Insurance: Moorhouse Commercial Park v. Vero

 

Owners of Christchurch earthquake-damaged commercial buildings in dispute with Vero Insurance are left with a Court of Appeal ruling having the effect of requiring them to deconstruct part of each building in order to prove Vero should pay for a rebuild.

Moorhouse Commercial Park Ltd, controlled by engineer Peter Dennis, owns several adjoining commercial buildings in central Christchurch.  It cannot agree with Vero Insurance over the scope and extent of repairs needed following earthquakes in 2010 and 2011.

Moorhouse Commercial says the buildings need to be demolished and rebuilt.  Vero says epoxy resin injected into cracks within the buildings is sufficient.

The buildings are currently tenanted by commercial clients; two gyms, offices and retail outlets.

Moorhouse Commercial says epoxy repair is insufficient; the buildings are at risk of collapsing in another major earthquake.

In engineering terms, the dispute is over the buildings’ post-earthquake ‘stiffness;’ the ‘bonding’ between concrete and reinforcing steel rods.

The buildings were constructed between 1954 and 1997, using smooth sided steel rods.  Structural engineers have since learnt that the bond between smooth reinforcing steel rods and concrete poured around them could lessen or slip following earthquakes.  Industry preference now is for ribbed reinforcing steel, providing better bonding; more grip, and a more robust structure.

Moorhouse Commercial says extensive exterior cracking post-earthquake is clear evidence of potential structural failure, requiring Vero to pay for a rebuild.

Vero’s engineering experts said epoxy resin repairs already undertaken are sufficient and that Moorhouse Commercial is overstating the seismic risk.

The Court of Appeal ruled it is for Moorhouse Commercial to prove Vero is in breach of its insurance contract.  To force a rebuild, Moorhouse has to prove the earthquakes caused damage to the buildings’ structural integrity.   

It is possible that bond loss occurred, the Court said.  But Moorhouse Commercial has to prove it.

Moorhouse Commercial Park Ltd v. Vero Insurance – Court of Appeal (3.09.24)

24.218

Asset Forfeiture: Commissioner of Police v. Heron

 

Canterbury properties owned by Michael Heron and Hayley Lewis collectively valued at $1.77 million were confiscated under proceeds of crime legislation following Heron’s conviction for cannabis cultivation and supply.

Their home on a rural property at Johns Road, Fernside, was the site of a substantial growing operation; an investment property on Main North Road in Waikuku tainted by reason of dealing profits used to pay down the mortgage.

At a High Court assets forfeiture hearing under the Criminal Proceeds (Recovery) Act, Heron argued unsuccessfully that substantial household income over a seven year period was derived from cash deals mowing lawns, selling firewood and prospecting for gold.  He was unable to provide any evidence of clients for whom he was mowing lawns, or the source of firewood supposedly sold or names of his firewood customers.

Tax returns declaring some income from these sources were dismissed by Justice Preston as not representing the true source of cash receipts.

More damning was evidence of a police raid in September 2020 which found extensive cannabis cultivation in a five bay garage next to Heron’s Johns Road home.

Police intercepts had identified buyers purchasing cannabis from Heron.  In one intercept Heron was recorded discussing an upcoming referendum on legalisation of cannabis in which he stated that he would be voting against; legalisation would result in ‘the corporates’ driving small growers like him out of business, he stated.

A police forensic accountant gave evidence that Heron banked $1.27 million over a seven year period from identified cannabis sales and otherwise unknown sources; some used to pay down mortgages on the two properties.  There was evidence of cash being paid into their credit card accounts plus multiple cash deposits being made into bank accounts on the same day to keep each deposit below an amount likely to raise bank suspicions about the source.

Heron admitted $153,000 cash found by police in the Johns Road search was proceeds of cannabis sales.  Justice Preston ordered the cash forfeit.

She also ordered forfeiture of their Johns Road home and their investment property.  Proceeds of cannabis sales were used to pay down mortgages on each property.

Hayley Lewis is joint owner of these properties.  She has not been charged with any criminal offence.

Justice Preston dismissed her claims to have no knowledge of her partner’s cultivation and sale of cannabis.  She benefitted from the cash generated, Justice Preston said.

Her half share of the two properties was also forfeit.

