Accident Compensation: Hamlton v. ACC

Accident Compensation needs to reconsider weekly compensation payments due an Auckland hairdresser after the High Court overruled repayments demanded totalling $655,000.  With her company employing up to 25 staff at any one time, business net profitability could not simply be imputed to her as income for ACC purposes.

By rich-world standards, New Zealand has a high proportion of closely-held companies.  Director/shareholders have a discretion as to how resources are extracted from their company: shareholder salary; loans; directors’ fees; or dividends. Sandy Hamilton, owner of Auckland hairdresser Olette, challenged Accident Compensation assessment of earnings related compensation payable while she worked part-time recovering from injuries suffered during childbirth in 1999.

The High Court was told Accident Compensation alleged Ms Hamilton restructured benefits she received from Olette after 2004 to increase accident compensation payments.  Previously, she was paid by Olette as a shareholder/employee, with earnings related compensation supplementing her income for the reduced hours worked.  Restructuring in 2004 saw the shareholder/salary removed and Ms Hamilton instead being paid an agreed hourly rate for hours worked.  At one point, Accident Compensation had Ms Hamilton under covert surveillance to check she was working only the hours she said she was working; this investigation revealed nothing untoward. 

In response to the 2004 restructuring, Accident Compensation reduced compensation payable, arguing there had been no loss of earnings in any real sense; benefits received as an Olette director should be included as ‘income’ received.  It calculated 75 per cent of company net profit should be imputed as income received for Accident Compensation purposes.  This had the effect of reducing ongoing weekly compensation.  For the income years in question, company net surpluses were in six figures, exceeding $200,000 some years.  Accident Compensation alleges Ms Hamilton was ‘overpaid’ $655,200 in earnings related compensation for the years 2004 to 2015.

Justice Edwards ruled it was too simplistic to assume 75 per cent of net profits is income received by Ms Hamilton.  She is one of two directors of Olette.  A family trust is majority shareholder.  Accident compensation legislation requires assessment of ‘reasonable remuneration’ for shareholder/directors in closely-held companies.  Any surplus beyond this is a ‘dividend’ imputed to shareholders; in this case imputed to the Hamilton family trust.

Accident Compensation made no attempt to determine what should be ‘reasonable director’s remuneration’ for a person in the position of Ms Hamilton managing a business with income derived from a substantial staff roster.  Former levels of weekly compensation were reinstated until such time as Accident Compensation reviews its assessment.

Justice Edwards commented any distributions received by Ms Hamilton as beneficiary of her shareholder family trust were not to be treated as ‘income’ from her hairdressing business when calculating earnings related accident compensation.

Hamilton v. Accident Compensation Corporation – High Court (27.11.19)

20.002

Land: Koro Pue Whanau Trust v. Tapatu

After issuing trespass notices and calling for police assistance over an eight year period, all to no avail, owners of Taranaki Maori freehold land took to the High Court for an order clearing relatives off land near New Plymouth.  

In 1955, Renata Te Pue gifted part of his land on Everett Road to daughter Peggy and her husband Raymond Tapatu.  Te Pue later sold the balance of his holding to son Koro. The High Court was told of long-standing differences over the boundary division between brother and sister.  Trustees of the Koro Pue Whanau Trust, now holding Koro’s share, complain that Tapatu whanau have encroached on about one acre of Trust property having built a boundary fence enclosing a small residential building, shed, caravan and septic tank all sited on Trust land.  Trustees also complain water supply on its property is being diverted to the Tapatu property.

Back in July 2011, the Maori Land Court ordered the Tapatu family shift off disputed Trust land.  Enforcement procedures were ignored.  At the Trust’s request, a High Court possession order was issued to force compliance with the Maori Land Court order.

Koro Pue Whanau Trust v. Tapatu – High Court (20.11.19)

20.001

Shop Vouchers: Commerce Commission v. Home Direct

Unless there is a countervailing customer benefit, retail vouchers which cannot be exchanged for cash or which expire after twelve months are prohibited following a Commerce Commission test case. 

The Commission challenges unfair terms in standard form consumer contracts.  It took legal action against New Zealand’s largest mobile shop trader, Home Direct Ltd. Home Direct sells clothing, toys, electronics, furniture and whiteware on credit.  The High Court was told Home Direct credit contracts allowed it to continue debiting customer accounts after payment of the original debt.  The resulting credit balance was converted into a ‘voucher entitlement.’  Vouchers could be used only for Home Direct purchases.  They could not be converted to cash. They expired after twelve months. Some $644,000 was forfeited to Home Direct over several years of the scheme’s operation.

Home Direct accepted these terms were unfair.  A High Court ruling under the Fair Trading Act was needed to formally declare such terms unfair.  This court ruling affects the retail operations of any ‘person,’ not just Home Direct.

Commerce Commission v. Home Direct Ltd – High Court (12.11.19)

19.187

Bankruptcy: Yoonwoo C&C Development v. Huh

Chased to New Zealand on debts allegedly arising from his failed Korean construction company, Jae Ho Huh hid from pursuers appearing in court only when threatened with bankruptcy.  He was given time to dispute a $2.1 million debt allegedly owed; bankruptcy averted.

The High Court was told Mr Huh previously controlled Korean property company Dae Joo Group with annual turnover in excess of seven billion dollars.  The business collapsed.  Mr Huh left Korea for New Zealand, unwilling to return for fear Korean authorities might take action for alleged breaches of tax law.

Meanwhile, Yoonwoo Development Corp took action in Korean courts for breach of contract.  Under Korean law, litigants can reach a settlement over a dispute and have their agreement filed in court, having effect of a court order.  Litigants acknowledge acceptance by affixing their seal to the agreement.  There is a register of seals to identify ‘signature’ of formal documents.  Armed with a Korean court order for $2.1 million ostensibly marked with the seals of Mr Huh’s companies and Mr Huh’s personally, Yoonwoo sued in the New Zealand courts to get an enforceable New Zealand court judgment for $2.1 million.  Evidence was given that Mr Huh proved evasive, avoiding personal service of intended New Zealand court proceedings.  Notice was given by advertisement.  Mr Huh made no court appearance.

