employment prospects and earnings after conviction.

In the period up to his High Court appeal, Hailemichael saved sufficient money to make reparations, money saved primarily out of his social welfare benefit.  There was evidence from WINZ that any conviction for money laundering would result in Hailemichael being offered only low level, entry jobs; he was unlikely to ever get a job placement involving a position of trust or handling money.

Hailemichael v. Police – High Court (13.02.24)

24.053

Immigration Scam: Bandara v. Police

 

Rose Bandara’s conviction for an immigration visa scam was overturned on appeal.  There was no evidence she took $10,000 from her brother-in-law with intent to deceive.

The criminal case had its origins in a March 2018 meeting at Auckland Airport between Ms Bandara and her Sir Lankan brother-in-law.  He said $10,000 was handed over.  Ms Bandara represented she could get him an immigration visa, he said.

With no visa forthcoming, he went to the police.  Ms Bandara denied there was any cash for visa deal; the money was payment for jewellery, she said.  At a later court hearing, this explanation was dismissed as untrue.

Charged with obtaining by deception, Ms Bandara faced a court hearing set down for July 2019.  It was adjourned at request of police.  The complainant was not available.

Six further hearing dates set down over the next four years were also adjourned, all at the request of Ms Bandara.  Reasons offered ranged from absence overseas, flight delays, covid infections and recuperation from a stroke.

In March 2023, a District Court judge cried enough; the charge was heard in open court with Ms Bandara absent.  She was convicted; ordered to repay $10,000 with further sentencing deferred for six months.

On appeal, Justice Cooke ruled the trial judge had not found any evidence of dishonesty.  Proof was required that Ms Bandara knew she was unable to assist in procuring a visa when she took the $10,000.

There was evidence that Ms Bandara had previously been involved in a scheme bringing Sri Lankan immigrants to New Zealand where they had obtained visas after completing training programmes.  She was paid for this work.  While the training scheme/visa route stopped after changes to immigration policy in 2010, that by itself did not mean Ms Bandara acted dishonestly when taking the $10,000, Justice Cooke ruled.

Ms Bandara’s separate appeal against conviction on grounds she did not get a fair trial, with the hearing held in her absence, was dismissed.  Reasons offered for the final adjournment lacked credibility and were not supported by credible evidence, Justice Cooke ruled.

Bandara v. Police – High Court (9.02.24)

24.052

Radio Spectrum: Cayman Spectrum v. Spark New Zealand Trading

 

Facing strict ‘use it or lose it’ rules governing use of radio spectrum, Boyd Craig committed joint venture company Cayman Spectrum to a Spark deal without authority to do so.  The frantic wheeling and dealing was exposed in a week long High Court hearing: Craig held to have got the best deal he could have in the circumstances; Spark left with a contract it could not enforce.

Nearly twenty years ago, further spectrum management rights were up for auction, creating private property rights over allocated radio frequencies.  This initiative super-charged internet connectivity in New Zealand.  For providers, it was a land-grab; fighting for the best territory.

The High Court was told Ministry of Business, Innovation and Employment set strict rules for auction of what was recognised as a scarce economic resource: exclusive management of slices divvied out of radio spectrum.

Successful bidders had strict timelimits to become fully operative.  Failure to do so would see spectrum rights lost.  There was to be no sitting on an asset, seeking to make a profit with a later sale.    

MBIE frowned on successful bidders later cuddling up with rivals. This could lead to competition issues and monopoly pricing; issues policed by the Commerce Commission.

There was one area where collusion with rivals was allowed; installation of so-called ‘guard bands.’  High-powered transmission in one spectrum has the effect of disrupting lower-powered transmission on neighbouring spectrum.  Neighbours are allowed to negotiate how power output on boundaries can best be managed.

The High Court dispute was primarily an argument between two joint venture partners each owning a half share of Cayman Spectrum (NZ) Ltd.  Cayman held two blocks in the 2.5 GHz spectrum.

On Cayman’s board, Mr Craig represented Craig Wireless, based in Canada; Rahul Prakash represented Everest LP, based in the United States.  Everest LP later came under control of telco entrepreneur Malcolm Dick.

