Restraint of Trade: M&L Holdings Ltd v. Kuang

Wenyan Kuang has been ordered to stop running his own real estate photography business in South Auckland, in breach of his agreement with franchise Open2view.

In 2018, Mr Kuang signed up with Open2view as a photographer franchisee.  He previously worked as a wedding photographer.   Under the franchise agreement, Open2view provided training in real estate photography and contacts with South Auckland real estate agents. He agreed to a restraint of trade; he was not to run a competing business within two years of finishing with Open2view.

The High Court was told Mr Kuang emailed Open2view in March 2020, announcing he was quitting and that he would work by himself directly with local real estate agents.  Open2view sued.

Justice Campbell issued an interim injunction blocking Mr Kuang from carrying on real estate photography work within fifty kilometres of South Auckland for the next twelve months.  Mr Kuang did not appear in court.  Open2view has an arguable case for an interim injunction to protect goodwill attaching to its customer base, Justice Campbell ruled.

To enforce the agreed two year ban, Open2view has to go back to court providing detailed evidence that a ban extending beyond twelve months is needed to protect the value of its South Auckland customer base.

M and L Holdings (2012) Ltd v. Whenua Productions Ltd & Kuang – High Court (28.09.20)

20.159

Creditor Moratorium: Brauninger & Tololi v. Westend

Attempts by financially-pressed Cambridge horse stud Linwood Park to do a deal with creditors fell apart when news leaked that Stuart Brauninger and Michael Tololi had negotiated a special deal for two creditors who threatened liquidation.

Linwood Park Stud Ltd is currently in receivership and liquidation.  A total of $1.07 million is claimed by eighteen unsecured creditors.  The High Court was told director Stuart Brauninger and associate Michael Tololi worked frantically in mid-2017 to avert Linwood Stud’s immediate liquidation.  Pressing creditors were offered a scheme of arrangement: a moratorium on creditors’ claims, while Linwood management sold down company assets in an orderly sale. Two creditors: PJ & SJ Westend Partnership together with Cambridge Veterinary Services were not interested. To leverage a better deal, they threatened to immediately put Linwood into liquidation.  A side deal was struck.  Each would get immediate payment of $25,000, with Messrs Brauninger and Tololi personally guaranteeing payment of the balance.  The contract included a confidentiality clause; Westend and Cambridge Vet were not to tell any other creditors about their side deal.  Word got out.  Other creditors then refused to join the proposed moratorium.  Linwood Stud spiralled into liquidation.

In the High Court, Messrs Brauninger and Tololi argued their personal guarantees were not enforceable; any breach of confidentiality by Westend or Cambridge Vets nullified the deal.  Justice Campbell ruled there was insufficient evidence either had breached the confidentiality clause.  Silence when challenged about leaking details did not amount to evidence of any breach.

Brauninger & Tololi v. Westend – High Court (24.09.20)

20.156

Reckless Trading: Debut Homes v. Cooper

New Zealand’s ‘do it yourself’ tradition does not extend to corporate turnarounds.  It is a breach of director’s duties to self-manage corporate restructuring where there is no chance of returning to solvency.  Leonard Cooper was ordered to pay $280,000 after completing houses under construction by his insolvent company Debut Homes resulting in increased loss to Inland Revenue.

Inland Revenue forced Auckland residential property developer Debut Homes Ltd into liquidation in March 2014 claiming unpaid GST and penalties totalling $450,000.  Liquidators Deloitte sued Debut Homes director Leonard Cooper alleging Companies Act breaches for reckless trading and trading whilst insolvent.  Mr Cooper claimed he improved the company’s position by finishing projects in hand and getting a better price, rather than quitting which would have resulted in a fire sale of unfinished houses.

Their difference in opinion reached the Supreme Court. It ruled formal mechanisms in company law should be used for workouts by near-death insolvent companies: voluntary schemes of arrangement; statutory schemes of arrangement; and receiverships. In each case, affected creditors get a say and someone independent of the company takes control.  If directors self-manage restructuring of an insolvent company, they must at all times keep creditors’ interests at heart, it said. Self-managed restructuring is not an excuse to ‘rob Peter in order to pay Paul,’ said the court.

The court was told Debut Homes was in financial difficulty in late 2012.  Mr Cooper decided unilaterally to wind down company activities, completing houses under construction over the next eighteen months before selling them.  Unpaid GST of $300,000 was anticipated.  Proceeds of sale went primarily to paying off secured debt. GST liability increased beyond earlier estimates.  It was left unpaid.  Attempts to do a deal with Inland Revenue over unpaid GST came to nothing.  Of trade debts incurred during the wind-down period, $28,700 were left unpaid.

It is not legitimate for directors to enter into a course of action to ensure some creditors get a higher return where this is at the expense of incurring new liabilities which will not be paid, the court said.  When insolvent liquidation is likely, it is not for directors to carry on trading just to reduce the extent of loss.  This only serves to benefit some creditors at the expense of others.  By continuing to trade, Mr Cooper threw the loss onto Inland Revenue with unpaid GST accumulating, the court said.

Debut Homes Ltd v. Cooper – Supreme Court (24.09.20)

20.158

Insurance: Nestel v. Millar

It was their German Shepherd cross Louis which gave them away.  An Australian insurer chasing Darryl and Linda Millar tracked them down to Invercargill after publicity over their dog attacking a Jack Russell terrier.

The story began in 2010 when John Nestel obtained a New South Wales tribunal order against the Millars for damages following defective building work.  His insurer paid out.  The insurer was left to exercise Mr Nestel’s right to recover from the Millars.

Enforcing these rights of subrogation proved problematic; the Millars had disappeared.  The insurer later learnt the Millars were in Vanuatu.  The Australian court order was enforced in Vanuatu after being registered in the Vanuatu courts.  About $A11,000 was recovered with deductions from Mr Millar’s wages before again the Millars disappeared.  There was no forwarding address.  Two years later, the Millars whereabouts surfaced with news of a 2018 appeal in the Invercargill High Court over a Dog Control Act order for destruction of their dog. To enforce the Australian court order in New Zealand, it first had to be registered in the New Zealand courts under the Trans-Tasman Proceedings Act.  Court approval was required; the insurer was outside a six year time limit prescribed for registration.  Associate judge Lester gave approval for late registration.  The Millars knew of the insurer’s claim.  Their manner of departure from Vanuatu indicated attempts to frustrate further recoveries by the insurer, he said.

