Embezzlement: Sharma v. Mundath

Early 2018, accountant Mujeeb Rahiman Mundath left New Zealand for Sydney.  He has not returned.  Former employer, the Sharma Group having interests in hotels, motels and restaurants, alleges he embezzled at least $5.4 million from the group.  Freezing orders have been imposed on assets both in New Zealand and Australia.

In the New Zealand High Court, Associate judge Bell ordered Mr Mundath pay $4.69 million; the amount Sharma Group incontrovertibly proved Mr Mundath embezzled.  Claims for the balance allegedly taken require a full court hearing. Mr Mundath alleges the Sharma group is party to immigration fraud and tax fraud.  

The High Court was told the Sharma group is a mix of companies and trusts associated with the families of three brothers: Rakesh Sharma, Ashok Sharma and medical practitioner Dr Vinod Sharma.  They say Mr Mundath was employed by them at an annual salary of $75,000.  They trusted him.  He handled the group’s financial accounting and tax affairs.  He has a commerce degree.  He started, but did not complete, his professional accountancy exams.

Mr Mundath left for Sydney when his honesty was questioned; an unusual payment of $394,800 was queried.  A forensic accountant was called in.  She made a painstaking analysis of some 2800 financial transactions involving Mr Mundath covering eight years he was with Sharma group.  These transactions totalled $9.2 million; all but $104,900 was paid into bank accounts under the control of Mr Mundath including accounts in his name and his wife’s name.  Mr Mundath claimed these were reimbursements for payments he made on behalf of the Group.  Some were in fact reimbursement, but not all, the forensic accountant said.

Evidence was given of Mr Mundath arranging cash payments for contractors and suppliers.  Mr Mundath said he was then instructed to record the payment against other accounts so that tax deductions could be claimed.  There was evidence of business invoices paid twice; the second payment going into an account controlled by Mr Mundath.  Mr Mundath said Vinod Sharma and Rakesh Sharma told him to pay business GST refunds into bank accounts he controlled to hide from other family members that personal expenses were being run through business accounts. Mr Mundath set up fictitious payroll records, recording additional wages for existing employees and also wages for ‘ghost’ employees, with payments into bank accounts he controlled.  He alleges these transactions were company policy, designed to cover an immigration fraud run by the Sharma group where immigrants without work visas were taken on and where others with work visas were paid less than their employment contract stated.  The Sharma brothers deny any involvement in tax fraud or immigration fraud. The forensic investigation identified that most of the payments made into bank accounts controlled by Mr Mundath used a false payee description to disguise the fact payment was going to him.

Mr Mundath owed a fiduciary duty to the Sharma group not to take unauthorised personal benefits when arranging payments.  It is implausible to say the millions of dollars unaccounted for were reimbursement for Sharma debts he had paid in cash, Judge Bell said.

Even if the Sharma group were involved in tax fraud and immigration fraud, said Judge Bell, Mr Mundath is still liable to repay money taken.

Sharma v. Mundath – High Court (24.01.19)

19.034

Credit Contract: Watherstone v. PGW Rural Capital Ltd

The High Court struck out attempts by north Canterbury farmer Richard Watherson to re-open PGW Rural loan contracts for charging allegedly excessive interest rates.  A one year time limit applies to interest rate challenges against financiers calling up current account loans.

Financially over-extended with redevelopment plans for a 2900 hectare north Canterbury property known locally as The Doone, Mr Watherston’s properties at both The Doone and Rocky Peaks were put into receivership by PGW Rural Capital Ltd in May 2013.  The High Court was told PGW Capital suffered losses of some $1.8 million. Five years after the receivership commenced, Mr Watherston challenged interest rates PGW Capital charged.  He wanted interest rates reduced under the Credit Contracts and Consumer Finance Act.  He alleges the rates charged were above market rates, contrary to representations made at the time of the loan.  He claims a reduced interest rate would have enabled successful redevelopment of The Doone.

The High Court was told PGW demanded Mr Watherston repay his current account debt in May 2013, the day receivers were appointed. The date demand was made to repay all advances became the date on which ‘the last obligation had to be performed under the credit contract’ Justice Dunningham ruled.  Unlike a term loan, a current account debt does not have a due date for payment until demand is made.  Mr Watherston had twelve months from the date repayment was demanded to challenge terms of the contract.  Suing five years from that date was outside the twelve month time limit set by the Act. Being under a contractual obligation to also pay PGW Capital’s enforcement costs, which were incurred later in the course of the receivership, did not push out the start point for calculating time limits.

Watherstone v. PGW Rural Capital Ltd – High Court (23.01.19)

19.032

Tenders: Rintoul Group v. Robson

Suing former council engineer Jacqueline Robson, contractor Rintoul Group alleges she maliciously blocked it from getting any infrastructure contracts over a two year period before she left Far North District Council in 2017. 

Ms Robson’s application to strike out the claim was refused; Rintoul’s allegations now get a full court hearing.  Okaihau-based Rintoul alleges Ms Robson acted with targeted malice when it was unsuccessful for all seventeen of its bids for infrastructure contracts between 2015 and 2017: to build parts of the Twin Coast cycle trail, repair roads and carry out upgrades.  In separate litigation, Rintoul was paid an undisclosed sum in an agreed settlement with Far North in a dispute over the award of contracts for four sections of the cycle trail.

Successful claims for misfeaseance in public office are rare.  Allegations of malice require a very high standard of proof; akin to allegations of fraud.  Ms Robson says she followed the rules.  She did not evaluate tenders.  She did no more than act on the recommendation of council tender evaluation teams, she says. A former Far North civil engineer, now living in Queensland, says it was not that straightforward.  He alleges Ms Robson could and did influence how contracts were awarded: on occasions she picked the team members for tender evaluations; she did not always approve recommendations made by tender evaluation teams; and she did refer teams’ recommendations back for further review. It is alleged on one occasion Ms Robson sent back a recommendation with the comment Rintoul was not going to be given another contract.  Associate judge Bell ruled a full court hearing was necessary to resolve these clear conflicts in the evidence.

As an alternative, Rintoul claims Ms Robson failed to act in good faith and did not award tenders on merit.

Rintoul claims compensation for contracts not awarded. It also wants exemplary damages.  Ms Robson now works in the private sector.

Rintoul Group Ltd v. Robson – High Court (23.01.19)

19.033

Honey: Te Tumu Miere Ltd v. Zealande Ltd

An industry-wide problem of widespread theft of both bees and honey surfaced in litigation between Te Tumu Miere Ltd, owned by the Maori Trustee, and apiarist Zelande Ltd.  Zealande refuses to hand over hives until paid its management costs.  

