Trademark: Trafalgar Group v. Boss Fire & Safety

 

First use of a brand name creates priority rights for later trademark registration with Australian fire safety supplier Trafalgar Group failing in its High Court argument that an employee’s LinkedIn post referencing its product amounted to ‘first use’ in New Zealand, trumping an email exchange between its Australian competitor Boss Fire & Safety and a New Zealand customer.    

Trademarks have considerable commercial value.  In Australia, Trafalgar Group and Boss Fire & Safety have kept their respective legal advisers profitably employed arguing over right to use two brand names: Firebox and Fyrebox.

These monikers are used to promote cable duct boxes within buildings designed to self-seal in cases of fire, reducing the spread of fire between rooms and apartments.

In Australia, Boss Fire & Safety trounced Trafalgar Group in court battles over the right to use Fyrebox and Firebox, with Boss Fire claiming prior rights to Fyrebox and blocking Trafalgar’s use of Firebox as an alternative.

Battle then turned to the New Zealand market, with a reprise of the same legal arguments.  

The High Court was told Trafalgar claimed rights in New Zealand to use the product name Fyrebox arising from first use, referencing a 2016 LinkedIn post by its CEO announcing the launch of its then Fyrebox product.  Described in court as a pre-launch teaser, Trafalgar said the post was ‘sent’ to over 500 New Zealand followers, receiving ‘likes’ from three.

Justice Grau ruled a LinkedIn post is not ‘use’ of a trademark in New Zealand.  It is no more than a post on a social media platform.  Some active response is required for there to be ‘use’ in a legal sense.  ‘Like’ means little, Justice Grau said.  There is no evidence of what the follower saw or liked.

Justice Grau ruled a prior email exchange between Boss Safety and a potential New Zealand customer did amount to ‘use,’ supporting Boss Safety’s claim to a prior New Zealand presence for its Fyrebox brand.

Three months prior to Trafalgar’s LinkedIn post, Boss Safety received from New Zealand a product enquiry by email through its Australia-based website.  An email exchange over following days identified that a potential New Zealand customer was interested in Boss Safety’s Fyrebox product.  The customer was provided with specifications and directed to Boss Safety’s newly-appointed New Zealand distributor to place an order.

These email exchanges amounted to ‘first use’ rights in New Zealand supporting Boss Safety’s Trade Marks Act registration in New Zealand for its Fyrebox brand, Justice Grau ruled.

Trafalgar Group Pty Ltd v. Boss Fire & Safety Pty Ltd – High Court (30.04.24)

24.109

Assignment: Lau v. Righteous Law

 

The $1.2 million Auckland property sale collapsed.  Disappointed vendor, Helio Development Ltd, then later assigned the right to sue on its contract across to Ee Kuoh Lau, member of a consortium which had lent $400,000 to Helio Development.  These assigned rights could not be enforced, the High Court ruled.

As assignee, Mr Lau’s main target was a $128,000 deposit, repaid to the purchaser, but if recovered by legal action taken in Helio’s name would count as part-repayment of Helio’s borrowing.  

The High Court was told Helio Development agreed in October 2021 to sell a property on Dominion Road in Papakura for $1.2 million.  Companies Office records describe Helio as a property developer.  Purchaser Chenshu Sun paid the required $128,000 deposit into his solicitors’ trust account.

It transpired that Helio did not hold title to the property.  Mr Sun cancelled, alleging misrepresentations by Helio.

Eight months after the $128,000 deposit was returned to Mr Sun, Helio Development signed a deed of assignment transferring to its creditor Mr Lau all rights on the cancelled Dominion Road sale agreement.

Mr Lau sued, claiming damages from Mr Sun for alleged unlawful cancellation and claiming damages from his solicitors for allegedly wrongly refunding the deposit paid.

Associate judge Brittain struck out both claims.

Courts are wary of assignments taken over litigation rights.  There have been instances of assignments taken for malicious purposes, to harass or bankrupt a foe.

English courts developed a general rule that there must be a ‘genuine commercial interest’ in the subject matter of an assignment before the courts will enforce the assignment. 

At its heart, Helio had no property right to assign.  It did not hold title to Dominion Road.  There was no evidence before the court of an earlier contract for Helio to buy Dominion Road in advance of on-selling.  At best, Helio was assigning a ‘bare’ cause of action; the right to sue in contract.