In November 2015, Cayman was at grave risk of losing its spectrum allocation.  It had neither the time nor the money to fully roll out its promised services.

Behind Everest’s back, Mr Craig negotiated a network services agreement with Spark, allowing Cayman to use nominated towers controlled by Spark.  This short-term fix enabled Cayman to achieve coverage required by its spectrum contract, avoiding loss of its spectrum allocation.

The agreement came at a price.

Mr Craig committed Cayman to handing over twenty per cent of the gross proceeds from any future sale of Cayman’s spectrum rights.  At the same time, Mr Craig agreed on behalf of Cayman that previous guard band restrictions requiring Spark use lower power levels on the MHz bands adjacent to Cayman’s spectrum could be lifted.

Later learning of these arrangements, Everest was apoplectic.  It sued Mr Craig, alleging as Cayman director he put his own personal interests ahead of the company and was in breach of his fiduciary duties.  These allegations followed Mr Craig’ s negotiations with Spark over sale of management rights for 2.3 GHz spectrum that Mr Craig owned separately from his Cayman joint venture ownership of 2.5 GHz spectrum.

It was alleged Mr Craig was sacrificing Cayman to benefit his own separate interests.

Mr Craig’s sale of his 2.3 GHz rights to Spark was inextricably linked with the Spark/Cayman side deals, Everest alleged.  Benefits to Spark at Cayman’s expense on both the 2.5 GHz coverage compliance and the lifting of guard bands assisted Mr Craig in negotiation of his separate sale of 2.3 GHz management rights, Everest claimed.      

Justice Lang ruled there was no link.

Mr Craig’s separate sale of his 2.3 GHz interests to Spark could have been agreed on the same terms without Spark’s parallel agreements with Cayman, he ruled.  Craig Wireless did not derive a benefit at Cayman’s expense.

Justice Lang further ruled there had been no failure by Mr Craig to act in best interests of Cayman.  He was able to preserve Cayman’s only asset at a time when it was at risk of being forfeited for non-compliance.  Cayman was in a weak bargaining position.  Spark initially sought fifty per cent of sale proceeds from any onward sale by Cayman of its 2.5 GHz management rights in return for use of its towers.  Mr Craig did manage to negotiate this percentage down to twenty per cent.  He did the best he could, Justice Lang said.

Cayman later sold its 2.5GHz spectrum rights for USD 10 million.  Spark claimed it was entitled to USD 2 million.  Spark’s claim was dismissed by Justice Lang.

Mr Craig had no authority to commit Cayman to a deal splitting sale proceeds, ruled Justice Lang.  Cayman’s registered constitution explicitly states that such transactions require the consent of all directors and all shareholders.  Everest had no knowledge of the negotiations.  It never agreed to the deal.

Justice Lang ruled that while there was no enforceable contract permitting Spark to recover USD 2 million, Spark is entitled to compensation at market rates for the eight month period Cayman used Spark’s towers.  He invited the two sides to reach agreement on an appropriate figure.

Cayman Spectrum (NZ) Co v. Spark New Zealand Trading Ltd – High Court (8.02.24)

24.050

 

Addendum: In contrast to the 2024 New Zealand High Court case, a 2018 arbitration in Canada between Everest and Craig Wireless saw an arbitrator rule that Mr Craig was in breach of fiduciary duties owed Cayman.

Justice Lang suggested the Canada arbitrator did not have the full picture; there was no evidence from Spark at the arbitration.

Justice Lang indicated Malcolm Dick launched into the arbitration with a complete misunderstanding as to the sale price received by Mr Craig personally for separate sale to Spark of his 2.3 GHz spectrum rights; a factual issue that went to the heart of Everest’s claim against Mr Craig.   Mr Dick mistakenly believed Spark had paid Mr Craig three times over the then market price for his 2.3 GHz spectrum.   

The Canada arbitration saw Craig Wireless ordered to pay damages in excess of NZD 4.9 million.  Payment was made by Craig Wireless transferring to interests associated with Mr Dick its half share in Cayman with a cash adjustment of USD one million paid in return to Craig Wireless.