Estate: Craig v. NZ Guardian Trust

 

With his younger brother in line to inherit about $10.9 million from a close relative, Roderick Craig claims he is owed six million dollars of that money as a result of a business deal struck over fifty years ago with their relative Max.

Roderick is challenging distribution of Max’s estate in what is direct challenge to his younger brother James inheriting the full $10.9 million.  James is residuary beneficiary in the estate of Max Alexander Craig, who died in 2021.  Roderick is not named as an estate beneficiary.

Roderick claims he sold his Taranaki panelbeating business at Manaia in 1981 and relocated to Norfolk Island with his family to assist Max in his retail store on the basis that Max had promised Roderick would inherit on his death.  Difficulties followed.  Roderick’s marriage came to an end two years later.  Roderick and Max parted company the following year in circumstances which are proving critical to his claim against Max’s estate.

Estate executor NZ Guardian Trust questions whether Roderick has any grounds to bring a six million dollar claim.  If successful, this would amount to two million dollars for each of the three years he worked in Max’s shoe and knitwear business.

Roderick claims the promise of a share in Max’s estate can be enforced under the Law Reform (Testamentary) Promises Act.  Claims can be reduced or rejected if adequate payment in some form is made during the deceased’s lifetime in return for the promise made. 

Guardian Trust says that even if there were a testamentary promise, wages paid Roderick while he was employed were sufficient compensation for the work done.  It further claims that payment of AUD 30,000 made by Max in 1984 to sever their business relationship is a bar to any testamentary promise claim.  Roderick returned to New Zealand shortly afterwards.

Roderick said wages received were no more than the amount paid store counter staff and did not represent full payment for the work done.  He further claims the AUD 30,000 severance payment was not fully explained and was forced on him at a time when his personal relationship with Max had soured.

Associate judge Skelton left open Roderick’s testamentary promise claim.  A full court hearing is needed to establish the reasonableness of payments Roderick received from Max measured against the work done.

Craig v. NZ Guardian Trust Co Ltd – High Court (4.08.23)

23.131

Bankruptcy: Official Assignee v. Elite Telecomms

 

Sale of a Nelson property was reversed by the High Court after evidence the owner sold on ludicrously uncommercial terms with instalment payments due over 25 years in order to frustrate a likely forced sale to meet tax debts. 

Mila Amber was bankrupted in 2020 by Inland Revenue on unpaid tax debts of some $365,000 for unpaid tax, shortfall penalties and overpaid Working for Family credits.  Her tax affairs had been under investigation from as far back as 2013.

The High Court was told Ms Amber and her then husband had for many years run a bed and breakfast business from an address in Weka Street, Nelson.  The company they used to trade this business was itself put into liquidation by Inland Revenue in 2014, by which time the company name had changed to Abbey Services (Killed by Tax Maladministration) Ltd.

Over subsequent years, Ms Amber’s personal tax situation came under investigation.  By 2017, she was on notice that tax arrears of at least $110,000 were owing with further investigation pending.

Evidence was given that Ms Amber then negotiated sale of Weka Street in December 2017 to a UK-registered company called Elite Telecomms Ltd owned by a Kevin Collins, resident in Scotland.

The agreed price was $847,008.74.  Mr Collins said Ms Amber as a Filipino wanted to receive an amount equivalent to thirty million Phillipine pesos.  No deposit was payable.  The price was due by instalments spread over 25 years.  No interest was payable on the unpaid balance.  Ms Amber remained resident at Weka Street, paying rent.

Mr Collins claimed to have not known Ms Amber before the sale and that the purchase was simply an opportunity to diversify Elite Telecomms business activities with the opportunity to make tax-free capital gains in New Zealand.

Associate judge Paulsen said Mr Collins was not a credible witness.  There was evidence of his involvement with Abbey Services prior to its liquidation.  He was an acquaintance of Ms Amber’s former husband.  He was aware of Ms Amber’s attitude to the then current Inland Revenue investigation. 

Judge Paulsen ruled the Weka Street sale an ‘irregular transaction’ in breach of the Insolvency Act, intended to defeat Inland Revenue’s rights as creditor in Ms Amber’s bankruptcy.  He set aside the sale, ordering title to Weka Street be transferred to Insolvency Service.  Mr Collins’ Elite Telecomms will not be out of pocket, he said.  Rent received to date exceeded instalment payments currently due on the twenty-five year deal.