Mr Lau did not provide any evidence linking his prior loan to the subsequent assignment such as to establish a genuine commercial interest in the cancelled contract, Judge Brittain ruled.

By contrast, financial institutions making commercial loans commonly ensure rights arising under any future contract form part of the security taken at the time a loan is advanced, allowing them to later seize any money due under the later contract.

Mr Lau did not appear in court to challenge the strike-out application.

Lau v. Righteous Law & Sun – High Court (30.04.24)

24.110

Family Trust: re Fogarty Family Trust

 

Four years after Yvonne and Patrick Fogarty set up their family trust, Yvonne exercised her powers as trustee to remove daughter Karen’s children as beneficiaries.  Then after later resigning as trustee she joined with her two other children Daniel and Tracey in a bid to challenge their father’s continued use of trust property.

The Fogarty Family Trust was established in 1998 when Yvonne and Patrick purchased a 1,300 hectare property at Porangahau in Hawkes Bay.  Later to surface, was Yvonne’s complaint that there had been insufficient recognition given for her father’s contribution towards the $310,000 purchase price.  Her father contributed over a third of the price, she says.  This level of contribution is disputed by husband Patrick, the High Court was told.    

Family dynamics in the Fogarty household were not straightforward.  Daughter Karen was adopted out at birth.  Karen described it as an open adoption, having ongoing contact with the wider Fogarty family from her teenage years.  Yvonne says later contact was limited.

Divisions within the family were apparent when Yvonne as trustee removed Karen’s children as family trust discretionary beneficiaries in May 2002.  Karen, as a named final beneficiary alongside her two siblings, could not be removed unilaterally by Yvonne as trustee.

Income for the Fogarty Family Trust came from renting out Porangahau.  From 2016, the property was leased to a second trust controlled by father Patrick.

Three years later, Yvonne and two of her children, Daniel and Tracey, were in court claiming the rent was too low.  Yvonne had resigned as trustee back in 2005, five years after she and Patrick had separated.

An out-of-court settlement saw agreement for payment of increased rentals and protocols to grant permission for extended family to hunt across the property.

The High Court was told Patrick subsequently looked to end family wrangling with his purchase of Porangahau from the Trust and the sale proceeds divided equally between Karen, Daniel and Tracey as the three-named trust final beneficiaries.

In October 2021, he offered to pay $2.4 million.  Little headway was made.  Yvonne claimed the price was too low.  She challenged plans for a three-way equal split.

Fogarty Family Trust trustees made a Trusts Act application to the High Court seeking approval for both the $2.4 million sale and their decision to divide sale proceeds equally.  Failing approval, trustees asked the High Court to appoint the Public Trust as replacement trustee.

Justice Palmer approved the trustees’ proposal.

Yvonne provided no evidence the offered price was below market.  There was nothing in the personal circumstances of the three children suggesting anything other than an equal split was appropriate.

Justice Palmer further ruled the three children were entitled to recover their separate legal costs from the Trust, as were the current trustees.  Their parents have to pay their own personal legal costs, with no recovery from the Trust.  As individuals standing outside the Trust they did not need to get involved in the trustees’ High Court application, he said.

re Fogarty Family Trust – High Court (29.04.24)

24.108

Cross-lease: Martelli v. Liow

 

Thirty years of arbitration practice dealing with disputes over alterations to cross-lease properties was overturned in a High Court decision following a dispute between neighbours in an Auckland cross-lease residential development.  The ‘trifling detriment’ test previously in use has been replaced; the test now is to look at the overall effect of proposed building changes should cross-lease homeowners put their dispute to arbitration.

Multiple residential units on a single site with cross-lease ownership do not have a body corporate.  Owners of each property have contractual rights of occupation and exclusive possession set out in their respective leases.

These leases typically have clauses prohibiting fellow owners from making structural changes to that part of the building where they have exclusive possession, without first getting consent from neighbouring owners with neighbours not allowed to ‘unreasonably withhold’ consent.

Designed to prevent hodge-podge alterations affecting a development’s integrity, these clauses are often promoted by real estate agents as a strong marketing point when selling cross-lease properties; your neighbour cannot make changes affecting your view, without your consent.

As is common in commercial contracts; cross-lease contracts require disputes between neighbours about proposed alterations be first put to arbitration.