Having oversight of some 100,000 hectares of Maori-owned land, the Maori Trustee set up Te Tumu Miere Ltd as a service company to link owners of Maori land with the honey industry, helping Maori generate income through honey collected from their land.  The project was not a commercial success.  Te Tumu is in liquidation.  The liquidators’ initial report states that Te Tumu directors blame its failure on unsustainable losses and an ‘incorrigible management contract’.

In the High Court, Te Tumu sued Auckland-based apiarist Zealande Ltd demanding possession of 1500 hives purchased from Zelande. Zealande claims a lien over the hives for unpaid management fees.  Te Tumu does not know where the hives are located.  Evidence was given that hive location is a carefully guarded commercial secret.  With hives commonly situated in remote rural areas, theft is rife.  Within the industry, employee poaching is commonplace. A new employee brings not only industry skills, but also knowledge of competitor’s hive locations.

Zelande’s management contract with Te Tumu was due to run until 2022.  Zealande says it cancelled its management contract with effect from September 2018. Te Tumu liquidators want possession of the hives to be on-sold as a company asset; Zealande says biosecurity legislation requires oversight of the hives by qualified staff, which it offered to provide at a fee of over $100,000 until handover in late April at the end of the season.

Justice Jagose refused Te Tumu’s request for a third party to assume management of the hives.  Te Tumu was lax in taking steps to get possession, he said.  There is nothing unjust in Zealande demanding payment for management costs; it was left to manage the hives by default when the relationship with Te Tumu broke down.

As a last-minute compromise, Te Tumu offered to pay into court the fees demanded by Zelande provided Zelande delivered the hives to an agreed site within six weeks.  The two warring parties need to work out the mechanics of such an arrangement if they want it incorporated into a court order, Justice Jagose said.

Te Tumu Miere Ltd (in liquidation) v. Zealande Ltd – High Court (4.01.19)

19.031

Private Equity: Malthouse Ltd v. Rangatira Ltd

The Court of Appeal ordered private equity investor Rangatira pay a $920,000 ‘top up’ fee following its divestment of Tuatara Breweries four years after buying in 2013.  Failure to set a ‘sunset date’ when buying Tuatara left Rangatira exposed to demands from Tuatara’s founding shareholders for a share of Rangatira’s profit.

Hard-nosed negotiations between Rangatira and Tuatara’s founders, Sean Murrie and Carl Vasta, saw a formula devised in 2013 to accommodate their differing views over Tuatara’s value.  Shareholders valued their business at $16.6 million; Rangatira said it was worth no more than $12 million.  Rangatira agreed to compensate shareholders with a ‘top up’ fee if subsequent events proved Tuatara was worth more than $12 million.  A top up was payable on the occurrence of any one of two defined ‘exit events’.  One event was a subsequent sale for more than $12 million.  Claims for a ‘top up’ were made after Tuatara was sold to DB Breweries in 2017 for an undisclosed price, but a figure well in excess of $12 million.

Rangatira refused to pay.  It said this exit event was time-limited to two years from its Tuatara purchase; the same time limit their contract specified for another exit event, the need to achieve a specified earnings level.  Reaching a value of $12 million in two years is a very different return on investment from reaching a value of $12 million in ten or fifteen years, Rangatira said.

The plain meaning of the 2013 contract had a two year exit event time limit applying only to achievement of a specified earnings target, the court ruled.  It did not apply to the alternative exit event triggered by a subsequent sale to DB Breweries.

Malthouse Ltd v. Rangatira Ltd – Court of Appeal (20.12.18)

19.030

Overseas Investment: Jun Li v. 110 Formosa (NZ) Ltd

Chinese investors disputing ownership of Auckland’s Formosa Golf Club were very guarded in the High Court when giving evidence both about their source of funds for the purchase and potential breaches of the Overseas Investment Act.  The High Court ruled Jun Li, whose mother is a former governor at a branch of the Bank of China, is part-owner of Formosa.  Fellow investor Meng Wang had tried to cut him out, saying Mr Li was only a conduit used to bring funds for purchase of Formosa into New Zealand for other investors.

Mr Li said he personally put $4.8 million into the 2014 purchase of Formosa; money borrowed from his mother, Na Li.  Mr Wang said that money came from Wang family sources, co-ordinated by his mother, named as Mrs Zhou.  Justice Fitzgerald commented neither Mr Li nor Mr Wang were the ‘main players’ in the golf club purchase.  Rather, each were acting largely at the direction of their respective mothers.   

The High Court was told of several false starts through 2014 as a consortium of Chinese investors looked to buy the Formosa Golf Club. It was intended to subdivide land around the golf course.  A March 2014 agreement to buy at $38.9 million fell over; conditions as to finance were not satisfied.  Mr Li was listed as one of the purchasers, as nominee for his mother.  An April 2014 agreement to buy at $36 million, which did not include Mr Li as a purchaser, also collapsed.  Mr Li was re-introduced to the consortium several months later following concerns some of the prospective investors might cause Overseas Investment Act complications.  They had spent so much time outside New Zealand they might no longer satisfy residency requirements.

Evidence was given of Mr Li being offered a 32 per cent stake in the venture with profit shares and equity interests to be determined on the proportion each investor eventually put in.  Purchase of Formosa was finally clinched in September 2014 at a price of $38 million; five million dollars upfront and the balance in instalments over the next twelve months.  Cash totalling $4.8 million paid by Mr Li to Mr Wang’s lawyer at Mr Wang’s request was used to pay the deposit.  Mr Li was to later discover he was not credited as a part-owner of Formosa and that Mr Wang claimed to ‘own’ the $4.8 million.  Mr Wang’s mother said Mr Li was only added as an investor to cover any investigation by the Overseas Investment Office. It was claimed money was brought into New Zealand though Mr Li’s bank account to camouflage who was the actual investor, deflecting any Overseas Investment Act inquiry.  Having to untangle over one month of evidence given in the High Court, Justice Fitzgerald said much of it was unsatisfactory on key issues, failing to comply with the Evidence Act and High Court rules.

Justice Fitzgerald said the evidentiary presumption is that the $4.8 million funded by Mr Li came from his own money, lent to him by his mother.  Her Honour ruled that Mr Li was entitled to a choice of two remedies against Mr Wang: the return of his $4.8 million for breach of contract, or an equity stake in Formosa Golf Club based on his $4.8 million contribution to the purchase price. The High Court was told progress on golf club re-development has stalled, blocked by a caveat lodged against the title in 2015 to protect Mr Li’s claim for an equity interest in the property.