In the High Court at Invercargill, Louis was ordered destroyed.  It had attacked other dogs twice in a period of two weeks.

Nestel v. Millar – High Court (24.09.20); Millar v. Invercargill City – High Court (7.03.18)

20.157

Property Development: Downer v. Signature Developments

Signature Developments acted in a high-handed manner when it tried to railroad investor Robert Downer into purchase of a Pukekohe early childhood centre after switching out the previously agreed tenant, the High Court ruled.  Signature was ordered to repay Mr Downer’s $466,000 deposit.

Robert Downer has been investing in commercial property for over thirty years.  In 2017, he was offered a package deal by developer Signature Developments Ltd.  He agreed to pay $4.6 million for an early childhood education centre to be constructed in Kitchener Road, Pukekohe, with a named subsidiary of Auckland Kindergarten Association as long-term tenant.  With net assets in excess of $25 million, the Association was a bankable tenant.

The High Court was told that unbeknown to Mr Downer, the Association’s business model was subsequently revised.  It was drawing back from long-term private lease arrangements like that proposed for Kitchener Road.  A new tenant was required for Pukekohe.  The Educare group, controlled by Alan and Jacqueline Lints, agreed to come in as tenants.  Mr Downer was kept in the dark.  Progress reports on construction gave no inkling of a change of tenant.  Signature claimed Mr Downer had to accept whoever it put forward as tenant.

Justice van Bohemen said wording of the 2017 contract was specific: Mr Downer was purchasing a property with a named Auckland Kindergarten Association subsidiary as long-term tenant.  That was an important term of the contract.  This tenant, coupled with a promised Kindergarten Association rent guarantee, was an attractive commercial proposition.  A change of tenant required Mr Downer’s approval. Signature was in breach of contract by installing a different tenant.  Mr Downer was entitled to cancel and recover his deposit.

Downer v. Signature Developments Ltd – High Court (23.09.20)

20.155

Autoterminal: Auto Net v. Tyler

Used-car importer Auto Terminal’s restructuring in 2009 was triggered by a scheme to hide its true financial position; a restructuring which resulted in Inland Revenue disallowing six million dollars in past tax losses and is now resulting in worldwide litigation over control.

Robert Stone and Hohua Hemi built up a lucrative used car trade, exporting vehicles from Japan for the New Zealand market. Their Japanese registered company IBC Japan Ltd hoovered up used cars in Japan; Auto Terminal New Zealand Ltd on-sold them in New Zealand.  That was before Mr Stone and Mr Hemi fell out.  The High Court was told Auto Terminal had a net worth of some $43 million as at September 2019.  Ownership is fiercely disputed.    

Auto Terminal’s financial position was not always so rosy.  The High Court was told Auto Terminal had negative equity of some fifteen million shortly after the 2008 global financial crisis.  The corporate structures used by Mr Stone and Mr Hemi had Auto Terminal one hundred per cent foreign owned.  It would have to file financial statements with the Companies Office, auditors told them. This would disclose Auto Terminal’s parlous financial position to both creditors and customers.  A scheme was hatched, giving Auto Terminal the appearance of a locally-owned company no longer required to file financial statements. Auto Terminal’s shareholding was transferred to Hamilton resident Mike Tyler.

This change of ownership triggered tax issues for Auto Terminal.  Trading in tax loss companies is discouraged; tax rules prohibit carrying forward tax losses following a change in ownership.  A 2014 Inland Revenue audit disallowed $15 million in tax losses Auto Terminal claimed for the 2009 tax year, a tax assessment later amended to six million dollars tax losses disallowed.

Mr Tyler acknowledges he holds his Auto Terminal shares in trust, but disputes terms of this trust.  There is nothing signed.  Mr Hemi pushed the issue.  In the High Court, Mr Tyler acknowledged he holds the shares on trust for a Cayman Island company: Auto Net.  He said returning the shares to Auto Net requires approval from both Mr Stone and Mr Hemi.  Mr Stone told the High Court he wanted the shares to remain with Mr Tyler until all ongoing disputes with Mr Hemi are sorted out.  Mr Tyler also said he is entitled to keep control of the shares as security to meet legal expenses.

Associate judge Smith dismissed Auto Net’s immediate demand to regain control of Auto Terminal.  A full court hearing is needed to establish clearly the terms of trust on which Mr Tyler controls Auto Terminal.  The Trustee Act allows Mr Tyler to recover his legal expenses from the value of Auto Terminal shares under his control, Judge Smith ruled.  But this indemnity relates only to legal action over the terms of trust on which he holds the shares; it does not extend to legal expenses incurred defending other legal proceedings Mr Hemi has currently underway.  Mr Hemi alleges Mr Tyler is in breach of directors’ duties in management of several companies within the Stone/Hemi corporate empire.

Auto Net v. Tyler – High Court (21.09.20)

20.154 

Penguin Group: Milk New Zealand (Shanghai) Ltd v. Miraka Ltd

 Taken to arbitration after defaulting on long-term UHT milk purchase agreements, Chinese-owned Pengxin Group was ordered to pay Miraka Milk $5.9 million damages.

Able to process 250 million litres of raw milk each season, Maori-owned Miraka operates dairy plant at Mokai, north of Taupo.  In 2013, Miraka teamed up with Pengxin subsidiary Milk New Zealand (Shanghai) Ltd.  Shanghai agreed to take minimum quantities of Miraka processed UHT milk each season; Miraka in turn committed to increasing output with costly extensions to production facilities.  Their agreement required disputes go to arbitration.   

The High Court was told Miraka successfully took Shanghai to arbitration in 2018 after Shanghai failed to take up its required minimum purchases for two consecutive seasons.  Terms of the agreement were not made public by the court.  The arbitrator awarded damages totalling $5.9 million.

Shanghai’s appeal against this arbitration award was dismissed.  Shanghai said damages should be capped at a specified percentage of the agreed price. Both the arbitrator and the High Court assessed damages against prevailing market prices.

Milk New Zealand (Shanghai) Co Ltd v. Miraka Ltd – High Court (23.10.19); Court of Appeal (21.09.20)

20.153

Price-fixing: Commerce Commission v. Lodge & Monarch

Hamilton based Lodge Real Estate and Monarch Real Estate have been ordered to pay price-fixing penalties nearly double that of competitors who pleaded guilty earlier to price fixing: Lodge fined $2.1 million; Monarch $1.9 million.

