Charity: Better Public Media Trust v. Attorney-General

 

Born out of political lobbying to stop commercialisation of Radio New Zealand, Better Public Media Trust can register as a charity, the Court of Appeal ruled, with tax benefits that follow.

As a general rule, organisations having a naked political purpose cannot register as charities.  The courts now allow ‘advocacy’ organisations to gain charitable status, provided this advocacy is linked to a wider public benefit: improving public understanding and debate over government policies.  This requires an organisation seeking charitable status to air all sides of a political issue, not bias a debate by presenting one side only.

Better Media Public Trust’s 2019 application for charitable status under the Charities Act was turned down.  Internal Affairs said the Trust had too narrow a focus; primarily lobbying for non-profit non-commercial media outlets to receive increased government funding.

In the Court of Appeal, the Trust elaborated on the extent of its activities: conducting independent research and publishing the results (including one survey showing a majority in favour of merging Radio New Zealand and Television New Zealand); holding public lectures; providing expert commentary on media issues; and promoting the concept of public media through an annual essay competition held through secondary schools.  The Trust provides an outlet for politicians from both sides of the political divide to express their views on media issues.

The Court of Appeal said the Trust is driven by altruistic goals, seeking to ensure citizens are better informed.  This qualifies as a charitable purpose, being an activity ‘beneficial to the community,’ the court ruled.

Evidence was given that the Trust currently has some two thousand members, each paying annual membership fees of between twenty and forty dollars.

Better Public Media Trust v. Attorney-General – Court of Appeal (9.11.23)

24.008

NZ Post: Three Hills Group v. NZ Post

 

Waikato rural delivery contractors Danielle and Ian Kennedy are suing NZ Post alleging their business is being devalued by what they claim is NZ Post’s improper use of its own courier service to make deliveries within their delivery area.

The High Court was told of other Waikato rural contractors joining with the Kennedys in threatening to suspend deliveries as a protest against alleged increased use by NZ Post of its in-house Courier Post service.

NZ Post contracts out rural deliveries, vetting route ownership changes and charging a fee when runs change hands.  In 2019, the Te Awamutu-based Kennedys purchased NZ Post’s largest delivery run in the Hamilton/Waikato region; Tamahere RD3 rural run, taking ownership in their company’s name: Three Hills Group Ltd.

The High Court was told of a dispute quickly escalating between the Kennedys and NZ Post within six months.  They took exception to Courier Post making deliveries within their designated area.  They felt betrayed when NZ Post reallocated deliveries they otherwise would have made to major area clients on the outskirts of both Hamilton and Cambridge.

The Kennedys claim they were told by NZ Post prior to purchase of the run that they would enjoy exclusivity for deliveries in their area.  They claim they would have never purchased if made aware there could be inroads on the volume of work.  NZ Post say their rural delivery contract is clear; NZ Post reserves the right to make changes.

Mediation between the Kennedys and NZ Post in late 2022 came to nothing.  NZ Post subsequently gave notice of its intention to terminate the Kennedys’ contract.

The Kennedys asked the High Court to block any termination, pending a later court hearing on both their claimed right to exclusivity for deliveries in their area and the validity of NZ Post’s termination.  Terminating their contract would result in an immediate loss of substantial goodwill paid on purchase of the run, they said.

Justice Gault refused to intervene.  A full trial is needed to establish validity of the Kennedys’ claims, he ruled.  NZ Post can pay damages if found to have acted incorrectly.

Three Hills Group Ltd v. NZ Post Ltd – High Court (9.11.23)

24.007

Senior Trust Capital v. Holmes & Hannon

 

It had a difficult birth and now a lingering death.  Chris Holmes and Tony Hannon have been ordered to pay a $3.4 million shortfall following Senior Trust Capital’s mortgagee sale of their unfinished Wanaka retirement village: Roy’s Bay.  Their claim to be excused payment because Senior Capital sold for $4.0 million less than another buyer was willing to pay was dismissed in the High Court.  They were not comparing ‘apples with apples’ given the differing conditions applying to each of the two deals, Associate judge Lester said.

The proposed lifestyle retirement village being built by Roy’s Bay Estate Ltd ran into substantial local opposition when first floated.  Only ten of the 69 proposed units had been completed when in 2023 Roy’s Bay went into liquidation.  Two years previously, the project was on its last legs.  Roy’s Bay had defaulted on the third extension of its Senior Capital loan.  Holmes and Hannon guaranteed repayment.

