Joint venture: Tankersley v. Meroiti

Ripped off by a Wellington joint venture partner offering specialised software used in quantity surveying, a Malaysian-based investor was awarded damages exceeding $3.3 million.

The High Court ruled John Meroiti with his spouse Jill missapropriated joint venture funding provided by Rinota Project Management Services Sdn Bhd, a Malaysia company controlled by a Mr Tankersley.  When Mr Tankersley tried to regain control of the business Mr Meroiti then duped him by supposedly selling software programmes he had no authority to sell – the software was part-owned by Fletcher subsidiary Placemakers.

The High Court was told Mr Tankersley met with Mr Meroiti in Kuala Lumpur in 2005.  He agreed to assist the Meroitis in developing and licensing use of specialised software for the building trade.  In anticipation of joint venture details being finalised, Mr Tankersley pledged $800,000.  Funds were to be released against receipts for expenses incurred by Mr Meroiti.  Mr Tankersley became suspicious about the activities of his fellow investor following a lack of detailed receipts for expenses claimed.  Investigations uncovered a pattern of missappropriations.  Out of $956,900 advanced by the end of 2005,  an investigative accountant found at least $697,000 had not been used for joint venture purposes.  Some funds had been used personally by Mr & Mrs Meroiti, other funds had been ploughed into their purchase of a property called Lindale Lodge.  To bring Mr Meroiti to account, Mr Tankersley negotiated a formal agreement with Mr Meroiti for the transfer of intellectual property rights in the software to a joint venture company in which he held a 49 per cent stake.  As part of this agreement Mr Tankersley agreed to pay two million dollars, with credit for the $956,900 already advanced.  He was later to learn that Mr Meroiti did not have sole ownership of the software and had no authority to transfer it to their joint venture company.  He sued.  When Mr & Mrs Meroiti did not respond to High Court orders freezing assets and requiring bank statements to to be handed over, the court issued an “unless order”: they were barred from defending Mr Tankersley’s claim unless they complied.  Following their failure to comply, judgment in favour of Mr Tankersley and Rinota Project was given after formal proof of their claim.

Justice Brown ordered Mr & Mrs Meroiti pay $697,000 for breach of fiduciary duty in respect of the missappropriated funds, Mr Meroiti pay $1.35 million for misrepresentation as regards ownership of the software plus a total of $1.27 million in court-ordered interest.

Tankersley v. Meroiti – High Court (9.06.15)

15.064

Circle Group: re Alpha Box Property Holdings

Director Carl Wiekart has been ordered to pay $1.02 million to liquidators of Alpha Box, part of the Circle Group property companies.

Circle Group shut up shop in late 2007.  It carried on business as a property investment and trading company, buying residential properties and selling them, predominately to “mum and dad’ investors.  Alpha Box Property Holdings was at the centre of Circle Group operations.

The High Court was told Inland Revenue put Alpha Box into liquidation for unpaid GST.  Investigations by liquidators David Levin and Viv Masden-Ries found a total of $1.02 million had been paid by Alpha Box to other Circle Group companies in its dying months.  Alpha Box director Carl Wiekart had an interest in other Circle Group companies as director, or shareholder, or both. Mr Wiekart said these payments were reimbursement of expenses the companies incurred on behalf of Alpha Box.  The liquidators said these payments were unsecured, undocumented loans.

Justice Peters said Alpha Box’s accounting records showed the payments were loans.  There was no documentation to justify the payments as reimbursement of expenses.  Payments were made in round sums; indicative of a loan rather than reimbursement.  Of concern, Her Honour said, was Mr Wiekart’s evidence that priority was given to Alpha Box paying money across to Circle Group companies where he or his parents had guaranteed liabilities.

Justice Peters ruled Mr Wiekart was in breach of his duties as director of Alpha Box by making the loans when there was little prospect of repayment.  He was ordered to pay Alpha Box liquidators $1.02 million.

Inland Revenue is owed GST of $108,000 plus a further $73,800 in penalties and interest for late payment.

re Alpha Box Property Holdings Ltd – High Court (8.06.15)

15.062

Relationship property: Heazlewood v. Joie de Vivre

The Court of Appeal has warned alter ego family trusts are at risk in relationship property disputes.  Treat family trust assets as personal assets and they might be viewed as relationship property.

Use of over forty separate family trusts by a Christchurch businessman to control property investments led to allegations they did not operate as arms-length trusts but were simply a tax dodge.  This when his spouse asked the Court of Appeal to block his alleged attempts to defeat her claims to a share of relationship property.

Separated after a 23 year marriage, Susan Heazlewood alleges her husband Graeme is manipulating transactions to cut her out as beneficiary of family trusts.  Mrs Heazlewood argued that all the trusts are shams; Mr Heazlewood intended only to create the appearance of trusts so that he could deal with the properties as his own while avoiding liability for tax and, initially, the attention of the Official Assignee.  The court was told Mr Heazlewood was bankrupt for the first three years of their marriage.

The Court of Appeal signalled it is sympathetic to legal arguments that where a particular family trust operates as the alter ego of the person who controls it, then the court may “look through” the trust and treat all the trust assets as relationship property.

In a preliminary legal skirmish, the Court of Appeal was asked to rule on the validity of claims registered against land titles of Heazlewood developments.  The effect of registration is to warn any person dealing with the land that it is disputed relationship property.