Commerce Commission clamped down after discovering a group of Waikato real estate firms jointly decided in 2013 to boycott Trade Me’s then plans to restructure pricing for property listings.  Acting as a cartel, they agreed to withdraw all listings from Trade Me; further listings to be vendor funded only.  As an agreement not to compete on price, this amounted to price fixing in breach of the Commerce Act.

Success Realty Ltd (fined $900,000), Lugtons (one million dollars) and Online Realty ($1.05 million) ‘fessed up.  They then provided supporting evidence for Commerce Commission legal action against Lodge Real Estate and Monarch Real Estate. There was evidence that Lodge’s Jeremy O’Rourke initiated discussions on a local response to Trade Me’s proposed pricing; Monarch’s Brian King offered his boardroom as a venue for everyone to meet.

Lodge and Monarch hotly denied they participated in price fixing, fighting unsuccessfully all the way to the Supreme Court.  It was back to the High Court to fix penalties. Both Lodge and Monarch said they each avoided paying Trade Me listing fees of less than $150,000 during the period vendors were forced to pay.  Any penalty should be minimal, they said.  Money saved is not the criteria, Justice Jagose ruled.  It is the extent to which price fixing may achieve structural change in market share.  Fines are intended as a deterrent; penalties must be set at a level to deter those business tempted to offend.

Lodge Real Estate was ordered to pay $2.1 million, Monarch Real Estate $1.9 million.  Commerce Commission also asked for fines against Lodge’s Jeremy O’Rourke and Monarch’s Brian King.  Justice Jagose declined. They did not set out to enforce the price fixing agreement. And the two were in no different position from directors at other Hamilton real estate firms who also participated at the price fixing meeting but had not been sued as individuals by Commerce Commission.

Commerce Commisssion v. Lodge Real Estate Ltd & Monarch Real Estate Ltd – High Court (8.09.20)

20.152

Constructive Trust: Patterson v. Alsaloom

Potentially liable for fire damage to a rented Auckland property, tenant Kevin Patterson claims his landlord agreed that his money as tenant spent restoring the damage entitled him to part-ownership.  The fact repair costs were funded through a jointly controlled bank account raises a strong presumption there was an agreement, Associate judge Smith ruled.

Rafad Alsaloom owned a property on Sommerville Road, in Howick.  Kevin Patterson was tenant for over five years.   It was badly damaged in a September 2018 fire.  Unbeknown to the landlord, Mr Patterson shared the house with a number of flatmates paying him rent.  One flatmate set fire to the property after an argument with Mr Patterson.  The property was uninsured; the landlord had let cover lapse.

Mr Alsaloom told Mr Patterson he had legal advice that Mr Patterson as tenant on the tenancy agreement was liable.  This led to discussions, later disputed.

The High Court was told Mr Patterson’s version was that they both agreed it was a ‘waste of time and money’ to get lawyers involved; Mr Patterson would make good the loss, plus paying Mr Alsaloom whatever extra amount was needed to equate with half the pre-fire property value with Mr Patterson then credited with a half interest in the property.  In the months prior to the fire, Mr Patterson had made a $1.15 million offer to buy the property outright, but had got no response.

Mr Alsaloom denied there was any agreement.  Mr Patterson was paying for the repair because otherwise he was going to be sued, he said.  After contributing about $180,000 towards repair costs, Mr Patterson became concerned that there was trouble ahead; Mr Alsaloom was refusing to sign any paperwork documenting Mr Patterson’s understanding of the deal and waved away his concerns indicating it was best to wait until the job was finished.  Mr Patterson lodged a caveat against title to the Howick property, claiming an interest under a constructive trust; Mr Alsaloom had title, but Mr Patterson claimed to be part-owner.

Associate judge Smith ruled against removal of the caveat.  Mr Patterson has an arguable case that a constructive trust exists, he said.  The fact the two of them opened a joint bank account to manage the repair with each having signing authority indicated agreement on something had been reached, Judge Smith said.  A full trial is needed to determine what was agreed.

Patterson v. Rafad Alsaloom & RMC Trust Co Ltd – High Court (4.09.20)

20.151

Estate Expenses: Kellerman v. Kellerman-Thornton

Margaret Kellerman-Thornton was removed as executor of her late father’s estate after improperly charging personal expenses to the estate including multiple business class return airfares from London for herself and her husband plus over a month of hotel accommodation and restaurant meals in Taupo.  Two lawyers from Wellington law firm Greg Kelly Law were appointed as replacement with power to recover all inappropriate payments.

John Kellerman lived in Taupo.  He died in 2018.  His will appointed daughter Margaret as executor with Margaret and her two brothers to share equally the balance of his estate.  Margaret lived in London, working as an executive assistant. She now describes herself as a ‘practitioner’ helping people improve lifestyle choices.

The High Court was told brother Brendan had been estranged from his father for over twenty years.  He did not get on with sister Margaret either.  There had been bad blood since she sued to get a greater share of their mother’s estate.  After their father’s death, Brendan sued his sister.  She was claiming unreasonable expenses for handling the estate and was not properly detailing expenses incurred, he said.

Charging four business class return airfares from London was unreasonable, Justice Cooke ruled.  Her father knew she lived overseas when appointing her executor. Two return air flights charged at ordinary rates could be justified at most, he said.  There was no legal justification in claiming three business class return airfares for her husband, Justice Cooke said.  Margaret said he was needed to help clear her father’s Taupo properties ready for sale.  This job could have been done by local contractors at less cost, Justice Cooke said. He was also critical of the way cost of her husband’s air fares was buried in estate records; there was no itemised disclosure, his air fares were hidden under ‘property clearance.’ Further, there was no legal justification for charging 44 days accommodation at the Hilton Hotel Lake Taupo for both herself and her husband plus over one month of restaurant meals. Cheaper accommodation was available, Justice Cooke said.

The High Court was told estate expenses currently total about $179,000, of which some $67,000 relates to airfares, food and accommodation.  Estate assets total $561,000.

Justice Cooke instructed Greg Kelly Law make inquiries about John Kellerman’s sale of a Taupo property in Heuheu Street to Margaret in the months prior to his death.  It was not clear what happened to sale proceeds.

Kellerman v. Kellerman-Thornton – High Court (4.09.20)

20.150 

Tax: Inland Revenue v. Frucor Suntory

 Structured financial transactions used to finance purchase of Frucor Beverages by French food and drinks giant Danone in 2003 were struck down by the Court of Appeal as tax avoidance, reducing Frucor’s claimed tax deductions by $55 million.

