De facto director: re Delta Shared Services Ltd

Struck-off Cambridge lawyer Murray Osmond claimed to act as consultant only to Delta Shared Services Ltd, now in liquidation insolvent.  Ruled to be a ‘de facto’ director, he was ordered to front up in court explaining what had happened to business assets.

Part of a network of over twenty companies with Osmond in control at the apex, Delta Shared Services owes unsecured creditors some $252,000 according to the liquidators’ most recent report.  Sale of those company assets liquidators managed to track down left a small surplus of only $114 after costs.  With Mr Osmond refusing to assist liquidators in their search for further assets, the High Court ruled he had acted as a ‘de facto’ director and under Companies Act rules was required to front up.

Grahame Graig is named as sole director of Delta Shared.  Mr Osmond said he was not a Delta director, his role was solely to give advice to the company and to carry out some administrative tasks while Mr Craig was ill.   

Associate judge Taylor ruled Mr Osmond was acting as a director.  This followed evidence that Mr Osmond’s home address in Cambridge was also the company’s registered address and that he consistently acted on behalf of the company in negotiations with its landlord and in legal issues which followed. Keeping Delta Shared’s Companies Office file up to date while describing himself as being an ‘authorised person’ indicated he held relevant information about the company, Judge Taylor said. 

Mr Osmond was ordered to hand over to the liquidators all company records he held, to list all documents he is aware of held in other locations and to appear in court for examination on oath about his knowledge of company affairs.

re Delta Shared Services Ltd – High Court (24.02.23)

23.026

Bankruptcy: Bamber v. Official Assignee

Appeals to tikanga Maori did not override bankruptcy legislation allowing Insolvency Service to seize a Rotorua home, evicting Kathleen and Bruce Bamber following their bankruptcy on debts totalling $332,750.

The Bambers claimed it was contrary to Maori custom for them to be removed from their family home.  The two were bankrupted in 2019 on an unpaid debt of about $175,850 owed to the Tahorakuri Trust following their lease of land at Reporoa, near Taupo.

The High Court was told Tahorakuri had taken action to recover monies the Bambers received after subletting Reporoa.

The Bambers lived at Reporoa for a time, later shifting to Wingrove Road, in the Rotorua suburb Owhata.

Justice Harvey said Maori custom can form part of New Zealand common law, but does not override legislation.  The Insolvency Act is clear; bankrupts can be required to surrender any property they own to Insolvency Service for sale to pay creditors.

The Bambers claim to retain possession of their Wingrove Road home on grounds of tikanga Maori was misguided, Justice Harvey ruled.  Within Maoridom; your home or turangawaewae is your ancestral home, your house or whare is where you currently live.  Wingrove Road was where the Bambers currently lived, it was not situated on their ancestral tribal land.  And even if it were, the house could still be seized on bankruptcy by Insolvency Service, he said.

Bamber v. Official Assignee – High Court (23.02.23)

23.025

Real Estate Agent: Marsh v. Goldline Properties

Rules restricting real estate agents from benefitting in a property sale beyond their commission do not apply to subsequent deals done after a sale contract is signed, the High Court ruled in a dispute involving south Auckland property developer Glen William Cooper.

Mr Cooper seeks to cancel sale of four properties by his company Goldline Properties Ltd alleging Counties Realty agent Ian Croft did not disclose he was in league with the buyer, in breach of rules in the Real Estate Agents Act.

The High Court was told Maree Dawn Marsh signed up in mid-2020 to buy four vacant lots from Goldline Properties.  She intended to buy relocatable houses, selling after shifting them on site.  Ian Croft acted for Goldline, selling the vacant lots.  Some weeks later, Ms Marsh turned to Mr Croft for advice and assistance after realising she would not be able to get finance for the project.  She had previous dealings with Mr Croft who had acted as vendor agent when she bought other real estate.  A joint venture agreement designed to advance her new project was signed in July 2020 by Ms Marsh, first with Mr Croft personally and later with his company One Property & Co Ltd.  Goldline Properties gave notice cancelling sale of the four lots to Ms Marsh, stating Mr Croft’s failure to disclose his interest as purchaser as required by the Real Estate Agents Act gave it an automatic right of cancellation.

Ms Marsh registered caveats over the land to protect her rights as intending buyer.  Associate judge Lester ruled the caveats remain.  The conflicts of interest existing when a real estate agent purchases from a vendor client do not arise if the agent gains an interest in the property after the sale, Judge Lester said. 

After the four lots were sold in mid-2020, Mr Croft’s role as agent for the sale was at an end.  Ms Marsh said there was no intention when she purcashed that Mr Croft would be involved in the project.  He became involved as a joint venture participant only at a later date, she said.

Marsh v. Goldline Properties Ltd – High Court (23.02.23)

23.024

Island Grace: Island Grace (Fiji) v. Satori Holdings

Promoted during 2015 in a blaze of publicity, construction of Island Grace resort on Fiji’s Malolo Island now sees the original investors daggers drawn in both the New Zealand and Fiji courts fighting over liability for unpaid development costs with the resort now sold on and trading as Six Senses Fiji. 

Guests at Six Senses are offered luxury accommodation with a nod towards environmental issues, de rigueur for those seeking to justify their conspicuous consumption. No such candy coating for original investors in the Island Grace joint venture.  Secured creditor Sequitur Hotels Pty Ltd has recovered 46 cents in the dollar to date, according to the receivers’ most recent report.  Nothing on the horizon for unsecured creditors.  Further recoveries depend in part on recovery of disputed unpaid calls on capital contributions allegedly due from the resort’s original joint venture investors.  In the mix is New Zealand company Satori Holdings Ltd, corporate trustee of Andrew Griffiths’ family trust holding a 24 per cent stake in the Island Grace project.

The High Court was told their original joint venture was wound down in 2021 on evidence that the project was insolvent. The resort itself was on-sold to interests associated with Sequitur Hotels for FJD 24 million.  Sale at this price left a shortfall to joint venture creditors of FJD 29.7 million.  Satori Holdings share of this shortfall as joint venture participant came to at least FJD 6.1 million, Island Grace claims. 

