Mortgage: Annik Investments v. Edwards

Living in a large and palatial South Auckland home which featured in NZ House & Garden, Mr Robin Edwards and Mrs Mary Forbes-Edwards find the noose is tightening as business creditors lay claim to their family trust-owned home.

The High Court was told the Edwards have never filed tax returns, claiming to have never earned any taxable income.  Mr Edwards was bankrupted by Inland Revenue in April 2015.  His Rolls Royce has been sold; as has her Mercedes.  Their MacWhinney Drive home, at Drury in South Auckland, was described to the High Court as sitting in extensive landscaped grounds and being furnished to a high standard.

The Edwards are attempting to dictate the manner in which Mr Edward’s insolvent property company is wound down so as to best protect recoveries on a sale of their family home.  The home was mortgaged as collateral security for loans raised by his company, Annik Investments Ltd, to purchase commercial property.  Annik is in liquidation.  Annik liquidator, lawyer Scott Greer, alleges company money was used to renovate and furnish the MacWhinney Road property.  The court was told Annik’s financial records have been destroyed or lost.  Mr Edwards admits to burning some of the records in his garden incinerator.  He says the rest were damaged when his garage flooded and then were destroyed.

Annik is suing the Edwards’ family trust alleging at least $800,000 of Annik’s money went into upgrading the MacWhinney Road property.  A secured creditor holding a mortgage over MacWhinney Road is suing for vacant possession so it can sell.  A joint venture partner in an Edwards’ property deal is suing for $1.1 million alleging the Edwards misrespresented their net worth.

Justice Wylie ordered the Edwards shift out of their home ready for a forced sale.  As a concession, the creditor gave them two months to try and find a buyer.   The property was previously passed in at auction.  His Honour ordered the proceeds of sale be frozen pending a decision regarding claims by Annik’s liquidator for a share in the proceeds.   

Annik Investments v. Edwards – High Court (16.03.16)

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Gambling Credit: Xiao v. Sun

A compulsive gambler at Sky City Casino complains she was manipulated by a fellow gambler who kept extending credit, gradually racheting up the stakes with vague threats of violence for non-payment, obtained a mortgage over her property to cover further credit and then went for the kill, selling up her home.  The High Court blocked a theatened mortgagee sale pending a Credit Contracts Act inquiry.

Hanyue Xiao told the High Court what started as a $10,000 loan in April 2014 to tide her over some gambling losses blew out to a threatened mortgagee sale 18 months later on what was claimed to be a $700,000 debt.  She had been approached at the casino by Xiufang Sun offering sympathy following a session of gambling losses.  Ms Sun offered Ms Xiao a loan of $10,000 in casino chips to continue gambling.  Repayment was expected in a month. When Ms Xiao was unable to pay, further credit of $30,000 was arranged through an unidentified “wealthy friend”.  Interest was payable at four per cent per week, with interest to be paid direct to Ms Sun in the form of casino chips to be handed over discreetly in the Sky City female toilets.  Successive loans could not be repaid and were rolled over with further extensions of credit.  Gambling losses mounted. Ms Xiao said she was warned the unidentified lenders were loan sharks from the criminal underworld and she was at personal risk if she did not repay.  Initial oral loan agreements were subsequently replaced by successive written loan agreements in which Ms Xiao agreeed to mortgage an apartment in Auckland’s CBD and her home on Auckland’s North Shore, both owned jointly with her husband.

Justice Davison halted a threatened mortgagee sale of Ms Xiao’s half share in the properties.  A trial was ordered to determine whether the loan transactions needed to comply with the Credit Contracts and Consumer Finance Act.       

Ms Sun denies the transactions were consumer credit contracts.  Ms Sun says she is a housewife and has never been in the business of providing credit either on her own behalf or on behalf of others.  She denies interest was payable on the loans.  She says her references to criminal gangs were a subterfuge, intended to have Ms Xiao take her seriously.

Xiao v. Sun – High Court (16.03.16)

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Litigation Funding: Prattley Enterprises v. Vero

Vero’s demand for full recovery of defence costs to penalise private litigation funders disputing insurance payouts has been rejected by the Court of Appeal.

Insurance companies are taking aim at private funders assisting insurance claimants.  Funders bring more cash and often greater expertise into battle.  Insurers prefer claimants to be lighter armed and more disorganised; private individuals, with little or no knowledge of insurance law, no money and desperate for any payment so they can get on with their lives.

