Caveat: Topa Partners v. JWL International Group

Unpaid, Christchurch electrical contractor Topa Partners could not be forced to give up its protected position having a caveat registered over title to a building site, but Topa took the risk of paying for any losses caused by construction delays.

JWL International Group Ltd, controlled by Jun Zhi, is constructing a motel, hotel and restaurant in Salisbury Street, Christchurch.  Topa Partners Ltd had a $222,700 contract for the electrical fitout.  Initially, progress payments were made.  JWL International later stopped further payments, disputing the work done.  Topa Partners registered a caveat over the land.  The signed contract gave it a right to caveat.  A registered caveat gives unpaid suppliers considerable leverage; no further dealings can be registered against the title without consent. Typically, re-financing grinds to a halt.

JWL International disputed Topa’s right to register a caveat.  It said first there had to be a failure to pay ‘money due’ and there was no money due; payment was disputed.  Associate judge Paulsen said contract wording permitted caveat registration when there was money ‘owing.’  Potentially, money was owing; Topa says it has a valid claim for work done.  Plus, it claims damages for being kicked off the site, alleging JWL is in breach of contract.

JWL International offered to pay $30,000 into a solicitor’s trust account, to be held in trust until the dispute was sorted out. Topa refused the offer.

Judge Paulsen ruled the caveat stood, but Topa Partners is liable for any consequential damages should a later full court hearing find there was no justification for lodging the caveat.  Mr Zhi said the caveat has delayed construction, increasing costs.  Difficulties in project refinancing has forced sale of his own home to get ready cash, he said.

Topa Partners Ltd v. JWL International Group Ltd – High Court (17.02.20)

20.032

Copyright: Layaway Depot Ltd v. Oakmont Ltd

Selling furniture, phones and electrical goods online by instalment plan, Layaway Depot alleges competitor Buzz Value controlled by Simrat Kaur has stolen its 55,800 membership customer list and is poaching customers both with door-to-door canvassing and with cold calling from an India-based call centre named Buzz Value India.  Buzz Value denies stealing confidential client information and says it is cutting links with Buzz Value India. 

Buzz Value, the trading arm of a company called Oakmont Ltd, consented to an interim High Court order promising not to contact Layaway customers pending a full trial.

Layaway Depot Ltd started as a door-to-door sales company with retail stores in the upper North Island.  Since 2017, it has operated online only.  Layaway’s business model has customers purchase goods making payments by weekly or fortnightly instalments with delivery made after payment of a specified number of instalments.  It is vulnerable to customers making no further payments after delivery.

Layaway became suspicious that its client transaction list had been stolen when customers reported being contacted by Buzz Value or Buzz Value India with sales reps who seemed to have detailed knowledge of their previous Layaway purchases.  This extended to a cold call made to a Layaway executive who had previously made a dummy transaction, testing Layaway’s operating system.  This dummy transaction left a database record as him being a Layaway customer.  Layaway alleges Buzz Value staff have been telling customers that Layaway is now called Buzz Value and is having customers sign new bank authorities to redirect payments still due.

Layaway alleges Buzz Value is in breach of confidence, in breach of copyright as regards its customer transaction list and in breach of the Fair Trading Act.  These claims are denied.

The High Court was told Buzz Value sales manager Gurpreet Singh previously worked for Layaway before being made redundant in February 2018 after Layaway stopped selling door-to-door.

Agreeing to the High Court interim order, Buzz Value said it was ‘no skin off its nose’ promising not approach Layaway customers. Buzz Value is adamant that it did not have, and never have had, access to Layaway’s customer records.  Layaway has back-office operations in India with access to the company’s New Zealand database.

Layaway Depot Ltd v. Oakmont Ltd – High Court (17.02.20)

20.031

Copyright: Summit Building v. Baxter

Group builder Summit Building Services sued for breach of copyright when a customer handed on Summit plans to another builder for construction of a Pokeno home.

The Baxters held discussions with Summit Building Services Ltd starting late 2012 over building designs for their retirement home at Kilbryde Crescent in Pokeno, north Waikato.  Over the following months, Summit prepared and refined six sets of house plans.  The High Court was told the Baxters never in fact signed up to have Summit complete the build, handing on the plans to another builder.  The replacement builder was told the Baxters had ‘paid’ for the plans and were free to pass them on.  These plans were clearly marked with a Summit logo together with statements identifying Summit as copyright holder.

Summit sued the Baxters, claiming damages for loss of profit on the building contract and damages for breach of copyright.  No damages were awarded for loss of profit; no contract to build was ever signed with Summit.

