Covid-19 subsidies: Attorney-General v. Papa Robs Contractors

 

Social Development is forcing recovery of overpaid covid-19 wage subsidies through the simple expedient of taking legal action for breach of contract.  Bay of Plenty agricultural contractor Papa Robs was ordered to return $445,000 overpaid.

Wage subsidy applications were made online through a web-based application on a Work and Income website.  It was a high-trust model.  Payments were made quickly.  Audits to confirm eligibility came later.

The High Court was told Papa Robs Contractors Ltd received in total $447,400 for covid-19 wage subsidies between March 2020 and September 2021.

A later audit of Papa Robs’ GST returns identified the company did not in fact suffer the required percentage decline in revenue necessary to qualify.  For one period, revenue increased, rather than decreased.

Papa Robs agreed it should not have received a payout.

At various times over the last four years, the company’s sole director as listed on the Companies Register has been Amihihaera Fraser, giving an Opotiki address, and Joel Taylor Fraser, with a Rotorua address.

Evidence was given of an initial agreement to repay by instalments.  Only $2000 was repaid.  A later offer to settle the full debt with part-payment was rejected.

Papa Robs said it doesn’t have the cash to make full payment.

Social Development sued.

Associate judge Taylor ruled Papa Robs was in breach of contract.  Social Development’s website amounted to an offer, promising payment of a wage subsidy in return for promises from the applicant as to eligibility.

Papa Robs was not eligible.

It was a term of the website contract that all ineligible payments must be repaid.

Attorney- General v. Papa Robs Contractors Ltd – High Court (22.05.24)

24.129

Judicial Bias: Ressels v. Southern Response

 

While litigants can feel aggrieved after an adverse court ruling, lawyers sometimes feel their beautifully crafted legal argument failed to get sufficient recognition from a trial judge.  Lawyer’s feelings are usually discussed discretely, out of public view.  They are wise to the professional and legal risks of publicly criticising a judge, with striking off likely in extreme cases for unprofessional conduct and with it the end of their legal career.

Christchurch litigation lawyer Grant Shand let the world know his views of one judge.  He has had his full of adverse court rulings blocking attempts to progress class actions on behalf of homeowners arguable short-changed in their earthquake insurance payouts.

He alleges High Court associate judge Lester consistently and unfairly favours insurers.  Part of a concerted campaign to frustrate his clients’ claims, he alleges.

Last year, Mr Shand directly warned Judge Lester that a complaint to the Judicial Conduct Commissioner was in the offing.  Earlier this year, his complaint was dismissed by the Commissioner.   

Adverse rulings against one client, Trevor Ressels, became an open platform for Mr Shand.

Whilst the legal issue was one litigant’s allegations of potential bias by a sitting judge, the background economic issue was difficulties Mr Shand has faced in gaining income from litigation management of multiple class actions.

A class action, if successful, commonly results in lawyers conducting the litigation retaining a percentage slice of any negotiated payout when distributing the balance to members of the agreed class.

As part of Mr Ressels’ court application, Mr Shand listed summaries of several previous class actions he had promoted where Judge Lester refused to allow litigation to continue.

Mr Shand alleged Judge Lester was conducting a campaign to frustrate his class action applications.

The narrow legal issue was Mr Ressels’ application for leave to appeal Judge Lester’s November 2023 ruling that Mr Ressels could not stand as designated representative plaintiff in a proposed class action on behalf of some 7500–9500 former AMI Insurance customers who might have been eligible for compensation to cover professional fees for preliminary expert assessment of earthquake damage to fences, drives, patios and swimming pools.

Judge Lester had ruled this claim could not proceed as a class action.  Not all such ancillary damage required preliminary expert assessment to determine the size of an insurance payout.  A damaged swimming pool might require expert assessment; a cracked concrete path, not likely.

Each home-owner claiming compensation for professional fees they may have been entitled to had to sue individually.  They could not all be lumped together without prior consent into a widely-drawn class action.  Individual claims differed too much from case to case to enable a joint class action, Judge Lester ruled.

Mr Ressels, represented by Mr Shand, asked that Judge Lester recuse himself from hearing the leave to appeal.

It was claimed Judge Lester could not bring ‘an impartial mind’ to the hearing.