The Court of Appeal was told of investment banks falling over themselves in the early 2000s offering customers funding deals with a side serving of juicy tax benefits.  Danone went with Deutsche Bank and the deal on offer for its $294 million purchase of then-listed Frucor.  Deutsche Bank was so keen to get the work that it cut its margin to nearly zero and let Danone set the Bank’s fee: $1.8 million.

Funding for Frucor’s purchase came from Danone Singapore. Inland Revenue challenged tax deductions claimed by Frucor.  It said what was in effect a five year Deutsche Bank $204 million loan at 6.5 per cent was dressed up as an equity investment through use of a convertible note issue.  Nominally, Deutsche Bank was agreeing to take an equity stake in Frucor.  In fact, it had had already onsold these shares in a forward sale to Danone.  A banking expert said in evidence this was a ‘pretend’ convertible note transaction.  No corporate head office in its right mind would be completing an acquisition by taking shares in its target acquisition with an intermediary investment bank acting as conduit being the holder of convertible notes issued by the company being acquired.  The deal made no commercial sense, other than tax benefits accruing.

The Court of Appeal ruled the transaction was ineffective for tax purposes.  Deutsche Bank’s purchase of convertible notes to finance Danone’s acquisition of the company issuing the convertible note was contrived and artificial.  Convertible notes are commonly used to raise working capital.

Frucor is required to redraw its tax accounts for the five year period of the Deutsche Bank convertible note.  Danone sold Frucor to Japan’s Suntory in 2009.

Inland Revenue v. Frucor Suntory New Zealand Ltd – Court of Appeal (3.09.20)

20.149

Companies Register: Singh v. Patel

Shareholdings listed on the companies office public register do not promise legal ownership; each company’s own register is primary evidence of ownership.  Roopa Patel was not liable for damages after unilaterally removing fellow shareholder Jasvinder Singh from the public register, facilitating their company’s bank borrowing during summer holidays.   

The High Court was told Mr Singh bought into Ms Patel’s Auckland accounting business in early 2015.  The deal saw him paying $300,000 for an expected one third stake in Steve Taylor & Associates North Shore Ltd.  While the investment was in his name, it was for the benefit of his spouse Pam Sandhu, a qualified accountant.  The balance of the shares in Taylor & Associates was held by Ms Patel, through her company Elite Business Service NZ Ltd.

With Taylor & Associates short of working capital in early 2016, Ms Patel looked to get overdraft accommodation from BNZ.  The Bank was looking to take security over company assets and have personal guarantees from all shareholders.  Ms Patel then removed Mr Singh as a shareholder from Taylor & Associates companies office records, representing herself to the Bank as now sole shareholder.  She was later to tell the High Court she knew Mr Singh would not sign a bank guarantee.

Taylor & Associates subsequently went into liquidation, insolvent.  Mr Singh sued, alleging Ms Patel was liable in conversion after taking control of his shares in early 2016; shares then worth $300,000, he said.

Justice Lang ruled an unauthorised change of shareholding on the public register does not amount to conversion.  Ownership is proved by looking first at company records, and second at any evidence of sales.  There was no evidence that Ms Patel kept a share register for Taylor & Associates.  The evidence was that Mr Singh had purchased the shares in 2015 and remained a shareholder at the time of the BNZ transaction.  The court was told Mr Singh subsequently negotiated with Ms Patel to have Elite Business Services buy his shares.  He has not been paid.  His shares in Taylor & Associates are worthless.  Mr Singh’s claim that Ms Patel had promised personally to repay him was dismissed by Justice Lang.

Singh v. Patel – High Court (31.08.20)

20.148 

Director: Alala International Ltd v. Chen

Leaving taxes unpaid after clearing all assets out of his cashed-up company cost Peng Chih Chen $590,200.  It was a breach of director’s duties to ignore tax liabilities, leaving his company as an empty shell.

Mr Chen was sole director and shareholder of Alala International Ltd.  The company initially operated a golf course at Bucklands Beach in Auckland, operating then under the name BlueSky Golf Management Ltd.  After a brief foray into selling souvenirs, Alala International got into the property business.  In 2016, it purchased real estate in Queenstown.  This was sold just on a year later.  Net proceeds of $1.8 million were banked, after repayment of a Southern Cross Finance mortgage.

The High Court was told this $1.8 million was quickly disbursed over the next four months.  When questioned by Alala International liquidators, Mr Chen was unable to clearly identify all the recipients of various payments made or provide reasons why they might have received payment.  Alala was put into liquidation in 2019 by Inland Revenue for unpaid tax debts. Inland Revenue claimed $503,400, including $330,000 GST arising on the Queenstown sale.

Associate judge Fitzgerald ruled Mr Chen breached Companies Act duties owed as director to Alala International: failing to act in good faith; failing to act with due care; and trading recklessly.  He was ordered to pay damages totalling $580,200 to Alala International.  He did not appear in court to defend the claim.

Mr Chen was also ordered to pay ten thousand dollars to Alala’s liquidators; compensation for time spent reconstructing Alala’s poor accounting records.

Alala International Ltd v. Chen – High Court (28.08.20)

20.147

Autoterminal: Hemi v. Tyler

With tens of millions at stake in the world-wide fight over control of used car importer Autoterminal, Hohua Hemi has narrowed the focus in his dispute with business partner Robert Stone seeking details of alleged backdoor deals between Hamilton-based Mike Tyler and Mr Stone intended to shut him out.

Hemi and Stone built a lucrative business importing used cars from Japan for over fifteen years.  Their business empire resides in companies spread across Japan, the Philippines, New Zealand and the Cayman Islands.Their business relationship is in disarray; there are currently four separate High Court actions underway.

Mr Hemi alleges Mr Stone is in cahoots with Mike Tyler. The High Court was told Mr Tyler came to have titular control of Autoterminal’s business empire following a 2009 restructuring. Mr Tyler took control of a key Autoterminal company holding shares as trustee for Mr Stone and him, Mr Hemi said. Mr Tyler subsequently acted only on joint instructions from both him and Mr Stone, he said.  Since Hemi and Stone fell out, Mr Tyler has sided with Mr Stone, refusing to provide information, Mr Hemi complains.