Justice Preston allowed a $147,000 hardship allowance be paid Ms Lewis after sale of the two properties and repayment of loans secured over them.

This $147,000 was calculated as repayment of her cash contribution to purchase their investment property plus half the capital gain on this property for the following two years.  After this two year period, the property was tainted by reason of mortgage payments being sourced from cannabis dealing.

This investment property had initially been their family home, before purchase of Johns Road.

Commissioner of Police v. Heron – High Court (2.09.24)

24.216

Land Subdivision: Ryan v. M & E Ryan

 

June Ryan was the driving force within the family setting up adjoining vineyard operations for sons John and Chris in the Awatere Valley, near Blenheim.  She brokered an agreement for each to operate stand-alone vineyards on what was previously a single farm, her accountant completing valuations for the split; their lawyers misunderstanding what was agreed then messing up implementation.

A Property Law Act court order was needed to specify the land to be owned outright by each son.

The High Court was told of John and his mother initially developing their 270 hectare family vineyard operations.  In 2005, she took steps to have younger son Chris gain an ownership interest.

Should the existing vineyard be subdivided and sold to interests controlled separately by the two brothers, current tax rules would have triggered a capital gains tax liability.  It was decided to instead achieve de facto subdivision between businesses owned by the two, with formal subdivision of the land to follow later.

Evidence was given that contours of the former farm meant the two brothers were able to operate independently, planting and cultivating their own vines while sharing equipment.

A 2008 ‘Heads of Agreement’ written up by John after discussions with his mother had envisaged he would take an 80 per cent split of combined operations, brother Chris 20 per cent.  Their later formal agreement saw a 78:22 split.

June’s accountant completed business valuations identifying cash adjustments needed as between the brothers to achieve this outcome.

To avoid tax consequences of subdividing the property, it was agreed the two brothers would take title as tenants-in-common in unequal shares.  This meant each was part-owner of all the land, though in practice each would occupy only that portion covered by their own vineyard.

Lawyers implementing the final agreement registered John as part-owner of the land with a 78 per cent share, Chris a 22 per cent share.

This became an issue when the two brothers later sought to finalise a legal subdivision of the property, now free of any potential capital gains liability.  Chris’ vineyard occupies fifteen per cent of their jointly owned land.  He claimed title division should allow him sole ownership of a 22 per cent share of the land; the same proportionate share he held as tenant-in-common.

A family argument followed.  Was the earlier 78:22 agreement based on a division of the value of their separate businesses (including the land each cultivated), or division of the land alone?

Justice Cull ruled their formal agreement did not properly reflect the earlier ‘heads of agreement.’  The family arrangement was that the prior de facto separation of the two brothers business interests was based on the value of their respective vineyard operations in which Chris occupied fifteen per cent of the land.

Lawyers had misinterpreted Chris’ 22 per cent share of their combined business operations as being a 22 per cent share of land value.

Justice Cull ruled Chris was entitled on subdivision to registered ownership of only the fifteen per cent of land he currently worked, with no compensation for the further seven per mistakenly recorded as part of his shared ownership.

Ryan v. M & E Ryan & Sons Ltd – High Court (2.09.24)

24.215

Liquidation: Gillovic v. Nayacakalou

 

Waikato studmaster and horse trainer Brent Gillovic appointed Kelera Nayacakalou liquidator of two companies he controlled which were in dispute with Inland Revenue believing she would be a ‘friendly liquidator.’  Nine years later, it took a High Court order to remove her with liquidation stalled and a dispute over fees owed.

Within weeks of the court hearing, Ms Nayacakalou’s licence to practice as an insolvency practitioner was cancelled by the New Zealand Institute of Chartered Accountants.

The High Court was presented with a confused picture of what had, or had not, been done in relation to liquidation of Mr Gillovic’s companies: Tesio Bloodstock Services Ltd and Tesio Throughbred Services Ltd.

The court was told that at time of her appointment in 2015, Mr Gillovic disputed default assessments issued against his companies by Inland Revenue.  On liquidation, Inland Revenue lodged claims of some $60,500 against Tesio Bloodstock and about $38,900 against Tesio Thoroughbred.

Mr Gillovic said these claims were later withdrawn.

