Reckless Trading: Watts & Hughes v. Biala

Angry that it was the only outside creditor not paid in full, construction company Watts & Hughes took over from liquidator of Christchurch company La Di Da Ltd the right to sue director Vijay Biala for reckless trading.  The High Court found Mr Biala had not traded recklessly.

It is very unusual for unpaid creditors of an insolvent company to take an assignment of liquidators’ rights to sue directors. This right to sue is usually exercised by liquidators alone, acting on behalf of all unpaid company creditors; a right liquidators seldom choose to exercise for economic reasons.  Costs of litigation are high, often for little return.

The High Court was told Watts & Hughes tendered for the 2014 fit out of Mr Biala’s new restaurant in Victoria Street, Christchurch.  Contract price was $124,000, plus GST.  Scheduled completion date was September 2014.  The company funded construction by borrowing.  Completion ran over two months late.  There were disputes over reasons for the delay and whether certain contract variations had been approved.  In December, Watts & Hughes claimed $48,000 was outstanding. It pushed La Di Da into liquidation for non-payment.  Insolvency Service was appointed liquidator.

Insolvency Service’s investigation raised suspicions that company assets sold by La Di Da just days before liquidation were sold at below market price.  Watts & Hughes complained it was hung out to dry, left unpaid at a time when Mr Biala had ensured La Di Da’s trade creditors were paid in full.

Watts & Hughes sued Mr Biala personally as director of La Di Da alleging he had mismanaged the company, trading recklessly. Company law holds directors personally liable for reckless trading.

Justice Cull ruled Mr Biala had not mismanaged his company.  La Di da was a new venture.  Finance for the fit-out was arranged in advance from both restaurant trade financiers and family sources.  There was a reasonable expectation business would trade profitably if the fit-out were completed on time and on budget.  Late completion meant the business missed increased sales expected from visitors to Christchurch for ‘Cup Week.’  Cost overruns and disputed variations added financial pressure.

Watts & Hughes Construction Ltd v. Biala – High Court (17.11.20)

20.179

Class Actions: Southern Response v. Ross

With legislation clarifying class actions making little progress since 2008, Supreme Court stepped in allowing flexible use of High Court procedural rules to expedite legal action by over two thousand Christchurch AMI policyholders who allege mismanagement of their earthquake insurance claims.  An ‘opt-out’ class action procedure is best, the Supreme Court ruled.  Insurers and litigation funders argued for an ‘opt-in’ procedure.

Class actions overcome a David and Goliath problem.  Large corporates hold an economic advantage when challenged by a customer.  They have the legal muscle and the financial resources to stonewall threatened litigation, tying up one individual in petty legal time-wasting until the litigant runs out of ready cash and gives up.  Where there are multiple similar complaints against a large corporate, each affected customer has to reinvent the wheel, at personal expense, to pursue a legal remedy. Most aggrieved customers do not bother; the potential return is outweighed by the cost in time and money. Australia, Canada and the US devised rules allowing similarly affected consumers to band together, taking legal action in one combined class action.  Insurers are no fan of class actions.  Large corporates insure against litigation risk, leaving insurers to fight their battles in court.  In New Zealand, insurers have been working hard to stall development of class actions in this country.  The first major class action in New Zealand was filed by aggrieved investors following Feltex’s 2006 collapse.  Millions have been spent to date on legal fees.  This class action remains unresolved.  

Litigation funders get involved. They co-ordinate and control class actions; signing up affected consumers and charging a sizeable proportion of the final payout as their fee.  Litigation funders compete to get work.  It becomes a ‘beauty parade’ as rival funders tout their litigation skill and expertise when seeking to sign up customers.  Since CBL Corporation went into liquidation in 2018, two class actions have been filed in court, each funded by a different litigation funder.

 

Several thousand Christchurch AMI policyholders allege Southern Response mismanaged their earthquake claims.  Taxpayer-funded Southern Response is meeting the insurance obligations of insolvent insurer, AMI Insurance.  The High Court agreed these multiple AMI claims be consolidated into one class action.  Legal argument followed on whether the class action should be ‘opt-in’ or ‘opt-out.’  Opt-in means only those who specifically sign up at the outset of the class action benefit from the legal outcome.  Anyone else with a similar legal complaint is excluded and has to mount their own separate legal action, at their own cost.  In contrast, opt-out means in court documents the class of litigants is described generally and anyone fitting this description is included; individuals ‘opt-in’ at a later stage, signing up in order to get a share of the pie.