Trusting they could get a better price than Senior Capital would get on a mortgagee sale, Holmes and Hannon started marketing the unfinished project in late 2021.

The High Court was told they found a buyer; Auckland-based S5 Consulting Group Ltd, willing to pay $24 million.  Four months later the price was reduced by agreement to $22 million.  Due diligence had identified resource consent and work issues.

Meanwhile, secured creditor Senior Trust put in train the process for a mortgagee sale, ultimately selling to a subsidiary of S5 Consulting for $18 million dollars.

When sued by Senior Capital on their guarantee for the shortfall following sale, Holmes and Hannon claimed Senior capital could have got a better price given the pre-existing $22 million deal.

Judge Lester ruled it was doubtful whether the $22 million deal had become unconditional.  In any event, the two contracts were materially different, he said.  Excluded from the $18 million Senior Capital sale were two completed village units.  In addition, the Senior Capital sale did not include vendor warranties contained in the prior $22 million contract.

Senior Trust Capital Ltd v. Holmes & Hannon – High Court (3.11.23)

24.006

Trust: Wadsworth v. Cognata Investments

 

Kaiapoi businessman Dale Wadsworth took up cousin Troy Surch’s suggestion he set up a stand-alone company to hold surplus cash, having to sue nearly a decade later to regain control of his company and its assets.  Mr Surch had wrongly seized control of their company Cognata Investments and was using it for his own benefit as a moneylending business, he claimed.    

The High Court was told Mr Wadsworth was seriously injured in a near fatal motor vehicle accident in late 2014.  His business, CTC Radiators Ltd, was then flush with cash.

Mr Surch was at the time providing accounting services for CTC Radiators.  He recommended a separate company be established to manage CTC’s spare cash given Mr Wadsworth’s ongoing health issues following his accident.

Cognata Investments Ltd was set up.  Both were directors.  For reasons never fully explained, a family trust called Zurich Oak Trust was named as shareholder.  Mr Wadsworth was a Zurich Oak trustee.  He was not a beneficiary; Mr Surch’s family members were the beneficiaries.

One year later, Mr Surch unilaterally removed Mr Wadsworth as a Cognata director and had the company’s shares transferred into his name alone.  Mr Surch then proceeded to make multiple loans: to members of his family and to his family trust; to purchase a car for his own benefit; and to buy a business in which it was alleged Mr Surch was a silent partner.  He also arranged $42,000 in loans for the purchase of two racing cars and a $50,500 loan to Stewart Island Smoked Salmon Ltd, a loan since written off.       

By 2018, Mr Wadsworth health had improved.  Mr Surch was unco-operative when Mr Wadsworth attempted to become more involved in Cognata’s business activities.  Mr Surch had ANZ Bank remove Mr Wadsworth as signatory to Cognata’s bank account.  When Mr Wadsworth protested, ANZ froze the account pending resolution of their dispute.  Evidence was given that some $850,000 is currently sitting in this account.

Mr Surch complained to the Companies Office when Mr Wadsworth unilaterally removed him from the record as Cognata director and shareholder.

Mr Wadsworth sued in the High Court to get a definitive ruling on his rights of ownership.  The hearing went ahead in the absence of now bankrupt Mr Surch.

Justice Dunningham ruled Mr Wadsworth sole director and sole shareholder of Cognata Investments.  Cognata’s constitution specifically stated net income and capital gains were held on behalf of Mr Wadsworth on the basis that all capital provided for investment came from him.

Wadsworth v. Cognata Investments Ltd – High Court (2.11.23)

24.005

Debt: Signum Holdings Ltd v. Okuora Holdings Ltd

 

After Paul Ryan negotiated down the debt payable following his Signum Holdings default on a convertible note repayment owed John Penno’s investment company, Okuaroa Holdings, Signum then again defaulted.  Associate judge Paulsen said to describe the relationship between Penno and Ryan as ‘fraught’ and ‘strained’ understates the position.    

In the High Court, Signum claimed its 2022 agreement for deferred payment of $500,000 on a rescheduled $1.5 million debt was unenforceable because of undue influence.

Signum Holdings Ltd specialised in digital technology enabling product tracing through supply chains.  Mr Ryan was the driving force behind operations.