When Yoonwoo then attempted to bankrupt Mr Huh in New Zealand courts on the $2.1 million court judgment, he appeared in court claiming he was unaware of the Korean court case and that the seal affixed to the agreement was not his; he did not owe Yoonwoo anything.  Associate judge Bell dismissed the bankruptcy application; a full court hearing is needed to establish the validity of Yoonwoo’s claim against Mr Huh.  Judge Bell stymied further evasive tactics; Mr Huh is to place on the court file details of his residential address and his lawyers are authorised to accept on his behalf service of all legal documents.

Yoonwoo C&C Development Corporation v. Huh – High Court (11.11.19)

Insurance: Frucor v. Blumberg

Insurance industry tactics of ‘deny, delay and dispute’ saw the Court of Appeal sharply criticise industry attempts to run out of town start-up operations by Right2Drive which provides temporary car rentals to ‘not-at-fault’ drivers waiting for insurers to repair damaged vehicles.  Insurance companies were told to read the law and comply with the rules, rather than being obstructive.

Right2Drive took to the courts owed $4.9 million in claims denied by Vero, AMI Insurance and AA Insurance.  Tower, YOUI and AIG had similarly refused to meet Right2Drive claims.

Using a business model available in Australia and the United Kingdom, Right2Drive specialises in hiring replacement cars to ‘not-at-fault’ drivers whilst their damaged vehicle is under repair.  It started New Zealand operations in 2016.  Car repairers typically refer car-less drivers to Right2Drive as it is more convenient than having the repairer provide a courtesy car as a temporary fix.  The Court of Appeal was told Right2Drive has the driver sign a hire contract, but there is an understanding that it will waive recovery of any hire charges not recovered from insurers.  Temporary hire of a replacement vehicle is a natural consequence of the ‘not-at-fault’ driver’s car being damaged by a negligent motorist.  The negligent motorist’s insurer is in the gun for this cost; a third party claim in insurance jargon.

Vero argued the insurance industries side: the ‘not-at-fault’ driver had incurred no expense; the cost of Right2Drive hire was too expensive; no interest should be paid on late payment to Right2Drive.  All these defences were rubbished by the Court of Appeal.

The ‘not-at-fault’ driver is contractually committed to paying Right2Drive hire charges (though in fact they are not going to be demanded); the daily hire rates together with delivery and pick-up charges were reasonable; interest on late payment was reasonable – insurers get a free ride otherwise by delaying payment.

Vero told the Court of Appeal drivers could first approach insurers to get use of a replacement vehicle.  This is an option not advertised on insurance company websites and insurance companies do not make a habit of taking the initiative offering temporary replacements to not-at-fault drivers, the Court pointed out.

Operation of the business model used by Right2Drive had survived challenges in the courts of Australia and the United Kingdom, said the Court of Appeal.  Instead of being seemingly intent on knocking Right2Drive out of business, it is to be hoped New Zealand’s motor vehicle insurers will now accept Right2Drive is providing a service that should be available to not-at-fault drivers, the Court of Appeal said.

Frucor Beverages Ltd v. Blumberg – Court of Appeal (11.11.19)

19.186

Unsolicited Emails: Internal Affairs v. NZ Trustees Association

Errol Anderson, founding trustee and former registrar of NZ Trustees Association, was ordered to pay $8000 and the Association itself pay $36,000 as penalties for sending thousands of unsolicited emails, part of a marketing campaign. 

The Unsolicited Electronic Messages Act prohibits mass email marketing campaigns without recipient consent. 

NZ Trustees Association Charitable Trust was established in 1997 offering information for trustees and company directors in performance of their legal duties.  In 2016, it chose to deregister as a charity after a bruising legal battle over its advertising methods.  The High Court was told NZ Trustees commenced a membership drive in October 2015 aimed at 26,000 charities offering what it called a ‘donation of membership.’  NZ Trustees offered twelve months free membership to subscribers with annual membership fees payable in subsequent years. Members received a website listing, access to an 0800 number, an email helpdesk, support services and copies of NZ Trustees publications.  On eight separate occasions, a total of more than 53,000 unsolicited emails were sent to over 14,000 recipients.  More than one hundred complaints were made to Internal Affairs.  As a membership drive, the campaigns were moderately successful; revenue increased by $48,500.

NZ Trustees compounded its legal difficulties by sending out further unsolicited emails requiring payment of annual subscriptions after being warned by Internal Affairs that it was under investigation and that mass solicitation should stop.  NZ Trustees subsequently retracted these emailed invoices and apologised to recipients.       

Both NZ Trustees and Mr Anderson were fined for breaching the Act.  Mr Anderson received no direct financial benefit from the mass mailout, but was largely responsible for its implementation, Justice Lang said.  Mr Anderson’s application for name suppression was dismissed.  Embarrassment on publication is not grounds for suppression, Justice Lang said.  Mr Anderson has more than two decades involvement in the trust sector.

Internal Affairs v. NZ Trustees Association Charitable Trust and Anderson – High Court (21.10.19) & (8.11.19)

19.184

Asset Forfeiture: Commissioner of Police v. D'Esposito

Fines in excess of one million dollars imposed for breaches of the Fisheries Act were followed with proceeds of crime penalties totalling $318,900.  Marcus D‘Esposito, Joe D’Esposito and Nino D’Esposito did a deal to have their real estate holdings in the Hawkes Bay released from a government restraining order in return for a cash payment.

Along with related fishing interests, the three pleaded guilty in February 2019 to breaches of fisheries regulations, under-reporting catches.  They personally paid $324,900 in criminal fines for fisheries breaches.

Legal action was also taken under the Criminal Proceeds Recovery Act with freezing orders placed on real estate, motor vehicles and cash. The High Court approved a settlement negotiated under the Act with payment of $318,900 representing the commercial value of 27 tonnes of misreported bluenose fish and 1100 kilograms of paua shellfish unlawfully received.

Commissioner of Police v. D’Esposito – High Court (7.11.19)

19.183

Contract: Oxygen Air Ltd v. LG Electronics Australia

LG Electronics Australia was awarded $583,100 damages in a counter claim against Auckland air conditioning installer Oxygen Air Ltd after their distribution agreement ended acrimoniously. Oxygen Air failed in a claim against LG for $1.54 million damages with director Eddy Rotteveel alleging LG Electronics failed to perform its side of the distribution agreement.  