The New Zealand High Court ordered Mr Tyler to disclose details of his Autoterminal employment contract together with evidence of all payments and benefits received plus all communications with Mr Stone evidencing any agreement or promised reward for Mr Tyler to side with Mr Stone against Mr Hemi.           

Mr Stone told the court he is not in any business relationship with Mr Hemi.  This statement does not fit well with documents Mr Stone filed in a Cayman Island court in June 2020 stating the two were business partners, Associate judge Lester said.

Hemi v. Tyler – High Court (26.08.20)

20.146

Asset Forfeiture: Commissioner of Police v. Wishart

One day before sentencing on cannabis supply charges, Richard Wishart saw the High Court confirm an agreed deal forfeiting $210,000 as proceeds of crime: $200,000 paid across from his family trust together with some $10,000 cash seized in a police raid.

Police allege purchase of a residential property on Nagpur Crescent in Wellington suburb Broadmeadows was tainted, funded with the proceeds of crime.  Nagpur is held in the name of the Wishart Family Trust.  Nearly ten thousand dollars in cash was seized from the property in a 2019 drug bust.  The High Court approved a Criminal Proceeds (Recovery) Act settlement between Wishart and police.  The cash is forfeit.  Nagpur Terrace remains in Trust ownership, provided the Trust pays across $200,000 within ten working days.  Failing that, Nagpur is sold.

Commissioner of Police v. Wishart – High Court (25.08.20)

20.145

Family Company: Drummond v. O'Rorke

 For Christine Drummond it was death by a thousand cuts.  Sister Julie O’Rorke would only agree to terms for sale of their Taranaki dairy farm when dragged to the court door, subsequently raising new objections only settled again at the last minute before yet another court hearing. 

The High Court was told five sisters initially farmed at Opunake in partnership before Mooncoin Farm Ltd, controlled by Christine and Julie, took ownership in 2002.  Some fifteen years later, Christine was looking to sell up.  The farm was valued at $8.2 million.  Julie offered $6.6 million.  One year on, with no agreement reached, Julie faced the possibility of a court-appointed liquidator forcing a sale when Christine took action under the Companies Act.  Before a court hearing, the two sisters agreed terms.  The High Court was told Julie subsequently failed to pay the agreed deposit and failed to settle on settlement date.  With further court action looming, a substantial part of the agreed price was paid, with money held back as part of the ‘wash up.’

Julie then haggled over compensation for diseased cows, empty heifers and livestock she claimed were hers but wrongly counted as part of Mooncoin’s herd.  These issues were settled in the face of yet another scheduled court hearing.  There was more.  The High Court was told Julie subsequently demanded an agreed eight per cent interest calculation on the difference between Christine’s drawings from Mooncoin and her drawings should be calculated with interest compounding. Their latest ‘court-door’ agreement had been silent on whether interest payable meant simple interest or compound interest. This dispute did get a court hearing. Justice Clark ruled simple interest applied; accounting calculations reviewed by all sides during the sisters’ earlier negotiations expressly excluded compound interest.  The two sisters difference in drawings was not disclosed in the published court judgment, but Christine had threatened earlier to demand a management fee of some $208,000 to counter Julie’s demand for compound interest on compensation for the difference between their two loan accounts.

Drummond v. O’Rorke – High Court (21.08.20)

20.144

Ngati Tama: Ngati Tama Trust v. White

Threats to damage Ngati Tama’s commercial interests led to kaumatua Allen Potete White’s bankruptcy after he failed to pay a $13,800 court costs order.

Mr White was incensed by Taranaki iwi Ngati Tama’s performance in losing a 2001 $14.5 million Treaty settlement following a series of improvident investments.  He had returned home in 2014 after working in Australia for nearly four decades. Demanding accountability, he threatened to disrupt ongoing commercial operations unless he was provided with detailed accounting information.  Ngati Tama Custodian Trustee Ltd, the commercial vehicle holding iwi assets, sued. It said Mr White had improperly obtained a 2016 confidential report setting out sales revenue and sales projections for Homesoft, a business part-owned by Ngati Tama.  The report was labelled ‘strictly confidential’ and stated it was not to be distributed.  Mr White threatened to contact existing and potential customers with evidence of what he called ‘abysmal management’ within Homesoft unless he was provided with the financial information demanded.  In the High Court, Ngati Tama obtained an injunction blocking contact with any Homesoft customers. Mr White did not appear in court to defend the application.  He was ordered to pay $13,800 of Ngati Tama’s legal costs.

When Ngati Tama applied to bankrupt Mr White for non-payment, he challenged the need for an injunction.  Associate judge Smith ruled there was no evidence that the injunction should be overturned.  Mr White said bankrupting him was designed to silence him, blocking his plans to be voted into office as a Ngati Tama trustee.  Judge Smith said it was commercially proper for Ngati Tama to take legal action to get what it is owed. The court was told Mr White was not elected as trustee in the most recent iwi elections.

With his behaviour, Mr White brought bankruptcy on himself, Judge Smith said; bankruptcy does not stop him continuing his forceful criticism of Ngati Tama’s financial performance.  Evidence was given that Ngati Tama’s investment performance is currently being questioned in both the High Court and the Maori Land Court. 

Ngati Tama Trust v. White – High Court (20.08.20)

20.143 

Insurance Fraud: Taylor v. Asteron Life

 Cancelling insurance cover following a fraudulent claim does not permit insurers to recover prior payments on claims validly made, the Court of Appeal ruled.

Dunedin insurance broker Peter Taylor was entitled to keep initial income protection payments made for partial disability totalling $51,830 while required to repay some $320,000 for ongoing monthly claims proved to be fraudulent.

Mr Taylor claimed on an Asteron policy after being diagnosed with bone cancer in 2009, receiving regular payments of about $6000 monthly.  Required to provide ongoing evidence of his loss of income to justify continued payments, Mr Taylor did not disclose income generated by staff or trailing commissions on cover written in earlier years.  Asteron cancelled the policy in 2016, claiming repayment of all benefits paid.

The Court of Appeal was asked to rule on how the recently enacted Contract and Commercial Law Act applied to fraudulent insurance claims. Cancellation for fraud operates prospectively, not retrospectively, the court ruled.  Any current fraudulent claim can be refused; this includes a refusal to pay anything on a ‘padded claim’ where an otherwise valid claim has been fraudulently misrepresented by overvaluing the value of a loss or including as a loss items which never existed or were never lost.  Allowing any recovery at all on padded claims would encourage fraud, said the court.  Otherwise: if the padded claim is successful, I gain; if not, I suffer no loss since the valid part of the claim is paid.