He objected to Ms Nayacakalou then going full-steam ahead, selling shares in a private company part-owned by Tesio Bloodstock for $2000, ignoring pre-emption provisions requiring this private company shareholding to be first offered for sale to existing shareholders.

He was also angered by Ms Nayacakalou suing to recover loans by the companies to him.  The extent of any loans was disputed.

Statutory six-monthly reporting to the Companies Office on her actions as liquidator made no reference to this detail.

With Ms Nayacakalou claiming unpaid fees of $80,800, Mr Gillovic said the agreed deal was that her fees would not exceed $3500 for each company.  He said the fees claimed were ‘exorbitant, unsupportable and unreasonable.’

Associate Judge Sussock removed Ms Nayacakalou as liquidator of the two Tesio companies, on grounds she had failed to carry out her duties in a proper and timely manner.

She was entitled to no more than $3500 in payment of liquidation fees for each company, Judge Sussock further ruled.  Regardless of whether there was a fee agreement fixing payment, limited record keeping by Ms Nayacakalou justified no higher payment, Judge Sussock said.

Ms Nayacakalou did not appear in court.  She claimed to have received insufficient notice of the court hearing date.

Gillovic v. Nayacakalou – High Court (2.09.24)

24.217

Pension Fund: Fletcher Building Nominees v. Fletcher Building

 

Fletcher Building’s pension plan has been far more successful than its commercial operations, leading to a High Court dispute over who benefits from a $146 million surplus in a pension scheme currently being wound down: Fletcher’s pensioners or Fletcher itself?  An answer which will pique the interest of any potential investor considering a hostile takeover.

The High Court left this question unanswered, though it did indicate that the general assumption is that any surplus in a company’s pension fund belongs to the company; any surplus is evidence of overfunding in the past.     

Justice Blanchard approved changes to Fletcher’s pension scheme allowing part distribution of this surplus as an increase in pension payouts for some former Fletcher employees, while the fund trustee has a residual discretion to decide each year whether this increase will in fact be paid.

Fund trustee, Fletcher Building Nominees Ltd, is nominally independent of its listed sponsor Fletcher Building Ltd.

Employee pension funds are kept ring-fenced, separate from commercial operations of its sponsoring employer.  This minimises any temptation for an unscrupulous employer to tap into pension funds when business operations run short of cash.

Fletcher’s pension scheme was established in 1982.  No new members have been admitted for years; in practice, it is closed to new members.

The High Court was told there were nearly 490 members remaining in the scheme as at March 2024: some 420 ‘defined benefit’ members, about 70 ‘defined contribution’ members.

Fletcher’s defined contribution members, like members of Kiwisaver schemes, get back only what money they put in plus investment gains earned on those contributions.

Fletcher’s defined benefit members get pension payments based on their final salary plus a prescribed annual increase of 1.75 per cent.  Average age of the pension fund’s defined benefit members is 84 years, the court was told.  

The High Court was asked to give Financial Markets Conduct Act approval to Fletcher’s proposed amendments to its pension trust deed.

These changes affect defined benefit members only.

Fletcher was offering what amounts to an 8.33 per cent annual increase for each year the defined benefit member remains alive, while retaining the right to decide each year whether to pay this increase.

Defined benefit members objected.

This was a niggardly increase, they said, amounting to a current extra cash cost for the pension fund of some one million dollars per year at time when the fund holds a healthy actuarial surplus.  This cost will reduce quickly as current defined benefit members die.

In addition, there were concerns that the independent trustee might decide in future not to pay this discretionary increase.

Directors of the independent trustee are appointed by Fletcher Building.  Any rumoured takeover of Fletcher Building might see new directors subsequently appointed, members said.

Justice Blanchard said the Act only allowed him to approve or disallow proposed pension scheme changes as a package.  He could not approve some parts of Fletcher’s proposal and disallow others.

The current proposal was the result of negotiations spread over nearly a decade, the court was told.

Disallowing these changes in their entirety might result in further negotiations, Justice Blanchard said.  But this will take time.  Many of the elderly defined benefit members will have died in the interim.

Or Fletcher may refuse to start negotiations afresh, he said.  This would leave all defined benefit members with no share of the current surplus.

Justice Blanchard approved the proposed scheme changes.