In effect: the recusal application was not so much an issue between Mr Ressels and the Judge, as an issue between Mr Shand and the Judge with Judge Lester forced to defend his previous court rulings as not being evidence of continuing bias.

Judges must recuse themselves from sitting on a case where there is actual bias, or ‘apparent bias;’ any suggestion that a judge might not decide a case other than on its legal and factual merits.

Declining to recuse himself from the Ressels case, Judge Lester obliquely adopted comments made by the insurer’s lawyer present in court. The fact there had been a series of adverse decisions against Mr Shand’s class action clients does not establish apparent bias, the lawyer said.

The primary reason for ongoing adverse court rulings was Mr Shand repeating his earlier unsuccessful legal arguments in subsequent class action applications and failing to act on the judge’s earlier comments, she argued.

A major legal difficulty when establishing a class action is to define the class of litigants and the legal issue they have in common.

Ressels v. Southern Response Earthquake Services Ltd – High Court (21.05.24)

24.128

Charity: World Gospel College v. Inland Revenue

 

De-registration of a charity without then transferring net assets across to another charity results in the charity’s current market value treated as income and taxed.

There is a twelve month window after de-registration to transfer assets to another charity before tax authorities swoop.  The rationale is that these assets have been built up in a tax-exempt environment, so should be taxed as accumulated income if now available for private use.

Charities are exempt from income tax and fringe benefit tax.  

The World Gospel Bible College Charitable Trust challenged a $686,000 tax bill arising from its 2019 deregistration.

The Trust was established by a Korean Christian church group to recruit and train ministers.  In 2008 it was registered on the Charities Register.

The High Court was told its religious purpose took a backseat in 2014 when the Trust’s registration with the New Zealand Qualifications Authority ended.  It carried on as a property company, receiving rentals.

Acting on its accountant’s advice, the Trust stopped filing annual returns for the Charities Register to reduce administration costs.  This resulted in its subsequent de-registration in 2019 for failing to comply with the Charities Act.

Later learning of the tax consequences, the Trust challenged its 2019 de-registration.

The High Court confirmed de-registration.  Charitable entities cannot simply put aside public reporting requirements that accompany their privileged tax status, Justice Palmer said.

The Trust said notice warning of de-registration and a follow-up letter advising of the need to transfer assets to another charity had been sent to the wrong address.

There was evidence that Trust management had become aware of de-registration in Trust correspondence with Inland Revenue recorded through its online MyIR portal.

The High Court was told the Trust was re-registered as a charity in 2021.  Re-registration, by itself, does not change any adverse tax consequences following from prior de-registration.

World Gospel Bible College Charitable Trust v. Inland Revenue – High Court (17.05.24)

24.127

Conflict of Interest: First NZ Properties v. Millar

 

Nelson-based company director Michael Millar was ordered to pay $2.4 million damages for milking excess fees out of First NZ Properties; failing to disclose conflicts of interest as director of both his property management company Investment Services and First NZ.

In the High Court, Justice Gwyn ruled Mr Millar breached Companies Act director duties; failing to disclose excess management fees charged First NZ and taking a share of capital gain on property sales without authority.

Mr Millar kept a tight rein on First NZ’s decision-making by having himself, family members, and close business associates elected to the First NZ board. 

At the same time, his company Investment Services Ltd was managing First NZ properties.

Mr Millar claimed he did nothing wrong.  Payments received by Investment Services were authorised by an earlier First NZ management contract which had expired, but ‘ran on’ covering subsequent purchases of other properties, he said.

Evidence was given of Investment Services acquiring in the 1990s management contracts for several commercial properties.  Its biggest deal was management of three Auckland Foodtown sites owned by First NZ.

In dispute was fees taken for management of properties subsequently purchased by First NZ.

Justice Gwyn ruled Investment Services’ initial management contract was specific to the named Foodtown sites.  Agreed terms did not roll over to management of other commercial properties later purchased by First NZ.

The court was told of Investment Services later implementing a policy of subcontracting to others management of specific properties, charging this cost to First NZ, and then continuing to pocket for itself a full management fee.

When later challenged, Mr Millar claimed the full fee charged was for ‘investment advice’ which included supervision of sub-contracted management companies.

