Contract: Corrick v. Silich

In February 2015, Taranaki aviation enthusiast Brett Emeny paid $90,000, strapped himself into a vintage Trojan T28 ‘war bird’ and flew home to New Plymouth.  In his wake, he left a divided twenty-two member syndicate arguing over who owned the plane.

The Court of Appeal was told there are only two Trojan T28 aircraft in New Zealand.  Trojans were developed in the 1950s as a single seater training aircraft for the US air force and navy.  ZK-JGS was purchased by a twenty-two man syndicate in 1990.  In legal jargon, they owned the aircraft as tenants-in-common: each had a separate undivided ownership interest.  All agreed to syndicate rules setting out rights of use and apportionment of costs.  Over the years, the aircraft was used less.  With debts outstanding of some $63,500, it was decided to put the aircraft up for sale. Members decided to wind up their syndicate.  Four syndicate members were appointed as a ‘management group’ to sell the aircraft. Closing date for tenders was set for 19 December 2014.  One syndicate member, David Corrick, put in a bid of $63,523 later upped to $85,000 when a bidding war erupted between syndicate members: Brett Emeny offered $75,000; Glenn McCready $80,000.

The court was told the management group then polled syndicate members as to which offer they were comfortable with.  A majority favoured Mr Corrick.  He sued when Mr Emeny fronted up with $90,000 and flew off with the aircraft.

The Court of Appeal ruled there was no contract with Mr Corrick.  The syndicate delegated to its management group the task of selling the aircraft. At no time did the management group accept Mr Corrick’s offer.  The closest it got was in making a counter-offer, rejecting contract terms prescribed by Mr Corrick and suggesting in reply a more simple agreement that would suffice. Asking syndicate members for their views on price did not amount to acceptance of Mr Corrick’s offer; it was merely a supply of information to them.  Members collectively did not have the power to make a sale; that had been delegated to the management group.  The subsequent sale for $90,000 by the management group to Mr Emeny was a binding contract.

Corrick v. Silich – Court of Appeal (29.06.18)

18.134

Contract: NZ Iron Sands v. Toward Industries

Investors claim they were shafted by ASX-listed Bluescope Steel when bidding to buy Bluescope’s Taharoa iron sand mining business on North Island west coast near Kawhia.  They claim $506 million damages with allegations Bluescope wrongly terminated an initial contract and then misled them in a second round of negotiations. 

NZ Iron Sands Holdings Ltd is a special purpose company assembled by Australian-based Gleneagle Securities to bid for Bluescope’s iron sand mining operations.  Its clients include a number of New Zealanders.  A deal was struck in November 2016, subject to a number of conditions.  All parties were obliged to make reasonable endeavours to renegotiate two long-term contracts: first, to obtain a reduction in charter rates charged by Japanese shipping company NYK for shipping bulk iron ore sand from Taharoa, and; second, removal of an obligation to reinstate the land once mining ceased.  Bluescope cancelled the contract one month later, citing a failure to satisfy these conditions.

The High Court was told a further round of negotiations was then opened.  NZ Iron Sands claims promises were made that it was the preferred bidder.  Instead, a sale was made in early 2017 to a different bidder, Taharoa Mining Investments Ltd: a joint venture between Taharoa C and Melrose Private Capital Ltd.  Taharoa C is a Maori land corporation owning land on which the iron sand is mined.  Wayne Coffey and Rosemary Coffey are directors and shareholders of Melrose.  Mr Coffey is also CEO of Taharoa C.  Entitlement to royalty payments has been a matter of dispute between Ngati Te Ata and government.

NZ Iron Sands sued claiming damages from Bluescope and demanding to see background information surrounding the deal between the Coffeys and Bluescope.

NZ Iron Sands alleges breaches of both the Fair Trading Act and the Financial Markets Conduct Act as regards statements made during negotiations.  Bluescope says it is all a matter of contractual interpretation.  It asked for a pre-trial hearing to determine the meaning of several disputed clauses in the initial November 2016 contract.  Justice Wylie refused.  Detailed evidence surrounding the negotiations are needed to sort out the meaning.  That requires a full trial with witness evidence, he said.

Application to see the Coffey documents was dismissed. They were not parties to the current request for a pre-trial hearing.  Justice Wylie signalled that they may later be required to disclose information.  NZ Iron Sands question the Coffeys’ role in striking a deal with Bluescope. 

NZ Iron Sands Holdings Ltd v. Toward Industries Ltd – High Court (28.06.18)

18.133

Asset Forfeiture: Commissioner of Police v. Li

Enquries into ‘cheating services’ offering tailored assignments to students led police to an apparent mortgage fraud.  Several days into a four week proceeds of crime hearing, a deal was struck: $2.12 million handed over as proceeds of crime with no admission of guilt.

Police allege Steven Li and Fan Yang were in breach of both the Crimes Act and the Education Act with an assignment-writing service offered through their business: Assignment4U.  Police estimate revenue totalling $4.69 million was generated over a six year period with an average price per assignment of some $406.  The High Court was told students would lodge requests with Assignment4U setting out the assignment question, word limit, relevant text book sources and assignment deadline date.  Higher payments were required both for assignments getting a better grade and assignments needing a quick turnaround.  Production was contracted out to ghost writers.  They received seventy per cent of the fee paid, with deductions if the assignment provided did not achieve the grade mark required. Disclaimers on Assignment4U’s website said their product should be used only as a study guide and not submitted as part of course work.  Police said this disclaimer was a sham.

Police also allege Mr Li and Ms Yang, in conjunction with Jonathon Li and Aiqing Xiang, used fraudulent mortgage applications raising finance to buy properties in central Auckland.  Police allege applications overstated their net worth. Sham rental agreements were provided as evidence of future income flows.  The court was told they raised mortgage finance totalling $3.3 million.

No criminal charges have been laid in respect of either the alleged assignment fraud or the alleged mortgage fraud.  Forfeiture of assets totalling $2.12 million was negotiated under the Criminal Proceeds (Recovery) Act.  How payment is to be split between the four was not made public. The agreed settlement includes proceeds of crime payments payable by Pengju Chen ordered following an earlier court hearing.