Oxygen Air and LG Electronics joined forces in 2009 with Oxygen given exclusive distributorship rights for heat pumps and ducted air conditioning units within New Zealand and Pacific islands.  The High Court was told of ongoing complaints by Oxygen about product supply and provision of technical support.  Matters reached a head in February 2015; Mr Rotteveel made it clear Oxygen Air no longer wanted any dealings with the LG brand, current deliveries would not be paid for and stock in store would be sold with proceeds going towards legal action against LG Electronics.

Legal action centred on calculation of damages. Oxygen Air said its distribution agreement entitled it to damages for loss of profits.  Justice Powell ruled this formula applied only if LG Electronics were in breach of contract.  It wasn’t in breach, he said.  Oxygen Air instead owed LG Electronics $583,100 for units delivered but unpaid.

Part of Oxygen Air’s claim for $1.54 million damages was an allegation that it was shut out of a distribution agreement held with LG Electronics for installation of solar panels.  Evidence was given of Oxygen Air lobbying to get the distributorship and acting behind LG Electronics’ back in setting up a website claiming to be a distributor.  There was no appointment.  LG Electronics internal documents showed Oxygen Air had been considered as a distributor but rejected; it was proving a difficult customer over supply of air conditioning units and had no expertise in solar panel installation.

Oxygen Air Ltd v. LG Electronics Australia Pty Ltd – High Court (6.11.19)

19.182

Family Trust: Young v. Hunt

In the four years prior to his death in July 2015, John Hunt as trustee of the Twiss Family Grandchildren’s Trust misappropriated $181,000 with payments into his own bank accounts.  His widow was ordered to repay $146,000, trust monies which her late husband paid into a joint account she had access to.  

The Twiss Family Trust was established in 1991 by Margaret and Richard Twiss.  It came to an end in August 2016 with descendants Thomas and Simon Young final beneficiaries.  They discovered substantial defalcations made by the late John Hunt when he was a trustee. They sued his widow, Jennifer Hunt. Associate judge Johnstone ruled she was liable to repay $146,175 paid by her late husband into a joint account he shared with her.  On her husband’s death, she gained sole ownership of the account by survivorship. Ms Hunt said she had no knowledge of her late husband’s theft.  She was an innocent party, she said.  On her husband’s death she was left in a poor financial position; was forced to sell the family home and is now living in rented accommodation with a pension her only income.

Judge Johnstone said Ms Hunt was liable to repay the $146,000 jointly received on grounds she had been unjustly enriched. Any lack of knowledge about where the money came from was of no relevance.

Legal action is pending against Mr Hunt’s estate for the remaining $35,000 he paid into a bank account in his sole name.

Young v. Hunt – High Court (1.11.19)

19.181

Relationship Property: Hare v. Hare

Charging orders for unpaid child support registered over the family home are secured debts deducted from the sale price before division of relationship property, the High Court ruled in a test case.

Kelly-Anne Hare argued child support was her spouse’s personal debt and should not be taken into account when assessing value of relationship property.  Once a charging order for unpaid child support is registered against title to the family home under the Child Support Act it becomes a secured debt charged against the home, the High Court ruled. 

Ms Hare and her spouse Jonathon Keith Hare had been in a de facto relationship for over three years before Mr Hare was adjudicated bankrupt in March 2016.  Their family home in the Wellington suburb of Tawa was owned solely by Mr Hare.  The length of their relationship entitled Ms Hare to claim a share as relationship property.

Evidence was given that the house owned by Mr Hare now has a market value of about $320,000.  Registered against the title is a bank mortgage ($86,000) and a child support charge ($81,900).  The child support arises from a prior relationship.  This charging order was registered before his de facto relationship started with Kelly-Anne.

With the child support charge excluded on a notional sale of the family home, as Ms Hare argued, a half share of the equity would amount to $120,000.  Of this $120,000, she would receive $103,000 as a ‘protected interest’ specified in relationship property legislation.  With the child support charge included, as the High Court ruled, she is entitled to $78,500.  The court was told Ms Hare is negotiating with Insolvency Service to buy out her bankrupt spouse’s interest in the home.

Hare v. Hare – High Court (31.10.19)

19.180

Partnership: Patel v. Patel

Having agreed to jointly develop an Auckland property eventually sold for $1.485 million, Pareshkumar Patel and Prakashkumar Patel were required to share profits equally.  Prakash put up most of the money; Paresh managed the project.

In May 2014, the two agreed to redevelop a property available for sale on Ashgrove Road, Mangere.  Prakash was a courier driver; Paresh a real estate agent.  They are not related, but had been acquaintances for many years.  The High Court was told their plans were to relocate a house on the 1.3 hectare property, then divide the property into three titles putting houses on the two new sites.  In what was later to be a point of contention, Paresh shifted a house off one of his other properties onto the Ashgrove site; a free gift said Prakash, a financial contribution said Paresh.  Justice Gwyn was to later count this relocated house as a $55,000 financial contribution by Paresh.

The High Court was told Prakash put $776,530 cash into the project.  Paresh’s financial contribution was assessed at $252,100.  When all three properties were sold, Prakash refused to repay Paresh his financial contributions or to hand over any share of the profit.  Prakash claimed their deal was limited to the two new sections carved out of the original site.  Paresh sued.  

Justice Gwyn ruled their business venture was governed by the Partnership Act.  They were carrying on a business in common with a view to profit.  There are no formal requirements to establish a partnership. An informal oral arrangement can amount to a partnership.  The default rule in the Partnership Act is that profits are shared equally.  The two had agreed financial contributions with interest calculated at six per cent would be repaid before division of profits, Justice Gwyn said.  After return of financial contributions plus interest, profits from development of all three lots are to be shared equally, she said.

Patel v. Patel – High Court (22.10.19)

19.179

Constructive Trust: Avon Parnell Ltd v. Chevin

Bankrupted four times and with criminal convictions for dishonesty, Peter Louis Chevin is alleged to have fraudulently seized control of an Auckland property company, raising a million dollar loan on security of company assets.

