BlackfortFX: Graham v. Tyler

To date, the nearly one thousand investors snared in BlackfortFX’s Ponzi fraud have got back thirty cents in the dollar. The High Court has now ordered John Emrys Tyler and his company Chipmunk One Ltd repay $652,500 for distribution by BlackfortFX’s liquidators.

BlackfortFX, registered as Arena Capital Ltd, was in liquidation a little over a year after its 2014 incorporation.  BlackfortFX was a scam, used by Lance Ryan and Jimmie McNicholl to perpetrate a Ponzi fraud.  Both have been convicted of fraud offences.  Funds supposedly placed for investment were stolen.

BlackfortFX liquidators are chasing down investors’ money. Legal action was taken against John Tyler and his company.  Companies Office records show Mr Tyler now living in Blenheim.  He did not defend liquidators’ claims.  Justice Osborne ordered Mr Tyler personally repay $317,500 (plus interest totalling $42,000) and his company Chipmunk repay $259,000 (plus interest of $34,000).  Liquidators told the court Mr Tyler opened BlackfortFX accounts in the middle of 2014.  Mr Tyler paid no money into BlackfortFX; Chipmunk did put in some money.  BlackfortFX payments to both Mr Tyler and Chipmunk were in breach of the Property Law Act as payments made with intent to defeat investors, the liquidators said.

Graham v. Tyler – High Court (13.03.19)

19.056

Defamation: Cato v. Manaia Media

Lawyer Kristin Cato alleges Horse & Pony magazine defamed her in published comments subsequent to a private mediated settlement which smoothed over antagonism between team members of a senior New Zealand equestrian team competing in Australia in early 2017. 

Ms Cato, also known as Kristin Manson, was lawyer acting for complainants.  Details of the rift between team members were never made public.  Following mediation: team chef d’equipe Jeff McVean agreed to a life ban from Jumping New Zealand with all complaints withdrawn; daughter, Olympian Katie Laurie, acknowledged unacceptable behaviour and apologised. Mr McVean has represented Australia at Olympic level.

Ms Cato alleges a subsequent article in Horse & Pony was defamatory; labelling her behaviour as unethical and unprofessional.  This followed a press release being published on the website of iSpyHorses, a media outlet controlled by Ms Cato’s mother.

At a pre-trial hearing in the High Court, Justice Hinton was asked to rule whether Horse & Pony’s article was at law capable of having a defamatory meaning to the extent it suggested Ms Cato was responsible for releasing a statement that was damaging to Mr McVean and Ms Laurie.  At law, it was, Justice Hinton ruled.  Whether in fact it was defamatory has not been decided.

Justice Hinton rejected Ms Cato’s claim that Horse & Pony also defamed her by suggesting she ‘misused’ her position as lawyer for the complainants, acting unethically in releasing a public statement to her mother about the private mediation for publication on iSpyHorse’s rival website.  To complain another publication ‘scooped’ the story is not defamatory, Justice Hinton ruled.  This was a case of ‘sour grapes’ by Horse & Pony.  Lawyers distribution of media releases does not have to be impartial as between media outlets.

Cato v. Manaia Media Ltd – High Court (13.03.19)

19.055

Tax Avoidance: Cullen Group v. Inland Revenue

Eric Watson’s Cullen group use of tax provisions intended for genuine overseas third party lenders amounted to tax avoidance the High Court ruled, imposing increased taxes of $112 million on Cullen with tax penalties yet to be assessed.

Mr Watson claims Cullen Group restructuring in 2002 was no more than a legitimate reorganisation of his business affairs when relocating to London.

The High Court was told of an avalanche of tightly-drafted contracts having the effect of replacing Mr Watson’s equity interest in Cullen with debt.  This was debt with a twist.  Mr Watson retained a very high level of control over Cullen group through a Cayman Islands trust structure.  The level of control retained by Mr Watson was that usually seen with equity ownership, rather than debt, Justice Palmer said.  Mr Watson was on both sides of the restructuring.

Evidence was given of Cullen owing Mr Watson $291 million after the 2002 restructuring.  Interest set at sixteen per cent was nominally payable to Cayman Island trusts over which Mr Watson had no legal control.  He retained the right to control ultimate destination of these cashflows.  

Cullen group deducted withholding tax at the ‘approved issuer levy’ rate of two per cent.  Inland Revenue said withholding tax should have been deducted at fifteen per cent: the non-resident withholding tax rate.  Justice Palmer ordered payment of $51.5 million (the difference between the two rates as uncollected withholding tax) together with $60.5 million (‘use of money’ interest calculated to August 2018).  Inland Revenue argues the New Zealand tax base was eroded by not deducting the higher rate.     

Cullen group said it complied with every full stop and comma required by tax law for use of the lower two per cent rate.  Justice Palmer ruled tax law requires that taxpayers must comply not only with the black-letter law, but that exemptions claimed must come within purposes ‘contemplated’ by parliament.

A two per cent ‘approved issuer levy’ was introduced following a 1991 tax policy paper published by National government ministers: Ruth Richardson and Wyatt Creech.  This reduced rate was aimed at off-shore lenders who would commonly only lend to New Zealand businesses if they were compensated for withholding taxes deducted. There is a painful opportunity cost for off-shore lenders having to file New Zealand tax returns and to work around double tax treaties.  They made New Zealand businesses pay, loading the full withholding tax into the cost of the loan.  With the approved issuer levy, a lower two per cent rate added to interest rates had the effect of reduced loan costs for New Zealand businesses borrowing off-shore.

Cullen group restructuring introduced no new investment funds into New Zealand.  It merely converted existing equity into debt.  Such an arrangement was not within parliament’s intended purpose of the reduced withholding rate regime, Justice Palmer ruled.

Cullen Group Ltd v. Inland Revenue – High Court (12.03.19)

19.054

Mortgage: Haines v. Memelink

On home detention, Otaki lawyer Quentin Haines gained a High Court injunction blocking a forced sale of his property by Harry Memelink seeking to recover monies he claims is owed. Wellington-based Memelink, described as a very active litigant, is frequently in court on the other side, resisting creditors’ claims against him.

Haines is serving a sentence of home detention after pleading guilty to breaches of the Prostitution Reform Act.  The High Court was told of a complicated business relationship between Haines and Memelink.  Mr Haines lifestyle property at Manakau, near Levin, is owned by his family trust.  The purchase was funded in part with finance from Fico Finance Ltd.  Mr Memelink and interests associated with him guaranteed repayment of this loan together with further loans advanced by Bright Enterprises Ltd.  Mr Memelink used part of the Fico funding to buy a boat: the Katherine Johnston.  Mr Haines lent Mr Memelink money to pay pressing creditors.  Mr Haines alleges there was an oral agreement that Mr Memelink would pay his debt servicing costs as a set-off against legal fees owed.