The litmus test for arbitrators has been a 1992 case; a dispute between neighbours on a cross-lease site in Auckland suburb Devonport.  Arbitrators created a ‘trifling detriment’ test from the judge’s ruling that ‘consent will be unreasonably withheld only where the benefit to the party seeking the change will be substantial and the proposed alteration would produce only trifling detriment to the neighbour.’

This ’trifling detriment’ test has given cross-lease neighbours what in effect is a right of veto; any neighbour’s proposed building alteration which is not trifling can be blocked.

Strict application of this test was challenged in a current dispute between cross-lease neighbours on Waiatarua Road in the Auckland suburb of Remuera.

The High Court was told owners of flat two demolished an existing deck in 2018 and replaced it with two larger outdoor decks.  They did not get their neighbours consent, as required by their cross lease.

Three years later, owners of flat one put forward a proposal to radically upgrade their flat by extending their building closer to the common boundary, adding an in-ground swimming pool and new decking which would cover most of the backyard.  Owners of flat two refused consent.

Their dispute went to arbitration.  Applying the ‘trifling detriment’ test, the arbitrator ruled consent was validly withheld.

Flat one owners challenged use of the test.

Justice Gault said arbitrators have taken too narrow a view of the judge’s 1992 comments when settling on a ‘trifling detriment’ test.  No specific formula can be laid down.  A fact-specific assessment is needed in each case to determine whether a cross-lease neighbour has unreasonably withheld consent to proposed alterations.

As a guide, Justice Gault said arbitrators could make use of rules developed by English courts dealing with disputes over structural changes proposed for properties occupied on long-term residential leases.  There are many long-term residential leases in UK major cities running for centuries.

Martelli v. Liow – High Court (29.04.24)

24.107

Stranded Assets: Major Gas Users Group v. Commerce Commission

 

Political decisions to reach a net-zero carbon economy by phasing out use of natural gas leaves the industry with a ‘stranded asset’ problem; who bears the cost of writing off a soon-to-be worthless gas pipeline network?  Major gas users argue consumers should not bear the cost through increased prices.  It is a business risk network owners should bear, they say.

Major gas users from primary industry and manufacturing sectors challenged a 2022 Commerce Commission decision allowing gas suppliers to increase depreciation allowances, with a resulting uptick in prices charged to maintain profitability.

Increasing depreciation accelerates that portion of the capital cost of building the network charged against current revenue; adjustments that are necessary to reflect the possibility that the gas supply network will be shut down before the end of its economic life, the Commission said.

Major users challenged this decision.  Wait and see, they said.  Political imperatives may change.  No shut-down date has been set.

Failing that, let suppliers bear the cost, they argued.  Building the network is a sunk cost.  Suppliers take the risk.

The gas network is a natural monopoly.  No one is going to construct a rival network and compete head-to-head on price.  This economic reality is reflected in the Commerce Act.

The Commerce Commission has power to set price levels and quality controls.  Administrative decisions attempt to mimic market forces.

Decisions on price turn on an ‘input methodology;’ a wheels-within-wheels formula in which a number of variables are calculated to determine an appropriate return for a monopoly supplier: the value of the monopoly asset; a return on capital; depreciation; and, expenditure including operating costs and tax.

Profitability for a monopoly supplier can be moved by adjustment to any of the variables.

The Commission has accommodated black swan events in the past where a monopoly supplier has faced a sudden, unexpected, event.

Electricity lines company Orion was on its knees having to rebuild its network following the Christchurch earthquake sequence.  In 2013, Orion was given Commission approval for a large increase in retail prices for the period of its expected rebuild.

The political decision to phase out use of natural gas has economic effects the Commission has not previously faced.  This decision has potential to strand assets for an entire industry.

The High Court was told the Commerce Commission decision to allow an increase in gas network depreciation allowances will result in a nominal increase for household gas bills of 3.8 per cent per year over the next four years.

The Court dismissed claims by major gas users that the risk of asset stranding is already built into pricing methodology when calculating a return on capital.  Gas users say this already compensates suppliers for the risk; subsequently adjusting depreciation allowances is double counting.

Risks unrelated to day-to-day operations, arising from infrequent events that could produce large losses, do not form part of a cost of capital calculation, the court ruled.

These un-costed risks include natural disasters, pandemics, terrorist threats and unexpected major shifts in government policy.  There is no uplift built into cost of capital to cover these black swan events.  Such costs are difficult to estimate and can lead to monopoly suppliers concocting extreme scenarios, gaming the rules to justify price increases, the Court said.