Avon Parnell Ltd owns two properties in the Auckland inner city suburb Parnell.  On incorporation in 2015, ultimate ownership of the company lay with Auckland property developer Tim Edney.  It is alleged Mr Chevin, acting without authority, changed Companies Office records online in May 2019 naming Russell PKR Trustee Ltd as Avon Parnell’s sole shareholder and Mr Chevin’s associate Mr Clark Valmont as sole director.

In June 2019, Mr Edney’s son-in-law learnt a million dollar Kiwibank loan had been raised on Avon Parnell assets with $990,000 paid across to a bank account controlled by Mr Valmont.  Further transfer of this money was frozen by the High Court.

Avon Parnell sued, claiming the $990,000 frozen funds is held on constructive trust demanding the money be returned.  Late to file a defence, the High Court gave Mr Chevin seven days to get his defence filed in court.  Mr Chevin claims he has an agreement with Mr Edney to use Avon Parnell as a vehicle for the purchase of a family home.

The High Court was told Mr Chevin assisted with the 2015 incorporation of Avon Parnell.  It is alleged he retained Companies Office log-in and password details, later gaining online access to change ownership.

Avon Parnell Ltd v. Chevin – High Court (11.10.19)

19.178

Family Trust: Addleman v. Lambie Trust Ltd

Beneficiaries of a family trust are entitled to copies of the trust deed and trust financial statements, they do not first have to prove any breach of trust by trustees, the Court of Appeal ruled in a case where one sister is looking to identify funding for assets valued at over $17 million dollars in November 2002 held in a trust controlled by her sibling.

Prudence Addleman was surprised to learn in 2002 that she was the beneficiary of a family trust.  This when receiving a cheque for $4.25 million and being told this was her full entitlement under the trust.  Trustees refused to provide any further information, other than later providing a copy of the trust deed.  After getting lawyers involved, she was told she was a discretionary beneficiary under a trust established with funds received by her sister Annette Jamieson as compensation for an accident in the 1970s when Annette was a teenager and left as a quadriplegic.  Disclosure of further information was refused; Annette was entitled to her privacy, trustees said.    

Prudence was entitled to more information, the Court of Appeal ruled.  Annette’s compensation was in 1990 put into a family trust called the Lambie Trust, used primarily for property development including the development of a 42 hectare block of land near the Auckland suburb of Howick.  Nominal settlor of the Lambie Trust was a cousin, property developer Robert Palmer.  It was unlikely that Annette’s compensation was sole source of funds for the Howick development, said the Court of Appeal.  With Annette’s one million dollar compensation payout being used for ongoing medical support and also used to buy houses in both London and later the United States, there would be insufficient free funds sourced from Annette’s compensation to finance large-scale property development.  She currently lives in Australia; Prudence lives in England.

The Lambie Trust could not be categorised as a ‘sole purpose’ trust for the benefit of Annette alone, the Court of Appeal said. Funding apparently came from sources other than Annette’s compensation.  Annette is not the sole trust beneficiary.  Sister Prudence was entitled to more information.  Prudence is now aged 70; Annette 66.  They are the only two named as final beneficiaries of the Lambie Trust remaining alive.  They have been estranged for the past twenty years.

Addleman v. Lambie Trustee Ltd – Court of Appeal (4.10.19)

19.177

Money Laundering: Internal Affairs v. Jin Yuan Finance Ltd

Auckland-based Jin Yuan Finance Ltd was fined four million dollars for multiple breaches of money-laundering legislation after Internal Affairs identified use of immigrant staff without work permits processing off-shore money transfers together with wholesale failures to properly document customer details.

In April 2018, Internal Affairs got court orders blocking Yuan Finance and director Rex Young from carrying out financial transactions. This followed investigations stretching back to 2015.  The High Court was told Yuan Finance failed to properly respond to Internal Affairs demands that record keeping and reporting of suspicious transactions be improved.  Yuan Finance deliberately misled Internal Affairs, stating transactions were routed through only one bank account when in fact multiple third party accounts were also used.  For the year ended June 2014, some $122.2 million was transferred using Yuan Finance’s services with ninety per cent of its income coming from international money transfers.

Action was taken under the Anti-Money Laundering and Countering Financing of Terrorism Act.  Yuan Finance did not appear in court.  It was fined for failing to carry out due diligence on its customers, failing to keep proper records and failing to report high-value suspicious transactions.

Internal Affairs v. Jin Yuan Finance Ltd – High Court (3.10.19)

19.176

Fraud: Lock v. R.

Convicted of fraud after customers lost $650,000 paid for manuka honey and infant milk formula not delivered, dairy scientist Trevor James Lock’s claim that he did not get a fair trial was dismissed by the Court of Appeal.  Evidence of fraud was incontrovertible said the court; Lock should instead have pleaded guilty allowing the possibility of a reduced sentence, the court said. 

Lock was convicted in 2017 on multiple charges arising from the operation of his Morrinsville-based companies: Nubiotics Ltd and Nu-Brands Ltd. Customers paying deposits on orders for honey and milk powder were strung along when deliveries were not made.  The trial judge was told Lock, then under financial pressure, diverted company funds to his own use.  He then lost money in an advance fee fraud, attempting to borrow funds offshore.  

Lock complained that his lawyer failed to follow instructions at trial, prejudicing his chance of an acquittal.  Lock said he had no intent to defraud and his lawyer did not put that as a defence.  His lawyer said that defence was not possible; Lock had told him how he actively deceived customers.  The only possible defence was a technical legal defence, a defence which proved unsuccessful.

The Court of Appeal was told Serious Fraud Office prosecutors were surprised Lock did not approach them with an offer to plead guilty, given how strong was the evidence.  A reduction in sentence is the norm when accused plead guilty.

Lock is serving a sentence of five and a half years imprisonment.

Lock v. R. – Court of Appeal (2.10.19)

19.175

Trademark: IOC v. Tempting Brands

Notorious for aggressive defence of its brand throughout the world, the International Olympic Committee was laughed out of New Zealand courts when challenging registration of the name Pierre de Coubertin as a trademark by Netherlands company Tempting Brands.  Monsieur de Coubertin is held up by the IOC as founder of the modern Olympic movement.