Mr Griffith claims the 2021 resort sale was at a ‘gross undervalue’ and further claims any dispute about what Satori owes should be heard in Fiji courts.  In New Zealand, Associate judge Andrew put Satori Holdings into liquidation at Island Grace’s request.  Satori was deeply insolvent, he said.  It is a New Zealand registered company and the Island Grace joint venture agreement is governed by New Zealand law.  Courts in New Zealand have jurisdiction, he ruled.

Island Grace alleges Mr Griffith has been running down Satori’s assets in the face of its likely liquidation.  Island Grace raised concerns about Mr Griffith’s moves in Fiji to transfer Satori assets to a Delaware US-based company associated with his wife.

Island Grace is suing in Fiji both Satori and Mr Griffith alleging misrepresentation, misleading conduct and breach of contractual warranties in respect of their joint venture formation.

Island Grace (Fiji) Ltd v. Satori Holdings Ltd – High Court (17.02.23)

23.023

Defamation: Young v. Ross

Twenty years after agreeing to settle out of court a defamation claim alleging he was a credit risk, Hamilton accountant Philip Young filed further legal claims alleging Napier lawyer Philip Ross was in contempt of court and had breached their earlier agreement. Young’s new claims were struck out.

The High Court was told Mr Young sued in 1997, alleging he had been defamed by comments that he was a credit risk; comments made by Mr Ross both on the internet and directly to clients.  This claim was subsequently abandoned with an agreement filed in court in 2000.  Mr Ross agreed to take down the internet comments and both sides agreed to no further publicity.

Two decades later, Mr Young again sued, alleging Mr Ross authored a September 2018 internet blog post publicising events in Mr Young’s life subsequent to his earlier defamation claim.  This included: reference to Mr Young being struck off the register of chartered accountants in 2003 for misconduct, for conduct unbecoming an accountant and for professional negligence or incompetence following investigations into his involvement with a number of finance companies; reference to his bankruptcy in 2003; and reference to his 2006 conviction for assaulting a Hamilton court security guard while resisting being taken into custody after shouting down a community magistrate during a court hearing.  The High Court was told this 2018 blog post was taken down following Mr Young’s complaints, but then later re-posted by a third party.

The High Court ruled Mr Young was unable to enforce the 2000 defamation settlement agreement, even if it had been breached. Mr Young’s subsequent bankruptcy resulted in Insolvency Service taking over all legal rights he then held.  That included all rights contained in the settlement agreement.  It was for Insolvency Service, not Mr Young, to decide whether legal action be taken.

Separately, Mr Young’s Hamilton accounting practice Progressive Accountants Ltd sued claiming it had rights to enforce the 2000 defamation settlement agreement.  Progressive was not party to this agreement.  To sue as a non-party, the Contract and Commercial Law Act required Progressive to prove it was identified in the 2000 agreement by name or description as someone intended to benefit.  Progressive’s claim was struck out.  In what was a short four paragraph agreement between the two protagonists, Progressive was not specified as having any rights.

Young v. Ross – High Court (17.02.23)

23.022

Maori Land: Nicholas v. Ta Whaiti-A-Toi Trust

Described variously as a shack, a shed and a house, the dwelling on Maori freehold land in the North Island West Urewera mountains became the central focus in a tug-of-war between members of the extended Martin whanau.  Phyllis Nicholas, who renovated and maintained the house, was entitled to rights of occupation extending out to 2066 over the claims of other Martin whanau, the Court of Appeal ruled.  

The property was carved out of about one hectare of forestry by Phyllis Nicholas and her husband, the court was told.  At that time, the land was leased to the then Ministry of Forests.  Ms Nicholas’ wider whanau (the Martin family) are beneficial owners of the land, held by trustees as Maori freehold land.

Evidence was given that after 2003 her brother Reo Martin and his immediate whanau progressively took up occupation of the property, eventually forcing out Ms Nicholas.  By 2019, Reo’s son Danny was in occupation.  He was removed by police after threatening a cousin who had begun building next door.  Phyllis moved back.  Escalating disputes over rights to occupy saw trustees ask for a court ruling.  They wanted the building removed.

In 1989, Mrs Nicholas and her husband were given informal consent by one of the trustees to move a shed on to the property.  The two subsequently upgraded the shed; concreting the dirt floor, adding a kitchen and bathroom, and installing new windows and doors.  They and their immediate family were regular visitors, spending time at the property.  Extended whanau also stayed for periods.  Phyllis paid for power and insurance.   

With agreement of the trustees back in 1990, Ministry of Forests as the then leaseholder had issued a licence to occupy recorded initially in the name of Phyllis’ brother Frank, later amended to be in the name of the Martin whanau with Frank specified as the ‘responsible caretaker.’ 

The Court of Appeal ruled Phyllis Nicholas’ personal right of occupation arose from terms of her original agreement with trustees when negotiating with Ministry of Forests.  There was no dispute that she had complied with all the trustees’ requirements, including compliance with Whakatane District building requirements.  Having incurred costs in renovating and maintaining the property she was entitled to enforce terms of the occupation licence, giving her rights of occupation through to 2066.

Nicholas v. Te Whaiti-Nui-A-Toi Trust – Court of Appeal (16.02.23)

23.021

Insolvency Proposal: re Ian George Fistonich

Saved from immediate bankruptcy, the High Court approved a part payment scheme put up by Accent on Construction’s Ian Fistonich offering creditors six cents in the dollar over five years and the chance to potentially benefit from a disputed claim against Premier Legal Finance Limited Partnership, an entity associated with Graeme Halse of Auckland law firm Foy & Halse.   

Mr Fistonich is insolvent, under threat of bankruptcy on personal guarantees given to creditors of Auckland-based Accent on Construction Ltd.  Accent was propelled into receivership in November 2018 by Premier Legal claiming some $2.1 million.