Evidence was given that Mr Memelink took control of the Fico loan after paying off the finance company’s loan to Mr Haines. Taking over Fico’s legal rights as mortgagee, Mr Memelink attempted to sell up Mr Haine’s lifestyle block.  It is alleged Mr Memelink is attempting to consolidate other loans into the Fico security; something prohibited by the Property Law Act, Justice Grice pointed out.

Mr Memelink was blocked from enforcing the Fico mortgage until he provided details of how much was owed and how it is calculated. Debtors have a statutory right to know how much is owing, giving them a chance to challenge the amount or make payment and avoid a forced sale.

The court was told Mr Memelink is bankrupt.  He has applied to have his bankruptcy annulled.

Mr Haines surrendered his lawyer’s practising certificate in 2018.  His claim to be owed $1.15 million in legal fees is subject of a Law Society complaint by Mr Memelink.

Haines v. Memelink – High Court (11.03.19)

19.053

Reckless Trading: Cooper v. Debut Homes Ltd

Decisions by the director of an insolvent property company to box on and complete houses under construction to sell for a better price were made in good faith and did not amount to reckless trading ruled the Court of Appeal, overturning a High Court order that Auckland property developer Leonard Cooper pay $280,000 damages. 

Debut Homes Ltd is in liquidation, insolvent. Liquidators allege Mr Cooper’s 2012 decision to trade-on prejudiced Inland Revenue which is owed some $450,000 for unpaid GST plus interest and penalties.  The court was told Debut Homes was in financial difficulty by the end of 2012.  It had four properties under construction on Auckland’s North Shore.  The options were: sell the part-completed houses, put the company into liquidation resulting in forced sales by Debut Homes mortgagees, or complete the properties selling them for a better price.  Mr Cooper decided to finish the houses.  Extra liquidity was provided by $380,000 of family money lent to the company, most of this an inheritance received by his wife Tracey, a fellow shareholder in Debut Homes.  Mr Cooper completed the construction work for no agreed wage or salary.  The four properties were sold on completion. Financial returns were less than budgeted because of unanticipated cost overruns.  The family advance of $380,000 was not repaid in full; $200,000 was left outstanding.  GST on sales was left unpaid.

The Court of Appeal ruled decisions to trade-on did not prejudice Inland Revenue.  GST would fall due immediately if the four properties had been sold in late 2012, partly finished.  Continuing construction did increase Debut Homes GST liability, but equally a higher sale price for finished homes had the potential to improve returns to creditors, including Inland Revenue.  Completing the houses was a reasonable commercial decision, the Court of Appeal said. Costing made at the time could not be criticised.  Commercial decisions should not be judged with the benefit of hindsight, the court said. The fact that Mr Cooper worked for some eighteen months without wages and the further fact that family money was put in to improve liquidity all showed Mr Cooper acted in good faith.

While not paid wages, Mr Cooper did take $34,100 in cash drawings from the company.  Drawings amount to unsecured borrowing.  The court ordered repayment.

Cooper v. Debut Homes Ltd – Court of Appeal (8.03.19)

19.052

Estate: Monk v. Burgess

Legal fees on all sides totalled over four million dollars.  Of that, fees totalling $1.26 million incurred by estate executors defending unsuccessful legal action by Warwick Burgess as a disappointed beneficiary of his late mother’s estate are an estate expense, the High Court ruled, not to be deducted directly from his share of her estate.

This ruling reduced by $440,000 a bequest payable to fellow estate beneficiary, his brother.  Estate executors argued the unsuccessful legal action was for Mr Burgess’ personal benefit and costs should not fall on his brother.  

Mr Warwick Burgess pursued a long and expensive legal campaign over his claimed rights to a family farm and forestry holdings at Tihoi on the western shores of Lake Taupo.  His expectation had been to inherit his parents’ land holdings on the death in 2007 of his widowed mother Molly.  He didn’t inherit.  Estate executors sold the land.  Mr Burgess sued.  By the time his claims against Molly’s executors and the farm purchasers came to trial, Mr Burgess had already personally spent over $1.5 million in legal fees. The trial involved 32 days of evidence. His claims were dismissed, described by the trial judge as ‘built on flimsy assumptions rather than sound factual allegations’.

Defending Mr Burgess’ claims cost Molly’s executors $1.26 million.  They said these costs should come out of Mr Burgess’ share of Molly’s estate; the unsuccessful legal action was solely for his benefit and it would be inequitable for his brother as the other beneficiary to have his share reduced in payment of these legal costs.  Justice Davison ruled the executors were bound by the terms of Molly’s will: the residue of her estate was to be split 60:40 between Mr Burgess and his brother after payment of ‘testamentary expenses’.  Legal fees defending Mr Burgess’ claim were ‘testamentary expenses’. These expenses had to be taken into account before the cash balance was divided between the two brothers.  Mr Burgess’ greater share at 60 per cent was in recognition of the work done around the farm whilst his parents were alive.

Mr Burgess’ brother died before the 32-day trial. After deduction of Molly’s executors’ legal costs, his 40 per cent final payout is reduced by $440,000 to $298,000. This money goes to his estate. Both brothers received interim payments as advances on their entitlement to Molly’s estate prior to the 32-day trial.  Mr Burgess’ final payment of his 60 per cent share is $649,000, down from the final payment of $1.3 million he would have received but for the legal bill run up defending his claim.  The court was told this $649,000 is his only asset. Mr Burgess is personally liable for legal costs of $1.13 million incurred by other defendants he sued unsuccessfully in the 32-day trial.  A home he previously owned in Paeroa valued at about $550,000 was sold at auction in late 2018.

Monk v. Burgess – High Court (1.03.19)

19.051

Richard Yan: Mainzeal Property v. King Facade

Plans by Mainzeal’s Richard Yan for a hotel and vineyard on Waiheke Island hosting Chinese Communist Party officials are at standstill.  Isola Vineyards Ltd is in liquidation with assets of 33,000 bottles of wine, land on Onetangi Road valued at $1.9 million and some $727,500 frozen in a law firm’s trust account.  The High Court ordered $2.16 million damages be paid by Isola to Mainzeal liquidators following 2012 debt restructuring trying to prevent Isola going down with the Mainzeal ship.