The High Court was told Mr Penno’s family investment company Okuora Holdings Ltd made a small equity investment in Signum back in 2019.  His spouse, Maury Leyland Penno, was then appointed a Signum director.

Signum was still short of cash.  Within a year, three directors had resigned, leaving Ms Penno on a board lacking a quorum.  Okuora made a further investment, providing capital in the form of a convertible note issue.  Mr Ryan returned to the board.

By early 2022, Signum was in serious financial trouble.  It was insolvent, unable to refinance the convertible note issue.  Mr Ryan again resigned as a director and advised he was working out his notice as CEO.

With multiple director resignations, Ms Penno was left as sole director on the board, again leaving the board without a quorum.

Okuora put Signum into receivership.

Three months into the receivership, a workout was agreed: Mr Ryan would purchase the convertible note for a discounted price of $1.5 million; Okuora would end its receivership; Mr Ryan would assume control of Signum.  Of the $1.5 million payable to Okuora, $500,000 was to come from Signum, payable in twelve months.

A legal complication was that Ms Penno was at time of the workout sole director of Signum.  On her own she could not commit Signum to the workout.  She signed, with the condition that Signum shareholders needed to ratify her decision.  Mr Ryan rounded up the votes.  Approval was given.

Twelve months later, with Signum unable to pay the promised $500,000 balance due, Mr Ryan alleged the debt was not enforceable; at the time shareholders were asked to vote, Ms Penno had failed to disclose an email sent by Mr Penno to a major Signum customer.  Mr Ryan said this email was ‘vindictive,’ prejudicing future commercial relations between Signum and its customer.  Ms Penno’s failure to disclose her spouse’s email showed a lack of candour on her part as director, amounting to undue influence affecting shareholders’ votes, he claimed.          

Judge Paulsen said the refinancing could not be viewed as an example of the Pennos as the stronger party victimising Signum as a debtor.  All involved were experienced business people.  Detailed negotiations took place through lawyers.  There was a six week gap between the time Mr Ryan resumed control of Signum and shareholder approval given to the workout.  Mr Ryan had ample time through this period both to communicate with shareholders and to clarify the situation with existing customers, Judge Paulsen observed.

Evidence was given that Mr Ryan and his consortium of investors who through the workout agreement regained control of Signum from Okuora at a cost to them of one million dollars, in turn on-sold a one-third share of this investment shortly afterwards for $1.2 million.

Signum Holdings Ltd v. Okuora Holdings Ltd – High Court (1.11.23)

24.004

 

Post judgment update: One week after Signum was ruled liable to pay the disputed $500,000, the company was put into liquidation insolvent.

Franchise: Whites96 Ltd v. Wheel Magician

 

Whanganui Wheel Magician franchise holder Jason White needed High Court assistance to amend a court injunction, intended to be temporary but unlimited in time, with delays in a follow-up court hearing stopping him from otherwise setting up business in competition with Wheel Magician.

What began as a dispute between Mr White and Wheel Magician Ltd over suitability of a mobile workshop Wheel Magician supplied for his Whanganui wheel repair business, saw the District Court order him not to offer wheel services in the district until their franchise dispute came to a full court hearing.

Delays in preparing for a hearing and in getting a court fixture date meant he would be court-barred from resuming work for well beyond the twelve month stand-down required by a restraint of trade clause in his disputed franchise agreement.

Mr White signed up as Whanganui Wheel Magician franchisee in 2017, supplied with a Wheel Magician van to repair customers’ wheels at customers’ premises.

Franchise terms barred him from setting up in opposition within a twenty kilometre boundary beyond his franchise area for a full twelve month period should their franchise arrangement come to an end.

Restraints of trade are enforced by the courts if reasonable and do no more than protect from immediate competition an existing franchise customer base.  Existing customers belong to the franchisor, not the franchisee.  Restraints of trade are justified as protecting franchise goodwill; the possibility of return business from existing customers.

The High Court was told Mr White’s Whanganui franchise operated with little difficulty for some four years before a dispute arose over changes he made to the mobile van’s ventilation system.  WorkSafe intervened, imposing a make-safe notice.

Wheel Magician gave notice; the franchise was at end.  Mr White countered, alleging the van provided did not comply with Health and Safety at Work Act.  There has yet to be a full court hearing on this dispute.