The High Court was told of ongoing worldwide battles between IOC and Tempting Brands over use of the name de Coubertin. Tempting Brands creates brand names, protects the name through trademark registration and then licences use.  IOC challenged Tempting Brands Trade Marks Act registration in New Zealand for use of the name Pierre de Coubertin on jewellery and sporting goods, amongst other things.  Tempting Brands has trademark rights to use of the name Pierre de Coubertin in the European Union; IOC use of the name in Switzerland, where the International Olympic Committee is based.  The two are currently arguing over trademark rights to the name in other countries around the world.

IOC said it has common law rights to the name Pierre de Coubertin.  He played an important role in the 1896 revival of the Olympic Games, was a founding member of the IOC and its second president.  To challenge Tempting Brands registration of the name as a trademark, IOC had to prove knowledge in New Zealand of the link between Monsieur de Coubertin and the IOC and provide evidence of business activities in New Zealand which linked the two.  Justice Churchman described as ‘fanciful’ and ‘lacking reality’ any local knowledge of the link.

IOC said its 2004 award of a Pierre de Coubertin medal to All Black Tana Umaga and a 2008 Pierre de Coubertin trophy to All Black coach Graham Henry cemented the link in New Zealand minds.  Justice Churchman said evidence indicated there was little clarity of understanding even amongst New Zealand sports journalists over the status of the awards or the connection with the International Olympic Committee.  Attendance by New Zealand athletes at previous Olympic Games did not amount to IOC use within New Zealand of the name or image of Pierre de Coubertin.

Comite International Olympique v. Tempting Brands Netherlands BV – High Court (30.09.19)

19.174

Fraud: Ross v. R.

ANZ bank as victim made a profit of eight million dollars.  Property developer Leonard John Ross was sentenced to four years four months imprisonment for a $41 million dollar bank fraud, a sentence confirmed by the Court of Appeal.

This was far from a ‘victimless’ crime, the Court of Appeal said.  Use of false financial information by Ross to get bank funding for the Waldorf Celestion Apartment development in Auckland’s central business district put the Bank at risk. A downturn in property prices would have left ANZ Bank exposed with consequences for its customers and the wider economy.

In 2008, Ross commenced development of the 127 apartment Celestion project as part of his Tasman Cook property group.  ANZ Bank offered $40.4 million funding subject to a number of conditions: confirmation of the 120 pre-sales Ross said were already signed up and deposits for pre-sales to be held in a lawyer’s trust account. Subsequent enquiries identified that multiple ‘pre-sales’ did not exist; forged agreements for sale and purchase and forged sale commission details were used to hide the fraud.  There were no deposits.  These defaults could have left ANZ bank at risk; it could be left with losses if forced to take over the project.  The completed project now trades as Nesuto Celestion Apartment Hotel in central Auckland.  ANZ Bank made a profit of eight million dollars on its loan, through interest and fees charged.

Ross v. R – Court of Appeal (26.09.19)

19.173

Nuptial Settlement: Booth v. Booth

A $1.57 million debt arising from the transfer of a Manawatu family farm to the next generation was presumed forgiven, until son and daughter-in-law separated and the High Court was asked to rule on the debt’s status.  Daughter-in-law Tania Booth said reviving the debt reduced the value of her relationship property claim.

A farm at Opiki, south of Palmerston North, has been in Booth family hands for three generations.  Current owner, Jason Booth, assumed ownership from his parents in 2011. This deal saw Jason paying $4.2 million funded in part by a $1.57 million loan from his parents.  This loan was repayable on demand and interest free, with a provision for interest if demanded to be payable at the current rate on government stock.

The High Court was told of family discussions signalling that the loan would never be called up; the debt did not appear in Opiki farm accounts.  When Jason and Tania separated in 2016, there was a flurry of activity. Farm accounts were re-cast to now include as a liability the $1.57 million owed Jason’s parents.

Tania said forgiveness of the $1.57 million debt was part of a ‘nuptial settlement.’  It was intended to assist family finances, to the continuing benefit of Jason, Tania and their family.  She asked the High Court to cancel the debt under the Family Proceedings Act.  If it was a nuptial settlement, said Associate judge Johnston, any understanding that the $1.57 million loan would not be called up applied only whilst the marriage continued.  The loan was enforceable once the marriage ended.

Booth v. Booth – High Court (25.09.19)

19.171

Liquidation: Levin v. Autoterminal NZ Ltd

Liquidators in control of Christchurch motor vehicle dealer formerly known as Nigel Thompson Motor Company Ltd are suing used car importer Autoterminal claiming $2.9 million.

They allege Autoterminal was party to fraud getting paid with intent to defraud Thompson Motor creditors, or failing that was paid at a time knowing Thompson Motor was insolvent.  In turn, Autoterminal alleges it was Thompson Motor that acted fraudulently. Autoterminal itself is currently subject of legal action between entrepreneurs Robert Stone and Hohua Hemi fighting for control of their multimillion dollar joint venture used car import trade.

In March 2017, Thompson Motor was put into liquidation. It defaulted on multiple agreements with Inland Revenue promising to get tax payments back on track.  Unsecured creditor claims filed with Thompson Motor liquidators total $680,000; assets recovered to date $3200.

The liquidators challenge payments totalling $2.9 million made by Thompson Motor to supplier Autoterminal in the two years prior to liquidation.  Normally, disputes over recovery of pre-liquidation payments are dealt with in a relatively straightforward High Court procedure with a minimum of paperwork. Thompson Motors’ liquidators got court approval, over Autoterminal objections, to have the case instead heard under Part 18 of the High Court rules; requiring each side to disclose detailed claim and defence with wide rights of discovery, enabling disclosure of documents by court order.

The High Court was told of irregular dealings between Autoterminal and Thompson Motors with allegations Thompson Motors forged registration documents prior to sale of imported used cars and that Thompson Motors fraudulently pocketed car sale proceeds.

The need for a full statement of each side’s position and access to all relevant documentation requires use of the detailed Part 18 procedure, Associate judge Smith ruled.

Levin v. Autoterminal New Zealand Ltd – High Court (25.09.19)

19.172

Venture Capital: Design Electronics Ltd v. Lookman Family Trust

Having made a five year commitment promising $2.1 million venture capital for commercial development of SenSys, the Lookman Family Trust could not demand immediate repayment when all parties fell out.   