Commissioner of Police v. Li and others – High Court (27.06.18)

18.132

Asset Forfeiture: Commissioner of Police v. Gong

Police can impound assets in New Zealand suspected to be proceeds of crimes committed overseas.  Xiao Hua Gong, also known as Edward Gong, is under arrest in Canada.  Police allege bank accounts and land in New Zealand valued at some sixty million dollars are part of a money-laundering scheme designed to get ill-gotten gains out of China.  

International media reports put Mr Gong at the centre of an alleged pyramid-selling fraud in China.  He was arrested in Toronto just before Christmas 2017, charged with breaches of Canada’s securities law.  Gong does not live in New Zealand.  Police say he is unlikely to be charged in this country with any criminal offences.

Police allege $77 million dollars was transferred to New Zealand, with assets valued at $60 million remaining after some of the funds were moved on to Canada.  A restraining order under the Criminal Proceeds (Recovery) Act was imposed on these New Zealand assets.

Commissioner of Police v. Gong – High Court (25.06.18)

18.131

Ferrari: Thompson v. Continental Car Services

Under pressure from regional head office Ferrari Australasia to shift a prescribed quota of vehicles, Auckland dealer Continental Car Services took a punt that it could make a quick sale on a 6.3 litre Ferrari F12 sourced from Malaysia. It all turned to custard. Continental sold a car it didn’t have and failed to get, having to pay $130,000 damages to a disappointed customer. As a final ignominy, the coveted F12 wound up on a Christchurch dealer’s lot sitting unsold nearly two years later.  

Disappointed buyer Martyn Thompson is a Ferrari aficionado. In 2016, he was in discussions with Continental Car about trading in his Ferrari 458 Spider for a F12 Berlinetta. The High Court was to learn that Continental Car was having trouble shifting high-end Ferraris.  ‘Grey market’ vehicles imported privately into New Zealand were undercutting the maximum retail prices Ferrari Australasia demanded Continental Car charge.  Learning that a Ferrari dealer in Malaysia had excess stock, Continental Cars struck a deal with Mr Thompson.  He could have a new F12 with agreed modifications.  A trade-in price for his Ferrari Spider was agreed.  Mr Thompson paid a deposit of $5000.  When he asked for further photos of his new purchase, Mr Thompson was told the car was ‘on the water’ en route to New Zealand.  Weeks later Continental Cars fessed up; there was no car.  Continental Cars said communication issues and exchange rate fluctuations made the deal uneconomic.  In the High Court, one witness speculated Continental was working on very tight margins in order to make a sale in a competitive environment and had simply miscalculated.  Justice Churchman ruled there was no evidence of either ‘communication issues’ or adverse exchange rate movements around the time of the sale.  Continental was in breach of contract.  It was ordered to pay $130,000: the difference between market value of the promised Ferrari F12 and the agreed contract price.  The High Court faced some difficulty in determining the value of a new F12.  The court was told few, if any, are sold at listed retail price.  ‘Factory support’ in the form of inflated trade-in values, extended warranties and ‘free’ modifications serve to reduce the effective list price of new cars.  The court was told the F12 Mr Thompson had agreed to buy in 2016 for $480,000 was sitting in Christchurch car yard in June 2018 listed at $529,990. 

Thompson v. Continental Car Services Ltd – High Court (22.06.18)

18.127

Liquidation: Greer v. Klavenes

With revenue in excess of two million dollars for the 2015 and 2016 financial years, labour hire business Klavenes Construction Ltd operated without a business bank account, kept no formal business records, filed no tax returns and paid no tax.  Now in liquidation, director Knut Klavenes and his wife were ordered hand over $128,100 of company money.

Liquidator Scott Greer sued, alleging surplus company revenue held in personal bank accounts after payment of company bills was a debt due to the company.  On his calculation this came to $803,500.  He sued using part of the Companies Act liquidation code designed to recover any element of gift where company assets are taken for inadequate consideration.  Justice Palmer allowed recovery of $128,100 only.  This was the net figure after deducting from company revenue in their personal bank accounts those business invoices paid by the Klavenes on the company’s behalf.

The balance of some $675,400 Mr Greer sought to recover was Klavenes Construction money in their personal accounts spent by the Klavenes to meet the debts of an associated company, Klavenes Construction Tonga.  It had building contracts in both Tonga and New Zealand.  This is not surplus money held by the Klavenes owed to Klavenes Construction, Justice Palmer said.  It is company money spent, rightly or wrongly, by the Klavenes to meet the debts of an associated company.  It is for Klavenes Construction Ltd, now controlled by Mr Greer, to take a separate action for any recovery from either Klavenes Tonga or the Klavenes personally, he ruled.

Greer v. Klavenes – High Court (22.06.18)

18.129

Fraud: Police v. Neutze

Law graduate Nicholas James Clapshaw Neutze has twice been the beneficiary of a judge’s discretion to discharge him without conviction: the first following a charge of excess blood alcohol; the second on a charge of dishonestly accessing a computer system. 

Police appealed his dishonesty discharge, without success.  The High Court was told Mr Neutze used his logon authority as an ANZ relationship services manager to dishonestly access his own ANZ account over ten separate occasions in late 2016 and early 2017, increasing his personal overdraft limit from two thousand dollars to $100,000.  He then drew down on this unauthorised overdraft, owing ANZ some $89,100 before the fraud was discovered.  Mr Neutze repaid the money.  He pleaded guilty, asking for a discharge without conviction.  Mr Neutze has a law degree.  He has passed the professional requirements for admission to the profession. He said he has no present intention to apply.

Police said the trial judge erred in her assessment of the gravity of Mr Neutze’s offending when granting a discharge.  Hearing the appeal, Justice Brewer ruled consideration of Mr Neutze’s ANZ offending should be considered in isolation when considering a discharge.  The dishonest activity related to his personal ANZ account only.  Excess blood alcohol offences were not relevant.  The High Court was told not only had Mr Neutze been discharged previously without conviction on a blood alcohol charge but was again before the courts facing a new charge of alleged drunk driving.