In the interim, Mr White complained a temporary court order forcing him to comply with the twelve month restraint of trade was going to over-run the actual twelve month period which would otherwise apply.

In the High Court, Justice Grice ruled the twelve month/twenty kilometre restraint was reasonable, but limited its operation to either end of March 2024 (anniversary of the twelve month restraint start date) or date of any earlier court hearing dealing with their dispute.

Whites96 Ltd v. Wheel Magician Ltd – High Court (31.10.23)

24.003

Autoterminal: Pacific Auto Carrier v. Jacanna Holdings

 

Competing claims to over ten million dollars revenue from sale in New Zealand of used cars imported from Japan is being decided by courts in Japan.  Robert Stone alleges his former joint venture partner Hohua Hemi wrongly took control of their Autoterminal Japan/New Zealand used car trade and must account for profits generated in New Zealand.

Stuck in the middle is Ken Quigley’s Jacanna Holdings Ltd, Auckland customs and freight forwarder left holding money each side claims.

Courts around the world have been called to deal with multiple claims in a decade-long dispute between Stone and Hemi.

The latest iteration sees interests associated with British Virgin Islands registered Autoterminal International Ltd suing in New Zealand, alleging Autoterminal was wrongly cut out of profits from New Zealand sales of imported Japanese used cars when a business controlled by Mr Hemi took over local distribution.  Ultimate ownership of Autoterminal is opaque.  Jacanna Holdings is the target in this claim.

Similar litigation is underway in Japan where Mr Stone alleges Mr Hemi breached duties owed as director of their jointly owned exporter IBC Japan by taking over IBC’s onward sales in New Zealand.  On behalf of IBC Japan, Mr Stone claimed $18.4 million damages from Mr Hemi, alleging Mr Hemi breached fiduciary duties owed Japan IBC.

In Japan, Mr Stone was unsuccessful in round one.  He had agreed to Mr Hemi’s separate New Zealand business activities, the Kyoto District Court ruled.  Mr Stone has appealed this ruling.

Mr Quigley immediately applied to have New Zealand litigation against Jacanna Holdings put on hold.  The Kyoto court ruling meant Mr Hemi’s separate New Zealand sales were lawful, he said.  As a consequence, there was no chance of Autoterminal succeeding in its legal action against Jacanna Holdings, he claimed.

The New Zealand High Court imposed a temporary stay, to last until result is known of Mr Stone’s appeal in Japan.  A further loss on appeal in Japan for Mr Stone will likely end any chance of success by Autoterminal in its current New Zealand claim against Jacanna Holdings.

Pacific Auto Carrier (NZ) Ltd v. Jacanna Holdings Ltd – High Court (31.10.23)

24.002

Bankruptcy: Oficial Assignee v. Memelink

 

Automatic discharge from bankruptcy for Wellington bankrupt Harry Memelink has been postponed to the earlier of three years or prior conclusion of his family trust’s receivership because of his lack of co-operation with Insolvency Service and interference in its bankruptcy administration coupled with his refusal to stop carrying out business activities whilst bankrupt.

He complains Insolvency Service staff are acting like ‘thugs and crooks.’  He says the fact all his assets are currently under control of either Insolvency Service or court-appointed receivers amounts to ‘court-sanctioned gang rape.’     

Mr Memelink was bankrupted in 2018.  The High Court was told his bankruptcy has been complicated by a lack of business records, a lack of clarity over which assets are owned personally and which are owned by his Link Trust No.1 and his lack of co-operation with Insolvency Service.

Insolvency Service required Mr Memelink to be examined in court on oath.  It learnt from bank records he lost some $1.03 million over a two year period whilst bankrupt trading on CMC markets in ‘contracts for differences.’

The High Court was told of Mr Memelink continuing business activities as if he were not bankrupt.  He issued invoices for businesses he no longer controlled and took control of business income which should more properly be accounted to Insolvency Service.

Evidence was given of Mr Memelink disrupting asset sales.  Acting anonymously through his sister’s TradeMe account, he bid for assets being sold by Insolvency Service; later refusing to pay.  He justified this behaviour as a protest on grounds assets were being sold too cheaply.

The High Court was told bankruptcy claims currently stand at some five million dollars.  This includes $750,000 in fees and costs incurred by Insolvency Service to date.