Isola is controlled by Mr Yan and his spouse.  The High Court was told purchase of Isola was funded with Mainzeal money, channelled through a related company: King Façade Ltd.  With Mainzeal’s imminent collapse, Isola was at risk.  Mainzeal would want its money back.

In early 2012, Mr Yan arranged a restructuring of King Façade’s debt.  This was to rationalise King Façade’s tax position, Mr Yan told the High Court.  It had the effect of eliminating debt owed to King Façade’s only external creditor, Bank of New Zealand, and increasing the debt owed a related company: Richina Global Real Estate Ltd.  Curiously, this increased debt was structured as a contingent debt; repayable in ten years and then only if Richina Global was profitable. King Façade’s contractual right to a specific sum of money from Isola had been replaced by a King Façade loan to Richina Global of little economic value.

In the High Court, Justice Cooke ruled the debt restructuring prejudiced Mainzeal group.  Its ability to recover $2.16 million from Isola (through King Façade) had been replaced by nothing.  This amounted to a transaction for inadequate consideration, in breach of the Companies Act. Both Richina Global and Isola Vineyards were ordered to pay King Façade damages of $2.16 million.

Mainzeal Property and Construction Ltd v. King Façade Ltd – High Court (26.02.19)

19.050

Reckless Trading: Mainzeal Property v. King Facade

Insolvent for nearly a decade from 2005 through to its collapse in 2013 leaving creditors owed some $110 million, Mainzeal was weakly capitalised relying on related-company promises of financial support; promises which were variously worthless or unenforceable. Changes of auditor, ‘window-dressing’ of Mainzeal financial statements and attempts to disguise the level of irrecoverable loans to companies controlled by entrepreneur Richard Yan came to light in liquidators claim for damages following reckless trading by Mainzeal directors.

Insufficient working capital meant it was problems with one single contract which finally pushed Mainzeal over the precipice, into receivership and then liquidation: a dispute over work jointly undertaken with Siemens on an upgrade of Transpower’s inter-island transmission link.  Mainzeal extracted itself from the dispute in late 2012 at a cost of up to $16 million to its anticipated cashflow.  Short of cash, Mainzeal shut up shop.

The High Court was told of Mainzeal being milked of cash by Yan-controlled Richina Pacific to fund projects in China.  As early as 2005, $20.2 million had slipped out the back door.  Two years later, $39.4 million had gone.  In return, Mainzeal was promised repayment in vague terms; promises never formalised into legally binding agreements enforceable against Yan-controlled companies having any economic substance.

Richina Pacific provided formal ‘letters of support’ in 2008 to then auditors PwC, avoiding an audit ‘going concern’ qualification.  As Justice Cooke pointed out, these audit-related letters of comfort promising future financial support are of no legal effect.  They are not legally enforceable.

To mask the level of Mainzeal loans to Richina Pacific companies, short-term inter-company cash transfers totalling five to six million dollars were made around balance dates during 2010 and 2011.  Mainzeal’s own board papers openly described these cash movements as ‘window dressing’.

PwC was replaced as auditor of Mainzeal by Ernst & Young.  Purely on the grounds of cost, Mr Yan said.  Ernst & Young put up a proposal to deal with the potential problem of Mainzeal loans to Richina Pacific group being uncollectable: Project Citron.  Operating as a ‘pre-paid goods agreement’ Project Citron envisaged the then $42.4 million owed by Richina Pacific companies be used to purchase building materials in China for supply to Mainzeal.  The debt due to Mainzeal would be ‘paid’ in kind.  While this took loans totalling $33.1 million off Mainzeal’s books, it left the company exposed to a single supplier of building materials and the vagaries of a Chinese supply chain.  ‘Payment in kind’ raised tricky issues of whether goods to be supplied equated to the value of loans written off.  ‘Payment’ would take time with supply of $33 million in building materials spread over many years.  Mainzeal liquidators argue the ‘pre-paid goods’ arrangement was of considerably less value than repayment of the loans.

Compounding Mainzeal’s difficulties was a mounting list of ‘leaky building’ claims from 2009 onwards.  In Mainzeal financial statements, directors took into account the legal costs then incurred to date, ignoring any potential final liability: in 2009 only three million dollars was provisioned on notified ‘leaky building’ claims totalling $23 million.   

Justice Cooke ruled Mainzeal directors were liable for reckless trading.  Short of working capital, it was not reasonable for Mainzeal directors to rely on letters of support provided by Richina Pacific in connection with annual audits.  The promised support was not enforeceable and in any event was given by Richina Pacific entities which did not have significant assets.  Loans by Mainzeal were made to Richina Pacific entities which did not themselves have the ability to repay.  Directors reliance on shareholder support was not reasonable in the circumstances, he said.

Damages for reckless trading are at the discretion of trial judges.  Justice Cooke imposed joint liability, awarding Mainzeal damages totalling $36 million: Richard Yan liable for up to $36 million, chair of the board of directors Dame Jenny Shipley up to six million dollars and fellow directors Peter Gomm and Clive Tilby also each liable for up to six million dollars.

Mainzeal Property and Construction Ltd v. King Façade Ltd – High Court (26.02.19)

19.049

Gold Line Taxis: Deep v. Auckland Gold Line Taxis Ltd

Details of an attempted coup by disgruntled members of Auckland’s Gold Line Co-Operative Taxi Society Ltd played out in the High Court.  In May 2017, Kahlon Singh together with four other Co-op members occupied the Society’s office, posted security guards at the entrance and announced Co-op chairman Manmohan Dua had been deposed, the board dismissed and Mr Singh installed as ‘Acting Manager of the Interim Management Committee’.

That afternoon, it was all over.  Following police intervention, Mr Dua was back in control.  Mr Singh was subsequently joined by eleven other disgruntled drivers alleging in the High Court that Gold Line directors had failed to follow Co-op rules and were biased against them.  The High Court was told none of the disgruntled members is currently working for Gold Line, though they claim to still hold shares in Gold Line.  All are now driving for rival companies.  In general, they allege Gold Line’s board is effectively preventing them from earning a living with Gold Line as taxi drivers.  Specific complaints centre on the manner in which access to Auckland Airport taxi rank is allocated and the circumstances in which some drivers were dismissed from Gold Line.

Gold Line tendered for airport work in the 2016 tender round through a wholly-owned subsidiary: ATS.  The major grizzle is that ATS has permitted drivers who are not Gold Line members to operate off the ATS rank, whilst excluding some Gold Line members. 