Police v. Neutze – High Court (22.06.18)

18.128

Fair Trading: Dougiamas v. 123 Internet Ltd

Tauranga-based educator Gary Benner has been ordered to stop using open source educational platform MOODLE and to surrender domain names featuring that name.  The High Court also cancelled his registration of the MOODLE trade mark ruling Mr Benner obtained registration in bad faith.  

Mr Benner was ruled to be both in breach of the Fair Trading Act and liable in the tort of passing off when he set up business using the MOODLE name after an earlier one year licensing agreement ended in 2005.

Based in Perth, MOODLE was set up in 1999 by Martin Dougiamas.  He told the High Court nearly fifteen million online courses are now offered on the MOODLE platform by over 101,000 providers: universities, corporations and government departments.  In New Zealand, some 330 registered sites use MOODLE platform software.

The High Court was told Mr Benner signed up in September 2004 to use and host the MOODLE service.  Responding to MOODLE inquiries seven months later, Mr Benner acknowledged only one customer had been signed up achieving a royalty of less the $125.  Mr Benner did not pay an annual renewal fee when due.  The licensing agreement lapsed.

A decade later, Mr Dougiamas learnt of a website controlled by Mr Benner using the MOODLE logo and New Zealand registered domain names containing the MOODLE name.  A ‘cease and desist’ letter was sent.  Mr Benner remodelled his website.  It no longer referred to the MOODLE platform but instead purported to be a website relating to a hybrid breed of dog produced by breeding a Maltese with a miniature poodle; home page for New Zealand Moodle Breeders.  Several months later, references to MOODLE reappeared on the website.  Threatened again with legal action, Mr Benner said he held trademark rights to the name. The court was told Mr Dougiamas registered MOODLE as a trademark in New Zealand back in 2006.  Registration lapsed in July 2016 when payment of renewal fees was inadvertently overlooked.  In what was described as an opportunistic move, Mr Benner moved immediately to register the trademark in his own name.  Justice Venning cancelled his registration.  MOODLE’s owners are entitled to recover any profits Mr Benner made through unauthorised use of the name.

Mr Benner did not appear in court to defend MOODLE’s claims.

Dougiamas v. 123 Internet Ltd – High Court (22.06.18)

18.130

Electricity: City Financial Investment v. Transpower

UK-owned City Financial Investment claims it lost some $3.1 million on electricity futures when Transpower’s changes to HVDC flows in 2016 across Cook Strait affected wholesale electricity prices.  The High Court dismissed City’s appeal against an Electricity Authority ruling deciding Transpower did not breach its governing code, but it criticised the cosy relationship between Transpower and the Authority.  

Transpower owns the national power grid.  It also controls operation of the grid, deciding where and when power flows through the system.  Operating decisions are based on an auction system with retailers choosing from spot prices posted by generators for half hour periods.  A critical point on the grid is the Cook Strait power link: the High Voltage Direct Current (HVDC) link.  Power can pass in either direction under the Strait through two cables.  Capacity has to be carefully managed.  The higher the load, the greater the energy lost by heat and the greater the risk of catastrophic failure.

In 2016 Transpower changed operating protocols for its HVDC link.  This involved rebalancing how much current each cable carries when operating jointly.  There were benefits.  Transpower maintenance costs were reduced.  Less reserve power was required on standby to cover an emergency should there be a system failure.  Critically, the new protocol reduced the amount of North Island generation needed on standby as reserve.

The High Court was told this change was of little moment to generators and retailers.  They operate in a dynamic market, dealing predominately in the spot market.  Traders in electricity futures took a different view.  They are assessing price risk over time frames of up to two years.  They were locked into long-term futures contracts now affected by the HVDC changes. Changes to HVDC protocols had ‘knock-on’ effects though the 250 network locations used for pricing derivatives.

Derivatives trader, City Financial Investment Company (New Zealand) Ltd, complained to government regulator the Electricity Authority alleging Transpower was in breach of service levels set out in the industry Code.  The Authority ruled Transpower was not in breach.  Transpower had maintained the energy capacity of the HVDC link, a key underlying objective of the Code.  This decision was challenged unsuccessfully in the High Court.  Minimum HVDC service levels specified by Transpower were no different before and after the 2016 changes, Justice Cooke said.

The relationship between Transpower and the Authority was criticised by Justice Cooke.  When developing its new HVDC protocols, Transpower’s strategy was to target an Authority member to assist getting Authority approval for the changes.  And then when City Financial later objected to its implementation, Transpower had the Authority comment on its draft response to City Financial.  When City Financial later went to the Authority alleging a breach of the Code, the Authority was then in the position of ruling on the correctness of a stance it had previously helped Transpower formulate.

City Financial Investments Co (NZ) Ltd v. Transpower - High Court (21.06.18)

18.126

Property: Mahon v. Edney

Property developer Neville Mahon’s claim for five million dollars damages against property investor Tim Edney alleging breach of a Queenstown real estate warehousing deal was dismissed in the High Court.  There was never any agreed deal.  Mr Mahon was entitled to compensation for project work prior to their falling out.

The High Court was told Mr Mahon transferred to Mr Edney in January 2016 five properties on Park Road, Queenstown he had agreed to purchase seven months previously.  Mr Mahon was struggling to find sufficient finance to settle his five million dollar purchase.  The two were on good terms.  It was recognised Mr Edney could access cheaper finance for a planned redevelopment of Park Road as a retirement village.  This required a transfer of ownership to a company Mr Edney owned. The possibility was floated that Mr Mahon would later buy back in.  Mr Mahon was to later allege he had been shut out. There was evidence of subsequent discussions between the two over terms for a buy back.  This included a proposal for Mr Edney to sell at $5.45 million: $5.1 million for the land and $350,000 for a 1906 Alldays and Onions vintage car. Mr Mahon alleged in court that bundling a car into the deal was a blatant tax dodge intended to generate, in part, a non-taxable capital gain.

Justice Whata ruled that at no time was there any precise agreement over terms of a possible buy back.  There was no agreement as to a fee Mr Edney should receive for warehousing Park Road, or for the duration of any warehousing agreement.  Clarity of these terms would be expected in a commercial contract between two experienced businessmen, Justice Whata said.  Mr Edney afforded Mr Mahon a genuine, commercially reasonable opportunity to repurchase Park Road over a six month period, said Justice Whata.  Nothing firm came from their discussions.  There was no contract.  No damages were due.