Litigation funders do not like opt-out schemes. Opt-out increases administrative costs, with identification of and advertising for those entitled to benefit cutting into funder returns.  And there is the problem of free riders; litigants who appear out of the woodwork, opting-in at the last minute claiming a share of the payout without having contributed any funding along the way.  Opt-out also complicates out-of-court settlements.  Negotiation of a global settlement sum is clouded by the possibility of free riders arriving late, reducing the individual payout to existing members of the class.

 

In providing a general framework for class actions, the Supreme Court ruled: opt-in class actions are best suited where the potential class is small; opt-out for larger numbers, particularly where the cost of individual legal proceedings outweighs the individual’s potential financial return. In the absence of government legislation governing class actions, courts will have to work through legal issues in specific cases as they arise, the Supreme Court said.

AMI policyholders’ litigation is to proceed as an opt-out class action, the court ruled.

 

Southern Response Earthquake Services Ltd v. Ross – Supreme Court (17.11.20)

20.178

Shotcrete: Tira v. McLay

Construction company Shotcrete (Auckland) is in liquidation with police assistance sought to recover company equipment forcibly removed to Black Power premises in Mangere.  High Court evidence revealed arguments over debts for supply of methamphetamine.

Shotcrete Auckland Ltd specialises in spraying wet concrete in construction of swimming pools and retaining walls.  The forced relocation of its equipment came to light as part of a dispute between Shotcrete’s 50/50 owners: Duncan McLay and Glenn Tira.  Over the last decade, the two operated a joint venture company: Mr McLay in charge of finances; Mr Tira in charge of operations.

The High Court was told negotiations had been underway since October 2019 for them to go their separate ways.  Mr Tira alleges Mr McLay concocted a fraudulent scheme to push him out and take control of Shotcrete and their related company Watertite. Mr Tira claims he is owed $1.25 million. In June 2020, Mr Tira obtained High Court orders freezing Shotcrete assets and authorising searches of Mr McLay’s home. Following a subsequent High Court hearing, Justice van Bohemen ruled no freezing order should have been made; Mr Tira was less than frank when telling the court Mr McLay had pushed him out of the business and that Mr McLay had refused him access to company equipment. When unilaterally asking the court for a freezing order without Mr McLay’s knowledge, Mr Tira did not disclose their ongoing discussions about a possible sale and Mr Tira did not disclose that he had already forcibly removed Shotcrete equipment from the company yard. Evidence was given that unnamed people accompanying Mr Tira broke into Shotcrete’s premises, ignored the protestations of security guards and smashed their way out the closed yard, taking company equipment to Black Power premises in Mangere.

The High Court was told that former Shotcrete employee Shane Waaka is alleged to have involved Mr Tira in a drug deal, advancing funds to purchase methamphetamine taken south to Christchurch.  There is a dispute over whether this debt has been repaid.

Mr Tira said he is negotiating with Shotcrete’s liquidator to purchase the relocated equipment.

Tira v. McLay – High Court (12.11.20)

20.176

Legal Highs: re Bionutrient Customs Ltd

Christchurch businessman Evan Stewart transferred $3.1 million to Australia over a twelve month period; cash generated from sale of legal highs.  He is challenging attempts to recover this money.

Bionutrient Customs Ltd manufactured legal highs. Government permission for retail sales proved a commercial bonanza.  Mr Stewart’s business model collapsed overnight in May 2014, after an abrupt reversal in government policy.  A related company, Eversons International Ltd, is now in liquidation.  Liquidators allege the $3.1 million sent to Australia by Bionutrient more properly belongs to Eversons and they want it back.  Mr Stewart controlled both companies. Inland Revenue claims Eversons owes $3.7 in unpaid taxes and penalties.

In the High Court, Bionutrient failed to file in time a statement of defence to Eversons’ demand for $3.1 million.  Normally, liquidation follows promptly after a failure to file. Associate judge Paulsen granted Bionutrient an extension for filing.  Defence was filed only a few days late.

Bionutrient says the money remitted to Australia was an investment in Mr Stewart’s father’s Australian health food business. Eversons’ liquidators say there is no evidence of Bionutrient holding an equity stake in any Australian business.

Even if there were no legal basis for sending the money to Australia, the liquidators are too late, Mr Stewart says.  The last payment was sent to Australia in April 2014. Liquidators did not take legal action before April 2020, after which the Limitation Act six year rule blocked any claim. The six year clock was reset in October 2018, the date when Mr Stewart signed a letter acknowledging $3.1 million had been transferred to Australia, the liquidators say.  