The extent and value of assets owned by Mr Memelink is unclear.  The High Court was told ownership of some assets are in question, complicated by debts owed to various entities controlled by Mr Memelink.  Which assets are owned by Mr Memelink personally and which are owned by his family trust have yet to be clarified.  At various times, Mr Memelink has described his Wellington home and a motor yacht as being his personal property, later describing these assets as owned by his family trust.   Mr Memelink blames his accountant for the confusion.  Previous court cases had ruled Mr Memelink controlled these assets and maintaining proper accounting records was his responsibility.

Included in assets claimed by Mr Memelink are receivables currently in dispute.

Justice Grice linked completion of Mr Memelink’s family trust’s receivership to his potential discharge from bankruptcy to encourage his future co-operation in resolving who owns what.  Trust debts need to be cleared before any residual trust surplus potentially becomes available to pay Mr Memelink’s personal bankruptcy creditors.

Official Assignee v. Memelink – High Court (31.10.23)

24.001

Lawyer: Haines v. National Standards Cttee

 

Wellington lawyer Quentin Stobart Haines handed in his practising certificate when charged with offences under the Prostitution Reform Act.  Any chance of later returning to law practice hinges on the outcome of Law Society disciplinary charges with the High Court now ruling Haines improperly entered into loan transactions with clients and failed to properly account for client money. 

The High Court was told Haines failed to properly account for $140,000 received from a client identified as C.  This was supposedly an advance for legal work yet to be done and prepayment for a report required from an accounting firm needed as evidence in potential litigation.  Contrary to Law Society rules, this money was paid into Haines personal bank account.  He used this money for his own benefit.  Haines then employer reimbursed C, claiming on insurance for Haines’ misappropriation.

Haines claimed some of this money was a private loan from C to him.  The court was told that even if it was a loan it has not been repaid.  Haines said the insurance payout excuses any repayment.

The High Court was also told of convoluted financing arrangements involving a client identified as M.  Client M and his family trust agreed to guarantee Haines borrowings totalling $575,000 from two finance companies.  A side deal saw Haines agreeing to advance monies to M and in turn M agreeing to meet scheduled interest payment on Haines loans should Haines be unable to make payment.

These unusual loan arrangements ran parallel with Haines on a retainer agreeing to undertake legal work for M, with again another side deal; invoices were supposed to be delivered to M monthly, but any demand for payment would be deferred to a later date mutually agreed. 

This date arrived two years later when M faced bankruptcy and Haines produced a one million dollar invoice for deferred fees, what the High Court was to later rule was a sham arrangement intended to boost creditor votes in Haines favour and designed to vote through an Insolvency Act proposal to avert M’s bankruptcy.

This ploy failed.  The High Court ruled Haines behaviour was an attempt to pervert or defeat the course of justice.  Haines was later ruled entitled to a lesser sum for arrears of fees: $525,000.  Invoicing a higher fee was professional misconduct, the High Court ruled.

The court also ruled Haines breached professional standards of independence once the lawyer/client relationship between Haines and M expanded to their subsequent convoluted financial arrangement without M then receiving independent advice.

Haines faces potential penalties: censure, a period of suspension (backdated or not), or prohibition on future practise as a lawyer (striking off).

Haines v. National Standards Cttee No.1 – High Court (30.10.23)

23.185

Fair Trading: Clyma v. Kaminski

 

TripAdvisor still advertises glowing testimonials from tourists enjoying views from Rotorua Observer’s tethered helium balloon.  The testimonials are dated 2017, the year the fledging business fell over; leaving investors fighting over a $968,000 insurance payout for a damaged balloon, all that is left after Kiwi Rider collapsed within months of setting flight.

Thomas Kaminski was the driving force behind Kiwi Rider Ltd.  Evidence before the High Court painted a picture of an entrepreneur whose enthusiasm outran his competence.

With no money and interest garnered from viewing tethered balloon tourist attractions published on the internet, Mr Kaminski set about promoting a similar operation in Rotorua while at the same time talking up the prospect of expanding to Queenstown and into Australia.

Investors put in $1.74 million.  Mr Kaminski provided no cash. The Rotorua project failed. Set up costs exceeded budget.  In its three months of operation, sales amounted to just over $50,000. Failure to ensure all balloon fittings were made of stainless steel meant potential gear failure from Rotorua’s sulphurous atmosphere.  The balloon purchased was damaged in a storm.

