Torchlight: Carolan v. NZ Real Estate

Having lost trust and confidence in George Kerr’s management of Torchlight Fund LP, investors sued in the Cayman Islands to wind up the Fund.

Mr Kerr is managing director of listed company Pyne Gould Corporation. Allegations of irregular related party dealings between Mr Kerr and Torchlight triggered investor concerns, specifically Torchlight’s purchase of a Wanaka property from companies associated with Mr Kerr.

To gather evidence for the Cayman Islands winding up application, Millinium Asset Services Pty Ltd asked the High Court at Auckland to release documents and the record of evidence from a 2016 trial between Mr Kerr and former business associate, merchant banker Michael Carolan.  At this trial Mr Carolan was ordered to repay $1.1 million used to buy a Remuera home.  Confidential and commercially sensitive documents featured in evidence.  The trial judge supressed publication of some.

Refusing Millinium access to the 2016 court file, Justice Edwards said the Cayman Islands court has ordered Torchlight to disclose a wide range of documents as part of the winding up procedure.  Cayman is the better forum to determine what should be disclosed and how disclosure should be controlled, she said.      

Accident Compensation Corporation is among investors seeking to wind up Torchlight.  Torchlight has counter-sued, alleging investors are conspiring to quit the partnership by unlawful means.

Carolan v. NZ Real Estate – High Court (14.02.17)

17.017

Relationship Property: Zhang v. Li

The High Court heard evidence of Chinese custom before ruling $335,500 sent by parents from China to help their married daughter buy a family home was not a gift but a loan with details of the loan not yet finalised.  When the marriage failed her parents could recover their money.

Meng Li and Yi Ming Zhao married in 2007.  Ms Li had been in New Zealand since 2001, supported financially whilst a student by her parents in China.  They provided $335,500 of the cash needed by the newly married couple to buy a home in New Zealand.  Ms Li and Mr Zhao separated after five years.  The High Court was asked to decide whether Ms Li’s parents’ $335,500 was a gift (and relationship property since it was used to buy a family home) or a loan (repayable to the parents).

There was no documentary evidence supporting the transfer of funds to New Zealand.  Justice Simon France said intra-family money matters are often dealt with informally, particularly so in Chinese society where to do otherwise could be seen as disrespectful.  There was no prior agreement that the funds transfer was a loan: there was no agreement for payment of interest or for when the funds might be repayable.  Chinese custom is that Ms Li as an only child would care for her parents in their old age and that financial assistance in the purchase of a family home would be on the assumption her parents would at some point live with her in the house.  His Honour ruled the funds transfer amounted to an interest free loan repayable on demand.  He ordered the former family home sold with the net proceeds divided 50/50 between Ms Li and Mr Zhao after repayment to Ms Li’s parents of the $335,500 they advanced.

Zhang v. Li – High Court  (10.02.17)

17.015

Insurance: Zurich v. Withers

Zurich Insurance refused to pay on a $1.31 million professional negligence claim because a chartered accountant’s unthinking behaviour when signing off on misleading letters of comfort was so reckless as to be dishonest.

Mark Withers was ordered by the High Court to compensate US investors for part of their financial losses after the Vegar family’s Matakana and Goldridge wine companies went under.  These investors had provided working capital to fund processing of each year’s harvest.  Their only security was the finished product.  To ensure investor advances were used as agreed, they required Mr Withers to provide a letter of comfort each year confirming he had co-signed each cheque drawing down on their funds and that payments were used solely for production of each season’s grape harvest.

The Court was told Mr Withers did not oversee disbursement of the funds and failed to co-sign cheques as required.  Despite this, he still signed letters of comfort for the US investors confirming he had done so.  In fact, substantial funds were siphoned off into other Vegar family companies and not used to pay processing costs.  Mr Withers was held liable in the High Court for making false and misleading statements to the US investors in breach of the Fair Trading Act.

Zurich Insurance refused to pay out on Mr Withers' professional indemnity insurance saying the policy excluded liability for “dishonest” conduct.  The Court of Appeal ruled dishonesty is measured against what constitutes honest conduct in the circumstances.  There is no need to prove an intention to deceive.  The Court said Mr Withers knew his role was to provide an independent check on the use of US investors funds.  Signing misleading letters of comfort, year on year, was more than mere inadvertence and indifference, the Court ruled.  Mr Withers had acted in reckless disregard of investors’ interest, being actions indistinguishable from dishonesty, it said.

Zurich v. Withers – Court of Appeal (16.12.16)

17.013