Michael Lookman had put up $1.8 million of his family trust’s promised venture capital for Warwick Jones development of remote real-time access to workplace data when the two fell out spectacularly.  Mr Lookman complains about lack of access to company information.  He says promised security over SenSys intellectual property has not been handed over. Mr Jones says this intellectual property is ‘inside his head.’

In May 2019, Lookman Trust gave notice that their 2016 funding agreement was ‘cancelled,’ demanding immediate repayment of the $1.8 million advanced to date.  The High Court said that their funding agreement did not state cash advances were repayable on demand, neither did it provide for the consequences of any claimed ‘cancellation.’  Even if cancelled, there was no contractual right to repayment until the five years were up.

SenSys has an arguable case that there is no default unless repayment is not made at the conclusion of the funding agreement in December 2021, the High Court ruled.  Interest payments due Lookman Trust under terms of its loan are being paid.

Design Electronics Ltd v. Lookman Family Trust – High Court (23.09.19)

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Contract: Restaurant Brands Ltd v. Forsgren NZ Ltd

Having received full government compensation following the compulsory acquisition of a Carl’s Jr fast food site taken for widening Auckland’s upper harbour highway, Restaurant Brands also snatched $400,000 held in an escrow account since its 2014 purchase of the site, money put up by vendor Forsgren NZ Ltd as compensation should road widening go ahead.   

Whilst lawfully entitled to the Forsgren money, Restaurant Brands’ morality in demanding payment was questioned by Justice Muir.  In a $10.5 million deal in 2014, Restaurant Brands Ltd purchased seven Carls’ Jr fast food sites from Forsgren interests.  This included $1.7 million paid for premises located on the corner of Upper Harbour Highway and Paul Mathews Road on Auckland’s North Shore.  Restaurant Brands expressed concern potential road widening would affect access, reducing profitability.  A side letter was signed, agreeing $400,000 of the $10.5 million purchase would be withheld, placed in escrow as potential compensation for Restaurant Brands should road widening affect upper harbour business in the next four years.  The deal saw Forsgren remain as site lessee, in turn sub-letting to Restaurant Brands. The wording of this side letter was subject of minute examination in the High Court five years later.

In late 2017, Restaurant Brands was told of plans to compulsory acquire land under the Public Works Act.  Government compensation was agreed, with Restaurant Brands paid $1.4 million.  The High Court was told this valuation was better than Restaurant Brands own assessment. Government calculations did not take into account Restaurant Brands’ contractual rights to the $400,000 escrow account.  Forsgren said the $1.4 million government payout to Restaurant Brands included compensation for future income lost because of the forced closure, losses compensated by funds in the escrow account.  Allowing Restaurant Brands to also access the $400,000 escrow account would result in an unanticipated windfall, it said.      

The side letter entitled Resturant Brands to payment from the escrow account if any time within four years of purchase its rights to the upper harbour site were ‘terminated for any reason.’  Public Works compulsory acquisition ‘terminated’ its right of occupation; Restaurant Brands was entitled to the $400,000, Justice Muir ruled.  A court is not justified in concluding that a contract does not mean what it seems to say simply because, so interpreted, the contract is unduly favourable to one party, he said.

Restaurant Brands Ltd v. Forsgren NZ Ltd – High Court (19.09.19)

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Tax: re Yogi Trustee Ltd

Paul Webb owes Inland Revenue $26.3 million in tax arrears.  Companies office records give as his residential address valuable real estate on Arney Road in the Auckland suburb of Remuera.  Chasing down assets is proving complicated.  Arney Road has a current rating valuation of $6.4 million, but the property is owned by Yogi Trustee Ltd a company which no longer exists; it has been struck off the companies register.  

First step: Inland Revenue asked the High Court to reinstate Yogi Trustee Ltd to the register.  Inland Revenue interest in Mr Webb and his Honk group of companies stretches back more than ten years.  In 2013, Inland Revenue obtained a High Court freezing order over Yogi Trustee’s assets. By the time of a November 2018 District Court order that Mr Webb pay $26.3 million in tax arrears, Yogi Trustee no longer existed.  It had been struck off by the companies office; an administrative action for failure to file annual returns. 

Companies Act rules specify that when a company owning land is removed from the register, title to the land reverts to the state. This did not help Inland Revenue in its tax recoveries against Mr Webb; government practice is to hold this land as neutral stakeholder until a claimant comes forward.

The High Court ordered Yogi Trustees Ltd be restored to the companies register since Inland Revenue has ‘an undischarged claim against the company.’  Inland Revenue alleges Mr Webb is the ‘true owner’ of Arney Road and that title held in the name of Yogi Trustee Ltd is a front to disguise his ownership.

re Yogi Trustee Ltd – High Court (13.09.19)

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Price-Fixing: Commerce Commission v. Ronovation Ltd

The first ever Commerce Commission prosecution of a ‘buyer-side’ cartel saw Auckland property company RonovatioNZ fined $400,000 over operation of its membership rules designed to prevent clients bidding up house prices competing against each other.  

Operated by Ronald Ng Hoy Fong, Ronovation Ltd traded as RonovatioNZ.  It provided advisory services to clients acquiring residential property in Auckland.  From 2011, Ronovation implemented ‘priority rules’ to minimise the risk of clients bidding against each other, driving up prices. After payment of a membership fee, clients had access to a database in which they could mark their interest in a specific property.  This gave priority.  Other members could not negotiate to buy that property nor bid at auction unless the auction price exceeded a ceiling set by the priority member.

The High Court was told Ronovation membership numbers grew from 40 to over 400 in the seven years priority rules were in place. The number of Auckland property sales affected over the seven year period totalled some 470.  More properties than that number are typically sold across Auckland in a single month.

Buyer-side cartels amount to price-fixing, in breach of the Commerce Act.  A buy-side cartel is not always successful.  A non-participating buyer can show up and outbid the cartel.  But even if successful only some of the time, it is profitable for cartel members and damaging for sellers.  Joint-buying operations are exempted by the Commerce Act from liability for price-fixing.

The fine imposed on Ronovation was reduced because of the company’s small size and the fact it co-operated with Commerce Commission investigations.