A fraudulent claim does not cancel an insurance contract retrospectively, the court ruled.  Claims properly made previously under the policy still stand.

Evidence did not establish that Mr Taylor was deliberately dishonest with initial claims under his Asteron income protection policy, the court said.  Rather, the information provided was confusing and contradictory.

Taylor v. Asteron Life Ltd – Court of Appeal (19.08.20)

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Maori Land: Nicholls v. WT Nicholls Trust

 George Nicholls appeal to tikanga when occupying Oamaru Bay Holiday Park near Coromandel was described by the Maori Land Court as cover for his selfish behaviour which together with intimidation saw him grabbing land properly belonging to whanau.  He was ordered to pay $834,400 compensation; revenue received from campground fees with no deduction for business expenses.

The 23 hectare Oamaru Bay campground together with farms at Paeora and Coromandel plus land at Koputuaki Bay formed part of substantial Maori land holdings inherited by ten children of Wiremu Tawhia Nicholls.  Under Maori customary law, they collectively inherited as co-owners.  In 2008, George Nicholls, together with his brother, took control of Oamaru Bay, without other co-owners’ consent, using the land to run a holiday park.  Attempts to trespass George were unsuccessful; a person cannot be trespassed from land they co-own.

At Maori Land Court suggestion, Wiremu’s land was transferred to an ahu whenua trust: the WT Nicholls Trust.  This overcame the common difficulties of multiple-owned Maori land where there is no management structure in place.  Elected trustees of the ahu whenua trust take control.  The Nicholls Trust then sued George to recover revenue for his use of Trust land at Oamaru Bay to run a business.  He was ordered to pay $834,400; identified gross revenue generated by the business.  A deduction of $44,000 was allowed; one-tenth of the gross revenue received before the ahu whenua trust was established when the land was held in co-ownership, this being George’s and his siblings’ then share of gross revenue as co-owners.

The Trust also got an injunction ordering George and his supporters off the land.

George appealed without success to the Court of Appeal.  He should be allowed to deduct business expenses from the gross revenue used to calculate damages, he claimed.  The court said he had been given ample opportunity before the Maori Land Court to detail his expenses but had chosen not to.

Nicholls v. W.T. Nicholls Trust – Court of Appeal (13.08.20)

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Asset Forfeiture: Commissioner of Police v. Snowden

Real estate owned by convicted drug dealer Paul Andrew Snowden’s family trust was ordered sold as part of $743,300 criminal profits order.

Snowden was convicted in 2010 on charges of supplying cannabis and in 2014 and then 2015 on charges relating to methamphetamine supply. The most recent convictions resulted in cumulative prison sentences of six years three months.  Police took action under Criminal Proceeds (Recovery) Act to recover drug profits.

The High Court was told Snowden paid $460,000 in 2001 for a 1.6 hectare property on Karaka Road in south Auckland.  Title was registered in name of Karaka Farmlets Ltd with Karaka Farmlets later coming to be owned by Snowden’s family trust.  Snowden had absolute control over his family trust. He was trustee and a beneficiary. He held power to appoint and remove trustees.  He was also sole director and a shareholder of Karaka Farmlets.

In the High Court, Justice Gault determined Snowden generated profits totalling $743,300 from drug dealing.  While illicit profits did not fund the initial 2001 purchase of Karaka Road, subsequent mortgage payments funded from drug profits meant Karaka Road was ‘tainted property,’ Justice Gault ruled.  Illicit profits invested in ‘tainted property’ plus any capital gain are liable to forfeiture.

Sale of Karaka Road was ordered with up to $743,300 from proceeds of sale forfeit.  Since the cash component of the trust’s original purchase was not tainted by criminal activity, it is only tainted mortgage repayments and that proportionate share of Karaka Road’s capital gain which can be seized on sale.

Commissioner of Police v. Snowden – High Court (12.08.20)

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Bankruptcy: Singh v. Official Assignee

 As a bankrupt, Cheryl Sitara Singh no longer controls her assets and cannot direct Insolvency Service as to how and when these assets can be sold, the High Court ruled.

Ms Singh was forced into bankruptcy in July 2019 by the body corporate of Richmond Terraces, a thirty-apartment complex in Flat Bush, south Auckland.  It was a leaky building.  She had refused to pay levies imposed for remedial work.  Insolvency Service identified debts of some $374,000; unpaid levies plus legal costs resulting from a series of unsuccessful court cases challenging the levies and against both the body corporate and its members.  Ms Singh owned two properties: her apartment at Richmond Terraces and a second apartment at Avenue Road in Otahuhu.

She challenged attempts by Insolvency Service to sell Avenue Road during Auckland’s covid-19 pandemic restrictions.  The property was passed in at auction; the highest bid was $47,000 short of reserve.  Ms Singh’s claim to have a buyer willing to pay a price close to reserve came to nothing. This potential buyer said he was no longer interested when contacted by Insolvency Service.  A buyer has since been found, Insolvency Service told the court. The net return on settlement will not be enough to clear Ms Singh’s bankruptcy debts.  Sale of Richmond Terrace is next.  It has potential net equity of about $265,000 after payment of a mortgage debt and sale expenses.

Ms Singh’s persistent and repetitive attempts to frustrate Insolvency Service’s sale of assets is raising bankruptcy costs, Justice Moore said.  He refused Ms Singh’s request for a court order blocking any sale.  To regain control of her assets she must apply for annulment of her 2019 bankruptcy, he said.

Singh v. Officlal Assignee – High Court (11.08.20)

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Residential Restrictions: Jackson v. Small

What to one is thing of beauty, to a neighbour can be an eyesore.  Geoff and Aria Small will be forced to demolish an equestrian barn on a south Auckland lifestyle block unless they convert it into an architect-designed home complying with subdivision building covenants.

In 2013, the Smalls bought into a lifestyle subdivision on Ingrams Road, Ramarama.  Covenants over the land restrict owners to construction of a single dwelling together with a farm outbuilding ‘usual and reasonable for … rural use [and of] a pleasing and aesthetically compatible appearance’ in keeping with neighbouring properties.  Neighbours complain the Smalls have developed a commercial operation; a utility shed, stables and a barn which has been converted into living accommodation.  A horse walking area, arena and yards complete what they describe as an equestrian facility.  Legal argument over what was, or was not, permitted on site was first aired in the High Court back in 2018, with all sides appealing to the Court of Appeal.