Jun Li v. 110 Formosa (NZ) Ltd – High Court (19.12.18)

19.029

Fraud: Young v. R

Hamilton-based Matthew John Young’s four years and eleven months’ sentence for dishonesty and fraud was confirmed by the Court of Appeal, describing the sentence as stern but not manifestly excessive. 

Victims of Young’s offending lost $269,070 following what was described as persistent deceit, abuse of trust and blatant dishonesty. He initially faced more than forty charges. Young pleaded guilty to thirteen, four of which were committed whilst on bail after arrest on earlier fraud charges.  He committed the fraud offences whilst bankrupt, following his July 2011 bankruptcy.

The court was told Young’s dishonesty included: using doctored screenshots and falsified e-banking receipts as purported evidence of payments supposedly made under a tenancy agreement; further doctored screenshots of payments from an Australian bank as supposed evidence of an ability to fund lease payments on a commercial tenancy; opening utility accounts for power and phone but making no payments; buying two high-end cars in the name of a company knowing the company had no means to pay;  deceiving his partner’s mother by promising to pay for renovations at her home but then leaving her with the bill; and fraudulently carrying on business as a nightclub owner arranging for renovations when he did not own the business and had no intention of meeting contractors’ bills.

Young v. R. – Court of Appeal (18.12.18)

19.027

Intellectual Property: Lookman Family Trust v. Design Electronics

Michael Lookman is suing Nelson acquaintance Warwick Jones after sinking $1.8 million dollars into development of SenSys; technology facilitating remote real-time access to workplace data.  Mr Lookman says promises to develop legally enforceable patent rights and trademarks have come to nothing; Mr Jones says the intellectual property is ‘inside his head’ and that Mr Lookman is disrupting efforts to commercialise SenSys. 

The High Court was told the two joined forces in December 2016.  Through a family trust, Mr Lookman agreed to provide capital for development of Mr Jones ideas.  Funding of up to $2.1 million was promised in reimbursement of expenses incurred.  Mr Lookman was to handle finances, with an option to later take an equity stake in the Wellington-based business: Design Electronics Ltd.  Monthly management meetings were scheduled, with business information shared through a Dropbox account.  By late 2017, Mr Lookman was concerned about the lack of progress; no patents had been applied for, or trademarks sought.  Their 2016 agreement gives Mr Lookman security over SenSys’ intellectual property. Their business relationship unravelled in an acrimonious fashion.  Mr Lookman’s access to financial data was blocked when Mr Jones removed all files from the Dropbox account.  Monthly reporting and monthly management meetings stopped.  Mr Lookman sued, seeking repayment.  The court was told Design Electronics cannot pay.  Enforceability of a guarantee given by Mr Jones is before the courts.

Associate judge Mathews said their 2016 agreement is an executory contract; both parties have continuing obligations under the contract. It runs until 2021.  He ordered Mr Lookman be given access to SenSys’ electronic accounting system, as required by the 2016 agreement.

Lookman Family Trust v. Design Electronics Ltd – High Court (18.12.18)

19.028

Post Judgment Note: A further court hearing in May 2020 determined Mr Jones had failed to provide ongoing financial information as required by the funding agreement with Mr Lookman.

Financial Statements: re General Electric International

The Companies Office misapplied filing rules when demanding US listed company General Electric prepare and file audited financial statements for subsidiary General Electric International at an annual estimated cost of US$500,000.  Bureaucrats asked themselves the wrong question: can the company afford to pay rather than does the information demanded provide any useful benefit?   

Incorporated in the United States, General Electric International Inc is a wholly-owned subsidiary of General Electric.  It does not have to file audited financial statements in the US, instead having its financial position consolidated into financial statements for parent General Electric.  GE International provides support services in New Zealand for power utilities, oil and gas.  In 2015, it earned $16 million from its New Zealand operations; chicken feed compared with the US$13 billion GE International earned through 2015 in some 120 other countries around the world.  Since 2014, New Zealand has been the only country demanding GE International file audited financial statements.  New Zealand companies legislation requires overseas corporates to publish financial information with the Companies Office.  This is a creditor-protection issue.  Creditors dealing with overseas interests need to know if they are dealing with a customer of substance; if it all goes belly-up, they need a sense of what assets might be available in this country to pay debts.  It is prohibitively expensive to chase debtors around the world trying to get payment.  In the past, filing in the New Zealand Companies Office copies of overseas parent company financial statements, or group accounts, has sufficed.  Companies Office says legislation changed the rules with effect from 2014.  Staff demanded GE International prepare and file audited financial statements and a cash flow statement, all complying with NZ international accounting standards.  An offer to file financial information for GE International prepared as part of General Electric’s US consolidated accounts was refused.  This did not satisfy a requirement to comply with NZ accounting rules.

Justice Mallon ruled Companies Office staff had failed to properly consider GE International’s request.  The 2014 rules permit exemptions, as did the previous rules, when it would be ‘unduly onerous or burdensome’ to prepare and file financial statements not complying with NZ accounting rules.  Companies Office staff had incorrectly concentrated on whether GE International could afford to do the extra work, rather than identifying whether there was any advantage in so doing.  Accounting experts said US accounting rules are robust and will suffice for filing in New Zealand.  Companies Office was ordered to reconsider GE International’s request for an exemption. The intent of the 2014 law change was to reduce compliance costs where costs imposed provide little of benefit to users.  Financial statements for parent General Electric are on the public record; New Zealand filing is required under the Financial Markets Conduct Act since employees here participate in an employee share purchase scheme.

re General Electric International Incorporated – High Court (17.12.18)

19.026

Joint Venture: Detection Services Ltd v. Pickering

Both were described as having strong and determined personalities.  Steve Simmons and Chris Pickering spent an expensive week in the High Court fighting over ownership of technology used to detect water leaks in high pressure pipes. Justice Woolford ruled both were in breach of their joint venture arrangement and neither were entitled to damages. 

What started out in 2007 as a strong personal friendship ended as a bitter employment dispute in the Employment Court and a property dispute in the High Court.