The High Court is yet to rule on either the liquidators’ claim or Bionutrient’s claimed defences.

re Bionutrient Customs Ltd – High Court (12.11.20)

20.177

Misrepresentation: Anderson v. de Marco

Convicted fraudster Eugene de Marco was ordered to return a $120,000 deposit paid on a $1.2 million cancelled sale of his Wellington three-level home after misrepresenting weather-tightness issues. 

In December 2017, Norman Hugh Anderson and Rebecca Alice Carrasco signed up to buy Mr de Marco’s property on Fortification Road, Karaka Bays.  Their $1.2 million purchase was unconditional, with a five month delay before settlement.  The High Court was told they subsequently received an anonymous tip-off that Mr de Marco was not to be trusted.  Nearly two years later, a Serious Fraud Office prosecution saw Mr de Marco sentenced to two years five months imprisonment for fraud offences.

After being warned about Mr de Marco’s honesty, Anderson and Carrasco followed up on a weather-tightness report presented as part of the 2017 sale process.  This report described the property built in the early 1990s as being in good condition, meeting current building code requirements and having no apparent weather-tightness issues.  These statements amounted to misrepresentations, Justice Cooke ruled. Since his purchase of the property in 2005, Mr de Marco had undertaken considerable work to deal with water ingress, much of it described as ‘band-aid’ repairs.  An attempt to sell in 2011 failed when the then purchasers cancelled after obtaining an adverse building report.  A building report obtained by Mr de Marco in 2011 also highlighted significant weather-tightness issues.  Anderson and Carrasco cancelled their 2017 purchase after learning about the 2011 report.

Mr de Marco refused to repay the purchasers’ $120,000 deposit.  They chose to sign an unconditional contract without any due diligence and were advised before signing to get their own building report, he said.  It does not stand well for a person accused of misrepresentation to blame the other person for believing the misrepresentation, Justice Cooke said.

Evidence was given that Mr de Marco, by now in prison, subsequently sold Fortification Road in a private sale for $1.1 million with the sale agreement allowing Mr de Marco’s partner to continue living at the property paying a below market rental.

Anderson v. de Marco – High Court (11.11.20)

20.175

Corrections: Corrections v. Decmil Construction

Corrections problematic ‘rapid deployment’ of modular prison cells agreed with Decmil Construction in 2017 winds its way through the courts.  Decmil is in liquidation insolvent claiming Corrections owes $64 million.  In turn, Corrections demands $69 million it claims are costs to complete the contract. 

Touted as a practical solution to a then rapidly rising prison muster, the modular units were to be fabricated in China for installation at low security prisons around New Zealand.  A $196 million contract was awarded to a New Zealand subsidiary of ASX-listed Decmil Group.  The project was a financial disaster.  Decmil walked off the job in February 2020, pointing the finger at Corrections.  In turn, Corrections blamed Decmil alleging failures to meet contract progress targets.

Two months later, Decmil Group put its New Zealand subsidiary into liquidation appointing Perth-based insolvency specialist Dermott McVeigh as liquidator.  The liquidator’s most recent report states Decmil has 170 unsecured creditors claiming $130 million.  The liquidator disputes Corrections’ status as a creditor; Decmil is looking to recover damages from Corrections.

Corrections wants to arbitrate their dispute, as required by the 2017 contract.  The liquidator refused; liquidation freezes contractual rights.  In the High Court, Justice Dobson ordered arbitration proceed. Ground rules for the arbitration had been established before Decmil went into liquidation.  Arbitration rather than litigation was viewed as a better method to cut through their complex construction dispute.  Arbitration could result in a clear definition of who owes whom how much, Justice Dobson, indicated.  The High Court was told Correction’s detailed claim against Decmil runs to 47 pages.

Corrections v. Decmil Construction NZ Ltd – High Court (11.11.20)

20.174 

Distributorship: Sky Scrapers v. Zoono

Dubai distributor Sky Scrapers claims $US3.6 damages alleging Auckland company Zoono stopped supplying sanitiser when covid-19 spread, instead supplying product to Sky Scraper’s competitors in breach of a distributorship agreement. 