Fletcher Building Nominees Ltd v. Fletcher Building Ltd – High Court (30.08.24)

24.212

Will: Kingsford v. Mathers

 

A desperate phone call by Cedric Mathers stating he was being ‘cleaned out’ by his long-term de facto partner proved the trigger for successful court action later invalidating his will on grounds of both her undue influence and his advancing dementia.

Mr Mathers and Gloria Kingsford were in a de facto relationship for 23 years.  They never lived together; keeping separate residences, keeping their finances separate, and one year into their relationship signing a relationship property ‘contracting-out’ agreement stating their assets were to remain separate property.  They had both been twice married previously.

On his death in 2022 at age 81, validity of Mr Mather’s final will, signed fifteen months previously, was challenged.

The High Court was told Mr Mathers made several phone calls to his long-time friend Curly Rosborough in some distress around the time he signed the disputed 2020 will.  Mr Rosborough was so concerned about the calls that he took handwritten notes of their conversations, later having these notes typed up and forwarded to Mr Mather’s three daughters.

Mr Mather variously complained that Ms Kingsford had ‘stripped [him]of all his possessions;’ ‘cleaned him out;’ and ‘emptied out everything to her side of the fence.’   

Evidence was given that in the months prior to his signing the 2020 will, Mr Mathers cognitive abilities were questioned in medical assessments needed for renewal of his driver’s licence.  His Waihi general practitioner required further tests.  NZ Transport Agency revoked his licence.  It was reinstated after he passed a practical driving test.

Justice O’Gorman ruled the medical evidence showed Mr Mather lacked sufficient testamentary capacity to sign his 2020 will.

She further ruled Ms Kingsford exercised undue influence in having the will drafted and signed.

Ms Kingsford took instructions for his new will to her accounting advisers.  They were offering a will preparation service.  Justice O’Gorman said it was not clear whether Mr Mather personally had drafted these instructions.

The new will was prepared and signed within a day.

The accounting firm did not know of Mr Mather’s personal or financial circumstances, or terms of any prior wills, or existence of the earlier relationship property agreement.  Mr Mather was steered away from the law firm he normally used, a law firm with knowledge of all this background.

Ms Kingsford said the accounting firm was used because it was offering a free will drafting service.  Mr Mather’s usual law firm was offering a similar promotion at the same time, Justice O’Gorman pointed out.

Terms of the invalidated 2020 will bequeathed the residue of his estate to Ms Kingsford with his rural property on Golden Valley Road, near Waihi, to be gifted to his three daughters.

A prior will, which became effective on cancellation of the 2020 will, leaves his estate to two of his three daughters.  The other daughter is estranged from her father.  She has no wish to share in her late father’s estate, the court was told.

Ms Kingsford was described as holding assets in her own name in excess of six million dollars at the time the disputed will was signed; around three times the then value of Mr Mather’s assets.

Who is to take ownership of Mr Mather’s half interest in a Vanuatu property is yet to be decided.  Inheritance is complicated by both terms of Mr Mather’s ‘contracting out’ agreement and the fact this is overseas real estate, outside jurisdiction of New Zealand courts.

Kingsford v. Mathers – High Court (30.08.24)

24.214

Liquidation Fees: Jones v. IBC Japan

 

It was intended to be the endgame in a $38 million dispute, but tipped over into detailed argument over level of fees charged by liquidators of Auckland used car importer Autoterminal.  The High Court cut back fees billed by fifteen per cent, ruling the job had been overserviced by insolvency firm Khov Jones.

They saw the liquidation as a Rolls Royce, rather than a cheaper brand of car, Justice Brewer said.  Given the keys, they took the car for a long drive, he commented, pruning back a fee invoice of $920,000.

Separately, Khov Jones claimed as an insolvency cost some $120,000 spent in preparation for the court hearing defending its fees.  Justice Brewer reduced this cost recovery by 25 per cent.  He was critical of affidavits filed in evidence by Khov Jones, amounting to hundreds of pages, collectively having some 9000 pages of attachments.

Autoterminal New Zealand Ltd was propelled into liquidation in 2021 for non-payment of a $38 million debt owed related company IBC Japan Ltd.

This debt arose from IBC’s supply of used cars from Japan.

IBC Japan grew out of a business relationship developed in the 1990s between American Robert Stone and New Zealander Hohua Hemi, known as Jojo.  From small beginnings, it grew to a global enterprise exporting used cars from Japan.