Justice Lang ruled drivers’ remedy was to rely on their constitutional right to vote existing Gold Line directors out of office. He ordered Gold Line hold an annual general meeting of Co-op members no later than March 2019.  There has been no annual meeting since 2016.  No financial statements have been provided to members for the last three years.  The court was told co-op members agreed by a ninety per cent majority at a 2016 special general meeting that no further annual meetings or board elections would be held during the currency of Gold Line’s then three year contract with Auckland Airport.  This decision was of no effect, Justice Lang ruled.  Gold Line’s registered constitution requires annual meetings. Departing from its constitution requires more than a resolution of members; to be effective the amended rule must be registered and go on the public record.

Justice Lang advised that members currently subject to disciplinary proceedings are entitled to attend and to vote at the March 2019 annual meeting.  Members who have failed to pay Co-op levies are to receive notice of the meeting, allowing them to make good any arrears and then attend and vote.

Deep v. Auckland Gold Line Co-Operative Taxi Society Ltd – High Court (22.02.19)

19.048

Liquidation: Apollo Bathroom and Kitchen v. Ling

Shan Ling was ordered to repay $400,000 taken from Apollo Bathroom and Kitchen to pay a personal tax bill.  Her claim the money was owed for unpaid salary and commissions was dismissed.  There was no evidence she had an employment contract with Apollo. 

Apollo Bathroom and Kitchen Ltd is insolvent, put into liquidation by Inland Revenue for unpaid taxes.  Five months prior to liquidation in 2017, Ms Ling had Apollo pay her tax bill of $400,000.  Inland Revenue was threatening to bankrupt her.  Liquidators sued.  Diverting company money in payment of personal expenses is in breach of the Companies Act as a ‘transaction at undervalue’. Ms Ling benefitted to the tune of $400,000; the company got nothing in return, they said.

Ms Ling’s husband was formerly director of Apollo Bathroom.  She said she was entitled to payments of $432,841 from the company for her work as a consultant: unpaid wages at $1100 per week, plus $118,000 in unpaid sales commission.  Justice Jagose said other than Ms Ling’s assertions that she was employed by the company, there was no evidence provided of any employment contract.

Her $400,000 tax bill was negotiated down from an Inland Revenue assessment of arrears and penalties totalling $467,000 owing for the 2009-2012 tax years.  Ms Ling had not filed tax returns for any of these years.

Apollo Bathroom and Kitchen Ltd v. Ling – High Court (22.02.19)

19.047

Commerce Act: Commerce Commission v. First Gas

A classic case of the big operator screwing the small guy, seeking to reduce market competition: Commerce Commission intervention saw First Gas Ltd fined $3.4 million for its actions in forcing GasNet out of the Tauranga market.  The size of the fine results in First Gas purchase of ten kilometres of reticulation pipeline in new Papamoa subdivisions being totally uneconomic; the asset will never be profitable over its lifetime. 

Controlled by Whanganui District Council, GasNet Ltd looked to expand during 2016 into Bay of Plenty establishing gas networks alongside new subdivisions in the rapidly expanding Tauranga seaside suburb of Papamoa. There are big cost savings in laying pipes while a subdivision is under development, rather than retro-fitting pipes in an established suburb.

The High Court was told First Gas, with annual revenues in the region of $158 million, looked to elbow GasNet out of the way. At a July 2016 meeting in Whanganui, GasNet was given the message; sell its Papamoa distribution network or life would be made very difficult.  GasNet spurned two offers, before agreeing to First Gas’ third buyout offer.  GasNet says this third offer did not represent fair value nor reflect the true value accruing to First Gas.  This offer was accepted after First Gas began stacking pipes in subdivisions already reticulated by GasNet with First Gas threatening to retro-fit its own distribution network alongside GasNet’s existing lines.  As part of the buyout, Gas Net agreed to a restraint of trade: it would not provide gas distribution services in the Bay of Plenty for the next five years.

Commerce Commission pounced when the two companies, in all innocence, provided details of their deal as part of ongoing Commission calculations of price-setting for the regulated gas distribution business. The High Court confirmed a negotiated fine of $3.4 million and declared the restraint of trade unenforceable.

Commerce Commission v. First Gas Ltd – High Court (21.02.19)

19.046

Contract: Bei v. Wang

Duoyu Bei claims he is owed $1.28 million; Chao Wang claims he is owed $1.1 million.  The two businessmen are at each other’s throats with allegations and counter-allegations over the funding and operation of Zeus nightclub formerly in central Auckland’s Durham Lane. 

Mr Bei alleges he was misled by Mr Wang when buying into Zeus.  The High Court was told he paid $400,000 in 2016 for a fifty per cent stake in the business and he committed to contributing a further $1.1 million for Club renovations.  He alleges handwritten cashflow records provided by Mr Wang evidencing Zeus Club turnover were substantially overstated.  He also alleges money provided for nightclub renovations was improperly diverted to upgrade a property on Paratai Drive, one of Auckland’s most expensive residential streets.  It is alleged Mr Wang has an interest in the property through a family trust.  Mr Wang denies any wrongdoing.  Evidence was given that Mr Wang left for China in early 2017.  Paratai Drive has been sold.  Net sale proceeds of $1.27 million are held in escrow, in a law firm trust account, pending resolution of their dispute.

Mr Wang in turn claims $1.1 million.  He alleges Mr Bei was in breach of their business agreement over the nightclub’s operation.  He claims Mr Bei wrongly demanded immediate payment of $800,000 and threatened to contact Immigration (challenging his immigration status) and Inland Revenue (claiming he was understating income, dealing in cash).  He alleges Mr Bei wrongfully locked him out of the business and claims he is entitled to a share in nightclub profits generated whilst Mr Bei was in sole charge.

Companies Office records show the company operating Zeus nightclub went into liquidation in April 2017 after its business lease was terminated.  A company controlled by Mr Bei has agreed to purchase the building from which Zeus operated. Back in the High Court, the two are arguing over what documents each should disclose to the other, prior to trial.

Bei v. Wang – High Court (21.02.19)

19.045

David Henderson: FTG Securities v. BNZ

Out of the wreckage of South Canterbury Finance, government sold to interests associated with failed property developer David Henderson the right to claim in the insolvency of one of his Christchurch property developments.  In dispute is up to five million dollars currently in the pocket of BNZ.  

The High Court was told Mr Henderson was adamant Bank of New Zealand were not to be told of his renewed involvement in Tuam Ventures Ltd when FTG Securities Ltd, having his wife Kristine Buxton as director, paid government $100,000 to buy up a second ranking security over 179 Tuam Street; Tuam Ventures main asset.  Tuam is in receivership and liquidation, insolvent.    Mr Henderson is prohibited by court order from having any role in managing a business until December 2022.