Mr Millar’s failure as First NZ director to disclose this policy change to First NZ shareholders and to get their approval was a breach of Companies Act director’s duties, Justice Gwyn ruled.  There was a clear conflict of interest with Mr Millar in control of both Investment Services and First NZ.

Investment Services right to a slice of the capital gain on sale of First NZ properties was agreed for sale of the original three Foodtown sites, but not for subsequent sales.

Fudging First NZ accounting disclosures to bury Investment Services share of capital gains extracted on these further sales was a serious non-disclosure, in breach of director’s duties.

The court was told sale realisations were reported in First NZ’s financial statements on a net proceeds basis, hiding the capital gains taken by Investment Services.

In one instance there was no sale at all.  Investment Services counted as a ‘sale’ the proceeds of an insurance claim made on a First NZ commercial building in Christchurch, demolished after an earthquake.

Separately, Mr Millar’s son-in-law Paul Mephan was ordered to refund First NZ $450,000.  Mr Mephan was a First NZ director at a time when Investment Services was wrongly paid $450,000 as its supposed share of the capital gain on sale of a First NZ property in Auckland.

Adding to the woes of First NZ shareholders, they were told in 2018 of a $2.03 million fraud perpetrated by former director Neil Barnes.

By then, Mr Barnes had fled to the United States.

Justice Gwyn was told $966,000 has been recovered from Mr Barnes to date.

First NZ Properties Ltd v. Millar – High Court (16.05.24)

24.229

Business Sale: Kumar v. Many Ltd

 

Selling her late husband’s interest in FM105.3 Ltd, Roshni Kumar represented that his estate was owed $294,000 by the company.  Refusing to later pay the full sale price agreed, Many Ltd controlled by Robert Khan claimed accounting records held by Ms Kumar showed it was the other way round; her late husband in fact owed money to FM105.3.  

The confused state of FM105’s accounting records led the High Court to refuse a fast-track summary judgment order that Mr Khan’s Many Ltd pay $337,000 still due for purchase of its FM105 shareholding.  A full court hearing is needed.

The High Court was told at time of the sale there was a pre-existing link between Mr Khan and FM105; Mr Khan controls a further company called Radio Tarana (NZ) Ltd which uses FM105’s frequency to broadcast a radio station.  

Ms Kumar inherited her late husband’s interest in FM105 after his 2018 death.  The now disputed 2021 sale contract saw Ms Kumar selling her inherited interest to Mr Khan’s Many Ltd with agreement to pay $380,000 for her FM105 shareholding plus an extra $294,000 for funds supposedly advanced by Mr Kumar to FM105.  Sold as a debt due, she inherited the right to recover this supposed advance as an asset from her late husband’s estate.

The High Court was told Ms Kumar came to control her late husband’s accounting business, Professional Accounting Services Ltd, on his death.  FM105 was a client.  Evidence was given that new accounting staff taken on after Mr Kumar’s death could not make ‘head nor tail’ of FM105’s financial position.

In particular, multiple transactions could not be clearly explained, including: deposits into a Diners Club account over several years totalling $2.1 million; $54,400 withdrawn from ATMs around New Zealand and overseas; nearly $70,000 spent at public bars; cheques written with no supporting documentation; and money transferred electronically to non-FM105 accounts without identifying references.

Prime accounting records could not be reconciled to any of FM105’s financial statements.  It was alleged Ms Kumar was aware that tax returns for FM105 were in arrears and that those filed were inaccurate.

In the background, other private investors in FM105 were disputing who owed who how much and for what.  At one point, FM105 alleged Mr Kumar owed the company close to $860,000.

The High Court was asked to rule on the narrow question of whether Many Ltd should be ordered to pay immediately the $337,000 remaining unpaid on its 2021 contract with Ms Kumar.

Factual disputes over FM105’s financial position required a full court hearing to determine whether Ms Kumar had breached warranties in the sale agreement, Associate judge Sussock ruled.

The fact her FM105 shareholding had already been transferred to Many Ltd did not mean Many Ltd had surrendered its right to dispute payment of the balance.

Kumar v. Many Ltd – High Court (16.05.24)

24.125

Undue Influence: re Estate David John Spellers

 

David Speller died one day short of his seventy-seventh birthday after marrying three times and leaving multiple wills variously disputed as being signed at a time he either lacked mental capacity or was under the influence of long-term care giver, Michelle Campbell.