The New Zealand leg of operations was governed by a vehicle supply agreement.  Autoterminal New Zealand did not have pay IBC Japan for deliveries until vehicles supplied were sold in New Zealand and payment collected.  This left IBC at the mercy of Autoterminal’s credit policy, a policy over which it had no control.

Commercial disputes between Mr Hemi and Mr Stone saw this debt balloon out to $38 million.

In July 2021, the High Court ordered Autoterminal pay the $38 million owed.

Months later, Autoterminal was in liquidation, with Auckland-based Khov Jones appointed liquidator assisted by Tauranga-based Thomas Rodewald.

Within weeks, a deal was done.  IBC Japan took over all Autoterminal’s assets in satisfaction of the debt owed.

IBC agreed liquidators could pay all other Autoterminal creditors their full one hundred cents in the dollar, excluding a couple of debts believed linked to Mr Hemi.

This left calculation of liquidation costs as the only major expense reducing what IBC could salvage from Autoterminal.  

IBC claimed Khov Jones overcharged.

Justice Brewer ruled Khov Jones spent too much time on the job.

Some of its work duplicated work done elsewhere.  Legal advice on cross-border insolvency issues was disproportionate and only generated more hours unnecessarily spent analysing the advice.

In addition, more of the work could have been done by junior staff at a lower charge out rate, Justice Brewer said.

Khov Jones was held justified in charging for considerable time spent liaising with IBC Japan.  Whilst it was Autoterminal’s major creditor, IBC Japan attempted to interfere excessively in conduct of the liquidation, Justice Brewer said.

Khov Jones spent about $191,000 in billable time engaging with IBC Japan and its lawyers.

Jones v. IBC Japan Ltd – High Court (30.08.24)

24.243

Mortgagee Sale: Westpac v. Heslip

 

Caveats filed by Daniel Heslip over land in Fairlie, South Canterbury, leased from his father, could not stop Westpac’s forced sale.  The properties were sold at mortgagee sale ‘subject to existing tenancies or occupations (if any).’ 

The High Court was told Daniel leased from his father Glen two properties around Fairlie; one residential, the other rural.  These leases run to January 2025.  Neither lease is registered on the title.

Daniel’s November 2024 LinkedIn profile highlights his interests in the tourism industry together with his aversion to the legal profession with what he describes as ‘lawyers making money off others misfortune.’

Evidence was given that he challenged Westpac’s rights as mortgagee to sell the two properties he leased.

Shortly after the mortgagee sale, and some two weeks before the buyer was required to make payment, Daniel lodged caveats over title to both properties to block transfer of ownership.

Associate Judge Lester ordered the caveats removed.

The general rule is that a mortgagee can ignore any unregistered lease, provided it has not agreed to the lease.  In cases of an unconsented unregistered lease, a mortgagee sale sees the tenant’s rights vanish into thin air.

Different rules apply to mortgagee sales of land where there is a residential tenancy in place.  The Residential Tenancies Act allows a tenant to remain in occupation; the new landlord must accept the tenancy and then exercises the same rights as the previous landlord. 

Terms of sale for the Westpac mortgagee sales in dispute expressly stated the buyer took title subject to any existing tenancies.

It is for the buyer to now negotiate with Daniel over his current and future rights as tenant, Judge Lester said.  Daniel could not use his status as tenant occupying the mortgaged properties to block a forced sale.

Westpac New Zealand Ltd v. Heslip – High Court (29.08.24)

24.210

Construction: Your Builder v. Ruban

 

Auckland builder Your Builder Ltd could retain a $125,000 deposit after a customer fired it from a Mt Eden house renovation, hiring a new builder.  Return of any deposit first required compliance with the dispute resolution procedure set out in Your Builder’s contract. 

In July 2022, Dmitry Ruban and Alexandra Matveeva signed up with Hamid Zwart’s Your Builder Ltd to renovate and extend their house, adding a swimming pool and spa pool.

Estimated cost was $1.25 million.  They paid the required ten per cent deposit.

Early on, work was paused four months after concerns about likely increased costs.  No final agreement was reached on any amended scope of work.