Byzantine funding arrangements for development of 179 Tuam Street were spelt out in court.  Back in 2005, Tuam Ventures as part of Mr Henderson’s then property empire, borrowed from Canterbury Finance Ltd giving it a first mortgage security over 127 Tuam Street in central Christchurch.  Canterbury Finance conceded priority to BNZ after a further funding was required in 2007; a deed of subordination and priority promoted BNZ to first ranking security with priority for the sum of $7.5 million plus two years’ interest. Canterbury Finance agreed to rank second for the next ten million dollars plus interest.  The priority deed prohibited each financier from transferring its interest without agreement.  Since then: Canterbury Finance’s second-ranking interest was transferred, without BNZ agreement, to government as part of the 2008 taxpayer bailout of South Canterbury Finance Ltd and then on-sold to FTG Securities for $100,000, again without BNZ agreement, as government looked to sort out the mess; 179 Tuam Street was savaged by the collapse of Mr Henderson’s property empire then the series of Christchurch earthquakes; and BNZ collected over twelve million dollars from its mortgagee sale of 127 Tuam Street and earthquake insurance payments.  FTG Securities alleges BNZ has taken up to five million dollars more than its entitlement under the priority deed.  This belongs to FTG Securities, it claims.

The Court of Appeal ruled FTG Securities has no standing to sue.  Failure to get approval as required by the deed of priority for its purchase of what was Canterbury Finance’s interest in Tuam Ventures was fatal.  This is not just a technical point, the Court of Appeal said.  Commercial players are free to prohibit assignment if they wish, it said.  It is open for FTG Securities to seek BNZ approval to stand in the place of Canterbury Finance before taking legal action to enforce its claimed rights against BNZ.  The priority deed says approval by BNZ cannot be unreasonably withheld.

FTG Securities Ltd v. BNZ – Court of Appeal (20.02.19)

19.044

Liquidation: Installer Services (Hutt Valley) Ltd v. Colson

Andrew and Sue Colson put their company Installer Services (Hutt Valley) Ltd into liquidation under threat of legal action for payment of disputed franchise fees.  The High Court ordered they pay $19,900 damages for taking drawings from the company at a time when fees potentially due threatened company solvency. 

Services (Hutt Valley) provided mobile technology such as phones, car stereos and band expanders.  Under franchise from Installer Services (Group) Ltd, the company was required to pay annual fees calculated at five per cent of annual turnover.  Having paid fees for six years to 2008, Services (Hutt Valley) stopped making payments.  Communications from Christchurch-based Services (Group) were disrupted for a time by the series of Canterbury earthquakes.  By April 2012, Services (Group) was back in business.  It was pressing for payment of franchise fees.

The High Court was told the Colsons put Services (Hutt Valley) into liquidation when Services (Group) sued.  It was not economic to defend any court action, Mr Colson said, while claiming he had a good defence.  He alleges Services (Group) agreed franchise fees were to be payable only for referred work.  Services (Group) got judgment by default against Services (Hutt Valley) for claimed fees.  Liquidators for Services (Hutt Valley) later sued Mr and Mrs Colson to recover company losses. The most recent liquidators’ report lists creditor claims at $168,900.  Services (Group)’s claim is in excess of $100,000.

Liquidators sued to recover cash benefits received by the Colsons from their company in the two years prior to liquidation: $44,800 in ‘shareholder salaries’ and $81,000 for ‘drawings’.  Justice Grice ruled the salaries could be kept; these payment were reasonable remuneration for the time spent on company business.  It did not matter that the Colsons did not follow required Companies Act procedures for approving director payments.  Neither Mr nor Mrs Colson had written employment contracts with their company.  $19,900 of drawings taken in the 2012 year had to be repaid.  Drawings were in the nature of ‘distributions’ to shareholders. Distributions cannot be made when a company is insolvent; creditor interests come first.  Taking into account Services (Group)’s disputed claim to franchise fees as a contingent liability at a time when drawings were taken would have left the company insolvent.  In making its repayment calculation, the court discounted the amount then claimed by Services (Group) by fifty per cent to reflect the fact it had not at that time proved its claim. 

Installer Services (Hutt Valley) Ltd v. Colson – High Court (20.02.19)

19.043

Fraud: Reid v. R.

The High Court confirmed on appeal a sentence of two years and five months imprisonment for Auckland lawyer Bruce Harvey Reid struck off after stealing $357,800 from clients.

The court was told Reid misappropriated money from multiple clients: from one client following a property sale, disguising the theft by overstating the amount required to repay a mortgage following sale; from a family trust funding private hospital care for a trust beneficiary with dementia; and from monies held on behalf of a deceased estate and another family trust.

Reid, aged 68, said imprisonment prejudiced his life partner who suffers epilepsy, anxiety and depression relying on him for practical and emotional support.  The trial judge took this into account, Justice Thomas said.  A three month reduction in sentence allowed by the trial judge for reparations paid by Reid was in line with previous fraud cases, Justice Thomas said.

Clients have been compensated with Reid making good some $214,600 from family sources; the balance covered by the Law Society Fidelity Fund.  Reid’s sentence included an order to pay the Law Society Fidelity Fund $139,700 for compensation paid clients.

Reid v. R. – High Court (20.02.19)

19.042

Charitable Trust: re Eliza White Charitable Trust

With residential care for vulnerable children costing $80,000 to $100,000 per child each year, the High Court approved changes to a century old trust deleting a requirement funds be used exclusively for residential care.  Administered by the Roman Catholic Church, the Eliza White Charitable Trust may now assist vulnerable children in the community without taking them into care.  

The High Court was told the Trust has total assets of $7.6 million.  Annual income, net of expenses, is $232,000.  The Trust was established as a charitable trust in 1909 on the death of Eliza White.  In today’s terms, her charitable bequest was valued at over five million dollars.  She specified funds were to be used to establish and run an orphanage primarily for disadvantaged girls.  Following a later special act of parliament and a subsequent court-approved variation to the Trust, this morphed into funding residential facilities for vulnerable children, with priority given those following the Roman Catholic faith.  The Church quit all its Eliza White residential facilities in 2013.  Full-time care had become uneconomic; the cost of housing each child was so high charitable funds were being run down with very few children benefitting.