The High Court was told the two collaborated on development of a leak detection system for use in both Australia and New Zealand, by a business trading under the name Detection Solutions.  Previously with an office furniture company, Mr Pickering was employed by Mr Simmons in early 2010 as general manager of Detection Services. The following year they had fallen out over ownership of the leak detection technology developed. Equipment for detecting leaks was built in New Zealand; engineering quotes from New Zealand firms were markedly lower than Australian.   Mr Simmons fired Mr Pickering for not handing over the developed product.  The Employment Court ruled Mr Pickering had been unjustifiably dismissed; development of the leak detection system was not part of his employment contract.  Questions of ownership moved to the High Court.  Justice Woolford ruled development of the technology was a joint venture: they shared ideas; Mr Pickering contributed his computer skills and Mr Simmons his engineering knowledge.  While the leak detection system in its final form was put together after Mr Pickering was employed as general manager, it remained a product of their prior joint venture.  Their falling out was triggered over compensation payable to Mr Pickering for work he had done developing the leak detection system.  When it came to the crunch, Mr Pickering said he was owed $257,100. Mr Simmons claimed $3.1 million for what he said was the cost of re-engineering the system from scratch after Mr Pickering failed to hand over the finished product.  Meanwhile, the product of Mr Pickering’s work lies crated up in storage, the court was told.

Justice Woolford ruled a joint venture between the two for the design and construction of a leak detection system for Detection Services came into existence by at least late 2008.  The joint venture relationship meant each owed duties of trust and confidence to the other.  They were required to act in good faith.  Both failed to act in good faith and instead acted in their own interests by failing to negotiate and settle the terms of payment to Mr Pickering for his work on the project, Justice Woolford said.  Mr Pickering took the stance he alone owned the leak detection equipment. He failed to clearly itemise how he reached his claimed figure of $257,100.  For his part, Mr Simmons incorrectly elevated a joint venture dispute about price to an employment dispute.

Detection Services Ltd v. Pickering – High Court (14.12.18)

19.025

Post judgment note: The Court of Appeal held Mr Pickering was in breach of their joint venture agreement by not handing over the developed product together with invoices for development costs incurred.  Mr Simmons was ready and able to make payment of invoices provided.  The case was referred back to the High Court for assessment of damages.

BlackfortFX Fraud: Ryan v. R.

Already in jail following a Companies Act conviction when pleading guilty to fraud, Lance Jack Ryan succeeded in reducing the sentence for his part in the BlackfortFX Ponzi fraud from seven and a half years to six.  This six year sentence is cumulative; it does not start running until his two year Companies Act sentence is finished.  

Ryan was mastermind behind the BlackfortFX fraud.  He has a long history of dishonesty.  There are 56 convictions for dishonesty between 2000 and 2003 under a different name: Lance Jared Thompson.  In late 2017, he was jailed following conviction for managing a company while prohibited from doing so.  Three years previously, he set up a fictitious foreign exchange trading business, with co-offender Jimmie Kevin McNicholl.  McNicholl fronted as the public face of the business.  Ryan had to keep in the background.  The Companies Office refused registration of any company with Ryan involved.  Attempts to get a financial services provider certificate from the Financial Markets Authority had to be reformulated when the FMA refused to give any recognition to a business with Ryan at the helm.

The Court of Appeal was told that in reality Ryan was in charge of the planning, development and operations of Blackfort.  It was a scam from the off.  A professional website attracted investors.  A cloud-based accounting system gave clients immediate access to their investment record.  The only accurate data for each account was investor deposits; fictitious information about trading profits was later loaded onto customer pages. Blackfort is in liquidation.  More than 900 investors put in a total of some $8.3 million.  Losses are estimated at $4.4 million.  Evidence was given that some investors were Christchurch earthquake victims, placing funds on deposit while they considered what to do with their insurance payouts. When investors began pressing for payment, unaware their money had been stolen, Ryan concocted false documents suggesting Blackfort funds were being wrongly withheld by a Swiss bank and that legal action for recovery was underway.

The Court of Appeal said sentencing principles require that when an offender, already in jail on unrelated charges, comes up for sentencing on new charges then the starting point is the appropriate overall sentence as if the offender had been sentenced on all charges at the same time; the so-called ‘principle of totality’.  In Ryan’s circumstances, his subsequent jail term for fraud should be reduced to six years, the court ruled.

Ryan v. R. – Court of Appeal (14.12.18)

19.024

Pollution: Vernon v. Taranaki Regional Council

Reduction in a $45,000 fine for ‘dirty dairying’ because of economic hardship was refused.  Reducing fines amounts to no more than a licence to pollute, Justice Ellis said.  Two Taranaki farmers were advised to apply for payment by instalments.

John and Alison Vernon milk one hundred cows on a 144 hectare property at Midhurst near Mount Taranaki.  The High Court was told they had failed a number of annual council inspections stretching back to 2006 for failing to properly dispose of effluent. They had resource consent to discharge untreated effluent on the farm by spray irrigator.  They were convicted of breaching the Resource Management Act after council inspectors found their irrigator disconnected and effluent flowing into a nearby watercourse.  They were fined $45,000.

The Vernons appealed the amount of their fine.  They couldn’t afford to pay.  They were financially stretched.  Their bank had them on ‘credit watch’.  A fine is not the only sentencing option, Justice Ellis said. But a custodial sentence is impracticable given their day-to-day farming obligations.  She recommended the Vernons apply under the Summary Proceedings Act for payment by instalments.

Vernon v. Taranaki Regional Council – High Court (13.12.18)

19.022

Class Action: Ross v. Southern Response

The High Court approved a class action for potentially two thousand Christchurch AMI Insurance policyholders claiming to be misled by Southern Response in its treatment of earthquake claims.  It is claimed some individual policyholders were underpaid up to $100,000.  A class action reduces legal costs for individual claimants and prevents a multiplicity of similar claims.

AMI Insurance had spread its risk poorly. The insurer was insolvent after the 2010-2012 Christchurch earthquake series.  It had insured nearly one-third of residential homes in the city.  AMI’s losses were socialised with liabilities hived off into Southern Response Earthquake Services, set up as a crown entity with taxpayers’ money poured in to settle AMI’s Christchurch earthquake claims. Since that date, homeowners have criticised the manner in which Southern Response co-ordinated repairs and paid out claims.  It is alleged policyholders were offered up to $100,000 less than their contractual requirement where homes were written off as beyond economic repair. Policyholders point to the difference between Southern Response’s internal paperwork itemising potential payout amounts and the payouts in fact offered.

Policyholders Brendan and Colleen Ross fronted as representative litigants.  They allege Southern Response breached the Fair Trading Act, breached a duty of good faith implied in AMI Insurance policies and misrepresented costs when making offers to settle.         

Associate judge Mathews ruled all similar potential claimants be joined to participate at a future court hearing.  This class action is limited to AMI policyholders where their home was damaged beyond reasonable repair.