Official Assignee v. Elite Telecomms Ltd – High Court (3.08.23)

23.129

Co-owners: Middlemiss v. MIddlemiss

 

Richard Middlemiss’ brothers were held out of their inheritance for twenty years while he lived rent free in their late mother’s Blenheim home, refusing to shift.  It took a court order to force a sale with Richard given six weeks to vacate. 

The High Court was told their mother died in 2002, with Richard remaining in occupation of her three bedroom home on Main Street in Blenheim.  Terms of her will left the property equally to her four sons.  Richard refused to discuss a sale.  He paid no rent.  He failed to maintain the property.  After twenty years, the property was described as being run down and unkempt.

His brother Stephen finally forced the issue seeking a Property Law Act court-ordered sale with the proceeds divided equally between the four brothers.  Richard proved elusive.  It took thirteen attempts to serve the court application on him.  He did not defend the application or attend the court hearing.

Justice Churchman ordered a sale.  Stephen told the court he filed the Property Law Act application after running out of options, needing to receive his inheritance.  Approaching seventy, he had used all his savings and his only source of income was a pension and a disability allowance.

The Main Street property covers one hectare, with a current rating valuation of $375,000.  The court was told the only likely buyer is a developer who will demolish the house, redeveloping the site.

Middlemiss v. Middlemiss – High Court (3.08.23)

23.130

Dysfunctional Body Corp: Parkinson v. Body Corporate 62124

 

It is going to be expensive; the High Court ordered appointment of an administrator for a four-unit dysfunctional residential body corporate on Hankey Street in Wellington inner city suburb Mt Cook.  Owners cannot agree on maintenance and repair issues or who should chair their body corporate.  They now face the conundrum of deciding who should be appointed administrator.

With an exterior of painted cedar and plaster, the Hankey Road apartments in question were built in the 1980s.  The High Court was told there has been no change in apartment ownership for some two decades, with attitudes between owners hardening for at least the last five years.  Disputes over what parts of the building are a common cost for maintenance and what are an individual owner’s cost have led to multiple Tenancy Tribunal applications.  The Tribunal has been at pains to point out that the Tribunal is not the appropriate venue for resolving what are governance disputes between members.  There has been no functioning body corporate committee.

A major point of difference is the status of a retaining wall supporting one boundary of the apartments; a retaining wall which protects footpath access to another set of apartments on the downhill side.  Downhill neighbours claim the retaining wall is at risk of collapse.  This claim is complicated firstly by a dispute between uphill and downhill neighbours as to who is responsible for maintaining the wall and second by division between Hankey Street owners on the uphill side as to whether there is any risk of collapse at all.  Current repair estimates stand at $100,000.

A survey identified parts of the wall are on the boundary, other parts straddle the boundary.  An engineering report suggested soil movement may have nudged part of the retaining wall across the boundary line.  A meeting of both uphill and downhill neighbours intended to negotiate possible repairs proved acrimonious.

A subsequent Tenancy Tribunal ruling stated the uphill body corporate was responsible for repairing the boundary retaining wall.  It is part of the structure holding up all four uphill apartments.  The four individual uphill owners could not agree between themselves as to what should happen, or even whether repair was necessary.  Mediation proved unsuccessful.  They asked the High Court to appoint a Unit Titles Act administrator.        

Justice Grice ruled in favour of an administrator being appointed given the dysfunctional body corporate, stating the owners had to come back to court with an agreed name of the person willing to act as administrator with scope of the appointment and level of fees agreed.  It is common practice when seeking a court-appointed administrator to have a nominee sorted out before the court hearing.

Parkinson v. Body Corporate 62124 – High Court (1.08.23)

23.128

Fraud: Stevens v. R.

 

On appeal, Mathew Ian Stevens’ 23 month jail term for a $152,000 Christchurch fraud was reduced to home detention on account of his early guilty plea, likelihood of not re-offending and his agreement to pay $52,000 for the emotional harm caused former employers Adam and Michelle Wright.

The Wrights were devastated to learn of Stevens multiple frauds.  They said his manipulation of accounting data and presentation of false cashflow forecasts led to ruinous business decisions, ultimately leading to sale of their business.     

His frauds covered a five year period, during which time the 46 year old rose to become senior manager. He booked false callouts, pocketing the call-out fee ($12,400); created fake invoices from a fictitious company supposedly based in Los Angeles ($62,000); altered invoices from legitimate suppliers ($62,000); overstated personal expenses for business trips ($13,000); and sold company stock on his own account ($1200).