The Commission’s decision to have consumers bear the cost provided certainty, the Court ruled. There is an implicit expectation that consumers must ultimately bear the cost should monopoly networks have to write off stranded assets.  If these losses were to now fall on network owners, future investors would be unwilling to incur the substantial capital costs of building any new monopoly network.

Network stranding risks are implicitly left with customers, the Court said.  Customers benefit from lower prices than would otherwise be levied, unless and until the risk becomes a reality.

The major users challenge to the Commission’s decision was dismissed.

Assisting Justice Radich in ruling on the case were economic specialists Professor van Zijl and Dr Walker.

Major Gas Users Group v. Commerce Commission – High Court (29.04.24)

24.105

Building Report: Madhava Corp v. Austin

 

First home buyers validly cancelled an $815,000 Auckland purchase after getting a building report signalling potential weathertightness issues despite vendor complaints that only a $7000 window repair was at issue.

Sale in 2022 of a property on Mt Albert Road in Auckland suburb Mt Roskill was subject to a satisfactory building report.  The house was built in the 1950s, with a 1972 rebuild seeing the house lifted and a bottom storey added.

The purchasers’ building report described exterior weatherboard cladding as being in ‘moderate condition’ requiring some maintenance and repairs.  One window required immediate work; there were gaps under the sill.  The report advised further investigation to ensure no damage to adjoining internal timber framing.

This report led to some negotiation.  Vendor Madhava Corporation Ltd suggested $7000 be deducted from the contract price and that the purchasers later complete repairs to their own satisfaction.  Instead, they cancelled.

Madhava Corporation said the defects were insufficient grounds for cancellation.

The High Court was told Madhava Corporation’s sole director and shareholder, Madhava Karmarkar, then arranged for his company to sell the Mt Roskill property to himself for $700,000.  He then had Madhava Corporation sue the purchasers for $115,000, being a claimed loss on resale after the purchasers’ alleged default.    

In the High Court, Justice Andrew ruled criteria for cancellation following an adverse building report requires an objective assessment of the defects raised.  A purchaser’s subjective view is not relevant.  It is not enough that a purchaser simply states the report is not satisfactory. The building report must reveal defects that would be of concern to a reasonable and fair-minded purchaser.

An objective assessment of the Mt Roskill building report provided sufficient grounds for cancellation, he ruled.

The report went beyond references to deferred maintenance, raising a question of potential damage to the building’s structural integrity.

Cancellation was justified.  Madhava Corporation’s claim for loss on resale was dismissed.

Madhava Corporation Ltd v. Austin – High Court (29.04.24)

24.106

Pool Inspections: Tasman District v. Buchanan

 

Council inspections of home swimming pools are intended to protect young children’s safety, not to maintain market value of a home ruled the Court of Appeal, overturning a $270,000 damages award against Tasman District Council after it was sued by former Nelson City CEO Keith Marshall.

In 2006, Mr Marshall’s family trust purchased an award-winning home on a 2.9 hectare lifestyle block on Eight Eight Valley Road at Wakefield.  It includes a swimming pool in a courtyard between two of the buildings.

Over the next six years, Tasman District made two inspections of the pool as required by the then Fencing of Swimming Pools Act to ensure safety barriers and lockable gates were in place.  Pool safety rules are now in the Building Act.

The pool passed these two inspections.

The Trust was surprised to fail a subsequent pool inspection in 2019, an inspection triggered by real estate advertisements offering the Wakefield property for sale.  The property was then withdrawn from sale.

The Court of Appeal ruled that while the previous pool inspections were inadequate and that Tasman District had been negligent, Council was not liable for any reduction in the property’s value resulting from the failed certification.

The purpose of pool inspections is to ensure safety of young children, not to protect the economic interest of property owners, the Court ruled.  No duty of care is owed to property owners.

Homeowners are the ones whose conduct is regulated; homeowners are not intended beneficiaries of the rules.

The Court left open the potential possibility of parents suing a local authority for mental or emotional distress, should a young family member drown because of a council’s failure to identify non-compliant pool fencing.

Tasman District v. Buchanan – Court of Appeal (26.04.24)

24.104

Access: Maungatautari 4G Trust v. Waipa District

 

The court case was about road access.  The economic dispute was an argument over revenue from guided tours.