Justice Whata ruled Mr Mahon was entitled to compensation for his eight months’ work getting engineering reports, architectural drawings and resource consent for a retirement village at Park Road.  Mr Edney knew about and encouraged this preliminary work.  The value of this work has not been decided.

Mahon v. Edney – High Court (20.06.18)

18.125

Fraud: Chapman v. R

The High Court upheld three years jail for a ‘teeming and lading’ fraud after Taranaki travel agent Nadene Cheree Chapman missappropriated $707,700 of client money.

Ninety one customers of Waitara Travel Ltd had travel plans affected after Chapman juggled client money while she struggled to meet business debts.  The court was told Chapman used travel deposits paid by customers as a free float: she delayed crediting customers’ payments to their individual accounts while using their funds to pay for earlier customer bookings and her own business debts; a bookkeeping fraud known as ‘teeming and lading’.  While this failure to account involved payments totalling $707,000, Chapman said the final shortfall to customers was only $34,666. Some customers received refunds; compensated by insurance claims or credit card chargebacks.  House of Travel was affected the most; to the tune of some $623,000.

At trial, Chapman offered to repay customers at $300 per week, provided she received home detention and was not sent to jail.  The trial judge said sentences cannot be tailored to suit accused.  He sentenced her to three years’ imprisonment and reparations of $10,000.  This sentence was confirmed on appeal.  Justice Cull said a substantial sum of money was involved at around $700,000.  She abused a position of trust by misusing client money.  The fraud ran for a period of twenty months affecting a substantial number of customers.

The court was told Chapman gained no great personal benefit from the fraud, other than having her business continue in operation for longer than it should.  She did not live an extravagant lifestyle.  She was described as a naïve businesswoman, out of her depth.  While running her travel business she took over another unprofitable travel business and struggled to meet all her business debts. She sold her home, trying to keep her business afloat.  Chapman was bankrupted in 2017.

Chapman v. R – High Court (18.06.18)

18.124

Property: Clode v. Oliphant

Property developers David Oliphant and Brent Clode have differing views over development of the 92-unit Sargeson apartments in Takapuna on Auckland’s North Shore.  Financiers, the head contractor, the project manager and the quantity surveyor are all of one view: none will have anything to do with Mr Clode; financing will be withdrawn and construction halted if they have to deal with him personally.

Mr Oliphant is sole director and shareholder of Auburn Development Ltd, owner of the Sargeson development.  Mr Clode claims Sargeson is his baby.  He claims to have devised the development and to have invited Mr Oliphant to come in as a fifty per cent partner.  He says his fifty per cent shareholding was initially not registered. Mr Clode took steps last February to have this claimed shareholding acknowledged and registered.  This was done after Mr Oliphant stopped paying him weekly remuneration of $3000 for work on the project.  Mr Oliphant says financiers expressly stated Mr Clode was to have no equity interest in the project because of his previous questionable behaviour.  Mr Clode’s conduct has been subject of criticism in several court cases. Justice Palmer said Mr Clode has become seriously unpopular in the property development industry.

Mr Oliphant told the High Court a March 2018 agreement with Mr Clode promised him fifty per cent of Sargeson’s net profit, with an option after all debts had been cleared to convert this profit share into a fifty per cent stake in Auburn Development Ltd.

Mr Clode sued, alleging Mr Oliphant was in breach of their March agreement by not meeting ‘on a weekly basis … to review and direct all aspects of the development’.  Mr Oliphant was stonewalling, he alleged, instead taking advice from others.  This will affect potential profitability, he says, putting his profit share at risk. Mr Clode asked for a mandatory injunction, forcing Mr Oliphant to utilise his skills in a management role.

Justice Palmer refused an injunction.  There is no advantage, he said, in making a court order telling the parties to do what they have agreed to do when Mr Oliphant says his actions are not in breach of the March agreement.  The meaning of the March agreement is in dispute.

If Mr Oliphant is found to be in breach, Mr Clode can claim damages, Justice Palmer said.  If it is found that Mr Clode was improperly frozen out of decision-making it may be difficult for him to prove what difference his involvement might have made, Justice Palmer said.  Granting an injunction, however, ran the risk of bringing the Sargeson development to a halt.

Clode v. Oliphant – High Court (15.06.18)

18.123

Goodwill: Wallace v. Altan

She pushed him out of their jointly owned hairdressing salon operating in the tony Auckland suburb of St Heliers. He could claim a share of the business goodwill even though there was nothing to prevent him poaching existing customers.

Starting business together as Saints Hair Design in 2007, Deborah Wallace and Hakan Altan fell out with Ms Wallace calling the police six years later to boot him out and then issuing a trespass notice and changing the locks.  Later they were in court arguing over a valuation of Mr Altan’s share of the business.

For service businesses like hair salons, substantial value typically lies in goodwill:  representing the value of future profits to be generated from present clientele returning. Having generated this goodwill, present owners extract from any purchaser a share of future expected revenue. With the departure of Mr Altan, Ms Wallace was in effect ‘purchasing’ the goodwill in determining the size of his payout.  Ms Wallace said goodwill was zero.  Mr Altan was not subject to any agreed restraint of trade.  He could have immediately set up next door to Ms Wallace’s continuing business at Saints Hair; existing customers could walk straight in to his rival business. The High Court was told Mr Altan in fact went to work at another hair salon in a neighbouring suburb.  He actively canvassed just over fifty per cent of Saints Hair’s client list.  About ten per cent moved with Mr Altan to his new salon.

In the absence of any agreement between partners, the Partnership Act requires that all business assets be split equally. This includes the value of goodwill. Justice Whata ruled Mr Altan was entitled to a fifty per cent share of Saints Hair goodwill, with a deduction for the ten per cent of clients who had followed him.  While the general rule is that there is no goodwill in a service partnership if departing partners are not bound by a restraint of trade, that will depend on the nature of a particular business, Justice Whata said. Location can affect goodwill. Many customers may return because a business is in a prime location, not because of any particular attachment to the person running the business.