On one side: two children from his third marriage, Mathew and Amanda, each of whom were left no more than several thousand dollars in various wills with a clause in each will explaining why: their lack of regular contact; previous provision of some financial help; and Mr Speller’s desire to prefer those who had cared for him in his later years.

They were teenagers when their parents separated.

On the other side: Mr Speller’s former neighbour, Michelle Campbell, who for some sixteen years had assisted as his dementia progressed, providing daily meals, doing his laundry, driving him to shopping and appointments, and helping with banking.

During this time, Mr Speller was living at Ruawai, near Dargaville.    

The High Court was told his estate is valued at about $265,000.  In dispute were wills dated 2015, 2017 and 2018.  The 2015 will, signed five years before his death, was upheld as Mr Speller’s final will.

Terms of the 2015 will give half the residue of his estate to caregiver Michelle, the other half to daughter Sonya, the child of his first marriage.  Sonya, together with Mathew and Amanda, receive gifts of $5000 each.

Mathew and Amanda sought to invalidate all three wills.  If successful, an earlier 2005 would operate, having them share equally with Sonya as residuary beneficiaries of the entire estate, receiving some $88,000 each.

The High Court heard extensive medical evidence as to Mr Speller’s ongoing health and mental capacity.  He suffered a series of head injuries starting as far back as 1970 from cycling accidents, a car accident and a work accident.

By 2015, the medical evidence was that his long-term memory was excellent, but there were difficulties with short-term memory.

Justice Gault ruled Mr Speller’s mental capacity at time of signing the 2015 will was adequate.  He understood what he was signing.  He was clear as to the extent of his assets.  He understood terms of his will as his lawyer went through the document clause by clause.

Not so for the later wills.  They were ruled invalid for lack of testamentary capacity.

With caregiver Michelle Campbell receiving half their father’s estate under the 2015 will, Mathew and Amanda claimed she had exerted undue influence in getting this benefit.

Evidence was given of Michelle dealing with Mr Speller in a forceful manner, dominating conversation together with allegations of her slapping him.

Mathew and Amanda lived at a distance.  They spoke of difficulties in having any meaningful contact with their father.

Despite what Justice Gault described as Michelle’s ‘firm handling’ of Mr Speller through the years, he ruled no indications of undue influence could be inferred from evidence surrounding signature of the 2015 will.

Probate was granted for the 2015 will.

re Estate David John Spellers – High Court (16.05.24)

24.126

Estate: Official Assignee v. Koedyk

 

Giving away any estate bequest and then becoming bankrupt in the next two years can result in Insolvency Service clawing back the gift.  It needed High Court intervention to force disclosure of what happened to bequests received by now bankrupt Wayne Gerard Koedyk from his late parents’ estates.

The death of his mother in 2019 triggered distribution of some $615,000 from Mr Koedyk’s parents’ estates following sale of the family home.  For each estate, Mr Koedyk is named as executor and beneficiary as to a one-quarter share.

The High Court was told Mr Koedyk was bankrupted in May 2021, three months short of the second anniversary of his mother’s death.  In the mandatory financial disclosure subsequently provided to Insolvency Service, Mr Koedyk disclosed he did receive a bequest from his mother’s estate stating: ‘I have relinguished my share in favour of my children.’

Evidence was given that Mr Koedyk has proved evasive in providing details of the amounts and circumstances in which any bequests were passed on to his children.

Justice Wilkinson-Smith ordered Mr Koedyk to file in court a full account of all assets and funds passing through his hands as executor of both his parents’ estates.

On bankruptcy, Insolvency Service took control of all of Mr Koedyk’s assets, including his rights as an estate beneficiary.  It is entitled to stand in the shoes of Mr Koedyk as a beneficiary and demand information from Mr Koedyk as an executor, seeking disclosure of his actions as executor, Justice Wilkinson-Smith ruled.

Insolvency Service needs this information to determine timing of any supposed gifts by Mr Koedyk of his inheritances to his children.  If within the statutory two year claw-back period, his children can be forced to surrender the gifts received.

Official Assignee v. Koedyk – High Court (15.5.24)

24.124

Mortgagee Sale: Kwok v. HND Holding

 

Daniel Kwok is claiming $66 million damages alleging private lender HND Holding Ltd caused a cascade of problems by being minutes late in releasing funds for settlement of a South Auckland property purchase.