One investment in Russley Road, Christchurch, is spread across two addresses and two titles.  Initially, the ultimate beneficiary was the Robinsons Bay Trust with Mrs Heazlewood as a discretionary beneficiary.  Evidence was given that Mr Heazlewood transferred ownership to a new trust, the Boulder Trust, within months of their separation.  Mrs Heazlewood is not a beneficiary of the Boulder Trust. The Court of Appeal ruled her claim registered against the Russley Road titles remain.  She has an arguable claim of a constructive trust in her favour, said the court. There was evidence Mrs Heazlewood actively contributed to the development of earlier investment properties which had been sold and funded the Russley Road purchase.

Heazlewood v. Joie de Vivre Canterbury Ltd – Court of Appeal (5.06.15)

15.061

Undue influence: Green v. Green

A fight for control of the multi-million dollar Green Group following the death of patriarch Hugh Green has become a tragedy of Shakespearean proportions with open warfare between brother and sister resulting in the High Court intervening to appoint independent trustees to take control.

Hugh Green died in 2012, aged 80.  He stood at the head of a complex group of companies and trusts with assets valued in the hundreds of millions of dollars, generated in the main by property development.  His legal legacy has been a painful stoush between the two oldest children: son John and daughter Maryanne with John seeking to oust sister Maryanne from her previous position of control within the Green Group and Maryanne adamant John is not fit to make business decisions pointing to serious “irregularities” when John was previously employed by the Green Group.  In the background stands an eminence grise, Auckland lawyer Michael Fisher, whom Maryanne alleges tried to engineer her exclusion from the business while elevating both John and himself into positions of power.

After a marathon 24 hearing days in the High Court at Auckland, Justice Winkelmann made a wide ranging series of rulings: invalidating Hugh Green’s last will made three months prior to death because of undue influence by John in having himself and Mr Fisher appointed trustees (trustees of the will have power to appoint trustees of the Green Group’s operations and through that the power to appoint directors of Green Group companies); confirming Maryanne was still a trustee of the Green Group (despite a supposed coup by John and Mr Fisher in having her removed); and declared that Mr Fisher had not been validly appointed as trustee of the Green Group because of undue influence exercised by John over father Hugh.

Evidence was given of the deep antipathy between Maryanne and John.  Maryanne’s business life was intertwined with her father’s business interests.  She was employed by Green companies from 1987.  For fifteen years up to 2012 she was chief executive of the Green group.  She has a reputation for detail; employing extensive procedures which the court was told she is relentless in requiring others to follow.  She keeps detailed diary notes of all important business conversations.  This style finds no favour with John, described by Justice Winkelmann as having a radically different business style according little respect to process and paying little regard to Maryanne’s processes.

The High Court heard detailed evidence of move and countermove within the Green family during Hugh Green’s final months.  Justice Winkelmann painted a picture where every step taken to remove Maryanne from control seems to have been instigated by someone other than Hugh.  A point was reached where Hugh was a passive figure when it came to big decisions.  He was terminally ill with cancer, weak and tired.  He was trapped between the stridently expressed demands of two powerful personalities, but one of them, John, was more powerful and skilful in managing the situation.  Maryanne objects to John having any responsible position within the Green group because of what she sees as his past dishonesty, poor financial position and what she views as his less than professional business approach.  There was evidence from a 1994 internal investigation that John had been stealing from the company: documentation misrepresented underlying transactions, company funds were missapplied without authority and cash was taken for his own purposes. The amount involved exceeded $270,000.  The court was told John left for Australia in the mid-1990s returning to work for the Green Group in 2009 as an administrator for the Hugh Green Foundation – a charity wing of the Green Goup.

As an interim measure, Justice Winkelmann appointed two independent outsiders as trustees of the Green Group: Christopher Robert Darlow and David Harding Randell.  

Green v. Green – High Court (03.06.15 & 02.07.15)

15.060

Export: Nelson Honey v. William Jacks

Honey valued at $206,000 has been seized in Shanghai allegedly unlawfully with the connivance of local public officials;  a Singapore trading house has sued the New Zealand exporter in the Singapore courts claiming the product was faulty; while the Nelson honey exporter is suing in the New Zealand courts for non-payment.

The High Court was told Nelson Honey & Marketing Ltd started dealing with Singapore-based William Jacks Ltd in 2010.  A total of 22 export sales were made to William Jacks before Nelson Honey was left unpaid on a $206,000 consignment delivered in October 2013.  William Jacks had moved the consignment from New Zealand to Shanghai in two deliveries: an advance consignment by air and the balance by sea.  It later complained the product was faulty, alleging jars were incorrectly labelled and the honey was discoloured with froth on the surface.

After Nelson Honey sued for payment, William Jacks started legal action in the Singapore courts alleging it had a written distribution agreement specifying that all disputes were to be decided in Singapore.

In the New Zealand court, evidence was given that the honey, stored in a Shanghai warehouse, had been forcibly removed by persons obliquely referred to as “Wang Ming and his entourage” with support from local public security bureau officers.  William Jacks said it was taking action in the Chinese courts to recover the honey.

In New Zealand, Associate Judge Mathews ruled the proper venue to hear the dispute between Nelson Honey and William Jacks was the New Zealand courts.  The written agreement specifying Singapore as the venue for hearing disputes was an unsigned draft.  It had never been finalised.  The default rule in the United Nations Convention governing International Sale of Goods states that the law to apply is that of the country where the contract was entered into.  Judge Mathews ruled the contract in dispute was made in New Zealand when Nelson Honey received William Jacks’ purchase order specifying volume, price and delivery dates.  Prior to this there had been some negotiations over splitting delivery with shipment by both air and sea.

Nelson Honey v. William Jacks – High Court (3.06.15)

15.059