The High Court approved a variation to Eliza White’s bequest under the Charitable Trusts Act.  This Act allows court-approved variations where changes achieve, as close as is reasonably possible, terms of the original trust.  The Church said it did not intend to resume offering residential care.  A strategic review advised Trust resources were better used by putting capital from the sale of Church residential homes into an investment trust for the support of vulnerable children.

re Eliza White Charitable Trust – High Court (15.02.19)

19.041

Arrest: Maori Trustee v. Smith

More than a year after the Maori Land Court ordered former leaseholders leave Gisborne Maori land, the High Court issued arrest warrants against members of the Smith whanau following their failure to quit.

Bruce Smith and immediate family claim rights of occupation to a homestead and farming land known as Rautawhiri Station on Seymour Road, Inner Kaiti, Gisborne.  The Station straddles two properties:  Waipaoa 5A2 Block, which is Maori land administered by the Maori Trustee as an ahu whenua trust with over five hundred beneficiaries; and a block of general land owned by the estate of Francis Guthrie.    

The High Court was told Mr Bruce Smith is a beneficiary of both the Waipaoa ahu whenua trust and the Guthrie estate.  He had previously leased Waipaoa through a Guthrie estate-owned company.  When this lease came to an end, he and his family refused to leave.  Notices to quit were ignored.  A locked gate was placed on a public bridge on a road passing through the Station.  Police intervention was met with what was described as ‘aggressive and belligerent behaviour’.  Mr Smith and his family issued trespass notices purporting to trespass the Maori Trustee from Waipaoa.  Attempts to talk through the issues came to nothing; Mr Smith claims rights to the land and refused to give up possession.  His whanau claim mana whenua; they invested in the land, worked it and lived on it, they said.

The Maori Trustee’s right to possession of Waipaoa had been decided by the Maori Land Court, Justice Grice said.  Smith family appeals to the Maori Appellate Court were dismissed.  Court orders were issued for the arrest of Bruce Smith, his wife and two of his children. Enforcement was suspended for six weeks to give Smith whanau time to reconsider.

Maori Trustee v. Smith – High Court (14.02.19)

19.040

Employment: Neil's Auto Centre Ltd v. Bowman

Waiuku mechanic Neil Cathcart first learnt business tax payments were in arrears when lawyers advised that Inland Revenue was taking legal action to wind up his business, Neil’s Auto Centre Ltd, claiming core unpaid taxes of $259,000 plus penalties and interest. Attempts to recover from former employee Genevieve Elizabeth Bowman for alleged embezzlement has run into procedural hurdles.

The High Court was told Mr Cathcart borrowed money and also sold property he owned to pay in full the $571,700 owed Inland Revenue by his company.  It is alleged Ms Bowman, who started as office manager in 2010, began diverting business tax payments from late 2015 and then supressed Inland Revenue correspondence chasing overdue taxes.  Mr Cathcart sued Ms Bowman for $301,500, seeking summary judgment in the High Court alleging deceit.  Summary judgment is a fast-track procedure where it is argued there is no defence to a claim.  The $301,500 consisted of $142,900 it is alleged Ms Bowman stole from the company plus $158,600 for legal and accounting fees incurred sorting out the unpaid tax plus a portion of the penalties and interest paid Inland Revenue.

Associate judge Bell said allegations of dishonesty at the heart of Mr Cathcart’s claim in deceit require evidence of the date and the substance of dishonest statements made.  Ms Bowman made no statements in the course of her daily work about stealing from the company, or of supressing Inland Revenue correspondence. She made no confession until April 2018, after Mr Cathcart agreed personally to settle with Inland Revenue.  Her earlier silence could not amount to deceitful statements.

Judge Bell pointed out that claims by Mr Cathcart’s company for breach of the employment contract with Ms Bowman should be heard by the Employment Relations Authority.  As a general rule, the employer has to carry any loss where employees are simply slack in performing their duties, causing financial loss.  Employees become personally liable where they deliberately or maliciously cause loss.  Detailed proof is required.

Neil’s Auto Centre Ltd v. Bowman – High Court (13.02.19)

19.039

Insolvency: re Ashok Maharaj

It was not in the public interest to approve a part-payment scheme of arrangement keeping Auckland builder Ashok Maharaj from bankruptcy, the High Court ruled.  His history of trading whilst insolvent and lack of substance to offers of paying creditors fifteen cents in the dollar in full settlement led to court refusal. 

Mr Maharaj traded as a builder through his company Victory Builders and Developers Ltd.  Victory is in liquidation, insolvent.  To avoid personal bankruptcy, Mr Maharaj offered his personal creditors an Insolvency Act part payment deal.  A binding deal requires approval of creditors by a majority in number representing three-quarters of debt by value, plus court approval.  Associate judge Smith refused approval.  With personal creditors claiming in excess of $515,000, promises to pay fifteen cents in the dollar over twelve months would require in excess of $75,000.  Mr Maharaj claimed to have assets totalling only $450.  He said payment would be funded by relatives plus income earned as a builder.  There was no evidence of relatives’ willingness to contribute, Judge Smith said. Vague promises were not enough.  There were also doubts over Mr Maharaj’s ability to earn sufficient income as a builder.  The court was told Mr Maharaj was suspended in 2018 for six months by the Licensed Building Practitioners Board after complaints of negligent and incompetent work.  His evidence before the Board was both evasive and inconsistent with documentation and other evidence before it, Judge Smith said.

It is not in the public interest to approve the part-payment scheme, Judge Smith ruled.  Evidence indicated Mr Maharaj had been trading whilst insolvent for up to a decade.  This arose from personal loans he took out at a default interest rate of 46 per cent and having never paid interest on the loans.   

re Ashok Maharaj – High Court (12.02.19)

19.038

Asset Forfeiture: Commissioner of Police v. Sulusi

Convicted Hawkes Bay methamphetamine distributor Leatitla Luckie Sulusi, also known as Laki Sulusi, had five motor vehicles seized as proceeds of crime to satisfy police claims of $456,300 received from criminal activity.

The High Court approved an out-of-court settlement under the Criminal Proceeds (Recovery) Act.  Ordered sold were a Ford Falcon utility, Ford Fairlane, Holden Commodore, Mazda Atenza and Big Dog Pit Bull motorcycle.  Three of the vehicles were registered in the names of individuals other than Sulusi.  It was agreed Sulusi had a financial interest in all three.  In November 2016, Sulusi was sentenced to four years six months imprisonment.  A discount was allowed for health issues; Sulusi requires regular dialysis treatment. Police said he had been involved in meth distribution through Hawkes Bay over the previous five years.