A keen issue was whether it should be an ‘opt-in’ or ‘opt-out’ class action.  The vast majority of jurisdictions around the world allowing class actions use an ‘opt-out’ procedure: all potential litigants are presumed to be in unless they expressly choose to ‘opt-out’.  New Zealand is an exception.  Class actions are new to this country.  The initial class action cases plumped for “opt-in’; only those who expressly sign up get the benefit of the class action.  All others have to go the long way; separately pay for and prove their own case.  The common legal view is that a change to ‘opt-out’ in this country will require legislation.

AMI policyholders planning to join the class action against Southern Response need to ‘opt-in’.  No deadline has yet been set.

Ross v. Southern Response Earthquake Services Ltd – High Court (13.12.18)

19.023

Fraud: Li v. Yu

Chinese property investor Zhong Li was duped by business associate York Yu who fraudulently used Li’s power of attorney to steal four properties from him. With Yu bankrupt, Mr Li sued in the High Court to chase down available assets, recovering a Whangarei property and getting a court order for $658,100 owed by a Yu-controlled company.

In 2005, Mr Li deposited one million dollars with a New Zealand bank in what was initially an unsuccessful bid to qualify for a visa. He left the funds in New Zealand, later signing a co-operation agreement with Mr Yu for development of residential apartments in Schnapper Rock Road on Auckland’s North Shore.  Mr Li was promised a $400,000 return on his investment plus a share of development profits.  He signed a power of attorney in favour of Mr Yu, allowing him to get on with the job during Mr Li’s absence back in China.  The High Court was told Mr Yu dishonestly used the power of attorney to borrow against the development in Mr Li’s name, with funds going to a company controlled by Mr Yu’s wife.  Also without Mr Li’s knowledge, Mr Yu used Mr Li’s money to buy a property in Tauroa Street, Whangarei.  Concerned about Mr Yu’s failure to disclose details of their joint investment, Mr Li revoked the power of attorney.  He alleged Mr Yu later used the revoked power of attorney to transfer three Schnapper Rock apartments and Tauroa Street to a company called Harv Properties Ltd and had Mr Li’s name dishonestly added as an additional ‘covenantor’ to a Harv Properties’ guarantee.  Around this time, Mr Yu transferred his shares in Harv Properties to his personal assistant Ke Cheng.  She signed an acknowledgement of trust, stating she held the company on Mr Yu’s behalf and would act according to his instructions.

Justice van Bohemen ordered Tauroa Street be re-registered in Mr Li’s name.  Harv Properties became registered owner by fraud.  Ownership had to be surrendered.  Ownership of the three Schnapper Rock apartments could not be recovered.  In the interim, Harv Properties had on-sold the apartments to purchasers acting in good faith with no knowledge of the prior fraud.  Title to land cannot be impeached against buyers acting in good faith.  Harv Properties was ordered to pay $658,100 damages; Mr Li’s equity in the three apartments at the date sold.  Harv Properties did not defend the case. Companies Office records show it is about to be struck off for failing to file an annual return.

Li v. Yu – High Court (11.12.18)

19.021

Fraud: Commissioner of Police v. Lowen

After pleading guilty to benefit fraud totalling $347,400, Pauline Lowen asked cash held under the Criminal Proceeds (Recovery) Act be released so she could pay reparations.  Release was refused.  Social Development said assets seized would be taken into account when suing for recovery.

Following a 2017 investigation into benefit fraud, police seized and sold two Canterbury properties: one in Heathridge Place, Lincoln, owned by Lowe and her former husband, and; a rental property in Bower Avenue, Parklands, owned by a Lowens-controlled company.  The two sales netted $154,500.

Her former husband says he is entitled to half; his share of relationship property.  She says she needs the balance to pay reparations to Social Development.  If the funds are seized by police, it reduces the assets otherwise available for repayment, she says.  In the High Court, Social Development conceded it made little difference which arm of the state was repaid: police or Social Development.  Either way, taxpayers were being compensated.

Given Lowen’s years of dishonestly claiming benefits to which she was not entitled, any idea of releasing cash to her was fraught with risk, Justice Mander said.  Social Development said it would take into account cash realised from sale of the two properties when assessing reparations.  To what extent the full $154,500 can be credited to Lowen is yet to be decided; it may be reduced by her former husband’s relationship property claim.  Social Development said he was fully aware of the offending and benefitted from it.  Mr Lowen has not been charged in relation to his spouse’s benefit fraud.  She pleaded guilty.

Commissioner of Police v. Lowen – High Court (7.12.18)

19.020

Mahana Estates: Murren v. Schaeffer

Two US investors thought their $US 2.3 million was ploughed into a productive Moutere vineyard.  They found instead their money was used for the personal benefit of a fellow American promoting the investment.  James Murren and Daniel Lee successfully sued Glenn Schaeffer in the High Court seeking to recover their lost $US 2.3 million.    

The three Americans go back a long way.  They worked as analysts on Wall Street in the 1980s. Paths again crossed when they all moved to senior positions with various companies in the Las Vegas gaming industry: Mr Murren with MGM Grand Casino: Mr Lee with Mirage Resorts; Mr Schaeffer with Circus Circus.

The High Court was told Mr Schaeffer encouraged his friends to invest in the New Zealand wine industry.  Local costs in New Zealand and exchange rate differentials meant it was cheaper to produce wine in New Zealand and export to the US than it was to produce in the US.  He offered them a deal, investing through a limited partnership.  This created a partnership structure with investors having the benefit of limited liability.  Mr Murren put in $US 1.6 million; Mr Lee $US 700,400.

Justice Collins ruled Mr Schaeffer was personally liable to repay their investments.  He was in breach of both the New Zealand Fair Trading Act and the Nevada Deceptive Trade Practices Act by making misleading and deceptive statements about the nature of their investment.  He was also liable in negligence, having been less than forthcoming when detailing the nature of the investment to his fellow investment partners.  This was in breach of a partner’s obligations to act in good faith towards fellow partners.

Mr Murren and Mr Lee were led to believe their money would be used to acquire part of a company now called Wollaston Estates Holdings Ltd which at its peak owned vineyards covering about one hundred hectares in and around Moutere and Hope.  The High Court was told their money was used primarily to purchase some significant sculptures on display in the vineyard and to build a private dwelling for Mr Schaeffer.  Mr Schaeffer merged his personal assets with vineyard assets and failed to properly record investments made by Mr Murren and Mr Lee, Justice Collins said.

Murren v. Schaeffer – High Court (5.12.18)

19.019

Relationship Property: Bethell v. Bethell

In the Bethell family for generations, the family farm at Weka Pass in North Canterbury has been sold by the third generation: from clogs to clogs in three generations, as the Dutch have it.