Having leased to Waipa District Council some 23 hectares of land within the Maungatautari Ecological Island south of Cambridge, trustees of Maungatautari 4G subsequently ran an unsuccessful decades long campaign against Council support for guided tours run over their land.

A charitable trust known as Maungatautari Ecological Island Trust has built and maintained over the last two decades a 43 kilometre predator-proof fence on the mountain’s northern slopes, establishing a wildlife reserve to protect native birds and tuatara.  Maori-owned land is included within the reserve.

To generate revenue, the Maungatautari Trust established a programme of guided tours with its starting point at the end of a local access road: Tari Road.  Local Maori objected to the Trust’s commercial operations.

To encourage payment by eco-tourists, the Trust obtained Council consent to fence part of Tari Road and to install a turnstile, directing walkers towards a building advertising its tours.  Council gave the Trust a short-term licence to build on the closed part of Tari Road and to operate a tour guide service from the site.

Trustees of Maungatautari 4G Land appealed Council’s actions to both the Maori Land Court and the Environment Court.  Both tribunals said they had no jurisdiction over the dispute.

Their complaint to the Ombudsman’s service bore more success.  In 2018, the Ombudsman issued a provisional ruling that Waipa Council’s partial closure of Tari Road was unlawful.

The High Court was told Maungatautari Trust subsequently bulldozed a new access point from Tari Road through neighbouring land to the reserve.

Some five years later, representatives of Maungatautari 4G were in court, continuing to dispute Waipa Council’s earlier actions in partially closing Tari Road.

Justice Campbell ruled Council had authority under the Local Government Act to close off part of the road.  And as owner of the road, Council had authority to grant a short-term licence for the Trust’s building sitting on the road.

Maungatautari 4G’s complaint that the partial road closure amounted to a public nuisance was dismissed.  Council consent saw Tari Road closed off about twelve metres from its end by means of a fence, turnstile and gate.  The gate was not locked.

To reach their land at the end of the road, Maungatautari 4G members were required to pass through two gates in quick succession; the disputed Council-approved gate and the landowners own boundary gate.

Justice Campbell said there was no evidence of Maungatautari 4G being inconvenienced.  No owners lived on the land.  While their land is of spiritual and cultural significance, there was no evidence of access complaints, he said.

The disputed gate, fencing and turnstile were removed in 2018.

Maungatautari 4G Section IV Landowners Trust v. Waipa District – High Court (26.04.24)

24.103

Family Trust: re Hilton Family Trust

 

Medical practitioner Douglas Sherwin died in 2006 leaving his financial affairs in what was politely described as ‘a shambles’.  It took seventeen years to finalise his estate with son Wayne as disappointed estate beneficiary then in court disputing division of their late father’s $1.8 million family trust between himself and his four siblings.

Family trust trustees want to divide the $1.8 million trust capital equally. Wayne says he is entitled to a greater share because their late father’s estate, from which he was entitled to a half share, fell well short of expectations.

The High Court was told Dr Sherwin’s will on death stated one half of his estate was to be held in trust for son Wayne, the balance divided equally between Dr Sherwin’s four other children.  It was acknowledged extra provision was needed for Wayne, given his mental health issues.

Distribution of estate assets was delayed by litigation.  It was discovered Dr Sherwin’s family trust owed the estate some one million dollars and his second wife Marino claimed ownership of property and an insurance policy.  The estate was ruled liable for legal fees totalling $580,000 incurred by parties to the dispute.  This resulted in Wayne’s half share to a final payout reducing to about $150,000.

Meanwhile, Dr Sherwin’s family trust sat in the background with a defined termination date of 2026.  Terms of the trust give trustees a wide discretion as to how trust assets are to be divided amongst Dr Sherwin’s children.  With some $1.8 million likely to be available for distribution, trustees gave notice of their intention to divide the assets equally, with adjustments for loans already advanced to each of them.  Advances ranging between $111,000 and $36,000 had already been made in anticipation of the siblings’ later windfall when the trust was terminated.

To avoid continuing litigation, the High Court was asked for a Trusts Act review of the proposed equal distribution.

Wayne said equal division was not appropriate, given that the extra benefit their father intended by bequeathing him half share of his estate had, in practice, not been fulfilled.

