Spamming: Aksentijevic v. Internal Affairs

A $12,000 penalty for spamming was reduced to $250 on appeal.  Inflammatory messages sent to some 440 members of an internet forum could have been disciplined by Internal Affairs imposing a small fine for infringing the Unsolicited Electronic Messages Act rather than mounting a District Court prosecution, the High Court ruled.

Zeljko Aksentijevic was prosecuted for sending 2,230 unsolicited email messages to members of an internet forum discussing electronic simulations of arcade games.  He was interested in promoting his application: CrazyTilt.  A US-based member of the forum complained to Internal Affairs identifying Mr Aksentijevic operating out of Auckland’s North Shore as a member sending bulk unsolicited emails to the forum.  Mr Aksentijevic said he was doing no more than highlighting the advantages of CrazyTilt and criticising others who were selling bootleg copies of his app.  He appealed a District Court ruling that this behaviour amounted to spamming.

In the High Court, Justice Woodhouse ruled unsolicited “promoting” or “marketing” prohibited by the Unsolicited Electronic Messages Act does not require proof of a commercial or business objective, or even an intention to make money.  The Act is designed to cut down on unwanted spam cluttering up recipients in-trays.  His Honour left open the question of whether internet forum opt-in rules that have users agreeing to receive emails from other forum members could amount to consent for unsolicited emails, but said it did not apply in this case.  The forum administrator had banned Mr Aksentijevic following exchanges of increasingly vituperative emails between members.

While ruling Mr Aksentijevic was in breach of the Act, Justice Woodhouse said the $12,000 penalty imposed was manifestly excessive.  In previous cases where spammers had sent in excess of one million spam emails, the fines imposed have been in six figures: $100,000 or more.  Some 2,200 emails sent unsolicited by Mr Aksentijevic was minscule by comparison.

For low level spamming, the Unsolicited Electronic Messages Regulations sets out a procedure akin to breaches of parking regulations.  Internal Affairs issues an infringement notice imposing a maximum fine for individuals of $200 per event.  While upholding Mr Aksentijevic’s conviction under the Act, Justice Woodhouse reduced the fine to $250.

Aksentijevic v. Internal Affairs – High Court (22.02.16)

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Sth Canterbury Finance: McLeod v. R

Five years after a bombastic Serious Fraud Office press release heralding the conclusion of its investigation into South Canterbury Finance and what was claimed to be the biggest commercial fraud in New Zealand history, the High Court pilloried this investigation as falling well below standards the public is entitled to expect.  

In ordering a taxpayer contribution to the $1.38 million legal costs incurred by former South Canterbury Finance chief executive, Lachie John McLeod, Justice Heath ruled the Crown justified in charging him with only three of the five charges laid.  A $240,000 contribution to McLeod’s defence costs was awarded in respect of two charges where Justice Heath said there was insufficient evidence to go to trial.

South Canterbury was placed in receivership in August 2010, triggering a $1.6 billion government payout for investors.  South Canterbury investors were covered by a government guarantee then in place to provide stability in the face of world-wide fears of a general run on financial institutions.

McLeod was later acquitted of five fraud charges arising from South Canterbury’s business dealings: Two of theft by a person in a special relationship, one of obtaining a benefit by deception and two of false accounting.  Following a judge-alone trial, Justice Heath ruled three charges were not proved and two should never have been laid.  The first of these two charges concerned a $12 million loan to the director of a company related to South Canterbury, allegedly routed through the director to avoid the need to disclose any related party lending.  Justice Heath ruled there was no artifice.  It was a loan to the director personally and was repaid by the director.  The second was an allegation that McLeod provided Treasury with false information to induce the government into accepting South Canterbury into the government guarantee scheme.  Justice Heath ruled McLeod had no personal responsibility for the criticised documents forwarded to Treasury as part of the application.  When interviewed by the Serious Fraud Office, McLeod was not questioned about the documents or the government guarantee scheme, His Honour said.  

Justice Heath was scathing in his criticism of the Serious Fraud Office investigation.  There was an insufficient level of supervision and co-ordination.  The investigation team lacked an experienced leader capable of conducting regular reviews of the work undertaken.  Potential defendants were not given an opportunity to comment on allegations that might be made against them in criminal charges.  So far as the major charge concerning provision of false information to gain entry to the government guarantee scheme was concerned, the standard of investigation was poor, he said.  Prior to charges being laid, no steps were taken to interview staff of Treasury or the Reserve Bank.

This contrasted with a December 2011 Serious Fraud Office press release trumpeting the fact charges had been laid against five individuals associated with South Canterbury Finance after a detailed fourteen month investigation into what was billed as the biggest white-collar crime ever.

Successful defendants can apply under the Costs in Criminal Cases Act to recover legal costs incurred.  The Act is not a mechanism to punish prosecutors for undertaking a poor investigation.  It is intended to provide compensation for legal costs in defending charges which should never have been laid.