High living, a crippling drought and divorce all contributed to the demise of the Bethell farming dynasty.  Third generation farmer Sam Bethell and former spouse Diana were in court picking apart what was left of a multi-million dollar farming operation.  From a farm sold for $6.8 million, Sam is left with the residue of their farming trust, Stumpy Trust, holding net assets of approximately $1.2 million and Diana with $300,000 extracted by court order from Stumpy Trust and settled on a new family trust in her favour.   

Economic history is littered with examples of family businesses falling apart in the third generation: the first generation builds up the business; the second, imbued with their parents’ work ethic, build on the existing asset base; the third generation, having enjoyed a life of moneyed plenty, throw it all away.

Sam and Diana were married in 2000, separating in 2014. The High Court was told of a lifestyle enjoyed by few New Zealanders: a string of polo ponies and extensive sporting trips for Diana before motherhood intervened; expensive toys for Sam enjoying private use of a Cessna aircraft and later a helicopter plus always the latest in farm machinery; a farm homestead fitted out with swimming pool and tennis courts for the family together with overseas family holidays.  With high levels of debt and heavily dependent on commodity prices, the farm did not survive a change in business strategy from 2011. The farm was progressively de-stocked with sheep and cattle numbers reduced, replaced by mixed cropping and grazing.  Exceptionally dry years through 2014-2016 hit farm finances.  Crop yields plummeted.

Evidence was given of Sam receiving in 2005 a cash payment of $2.2 million and a debt owed him from the Stumpy Trust of $3.6 million. These assets were his separate property.    

After Sam and Diana separated, the High Court was asked to identify what was relationship property and what was Sam’s separate property. The Bethell farm was transferred to the Stumpy Trust in 2005.  Substantial tax losses were carried forward from a predecessor trust. A lack of clear accounting separation between Sam’s personal business assets and the Trust resulted in Sam’s $915,270 accounting credit with Stumpy Trust being treated as relationship property.  This imprecise accounting relationship had flowed from the fact income taken from the Trust had been effectively tax free in Sam’s hands.  Diana was entitled to $457,600 of this relationship property accounting credit as her half share.

Justice Nation ruled Diana was entitled to a further payment of $419,470 to achieve equal sharing of all relationship property in addition to the creation of a new family trust in her favour with capital of $300,000.  She keeps a horse float, ponies and horses.  Sam keeps control of the Stumpy Trust, together with assets he needs to continue his farm contracting business.  The court was told Diana now works as an agricultural sales rep.

Debts incurred by Sam in an unsuccessful Christchurch property development were not relationship debts; they remained his separate debts.  The High Court was told Sam joined with three others in buying land in Johns Road, on the outskirts of Christchurch.  The land had potential for rezoning and subsequent development.  The land was not re-zoned, one of the investors was bankrupted and the regional council subsequently imposed a contamination notice imposing substantial clean-up costs.  The investment was written off.  At the time of the court hearing, Sam owed $373,800 for his share of interest payments and de-contamination costs.  The investment was separate property.  There was no evidence the Johns Road purchase was intended to be for the joint benefit of Sam and his then wife.  The Johns Road 2007 purchase was funded out of his separate property.

Bethell v. Bethell – High Court (4.12.18)

19.018

Fraud: Alofa v. Police

The High Court confirmed 18 months’ imprisonment for Paul Alofa following a cheque kiting fraud perpetrated against ASB Bank.

Alofa has 38 convictions for dishonesty-related offences dating back to 1988.  His recent conviction follows two kiting frauds in 2016.  Kiting is the practice of drawing against uncleared deposits. Banks may allow depositors to draw against a percentage of the value of cheques deposited before they are cleared through the banking system.  Alofa created the deposits by banking worthless cheques into newly-opened ASB bank accounts.  The High Court was told Alofa created a series of bank accounts, using an alias in each instance.  In January 2016 he opened an ASB account in the name of Diego McCarthy, banking into the account 25 cheques written on his closed ANZ cheque account in the name of Retzlaff Wichburger.  Before the deposited cheques were dishonoured he withdrew a little over $25,500 from the McCarthy ASB account.  The second cheque fraud concerned another ASB account opened by Alofa using the name Robert Tapu.  With no credit in the account he drew a cheque in favour of Motor Trade Finance, attaching to the cheque a forged letter purporting to be from ASB guaranteeing payment.

Alofa said his sentence should be reduced because he had repaid ASB $8000.  The trial judge did not believe payment had in fact been made.  In the High Court, Justice Downs said it was for Alofa to prove payment.  Alofa offered no evidence of having made payment, either at trial or on appeal.

Alofa v, Police – High Court (3.12.18)

19.017

Defamation: Hyung Soo Lee v. Yong Woo Lee

Ructions within Auckland’s Korean community continue with journalist Steve Lee, owner of weekly Korean-language newspaper The New Zealand Sunday Times, ordered to pay $150,000 damages for defaming local identity Henry Lee over motives behind a rescue operation mounted to finance purchase of a building in Argus Place, Glenfield, for use as a Korean cultural centre.

A 2015 investigation by Internal Affairs censured the Korean Society of Auckland Incorporated for breaching its own rules by raising a loan to buy the cultural centre without first getting the required two-thirds majority approval at a meeting of members and for abusing its charitable status by funding golfer Lydia Ko.  Charity funding is to be used for society generally, not channelled to individuals.

The Korean Society signed up to buy Argus Place in 2013 for $1.5 million.  The Korean government agreed to commit $150,000, payable once at least $750,000 has been raised for the purchase.  With settlement date looming, there were serious concerns about loss of face when fundraising looked to be some $423,000 short.  The High Court was told committee member Sung Hyuk Kim came to the rescue, on conditions.  His advance of $423,000 would be interest free for two months; then two further members, one being Mr Henry Lee, would compensate him for any shortfall not covered by further fundraising such that between them each would bear one third of the deficiency.  The fundraising deal was not made public.  Mr Kim was to later sue Mr Henry Lee for his promised contribution.