Family trust trustees said it was reasonable for them to administer the trust separate from concerns about the will’s impact.  It was normal practice in family trusts for trust assets to be divided equally between beneficiaries in those cases where trustees are given wide discretion as to how assets are to be divided, they said.

The court was told Dr Sherwin left no ‘memorandum of wishes’ providing a guide to his trustees as to how they should divide trust assets.

Justice Becroft ruled the trustees proposed equal distribution of trust assets was reasonable.

re Douglas Hilton Family Trust – High Court (24.04.24)

24.101

Insolvency: Jones v. Williams & Lookman v. Williams

 

It was a choice between one more throw of the dice or taking steps to call entrepreneur Warwick Jones to account for use of funds by his company Design Electronics Ltd to commercialise technology facilitating remote real-time access to workplace data.

Design Electronics is insolvent.

For Nelson-based investor Michael Lookman and his family trust, it was time to call a halt.  He is owed $1.8 million.  His 2016 joint project with Mr Jones has resulted in little but angst.  Mr Lookman’s trip to the High Court (in 2019) resulted in a failure to recover immediate repayment from Design Electronics; repayment was not due until 2021.  An earlier court application (in 2018) saw Mr Jones ordered to make company financial information available, an obligation that was not honoured as ordered.

For Mr Lookman, the frustration has been he thought security for his loan would be given over patents and trademarks developed by Design Electronics.  Mr Jones later said there was no intellectual property rights available as security; intellectual property developments were ‘all in his head.’

Mr Lookman demands that Design Electronics be put into liquidation and that Mr Jones performance as director be put under scrutiny.  Mr Lookman offered to put up $250,000 cash to get an investigation underway.  He alleges Mr Jones has traded recklessly, in breach of the Companies Act.

The High Court was told agreement was reached in 2022 that Design Electronics would repay the $1.8 million owed Lookman Trust by instalments.  It failed to pay the first instalment.  Lookman Trust put Design Electronics into liquidation in April 2023 for non-payment.

Within months, Auckland insolvency practitioner Bryan Williams was floating a proposal that Design Electronics’ liquidation be suspended with the company restructured, kept alive both to collect revenue from its existing services and to enable further development of current products.

Lookman was furious.

The manner of Design Electronics’ restructuring and the motives of those behind it were challenged in the High Court.  Lookman Trust alleged the restructuring process was rigged and that Mr Williams was in league with Mr Jones in a scheme to benefit Mr Williams and to protect Mr Jones.

At time of its liquidation, Design Electronics had three commercial services in operation (an internet service, a gas measuring business, and a sensor system coupled with a management system available for commercial use) plus an aged care management system in development.

These services were generating annual gross revenue of some $400,000.

Restructuring proposed that Design Electronics’ liquidation be suspended, with existing service contracts and associated revenue staying with Design Electronics, whilst projects in progress would be transferred to a new company for further development.

It was anticipated that Design’s unpaid creditors, including Lookman Trust, would then be repaid over time out of Design Electronics’ current income stream.  To reduce Design’s debt burden, named specified investors would switch their existing claims to the new company.  They would take their chance with the new company, providing fresh working capital to further develop existing projects.

Realignment of all these contractual rights was achieved with the Companies Act Part 15A voluntary administration procedure.  Touted as a flexible quick-fire method of restructuring insolvent companies, Part 15A restructuring requires creditor vote in support totalling 75 per cent of the company’s indebtedness.  Fail to get sufficient voting support; liquidation follows.

Design’s creditors’ August 2023 vote, the so-called ‘watershed’ meeting, saw approval by the slimmest of margins: 75.3 per cent.

Lookman Trust immediately challenged the outcome, alleging creditors were both miscounted and the level of their indebtedness miscalculated.

A number of investors counted as creditors were in fact shareholders, Lookman Trust said.  They were issued with convertible securities in return for their cash injections.

The High Court heard evidence of messy and ambivalent record keeping within Design Electronics such that legal advice to Mr Williams, now in charge of the voluntary administration process, was that they should be treated as creditors, not shareholders.

Justice Anderson confirmed their status as creditors entitled to vote.

Lookman Trust alleged interest owed these investor/creditors had been manipulated to push their votes over the 75 per cent threshold.

Justice Anderson ruled that a recalculation would bring down the percentage vote in favour, but still marginally within the 75 per cent requirement.

Lookman Trust argued there had been a behind-the-scenes voting deal, prohibited by Part 15A.