Commerce Commission v. Ronovation Ltd – High Court (13.09.19)

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Real Estate: Edwards v. Bridge

Real Estate Agents Act fines are not ordered as compensation for agent misrepresentations in property sales. Fines are penalties for unprofessional conduct.

The Real Estate Complaints Assessment Committee ruled Hawkes Bay agent Heatha Edwards demonstrated ‘unsatisfactory conduct’ when facilitating a 2016 residential sale to Graeme Bridge of a property in Bibby Street, Waipawa.  Mr Bridge complained an advertising flyer misrepresented the state of both the property and its boundary fence.  He purchased the property sight unseen; he was living in the Bay of Islands.  He demanded some $49,300; the cost of bringing the property up to standard represented in the flyer.  The Complaints Committee fined Ms Edwards $5000 and ordered remedial professional education.  On appeal, the Real Estate Agents Disciplinary Tribunal ordered Ms Edwards to pay Mr Bridges $10,000 as ‘relief from the consequences of her misrepresentations’.  The order to pay $10,000 was overturned by the High Court.

Justice Doogue said the Tribunal’s power to ‘rectify’ the consequences of an agent’s misrepresentations typically extends to putting the property back on the market with reselling costs falling on the agent. ‘Rectification’ is not an avenue to recover compensation.

The High Court was told Mr Bridge obtained a building report before declaring the Bibby Street purchase unconditional.  This report detailed all faults with the property, including issues misrepresented in the advertising flyer.  This put Mr Bridges on notice that the property’s condition was not necessarily as advertised, Justice Doogue said.  Ms Edwards said Mr Bridges did not in fact spend any money to make good the complained deficiencies and sold Bibby Street at a profit eighteen months after purchase.

Edwards v. Bridge – High Court (12.09.19)

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Company: Fordyce Road Development Ltd v. Khan

Two months after a February 2013 discharge from his second bankruptcy, Feroz Khan embarked on a scheme to buy and subdivide land at Parakai near Helensville resulting in a $339,700 loss to creditors and Khan misappropriating $100,000 cash properly belonging to his development company.  

Bankrupted in 1998 and again in 2010, Mr Khan’s second bankruptcy followed failed attempts to subdivide land at Parakai.  Undeterred by this earlier setback, his new 2013 Parakai proposal envisaged a 65 lot residential development.  His special purpose company Fordyce Road Development Ltd obtained resource consent for the subdivision after an Environment Court appeal. Mr Khan provided no working capital for his company.  Resource consent costs were funded with Fordyce Road borrowing at rates of up to 27 per cent.

The High Court was told Parakai vendors cancelled their contract of sale in 2015 after Fordyce Road failed to pay a required deposit or to settle what was an amended purchase price at $3.25 million.  The sale price was renegotiated over the two year period it took to get resource consent.  Mr Khan disputed the vendors’ right to cancel.  Fordyce Road received $100,000 in settlement of all claims it may have had over the disputed cancellation.  Evidence was given that this payment did not go through Fordyce Road’s books; Mr Khan diverted payment to his own bank account.

With Fordyce Road in liquidation, the liquidator sued Mr Khan and his spouse.  Justice Lang ordered Mr Khan to pay $339,700 to Fordyce Road, for debts incurred by the company when it was insolvent and now left unpaid.  The company was insolvent from the off.  It had no capital, no present source of income and was totally reliant on borrowed money.  Mr Khan was personally liable for his company trading whilst insolvent.

In addition, both Mr and Mrs Khan were ordered to repay a portion of the $100,000 misappropriated from the company: Mr Khan $62,200 (of the $100,000 taken, he passed on some $35,000 to Peters Property Holdings Ltd left unpaid by Fordyce Road); Mrs Khan $29,000 received from her husband which she knew properly belonged to Fordyce Road, said Justice Lang.  Mrs Khan is only liable to repay $29,000 if her husband fails to pay the ordered $62,200.  They did not appear in court to defend the liquidator’s claims.

Prior to the High Court hearing, Fordyce Road liquidator froze a Kiwibank account in the Khans’ names holding $125,300.

Fordyce Road Development Ltd v. Khan – High Court (12.09.19)

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Debt: 90 Nine Ltd v. Luxury Rentals NZ Ltd

Bankruptcy judges cannot block a debtor company winding up just because the amount owed is small, the Court of Appeal ruled.  Creditors frequently use threats of winding up to force payment from debtor companies.

Internet marketer Pure SEO Ltd was owed $1000 by Auckland vehicle rental company Luxury Rentals Ltd for search engine marketing. Luxury Rentals didn’t pay.  Pure SEO sold the debt to collection agency, 90 Nine Ltd.  

Chasing the debt, 90 Nine asked the High Court to put Luxury Rentals into liquidation under Companies Act rules winding up insolvent companies.  The bankruptcy judge refused: forcing liquidation on a $1000 debt was disproportionate, he said.  Other debt recovery steps should first be taken.  It is often uneconomic or not practical for creditors to try and seize debtor company assets, said 90 Nine.  It simply increases recovery costs and creates delays.

The bankruptcy judge was perturbed that 90 Nine had nominated as potential liquidator an insolvency specialist intending to charge $500 per hour.  Two hours charged out at this rate would consume the amount owed.  Liquidation is disproportionate, given the indebtedness, the bankruptcy judge said.

90 Nine has a statutory right to apply for Luxury Rentals’ winding up, the Court of Appeal ruled.  It is not for courts to question the economic rationality of legal action taken, it said.  Bankruptcy judges cannot refuse a winding up order on the simple ground that the debt claimed is a small amount.  Current regulations set a minimum debt of $1000 for a winding up order.  Once appointed, a liquidator takes control of all company assets.

The court was told Luxury Rentals’ sole director Adam Bsisou has left New Zealand, with no intention of returning.  Luxury Rentals has been struck off the companies register for failing to file an annual return.