There was a dispute between accounting experts as to the value of goodwill in Saints Hair back in 2013.  Goodwill was ruled to be worth $130,750.  The hair salon generated net profit before tax of $116,000-$145,000 in four years prior to the acrimonious split.

Mr Altan was also entitled to share in the salon’s profits generated between the time he was kicked out and the time he was compensated for his share of the partnership assets, Justice Whata ruled.  No figure was set.  Further evidence is required of the salon’s trading history whilst under the sole control of Ms Wallace.  She changed the name of the business to Saints 55 after Mr Altan’s departure.

Wallace v. Altan – High Court (12.06.18)

18.121

Yozin v. NZ Guardian Trust

Four decades after their father died, Rosalie and Helen Yozin were in the High Court attempting to force a transfer to them of prime subdividable land in Swanson, west Auckland, as their share of Milan Yozin’s estate.  The High Court refused.  Disputes over valuation threatened equity as between all beneficiaries.  

The estate’s sole asset is a four-hectare block of land with good road frontage on only two sides.  It has been in the family since 1937; used first for dairying, then as a market garden and orchard, later as a vineyard.  Disposal of the land became an issue on the death of Milan Yozin’s widow in 2014, then aged in her nineties.  Their four children are the beneficiaries.

Rosalie and Helen want part of the land transferred to them in satisfaction of their fifty per cent share of the estate.  Their siblings object.  Each square metre of land is not of equal value, they said. They would be left with land having more difficult access and less value.

Rosalie and Helen took a lateral approach.  They argued in the High Court that the Law Reform (Testamentary Promises) Act entitled them to the land they wanted. Justice Peters ruled they did not satisfy the precise criteria required in the Act: the work they did around the property in their youth was no more than that expected within local families, harvesting and packing fruit; there was no evidence their father made promises of land beyond usual parental exhortations of ‘work hard, someday all this will be yours’; and their claim to the land well exceeded in value any benefit they had provided to their parents’ business activities.

Rosalie and Helen also asked the court to order estate executor NZ Guardian Trust exercise its discretion under the Trustee Act to partition the land as they requested.  Justice Peters said the two have no direct interest in the land itself sufficient to seek partition; their interest as set out in Milan Yozin’s will is in the net proceeds of any sale of the land.  It is for NZ Guardian Trust to determine the best way of achieving the best price.  That can include partitioning the land as agreed by the four beneficiaries, provided all four can reach agreement.  NZ Guardian Trust became executor of Milan’s estate after a family friend appointed executor resigned amidst all the family infighting.

Yozin v. NZ Guardian Trust Ltd – High Court (12.06.18)

18.122

Wynyard: Jackson v. Wynyard Group

De-listed in May 2017, Wynyard Group shareholders look to share in a small surplus after the High Court ruled in favour of a $171 million claim against insolvent subsidiary Wynyard (NZ) Ltd.

After developing a worldwide customer base for its risk management and financial intelligence software, Wynyard stopped trading in late 2016.  Subsidiary Wynyard (NZ) Ltd was Wynyard’s operating arm.  It was funded on an ‘as needed’ basis by its holding company Wynyard Group.  By the time both companies were in liquidation, Wynyard (NZ) had chewed through $171 million.  The High Court was asked whether these advances were loan advances or an injection of equity.  Wynyard (NZ) liquidators are holding about $851,000 for distribution to unsecured creditors. Including Wynyard Group’s $171 million claim as debt would see a payout of just under half a cent in the dollar for unsecured creditors; compared with twelve cents in the dollar if Wynyard Group’s funding was ruled to be equity.

The High Court was told the legal status of cash transfers from Wynyard to Wynyard (NZ) was never documented.  Within the group, transfers were assumed to be cash advances eventually to be capitalised as equity.  They were recorded as loans in group financial statements.  No board resolutions were ever passed converting the debt to equity.

Associate judge Bell ruled the $171 million is an unsecured loan.  Liquidators estimate the payout from Wynyard (NZ) will see Wynyard Group in surplus with shareholders sharing in about $363,400.

Jackson v. Wynyard Group Ltd – High Court (31.05.18)

18.120

Bankruptcy: re Foley

Steve Foley and Diane Foley are bankrupt following the failure of their construction company Point to Point Holdings Ltd.  Mr Foley has been bankrupted previously.  He was banned in 2006 from acting as a company director for two years.

The High Court was told the Foleys currently live at a Regency Park address in Gulf Harbour at Whangaparoa, Auckland.  This property forms part of a deceased estate: that of Mrs Foley’s mother.  Mrs Foley claims when her mother’s property is sold there will be sufficient to clear all their debts.  She says she is likely to get an estate payout of about half million dollars. They asked the High Court to refuse creditor applications to bankrupt them.

Associate judge Bell said Mrs Foley has judgment debts against her totalling $138,300.  Regency Park is for sale.  There is no certainty as to sale date, or price.  Some finality is required, Judge Bell ruled.  Mrs Foley has been reticent about both her assets and the full extent of her liabilities, he said.  A full enquiry into her financial circumstances by Insolvency Service was warranted.

Mr Foley is clearly insolvent, Judge Bell ruled.  He has not disclosed any assets.  Inland Revenue told the court Mr Foley has considerable tax arrears: arrears of income tax stretch back to 2007 (totalling $221,000 with interest and penalties); non-payment of child support go back to 2001 ($283,000 including interest and penalties).

re Foley – High Court (30.05.18)

18.119

Fraud: Worldclear Ltd v. T1 Holdings Ltd

After setting up a special purpose company to circumvent bank bans on facilitation of foreign exchange transfers, Hamilton-based Worldclear is chasing an employee alleged to have decamped with $4.6 million. 

Worldclear alleges employee Richard Whitham skipped the country after cleaning out funds held on its behalf by T1 Holdings Ltd and then blocking online access.  T1 Holdings was set up by Worldclear to channel foreign exchange transactions through New Zealand banks after banks stopped acting for financial service providers like Worldclear claiming they might unknowingly implicate banks in money laundering.

Worldclear CEO David Hillary told the High Court T1 Holdings was set up in late 2017.  Mr Whitlam fronted as owner of T1 Holdings while still employed by Worldclear. Together with other Worldclear employees, he was authorised to facilitate Worldclear’s foreign exchange transfers through T1 Holdings.  Mr Hillary was to later learn that instructions to have all T1 transactions authorised by two signatories were never implemented.  Mr Whitlam alone could approve transactions.