The court was told of a mass email sent prior to the watershed meeting by one of the investor/creditors to a working group of investor/creditors who had worked on the restructuring proposal.  The email reminded group members ‘it is vital that you do vote to ensure passage of the recommended resolution.’  This was evidence of a secret block-voting deal, Lookman Trust said.

The same email stated recipients were free to vote ‘as they see fit,’ Justice Anderson pointed out.  The email was more an exhortation to vote, than a direction how to vote.

Lookman Trust’s application to terminate the restructuring scheme was dismissed.  The principal effect of the scheme was not to curtail an investigation into Mr Jones’ past management of Design Electronics, Justice Anderson said.  It was designed to enable a managed wind down of Design’s business with a greater return for creditors than would be achieved on liquidation.

Jones v. Williams & Lookman v. Williams – High Court (24.04.24)

24.102

GST: Dixon v. Takapuna Residence Development

 

They told the real estate agent they were registered for GST then signed a contract in 2019 selling their Auckland Takapuna property for $2.5 million stating they were not registered.  This was a breach of warranty.  Result: the Dixons had to pay $342,000 compensation to buyer, GST-registered property developer Takapuna Residence Development Ltd, for the GST input credit it lost.

Special rules govern GST on sales of land.  If both vendor and purchaser are GST registered, the transaction is zero-rated.  This avoids the administrative hassle of a money go round with the vendor paying GST to Inland Revenue and the purchaser later recovering the same from Inland Revenue as an input credit.

Developers buying existing homes can claim GST input credits; they are GST registered and in the business of property development.  The family home being sold is not usually a business asset, but is treated on sale to a GST-registered developer as if it were ‘second-hand goods.’  

Takapuna Development did not learn of the Dixons’ GST status until Inland Revenue turned down its claim for a GST credit, being told the Dixons were GST registered and the $2.5 million transaction was zero-rated.    

In partial defence, the Dixons argued Takapuna Development was not entitled to the full $342,000 because part of the purchase price was funded by a related company.  Takapuna Development should not get compensation for someone else’s loss, they said.

GST is levied on ‘supply,’ not payment, the Court of Appeal ruled.  GST liability for sale of land is determined at date of settlement, being the date ‘supply’ occurs.

It was irrelevant for GST purposes that the deposit was paid by a related company when the contract was signed.

It was also irrelevant that the related company was signatory to the contract and later assigned its rights as purchaser to Takapuna Development as its nominated purchaser.  The Goods and Services Act specifically provides that ‘supply’ of land in these instances is made on settlement to the purchaser’s nominee, regardless of who was the signatory and who paid the deposit.

Takapuna Development was entitled to recovery of the full GST input credit lost.

Dixon v. Takapuna Residence Development Ltd – High Court (27.03.23) & Court of Appeal (23.04.24)

24.100

Tax: Lawrence v. Inland Revenue

 

What was initially intended as minor repairs to fix leaks at a Tauranga residential rental grew to almost a complete rebuild with costs totalling some $365,000 dissallowed as a tax expense.  Costs were a capital expense; not deductible against rental income.

The High Court was told Ella and Gavin Lawrence purchased a Tauranga property in 2014, using it immediately as a residential rental.  Shortly after, their property manager advised of leaks in the kitchen.

Investigations identified water ingress from rusted internal guttering with potential blockages from guttering elsewhere.  The house was constructed in the 1980s.

What started out as a minor repair grew over a five year period to major alterations: internal guttering sitting behind fascia board was replaced with external guttering; the roof was replaced and the roofline altered to create an overhang at exposed ends; previous exterior which had cladding affixed directly to timber framing was replaced by new exterior cladding with addition of a cavity wall; double-glazed windows replaced single-glazing; replacement wooden decks were built; and stormwater drainage improved.

This went beyond repairs.  It amounted to a reconstruction, substantially renewing the house, Justice Andrew ruled.

As a capital improvement, the cost was not an expense deductible against rental income.

The disputed remediation costs became an issue after a 2021 Inland Revenue audit of the Lawrences’ tax returns filed for the previous four years.

Lawrence v. Inland Revenue – High Court (23.04.24)

24.099

Expulsion: Nagra v. Sri Guru Singh Sabha Auckland

 

An Auckland Sikh Sabha acted unconstitutionally in removing a member through the backdoor by the simple method of refusing to accept renewal of annual membership.