90 Nine Ltd v. Luxury Rentals NZ Ltd – Court of Appeal (11.09.19)

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Dowry: Tian v. Zhang

Kelly Tian and Anson Zhang became engaged after meeting as mortgage brokers working in the same Auckland office. His contribution of over half a million dollars towards a $5.14 million purchase of four properties on Auckland’s North Shore was a dowry she could keep when the marriage did not go ahead, said Kelly. Not so, Justice Toogood ruled. The money advanced was predicated on their marriage going ahead and must be repaid       

The High Court was told the relationship began in May 2014.  Ms Tian’s mother was suspicious of Mr Zhang.  There was a thirteen year age difference between the couple, with Ms Tian then aged 24.  Mr Zhang had been married previously.  He lived a showy lifestyle, resplendent with upmarket Porsche.  Ms Tian had rejected his first proposal of marriage, agreeing to marry eight months later.  In the interim, the two negotiated the purchase of three residential properties and a vacant residential section.  Mr Zhang put some $568,000 towards the deposits; Ms Tian had to put in her own money plus money borrowed from her mother and other relatives when Mr Zhang delayed on promises to further fund the deposits – temporary cashflow difficulties, he said.  Mortgage finance completed the purchases.  At her mother’s insistence, title was taken variously in the names of Ms Tian and her mother.  Ms Tian took responsibility for meeting outgoings on the properties, three of which were rented out.

The relationship ended in late 2016.  Mr Zhang had caveats lodged on titles to the four properties when Ms Tian refused to repay his contributions towards their purchase.  A caveat prevents any dealings with the property.  Ms Tian said her fiance’s payments were a dowry paid according to Chinese custom and need not be returned.  Justice Toogood said no independent evidence was provided to the court about Chinese dowry customs.  He declined an invitation to ‘look it up on Google’.  There was no clear evidence of Mr Zhang intending to make a gift of the funds advanced.  The payments were in contemplation of and conditional on his subsequent marriage to Ms Tian, Justice Toogood ruled.  Since no marriage eventuated, Mr Zhang was entitled to repayment.

Tian v. Zhang – High Court (9.09.19)

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Fiduciary Duty: Perera v. Singh

Srilal Perera trusted his sister and brother-in-law to look after his property when he left for Australia.  In his 24 year absence, they mismanaged rental income, misappropriated funds raised on security of the Wellington rental property while attempting unsuccessfully to transfer title into their own names and raised a loan on Srilal’s life policy without his authority.

Avninderpal Singh and Chamali Supriya Singh were ordered to pay over $600,000 for their breach of fiduciary duty.  The High Court was told Mr Perera left for Melbourne in 1991. He left the Singhs in charge of his New Zealand assets: they were to receive eight per cent of the gross revenue on letting his home in the Wellington suburb of Northland; six per cent on the gross for managing his then partner’s separate Wellington property.  They were also to keep up monthly payments on his life policy.

Mr Perera learnt nearly a decade later that the Singhs had pooled together revenue from both properties, using his cash to pay interest on his then partner’s more heavily mortgaged property.  The Singhs promised to make good the difference.  By then, Mr Perera and his partner were estranged. He signed a power of attorney in favour of Mr Singh, on the understanding this would assist the Singhs in handling his New Zealand affairs.  Evidence was given that the Singhs attempted to sell the rental without Mr Perera’s knowledge.  This was inadvertently thwarted by Mr Perera’s former partner lodging a caveat against the title as part of a relationship property dispute.  Evidence was also given of Mr Singh borrowing against the rental and transferring funds into accounts he controlled.  A loan raised against Mr Perera’s life policy also went into accounts controlled by Mr Singh.  Claims these transfers were made with Mr Perera’s authority were dismissed by Justice Cull.  Mr Singh resisted attempts to get access to bank records, producing some bank records with compromising transactions deleted.  Mr Singh was either dishonest, or inept, Justice Cull said.  Either way, he was in breach of his duty to properly account for use of Mr Perera’s assets.

The Singhs were jointly held in breach of good faith in respect of their obligations to manage Mr Perera’s property and to account for the proceeds.  Mr Singh was in breach of his duties to act in good faith when using the power of attorney. The two were ordered to pay Mr Perera $604,500 damages with further damages yet to be assessed in respect of an unauthorised $19,900 loan taken on Mr Perera’s life policy.

Perera v. Singh – High Court (6.09.19)

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Fraud: Worldwide Holidays Ltd v. Wang

Finding over $1.4 million had been stolen over ten years, Worldwide Holidays Ltd sued former employee Xiaoning Wang, her mother Bu Jun and Wang’s friend Haimeng Lin to recover its losses. During the decade ending 2017, Wang and Lin lost $3.5 million gambling at Sky City casino.

The High Court was told Wang started work for Worldwide Holidays’ Auckland Newmarket branch as a travel consultant in 2010, later promoted to branch manager of its Auckland Albany branch.  Worldwide became aware of financial discrepancies in early 2017, when Wang was on holiday.  A detailed investigation uncovered a ‘teeming and lading’ fraud: client money was stolen, covered by payments from later customers.  Worldwide was alerted by a large number of customer transactions recorded as payment by post-dated cheque; a very uncommon form of payment now.  It discovered Wang had been invoicing Worldwide customers with payment directed to her personal bank account, simultaneously supressing any account receivable in Worldwide’s accounting system.  Worldwide suspects more than the $1.4 million it sought to recover was stolen.

Evidence was given that Worldwide’s managing director went to Beijing, confronting Wang and her mother Ms Jun.  They promised repayment; Wang signing an acknowledgement of debt for $1.4 million, Ms Jun signing as guarantor.        

The High Court held Wang and Ms Jun jointly liable to repay $1.4 million together with interest at five per cent specified in the acknowledgement of debt.  Both said they signed under duress, but did not attend court to defend Worldwide’s claim.

Wang’s friend Haimeng Lin was held jointly liable for $526,700 of the money stolen.  This was money transferred by Wang to Ms Lin’s bank account.  Wang told her this was done on a mortgage broker’s advice; frequent high value ATM withdrawals at Sky City showing up on her banking records would prejudice her ability to get a home mortgage.   Ms Lin attended court, saying she was unaware the money was stolen and that she held the money only temporarily for Wang. Banking records showed only $20,000 was clearly repaid to Wang.  Justice Gault said the evidence was that Ms Lin spent the balance of the transferred funds gambling with Wang and for her own personal use.

Worldwide Holidays Ltd v. Wang – High Court (5.09.19)

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