Bankruptcies can be avoided with a part payment scheme of arrangement provided they are approved in each case by a majority of creditors holding between them 75 per cent of claimed indebtedness and court approval is given.

The High Court was told of a fraught creditors meeting in June 2022 where Premier Legal’s vote against the proposed scheme was disallowed.   Premier Legal claims to be owed one million dollars by Mr Fistonich personally.  If allowed, this vote against would have scuppered the scheme resulting in Mr Fistonich’s likely bankruptcy.  The meeting chair said Premier Legal’s debt was disputed; Mr Fistonich has filed legal proceedings against Premier Legal alleging negligence and breach of contract.

Evidence was given this claim against Premier Legal relates to mortgages held over a property owned by Zlato Trust, a trust associated with Mr Fistonich.  Premier Legal said this claim is purely speculative, lacks merit and is without substance.  Mr Fistonich is simply trying to prevent loss of his family home, it says.

Associate judge Taylor put on hold the bankruptcy application against Mr Fistonich subject to the agreed part payment scheme being honoured and proceeds of any successful claim against Premier Legal also being paid across to his creditors.

re Ian George Fistonich – High Court (8.02.23)

23.020

Bankruptcy: re Rebecca Kennedy

Bankrupt with creditors owed nearly one million dollars and also charged with fraud offences totalling some $1.7 million dollars Rebecca Kennedy, also known as Sarena Walker, has been banned for life from managing any business.

With Kennedy’s 2015 bankruptcy due to be discharged automatically in 2018, Insolvency Service asked the High Court to restrict her future commercial activities.  She was a significant risk to the public, Insolvency Service said.  She had attempted to conceal bank accounts, trying to hide some $500,000, and was obstructive by changing her name and travelling outside New Zealand without Insolvency Service permission.

At Insolvency Service request, the High Court discharged Kennedy from her bankruptcy but imposed a lifetime ban from her directly or indirectly taking part in any business or from being employed by a relative.

In 2018, Kennedy was ordered to repay $653,000 stolen in a Wellington property swindle.  She had previously been convicted in Australia of fraud offences.

re Rebecca Kennedy – High Court (3.02.23)

23.019

Valuation: Reynolds v. Finnigan

 Receivers Peri Finnigan and Boris van Delden are potentially liable for damages in excess of $150,000 after Dayle Walker forced business colleague Joanne Young out of their Auckland early childhood business Learning Ladder in a March 2018 pre-packaged receivership.  

The High Court was told management differences between Walker and Young saw Dayle Walker use a secured loan over their Howick business assets to call in receivers who took control of the business.  One day later, receivers sold the childcare centre assets to a new company controlled by Dayle Walker, cutting out Joanne Young who alleged assets were sold on the cheap at her cost.

Nearly one week of conflicting valuation evidence in the High Court saw divergent views on Learning Ladder’s value.

Chartered accountant Eric Lucas took the orthodox view; current value is assessed by analysing historical financial data.  He valued Learning Ladder at between $450,000 and $500,000.  Receivers sold Learning Ladder assets to Ms Walker’s new company at $470,000.  Most of that money went to Ms Walker and her husband in repayment of their $430,000 on demand loan to Learning Ladder.

Michael Nimot valued Learning Ladder at $760,000. Operational efficiencies could improve business profitability, he said.  The possibility of future cost savings should be taken into account when assessing current value.

Justice Walker took future cost savings into account. Wage costs are the biggest single line item for early childhood centres.  The High Court was told staff costs at Learning Ladder were high by industry standards, even taking into account staffing levels required by childhood centre regulations.  Potential savings saw Learning Ladder have a market value of around $700,000 as at March 2018, she ruled.

Receivers are liable to pay compensation if they sell assets at an undervalue.

Rather than selling at $470,000, the best price receivers should have obtained was between $625,000 and $643,000 Justice Walker ruled.  For a trading business like a childcare centre there is no obligation to get full market price, she said.  There are too many uncertainties should receivers be left in control for an eleven to twelve week marketing programme; key staff may leave and customers take business elsewhere while receivership costs continue to rise.

Reynolds v. Finnigan – High Court (1.02.23)

23.017

Negligence: Buchanan v. Tasman District

Keith Marshall, former CEO of Nelson City Council, sued Tasman District recovering some $270,000 damages for negligent pool inspections of his award-winning home on Eight Eight Valley Road at Wakefield. More than ten years after issuing a code compliance certificate for the pool and also making subsequent inspections, Tasman District changed its mind in 2019 saying pool fencing was non-compliant when the property was put up for sale.

Residential swimming pools are regulated under the Fencing of Swimming Pools Act.  To prevent drownings, pools must be adequately fenced to block access by young children.  Councils are required to inspect pools every three years.  

Keith Marshall and Louise Buchanan purchased their 2.9 hectare lifestyle block at Eight Eight Valley in 2008 for $780,000.  They pulled the property from sale in 2019 after Tasman District advised gates to pool surrounds did not comply.  There had been no alterations since the original compliance certificate was issued back in 2006.

In the High Court, Justice Palmer ruled Tasman District liable in negligence for failing to carry out proper pool inspections.  Determining damages; what was the market value of Eighty Eight Valley in 2008 if it was then known that pool fencing was non-compliant?  Tasman District said market value would be about five per cent less; the property would be less desirable to families with young children.  The valuer acting for Ms Buchanan and Mr Marshall said the remediation work required had the effect of ‘butchering’ what was an award-winning home.  Justice Palmer ruled the market value as at time of purchase in 2008 was $195,000 less than the $780,000 paid.

Tasman District was also ordered to pay about $50,000 for costs of remediation which included lengthy negotiations with Tasman District.  General damages of $25,000 were added for distress and humiliation caused by the dispute.  Mr Marshall told the court publicity about the pool dispute would likely hinder any possibility of future employment as chief executive of a local authority.      