Based in Auckland, Zoono Ltd’s ultimate owner is ASX listed Zoono Group.  It manufactures commercial sanitising products.  Sky Scrapers General Trading LLC is registered in Dubai.  It told the High Court a ten year exclusive distributorship agreement was signed with Zoono in late 2018, covering United Arab Emirates, Oman and Lebanon.  Sky Scrapers paid $US250,000 as advance payment for product to be delivered later. It took Sky Scrapers more than fifteen months to exhaust this credit.  At the beginning of the covid-19 pandemic, Zoono stopped supplying Sky Scrapers claiming its Dubai distributor had failed to make minimum annual purchases required under the distributorship agreement.  This is disputed by Sky Scraper.  There is confusion over what are the exact terms of their distributorship agreement.  Zoono said it signed, without checking, what it presumed was its standard distributorship agreement at a 2018 signing ceremony in Dubai.

In the High Court, Justice Hinton dismissed Sky Scraper’s application for an injunction forcing Zoono to supply product.  An injunction would be practicably unworkable, she said.  The court is not in a position to police ongoing disputes over the supply of goods. Zoono said it has in excess of seven million dollars cash, available to pay damages if Sky Scraper succeeds at trial.

Sky Scrapers General Trading LLC v. Zoono Ltd – High Court (10.11.20)

20.173

Corporate Criminal Liability: Commerce Commission v. Steel & Tube

Increased penalties for regulatory offences led to a Court of Appeal review of sentencing rules for corporate offenders.  Harshness of fines now hinge less on failures of managerial oversight and more on the direct actions of individual employees getting a business into legal trouble.

A two million dollar Fair Trading Act fine imposed on Steel and Tube Holdings Ltd was reduced on appeal to $1.56 million.  A senior employee testing steel mesh to earthquake standards thought his testing protocols were as good as prescribed testing when they were not. 

Holding a corporate liable for criminal activity faces philosophical problems; a corporate has no physical existence, it is an artificial legal construct.  Courts get around the problem with a crude analogy; a corporate is like a human.  Management are the brain; staff the hands.  Determining penalties for regulatory offences, courts have usually looked at management’s role.  Did management specify clear operating procedures; was implementation of these procedures checked?  Wrong question, the Court of Appeal said.  Look first at the employee’s state of mind when breaking the rules; second, look at the company’s systems and compliance culture.

The Commerce Commission took legal action against Steel and Tube over steel mesh sold between 2012 and 2016 labelled as SE62. The ‘E’ in SE62 signalled the mesh was better able to maintain strength when stretched during earthquakes.  Steel and Tube admitted liability.  The problem lay with a former senior technical staff member, it said.  Unbeknown to management, the staff member utilised his own protocols for strength testing, sending only a few samples for independent testing and then attaching copies of an independent test label to all SE62 mesh sold.

The High Court said management was ‘grossly careless’ for not ensuring its prescribed testing process was audited.  Culpability lay with management; reflected in a two million dollar fine.

Start first with the senior technical staff member’s state of mind, the Court of Appeal said.  He believed the SE62 mesh tested using his protocols did comply with regulatory standards; there was no deliberate or wilful attempt to pass off non-seismic mesh as earthquake grade.  But, the staff member did knowingly misrepresent SE62 as being independently tested where independent certification labels were attached to product not in fact tested independently.

Steel and Tube management could be excused if this was an isolated instance, the Court of Appeal said.  But given the size of Steel and Tube’s operations and the fact mesh mislabelling continued for several years meant the level of fine should reflect management’s failure to properly audit testing procedures.

In reducing the fine, it was not a case where a business knowingly passed off its product as something else or deliberately duped consumers about their rights, the Court of Appeal said.  Steel and Tube’s offending as a corporate was misguided, rather than deliberate.

Commerce Commission v. Steel & Tube Holdings Ltd – Court of Appeal (9.11.20)

20.172

Drug Dealing Profits: Commissioner of Police v. Wisely

Street prices for meth at seventy times the price for same quantity of cannabis were quoted by police getting High Court approval for a forced sale of Kelvin Bruce Wisely’s lifestyle block on Circle Hill Road, Clutha, under the Criminal Proceeds (Recovery) Act following convictions for dealing in both methamphetamine and cannabis.

In 2018, Wisely was sentenced to seven years ten months imprisonment for dealing in methamphetamine and cannabis.  The High Court ordered sale of Circle Hill Road as ‘tainted property’ being the site of a commercial cannabis operation and methamphetamine dealing with $199,800 from sale proceeds to be confiscated as proceeds of crime.