After ruling he had a weak case, the High Court threw a temporary lifeline by halting a proposed mortgagee sale of a West Auckland property while the merits of his case are later considered.  Mr Kwok has already sold off several other properties to pay down borrowings.

The High Court was told of Mr Kwok walking a dangerously undercapitalised path in his property dealings across Auckland.

His biggest deal was a 2021 transaction. Mr Kwok intended to join property developer Charles Ma in a five hundred site residential development in Drury.

To buy in, Mr Kwok arranged a $28 million loan facility with HND Holding.  Controlled by Yaxun Zhang, HND Holding acts as an intermediary, on-lending funds from private sources.

The HND loan was for one year only, with any roll-over subject to review.  An initial $2.5 million drawdown was used to pay both HND’s loan facility fees and a deposit on the Drury purchase.  Further drawdowns were used to refinance loans on other properties his companies owned and to pay interest on those loans.

With settlement looming on the Drury purchase in September 2021, Mr Kwok had only $6.8 million left available from the HND facility.  Another two million dollars was needed.

Evidence was given frantic wheeling and dealing by Mr Kwok on the afternoon of settlement with settlement due by 4.30 pm.  Funds from HND were not available until 4.46 pm.  Settlement did not take place.

Despite later negotiations, the Drury purchase was cancelled.  The deposit was lost.

Mr Kwok sued HND Holding alleging it deliberately delayed releasing funds, part of a ploy to put him under pressure and to force repayment of the loan.  HND says Mr Kwok failed to provide in time all the documentation required prior to settlement.

Mr Kwok’s $66 million legal claim got off to a shaky start.  He drafted his own court papers, later described as being ‘vexatious and incomprehensible.’  Lawyers acting for HND asked for court assistance in progressing what was described as an ‘uncontrolled shambles.’

At a preliminary court hearing, Justice Anderson ruled Mr Kwok was entitled to his day in court to argue whether HND had acted in good faith.

HND’s proposed mortgagee sale of a west Auckland property at Lincoln was blocked.

The court was told eleven million dollars of the loan facility remains unpaid, with interest at 26 per cent accruing at some $7,800 per day.  As at late 2023, the total outstanding exceeded $19.5 million.

Justice Anderson dismissed Mr Kwok’s separate argument that the loan facility was illegal and that the loan could not be recovered.

HND Holding was not registered as required under the Financial Services Providers (Registration and Dispute Resolution) Act.  Lenders who fail to register cannot recover their loans until such time as they do register.  Rules restricting an ability to recover overdue loans apply to consumer credit contracts only, not commercial loans.

Kwok v. HND Holding Ltd – High Court (14.05.24)

24.123

Business Purchase: Blossom Tradings v. Nair

 

In the depth of Auckland’s covid-19 lockdowns, Oniel Handa purchased two Auckland hospitality venues for $1.17 million in the name of his company Blossom Tradings Ltd.  When he set in train legal action claiming one million dollars damages alleging the businesses were worth only $136,000 at time of purchase, vendor shareholders countered by demanding access to Blossom’s accounting records alleging poor financial performance since the 2021 purchase of Bar 29 and Elsie’s Bar & Restaurant was caused by Blossom’s mismanagement.

Blossom was ordered to hand over copies of monthly sales records and expenses (including wage records and timesheets) plus GST and tax returns for trading periods since Blossom’s purchase.

The High Court was told Blossom Tradings alleges past profitability of the venues was misrepresented at time of sale.  It alleges sales were inflated and wage expenses under-reported.

The vendor was SRP Holdings 2015 Ltd, controlled by Sunil Nair and Sonia Sethi according to Companies Office records.  They deny any misrepresentation.

Blossom claims it overpaid.  It plans to set off any damages award against the $600,000 still due on vendor finance used to finance its purchase.

Associate judge Gardiner ruled Blossom Tradings had ten days to make available the required post-purchase accounting information.

Blossom Tradings Ltd v. Nair – High Court (14.05.24)

24.121

Family Trust: Estate of Falesima v. Manukia

 

The lawyer charged no fees.  Court fees were waived.  A gross injustice was corrected with the High Court ruling grandson Jared Manukia and wife Tapuaki conned his grandmother into transferring half share of her Auckland property into a family trust he controlled.