Buchanan v. Tasman District Council – High Court (1.02.23)

23.018

Loan: Wake Up Commercial Ltd v. Extension Capital Ltd

 Taking out a $2.35 million short-term loan in the heat of the covid-19 property boom came unstuck when Auckland development plans collapsed and the borrower had no exit strategy.  The High Court refused to block forced sale of a Whangamata home put up by Michelle Joy O’Byrne as security.  

In the depths of Auckland’s lockdown, Ms O’Byrne was frantically putting together a deal to purchase and develop land on Leybourne Circle in Glen Innes.  In early November 2021, paperwork was finalised.  With face-to-face meetings prohibited, documents were signed in a meeting co-ordinated using Facetime.  Ms O’Byrne agreed to a two month $2.35 million loan with security over both Leybourne Circle and an investment property in Whangamata owned by her family trust.  Latitude Homes was lined up to carry out the Leybourne Circle development.

The High Court was told Ms O’Byrne learnt just days after the loan was drawn down that Latitude Homes could not commit to the build. The full amount of this loan was used to purchase Leybourne Circle.  She was left holding a building site with building consents issued but no builder, a $2.35 million loan falling due within weeks and no funds to further progress the development.  With forced sale of Leybourne Circle threatened, Ms O’Byrne sold up leaving a shortfall on her $2.35 million loan of some $1.1 million and interest running at about $780 per day.

With her family trust’s Whangamata property also threatened with a mortgagee sale, Ms O’Byrne challenged terms of the original $2.35 million loan.  There was a breach of the Responsible Lending Code in the Credit Contracts and Consumer Finance Act, she alleged.  The lender, Extension Capital Ltd, knew from the outset that further finance was needed to progress the development and failed to provide promised further funding, she claimed.  It was clear from all documentation that the $2.35 million was a short-term loan only. The Responsible Lending Code did not apply, Justice Robinson ruled.  This was a commercial transaction; the Code applies only to consumer loans.

Ms O’Byrne alleges her then financial adviser failed to properly explain terms of the deal.

Wake Up Commercial Ltd v. Extension Capital Ltd – High Court (10.01.23)

23.016

Radiology: NZ Institute of Independent Radiologists v. ACC

Concerns about moral hazard and conflicts of interest in Accident Compensation Corporation payments for private sector CT scans and MRI scans were pushed aside by the High Court with blithe acceptance that the Corporation could handle such conflicts despite over five years of inaction.   

Independent radiologists are up in arms about corporate radiologists owned directly or indirectly by medical practitioners who then refer their patients to their own specialist radiology clinic, capturing some of the profits from this referred work.  They argue there is an ethical conflict of interest with a danger of these medical practitioners improperly over-referring patients (booking scans when there is no clinical requirement for one) and sub-optimal referrals (when a different provider would provide a better clinical service).

In 2021, a number of independent radiologists banded together challenging Accident Compensation Corporation payment for referrals to what they claim are radiologists not sufficiently independent. In their sights are Beyond Radiology, Radiology Group and Mercy Radiology all of which are owned to various degrees by doctors or their families.  There are forty radiology units in New Zealand providing high-tech CT and MRI imaging; split roughly 50/50 between the private sector and what were District Health Boards

Independent radiologists claim ACC is not complying with terms of its own Act; the requirement to act in a cost-effective manner. There is a risk of ACC being overcharged where there is commercial relationship between those providing referrals and those doing the work, they say.

The High Court was told that since 2016 the ACC standard-form service contract for radiologists has required service suppliers to disclose any conflict of interest and where a conflict exists that a written agreement with ACC is required setting out how this conflict is managed.  Evidence was given that ACC had taken no interest in enforcing these rules until early 2021 and then spent six months seeking to identify which radiology providers had links to those providing referrals.  Since then, it has identified three medical practitioners with unusual referral patterns.  Their names were supressed.

Justice Cooke ruled that ACC is able to manage conflicts of interest between referrers and providers and that the current management system does comply with ACC requirements to act in a cost-effective manner.

In other areas of the health sector, the rules are more precise.  The Medicines Act prohibits any person who issues prescriptions from owning a pharmacy. 

NZ Institute of Independent Radiologists Inc v. Accident Compensation Corporation – High Court (20.12.22)

23.015

Estate: Bennett v.O'Meara

Darryn Bennett took legal action forcing sister Kim O’Meara out of their late father’s Auckland property where she had been living rent free, refusing to shift.

The two are joint executors of their late father’s estate which includes a property in Regent Street, Papatoetoe.  Their father died in July 2020.  They share his estate equally.

The High Court was told Kim had been living at Regent Street since about 2000, paying rent.  After her father died, she stopped paying rent and refused to move, with his estate left to pay rates and insurance.  Negotiations for her departure to enable sale of Regent Street got nowhere.  Ms O’Meara said covid-19 lockdowns and personal issues prevented any move.

In July 2022, she was given formal notice to vacate.  This was ignored.

Months later, a court order to vacate the property within five working days was issued by Justice Gault.  Ms O’Meara was not entitled to stay, he said.  She had no rights under the Residential Tenancies Act; there was no tenancy agreement and any consent to occupy granted by her late father came to an end on his death.

Bennett v. O’Meara  - High Court (19.12.22)

23.113

House Sitting: Washikita v. Smith

John Smith was ordered to leave a south Auckland home where he had been living rent free for thirty years with the High Court dismissing his claim to have a right of first refusal to buy the Conifer Grove property; a claim which Mr Smith justified by producing invoices which he said required the Japanese owners to pay him $31,000 for the privilege of selling their property to him.  

The High Court was told Mr Smith met the Washikitas during a trip to Japan in 1991.  One year later he sold to them a nearly finished home in Perotti Place, Conifer Grove, for $250,000 which he said at the time was a deal at ‘no profit’ to him.  They intended to use the property as a holiday home, but never lived there.  At time of sale, it was agreed Mr Smith could continue to live in the property, rent free, until asked to vacate.  He was to pay all outgoings and maintenance costs. By 2020, Mr Washikita was impaired by dementia.  His family was looking to sell.  They did not intend to come to New Zealand.  Plans to sell accelerated when Mr Smith stopped paying rates and insurance. Perotti Place was valued in February 2021 at $1.06 million.     