The High Court was told there was no clear motive for the thefts.  Stevens and his family were comfortably off financially.  A psychological assessment suggested Steven’s mild depression was ameliorated by splashing money around for the benefit of others.

Justice Osborne said the sentencing judge had dismissed consideration of home detention, emphasising the need for imprisonment on grounds of a ‘clear need for denunciation.’  Home detention was more appropriate, Justice Osborne ruled.  Stevens had no past record of similar offending and was unlikely to reoffend.

The formula applied for home detention meant a 23 month jail term would translate to eleven and half months home detention.  Since Stevens had already spent several months in jail prior to his appeal, the term of home detention required to complete his sentence was reduced to nine months.

Stevens v. R. – High Court (1.08.23)

23.127

Family Trust: Body Corporate 81012 v. Memelink

 

Bankrupt and with his family trust under control of court-appointed receivers, Harry Memelink had no grounds to resume control of trust assets and have receivers removed; part of a long running dispute over corporate body management of a block of Wellington commercial units.  Mr Memelink has failed multiple times in having receivers removed, going so far as challenging sitting judges with allegations of bias.  

Mr Memelink is bankrupt.  Insolvency Service told the High Court resolution of his bankruptcy has been hampered by poor accounting records, with personal transactions and family trust transactions mixed in together.  Chartered accountants from BDO Wellington are in control of his family trust, Link Trust No.1, with High Court instructions to sell assets and identify creditors.

Mr Memelink alleges trust assets are being sold at an undervalue.  Justice Grice ruled there was no evidence to support these allegations.  BDO says asset sales are being hampered by Mr Memelink’s interference.  Insolvency Service told the High Court it appears Link Trust owes Mr Memelink personally some $4.06 million; funds they hope to recover in payment of Mr Memelink’s bankruptcy creditors.  There are doubts whether Link Trust is solvent.

Mr Memelink’s latest application to remove the receivers was dismissed in the High Court.  There were no legal grounds for removal.  Mr Memelink’s current complaints had been dealt with at previous court hearings, the court said.

In two prior instances, Mr Memelink unsuccessfully challenged rulings by trial judges, alleging a conflict of interest in one instance and bias in the other.  He was told that adverse court rulings are not evidence of bias and that our legal system does not allow ‘judge-shopping’ with litigants casting around to get their preferred judge.  Presented as evidence supporting one of Mr Memelink’s allegations was a statement that a trial judge demonstrated bias with the abrupt manner his lawyer was treated in court.  This allegation did not fit the facts, the High Court said.  The lawyer named did not represent Mr Memelink at the court hearing in question.

Body Corporate 81012 v. Memelink – High Court (31.07.23)

23.126

Copyright: ESR Group v. Burden

 

In what is a decade long business dispute fought in the arcane arena of copyright law, a Court of Appeal ruling over the importation and sale of pirated furniture provides a measure of protection for retailers unwittingly importing and selling products previously sold overseas but manufactured in breach of copyright.  

Australian-owned ESR Group (NZ) Ltd trades in New Zealand as Early Settler.  Ian Burden alleged ESR Group sold in 2014 furniture imported from Vietnam pirated from his Irish Coast design.  He claimed copyright to Irish Coast.  He complains that a former colleague set up manufacturing operations in Vietnam, deceitfully ripping off his design.

In New Zealand, the High Court was told ESR Group’s furniture importations from Vietnam were ordered from a published catalogue.  It was unaware that the imported design was pirated, until later challenged.  ESR then placed no further orders.  A 2016 court ruling found the product sold in New Zealand by ESR Group as the Roseberry Collection breached Mr Burden’s claimed Irish Coast copyright.

A subsequent High Court ruling that ESR Group pay $221,000 damages was overturned by the Court of Appeal.  Legal argument centred on Copyright Act rights of ‘circulation,’ better known as ‘distribution rights.’  These rights are allied to Copyright Act provisions allowing reproduction of a copyrighted design.

The High Court ruled ESR Group breached Mr Burden’s distribution rights in New Zealand by importing and selling the pirated product without his approval.  The Court of Appeal subsequently ruled the fact that distribution of the pirated Vietnam product had previously occurred elsewhere in the world was relevant.  This meant the copyrighted product was already ‘in circulation’ and no direct liability lay with ESR Group for extending that ‘circulation’ to New Zealand.

ESR Group however remains liable for its net profit on sales made from the point it was aware that the furniture was pirated – a figure assessed at $9316.