Summit held copyright in the plans, Justice Davison ruled. Industrial design drawings can amount to a Copyright Act ‘artistic work.’  Damages for breach of copyright were calculated as if a licence fee was notionally charged for use of the drawings.  This fee was assessed at $5500; duplicating the same dollar amount the Baxters had paid Summit under a ‘preconsent agreement’ for the preliminary design work.  Summit unsuccessfully claimed it was entitled to ten per cent of the total construction cost as an appropriate notional licence fee.

Summit Building Services Ltd v. Baxter – High Court (12.02.20)

20.030

Fraud: Wood v. R.

By voluntarily blowing the whistle and quickly pleading guilty to Serious Fraud Office charges, foreign exchange trader Kelvin Clive Wood was entitled to a reduction of nine months imprisonment, the Court of Appeal ruled.  Investors with Forex NZ Ltd, now in liquidation, await final payouts whilst Wood serves a term of imprisonment now reduced to five years six months.

Wood offered financial services from his Half Moon Bay business, in Auckland.  Clients were offered both retail foreign exchange deals and financial investments. The court was told over $22 million passed through Wood’s business from 2008.  Clients were told their capital was protected.  Foreign exchange speculation on client accounts by Wood ran at a loss. By late 2008, there was a shortfall. Wood kept trading through to May 2017. The court was told fictitious trading reports were sent to clients, falsifying account balances.  A ‘Ponzi scheme’ evolved; new investment money and rolled over investments were used to pay clients asking for repayment.         

In 2017, Wood himself blew the whistle, telling authorities of the fraud.  Client transactions were conducted through two companies.  Investigations identified there are 28 creditors owed $9.7 million by one company; four owed just over three million by the other.

Wood v. R. – Court of Appeal (11.03.20)

20.055

Employment: TUV v. Defence

Employment disputes settled out of court are binding, but as contracts promising not to sue the normal rules of contract law apply; they can be challenged.  A former Defence employee argued that the agreed outcome of her mediated employment dispute was invalid because she was mentally ill at the time.

The unnamed employee alleged discrimination and workplace bullying.  She agreed to a confidential out of court settlement in December 2015.  The Court of Appeal was told there was no formal mediation process.  After correspondence between her lawyer and Defence, a mediator from Business, Innovation & Employment spoke to her by phone to confirm settlement details.  The mediator then issued a ‘section 149 certificate.’  Under the Employment Relations Act, these certificates block any further legal proceedings, other than legal steps necessary to enforce an agreement.

The certificate bars any further legal dispute over agreed terms of settlement, the Court of Appeal said, but that pre-supposes there has been an agreement.  There is no ‘agreement’ if the terms were unconscionable, the employee lacked contractual capacity or acted under duress.  There was no evidence that the out of court settlement in question was unconscionable, or the result of duress.  Suffering mental illness at the time of settlement, the Defence employee did not have any contractual capacity to agree to its terms.  However, general rules of contract law require the other contracting party be aware of any mental incapacity before a contract is set aside. Without this rule, businesses would demand letters from doctors and lawyers vouching for their client’s mental status before entering into significant transactions, the Court of Appeal said.  Neither Defence nor her lawyer were aware of the employee’s mental illness.  She had been on extended leave for stress.  The confidential out of court settlement stood.

TUV v. Defence – Court of Appeal (11.02.20)

20.029

Joint Venture: Whata v. Hughes

Claims that profits from Hells Gate tourist attraction near Rotorua are not being shared properly ground to a halt in the High Court when it was found a 1996 commercial joint venture was not properly set up; legal eagles registered the wrong names at the Companies Office.

Trustees for the Tikitere Trust, representing some 1200 Maori beneficiaries, allege they have been ripped off by fellow investors who have not properly accounted for profits from Hells Gate’s operations.  In 1996, Tikitere’s then trustees agreed to a joint venture arrangement with neighbouring Maori.  Their written agreement envisaged creation of a new holding company split 50:50 between Tikitere Trust and Tatou Holdings Ltd, the corporate vehicle representing their neighbour.  Tatou was required to chip in $120,000 cash; Tikitere its management control of 32 hectares of geothermal land at Tikitere.