Evidence was given that plans for sale and requests Mr Smith leave the property then bogged down with Mr Smith claiming Mr Washikita had previously agreed that he had the right to buy, subject to ‘conditions.’ Mr Smith never specified what were these conditions but produced invoices for work done on the property, saying these costs had to be set off against the price of $1.06 million.  The invoices came under close scrutiny in the High Court.  There was evidence that invoices dating back to 1993 had been produced on an excel spreadsheet that was not commercially available until 2007 and that the supposed invoices were modified on the same spreadsheet in early 2021.  The total of these invoices had the effect of Mr Smith being owed $31,000 after resuming ownership of the house.  Included as an invoice was a cost of more than $150,000 for ‘property management.’

Associate judge Paulsen ruled there was no evidence to support Mr Smith’s claims to a right of first refusal and to reimbursement of expenses.

The court was told that when Mr Smith got into financial difficulty in 2003, he borrowed $110,000 from Mr Waskikita promising to repay him $120,000 the following month.  Some part-payments were made over subsequent years.  By 2021 Mr Smith was claiming the initial $110,000 was in fact reimbursement for expenses he had incurred.

The Wahikita’s were entitled to possession of their property, Judge Paulsen ruled.  Mr Smith’s licence to occupy had been terminated by notice in February 2022.

Washikita v. Smith – High Court (19.12.22)

23.104

Memelink: Body Corporate 68792 v. Link Trust

Owners of commercial units at 408 Hutt Road/Wakefield Street in Wellington must be ruing the day they ever bought in; tied up in convoluted legal proceedings by now-bankrupt Harry Memelink and trusts associated with him which have refused to pay body corporate levies and have now been injuncted by court order to stop interfering in body corporate affairs.

With Memelink’s payment of body corporate levies in arrears since 2018, other unit holders have been forced to top up corporate funds.  Interests associated with Mr Memelink own seven of the thirteen units.  Mr Memelink alleges ‘fraud and misconduct’ by the body corporate in relation to setting levies and use of body corporate funds. In earlier court proceedings Mr Memelink was described as having a long history of claiming illegalities in respect of levies and using this as an excuse for not paying anything.  In October 2017, the High Court appointed an administrator to take control of the corporate’s dysfunctional management.

Mr Memelink was bankrupted in 2018.  The standard three year period for automatic discharge from bankruptcy did not start running until September 2022, the date when he filed a complete statement of assets and liabilities with Insolvency Service.  The Link Trust (No.1) through which he owns Hutt Road units was put into receivership by court order to enable sale of the units without interference by Mr Memelink. That is not proving particularly effective.

In December 2022, Mr Memelink lodged a caveat against title to the units, attempting to block any sale.  It took a High Court application by the receivers to have it removed.  Justice Cooke ordered Mr Memelink not to interfere with proposed sales.  The Body Corporate administrator found Mr Memelink had contacted the building’s insurers with further allegations of Body Corporate fraud and theft.  Insurance cover was cancelled.  Bodies Corporate must hold current insurance.  Proposed sale of Mr Memelink’s units would be difficult without current cover.  Evidence was given that the administrator had difficulty in getting new insurance cover written at a reasonable cost.  Justice Grice issued an injunction blocking Mr Memelink or any person associated with him from interfering with the Body Corporate’s insurance arrangements.

Body Corporate 68792 v. Link Trust (No.1) & Memelink – High Court (16.12.22)

23.012

Family Trust: Whale v. Silich

Seven years after they separated, Gary Whale is challenging decisions about family trust farming assets made by his former wife Tanya Silich asking the High Court to remove her as trustee.  Both were removed as trustees and independent trustees appointed with power to investigate trust operations over the previous seven years.   

The High Court was told the two separated in November 2015 after 26 years marriage.  Gary is a builder by trade.  He left wife Tanya in possession of their Waipu dairy farm owned by a family trust.  A farm advisor was employed to act as a go-between assisting with their joint management of the farm.  Evidence was given that over time the advisor either stopped passing on Mr Whale’s views or Ms Silich chose to ignore them.

Mr Whale alleges his former wife has subsequently operated their family trust for her own benefit, failing to account for trust profits and using trust money for her own benefit.  The two have not met in person since they separated in 2015.  Since that time, Ms Silich has sold the Waipu property and transferred operations to a dairy farm near Dargaville.

At the request of Mr Whale, Justice Brewer ordered her removal as trustee as being in the best interests of trust beneficiaries. Mr Whale was also removed as a trustee; the level of estrangement between the two was such that it would be difficult for Mr Whale to be even-handed between all trust beneficiaries, Justice Brewer said.  Named as beneficiaries are Mr Whale, Ms Silich and their two adult sons.  Two retired chartered accountants were appointed as replacement trustees.

Ms Silich did not appear in court to contest her removal as trustee.

Whale v. Silich – High Court (9.12.22)

23.010

Fuel Supply: Chatham Hardware v. Chatham Island Management

The Chatham Islands’ stark beauty is offset by increased costs of transporting essential goods to its small population living 900 kilometres offshore.  A challenge to fuel pricing failed in the High Court; fuel wholesaler Chatham Island Management Ltd was not obliged to price fuel at a level to protect local retail margins.     

Chatham Island Management is a trading subsidiary of the Chatham Island Enterprise Trust, a charitable trust set up in the early 1990s to assist Island residents.  Local concerns about fuel costs led the Trust to extend operations from the importation and wholesaling of diesel into retailing as well.  Diesel is a critical resource on the Islands, not only for transport but also power generation.   