Commissioner of Police v. Sulusi – High Court (8.02.19)

19.037

Reckless Trading: re Bankruptcy of Edward Harman

It was more lucky dip than logical calculation as liquidators of Edward John Harman’s failed investment companies squared off against Insolvency Service handling Harman’s personal bankruptcy.  Company creditors claim some $26.1 million; bankruptcy creditors $19.3 million.  At stake: $4.03 million held by Insolvency Service.

Mr Harman was bankrupted in 2009.  He left in his wake some angry unpaid investors.  His promises of wise investments had come to nothing.  By his own admission, he had assumed complete control of the Fairthorne Investment group, ignored fellow directors, failed to properly record investor transactions and mixed the funds of separate investment companies.  In 2008, these companies went into liquidation.  Other directors ponied up three million dollars in an out of court settlement acknowledging their breach of directors’ duties.  Fairthorne liquidators sued Mr Harman for a catalogue of directors’ duties allegedly breached, primarily reckless trading.  Insolvency Service required proof of reckless trading before it would accept the liquidators’ claim in Harman’s bankruptcy.  Then both parties were off to court to assess a value for claimed damages.  Damages for reckless trading are ultimately at the discretion of a judge.  Any payment to Fairthorne liquidators has the effect of reducing the pool of cash payable for Mr Harman’s personal creditors.  A complicating factor was that some 48 per cent of Mr Harman’s personal creditors are also Fairthorne company creditors; he had guaranteed repayment to some investors of loans they made to the Fairthorne group.

The High Court grappled with questions of when the Fairthorne group became insolvent and to what extent investors losses might have been increased by Mr Harman’s reckless trading.  Fairthorne liquidators were dealing with ghosts; a lack of proper accounting records hampered attempts to identify at what point Fairthorne companies became insolvent and to what extent decisions made by Mr Harman from that date caused further creditor losses.  Having no concrete accounting evidence at its disposal, Fairthorne liquidators were forced to accept Insolvency Service assertions as to when the Fairthorne group became insolvent.  Damages for reckless trading were agreed at $10.1 million.  Associate judge Smith reduced the sum further to $6.42 million; making allowance for both the risk investors were assumed to have accepted given the high interest rates on offer and the possibility that market conditions rather than Mr Harman’s recklessness may have contributed, in part, to investor losses.

Creditors claiming in Mr Harman’s bankruptcy are likely to receive less than twenty cents in the dollar.

re Bankruptcy of Edward Harman – High Court (7.02.19)

19.036

Latter Day Saints Trust Board v. Inland Revenue

Donations required by Latter-Day Saints Church when adherents leave for mission service overseas are not eligible for a tax credit as a charitable gift if the donation is made by the missionary personally or a parent or grandparent, but are eligible for tax credits if made by wider extended family, the High Court ruled.  The ruling turned on questions of who benefitted from donations.

To spread its faith, the wider Church currently has some 70,000 young members undertaking 18-24 months missionary service worldwide; about three hundred of them from New Zealand.  Families are expected, but not forced, to contribute financially when a child is ‘called to service’.  For missionaries from New Zealand, expected donations are currently about $5700 per year.  This money is not used directly to support the family member whilst overseas.  It is paid to the Church in New Zealand and used to support overseas missionaries in this country.  Individuals are provided with food and accommodation, plus a subsistence allowance. New Zealanders on missionary service overseas are funded similarly by the church in their host country.

The High Court was asked to rule on the tax status of donations made to the Church in New Zealand by families of missionaries heading overseas.  It does not pay any of the missionary expenses for people travelling from New Zealand; the New Zealand Church pays for missionaries who come here.  The Church said the donations qualified as charitable giving for religious work done in New Zealand.

Justice Hinton ruled that while the annual payment was voluntary, there was an indirect benefit to immediate family.  No tax credit was available for them.  By making payment as requested, family knew and anticipated the person on whose behalf they were paying would go on overseas service and correspondingly would receive financial support from the host country church. There was a link between the two. Parents and grandparents benefitted by seeing ‘their child’ extend life education by being able to travel, live overseas and experience being a missionary abroad.  This benefit did not extend to other relatives such as siblings and extended family, Justice Hinton ruled.  Unlike parents and grandparents, they do not generally feel the same sense of obligation. Their donations did qualify for a tax credit as charitable giving.

Church of the Latter-Day Saints Trust Board v. Inland Revenue – High Court (1.02.19)

19.035

Post judgment note: In May 2020 the Court of Appeal ruled all relatives, including parents and grandparents could claim a tax credit for donations made when a family member is 'called to service.' Their donations are received by the New Zealand Church and used for charitable works in New Zealand.  Parents and close relatives do not gain a material benefit from the donation; they gain the spiritual and moral satisfaction of supporting Church work.

Embezzlement: Sharma v. Mundath

Early 2018, accountant Mujeeb Rahiman Mundath left New Zealand for Sydney.  He has not returned.  Former employer, the Sharma Group having interests in hotels, motels and restaurants, alleges he embezzled at least $5.4 million from the group.  Freezing orders have been imposed on assets both in New Zealand and Australia.

In the New Zealand High Court, Associate judge Bell ordered Mr Mundath pay $4.69 million; the amount Sharma Group incontrovertibly proved Mr Mundath embezzled.  Claims for the balance allegedly taken require a full court hearing. Mr Mundath alleges the Sharma group is party to immigration fraud and tax fraud.  

The High Court was told the Sharma group is a mix of companies and trusts associated with the families of three brothers: Rakesh Sharma, Ashok Sharma and medical practitioner Dr Vinod Sharma.  They say Mr Mundath was employed by them at an annual salary of $75,000.  They trusted him.  He handled the group’s financial accounting and tax affairs.  He has a commerce degree.  He started, but did not complete, his professional accountancy exams.

Mr Mundath left for Sydney when his honesty was questioned; an unusual payment of $394,800 was queried.  A forensic accountant was called in.  She made a painstaking analysis of some 2800 financial transactions involving Mr Mundath covering eight years he was with Sharma group.  These transactions totalled $9.2 million; all but $104,900 was paid into bank accounts under the control of Mr Mundath including accounts in his name and his wife’s name.  Mr Mundath claimed these were reimbursements for payments he made on behalf of the Group.  Some were in fact reimbursement, but not all, the forensic accountant said.