An earlier appeal decided Mr Burden personally did not hold copyright in the pirated furniture; copyright is held by two overseas companies: PGT Reclaimed (International) Ltd and Plantation Grown Timbers (Vietnam) Ltd.

ESR Group (NZ) Ltd v. Burden – Court of Appeal (31.07.23)

23.125

Legal Services: Memelink v. Haines

 

Having agreed to a legal services contract described as ‘highly unorthodox’ by the High Court with a client agreeing to guarantee loans for a property purchase as part payment of legal fees, former Wellington lawyer Quentin Haines has become entangled in his client’s octopus-like grip with no sign of immediate resolution.

Mr Haines took on Mr Memelink as a client when setting up practice as a lawyer on his own account.  Mr Haines surrendered his practising certificate in 2018, but the tangled state of his former relationship with Mr Memelink lives on.  The courts have been kept busy with argument over the level of fees charged Mr Memelink and his family trust together with an as yet unresolved dispute over Mr Memelink’s assistance in the purchase of a property occupied by Mr Haines in Eastern Rise at Manakau, near Levin.

The High Court was told Mr Memelink agreed to guarantee loans raised by Mr Haines to purchase Eastern Rise.  When the two fell out, interests associated with Mr Memelink took ownership of a second mortgage registered over the property.  Interests associated with Mr Haines then bought out the first mortgage.  A sale by the first mortgagee left Mr Memelink unsecured; the sale did not clear enough to repay monies owed Mr Memelink’s family trust.

This resulted in Link No.1 Trust, Mr Memelink’s family trust, challenging circumstances of the Eastern Rise mortgagee sale.  The property was sold by private sale, not auction.

Meanwhile, Link No.1 Trust was put into receivership by the High Court with a further court order blocking all legal actions against Link No.1 without court approval.  This had the effect of removing Mr Memelink from day to day control of his family trust.  A de facto liquidation of Link No.1 is underway.

Mr Haines then asked the High Court to strike out Link No.1’s challenge to the Eastern Rise mortgagee sale.  Receivers had no interest in pursuing the claim, he said.  And in any event, it was a frivolous and vexatious claim with no chance of success, he claimed.

The strike-out application was set down for a brief one hour hearing slot at the High Court.  The hearing took a little longer.  Mr Memelink turned up.  As a trust beneficiary of Link No.1, Mr Memelink emphasised he had rights to share in any surplus after all Trust creditors have been repaid.

Justice Grice dismissed Mr Haines strike out application.  All legal actions were on hold so receivers could sort out Link No.1’s financial position.  This did not stop residual litigation recommencing after the receivership ended.

Memelink v. Haines – High Court (31.07.23)

23.124

Relationship Property: Sroubek v. Bozhenko

 

Convicted drug dealer and former kickboxing champion Karel Sroubek, also known as Jan Antolik, is in court claiming part interest in an Auckland property owned by his former parents-in-law.  At the same time he is challenging deportation after sneaking into New Zealand under a false identity.

Mr Sroubek is a Czech citizen.  His New Zealand resident status is uncertain. He gained media notoriety after gaining entry under a false name.  His receipt of New Zealand residence became a political circus.  This residency was annulled in 2018.  He is currently appealing a deportation order.

In New Zealand, he came to the attention of police, jailed in 2016 for drug offences.    

Mr Sroubek’s property dealings are now part of a relationship property claim.  The High Court was told he began a relationship with Ekatarina Bozhenko in 2011.  They married in 2016; that marriage dissolved four years later.  In dispute is a 2015 purchase of a property in Abbotts Way, Ellerslie, for $1.7 million.

Evidence was given of the two buying Abbotts Way at auction, but not completing the purchase.  Title was taken in the name of her parents, who live in Russia.  The purchase was funded in part with a $1.1 million ASB Bank loan.

There were family discussions about subdividing the property into three lots.  Nothing came of this. Mr Sroubek was jailed and his potential cash contribution was seized by police under the Criminal Proceeds (Recovery) Act.

On release, Mr Sroubek lived at Abbotts Way.  He carried out renovations.  The value of this work is disputed.  With Ekatarina, he was involved in a joint enterprise under the name Relax (NZ) Ltd, importing fruit juices.  This company was propelled into liquidation in early 2019.  The liquidators’ first report states Relax’s demise was caused by its bank closing the company account and withdrawing funding.  No other banks were willing to accept Relax as a customer.

Following separation from Ekatarina, Mr Sroubek claimed an interest in Abbotts Way by reason of the renovations he managed.  He claims a 25 per cent share.  The property is claimed to be now worth some $3.3 million.  Mr Sroubek registered a caveat against the title to protect his claimed interest.