The two were ordered to compensate her estate for the value of her half share of the Ranui property: $288,800.  They did not appear in court to defend the claim.  The High Court was told they now live in Australia.

Taonefoou Falesima retired in 2012 at age 67.  Living in the Ranui home she had purchased three decades previously, her only source of income on retirement was national superannuation.

As a single parent she had raised five children.  With limited income she struggled to finance existing debts secured by mortgages over her home.

Offering salvation was grandson Jared Manukia, a member of the Mormon Church.  In 2013, he moved into her Ranui property with newly-wed spouse Tapuaki.  It was agreed Mrs Falesima would sell a half-interest in her Ranui home to the Manukias; in return they would pay off her mortgages.

The High Court was told this transaction proceeded as agreed.  The Manukias borrowed $300,000 from Southland Building Society, secured over their newly-acquired half interest in the home, and paid off her identified debts.  It later transpired that payment of one small debt was overlooked.

Extended family continued to live together at the Ranui property, with Mrs Falesima contributing $400 fortnightly towards the Manukias’ mortgage commitments.

Complications arose when the Manukias looked to refinance.  Lenders required security over the entire ownership interest, not just the Manukias’ half interest.

In late 2015, the Manukias had their lawyer visit the Ranui property and have Mrs Falesima sign documentation setting up a family trust.  The Manukias were named as both settlors and trustees of the trust.  Mrs Falesima was settlor only.  She had no say in trustee decisions.

The High Court was told Mrs Falesima was commercially inexperienced.  There was evidence she was misled as to the meaning and purpose of the Trust.  The following week she was presented with legal documents transferring her half share of Ranui to the Trust.  Questioning what was happening, Jared stated ‘just sign – everything is in order and it will be fine.’

The Trust, controlled by Jared, then borrowed $504,000 from Kiwibank secured over Ranui.

Ranui was sold at a mortgagee sale after the Manukias left for Australia and the Trust defaulted on repayments.

The surplus remaining on sale totalled $33,400.  On learning about circumstances of Mrs Falesima signing over her interest in Ranui, Kiwibank had the $33,400 paid into court.

The High Court was told that the Manukias’ loan application stated Kiwibank’s loan to the Trust would be used to refinance the existing mortgage and compensate Mrs Falesima for her half share purchased by the Trust.  She was never paid.  The Manukias kept her money.

Justice O’Gorman said Mrs Falesima’s age and deteriorating health coupled with the fact she was financially reliant on the Manukias meant she was in a vulnerable position, unable to appreciate the significance of documents put in front of her for signature, particularly since she received no independent legal advice.

The Manukias were ordered to pay her estate $288,000; the value of a half share in the Ranui property at time of Kiwibank’s 2018 mortgagee sale.

Estate of Taonefoou Falesima v. Manukia – High Court (14.05.24)

24.120

Freezing Order: Pask v. Liu

 

Described as a ‘battle of attrition’ in a relationship property dispute over assets valued at some twenty million dollars, the High Court refused Guy Pask a freezing order over assets held in the name of estranged former partner Anita Liu.   Assets claimed as relationship property were put into Ms Liu’s sole name in part to prevent claims by Mr Pask’s former wife.

The pool of assets includes bank accounts, three residential properties, shares in listed companies and their Christchurch advertising consultancy: Double Lux Ltd.

The High Court was told they separated in 2022.

Legal manoeuvring has seen a family trust controlled by Ms Liu attempting to remove Mr Pask from the former family home and Mr Pask unilaterally transferring all Double Lux assets across to a new business he controls.  Companies Office records list Ms Liu as sole director and shareholder of Double Lux.

As part of ongoing litigation, Mr Pask asked the High Court to freeze liquid assets controlled by Ms Liu valued at $4.5 million: five Australian bank accounts and shares in listed companies.

It is agreed these assets are relationship property.  What is in dispute is the ratio for division between the two.

Ms Liu says she is entitled to compensation for Mr Pask’s post-separation conduct in unilaterally taking all Double Lux assets.  In addition, there is a question of spousal maintenance.

Justice La Hood ruled a freezing order was not appropriate.

Such orders are made where there is a threat one litigant will become ‘judgment-proof’ by dissipating assets in advance of a prospective adverse court judgment.