After successfully defending attempts to overide a “full and final” insurance settlement paid to owners of the earthquake-damaged Worcester Towers in Christchurch’s CBD, Vero Insurance applied for an increased contribution to its defence costs.  The owners were paid $1.05 million in an insurance settlement six months after the 2011 earthquake.  They later considered payment should have been $1.605 million. Their further claim was funded by Risk Worldwide New Zealand Ltd.  At one point, Risk Worldwide was claiming $8.8 million. It undertook to pay all the costs of litigation.  In return it was to receive a substantial share of any extra payment.

The Court of Appeal ruled the $1.05 million “full and final” settlement stood.  As the winning litigant, Vero is entitled to costs; a contribution towards its legal costs on a set scale, payable by Risk Worldwide as the losing side’s litigation funder.  Vero asked for the full 100 per cent of its legal costs, over and above the set scale. It argued the claim had been vexatious and improper.  The case should never have been brought to trial, Vero said.  The Court ruled it is not appropriate to award full costs merely because a litigation funder with a profit motive stands behind the losing party.  Risk Worldwide’s case was not hopeless, it said.  The dispute raised legal issues requiring consideration.

As an aside, the Court of Appeal was harshly critical of Mr George Keys giving evidence for Worcester Towers’ owners on questions of property valuations.  Mr Keys owns one-third of Risk Worldwide.  The Court said Mr Keys was not impartial, had a powerful financial interest in the outcome and his two roles as an advocate and a supposedly unbiased expert witness were incompatible. 

Prattley Enterprises v. Vero – Court of Appeal (14.03.16)

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Insurance: Prattley Enterprises v. Vero

The Court of Appeal refused to increase a “full and final” Christchurch earthquake payout of $1.05 million for the loss of iconic Worcester Towers following claims a mistake had been made. 

Worcester Towers at Cathedral Junction is owned by trustees of the late John Britten’s estate.  It housed a motorcycle museum dedicated to his memory.  Tenants in the three-storey brick building included a cinema.  The building was demolished, damaged beyond repair after the neighbouring Christchurch Press building fell into it during the February 2011 earthquake. 

The Court of Appeal was told the trustees settled with insurer Vero for $1.05 million in August 2011 at what they then thought was the extent of Vero’s liability.  They later changed their mind, believing the correct assessment should have been $1.605 million.  They sued, claiming the settlement agreement should be re-opened under the Contractual Mistakes Act.  They alleged both Vero and themselves had made the same mistake: The damaged building should have been valued at market value based on replacement cost.

The trustees had signed an insurance release acknowledging the $1.05 million payment was in full and final settlement.  Compensation can be ordered when any agreement is influenced by a mistake.  But sanctity of contract prevails. The Contractual Mistakes Act rules out compensation where the agreement itself has one side or the other accepting the risk of a mistake.  The Court of Appeal ruled “full and final” agreements are intended to provide closure.  Money is exchanged for peace.  Finality is provided with one side paid, accepting the risk that further claims might later arise, whilst the other having made payment is released from any further obligation.

Prattley Enterprises v. Vero – Court of Appeal (14.03.16)

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Insurance: Air NZ v. Disputes Tribunal

Travel insurers can limit the amount recoverable for any loss; so too can airlines.  Airlines in 119 countries have their liability for lost luggage limited by a formula based on the International Monetary Fund’s special drawing rights, currently fixed at just over $2000 for any Air NZ lost luggage claim.

Air New Zealand took a test case to the High Court after an un-named traveller was awarded $15,000 damages in the Disputes Tribunal for replacement clothes purchased after a bag went missing on the Los Angeles-London leg of an Air NZ flight.  She said an Air NZ representative in London told her she could replace the lost clothing and would be reimbursed on a “like-for-like” basis.  The lost luggage did turn up, nine days late.

Air New Zealand challenged the Tribunal ruling.  It said contracts of carriage by air limit damages payable.  The 1999 Montreal Convention limits airlines’ liability for lost luggage to 1131 Special Drawing Rights.  An SDR is not a unit of currency.  It is a unit of account used by the International Monetary Fund based on the value of a prescribed mix of national currencies.  The Convention forms part of Air NZ ticketing contracts.

Justice Nation ruled the Tribunal was wrong to ignore the Montreal limit for baggage losses by awarding damages in excess of 1131 SDRs, being $2100.  The un-named traveller also had private travel insurance.  This insurer paid $1900.

Air NZ v. Disputes Tribunal – High Court (9.03.16)

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