Last May, Mr Whitlam failed to turn up to work.  Worldclear staff found access to T1 bank accounts had been blocked.  Worldclear contacted banks holding T1 accounts; funds had been transferred on Mr Whitlam’s instructions to his own personal account.  Panic ensued.  Frantic attempts to find Mr Whitlam’s whereabouts identified he had not been living at his given address for the previous three months.  Police advised he had left the country at 1.30 pm that day. Worldclear’s dropbox account was subsequently accessed from Singapore.  Files relating to Mr Whitlam’s employment and T1 activities were deleted.

Five days later, the High Court imposed freezing orders on all assets Mr Whitlam may still have in New Zealand. The High Court has now appointed Roger Sanderson and Ian McLennan from insolvency specialists McDonald Vague as interim liquidators to take control of T1 Holdings.

Worldclear Ltd v. T1 Holdings Ltd – High Court (29.05.18)

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Asset Forfeiture: Commissioner of Police v. Ladbrook

In court, genuinely surprised by police estimates of profits made from his cannabis dealings, Dirk James Ladbrook failed to prove a lower figure when the High Court ordered sale of his Harley Davidson motorcycle together with a property owned in Crinan Street Invercargill being proceeds of crime as part of a $209,000 asset forfeiture order.  

Ladbrook was sentenced to three years jail in 2014 for cultivating and selling cannabis.  His cannabis dealing was discovered during police surveillance of the Road Knights motorcycle gang.  A search of Crinan Street in October 2013 uncovered a crop of cannabis plants grown under lights in the bathroom and in two bedrooms.  The power meter had been tampered with; breakers in two of the rooms caused usage to be under-recorded.  Excessive power usage alerts authorities to illegal activities.

Police estimated Ladbrook was achieving a minimum of eight harvests a year with a typical harvest of twenty plants. Profits were assessed on sales at an estimated price of $400 per ounce.  The Criminal Proceeds (Recovery) Act allows profits to be assessed on police estimates of ‘street value’ in the absence of evidence as to the actual price realised. Ladbrook failed to provide any satisfactory evidence as to the actual prices received from dealing, Justice Nation said.

Commissioner of Police v. Ladbrook – High Court (29.05.18)

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Mortgagee in possession: re Livingspace Properties Ltd

Livingspace liquidator Robert Walker alleges RFD Finance Ltd, associated with property developer David Henderson, improperly extracted excessive funds when acting as a mortgagee in possession of Livingspace’s Invercargill and Dunedin accommodation businesses over a two-year period up to 2012.

Kristina Buxton, Mr Henderson’s spouse, is sole shareholder of RFD Finance.  She has been the company’s sole director since 2014.  The High Court was told RFD Finance took over Livingspace Properties Ltd’s business operations in September 2010 as mortgagee in possession, running the business to generate funds in repayment of a $300,000 loan.  Livingspace operated accommodation businesses in Tay Street Invercargill and Castle Street Dunedin.  To protect debtors, strict legal rules govern mortgagees in possession. They must strictly account for their activities.  The liquidator of Livingspace alleges RFD Finance extracted more from the business as mortgagee in possession than was necessary to recover its costs.  This reduced the amount available for Livingspace and its unpaid creditors, he alleges.  Companies Office records state unsecured creditors are owed $12.8 million. 

There was evidence in a 2012 court case that RFD Finance had remained in possession after recovering sufficient to repay its outstanding loan plus interest.  Livingspace’s liquidator was ignored when asking RFD Finance to provide details of its Livingspace transactions.

Associate judge Osborne ordered Ms Buxton hand over accounting records detailing RFD’s activities as mortgagee in possession.  Ms Buxton said she has instructed lawyers to have Mr Walker removed as liquidator of Livingspace.

re Livingspace Properties Ltd – High Court (29.05.18)

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Name Suppression: Shepherd v. Police

Facing charges of theft and deception with allegations she misappropriated $103,600 from CCS Disability Action, Toddy Shepherd failed in her application for name suppression arguing disclosure would affect operations at her new employer Kaitaia-based He Korowai Trust.

Police are prosecuting Ms Shepherd for alleged unauthorised expenditure relating to accommodation, flights, rental cars, petrol purchases, credit card purchases and cash withdrawals on her corporate credit card when employed by CCS Disability.  She resigned from CCS in November 2015.  She was charged three months after starting work with He Korowai Trust.  She is responsible for the Trust’s Sweet-As Academy, providing vocational training.

He Korowai chief executive Ricky Houghton told the High Court Trust funding is subject to political pressure.  The Trust needs to maintain public confidence.  He said the Trust has up to 190 families receiving support. Major funders Foundation North and Te Puni Kokiri had been advised confidentially that Ms Shepherd faces criminal charges.

Name suppression requires proof of extreme hardship, Justice Gordon ruled.  Speculation that funding for the Trust might be cut does not reach the standard of extreme hardship, she said.  Both Foundation North and Te Puni Koriki have indicated funding arrangements will continue in the interim pending a hearing of charges against Ms Shepherd.  Mr Houghton told them Ms Shepherd has no authority to disburse Trust funds.

Shepherd v. Police – High Court (23.05.18)

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Fraud: Harnett v. Social Development

Two years four months jail following a $259,100 benefit fraud by David Earle Harnett was confirmed by the High Court.

For nearly ten years, Harnett collected social welfare benefits without declaring either ownership of a mortgage-free property in the Auckland inner city suburb of Grey Lynn or his part-ownership of a property in Paris. Harnett returned to New Zealand from Paris in 2006 with his two young children.  His wife remained in Paris.  Rather than living at his Grey Lynn property, Harnett chose to rent in another suburb.  Grey Lynn in turn was rented out.

Justice Brewer said the sentence was not manifestly excessive.  Deterrence and denunciation was required.  Pleading guilty, Harnett repaid the $259,100.