The High Court was told Mr Steve Lee printed in a March 2015 edition of The New Zealand Sunday Times a detailed editorial condemning the deal.  He alleged Mr Henry Lee was neither honest nor honourable in his conduct, was deceptive and was attempting to ‘privatise’ the cultural centre to avoid paying Mr Kim.  Writing in Korean, he described the fundraising agreement as ‘yi-myin-gye-yak’. Translated directly, it means ‘hidden contract’.  In the context of the editorial, Justice van Bohemen ruled the term had negative connotations of ‘back-door deal’, under the table agreement’ and ‘secret deal’.  Use of the term in The New Zealand Sunday Times, coupled with the headline, had connotations of shamefulness and untoward secretiveness cast in pejorative and sensational terms, His Honour said.  There was nothing shameful or inappropriate in three committee members entering into a private agreement to cover the fundraising shortfall, he said. The arrangement was kept private so as not to discourage further fundraising.  Mr Steve Lee’s claimed defences of truth and honest opinion were dismissed. A further defence of ‘public interest communication’ was also dismissed.  This covers publication of material of significant public concern, but requires responsibility in the reporting.  Funding for the Korean cultural centre purchase was a matter of public interest, Justice van Bohemen ruled.  Failure to first interview Mr Henry Lee, seeking comment on the allegations challenging his integrity counted against Mr Steve Lee’s claim to a public interest defence.

The High Court was told Mr Henry Lee also sued Mr Kim for defamation after Mr Kim sued to recover payment promised under the fundraising agreement.  This defamation claim was subsequently withdrawn.

Hyung Soo Lee v. Yong Woo Lee – High Court (30.11.18)

19.016

Asset Forfeiture: Commissioner of Police v. Harris

Land, vehicles and farm equipment valued at $263,800 were seized from Brent Craig Harris as proceeds of crime.

Harris was arrested in September 2018, driving a stolen Toyota Hilux.  He has 23 convictions for receiving since 2007.  Police allege he was part of a methamphetamine ring.  Justice Clark ordered forfeiture of assets in his possession under the Criminal Proceeds (Recovery) Act saying on the balance of probabilities Harris has been involved in significant criminal activity as evidenced by unexplained levels of wealth given his declared income for the three years prior to arrest.  Total legitimate funds Harris and his partner Jamie Lee Reader had access to during this period was some $28,000.

The High Court was told of police intercepting text messages between Harris and Ms Reader in which Harris offered to buy her a house or motorhome and further text messages in which he accused her of stealing cash and drugs from him.  Harris’ house at Matokitoki Valley Road, near Gisborne, was destroyed by fire in suspicious circumstances.  Equipment and chemicals used for cooking meth were found at the site together with traces of methamphetamine.  A person using a vehicle in Harris’ possession had been seen in Opotiki buying equipment that can be used for cooking meth.   Police had linked Harris to a property in Te Waiti Road, near Opotiki, where a drug search uncovered methamphetamine, cannabis and cash. Texts from Harris to occupants of Te Waiti Road indicated he was imposing a ‘tax’ as compensation for what police had seized.

Justice Clark ordered seizure and sale of 2.55 hectares of land at 354 Matokitiki Valley Road, Gisborne, along with: a Ford utility and Toyota Hilux; a Honda trail bike; three quad bikes; generators and $6500 cash.  Harris did not contest the forfeiture order.

Commissioner of Police v. Harris – High Court (30.11.18)

19.015

Power Supply: Vector v. Utilities Dispute Commissioner

An October 2014 fire at a Vector electricity substation in Auckland caused a three day outage across the city’s eastern suburbs with consumer losses estimated at between $47 million and $72 million.  Damages totalling nearly $300,000 awarded to three consumers by the Utilities Dispute Commissioner were quashed by the High Court; lines companies like Vector are under no obligation to provide a continuous power supply.

The fire started in a Vector cable following a power arc across a cable joint.  The cable lay in an open trench, alongside 37 other supply cables.  Open to the air, with a plentiful supply of oxygen, the fire quickly spread throughout the trench leading to a comprehensive power outage. Food retailers Progressive Enterprises Ltd and Wendco (NZ) Ltd together with cool store operator Americold NZ Ltd claimed through the Utilities Disputes Commissioner against lines company Vector Ltd for their losses: stock losses and generator hire.  This disputes procedure is intended as a relatively quick and informal process to settle claims against utilities.  Claims are limited to $50,000, unless the utility agrees to a higher limit.  Progressive made multiple claims, one for each of its seven retail stores and its separate meat plant, all affected by the outage.

When awarding damages, the Commissioner decided Vector owed a duty of care in tort to consumers and was in breach of this duty. This decision was quashed by the High Court.  The Commissioner had misunderstood the law when reaching her decision; there is no common law rule that lines companies owe customers a duty to provide a continuous supply of power.  Justice Courtney declined to rule on whether such a duty should exist, since the High Court was being asked simply to rule whether the Commissioner had correctly applied the law as it stands.  Her Honour ruled that any potential liability owed by power distributors such as Vector to end consumers is further limited by the terms of retailers’ supply contracts with their customers.  Distributors provide power to retailers. Retailers’ supply contracts with consumers typically include terms limiting not only their own liability, but also lines company’ liability.  With this clause in retailers’ supply contracts described as being for the benefit of and enforceable by lines companies, a line company can claim the benefit of liability limitations in retail consumers’ contracts despite not being a party to the contract.  The traditional rule that only parties to a contract can claim the benefit of the contract was changed by the Contracts (Privity) Act.

Vector Ltd v. Utilities Disputes Commissioner – High Court (28.11.18)

19.014

Family Trust: Sunde v. Sunde

Stubborn resistance blocking beneficiary entitlement to payment from a family trust had its consequences; Kevin Sunde as a trustee of the LeRoy Family Trust was ordered to pay personally legal costs that followed.    

The LeRoy Trust was established in 2005 at the initiative of two brothers: Roy and Leo Sunde.  It owns properties in the Auckland suburbs of Oratia, New Lynn and Royal Oak.  Family members transferred these properties to the Trust, receiving in return acknowledgement of a debt owing for the value of each property.  When in 2018 several family members triggered demand for repayment of $2.5 million owed them, Kevin Sunde as one of the trustees dug in his heels. He argued capital should be preserved for the benefit of Sunde grandchildren, not paid out to his Sunde siblings and their mother.  He also questioned the need for repayment of another $2.85 million demanded on behalf of another relative, Leo Sunde.  The High Court was told Leo, aged 91 and now mentally incapable, lives in a retirement village with his financial affairs managed by a relative holding an enduring power of attorney.

With Kevin the only trustee not agreeing to pay the total demanded of $5.35 million, family members sued in the High Court seeking summary judgment on their contractual right to payment.  The LeRoy Trust was described as dysfunctional.  Demands for payment and Kevin’s intransigence are coloured by a long-running family dispute.  In the end, Kevin abandoned his claimed defences to all but Leo’s demand for prepayment.  At a subsequent costs hearing, Kevin was ordered to contribute to family members’ legal costs and further was refused permission as trustee to recover his own legal costs from assets of the LeRoy Trust.  The legal position was clear, Justice Downs said.  There was no merit in his objections to payment claimed by relatives suing for $2.5 million.