Police estimated the level of Wisely’s dealing from an analysis of cash movements through his bank account together with information from intercepted phone calls.  How long Wisely operated a commercial cannabis operation behind a false wall in his barn was estimated from electricity records; monthly usage jumped four-fold over a fourteen month period.  Gross revenue from dealing was assessed using street prices charged in 2017: cannabis was selling at $400 an ounce; methamphetamine (usually sold by the gram) was selling at a price equivalent to $27,000 per ounce.  Evidence was given that Wisely could sell at $27,000 per ounce methamphetamine supplied to him wholesale at about $10,000 per ounce.

Under the Criminal Proceeds (Recovery) Act, gross revenue from illegal activities can be confiscated; no allowance is made for expenses incurred.  The onus is on those charged to prove gross revenue was less than that calculated by police.

Wisely failed to prove how much methamphetamine was actually supplied to him and the prices at which he sold, Justice Nation said. Wisely’s explanation for cash receipts were dishonest and a fabrication, he said.  Wisely’s claim to be a novice cannabis grower unable to produce a good commercial crop was dismissed.  He has prior convictions for cultivation and supply.

Evidence was given that Wisely was contacted by a Hamilton meth supplier in January 2017 whilst working as a digger operator at Waitahuna Goldmine and asked if wanted to ‘sell some stuff with an enticing profit margin.’  It was then arranged he would get two to three ounces of meth ‘on tick’ and have three weeks to pay.

Commissioner of Police v. Wisely – High Court (6.11.20)

20.171

Family Trust: Enright v. Enright

Unaware they were beneficiaries of their father’s family trust, estranged children of the late Jack Enright were entitled to a share of Dunstan Burn, a 10,000 hectare central Otago sheep station, the Court of Appeal ruled.  Jack acted in breach of trust by unilaterally favouring one son, Tony.  

The JJ Enright Trust was established in 1974. Jack Enright’s six children were named as beneficiaries.  The Trust deed required net income in each tax year to be distributed according to the unanimous decision of the trustees, failing that it was to be appropriated each year equally between Jack’s six children.  The Court of Appeal was told these rules were not followed over the subsequent forty years.  Net income was retained by the Trust; separate beneficiary accounts were not established to record individual beneficiary’s undrawn income.  Jack treated Trust assets as his own.  Trust assets were used in 1988 as part of a ten year project to subdivide properties at Wye Creek on Lake Wakatipu. Subdivision profits were used to complete purchase of a St Bathan’s farm: Two Mile Station.  This was then merged with neighbouring Dunstan Burn Station to create a landholding of more than 10,000 hectares which now runs sheep along with some cattle and deer.

After Jack’s death in 2014, five of his disinherited children came to question how sibling Tony came to own all their father’s assets. Only then did they learn details of the 1974 JJ Enright Trust.

The Court of Appeal ruled Jack had been in breach of trust by failing to comply with trust deed requirements for allocation of income.  Unallocated beneficiary income was represented by Trust assets.  Jack’s children were entitled to trace their income entitlements through cash from the Wye Creek subdivision to the Two Mile purchase and its subsequent incorporation into Dunstan Burn.  The five estranged children were entitled to a forty-three per cent share of that land purchased as Two Mile Station, the court calculated.

Enright v. Enright – Court of Appeal (29.10.20)

20.169

Due Diligence: Melco Property Holdings v. Hall

Black Diamond Technologies’ neighbour on Parliament Street in Lower Hutt was under no obligation to extend time for due diligence on a $1.5 million purchase and was free to sign up a new buyer offering an extra $100,000. 

Black Diamond carries on business at numbers one & three Parliament Street.  It was looking to extend operations, buying number five next door.  In December 2019, neighbour Anthony John Hall agreed to sell number five for $1.5 million to a related Black Diamond company: Melco Property Holdings.  The contract contained a wide-ranging ‘due diligence’ clause.  Black Diamond had fifteen working days, expiring on 9 January 2020, to investigate the merits of its proposed purchase.  It late December, Mr Hall was approached: there would be a delay in getting assessors’ reports; would Mr Hall agree to extending due diligence deadline to 17 January?  Mr Hall indicated that did not seem a problem, but he would first have to get advice from his lawyer when he returned to work in the New Year.

The High Court was told another prospective buyer approached Mr Hall in early January, offering a better price.  Mr Hall told his lawyer not to respond to any request for a due diligence extension.  Telephone calls from Black Diamond’s lawyer went unanswered.  When the deadline passed, Mr Hall cancelled the Black Diamond deal and sold to his second buyer for $1.6 million.