The High Court was told this claim is tied in with a relationship property dispute with his former spouse.  It was agreed the caveat is to remain; Mr Sroubek’s claim to a share in Abbots Way to be decided as part of pending relationship property litigation.

Mr and Mrs Bozhenko, as owners of Abbotts Way, asked that Mr Sroubek be ordered to pay money into court as security for payment of their legal costs should his claim be unsuccessful.  Associate judge Brittain declined their request.

The Bozhenkos claim Mr Sroubek owes them rent for time he lived at Abbotts Way and further claim he owes $61,000 for a loan they made to him.

Sroubek v. Bozhenko – High Court (28.07.23)

23.123

Commerce Act: Commerce Commission v. NGB Properties

 

Mitre 10 agreed a $500,000 penalty with Commerce Commission after buying up nearby property in Tauranga to prevent Bunnings opening in opposition and then registering a restrictive covenant against the title in what proved to be an ineffective attempt to prevent the site ever being used by a competitor.  To clinch its purchase, Mitre 10’s opening offer at $850 per square metre was eventually pumped up to $1,046 square metre.

Mitre 10 enjoys a local monopoly for its central Tauranga MEGA store at Gate Pa.  Competitor Bunnings’ closest outlet is some ten kilometres away in Mount Maunganui.

The High Court was told Mitre 10 was shaken to learn in 2018 that Bunnings had paid $7.9 million to buy a site five hundred metres down the road in central Tauranga.  For Bunnings, this site was big enough for only a home improvement store.  Land next door was needed, with the combined sites being large enough for a Bunnings Warehouse.  A bidding war ensued between Mitre 10 and Bunnings, with each trying to get control of this adjoining land. Mitre 10 came out on top with its offer of $10.8 million.  Looking towards a future onwards sale, Mitre 10 registered a restrictive covenant against title to its purchase, prohibiting any future owner from running a business on the site in direct competition with Mitre 10’s business.   

Evidence was given that Mitre 10’s legal advisers were unaware of the Commerce Act rule prohibiting such restrictive covenants.  They are anticompetitive; restricting competition, reducing consumer choice.  The Act states such covenants cannot be enforced.

Mitre 10 removed its restrictive covenant before putting the property back on the market in 2021, selling to Kainga Ora at the original $10.8 million purchase price.

While Mitre 10’s adventure had limited direct financial cost, there was the economic cost of management time, reputational damage and the opportunity cost on $10.8 million which could have been put to more profitable use in the interim.

A $500,000 penalty for breach of the Commerce Act was approved by the High Court.  The maximum penalty is ten million dollars.

Justice Cooke commented that simply purchasing land to stop a competitor getting a local foothold can, by itself, be considered anticompetitive behaviour in breach of the Commerce Act.   

Commerce Commission v. NGB Properties Ltd – High Court (28.07.23)

23.122

Family Trust: Kinnon v. Hong

 

Lawyer Boon Hong was struck off in 2020 for disgraceful conduct after taking ownership of a client’s Kerikeri property without the client’s knowledge and contrary to his client’s interests.  Three years on, the High Court has ruled Hong keeps title, but as trustee, and has to pay damages yet to be assessed.

Mr Hong had been Douglas Kinnon’s family lawyer since the 1990s.  In 2005, Mr Kinnon and his then wife agreed to buy a property on Rangitane Loop Road at Kerikeri as their family home.  Things got complicated.  Final settlement was delayed nearly three years in a dispute over the final price, while the family variously lived at the property or rented it out.  With the family short of cash to complete settlement, Mr Hong provided about $600,000 to finalise the purchase.  There was some talk of Mr Hong becoming part owner.  Nothing came of initial discussions. 

After settlement, title was taken in the name of a family trust with Mr Hong as one of the trustees.

The High Court was told title to Rangitane Loop was later transferred with approval of his fellow trustee into the name of a nominee trust company controlled solely by Mr Hong.  This was for administrative reasons, he explained; to better manage numerous trusts of which he was a professional trustee.

Subsequently, Mr Hong transferred Rangitane Loop from the nominee trust company into his own name and borrowed money from ASB Bank on security of the property.  Mr Hong justified these steps to a Law Society disciplinary hearing on grounds that he ‘needed the money.’  The High Court was to later state that Mr Hong bizarrely rationalised his actions on the basis that he held a common law mortgage over Rangitane Loop in respect of his $600,000 loan and that the property was now his; this loan having been ‘repaid’ with notional rent charged the Kinnon family for their occupation of Rangitane Loop offsetting the loan.  Justice Harvey pointed out that if a loan is repaid, the debt is then cleared.  There can no longer be any claim over an asset supposedly available as security.