The High Court was told the owners subsequently raised complaints about the standard of work done to date, alleging remediation might cost up to half a million dollars.

They purported to fire Your Builders from the job.  A new builder was hired.

The owners sued to recover their deposit.  They disputed liability for work invoiced.

Associate Judge Gardiner ruled Your Builder could keep the deposit until such time as a Construction Contracts Act adjudication was finalised.

The owners had signed a New Zealand Certified Builders Association Cost & Mark-Up (Renovations) contract.

Your Builder says the owners fired it without justification, allowing no chance to remedy any claimed defects.  It claims payment for work invoiced plus its profit margin on the contract as if completed at fifteen per cent of the estimated $1.25 million final cost.

Your Builder Ltd v. Ruban & Matveeva – High Court (29.08.24)

24.209

Relationship Property: Taylor v. Vernon

 

Now living at Sanctuary Cove on the Gold Coast in Queensland, Dianne Taylor is in the High Court alleging spouse Scott Vernon deliberately lied about his net worth when negotiating her relationship property entitlements.

Mr Vernon’s property interests, most notably an interest in Auckland’s Fairview Lifestyle Village, are claimed to total some $170 million.

Ms Taylor alleges her spouse is being deliberately obstructive, failing to properly disclose his net worth.

She was criticised by the High Court for accessing Mr Vernon’s personal emails seeking to identify the extent of his assets.

Justice O’Gorman ruled these emails could not be used as evidence at any court hearing; they were privileged communications between Mr Vernon and his lawyer regarding their dispute.

Offers made to settle their dispute similarly could not be used in evidence.  They were part of ‘without prejudice’ discussions.

The High Court was told the two met in 2005, separating briefly in 2016 before reconciling, finally separating in 2022.

Six years into their relationship, the two agreed on terms should they later split.  In a strictly legal sense, it was not a Property (Relationships) Act ‘contracting out’ agreement; rather an agreement setting out potential entitlements for Ms Taylor.

This 2011 agreement entitled Ms Taylor to a half million dollar lump sum payment plus $100,000 per year for the next five years, should they later separate.

No disclosure was made of Mr Vernon’s then net asset position, other than Mr Vernon admitting to owning a ‘small portion’ of the value of several retirement villages.

The agreement provided for a review in five years.

The High Court was told a failure to carry out this required review on due date led to tensions between the two and a temporary separation.

They reconciled after a new agreement was negotiated, including an immediate payment of AUD two million to Ms Taylor.

Evidence was given that their final separation was triggered by a failure to agree on terms for a subsequent review, a further five years later.  Disclosure of Mr Vernon’s net worth was a key issue.

With their final separation, Ms Taylor claims the two prior agreements setting out her entitlements on separation are invalid; void and unenforceable because of what she alleges were fraudulent misrepresentations by her former spouse about his net worth.

She is claiming a share of the increased value in Mr Vernon’s net assets during the period of their relationship.  She claims his assets increased by about $145 million during this time.

The exact figure is not known.  Mr Vernon’s net worth is split across a multitude of entities, primarily a trust known as the Horizon Family Trust.

After a preliminary court hearing, Mr Vernon was ordered to make an interim payment of two million dollars, subject to Ms Taylor undertaking to make repayment, in full or in part, if she is found entitled to a lesser sum in later court proceedings.

Ms Taylor said this money is needed to pay her legal fees, plus living costs.

Mr Vernon questioned the need for an interim payment.  Ms Taylor holds property interests in her own right totalling some AUD 4.8 million, he said.

Ms Taylor said she does not want to immediately sell any of these properties to free up cash as this would trigger a capital gains tax liability in Australia.

Taylor v. Vernon – High Court (29.08.24)

24.208

Construction: Wilkins v. 77 Degree Builders

 

Poorly completed renovations saw Christchurch building company 77 Degree Builders and its director Simon Washbourne liable to pay $400,800 for estimated costs of repair.

The company 77 Degrees Builders Ltd held liable for breach of contract; Mr Washbourne personally liable for negligence.  He both supervised the job and worked with employees on site.

Neither appeared in court to defend the claims.

The High Court was told Mathew Wilkins and Heather Jenkins purchased their Christchurch family home in late 2020.  Over the following months, they met with Mr Washbourne, discussing plans for renovation.  The house was some 35 years old. 