Harnett v. Social Development – High Court (23.05.18)

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Directors: Finnigan v. Ellis

Management of failed infant milk exporter Wenztro were ordered to pay all the company’s debts totalling $765,600 for what was described as blatant, ongoing and serious breaches of directors’ duties.  Wenztro was hopelessly undercapitalised, failing to properly execute even one of its planned infant milk exports to China.  Part of one botched export order did make it to China with Wenztro liquidators unable to find what happened to the proceeds.

Wenztro was formerly known as Trojan Foods (NZ) Ltd. A narrative of mismanagement unfolded through nine days of evidence in the High Court implicating: lawyer Brian Robert Ellis; James Neil Black a twice bankrupted businessman who was bankrupt when Wenztro was trading and barred from running a business, plus; Gerald Norman Williams, a businessman who had previously been banned from acting as a company director. 

Looking to exploit food safety scares following melamine poisoning in retail milk sales throughout China, Wenztro Co-Operation Ltd jumped on the bandwagon.  In 2010, Wenztro contracted to supply 18,300 cans of infant formula to a Chinese importer. Wenztro’s website touted the company as having a team with extensive experience in the New Zealand dairy industry, with offices in the heart of New Zealand’s dairy industry, a quality assurance system in place and a distribution network across Asia.  In fact, there was no team (a single employee was paid six months late only one thousand dollars of her promised $60,000 salary), the company operated out of Mr Ellis’ law office in central Auckland, any product had to be sourced from other suppliers and its marketing outreach consisted of contacts in Hong Kong.

The High Court was told Wenztro shareholders put no cash into the business.  Sourcing the 18,300-can order proved problematic as suppliers demanded cash up front.  The order when delivered was mislabelled and could not be sold in China.  The Chinese importer cancelled, suing to recover advance payments made.  Much of this money was spent meeting Wenztro’s operating costs.  Meanwhile the botched order made its way to Hong Kong.  There was evidence of product being smuggled into China following online sales.  Liquidators could find no trace of the proceeds.

Justice Wylie ruled the three directors were in breach of their duties as directors: trading recklessly, incurring obligations the company could not perform and failing to exercise proper care and skill in management of Wenztro.  The three were held jointly and severally liable; payment can be recovered in unequal shares if any one director cannot contribute his share.

Mr Ellis was the only director to give evidence. Justice Wylie said he was neither reliable nor credible as a witness.           

Finnigan v. Ellis, Williams & Black – High Court (22.05.18)

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Peer-to-peer Lending: Commerce Commission v. Harmoney

Harmoney’s fixed ‘platform fee’ charged for peer-to-peer lending online is not brokerage but a credit fee, the High Court ruled in an industry test case.

The Credit Contracts and Consumer Finance Act requires credit fees be reasonable.  According to its website, Harmoney Ltd currently charges a flat $450 as its platform fee on each loan arranged.  Minimum loan limit is one thousand dollars.  Prior to December 2015 it charged a 1.25 per cent service fee calculated on repayments of interest and principal.

Harmoney unsuccessfully challenged Commerce Commission complaints that its platform fee was caught by the Act.  Harmoney said borrowers committed to payment of platform fees when signing up online to its ‘borrower agreement’.  This was independent of any subsequent loan, Harmoney said.  Funds are sourced from investors who also register online.  Potential borrowers could sign up but never take out a loan.

Justice Courtney ruled the platform fee formed part of Harmoney’s credit contracts.  Harmoney itself was a ‘creditor’ in peer-to-peer lending.  It is more than a ‘match-maker’, she said.  In any event, the platform fee was implied into loan contracts as a fee payable ‘in connection’ with loans, she said.  The platform fee is deducted from funds disbursed when a loan is arranged.

Commerce Commission v. Harmoney Ltd – High Court (18.05.18)

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Business Prohibition: re Henderson

Discharged from bankruptcy subject to a court order prohibiting him from managing any business until the end of 2022, property developer David Ian Henderson has court approval to now provide consultancy services, but under a very tight leash.

Associate judge Osborne granted Mr Henderson a very limited power to go back into business.  He previously rejected eighteen applications by Mr Henderson to resume his business activities prior to 2022.  The collapse of Mr Henderson’s property development companies coupled with long-running disputes with both Inland Revenue and Insolvency Service had resulted in the extended ban.

Judge Osborne has allowed Mr Henderson to go into business as a self-employed sole trader offering consultancy services in the construction, land development and hospitality industries.  He is not allowed to employ staff or to rent premises. His financial affairs are to be under the control of a financial supervisor, chartered accountant Brenton Hunt. All revenue is to be paid into a bank account controlled by Mr Hunt, with sub-accounts set up for payment of GST and income tax.  All consultancy arrangements are to be on terms specified by the High Court in a standard-form consultancy contract.  Mr Henderson is required to tell all intending clients of his previous bankruptcies and of the current restrictions on his management of a business.

In his High Court application, Mr Henderson indicated he proposed to use his new-found business freedom to subdivide a 70 acre rural property in the Gibbston valley, central Otago, where he presently lives with partner Katrina Buxton.  Judge Osborne put the kybosh on that.  He said Mr Henderson was not to act as consultant to any business activity involving Ms Buxton.  Their close personal relationship precluded any managerial independence.

re Henderson – High Court (18.05.18)

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Deception: Cooper v. R.

Sneaking a signed bank withdrawal form for $70,000 off a lawyer’s file and then withdrawing the money amounted both to criminal deception and to financial abuse equated with domestic violence. The withdrawal form was being held pending final agreement on a relationship property dispute, but agreement had stalled.

The Court of Appeal confirmed a sentence of nine months’ home detention for Robert Britt Cooper.  The court was told Cooper and his estranged wife agreed at mediation in general terms over division of their relationship property.  As part of the deal, they both signed a bank withdrawal form breaking a $70,000 term deposit in the name of their family trust.  This was to be held un-actioned on Cooper’s file at MD Law in Kerikeri pending final agreement on relationship property.  With no final agreement, Cooper visited MD Law at a time he knew his lawyer was overseas and asked staff if he could see his file to get copies of some documents.  While a staff member copied documents from the file at his request, Cooper pocketed the signed withdrawal form.  He then withdrew the $70,000, refusing to return the money.