The High Court was asked to rule on who has ownership of Rangitane Loop.  Justice Harvey ruled title remains in the name of Mr Hong, but he holds ownership as trustee of the Kinnon family trust.  As trustee, he has to account for any personal benefit enjoyed.

A later court hearing is needed to identify what the ASB loan was used for.  This loan was made to Mr Hong personally but secured over a trust asset.  If these funds generated a profit, this profit belongs to the family trust, not Mr Hong.

Mr Hong provided $600,000 to purchase Rangitane Loop as a trust asset.  He has a claim against trust assets for repayment.

Kinnon v. Hong – High Court (27.07.23)

23.121

Management Contract: Body Corporate 406198 v. Property Opportunities

 

While rent subsidies for apartment managers are common, linking a rent discount to management’s right to control letting for all apartments in the building proved fatal for Shiraz Holiday as manager of ‘Bianco off Queen,’ in Auckland’s central business district.  Shiraz had no lawful right to exclusive control over apartment lets.

Bianco’s two towers include a mix of owner occupiers, investors with their apartment held in a pool for hotel lets and Kainga Ora social housing.  Masoud Bassamtabar’s Shiraz Holiday Ltd purchased Bianco’s management rights in 2014 for $1.46 million.

A dispute over Shiraz’ management rights led to a High Court ruling in 2022 that a Unit Titles Act body corporate has no authority to give exclusive letting rights to anyone.  The right to let is a personal right held by each apartment owner.  That right cannot be usurped by a body corporate, selling the rights to someone else.

This High Court ruling led to a further dispute over rent subsidies allowed by the body corporate to Shiraz.  The Court of Appeal ruled invalid a Shiraz rent subsidy in respect of a unit it used for an office and hotel reception area.  Wording of the rent subsidy was linked in the management contract to exclusive control of letting rights.  Since Shiraz had no valid right to exclusive control of apartment letting, the linked rent subsidy was also invalid.

The case was sent back to the High Court to determine how much Shiraz should refund the Bianco body corporate for previous years’ rent subsidies.

Body Corporate 406198 v. Property Opportunities Ltd – High Court (19.07.23)

23.119

Company Deadlock: Stewart v. Stewart

 

With each blaming the other for deadlocked management of their Katikati kiwifruit and avocado orchard, Justice Harvey ordered Lijia Stewart co-operate to ensure creditors were paid.  Estranged spouse Peter Stewart has a protection order out against his wife and has been paying Peter Stewart Holdings Ltd’s business creditors out of his own pocket, the High Court was told. 

Lijia, also known as Luwina Guo, has been deliberately obstructive, blocking ongoing operation of Stewart Holdings, Peter Stewart claims.  She disputes his entitlement to a $196,000 annual salary.  The two are currently embroiled in a relationship property dispute, having separated in early 2021.

Meanwhile, payment of Stewart Holdings employee wages, trade creditors and tax has been prejudiced.  Mr Stewart says he spent some $600,000 of his own money to pay company debts.

Ms Stewart says she lives on a benefit and is receiving no money from a family trust which is majority shareholder of Stewart Holdings.  The protection order prevents her from attending meetings proposed to resolve their differences, she says.

The stalemate cannot continue, Justice Harvey said.  Stewart Holdings viability is under threat.  A temporary Companies Act injunction was imposed, enabling Stewart Holdings to keep trading pending a full court hearing.

Ms Stewart was ordered to sign off on payment of company debts.  Included as a company debt is Mr Stewart’s salary.  Justice Harvey ruled only fifty per cent of Mr Stewart’s $196,000 salary package is payable whilst their dispute continued.

Stewart v. Stewart – High Court (19.07.23)

23.118

Contract Variation: Oakland Dairy v. Flooks

 

A family dispute over interest on a loan secured over a Hauraki Plains farm exemplifies legal contortions needed to enforce contract variations.  Variation of an existing contract is itself a contract and legal principles require both sides to receive a benefit to have an enforceable variation.  Lawyers could borrow from economists: if the varied outcome makes you feel good; it is a benefit.