The Auckland Sikh community has been riven by doctrinal differences resulting, in the extreme, with the attempted murder of one controversial figure: Harnek Singh.

The High Court was told Daljit Singh Nagra was one of a number of Sikh adherents disturbed by Harnek Singh’s public profile and his ‘liberal’ interpretation of Sikhism.  There is no suggestion he was any way involved in the December 2020 attempt on Mr Singh’s life.

Daljit Singh Nagra was deeply involved in his Sabha’s 2007 purchase of a Papatoetoe site for a new place of worship: a Gurudwara.  He provided a short term bridging loan of some $50,000.

By 2010, some adherents had resigned from the Sabha, objecting to the growing influence of Mr Singh.

Daljit Singh Nagra did not resign, but his subsequent attendances at the Gurudwara became less frequent.  He told the High Court no annual subscription notice was received for the 2014 year.  This followed an employment dispute between his sister and the Sabha, a dispute decided in his sister’s favour.  A cheque he handed over in payment of annual membership was returned.    

Subsequently, the Sabha issued and enforced a trespass notice barring his attendance at the Gurudwara.

In 2024, he was in court arguing the Sabha acted ultra vires, failing to comply with its own constitution when it removed him from membership.  The court was told this hearing was the first step in a proposed challenge to what Daljit Singh Nagra considered Mr Singh’s unlawful control of the Sabha.

Justice Wilkinson-Smith ruled the Sabha had acted ultra vires.  Daljit Singh Nagra satisfied the criteria for continued membership.  The Sabha’s constitution did not provide for expulsion by the simple expedient of refusing to accept an annual subscription.

She refused to order that the Sabha accept his return to membership.  It had been ten years since his supposed expulsion.  The organisation has since moved on, Justice Wilkinson-Smith said.  The significant differences in ideology between Daljit Singh Nagra and current membership meant that there could be no workable relationship, she said.

Nagra v. Sri Guru Singh Sabha Auckland Inc – High Court (19.04.24)

24.097

Farm Debt: Criffel Deer Ltd v. Primary Industries

 

Wellington lawyer Michael Garnham failed in his challenge to Primary Industries supposed failure to block ANZ’s threat of a mortgagee sale with his request for a ‘prohibition certificate’ under the Farm Debt Mediation Act.  An ANZ loan to complete his 2012 purchase of ASB Tower in central Wellington was not a ‘farm debt,’ though secured in part over his Wanaka deer farm. 

Farm lobby complaints that banks in general no longer favour rural lending is one unintended consequence of the Farm Debt Mediation Act, in effect since 2020.

Rural borrowers in arrears can ask Ministry of Primary Industries for a prohibition certificate, blocking loan recoveries.  Creditors then require clearance from Primary Industries before continuing.  They must jump though several hoops before getting clearance: mediation between debtor and creditor is required; any agreement reached suspends enforcement for three years.

The Act is premised on a need to explore options for a business turn-around and what the previous Labour administration described as a need ‘to provide for a timely and dignified exit for those who had few other options.’

The High Court was told of a long and tortuous relationship between Mr Garnham and ANZ Bank.

In 2012, ANZ agreed a $35.95 million facility with Mr Garnham, primarily to fund his purchase of ASB Tower.  Security was taken over multiple companies controlled by Mr Garnham, including his Wanaka farm: Criffel Deer Ltd.  Criffel’s existing debt to Rabobank was refinanced with the ANZ loan.

ASB Tower was sold in 2015, with ANZ left owed some $4.9 million and a mortgage still secured over Criffel Deer’s assets.

Evidence was given of unresolved negotiations and extensive litigation between Mr Garnham and ANZ over the following seven years with ANZ eventually issuing a ‘drop dead’ ultimatum in late 2022:  Criffel would be put into receivership if the balance outstanding and accrued interest was not paid within three months.

Mr Garnham asked Primary Industries to issue a Farm Debt prohibition certificate, blocking the proposed receivership.

Primary Industries refused.  The debt was not a farm debt; it was debt incurred for purchase of a commercial building.  And the Act did not apply because preliminary enforcement steps had already commenced before the Act came into effect, it said.

In the High Court, Justice Grau upheld Primary Industries reasons for refusal.

Criffel Deer Ltd v. Primary Industries – High Court (19.04.24)

24.098