Chatham Hardware Ltd, owned by Monique and Valentine Croon, also retails diesel with the Trust its sole supplier.  They alleged the Trust was exploiting its monopoly position, in breach of the Commerce Act.  In particular, they allege that when a 2016 supply agreement was signed there was a side deal requiring the Trust’s wholesale prices be set at a level allowing Chatham Hardware a nineteen per cent margin on a competitive retail price. The dispute headed for court after Chatham Hardware withheld payment of Trust wholesale diesel invoices totalling some $220,000.

Associate judge Johnston ruled there was no collateral side deal.  Chatham Hardware’s margin at time of the 2016 deal may have been nineteen per cent, but the 2016 contract was explicit; the Trust can vary prices at any time and is not obliged to first consult the Croons.  Judge Johnston also ruled there was no evidence of the Trust misusing its monopoly position.  Chatham Hardware was ordered to pay the withheld $220,000 or face liquidation.

Chatham Hardware Ltd v. Chatham Island Management Ltd – High Court (5.12.22)

23.011

Estate: Glass v. Glass

With family trusts holding assets in excess of twenty million dollars, daughter Lisa Knight claims she has been treated unjustly; promises that all children would receive at least one million dollars in their lifetime have not been honoured and her late mother’s estate has been impoverished by having all assets of any value switched into family trusts, she alleges.

Lisa took legal action in the High Court attempting to crack open the family trusts, hoping to have her late mother’s estate recover assets having them available for her claim under the Family Protection Act.

The High Court was told Lisa is one of three children born to Sally Elizabeth Glass, known as Libby.  Libby married Denver Glass in 1987.  Libby had three children from an earlier marriage; Denver had four children from his earlier marriage.  Libby and Denver had no children.  Libby died in February 2020, suffering from dementia.  Libby’s business interests centred on a fashion boutique called Posh of Holmwood based in the Christchurch suburb of Merivale; Denver developed a meat processing business called FreshPork.  Together, they purchased and renovated multiple properties in and around Christchurch.  These properties were each held in various family trusts.

Libby’s and Denver’s children were told not to expect any inheritance; each would receive one million dollars in their lifetime to help set them up in life.  Libby and Denver intended to give the rest on death to charities of their choice.

Evidence was given of tensions between Denver and his step-daughters Lisa and Nicole.  Denver was described as controlling.  Nicole received financial support totalling one million dollars to assist with her purchase of a property in Sydney.  Expecting to receive the funds as a gift, Nicole found the money was instead advanced as a loan with a mortgage registered against the Balmain property. This was to protect the home from matrimonial property claims, Denver said.  In 2018, he attempted to evict Nicole from the property.  Lisa told the High Court she had received some financial support but always on Denver’s terms.  She had been allowed rent-free occupation of a large Christchurch home in Kotare Street owned by one of the family trusts provided she met the costs of rates, insurance, repairs, and maintenance.  Denver has refused to honour promises made in Libby’s lifetime to transfer ownership of Kotare Street to her, Lisa says.  Lisa has received benefits to the value of $315,000, Justice Dunningham said, but has been left in her mid-fifties with no prospect of financial security or of owning her own home.

Justice Dunningham authorised legal action be taken in the name of Libby’s estate to recover, as relationship property, assets held by family trusts.  If successful, these assets become available for a claim by Lisa against her late mother’s estate.

Glass v. Glass – High Court (5.12.22) 

23.009

Fraud: Drever v. Police

Confirming former Auckland real estate agent Aaron Carl Drever’s sentence of two years and two months imprisonment for fraud, the High Court said any appeal for a sentence reduction on grounds of good character failed because of his previous real estate history of unreliable, inaccurate and reckless behaviour.  

Drever’s real estate licence was cancelled in November 2016 after being found guilty by Real Estate Agent’s Disciplinary Tribunal of professional misconduct: acting for both sides when there was a conflict of interest between buyer and seller, failing to properly account for advertising money and putting improper pressure on clients.

Subsequently, he was convicted in the District Court of two separate frauds.  In December 2016, he arranged the sale of land then belonging to the Avondale Bowling Club in Auckland using a dummy company as purchaser and then immediately on-selling at a personal profit of $466,000.  In September 2019, he bilked organisers of speedway events at Western Springs with a false invoicing scam collecting $101,000.

At sentencing, the trial judge said Drever’s promises of making full reparation are unlikely to be honoured.  Drever was ordered to make partial reparation to his victims on release from prison; $50,000 to Avondale Bowling Club at $150 per week and $25,000 to Auckland Speedway again at $150 per week.

In the High Court, Justice Davison described Drever as being motivated by greed and financial gain with his offending being calculated and premeditated.  Evidence was given of Drever suffering from mental health issues with a diagnosis of attention deficit/hyperactivity.        

Drever v. Police – High Court (30.11.22)

23.008

Early Termination Fees: Commerce Commission v. CallPlus

CallPlus customers cancelling early their fixed term contracts are entitled to refunds for termination fees charged if they were not told the dollar amount when they signed up.  

Now consolidated into Vocus Group, CallPlus came under Commerce Commission scrutiny for its direct selling of broadband and electricity services, cold-calling potential customers.  On offer were 12 month or 24 month fixed term contracts. Potential customers were told a fee ‘may be charged’ for any early termination.  The amount to be paid was not specified.  On early termination, customers were charged between $149 and $250.

CallPlus said fixed term contracts allowed it to offer contracts at a cheaper rate with the early termination fee being compensation if a customer cancelled early.  Commerce Commission said the potential fee is part of the ‘price’ and should be disclosed.

Justice Lang ruled CallPlus was in breach of the Fair Trading Act.  An early termination fee formed part of the total price due, even though this fee might never be charged.  Being aware of the amount that might be charged for early cancellation enabled customers to make an informed choice when entering into unsolicited direct sale agreements.

The court was told CallPlus and the Commission had already negotiated levels of compensation payable should CallPlus lose in the High Court. 

Commerce Commission v. CallPlus Services Ltd – High Court (29.11.22)

23.007

Deathbed Trust: Parbhu v. Parbhu

Defeating property claims by estranged family after death through adroit use of deathbed family trusts is being tested in the High Court.