Three investors with a less than four per cent stake in the venture walked away, writing off their investment.  Five original investors successfully sued Mr Kaminski under the Fair Trading Act, alleging they were misled as to his expertise and the project’s potential profitability.  Mr Kaminski was ordered to repay their $750,000 investment.

The High Court was told of Mr Kaminski’s aggressive negotiations with overseas balloon suppliers, implying if they did not act quickly they would miss out.  One French supplier responded with what proved to be prescient advice as to the type of balloon needed for New Zealand conditions, backed up with financial data detailing passenger loadings possible in various wind strengths for different balloon sizes.  Mr Kaminski opted for a smaller and cheaper US product.

Start date for operations was pushed back several months when Mr Kaminski discovered preferred central Rotorua launch sites were unavailable; the tethered balloon would encroach on air space reserved for aircraft.

The project foundered when their balloon suffered storm damage.  All that was left was an insurance payout. 

Justice Walker ruled Mr Kaminski made misleading and deceptive representations at an investors’ meeting in February 2016.

His claim to have conducted extensive research was palpably misleading and deceptive, Justice Walker said.  When formulating his business plan, Mr Kaminski’s research apparently went no further than trawling internet sites and associated media.

A claim to wide experience in adventure tourism having ‘worked alongside’ AJ Hackett’s bungy-jumping operations amounted to little more than involvement in a video production company filming customers’ jumps.

While financial predictions for a proposed business are not usually representations of fact and therefore not covered by the Fair Trading Act, Justice Walker ruled they were in the instance caught by the Act because of Mr Kaminski’s claim to have undertaken detailed research such that there was a sound basis for his predictions.

The court was told Mr Kaminski has a 27.5 per cent shareholding in the company.  He stands to receive the largest individual payout from the company’s insurance proceeds when Kiwi Rider Ltd is liquidated.  Investors are looking to recover some of their $750,000 losses from his share.

A smaller number of investors who also sued were unsuccessful.  They did not attend the February 2016 investors meeting, putting money into the project at a later date.

Clyma v. Kaminski – High Court (30.10.23)

23.184

Asset Forfeiture: Commissioner of Police v. Baylis

 

With property prices falling and mortgage arrears increasing, the High Court ordered sale of a Christchurch property even before a court hearing to determine whether it was tainted as proceeds of crime.

It is common practice for police to get advance sale orders, converting to cash depreciating assets seized as potentially proceeds of crime such as motor vehicles, motor bikes and jet skis.  It is an indication of the current state of the market that courts are now allowing advance sales of real estate.

In two months time, Darrin Stephen Baylis will be in court defending a Criminal Proceeds (Recovery) Act claim that three Christchurch rental properties were purchased with proceeds of crime.

It is alleged he made criminal profits totalling $1.03 million from selling methamphetamine, trading in motor vehicles without a licence, acting as a repossession agent without a licence and fraudulently obtaining an unemployment benefit.

Police obtained restraining orders over his assets, ahead of a ‘proceeds of crime’ hearing.  Pre-hearing sales are permitted where necessary to preserve the cash value of seized assets.

The High Court was told three Baylis properties seized in Christchurch had dropped in value over the last twelve months.  In addition, rents received from the properties were insufficient to meet mortgage commitments.  All three properties are covered by the same mortgage.

Mr Baylis objected to any pre-hearing sale.  A sale is neither justified nor required, he said.

Justice Harland ruled it was appropriate to make an advance sale of one property only, to reduce the level of mortgage debt.  Mr Baylis was invited to nominate which of the three should be sold.  He agreed to sale of a property in Frankleigh Street, Somerfield.

Commissioner of Police v. Baylis – High Court (27.10.23)

23.183

Liquidation: Sprosen v. NFL Foods Ltd

 

Terry Le Sueur’s practice of moving assets from company to company out of reach of trailing liquidators came unstuck with a High Court order health food products sold to related company NFL Foods Ltd be returned.

The asset chase first started with Inland Revenue pressing Le Sueur’s Auckland company Nutra Foods 2011 Ltd for payment of tax debts.  It took seven months before Inland Revenue finally forced Nutra Foods into liquidation in February 2022.  In the interim, company assets were sold for $250,000 to another company controlled by Le Sueur: Attitude Foods 2018 Ltd.