Kevin’s only potentially valid legal defence to non-payment concerned repayment of $2.85 million demanded on behalf of Leo. Kevin alleges repayment is not for Leo’s benefit, but for the benefit of the family member holding Leo’s enduring power of attorney.  If so, payment is potentially unlawful and in breach of the Protection of Personal and Property Rights Act.  The relative in question disputes the allegation.  At a summary judgment hearing, Associate judge Andrew said judgment in favour of Leo for his claimed $2.85 million would be entered in five months if the family has not sorted out its differences within that time.

Sunde v. Sunde – High Court (29.10.18 & 27.11.18)

19.013

Post judgment note: Kevin's appeal against personal liability for legal costs was declined.  Leo Sunde died in May 2019.  The High Court subsequently ordered payment of $3.02 million by the LeRoy Trust to Leo's estate: the original debt owed Leo plus interest.

Injunction: Medtech Ltd v. Midlands Health Network

Patient care at Midlands Health Network was disrupted when management was served with a High Court injunction. Software supplier Medtech Ltd alleges its proprietary health management product has been unlawfully passed on to competitors.

Primary health care providers across Midland region use Medtech’s web-based product for practice management support.  Pinnacle was established by doctors as a not-for-profit business hosting their IT requirements.  Pinnacle is licensed to use Medtech’s software.  The licence is not transferable.  Pinnacle is required to prevent the software from being accessed or copied.

The High Court was told a routine email request from Pinnacle to Medtech for an updated licence key allowing continued access had attached to it an unrelated email trail identifying that Pinnacle staff had shared without authority a previous licence key with a company called Valentia Technologies (NZ) Ltd.  This company has a cosmopolitan air about it.  Directors reside variously in Pakistan, Ireland and South Australia.

Justice Whata said the email is sufficient evidence to support a serious case of conspiracy to unlawfully use Medtech software. An injunction, pending trial, was issued against Midlands Health Network, Pinnacle and Valentia.  They must preserve all emails, files and documents relating to use of Medtech’s software.  Justice Whata said any hint of evidence being destroyed would result in the companies’ directors being in contempt of court.

Medtech Ltd v. Midlands Health Network Ltd – High Court (27.11.18)

19.012

Relationship Property: M. v. H.

Agreements between de facto couples made before a 2001 law change bringing de facto relationships into the regime mandating a 50/50 split of relationship property are enforceable even when the couple later marry, and then separate.  Subsequent marriage by a de facto couple does not nullify their prior property agreement.

The Court of Appeal ruled a former spouse was entitled to share in one million dollars held in term deposits generated by her former husband’s practice as a barrister.  In court proceedings the two were identified only as M and H.

The court was told they signed a property sharing agreement in June 2000, when in a de facto relationship.  The agreement set out what was to be treated as relationship property; what was separate property.  Detailed provisions specified re-characterisation in future of separate property as relationship assets.  This included a progressive reallocation of rights in their primary residence over time: the wife was entitled to a 15 per cent share in the first year; stepping up over subsequent anniversaries to a 50/50 split after three years.  They married in 2008, eight years after signing their property sharing agreement, and then separated in 2014, six years later.

Validity of the prior June 2000 agreement was challenged. The Court of Appeal ruled legislation bringing de facto relationships into the existing 50/50 matrimonial property regime expressly preserved prior agreements between de facto couples.  The June 2000 agreement between M and H was enforceable according to its terms.  In dispute was one million dollars in term deposits held as part of the barrister’s finances.  Their June 2000 agreement specifically stated his law practice remained separate property. The funds were part of his business, generated from his work as a barrister and held to meet business debts, he said.  The court was told his income net of tax for the 2012 tax year was $430,000.  The one million dollars were not part of his business, the Court of Appeal ruled.  They were not needed to meet business debts, as evidenced by the barrister in fact using the money to buy a house after the couple separated.  If the barrister were to have sold his law practice, the one million dollars in term deposits would not be sold as a business asset.  The term deposits fell to be divided 50/50 as relationship property under their June 2000 agreement.

M. v. H. – Court of Appeal (26.11.18)

19.011

Price Fixing: Commerce Commission v. Lodge Real Estate & Monarch Real Estate

Waikato real estate agents Lodge Real Estate and Monarch Real Estate have been found liable for price fixing after a Commerce Commission appeal.  Lodge’s Jeremy O’Rourke and Monarch’s Brian King also face personal liability for fines yet to be imposed by the High Court. 

Commerce Commission prosecutions against all four foundered in the High Court when the trial judge ruled there was no firm agreement to fix prices for vendors listing and selling.  This was overturned in the Court of Appeal.  At trial in the High Court, rival firms Success Realty, Lugton’s and Online Realty ‘fessed up to price fixing and then gave evidence against competitors Lodge and Monarch.  Fines for anti-competitive behaviour are routinely reduced for pleading guilty and assisting Commerce Commission prosecutions.  Fines recently against real estate firms admitting price fixing have run to the millions.

Commerce Commission intervention followed industry response to price changes in 2013 by Trade Me for real estate listings. Lodge’s annual Trade Me listing costs of $8000-$9000 were set to jump to $200,000-$220,000; Monarch’s $36,000 to nearly $225,000.  Horrified, representatives from Hamilton agencies met, agreeing to a common response: the cost of a Trade Me listing previously carried by agencies would be shifted to individual vendors.  Those real estate agents proved to have agreed were liable for price-fixing: having entered into ‘an arrangement or understanding’ having the effect of reducing price competition; in breach of the Commerce Act.

At their High Court trial, Lodge Real Estate and Monarch Real Estate argued there was no firm agreement with fellow agents in the Hamilton region.  They had met to discuss the issue, but each firm was given wriggle-room; specific deals could be struck with individual clients.

The Court of Appeal said there was clearly ‘an arrangement’: those attending the meeting agreed they would withdraw their standard listings from Trade Me, with subsequent listings to be vendor-funded. It was enough that those in attendance had a mutual expectation that all would follow this policy.  Each knew that unless everyone shifted to vendor-funding there was a risk listings would be lost.  While it was open for individual agents to make exceptions for specific clients in certain cases, that did not negate the fact price-fixing was agreed.

There is a distinction, said the Court of Appeal, between parallel conduct by competitors where their prices are set independently (but competitive pressure results in similar price and quality offerings) and agreements to act in the future in an anti-competitive manner.

Commerce Commission v. Lodge Real Estate Ltd & Monarch Real Estate Ltd – Court of Appeal (23.11.18)

19.010