Given the value of all assets under Ms Liu’s control, she will be able to meet Mr Pask’s claim to a half share of the $4.5 million liquid assets, even should she dissipate these liquid assets, Justice La Hood ruled.

Ms Liu said Mr Pask’s application for a freezing order was simply an attempt to block her access to ready cash for living expenses.

Pask v. Liu – High Court (13.05.24)

24.122

Asset Forfeiture: Commissioner of Police v. Jobes

 

Forfeiture of some $175,000 cash on hand satisfied a proceeds of crime forfeiture order with the High Court ruling a forced sale of the family home would not be imposed to recover the further $50,000 assessed as still being due as proceeds from dealing in cannabis.

James Luke Jobes pleaded guilty to one charge of cultivating cannabis and was sentenced to 18 months supervision.  This charge followed a 2020 search of his family home on Skyhigh Road at Hunua, south of Auckland, a search triggered by police earlier finding Jobes sitting in a car at Botany Town Centre negotiating what appeared to be a drug deal.  Cash and cannabis were found in the car.

Once Jobes pled guilty to cultivation, police withdrew related charges of possession for supply.

He objected to a later Criminal Proceeds (Recovery) Act proceeds of crime forfeiture application; he had been convicted of cultivation only, not supply.

Justice Campbell ruled police can still pursue a proceeds of crime claim despite no prior criminal conviction for supply.  The tactical advantage for police is that the standard of proof for proceeds of crime claims is the civil standard of proof (the balance of probabilities) not the criminal standard (beyond a reasonable doubt).

Jobes said all cannabis grown was for personal use; to alleviate chronic back pain.  While police provided no direct evidence of Jobes selling cannabis, Justice Campbell ruled it was more probable than not that Jobes sold surplus cannabis beyond what he consumed.

Police alleged Jobes had generated $1.08 million from sales.

The battle in court turned on conflicting evidence as to how prolific a gardener was Mr Jobes.

Police said they had seized 129 plants from Skyhigh Road.  They assessed four 90-day cropping cycles each year over the three years of alleged cultivation.  Applying their knowledge of crop yields and market prices, police assessed three years of cultivation had generated $1.08 million in revenue.

Justice Campbell downgraded this assessment.  Of the 129 plants seized, nearly one-third were dead.  Electricity records for Skyhigh Road showed wild variations in usage, ranging over time from normal household usage to over four times the norm.  It was clear there was no continuous cropping cycle.

Justice Campbell ruled $224,000 was a better estimate of the proceeds of crime.  Cash seized from Jobes and confiscation of $175,000 held in a bank account were sufficient forfeiture.

The family home on Skyhigh Road was ruled ‘tainted property’ since mortgage payments had been made from proceeds of crime.  No forced sale was ordered.

To order sale of Skyhigh to recover the balance due of some $50,000 would be disproportionate, Justice Campbell said.  Disruption to family life and costs of realisation did not justify sale of this major asset for recovery of such a relatively small amount.

The balance remains payable by Jobes as a personal debt to be collected as government revenue.

Commissioner of Police v. Jobes – High Court (10.05.24)

24.119

Fair Trading: Red Stag Timber v. Juken

 

With market share sliding after rival Juken entered the market for timber framing, Red Stag sued alleging Juken misrepresented Building Code compliance for its laminated product.  It failed.  Red Stag, and many building supply companies, wrongly confused Code hazard classes with treatment specifications, the High Court ruled.

If breach of the Fair Trading Act had been proved, Red Stag was in line for a damages award totalling $6.9 million.

At issue was market views on the respective merits of traditional whole sawn timber framing and Juken’s product produced by gluing together slices or veneers of timber pressed together under high pressure.

Glued veneer timber is structurally stronger than conventional whole sawn timber.  

Strength is not the sole issue.  Rotten/leaky homes constructed from untreated kiln-dried timber led to New Zealand’s ongoing ‘leaky home’ crisis and a tightening of Building Code requirements that framing timber be treated chemically to resist mould should water penetrate exterior cladding.

Building Code requirements for house framing timber specify framing as being a H1.2 Hazard Class.  The product must be able to withstand borer and mould.  Typically, boron is forced under pressure into framing timber to provide chemical protection. 

