When a commercial contract ‘runs on’ beyond its scheduled end, all contract terms continue to apply, ruled the Court of Appeal, critical of a trial judge’s selective choice as to which terms still applied when holding directors Michael Millar and son-in-law Paul Mephan liable for benefits extracted from First NZ Properties.
Result: Mr Millar’s liability to pay some $2.4 million damages was reduced; Mr Mephan’s liability to pay $450,000 overturned.
The earlier 2024 High Court ruling covered over two decades of property management by Mr Millar, primarily through his Nelson-based company Investment Services Ltd, and his role as director of commercial properties held under the umbrella of First NZ Properties Ltd.
In the High Court, he was found liable for failing to properly disclose excess management fees charged and of taking a share of capital gain on property sales without authority.
One critical issue was: what were the terms of Investment Services ongoing management contract?
The original management contract was signed in 1995, covering three Foodtown supermarkets in Auckland. Over time, First NZ sold these investments, purchasing replacement properties.
New management contracts were not drawn up to specifically cover these replacements.
Mr Millar, and Investment Services, said the original management contracts simply ran-on, carrying over to the replacement properties.
The High Court ruled terms covering calculation of management fees did carry over (with both Mr Millar and Investment Services liable for padding these fees) but a term entitling a share in any capital gain on sale did not carry over (ordering repayment).
The Court of Appeal ruled the original 1995 contract envisaged further properties might be purchased. This meant all terms of the 1995 contract applied to subsequent purchases; not only the formula for calculating management fees, but also the right to five per cent of capital gain on sale.
On appeal, Mr Millar’s and Investment Services’ liability for padding fees remained. Investment Services had developed a policy of subcontracting to others management of specific properties, charging this cost to First NZ investors, and then continuing to pocket for itself a full management fee.
Court of Appeal ruled payment of $450,000 being a share of capital gain on the 2018 sale of a First NZ property in Symonds Street, Auckland, was permitted by terms of the run-on management contract.
Millar v. First NZ Properties Ltd – Court of Appeal (11.06.25)
25.139