McLeod v. R – High Court (19.02.16)

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Land: Forde v. Li

Following an unconditional property purchase where later the boundaries were disputed, cancellation was refused because title to the land was marked: “limited as to parcels”.  The Asian purchaser of a residential property in Dunedin was liable for damages of $53,900 after failing to complete the sale.

The High Court was told Hu Jian Li committed in May 2013 to buying a property at nine Brunel Street, Mornington for $232,000.  Before settlement there were questions over where the boundaries lay.  It appeared the legal boundary ran through the house itself.  Attempts to cancel the contract failed.  The electronic register for land titles recorded the property “limited as to parcels”.  This meant there is no state guarantee over the property’s dimensions.  Much of the land in early-settled areas of major New Zealand cities is “limited as to parcels”.  No adequate survey was completed before the land was brought within the current land title register.  In these cases, the state guarantees that the owner named on the register is the true owner of the land, but there is no guarantee as to the boundaries.

Justice Gendall said a limitation as to parcels did not go to the fundamental question of who is the true owner and was not grounds to cancel an unconditional contract.  The purchaser was liable to pay damages of $53,900 (being the loss on resale when the vendors sold to another buyer) less the $23,200 deposit paid earlier; a net figure of $30,700 damages payable for breach of contract.  

Forde v. Li – High Court (18.02.16)

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Construction: Manchester Industrial v. Hazelton

The “sudden death” payment regime imposed by the Construction Contracts Act does not require claims and schedules to be in one document, but multiple documents must be cross-referenced to provide the full story.

Failure to explain the extent of its dispute over the value and quality of work done on a central Wellington apartment building cost the building owner $49,000; the amount immediately payable on a payment claim upheld in a Construction Contracts Act adjudication.

The Construction Contracts Act 2002 sets out a structured procedure to clarify payments due and to protect contractors’ cashflow.  It is designed to limit frivolous allegations of bad workmanship intended to force a renegotiation of the contract price under threats of lower payment or no payment at all.  Payment is due on issue of a “payment claim” specifying what is due, when and why.  Unless a “payment schedule” is issued in response explaining why and when a different amount is due the terms of the “payment claim” become a debt immediately enforceable.  Any claimed set-off or counter claim is set aside to be sorted out later.

The High Court was told Manchester Industrial Holdings Ltd employed Bussell Construction Ltd to carry out renovations and to complete some required earthquake strengthening at its Eva Street flats in Wellington.   It was a loose oral arrangement.  There was no fixed price.  Bussell was to be paid monthly for time incurred and materials used.  Differences arose.  After paying the first five invoices totalling some $103,000, Manchester Industrial fired Bussell from the job in April 2013 hiring another firm to complete the work.  In the following months, Bussell sent further invoices claiming a further $49,000.  The amount due was queried, but nothing happened for some 15 months when Bussell issued a “payment claim” for the $49,000 previously invoiced.  Evidence was given that Manchester Industrial responded immediately with an email stated to be a “payment schedule” with the amount due being zero.  This email included a complaint that Bussell had failed to respond to its earlier request for some clarification of how the amount due was calculated and also included adverse comments about Bussell’s standard of workmanship and performance on the job.  A Construction Act adjudicator ruled this email was not a valid “payment schedule”.  Payment was now due immediately.  The High Court agreed.

Justice Dobson ruled the “payment schedule” email alone did not amount to a valid response.  The claimant must be adequately informed as to the nature and extent of the dispute over payment.  More detail was required.  This can be achieved by cross-reference to earlier correspondence, His Honour said, though in this case nothing in earlier correspondence provides information about alleged overcharging or of amounts spent on supposedly remediating Bussell’s prior work. 

Manchester Industrial Holdings v. Hazelton – High Court (18.02.16)

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Ponzi Scheme: Graham v. Arena Capital

Seventeen investors innocently paying $249,000 into a Ponzi scheme being run by Arena Capital after a Financial Markets Authority freezing order came into effect will get their money back in full.

Controlled by Christchurch resident Jimmie Kevin McNicholl, Arena Capital Ltd was supposedly running a foreign exchange trading business.  It never traded foreign exchange nor carried out any other investment activity with client money.   It lied to clients, reporting fictitious profits on client trading accounts. 

The Financial Markets Authority swooped in May 2015, freezing all the company’s assets including its bank account.  Twelve days later, receivers were appointed after a media release announced the asset freeze.  In the interim, seventeen investors paid money into Arena’s bank account including eleven who had previously dealt with Arena either by paying money to the company for investment or having earlier been paid out supposed “profits” on foreign exchange trades.

The High Court was asked to rule on the status of these post-asset freeze investors.  Justice Mander ruled the $249,000 paid into Arena’s bank account after the account was frozen is subject to a statutory trust created by securities legislation.  Each deposit can be identified and traced into the frozen bank account.  The funds are to be returned in full.  Evidence was given that about $1.02 million is available for Arena’s creditors: $728,690 in the company bank account and other assets with an estimated value of some $300,000.

Graham v. Arena Capital Ltd – High Court (17.02.16)

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