Back in the High Court, Justice Gordon ruled either remediation or demolition of the Smalls barn was needed; it did not comply with subdivision rules.

Neighbours do not have a right of veto over what is built, Justice Gordon said, but the Smalls took no steps to ensure their existing building complied with subdivision rules.  The Smalls were given three months to supply neighbours with architect designed plans for a new or remediated building.  If neighbours agree with the plans, the new build must be completed within fourteen months, she said.

If no agreement is reached, court-ordered demolition is a possibility.

Jackson v. Small – High Court (11.08.20)

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David Henderson: Gower & Tubbs v. FTG Securities Ltd

Interests associated with property developer David Henderson paid $100,000 to buy a South Canterbury second mortgage security over Tuam Ventures Ltd, one of his former Christchurch property developments.  They get nothing in return after a High Court ruling that they cannot enforce the South Canterbury mortgage and they cannot share in some $3.5 million held by Tuam receivers.  

Receivers took control of South Canterbury Finance Ltd assets in 2010 after a $1.6 billion government-funded payout to depositors.  They took over South Canterbury’s $1.1 billion loan book, looking to sell these loans and repay government.    FTG Securities Ltd, with David Henderson’s wife Kristine Buxton as director, paid $100,000 to buy up a South Canterbury second mortgage over Tuam Ventures Ltd, a Christchurch property company formerly controlled by Mr Henderson.  He is currently barred by court order from managing any business until December 2022.

FTG’s rights to enforce this mortgage were challenged by Bank of New Zealand; a 2007 refinancing of Tuam Ventures when Mr Henderson was in control saw Canterbury Finance agree it could not sell its second mortgage without approval from first mortgagee BNZ.  The High Court was told receivers of Tuam Ventures are currently holding cash of about $3.5 million for distribution to mortgagees.   FTG Securities is not entitled to any of this money; a series of cases through the High Court and the Court of Appeal ruled South Canterbury’s agreement not to sell the mortgage was enforceable.

Government interests through Crown Asset Management Ltd alone are allowed to collect on South Canterbury’s second mortgage, Justice Osborne ruled.  Evidence was given that FTG Securities borrowed $105,000 in 2015 from Christchurch-based Secured Finance Ltd to fund purchase of the currently uncollectable South Canterbury second mortgage.

Gower & Tubbs v. FTG Securities Ltd – High Court (10.08.20)

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Post judgment note: BNZ is seeking to wind up FTG Securities Ltd alleging it is insolvent following non-payment of $43,133 legal costs awarded in favour of the Bank.

Charities Registration: Greenpeace v. Charities Registration Board

 Allowing Greenpeace registration as a charity creates a seismic shift in charities law. Political lobbyists can gain the tax benefits of charities registration; no longer is there any need for registered charities to directly carry out tangible good works.

Since 2008, Greenpeace has been fighting a legal battle to gain registration as a charity allowing donors to get a tax rebate for donations and Greenpeace itself to earn income tax free.  The Charities Board refused registration; Greenpeace was a lobby group, often acting illegally though acts of civil disobedience promoting its causes, it said.  On appeal to the Supreme Court, charities law was re-interpreted; advocacy on ‘public benefit’ issues through participation in the political and legal process could amount to a charitable purpose, it said.  Acting against slavery and negotiation of Waitangi Tribunal claims were two past examples of activities given charitable status, the Supreme Court pointed out.

Armed with this Supreme Court ruling, Greenpeace again fronted up to the Charities Board.  Again, it was refused registration.  Greenpeace did not satisfy the legal definition of a charity, it said.  Greenpeace was a lobby group advocating for political change, most recently promoting sustainable fishing, protesting dirty dairying and calling for fossil fuels to be phased out, the Board said.  Supporters were encouraged to lobby members of parliament directly.

Back in the High Court, Justice Mallon ruled protection of the environment may be a charitable purpose in itself.  As a global issue, success requires ‘broad-based support and effort,’ she said.  Ruling that Greenpeace is eligible to register as a charity, Justice Mallon said there is a public benefit in advocating for environmental issues.

Greenpeace of New Zealand v. Charities Registration Board – High Court (10.08.20)

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GST: Ward v. Official Assignee

 That wheel-clamping companies do not pay GST is akin to kidnappers not being liable for GST on ransom payments, Judge Bell mused when refusing Gordon Ward’s application to reverse a 2015 bankruptcy.

Mr Ward’s company, NZ Wheel Clamping Co Ltd, was pushed into liquidation by Inland Revenue in 2014 for unpaid taxes totalling some $300,000 including $115,712 claimed due for GST.  Wheel Clamping liquidators chased Mr Ward for just over $712,000, money they claimed he had taken from the company plus damages due for alleged breaches of the Companies Act.  Legal action was halted when Mr Ward filed for bankruptcy.  He was automatically discharged from bankruptcy in July 2018.  His bankruptcy creditors received nothing.

During his bankruptcy, Mr Ward learnt of a GST tax case successfully argued by another wheel-clamping company; no GST was payable on wheel-clamping revenue because motorists payments are a fine, there was no reciprocity of services creating a taxable supply.

Mr Ward sought to annul his bankruptcy, allowing him to resume control NZ Wheel Clamping.  Back in control, he would have his company sue Inland Revenue for overpaid GST, pay off all company debts and have money left over for company shareholders, he told the High Court.  Evidence was given that Inland Revenue had already repaid $190,000 GST to NZ Wheel Clamping liquidators.  Mr Ward says his company is owed more than this.

Associate judge Bell refused the annulment.  The post-bankruptcy speculative possibility of Mr Ward’s company recovering further GST did not justify annulment of a bankruptcy appropriately ordered six years previously, he ruled.  Even if further GST could be recovered, payment first goes to NZ Wheel Clamping creditors before anything passes to Mr Ward personally, Judge Bell said.

Companies Office records show NZ Wheel Clamping creditors received nothing on liquidation; the $190,000 GST repaid by Inland Revenue was swallowed up by liquidators’ remuneration and expenses. 

Ward v. Officlal Assignee – High Court (7.08.20)

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Will: re Estate Joseph Grbavac

 Joseph Grbavac arrived in New Zealand as a teenager in 1938, emigrating with his family from Dalmatia.  Like many in west Auckland’s Croatian community he prospered, dying aged 94 with assets valued at some $10.5 million.  His actions when amending a 2004 will prior to death led to two weeks of evidence in the High Court; the amendment was ruled invalid, Joseph did not understand what he signed. 