Associate judge Paulsen dismissed Black Diamond’s claim seeking to enforce its contract.  Mr Hall was under no obligation to tell Black Diamond he would not grant an extension.  This advice would potentially have seen Black Diamond waive its due diligence requirement prior to deadline.  Agreements for sale and purchase of land are not contracts requiring good faith, Judge Paulsen said.

The court was told the second sale at $1.6 million fell over following Melco’s refusal to remove a caveat lodged on title to number five seeking to protect what proved to be its unsuccessful claim to ownership. 

Melco Property Holdings (NZ) 2012 Ltd v. Hall – High Court (29.10.20)

20.170

Guarantee: Carters v. Cancian

Danny Cancian, director of failed Tauranga builder Bella Vista Homes Ltd, was ordered to pay Carters $1.078 million on his guarantee of building materials supplied to Bella Vista.

Construction defects at Bella Vista’s Tauranga subdivision led to Tauranga Council paying $14.2 million compensation.  Bella Vista is in liquidation.  Bella Vista creditor Carters sued Mr Cancian on his guarantee. He denied liability; Carters mispresented terms of the guarantee and pressured him into signing, he said.

The High Court was told of meetings in 2016 between Mr Cancian and Carters.  Bella Vista was looking to transfer its business from Placemakers.  It asked Carters for a $700,000 credit line. Carters offered a $50,000 credit limit to ‘open the account’ and contributed $10,000 towards IT support marrying Bella Vista’s accounting system with Carters information system.  Bella Vista’s current account debt with Carters blew out dramatically from $46,700 to $1.078 million in the five months prior to liquidation.  When sued, Mr Cancian claimed he was only liable as guarantor for the first $50,000. He was never told Bella Vista’s credit limit had been increased to $800,000 soon after the account was opened, he said.

Justice Wylie dismissed as unreliable Mr Cancian’s evidence as to what was said at the introductory 2016 meetings.  Mr Cancian was not a naïve businessman, Justice Wylie said.  He was no stranger to personal guarantees; he knew the effect of what he was signing. Guarantee terms allowed Carters to change Bella Vista’s credit limit at any time without notice.  This included increases in credit limit.

Carters v. Cancian – High Court (29.10.20)

20.168

Asset Forfeiture: Commissioner of Police v. Harrieder & Hamilton

Overseas tourists’ plans to finance their holiday around New Zealand with profits from drug dealing came unstuck when Sven Stephen Harrieder and Justin Christopher Hamilton were convicted of dealing and then had cash confiscated as proceeds of crime.

In July 2020: Harrieder pleaded guilty to possession of cannabis and LSD for supply; Hamilton guilty to cannabis for supply. About $118,000 in cash was seized during a police search of Deco Backpackers in Queenstown, along with cannabis packaged for sale.  Justice Dunningham ordered confiscation of the cash as ‘tainted property’ under the Criminal Proceeds (Recovery) Act.

No explanation was provided for the large cash holding.  The High Court was told Harrieder had no known legal income during his period of time in New Zealand.  Hamilton had legitimately earned some $2600 since his June 2019 arrival.

Commissioner of Police v. Harrieder & Hamilton – High Court (23.10.20)

20.167

Memelink: Body Corporate 68792 v. Memelink

Notorious Wellington debtor Harry Memelink, now bankrupt, remains trustee of a family trust owning commercial units on Hutt Road/Wakefield Street in Lower Hutt.  If outstanding body corporate levies are not paid by mid-November, court-appointed receivers take control.

For year ended March 2020, his family trust received gross rentals of $466,800. The Body Corporate has been long frustrated in its campaign to recover levies due from Memelink’s family trust.  Mr Memelink claims a set off; the Trust is entitled to reimbursement for work done on the Body Corporate’s behalf, he says.  Levies also include amounts not properly chargeable to unit holders, he claims.  Resolution is compounded by Mr Memelink’s current bankruptcy.  Mr Memelink says he is owed $4.064 million by his family trust.

Payment of outstanding body corporate levies will likely require sale of one of the units or some form of refinancing, Justice Dobson commented. This will require Insolvency Service agreement.  He appointed BDO Wellington’s Iain Shephard and Jessica Kellow as receivers to take control of Trust assets for payment of outstanding levies.  Effect of the court order was suspended until mid-November.

The Body Corporate canvassed possibility of having Mr Memelink removed as trustee of his family trust.  Bankrupt trustees can be removed by court order.  The Trustee Act requires evidence that a bankrupt trustee as acting contrary to beneficiaries’ interests.  Trust beneficiaries in this case were described as members of Mr Memelink’s family and friends.