A burgeoning trusts industry is developing seeing assets shuffled into a family trust just prior to death leaving a deceased estate penniless.  Estranged family members looking to sue under the Property Relationships Act or the Family Protection Act are greeted with news that this is a waste of time and money; the estate is valueless.  Disputed assets are now held separately, protected in a family trust, managed and distributed according to terms of the trust.     

In the first step towards challenging a deathbed family trust, members of the Parbhu family had the High Court appoint an independent lawyer to investigate what had happened to their late father’s assets.

The High Court was told Mohan Parbhu died in 2021. Terms of his will appointed his second wife Lilawati Mohan Parbhu as executrix of his estate.  Lilawati together with a daughter of Mohan and Lilawati are the sole beneficiaries.  Children of his first marriage received no bequests.  Learning that Mohan had transferred all his assets to a family trust shortly before his death, these children challenged Lilawati’s appointment as executrix.  Assets transferred include three residential properties.  They argue these assets should be clawed back into Mohan’s estate, becoming available should their personal statutory claims succeed against their late father’s estate.

Justice Peters removed Lilawati as executrix, appointing an independent lawyer in her place.  Lilawati cannot be expected to act in an impartial manner as executrix when her entitlements as a beneficiary are being challenged, Justice Peters ruled.

Evidence was given that Mohan’s sole asset on death was cash totalling some $19,000.  The independent lawyer was empowered to make a full investigation.

Parbhu v. Parbhu – High Court (25.11.22)

23.006

 

Undue Influence: Hingston v. Hingston

There was a valid explanation for a family financial arrangement looking at first glance to heavily favour a son and his family trust at the expense of his father the Court of Appeal said, overturning a High Court ruling of undue influence.

Litigation followed a 2009 family arrangement enabling Keith Hingston to remain in occupation of his Welcome Bay home in Tauranga following a Family Court order that he pay his then wife $295,000.  Aged in his seventies, Keith was unable to raise finance. In a letter to his father, son David spelt out starkly the options open; financial assistance from David and his family trust or sale of Welcome Bay.  The letter set out pros and cons for each option.

The Court of Appeal was told Keith wanted to remain in Welcome Bay until, in his words, he was carried out in a pine box.  He became determined to take up his son’s offer of financial assistance as the only option.

The agreed arrangement saw sale of Welcome Bay to David’s family trust with his father retaining rights of occupation under an agreement to occupy.  Sale price for Welcome Bay was agreed at a figure the High Court described as being $130,000 less than market value and $55,000 below what a registered valuer determined as being forced sale value.  There was an objective basis for this apparently low sale price, the Court of Appeal said.  Market prices were depressed, sale costs were avoided and son David was also looking to recover legal costs paid by the Trust on behalf of Keith.

Also questioned in the High Court was the $115,700 owed by Keith for purchase of his lifetime right to occupy Welcome Bay. Based on sale price for Welcome Bay and Keith’s life expectancy, this figure was fairly and objectively calculated, the Court of Appeal said.  This $115,700 debt owed David’s family trust includes a contingent liability to pay interest at 4.25 per cent, if demanded.

The arrangement also saw Keith transfer future Jacques Martin pension payments and all his personal property to his son’s family trust.  This was explained as providing security for the $115,700 debt.  Keith retained possession of his personal property.  Pension payments were in reduction of the debt. David’s family trust had borrowed to buy out Keith, having an interest bill to meet and no income since Keith had rent-free occupation of Welcome Bay.

There was conflicting evidence as to whether unnecessary pressure was put on Keith at the time he signed.  He said in evidence that son David was present when he signed. The Court of Appeal said the weight of evidence was that David and Keith were in different rooms and in different cities when Keith signed.        

There was no undue influence, the Court of Appeal ruled. Keith received independent legal advice. The Court of Appeal emphasised it was ruling only on whether there had been undue influence; it was not commenting on overall fairness of the transaction or whether it was commercially a ‘good deal.’

Separately, the case was sent back to the High Court to resolve disputed claims by each side that the other had not fully honoured terms of the agreement.

Hingston v. Hingston – Court of Appeal (22.11.22)

22.178 

Agent: Nelson Honey & Marketing v. Gu

Facing the legal problem of suing a customer in China for $1.7 million allegedly unpaid, Nelson Honey & Marketing turned its guns on Grace Gu in New Zealand claiming she had guaranteed payment.  The claim was thrown out.  She acted merely as consultant to Nelson Honey and incurred no personal liability for customer’s unpaid accounts.

In 2013, Nelson Honey & Marketing (NZ) Ltd met with Ms Gu for advice on marketing its product in China.  She provided contact with a Mr Jack Wang. Through Mr Wang’s company Horizon, Nelson Honey’s product was sold online through a trading company called VIPShop.  Over a five year period some $8.7 million of product was supplied to Horizon.  In early 2018, Nelson Honey claimed about $1.7 million remained unpaid.  Threats to sue Mr Wang and Horizon in China were put on hold; Ms Gu was sued.

The High Court was told a formal consultancy agreement between Nelson Honey and Ms Gu had been drafted, but never signed.  For a period, a company controlled by Ms Gu was used as a conduit for the export transactions.

Associate judge Johnston ruled there was no evidence that Ms Gu had guaranteed payment of Horizon invoices.  In fact, part of the unsigned draft consultancy agreement indicated Ms Gu would never be liable for Horizon accounts.

Nelson Honey & Marketing (NZ) Ltd v. Pureality Trading Company Ltd & Gu – High Court (16.11.22)

23.005

Directors' Duties: Viranda Partners Ltd v. Guest

Alleging Andrew Guest and Stephen Donovan diverted potential benefits from a multi-million dollar Auckland land development into their own pockets, joint venture partner Tim Chen is in the High Court seeking to work around legal roadblocks Guest and Donovan are exploiting to prevent legal action.   