They paid $166,300 for what was supposed to be a fixed price contract.  The work was expected to take about eight weeks.

Evidence was given of work spread out over sixteen months, work poorly done and the owners being approached by unpaid sub-contractors seeking payment direct.

Installation of new windows was sub-standard.  Some were not fitted square and would not open.  Sill trays and pans supplied for installation with new aluminium windows were not installed correctly; instead, sills were wrongly re-purposed as head flashings.  Windows leaked.

New cladding was installed without a cavity system; instead, affixed directly to timber framing, in breach of manufacturer’s specifications.

When challenged during installation of the cladding, Mr Washbourne explained away this failure to follow industry requirements stating it was just the manufacturer ‘covering themselves since the leaky home stuff.’

Mr Washbourne was personally liable in negligence for his poor standard of workmanship and for his negligent statement that Building Act consent was not required for the proposed work.   

A consent was required because the new cladding was not ‘like for like’ replacement, but complete replacement of the previous cladding system, Justice Preston said.

The $400,800 damages order can be enforced against either Mr Washbourne personally, or his company 77 Degree Builders, or against both in whatever proportion they can pay.

Wilkins v. 77 Degree Builders Ltd & Washbourne – High Court (29.08.24)

24.211

Arbitration: Stockco Ltd v. The Big Basin

 

Often touted as a quick and relatively inexpensive way to deal with commercial disputes, arbitration was prolonged and expensive in a $1.2 million claim by livestock financier Stockco over funding for purchase of nearly 800 bulls rising two years old with allegations of dishonesty over delivery and ownership of the livestock.

Marcus Kight’s Hawkes Bay livestock financier Stockco Ltd was incensed by what was viewed as dishonest, opportunistic and obstructive behaviour by client The Big Basin Ltd.

Big Basin claimed stock were never delivered.

Stockco reserved particular ire for then Big Basin director, Oamaru-based Leonard Bourton, alleging he drove a ‘false narrative’ seeking to make a windfall gain.  Companies Office records state Mr Bourton resigned as director in 2018.

Arbitrations are usually private.  There is no public record.

Stockco’s private dispute with Big Basin made it into the public arena when Stockco disputed in the High Court the level of fees awarded by the arbitrator after its successful claim against Big Basin.

Stockco said it had spent $743,000 on legal fees.  Much of this followed a pre-arbitration review of Big Basin’s allegation it never received the promised livestock.  A prolonged arbitration hearing lasting ten days added to costs.  Stockco said it had reduced its $743,000 claim down from the $850,000 cost actually incurred.

The arbitrator allowed a fee recovery at 51 per cent of costs claimed, payable by Big Basin.

Stockco challenged a reduction of this size as unreasonable.

Justice Radich confirmed the arbitrator’s assessment.  Costs incurred lost proportion against the true nature of the dispute, he said.

The High Court was told Big Basin was able to dispute delivery of the bulls because Stockco was not initially aware of where the livestock were located.  All Stockco knew was that the bulls were, or had been, in the hands of Mr Bourton and that some had reached Big Basin’s property near Lindis Pass in South Island’s Mackenzie Country.

The arbitrator resolved that there was a real possibility that some of the bulls were never in Big Basin’s possession.  Shortcomings in Stockco’s systems and records created uncertainty.

Ultimately, the arbitrator found Big Basin liable for finance costs on a plain interpretation of Stockco’s financing contract, independent of any dispute about delivery.

Stockco Ltd v. The Big Basin Ltd – High Court (28.08.24)

24.207

Construction: Stevensons Structural v. McMillan & Lockwood

 

Retention clauses in construction contracts delaying payment until after a project is complete cannot be enforced against sub-contractors.  Construction Contracts Act prohibits any requirement linking subcontractor payment to final completion by the head contractor.

BDO Wellington as liquidators of insolvent Palmerston North engineering company Stevensons Structural Engineers 1978 Ltd recovered some $225,000 retentions withheld by McMillan & Lockwood for sub-contracting work on two projects: Sarjeant gallery in Whanganui and a NZ Army project at Linton Camp.

Stevensons went into liquidation without completing its share of the work on these two projects.

Mc Millan & Lockwood claimed it could keep retentions held in name of Stevensons to cover the cost of getting new sub-contractors to finish this work.   