Evidence was given of Mr Mundath arranging cash payments for contractors and suppliers.  Mr Mundath said he was then instructed to record the payment against other accounts so that tax deductions could be claimed.  There was evidence of business invoices paid twice; the second payment going into an account controlled by Mr Mundath.  Mr Mundath said Vinod Sharma and Rakesh Sharma told him to pay business GST refunds into bank accounts he controlled to hide from other family members that personal expenses were being run through business accounts. Mr Mundath set up fictitious payroll records, recording additional wages for existing employees and also wages for ‘ghost’ employees, with payments into bank accounts he controlled.  He alleges these transactions were company policy, designed to cover an immigration fraud run by the Sharma group where immigrants without work visas were taken on and where others with work visas were paid less than their employment contract stated.  The Sharma brothers deny any involvement in tax fraud or immigration fraud. The forensic investigation identified that most of the payments made into bank accounts controlled by Mr Mundath used a false payee description to disguise the fact payment was going to him.

Mr Mundath owed a fiduciary duty to the Sharma group not to take unauthorised personal benefits when arranging payments.  It is implausible to say the millions of dollars unaccounted for were reimbursement for Sharma debts he had paid in cash, Judge Bell said.

Even if the Sharma group were involved in tax fraud and immigration fraud, said Judge Bell, Mr Mundath is still liable to repay money taken.

Sharma v. Mundath – High Court (24.01.19)

19.034

Credit Contract: Watherstone v. PGW Rural Capital Ltd

The High Court struck out attempts by north Canterbury farmer Richard Watherson to re-open PGW Rural loan contracts for charging allegedly excessive interest rates.  A one year time limit applies to interest rate challenges against financiers calling up current account loans.

Financially over-extended with redevelopment plans for a 2900 hectare north Canterbury property known locally as The Doone, Mr Watherston’s properties at both The Doone and Rocky Peaks were put into receivership by PGW Rural Capital Ltd in May 2013.  The High Court was told PGW Capital suffered losses of some $1.8 million. Five years after the receivership commenced, Mr Watherston challenged interest rates PGW Capital charged.  He wanted interest rates reduced under the Credit Contracts and Consumer Finance Act.  He alleges the rates charged were above market rates, contrary to representations made at the time of the loan.  He claims a reduced interest rate would have enabled successful redevelopment of The Doone.

The High Court was told PGW demanded Mr Watherston repay his current account debt in May 2013, the day receivers were appointed. The date demand was made to repay all advances became the date on which ‘the last obligation had to be performed under the credit contract’ Justice Dunningham ruled.  Unlike a term loan, a current account debt does not have a due date for payment until demand is made.  Mr Watherston had twelve months from the date repayment was demanded to challenge terms of the contract.  Suing five years from that date was outside the twelve month time limit set by the Act. Being under a contractual obligation to also pay PGW Capital’s enforcement costs, which were incurred later in the course of the receivership, did not push out the start point for calculating time limits.

Watherstone v. PGW Rural Capital Ltd – High Court (23.01.19)

19.032

Tenders: Rintoul Group v. Robson

Suing former council engineer Jacqueline Robson, contractor Rintoul Group alleges she maliciously blocked it from getting any infrastructure contracts over a two year period before she left Far North District Council in 2017. 

Ms Robson’s application to strike out the claim was refused; Rintoul’s allegations now get a full court hearing.  Okaihau-based Rintoul alleges Ms Robson acted with targeted malice when it was unsuccessful for all seventeen of its bids for infrastructure contracts between 2015 and 2017: to build parts of the Twin Coast cycle trail, repair roads and carry out upgrades.  In separate litigation, Rintoul was paid an undisclosed sum in an agreed settlement with Far North in a dispute over the award of contracts for four sections of the cycle trail.

Successful claims for misfeaseance in public office are rare.  Allegations of malice require a very high standard of proof; akin to allegations of fraud.  Ms Robson says she followed the rules.  She did not evaluate tenders.  She did no more than act on the recommendation of council tender evaluation teams, she says. A former Far North civil engineer, now living in Queensland, says it was not that straightforward.  He alleges Ms Robson could and did influence how contracts were awarded: on occasions she picked the team members for tender evaluations; she did not always approve recommendations made by tender evaluation teams; and she did refer teams’ recommendations back for further review. It is alleged on one occasion Ms Robson sent back a recommendation with the comment Rintoul was not going to be given another contract.  Associate judge Bell ruled a full court hearing was necessary to resolve these clear conflicts in the evidence.

As an alternative, Rintoul claims Ms Robson failed to act in good faith and did not award tenders on merit.

Rintoul claims compensation for contracts not awarded. It also wants exemplary damages.  Ms Robson now works in the private sector.

Rintoul Group Ltd v. Robson – High Court (23.01.19)

19.033

Honey: Te Tumu Miere Ltd v. Zealande Ltd

An industry-wide problem of widespread theft of both bees and honey surfaced in litigation between Te Tumu Miere Ltd, owned by the Maori Trustee, and apiarist Zelande Ltd.  Zealande refuses to hand over hives until paid its management costs.  

Having oversight of some 100,000 hectares of Maori-owned land, the Maori Trustee set up Te Tumu Miere Ltd as a service company to link owners of Maori land with the honey industry, helping Maori generate income through honey collected from their land.  The project was not a commercial success.  Te Tumu is in liquidation.  The liquidators’ initial report states that Te Tumu directors blame its failure on unsustainable losses and an ‘incorrigible management contract’.

In the High Court, Te Tumu sued Auckland-based apiarist Zealande Ltd demanding possession of 1500 hives purchased from Zelande. Zealande claims a lien over the hives for unpaid management fees.  Te Tumu does not know where the hives are located.  Evidence was given that hive location is a carefully guarded commercial secret.  With hives commonly situated in remote rural areas, theft is rife.  Within the industry, employee poaching is commonplace. A new employee brings not only industry skills, but also knowledge of competitor’s hive locations.

Zelande’s management contract with Te Tumu was due to run until 2022.  Zealande says it cancelled its management contract with effect from September 2018. Te Tumu liquidators want possession of the hives to be on-sold as a company asset; Zealande says biosecurity legislation requires oversight of the hives by qualified staff, which it offered to provide at a fee of over $100,000 until handover in late April at the end of the season.

Justice Jagose refused Te Tumu’s request for a third party to assume management of the hives.  Te Tumu was lax in taking steps to get possession, he said.  There is nothing unjust in Zealande demanding payment for management costs; it was left to manage the hives by default when the relationship with Te Tumu broke down.

As a last-minute compromise, Te Tumu offered to pay into court the fees demanded by Zelande provided Zelande delivered the hives to an agreed site within six weeks.  The two warring parties need to work out the mechanics of such an arrangement if they want it incorporated into a court order, Justice Jagose said.

Te Tumu Miere Ltd (in liquidation) v. Zealande Ltd – High Court (4.01.19)

19.031