The three are directors of a company called Viranda Partners Ltd.  Investors represented by Chen allege Viranda Partners was robbed of a business opportunity near Warkworth just north of Auckland valued variously between $25 million and $54 million.  The land in question sold in 2021 for $200 million.

Guest and Donovan deny any wrongdoing.  Legal rules require court action over the dispute to be taken in the name of their joint venture company: Viranda Partners Ltd. It is Viranda which has been allegedly harmed.  Viranda has no money; it cannot pony up cash to pay lawyers.  An investors agreement requires unanimous consent from all Viranda directors before any calls are made to raise further cash from shareholders. The High Court was told Guest and Donovan have made it clear; they will veto any call for cash from shareholders to fund legal action by Viranda against them.

Associate judge Lester granted Chen’s company Veritas Capital Company Ltd status to bring legal action in Viranda’s name against Viranda directors Guest and Donovan.  Veritas Capital is a Viranda shareholder.  While Veritas will fund the litigation, it has a right to claim reimbursement from Viranda should Guest and Donovan be found liable for breach of directors’ duties and ordered to pay damages to Viranda.

The effect of the High Court ruling is to shift control of current legal action against Guest and Donovan from their joint venture company Viranda where they can veto any progress to shareholder Veritas Capital and Veritas’ investors where Guest and Donovan have no say. 

Viranda Partners Ltd v. Guest – High Court (14.11.22)

23.004

Directors' Duties: Haines v. Bassett-Burr

After improperly triggering insolvency procedures attempting to force payment of a disputed debt claimed by Lynx Trustees Ltd, Wellington director Roy Barrett-Burr was held personally liable for $21,600 court costs subsequently levied against Lynx which is currently in liquidation. 

The costs order against Mr Barrett-Burr personally arose out of a long running dispute between Lynx Trustees and Quentin Haines.  Each claims money is owed by the other.  This dispute is further complicated by an equally long running personal dispute between Mr Haines and Harry Memelink who is Mr Barrett-Burr’s brother-in-law.  Mr Memelink is bankrupt.

In 2019, Mr Barrett-Burr signed five formal statutory demands in name of Lynx Trustees claiming sums from Mr Haines and from companies associated with Mr Haines for amounts ranging between $140,800 and $421,300.  This was a preliminary legal step seeking to bankrupt Mr Haines and to put his companies into liquidation.  The courts take a dim view of insolvency procedures being used when there is still a dispute over debts claimed.

In the High Court, Mr Haines had these statutory demands set aside.  How much was owed was still in dispute.  Following a further formal court application, Mr Haines got a court order holding Mr Barrett-Burr personally liable to reimburse his costs of $21,600.  The demands were issued in the name of Lynx Trustees, but Mr Barrett-Burr as Lynx director was personally liable for not acting prudently and for improperly issuing in Lynx Trustees’ name statutory demands for debts that were clearly in dispute.

Haines v. Bassett-Burr – High Court (11.11.22)

23.003

Freezing Order: ANZ Bank v. Lee

Hearing its customer Jinwon Lee had returned to Korea after a fire sale of business assets, ANZ Bank got a freezing order over his Auckland home and further court orders that other financial institutions disclose any financial dealings they had with Lee, otherwise known as James Lee.

The High Court was told Mr Lee had guaranteed finance provided to his import businesses, Hanyang Corporation Ltd and Hanyang International Ltd.  These businesses imported food products from Korea for retail sale in New Zealand.  He disappeared off the bank’s radar after ANZ called up its loans.  The Bank discovered his warehouse and retail store were left scattered with debris after a quick-fire discount sale of stock held.  A container of food with an invoice value of US$60,000 had been left abandoned at Port of Auckland.  His landlord had seized remaining business chattels to cover unpaid rent.  His home at Sartors Avenue at Browns Bay on Auckland’s North Shore was listed for sale.

Fearing sale proceeds from Sartors Avenue would be transferred out of New Zealand, ANZ Bank got a High Court order freezing any proceeds of sale.  The Bank also got disclosure orders against CFML Lending, Kookman Bank, Heartland Bank and Westpac requiring disclosure of their recent dealings with Mr Lee.  ANZ said this might identify other assets Mr Lee may have in New Zealand.

ANZ Bank v. Lee – High Court (9.11.22)

23.002

Money Laundering: R. v. Jiaxin Finance

 Failing to comply with customer due diligence as required by money-laundering legislation when transferring some $53 million from China saw Qiang Fu fined $180,000, his foreign exchange business Jiaxin Finance Ltd fined $2.55 million and his mother Fuqin Che fined $202,000.  Remitted via 311 separate transactions, the $53 million is alleged to be illicit proceeds from a fraudulent pyramid selling scheme in China engineered by Xiao Hua Gong, also known as Edward Gong.   

The High Court was told Che, also known as Lily Che, had dealings with Mr Gong as far back as 2011.  She was then managing a business owned by her son called Global Concept Capital Investment and Finance.  This relationship continued when Fu’s new business, Jiaxin Finance, subsequently took over Global Concept’s client base.

They were convicted of failing to carry out customer due diligence and failing to keep adequate records.  Justice Walker said the sheer volume and frequency of remittances processed through Jiaxin Finance on behalf of Mr Gong should have raised suspicions.  There was no stated commercial objective for the foreign exchange transfers other than laundering funds from China.

Using Mrs Che as a buffer creating the appearance that she, not Mr Gong, was Jiaxin’s customer did not excuse Jiaxin from looking beyond Che to identify and to undertake due diligence on the actual customer.

Police said Mr Fu has convictions in China dating back to March 2013 for foreign exchange trading offences.  Their relevance to an increased penalty when sentencing in a New Zealand court for similar offences cannot be taken into account without formal proof of conviction from China authorities, Justice Walker said.      

R. v. Jiaxin Finance Ltd, Qiang Fu & Fuqin Che – High Court (3.03.22) & Supreme Court (4.11.22)

23.001