Lawyers often search in vain for a quantifiable benefit justifying a contract variation.  Agreeing to accept less than previously agreed is simply a gift to the other side; the donor receives no financial benefit (consideration in legal jargon) and the variation is not enforceable.  In jargon used by economists, benefits are measured by the ‘utility’ received.  A gift is not valueless for a donor; warm fuzzies and enhanced social reputation enjoyed by the donor are an economic benefit.

Variations to a loan, part of an inter-generational transfer of a Flook family farm on the Paeroa-Kopu Road, are better described as benefits falling into the warm-fuzzies category, rather than needing lawyers to scrabble around looking for evidence of a financial benefit for both borrower and lender.

The High Court was told Kay and Kevin Flooks passed on the family farm to son Trevor in 2008 at a price of $6.77 million.  Of the purchase price, Kay and Kevin left in $3.4 million secured by second mortgage security.  This loan was repayable in June 2018, with a formula for interest to be paid on a band between eight per cent and twelve per cent per annum.

The loan was simply rolled over in 2018, with no new repayment date fixed.  Interest charged was reduced progressively over the years in line with market rates.  Ever since 2015, interest charged has been below the minimum eight per cent specified in the mortgage document.

A family dispute arose on their father’s death in 2020.  Daughters Tracey and Debra took exception to the financial concessions that had benefitted their brother.  As one of the estate administrators, Tracey refused to sign off on a discharge of the mortgage.  She disputed the amount needed to repay the loan.

Separately, both Tracey and sister Debra are challenging terms of the family farm’s sale to their brother.        

Justice Edwards ruled there was an oral agreement between Trevor and his parents to both roll over the loan and to reduce interest payable below the contract rate.  These variations were enforceable on grounds of the ‘practical benefit’ to the family, she ruled.

Estate administrators were ordered to sign a discharge for their father’s half share of the mortgage since the debt to him had been repaid in full.  If Tracey refuses to sign, the High Court registrar was authorised to sign in her stead.

Oaklane Dairy Ltd v. Flooks – High Court (17.07.23)

23.117

Directors Duties: Auckland Trotting Club v. Canam Group

 

Holding in its favour what appears to be a worthless $85.6 million arbitration ruling against insolvent contractor Canam Construction Ltd, Auckland Trotting Club’s disastrous foray into property development now sees it suing Canam directors Loukas Petrou, Nicholas Page and Andrew Clark.

In 2015, Auckland Trotting awarded Canam Construction a $78.3 million contract for building residential apartments at its Alexandra Park track in Green Lane.  Canam was fired from the job three years later.  Another company completed the work.

A liquidators’ report filed after Canam put itself into liquidation describes as primary causes of the company’s collapse problems over Auckland Trotting’s supply of steel from China and a stop work notice imposed by Auckland Council.

Auckland Trotting’s dispute with Canam went to arbitration. Canam was ruled liable to pay $85.6 million; primarily costs of delayed completion and the extra amount Auckland Trotting had to pay for completion by another contractor.

With Canam Construction not worth suing, Auckland Trotting has fired writs far and wide claiming damages from: Canam’s directors; Canam’s holding company; and other Canam subsidiaries where it is alleged Canam stashed money.

In a preliminary High Court hearing, Associate judge Gardiner dismissed some, but not all, of the claims made against director Loukas Petrou.  If Auckland Trotting can prove that Mr Petrou failed to properly perform his Companies Act duties as director of Canam Construction, then Auckland Trotting as an unpaid creditor can recover from him directly, Judge Gardiner ruled.  Auckland Trotting alleges Canam directors were reckless.

Auckland Trotting also alleges Mr Petrou and fellow director Nicholas Page breached the Fair Trading Act, making misleading representations about Canam Construction’s financial viability.  The High Court was told of tender documents in 2015 stating Canam as having a strong balance sheet, healthy cashflows and no debt.  In contrast, a specialist report prepared partway through construction when Canam sought to renegotiate the contract described the company as facing an unsurvivable $14.8 million loss on the project, while the Canam Group claimed to be solvent.

It was Canam Construction’s failure to get a parent company guarantee within five days of being awarded the contract and its subsequent refusal make good on its promise to get a guarantee that justified subsequent cancellation by Auckland Trotting.

Auckland Trotting Club Inc v. Canam Group Ltd – High Court (13.07.23)

23.116

Tax: Aokautere Land v. Inland Revenue

 

Having fought to the bitter end litigation by Vey Group minority shareholders with a High Court order eventually forcing sale of an investment property in Wellington, company director Leslie Fugle then saw Inland Revenue snatch his $1.18 million payout in part-payment of $2.7 million tax debt owed by a Manawatu land development company he owned.