A failure to disclose a material fact (removal of the withdrawal form) when asked by staff if there were any other documents he wanted amounted to deception.

It was also an act of domestic violence.  There was a protection order in force against Cooper. Psychological abuse of a protected person is a breach of the Domestic Violence Act.  Psychological abuse includes financial abuse; limiting access to financial resources. Withdrawing the $70,000 limited his estranged wife’s potential access to funds.

Cooper v. R. – Court of Appeal (18.05.18)

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CBL: Reserve Bank v. CBL Insurance

Political promises of consultation are often empty words: consult then ignore.  The Reserve Bank is flexing its regulatory muscle.  It takes a more prescriptive approach to consultation in its prudential supervision of the financial sector as evidenced in litigation over CBL Insurance: consult then obey.

Earlier this year, the High Court appointed interim liquidators to CBL Insurance Ltd following a Reserve Bank request.  Amongst other grounds, Reserve Bank alleged CBL was insolvent.  This claim has since been dropped.  The primary ground for liquidation is now an allegation CBL failed to comply with directions made under the Insurance (Prudential Supervision) Act.

CBL Insurance is not in liquidation.  The need for liquidation and the identity of a potential liquidator is hotly contested by existing management and CBL’s sole shareholder: LBC Holdings.  Behind the scenes there is a flurry of activity with confidential proposals to hive off some of CBL’s underwriting activities.

Grounds for Reserve Bank intervention were spelt out in a preliminary court application by CBL directors Peter Harris and Alistair Hutchison asking to see information held by the Bank.

Liquidation proceedings were triggered by CBL’s alleged failure to comply with Bank directions.  In January 2018, CBL was instructed that it must ‘consult’ with the Reserve Bank before making any payments exceeding five million dollars.  The Bank’s directive defined ‘consult’ as: [CBL] providing the Bank with sufficient information for the Bank to form an informed view on the proposed transaction; receiving feedback from the Bank and [CBL then] having regard to that feedback before entering into the transaction.

The Reserve Bank alleges three subsequent CBL transactions with United Specialty Insurance, each under the five million threshold, but collectively totalling nearly $15 million dollars breach this directive together with a $42 million payment to Danish Alpha Insurance.

Reserve Bank v. CBL Insurance Ltd – High Court (18.05.18)

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Receivership: FM Custodians v. Hannan

Sued by FM Custodians for debts totalling $803,800, Paddy Hannan defeated attempts to bankrupt him after attacking the manner in which his business interests were handled in receivership.

Mr Hannan had earned the ire of Hutt City Council with landfill operations in Waiu Street, Wainuiomata.  Noise and dust upset neighbours. Abatement notices were issued. Criminal prosecutions followed.  The Environment Court was called into play. This was not the only legal issue facing Mr Hannan.  In 2014, FM Custodians Ltd called up its loan, appointing Auckland chartered accountant Kevin Whitley as receiver of Mr Hannan’s business operations.  Mr Hannan had guaranteed the loan.  In March 2014, Mr Hannan and his companies were held liable to repay $803,800.

Three years later, FM Custodians attempted to bankrupt Mr Hannan on the unpaid debt.  Probably to FM Custodians surprise, Mr Hannan turned up at the bankruptcy hearing.  He had not contested its earlier court action demanding $803,800 and he had proved difficult to find for service of bankruptcy proceedings.  FM Custodians had eventually served notice by email.

In court, Mr Hannan attacked the manner in which Mr Whitley had carried out the receivership.  He alleged company assets should have been sold off earlier.  Mr Whitley said costs had been run up dealing with ‘distressed assets’ owned by Mr Hannan’s companies.  Getting the Wainuiomata properties into a saleable state required considerable expense including repair of environmental damage and complying with council requisitions for subdivision of the Waiu Street properties.  Surveying, engineering and landscaping costs alone ran to $231,700.  This on top of receivership fees of $481,100.  Included in receivership costs is the sum of $34,300 paid to Mr Hannan in the first few months of the receivership for consulting advice.  The original debt plus ongoing costs now run to over two million dollars.

Mr Hannan said eventual sale of his business assets had covered all of the $803,800 guaranteed debt; he should not be bankrupted now for unpaid ongoing costs.  Associate judge Smith agreed.  Realisations totalling $909,700 were in the receiver’s hands at the time bankruptcy proceedings were started.  This more than cleared the debt on which FM Custodians were attempting to bankrupt Mr Hannan.  The receiver had not formally elected to allocate these amounts against receivership costs.  Mr Hannan was entitled to take advantage of the ‘first in-first out’ rule, Judge Smith said.  Realisations were applied first to repayment of the original $803,800 debt.  Terms of the $803,800 court judgment were not wide enough to include liability for ongoing costs.  Mr Hannan is potentially contractually liable for these costs under terms of his guarantee.  FM Custodians has to start again with new legal action against Mr Hannan if it now wants to pursue him for receivership costs, Judge Smith ruled.

FM Custodians Ltd v. Hannan – High Court (17.05.18)

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Capital + Merchant: Gibson v. Official Assignee

Receivers of Capital + Merchant are suing Insolvency Service alleging it stuffed up the GST calculation on an $18.5 million out of court settlement with auditors BDO Spicers.

Capital + Merchant Finance Ltd went bust in 2007, owing some 7500 retail investors $167 million.  Insolvency specialists KordaMentha are realising company assets. Its latest report discloses payouts to retail investors to date total twelve million dollars; less than ten cents in the dollar.  Currently in the mix is an unresolved GST assessment of $1.75 million.  Inland Revenue claims GST is payable on part of the $18.5 million BDO settlement.  Details have not been made public, but the settlement was part-funded by BDO’s insurers. Insolvency Service, as liquidators of Capital + Merchant negotiated the settlement.  KordaMentha alleges Insolvency Service was negligent in not clarifying the GST position when agreeing to the settlement.  Insolvency Service denies liability.  Justice Muir indicated the issue is not likely to require a court decision until Inland Revenue and Insolvency Service resolve their current tax dispute over whether Capital + Merchant is liable to pay the disputed $1.75 million.  This dispute centres on the manner in which the $18.5 million payout was funded by insurance.

Gibson v. Official Assignee - High Court (16.05.18)

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