In its sub-contract, Stevensons had agreed to funds being withheld from progress payments.  Its contract stated fifty per cent of retentions would be released on satisfactory completion of Stevensons’ work, the balance within thirty days of each of the two projects being complete.

In the High Court, Associate Judge Skelton ruled this retention clause was void and ineffective.

Construction Contracts Act prohibits clauses which tie payment to performance by someone else.  This saw the end of ‘pay when paid’ clauses, in which head contractors could refuse to pay sub-contractors until they themselves were paid.

Judge Skelton ruled the McMillan & Lockwood retentions clause was similarly in breach of the Act; it sought to refuse full payment until the project was complete, something over which sub-contractors had no control.

McMillan & Lockwood had no right to retain the $225,000 held back.

It could not set off these retentions against the cost of having another contractor complete Stevensons’ steel work.

This retention money was held in trust.  Claiming a set-off against a company in liquidation requires ‘mutuality;’ the set-off must arise from mutual dealings between the two parties having the same interest.

There was no mutuality of interest in this case.  McMillan & Lockwood as trustee holding retention money was not the same as McMillan & Lockwood claiming breach of contract.

It could not set off monies held as trustee for the benefit of Stevensons against its corporate claim against Stevensons for damages.

Stevensons Structural Engineers 1978 Ltd v. McMillan & Lockwood Ltd – High Court (27.08.24)

24.206

Uber: Rasier Operations BV v. E Tu Inc.

 

Uber drivers will be carefully storing their digital record of hours worked following Court of Appeal ruling that they are employees whilst logged on with Uber.  Hours worked will assist in assessing rights to minimum wage, holiday pay, parental leave and bereavement leave.  Employee status also opens rights to union membership and to pursue personal grievance claims against Uber.

Based out of the Netherlands, Uber claimed the six thousand Uber drivers in New Zealand are independent contractors.

Uber’s ‘take it leave it’ contract was described by the Court of Appeal as window-dressing.  It gives the impression drivers are not employees when Uber drivers in fact are not in business on their own account: they are not able to make decisions typical of an independent contractor; they neither bear the risks nor enjoy the returns of an independent contractor.

Central to the Court of Appeal ruling was the fact Uber drivers have no opportunity to establish any goodwill of their own, or to influence the quantity of the work received, or the quality of work, or (with limited exceptions) the revenue.

Drivers provide services for riders referred to them by Uber for remuneration determined by Uber while subject to a high level of control and direction from Uber.

Uber claims to be no more than a technology business, linking drivers with those seeking transportation.

This oversimplifies the relationship, the Court of Appeal ruled.

Uber has detailed control over driver operations.

Drivers are free to accept a ride for a fee different from that specified by Uber; but it cannot be higher than the rate set by Uber.

Uber unilaterally decides whether a particular fee should be later adjusted: downwards if a rider complains about the route taken; upwards for cleaning costs if an intoxicated rider throws up.

Uber specifies the pick-up point, and determines the route, while monitoring vehicle location with GPS tracking on the driver’s mobile device.

A driver’s failure to maintain a specified average customer rating results in a warning.  Driver ratings, which, should they be made available to the public, could be considered an aspect of business goodwill attaching to individual drivers.  Driver ratings are not public.  Riders cannot access them to assist in choosing a particular driver.

Uber, rather than individual drivers, obtains the benefit of customer loyalty and goodwill.

Uber uses ratings to measure driver performance and to discipline poor performers.

This is a classic form of subordination characteristic of employment contracts, the court said.

The flexibility and choice supposedly reserved to drivers in Uber’s standard agreement are largely illusory, the Court of Appeal said.

Uber’s high level of control over drivers, while logged in, is evidence of an employer/employee relationship as defined in the Employment Relations Act, the court ruled.

An employer/employee relationship also exists with the Uber Eats app, where members of the public use an Uber app to order food from a restaurant, the court ruled.

Similar litigation in England saw Uber drivers ruled to be ‘workers.’  Employment law in that country defines ‘worker’ as a separate intermediate category between employees and independent contractors.  In England, ‘workers’ share some, but not all, of the employment protections afforded employees.

Rasier Operations BV v. E Tu Incorporated – Court of Appeal (26.08.24)

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