Body Corporate 68792 v. Memelink – High Court (13.10.20)

20.166

GST: Inland Revenue v. Pootinun

Inland Revenue dismissed as forgeries contractors’ invoices supplied by Surasak Pootinun to support his GST claim when bankrupting him on tax debts totalling $2.4 million.

Pootinun provided labour for crop harvesting; primarily individuals working on short-term restricted work visas. In May 2018, Inland Revenue issued assessments for GST and withholding payments due for 2015 and 2016 tax years.  Tax law required Mr Pootinun to deduct withholding tax from payments to hired labour. He did not respond to Inland Revenue assessments.  He offered no defence when Inland Revenue sued to recover the assessed tax debt. As at September 2020, Mr Pootinun was liable for tax debts totalling $2.4 million (including interest and penalties) of which some $527,100 was GST.

Inland Revenue applied to bankrupt Mr Pootinun. He complained.  Having paid GST on contractor invoices, he should be allowed a GST credit, Mr Pootinun said.  The High Court was told Inland Revenue dismissed the contractor invoices as forgeries; handwriting analysis suggested they were all prepared by the same person. Individuals who supposedly provided the invoices are no longer in New Zealand.

Mr Pootinun asked the High Court to dismiss Inland Revenue’s bankruptcy application, giving him time to challenge its treatment of GST.

Mr Pootinun was too late to challenge the 2018 disputed tax assessment, Associate judge Lester ruled.  Bankruptcy was ordered.  Even if Mr Pootinun’s GST claim were to be successful, he would still be insolvent given the size of his remaining tax debts, Judge Lester said.

Inland Revenue v. Surasak Pootinun – High Court (8.10.20)

20.165

Guarantee: Gill & Jammal v. Northland Region

Required to pay $860,580, Harkirat Gill and Maher Jammal challenged their guarantee of a Northland Regional Council loan for a Marsden Point sawmill.

Advanced in 2015, the loan was intended to support employment in Northland with Resources Enterprises Ltd milling industrial grade timber for export to the Middle East.  The project folded four years later, following a drop in demand. Director Maher Jammal, resident in United Arab Emirates, and Auckland-based shareholder Harkirat Gill guaranteed a $750,000 Regional Council loan.  The amount owed reached $860,580 by late 2019.  Council sued on the guarantee.

Gill and Jammal said the guarantee was not enforceable; they had been prejudiced by a re-ordering of loan priorities in which the Council agreed to rank behind a later multi-million loan advanced by ASB Bank. As a general rule, guarantors are discharged if there is a material alteration to terms of the loan guaranteed. With the Council loan dropping to a second ranking security, rights of subrogation were harmed they said.  ASB had first claim on sawmill assets and they were left with the crumbs after paying on the guarantee and then standing in the shoes of Regional Council.

The guarantee was enforceable, Justice Whata ruled.  The Council loan stated guarantors remained liable even if there were subsequent variations.

Northland Regional Council v. Gill & Jammal – High Court (8.10.20)

20.164

Lawyer's Conflict of Interest: Hong v. Auckland Standards Cttee

Auckland lawyer Boon Gunn Hong was refused leave to appeal his striking off for what was described as disgraceful, unprincipled and wrongful acts to the detriment of his client.

Mr Hong provided financial support to a client when a 2005 property transaction ran into difficulty, eventually taking title to the property in his own name and attempting to evict his client.  Lawyers are expected to act in the best interests of their clients; not act against their clients’ interests.  Heavy penalties are imposed on lawyers continuing with work when there is a conflict of interest.

Mr Hong said he made no profit on the deal and that his client had suffered no financial loss.    The question of profit was irrelevant, Justice Gordon said.  Mr Hong failed to comply with disclosures required and safeguards imposed when a lawyer is acting both for a client and in his own interests.

Striking off means Mr Hong can no longer continue in business as a lawyer.

Hong v. Auckland Standards Committee No. 5 – High Court (7.10.20)

20.163

Family Trust: Little v. Little

When her marriage ended, Leanne Little was not entitled to a half share in the net worth of her husband’s funeral business since it was owned by a family trust, but she was entitled to share in any increase in value during their relationship, the High Court ruled.