When Tikitere Trust later sued complaining about operation of their joint venture, Tatou Holdings said there was no enforceable joint venture agreement.  Companies Office records had their joint venture company shareholdings recorded with Tatou Holdings correctly holding half the shares and Tikitere Trust incorrectly holding half.  Company law does not allow a trust to be recorded as a shareholder; shares must be held in the names of the trustees.  This meant half the shares in the joint venture holding company was held by a legally non-existent entity.  The holding company still existed.  But in the eyes of the law, Tatou Holdings was sole shareholder.  Justice Duffy refused to add Tikitere trustees to the holding company’s share register with a wave of the judicial pen.  It is not for a court in 2020 to depart from the words of the official record to cure an error made in 1996, she said.  The supposed 1996 written joint venture agreement is a legal nullity; it was never implemented.  Tikitere Trust is now required to tackle the hard yards; prove through Tikitere’s and Tatou’s conduct over subsequent decades that a joint venture did exist and from this conduct prove what are its terms.

Whata v. Hughes – High Court (10.02.20)

20.028

Insurance: Inicio Ltd v. Tower Insurance Ltd

Six year time limit for earthquake insurance claims started afresh when Tower Insurance sent one Christchurch client a February 2018 letter offering extra payment following a managed rebuild.

Inicio Ltd’s property on Cashel Street in Linwood was written off after the February 2011 earthquake.  Insurer Tower agreed to pay some $321,800 under its obligation to pay full replacement cost.  Calculation was assessed on a notional rebuild.  Inicio rebuilt, but did not replicate the former building.  Nearly five years after the rebuild was complete, Inicio demanded further payment from Tower.  It complained the insurer’s original contribution did not cover full replacement cost for a notional rebuild of the damaged house.  In particular, no allowance had been made for ornate leaded windows and rimu joinery destroyed in the quake.  In a February 2018 letter, Tower offered a further $55,000 noting that in its offer it had not deducted additional professional fees it said were recoverable for its role in the managed rebuild.  Tower’s offer was withdrawn, after being extended three times.  A second offer was made; $28,200, this time deducting the additional professional fees. 

Inicio sued, claiming $708,870 for Tower allegedly failing to pay full replacement cost as required by the insurance policy and alleging Tower was in breach of the Fair Trading Act.  Using the High Court fast-track summary judgment procedure, Tower asked for a court ruling in its favour; Inicio was out of time, it said. The Limitation Act sets a six year time limit for claims.  An ‘acknowledgement of liability’ made outside the six year period, can re-start the clock.  Tower’s February 2018 letter revived Inicio’s right to sue, Associate judge Paulsen ruled. A full court hearing is needed to establish the validity of Inicio’s claim.

Inicio Ltd v. Tower Insurance Ltd – High Court (7.02.20)

20.027

Bankruptcy: Clarke v. Business, Innovation & Employment

Bankrupt Auckland chartered accountant Stuart Francis Clarke's imprisonment for three years after pleading guilty to Insolvency Act offences committed six years ago was reduced by nine months on appeal.  Clarke was convicted of: increasing creditor losses through extravagant living; concealing assets; failing to co-operate with Insolvency Service and managing a business whilst bankrupt. 

The High Court was told Clarke went on a spending spree as Westpac closed in, threatening bankruptcy on a $322,300 debt.  Over a five month period in early 2014, shortly before his bankruptcy and immediately after, he spent a total of $84,160 at restaurants and bars together with other cash purchases; an average of some $4000 per week.  He attempted to disguise his one-quarter interest in the then family home at Trinity Street, Ponsonby and to muddy an ownership interest in his sole practice accounting firm: CK Accountants.  Whilst bankrupt, he continued to operate his accounting business salting away income in a $78,000 bank account hidden from Insolvency Service. He was unco-operative when questioned about trusts and other entities apparently under his control.

On appeal, Clarke said the trial judge had overstated assets concealed from Insolvency Service.  The true total, he said, was the $78,000 eventually uncovered.  His business CK Accountants was worthless, he said. All clients had transferred to other tax and business advisers.  His quarter share in the former family home was identified by Insolvency Service and was now under its control.  Nine months reduction in imprisonment was justified, Justice Woolford ruled.

Clarke v. Business, Innovation & Employment – High Court (4.02.20)

20.026

Tax: Stan Semenoff Logging v. NZTA

Stan Semenoff Logging Ltd’s Northland operation habitually overloaded its trucks.  High Court evidence identified that some 11,700 out of 17,200 loads crossing the Northport weighbridge over a ten month period were loaded in excess of each truck’s allowable weight.  The court dismissed Semenoff Logging’s appeal against additional road user charges totalling $532,800.

The company argued its own calculation of actual trips overweight should be preferred to NZ Transport Agency’s assessment.  It said arrears of only $135,300 were due.  NZTA polices operation of road user charges.  User charges are assessed on vehicle weight and type.  Heavy transport road users buy distance licences (in units of 1000 kilometres) for various weight categories.  User charges are intended to meet the economic cost of damage to roads.  The industry accepts weight-based evasion has been rife, with licences purchased for a lesser weight than that actually carried. Semenoff Logging challenged NZTA to find any logging operator in Northland who plays by the rules.