Mr Fugle is sole director and shareholder of Manawatu company: Aokautere Land Holdings Ltd.  In February 2021, Inland Revenue assessed Aokautere to $2.71 million tax on sales of land over the previous five years.  Aokautere had filed no tax returns for the period.  It did not challenge the default assessment.  It did not pay the tax.

Nearly two years later, Mr Fugle’s Aokautere Land was expecting to receive a payout on the court-ordered sale of Vey Group’s Webb Street property in Wellington.  Mr Fugle gained a controlling interest in Vey Group after initial investors fell out.  He engineered a secured loan from Aokautere to Vey Group, after gaining control.  A sum of $1.185 million was owed Aokautere following sale of Webb Street.  Inland Revenue pounced, claiming this money in part-payment of Aokautere’s earlier default tax assessment.

Aokautere is belatedly challenging Inland Revenue’s earlier default tax assessment and with it the right to seize cash expected from the Webb Street sale.

Mr Fugle claims Inland Revenue is not playing by the rules.  He says Inland Revenue did not comply with its own 2020 policy statement: The Disputes Resolution Process and Fair Trial Rights.

Under this policy, Inland Revenue waives timelimits for challenges to tax assessments where a related criminal tax prosecution is likely.  At time of the default assessment, both Mr Fugle personally and a company related to Aokautere Land were under investigation with allegations of GST fraud.  The High Court was told this fraud investigation has since been dropped.

There was no evidence of Inland Revenue ever considering a criminal prosecution against Aokautere.

Meanwhile, Aokautere asked the High Court to order disclosure of internal Inland Revenue documents justifying steps taken to snatch the $1.18 million from sale of Webb Street.

Justice Gwyn stated this demand was no more than a ‘fishing expedition,’ with Aokautere trying to build a judicial review case to overturn Inland Revenue’s seizure of the expected $1.18 million payout.  Disclosure was refused.

Aokautere Land Holdings Ltd v. Inland Revenue – High Court (13.07.23)

23.115

Trademark: Zuru v. Lego

 

A local skirmish in what is a world-wide assault by the Mowbray family business Zuru to dis-establish Lego’s trademark foundered in the New Zealand courts.  In the US, Zuru is arguing that the word Lego has lost trademark protection, going the same way by common usage as trademarks Cellotape and Velcro.

Marketing can be too successful, with a trademarked name becoming common usage as a name used to describe comparable products. 

One of Mowbrays’ manufacturing strategies for toys has been to take an existing product, produce a close clone and then market its product as being compatible with and able to be used in conjunction with the existing market leader.  Mass production in China keeps costs down; promised compatibility boosts market share, bootstrapping Zuru’s product to the market leader’s commercial reputation.

Lego came down hard on Zuru’s infiltration of its market.  Lego has been in existence for nearly ninety years.  The Danish company has long since lost copyright protection for its product.  Trademark of the name Lego is used to protect its market value.

The High Court was told Zuru sounded out US retailing giant Walmart in 2017 about stocking a Lego-compatible plastic building brick.  Walmart was enthusiastic, but rejected sample packaging describing the Zuru product as being compatible with Lego bricks.  Walmart approved packaging stating the product was ‘compatible with major brands.’

Following success with the Walmart launch, Zuru stocked its product in New Zealand the following year through The Warehouse.  New Zealand packaging described the bricks as ‘Lego bricks compatible’ with a notation over Lego to acknowledge it was a trademarked name.  Lego immediately fired off a ‘cease and desist’ letter, threatening legal action.  The Warehouse dropped the product until this issue was sorted out.  Zuru sent Lego samples of proposed packaging, seeking prior approval for any of several offered options using the word ‘Lego.’  It did not receive a favourable response. 

Zuru and Lego then fronted up to ten days of evidence and legal argument in the High Court at Auckland over use of Lego-compatibility wording on packaging.

Justice Lang ruled any use of the word ‘Lego’ on Zuru packaging was a breach of Lego’s trademark.  Zuru’s claim that ‘Lego’ had become a generic descriptive term describing interlocking toy blocks was dismissed.  Zuru’s claim that using ‘Lego’ on packaging was an honest attempt to provide consumer information about the use and quality of its product was also dismissed.

Use of Lego’s trademark was an aggressive attempt by Zuru to obtain leverage for its product, Justice Lang said.

Zuru New Zealand Ltd v. Lego Juris A/S – High Court (12.07.23)

23.114