Peter Little owned C Little & Sons funeral directors based in the Auckland suburb Epsom.  The business has been in family hands since 1875.  The business was sold to a family trust in October 1993: the Marble Arch Trust.  Prior to their marriage, Peter and Leanne could not agree on a ‘contracting-out’ agreement to avoid the 50/50 division imposed by relationship property law. Peter’s sale of the funeral business to a family trust meant the business was no longer relationship property; it was not owned by either spouse.  Marble Arch beneficiaries were named as Peter Little and his children; Leanne was not a beneficiary.

The Littles separated in 2009, after a sixteen year marriage.  The Family Court awarded Leanne half the net value of Marble Arch Trust.  This was overturned by the High Court.

The Trust was not relationship property.  The equal sharing rule did not apply.  Leanne claimed a share of Trust property using ‘trust-busting’ rules in the Family Proceedings Act.  The Act allows payment out of trust property where the trust was established as a nuptial trust; a trust intended to benefit family.  Marble Arch was established as a nuptial trust, Justice Jagose ruled.  It was intended to protect the business should the marriage fail with trust benefits favouring Peter and his children.  Leanne was expected to benefit only so long as the marriage continued.  She was entitled to share in any increase in the net worth of the Trust during the marriage, Justice Jagose ruled.  Once their children were of school age, Leanne had assisted in the business, especially day-to-day accounting functions. Calculation of any increased net worth for the business during their marriage required further evidence.

Little v. Little – High Court (6.10.20)

20.162

Bankruptcy: Official Assignee v. Yarrow

Assets in family trusts controlled by now-bankrupt businessman Paul Yarrow have been frozen by court order. Insolvency Service alleges assets are being hidden from creditors.

Paul Steven Yarrow was bankrupted in 2017 on a $14.8 million Westpac guarantee following the collapse of iconic Taranaki company, Yarrows.  A decade earlier, his family trust purchased a property on Auckland’s Northcote Point for the then substantial price of $1.3 million.  Mr Yarrow lives there.

The High Court was told of a series of transactions over a ten year period prior to his bankruptcy which saw movement of assets between successive family trusts, changes of trustees, forgiveness of debts owed to Mr Yarrow by various family trusts and favourable terms of an ‘on demand’ loan by Mr Yarrow to one family trust postponing until 2026 trust liability for repayment to Mr Yarrow.

All Mr Yarrow’s personal rights are now controlled by the Official Assignee, acting on behalf of creditors.  Insolvency Service complains the extent of Mr Yarrow’s rights against his family trusts was not fully disclosed.  It alleges earlier forgiveness of debts and changes to loan maturities were made at a time when Mr Yarrow was insolvent and were intended to defeat creditors, preventing Insolvency Service recovering from his family trusts.  It alleges plans are afoot to sell Northcote Point and to hide the proceeds. Northcote Point was briefly listed for sale.

Justice Campbell imposed a freeze over family trust assets.

Official Assignee v. Yarrow – High Court (2.10.20)

20.160

Company: Orana Trust v. Vey Group

High Court warnings to Leslie Fugle that control of Wellington property company Vey Group Ltd would be taken from him if he did not co-operate in buying out minority shareholders have come to pass; the company goes into liquidation if no agreement is reached in the next two months. 

Vey Group Ltd owns an investment property in Webb Street, Wellington.  A family trust called Orana Trust representing Turvey family interests holds a minority 49 per cent interest.  Interests associated with Palmerston North director Leslie Fugle purchased a majority shareholding in a forced sale following Family Court litigation between Turvey family members.  This left Orana in a minority, stranded with no voting leverage.  Litigation between Orana and Mr Fugle has been to the High Court, Court of Appeal and back to the High Court.  Orana alleges Mr Fugle is using Vey Group assets for his own benefit and is being obstructive.  The primary dispute is over a loan to Vey Group claimed by Orana but disputed by Mr Fugle.  This money was loaned by Turvey family interests to fund purchase of Webb Street. Mr Fugle claims the loan is a Turvey family tax deal; nothing to do with Vey Group.

In July 2019, the High Court ordered an independent valuation of Orana’s minority interest with Orana then to be bought out. One year later, a High Court special appointment of receivers was needed to force access to company records. Receivers assessed Orana’s loan to Vey Group at $1.04 million.  Mr Fugle disputes this amount is due.

Justice Mallon said Mr Fugle has two months to reconsider his position.  Failing that, a court ordered liquidation kicks in.  The court-appointed receivers have been appointed liquidators. The $1.04 million Orana debt is likely to be accepted as a claim in the liquidation. Webb Street has a current market value in excess of two million dollars.

Orana Trust v. Vey Group Ltd – High Court (2.10.20)

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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)

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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)

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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