The High Court was told things began to unravel when Nutra Foods’ liquidators sued Attitude Foods for the promised $250,000.

In July 2023, Le Sueur set up another company, NFL Foods Ltd, and on that same day sold remaining product to NFL for $150,000.  Days later, Attitude was forced into liquidation for failing to pay Nutra Foods.

Attitude Foods liquidators successfully sued NFL for return of any unsold product plus the proceeds of sale for stock sold.

Special rules in the Companies Act cover the grey area between the date application is made for liquidation and the date a liquidator is appointed should directors during this period do deals outside the normal course of their company’s business.  Such deals are automatically reversed unless done in good faith at market prices.  A one-off sale of all company stock is not a sale in the normal course of business.

Justice Downs ruled Attitude Foods was entitled to recover the assets.

While it was Attitude Foods that sued for recovery, the court was told these assets belong to Nutra Foods; Attitude Foods earlier gave security over the assets purchased from Nutra Foods, security for the promise to pay $250,000.

All three companies in the chain were controlled by Terry Le Sueur.

Sprosen v. NFL Foods Ltd – High Court (27.10.23)

23.182

Arbitration: Rau Paenga v. CPB Contractors

 

Attempted cancellation of the delayed build contract for Christchurch’s new metro sports centre by Australian contractor CPB was a tactic to impose a new contract with CPB finishing the job on terms set by CPB, the High Court was told.  Work is to continue and the contract dispute goes to arbitration, ruled the High Court.

Funded jointly by government and Christchurch City, the new Parakiore Recreation and Sports Centre was scheduled for completion in 2021 at an anticipated cost of $220 million.  CPB Contractors, a subsidiary of Australian listed construction company CIMIC, claims the cost will instead balloon to $696 million with completion now forecast for June 2025.

Signed as a ‘build only’ contract, CPB alleges late delivery of construction plans and misrepresentations about ground conditions have increased costs to such an extent it is entitled to cancel.  Rau Paenga Ltd, the Crown-owned enterprise contracting for the build, was in breach of contract, CPB alleges.  Rau Paenga ‘persistently, flagrantly or wilfully neglected to carry out its obligations,’ CPB claims.

CPB is demanding adjustments for cost overruns, an extension of time for completion and an increase in the contract price.  Failure to agree would result in CPB suspending work and cancelling the contract, CPB threatened.

Justice Venning ruled CPB has no absolute right to suspend work or terminate.  The contract sets out an arbitration procedure to settle disputes.

Rau Paenga Ltd v. CPB Contractors Pty Ltd – High Court (24.10.23)

23.181

Land Sale: Watson v. Masterton Investments

 

After Primary Industries refused Denis Watson’s ManukaMed application to import royal jelly he was left with an unfunded $1.7 million property purchase hanging over his head.  Attempts to buy time with a ‘lease to buy’ arrangement came to nothing; essential terms of any lease had not been finalised before the vendor resold, suing Watson for its $400,000 loss on resale. 

In November 2019, Mr Watson agreed to buy a neighbouring Masterton building for $1.7 million.  It was intended this extra space would be used to expand production of ManukaMed’s products, in particular a proposed new product mixing manuka honey with imported royal jelly, a honey bee secretion used to feed larvae.  Primary Industries refusal a few days later for permission to import royal jelly forced a change of plan.

Five weeks prior to settlement, Mr Watson told the vendor he was stretched for cash.  Pandemic lockdown rules had affected sales, slashing revenue by some half a million dollars, he said.  Further investment capital was being sought.

He said the vendor could re-list the property for sale, with Mr Watson stating he would bear the consequences.  At the same time, he floated the idea of a ‘lease to buy’ deal with settlement postponed and his business taking occupation in the interim as a tenant.

The Court of Appeal was told attempts to resell ran in tandem with negotiations over a potential ‘lease to buy’ arrangement.  When Mr Watson learnt in June 2020 that a new buyer had been found at $1.3 million he sued, claiming prior rights on his ‘lease to buy scheme.’

The court ruled there was never any final agreement to lease; questions over a bond and the length of any lease had never been agreed.  All lease negotiations had been made ‘without prejudice,’ making it clear the vendor kept open all rights to recover any loss on resale.   