Married with no children, Joseph named close relatives as beneficiaries of his estate.  The most valuable assets were commercial properties together with rural land in west Auckland including Sunnyview Orchard at Huapai.  Joseph died in 2015.  His last will, dated 2004, left his estate to a sister, nieces, nephews and a grandnephew.  This will was not challenged in court.  What was challenged was a 2013 codicil, amending the 2004 will, cutting out as residuary beneficiaries two nieces and a grandnephew; for one niece and the grandnephew this was a loss of $1.06 million each.

The central legal issue was Joseph’s testamentary capacity at the time he signed the 2013 codicil.  Evidence was given that he was then under palliative care for end stage renal failure.  Some relatives gave evidence that while frail, Joseph was alert to what he was doing. Others said he had lost interest in life, at times muddled and confused.  Lawyers had spent several years drafting and redrafting changes to his will.  Nothing was signed; lawyers felt Joseph was just going around in circles, unable to make up his mind.  They did not keep detailed notes of reasons for proposed changes. At one stage his lawyer rang Joseph’s family doctor asking generally about their mutual client’s mental competency given the various drastic changes being mooted for a new will.  The doctor did not keep any detailed file notes either.  Lawyers acting for Joseph were unaware when he signed a 2013 codicil put in front of him that he had cataracts and was unable to properly read the contents.

Justice Duffy ruled the 2013 amendment invalid.

Re Estate Joseph Grbavac – High Court (6.08.20)

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Fraud: Kumar v. R.

 Desperate to avoid deportation for fraud offences, Manoj Kumar’s appeal against conviction fell over when he admitted offences of deception and theft when seeking leave to appeal.

In 2017, Kumar pleaded guilty at a District Court trial for his part in an employment scam engineered through 2 Cheap Computers Ltd and for his theft of hired camera equipment.  When Cheap Computers advertised a staff vacancy, nine applicants paid across a total of $59,250 after being told this money would help their visa applications.  The money was then stolen.  Film equipment hired by Kumar valued at $95,100 was also stolen.  The day after flying out for India, he sent a brief email to the hire company saying the equipment had been lost, expressing the hope it was insured.  Kumar was arrested when he returned to New Zealand five months later.

At his trial, Kumar accepted a prosecution offer of six months community detention plus payment of reparations in return for a guilty plea.  Later learning that conviction meant deportation, Kumar sought to appeal, asking the Court of Appeal to allow his appeal nearly one year out of time. Kumar appeared in person. Approval for a retrial was refused. There was no miscarriage of justice. Kumar admitted the offences when explaining why he should be allowed to appeal, the Court said.

Kumar v. R. – Court of Appeal (3.08.20)

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Insurance: Moore v. IAG Insurance

 IAG Insurance and Graeme Moore were nearly two million dollars apart in agreeing the insurance payout on a Christchurch home damaged twice in earthquakes four months apart.  The Court of Appeal ruled against IAG.

Graeme Moore lived in an architect designed home on Scarborough Hill, above Sumner.  It was undamaged in Christchurch’s first major earthquake: September 2010.  Subsequently, it suffered $2.08 million damage in the February 2011 Port Hills earthquake; followed four months later by $2.77 million damage in a further earthquake.  Insured under IAG’s Supersurance House cover, Mr Moore was told his payout could not exceed $2.5 million.  The policy limit applied to a ‘series of events which have the same cause.’  IAG said the two earthquakes had the same cause, being part of the series of earthquakes in Christchurch following its initial September 2010 quake.

An earthquake specialist told the court that in a broad sense all earthquakes in New Zealand have a common cause; relative movement between the Pacific and Australian tectonic plates.  More narrowly: the February 2011 earthquake was caused by a rupture of the Port Hills fault; the quake four months later by the rupture of two faults east of Christchurch.  These two quakes were quite separate events, the Court of Appeal ruled.  IAG’s $2.5 million policy limit applied separately to each claim.

Damage spread over several days following a tropical storm would be a typical example of a series of events with a common cause attracting a capped payout, it said.  Day one: high winds might topple trees on to a house causing structural damage.  Day two: lightning causes electrical damage and a fire.  Day three: heavy rain floods the house.  All these events have an underlying common cause: the one tropical storm.

Moore v. IAG New Zealand Ltd – Court of Appeal  (31.07.20)

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Restaurant: Il Forno Ltd v. Kleine

 Long-standing family bakery and café Il Forno in Auckland’s trendy Ponsonby has seen legal fisticuffs behind the scenes; Andrew Kleine fended off older brother Jim’s claims to a half share in the business.  In turn, Jim was ordered to pay $14,100 damages; tax fines racked up following Jim’s failure to properly action Il Forno’s tax filings.

The High Court was told Andrew Kleine gained full control of Il Forno in 2006, after buying the other half interest then held by fellow restauranteur Antonio Crisci; a buy-out funded with cash from both Andrew and other family members.  Andrew ran the bakery; brother Jim provided ill-defined administrative support. Nearly a decade on, tensions between the two were ratcheting up.  Evidence was given that the final trigger was a difference of opinion over food deliveries: Andrew preferred an in-house driver; Jim, use of couriers.

In court, Jim claimed he owned fifty per cent of Il Forno; the result of him contributing $10,000 towards the $135,000 paid Mr Crisci on the 2006 buy-out.  Justice Jagose ruled the $10,000 was not an equity contribution; it was a loan.  In all his dealings with suppliers, Inland Revenue and lawyers Jim had not once claimed to be a part owner.  He had always represented brother Andrew as ‘proprietor’ and as ‘sole shareholder and director.’

Jim’s claim to $650,000 compensation for unpaid services provided to Il Forno was dismissed.  Jim provided no evidence of what his actual duties were, Justice Jagose ruled.

Il Forno in turn sued Jim for negligence.  There was evidence of Jim being paid a retainer to look after Il Forno’s accounting functions and tax filings.  The High Court was told inadequate accounting records were kept.  In addition, Jim failed to file Inland Revenue returns on behalf of Il Forno for income tax, PAYE and GST on a range of dates from 2007.  Il Forno was convicted and fined some $14,100.  Jim was ordered to compensate Il Forno for this negligence.

Il Forno Ltd v. Kleine – High Court (31.07.20)

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