Red Stag alleged Juken was misrepresenting its laminated product as H1.2 framing when it had not undergone full penetration boron treatment.

Juken was in breach of the Fair Trading Act, it claimed.

Juken marketed its product under the brand: J-Frame.  Marketing material described J-Frame as ‘treated to meet or exceed H1.2 … treatment standards.’  First sales were in late 2007.

Much of the court’s time was taken up with argument over the level of boron penetration into J-Frame’s layered veneer compared with traditional whole sawn timber; an argument over what amounted to ‘full penetration.’

Justice Venning ruled Juken’s boron treatment complied with product requirements for H1.2 Hazard Class construction.

The standard demanded by Red Stag for Juken’s product exceeded compliance requirements for its own product, Justice Venning said.

There had been no misrepresentation by Juken.

With an appeal in prospect, Justice Venning then calculated what damages might have been payable to Red Stag if Juken had misrepresented its product.  This required a counter-factual assessment of market shares as if Juken had been temporarily forced from the market and required to reformulate its product.

It was assumed Red Stag would have picked up a fifty per cent share of this vacated market.  This represented potential revenue otherwise not gained, calculated at $3.9 million.  With addition of compensation for the present value of this revenue loss, total damages awarded would have been $6.9 million.

Red Stag Timber Ltd v. Juken New Zealand Ltd – High Court (10.05.24)

24.118

Asset Forfeiture: Commissioner of Police v. William & Eng

 

Managing residential tenancies can be complex, doubly so when the properties are held in limbo under Insolvency Service management, restrained under proceeds of crime legislation as property ‘tainted’ by alleged criminal activity.

Wellington-based Robert William and Helen Eng are both charged with participating in an organised criminal group plus further offences relating to receipt of stolen property.  At the time charges arose two years ago, they controlled an $18 million dollar property portfolio.

Police allege their applications for covid-19 wage subsidies and Social Development accommodation supplements were fraudulent.  The level of fraud is alleged to be $2.5 million.

In October 2022, police raids recovered almost three thousand items of allegedly stolen property having an estimated upper value of some two million dollars.

Both deny all charges.

In December 2022, the High Court imposed a Criminal Proceeds (Recovery) Act restraining order over fifteen separate properties, pending potential forfeiture dependant on the outcome of their criminal trials.  Insolvency Service now has day-to-day management of these properties.

With property prices falling, the High Court gave approval for immediate sale of twelve properties with net proceeds frozen.  Only four properties have sold, each at a loss; two of these being mortgagee sales.

William and Eng allege the commercial value of their remaining properties is being eroded by Insolvency Services’ poor management.

They asked two properties be released from the restraint order: one on the Terrace in central Wellington; the second in Tawa.  Neither of these properties benefitted from any alleged fraud, they claim.

Property is ‘tainted’ if proceeds of criminal activity are used to purchase property or to pay any mortgage secured over property.

Refusing to release the properties, Justice Grau ruled funds allegedly arising from fraud washed through sundry bank accounts controlled by William and Eng such that it was arguable that criminal proceeds were used to pay down debts secured over the two properties.

As regards complaints of poor management by Insolvency Service, Justice Grau said there were inevitable complications with Insolvency Service attempting to prepare properties for sale when at the same time there were tenants on fixed term tenancies having a right of continued occupation.

Separately, Justice Grau disallowed priority payment of liquidation costs arising after the restraining orders were imposed.

More than half the restrained properties are owned by a company called Synergy Investments Ltd, a company controlled by Ms Eng.

Synergy was put into liquidation in June 2023.  Companies Act rules give priority to payment of liquidators’ fees and expenses, including their legal expenses.  Proceeds of crime legislation was enacted with no thought as to how it might dovetail with Companies Act rules.

While expenses incurred by a liquidator prior to restraining orders being made can be recovered on sale of the company’s restrained property, Criminal Proceeds (Recovery) Act provisions specifically prohibit any priority for expenses incurred after property is tagged as ‘tainted.’

Synergy was put into liquidation after the restraining orders were imposed.

Where they do not have priority, liquidators will have to negotiate with police in a case-by-case basis as to what contribution for expenses can be recovered from asset sales, Justice Grau said.

Commissioner of Police v. William & Eng – High Court (9.05.24)

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