Mr Watson’s default occurred at a time when a covid-19 pandemic lockdown was imposed, limiting access for potential buyers and also hampering attempts to tidy up the property.  The court said this may have contributed to a reduced price on resale, but that risk lay with Mr Watson as defaulting buyer.

Watson v. Masterton Investments Ltd – Court of Appeal (20.10.23)

23.180

Tax: Coleman v. Inland Revenue

 

Now on parole near the end of his four year nine month term of imprisonment for tax fraud, Peter Coleman failed in his second challenge to conviction but an unusual series of events does leave open a belated appeal against sentence.

Auckland-based accountant Peter Martin Coleman was convicted in 2019 on tax charges including tax evasion, forgery and GST fraud.  These charges arose from his management of businesses in the fishing industry between 2011 and 2016 and his attempts to book personal expenses as tax deductible expenses.

His GST convictions were reversed on appeal on grounds of incompetence by his then trial lawyer.  The remaining charges were upheld on appeal.  Inland Revenue suffered losses of some $800,000.

Coleman asked the Court of Appeal to allow a second appeal in respect of those convictions upheld at his first appeal.  There had been a miscarriage of justice at the original trial, he said.  The outcome would have been different of Inland Revenue staff had been called to give evidence and put under cross-examination.

The Court of Appeal ruled there had been no miscarriage.  Whatever the errors of his trial lawyer, there was ample evidence to support the remaining convictions.

There was clear evidence of forgery in Coleman leaving a trail of ‘cut and paste’ altered invoices when making a false GST claim.  He represented his home as being part of a farm stay business, when it was not.  And there was evidence of tax evasion in his failing to file income tax returns for some two decades.  Coleman’s claim that cash receipts were not income but loans from his business interests was not supported by any evidence.

In the course of his court hearing seeking a second appeal, it became apparent some confusion followed his first appeal; both the judge hearing his first appeal and Inland Revenue assumed Coleman had abandoned an appeal against sentence when in fact it had been overlooked; it was never properly dealt with.

Coleman can return to the High Court and reopen legal argument appealing his sentence of imprisonment if he wishes, the Court of Appeal ruled.

Coleman is currently on parole.  His sentence of imprisonment expires in June 2024.

Coleman v. Inland Revenue – Court of Appeal (19.10.23)

23.179

Liquidation: Francis v. Degree Plumbing Ltd

 

Ordered by the High Court to return payment of a $37,400 trade invoice, Degree Plumbing Ltd had an uphill job to prove customer Podular Housing Systems Ltd was not insolvent at time payment was made having previously sued, threatening to wind up Podular Housing on grounds it was insolvent.   

Podular Housing Systems in hopelessly insolvent.  On surrendering payment, Degree Plumbing will join a raft of unsecured creditors claiming $6.5 million.  Included in this figure are home buyers who have paid Podular Housing some two million dollars for houses yet to be started.

Dean McGowan, director of Northland-based Degree Plumbing, is furious that not only was Podular’s payment received months late but extra work was done at no cost to help it out as a customer.  Being forced to repay now puts at risk Degree Plumbing’s financial viability, he said.

Insolvency law has little heart.  When a business goes bust and there is not enough cash to pay all creditors, black-letter rules divide winners from losers.

One of the cruellest rules is a requirement that unsecured creditors paid in the six months prior to liquidation must return money received.  This rule is justified as evening out losses; those paid in full at a time when the debtor was likely insolvent must return the benefit, joining a pool of unsecured claimants.

Creditors can keep payment if they acted in good faith, unaware the debtor was insolvent.

Podular Housing Systems liquidators sued in the High Court to recover $37,400 paid Degree Plumbing in weeks prior to Podular’s November 2022 liquidation.  

Evidence was given that the debt ran unpaid from June 2022.  Three months on, Degree Plumbing was in court putting pressure on Podular Housing, threatening to wind up the company alleging it was insolvent, unable to pay its debts as they fell due.  That was fatal to any later argument that the subsequent payment was received at time when Degree Plumbing was unaware Podular was insolvent.

Podular liquidators’ most recent report indicates there will be no payout for unsecured creditors.  First claim on Degree Plumbing’s repayment is liquidation costs.

Francis v. Degree Plumbing Ltd – High Court (18.10.23)

23.178