Semenoff Logging claimed NZTA assessment of unpaid road user charges was completely arbitrary, bearing no relation to actual distances travelled overweight.  It said trucks run empty returning from Northport.  NZTA’s set scale of charges takes into account that trucks will run empty for nearly half their trips, having no backload.

The Road User Charges Act requires NZTA apply an appropriate methodology for assessing unpaid road used charges.  This need not be the only appropriate or even the most appropriate methodology, Justice Gordon ruled.  The challenge to NZTA’s methodology failed.

Stan Semenoff Logging Ltd v. New Zealand Transport Agency – High Court (30.01.20)

20.025

Maori: Kamo v. Conservation

Increased tourism to the Chathams makes access to cultural sites commercially valuable.  Claims to mana whenua do not create property rights over land, the Court of Appeal ruled in a dispute over control of Conservation land on the Chathams.

Chatham Islands’ bloody history was revisited in a dispute over control of cultural sites on the islands.  In dispute, Taia Farm; 1200 hectares of low-lying sand dune and peat country containing carved images on living kopi trees.  The area is currently an historic reserve under Conservation Department control.  Management of the reserve is in dispute.  Moriori claim mana whenua, saying they should have management control.  Mana whenua is also claimed by Ngati Mutunga, who invaded in 1835, subjugating the then 2000-3000 Moriori living on the islands.

Ngati Mutunga point to an 1870 Native Land Court ruling confirming its native title as traditional owner of the land.  This ruling was based on what is known as ‘the 1840 rule:’ who was the traditional owner as at 1840?  By Maori custom, Ngati Mutunga’s invasion had extinguished Moriori ownership rights by 1840.  Most Ngati Mutunga invaders in fact later returned to their ancestral Taranaki lands.

Now in the 21^stcentury, Ngati Mutunga are in court arguing failure to give them management control of Taia Farm is a breach of property rights enshrined in the New Zealand Bill of Rights Act; an ‘unreasonable seizure of property.’

Mana whenua is not a property right in the classical western sense, the Court of Appeal ruled.  Property rights introduced by European settlers have property as an asset capable of sale, mortgage and partition.  None of these concepts apply to mana whenua; a Maori concept of having collective control over land and use of its resources.

Kamo v. Conservation – Court of Appeal (29.01.20)

20.024

Contract: Montgomerie v. Montgomerie

One brother failed in his claim that repayment of a million dollar loan from his brother was frustrated because of difficulties in completing a property development.

James Montgomerie resorted to the courts after running out of patience with brother Andrew.  Property developer Andrew Montgomerie ran into financial difficulty in 2008.  He was rescued by brother James, a businessman based in Florida.  Initially, James refinanced Andrew’s Waiheke family home on the basis Andrew and family would continue living there but meet outgoings.  Later, Andrew secured a bank loan over Waiheke.  He did not keep up mortgage payments.  Interest due on the loan from his brother was also accruing.

Evidence was given of multiple re-negotiations between Andrew and his brother over terms of his financial assistance.  When push came to shove, the High Court was asked to enforce a March 2017 agreement requiring Andrew to make final payment by October 2018 of all money owed.  James agreed a concession: if payment was made by that date, Andrew’s liability was capped at one million dollars.  No final payment was made.

When sued, Andrew said performance of the March 2017 agreement had been ‘frustrated.’  No payment was due.  In contract law, the doctrine of frustration applies where performance of a contract is no longer possible through no fault of either party because of an external intervening event; a force majeure event. 

Andrew said final payment was predicated on the sale of eight townhouses under construction at Alberton Lane in Mt Albert, Auckland. Payment was frustrated by delays in completion.  The builder had gone bust; there were delays in getting construction restarted. Holding costs escalated dramatically.

The Court of Appeal said the March 2017 agreement was not dependent on completion of Alberton Lane.  The agreement specified a ‘drop dead’ date for final payment, identifying properties, including Alberton Lane, which could be sold to fund repayment. How repayment was to be funded was Andrew’s concern, not his brother’s.

Failure to complete Alberton Lane was not a frustrating event.  Their loan agreement was enforced.  Andrew was ordered to pay $US865,120 still outstanding, plus interest and his brother’s full legal expenses.

Montgomerie v. Montgomerie – High Court (8.05.19) & Court of Appeal (28.01.20)

20.023

Franchise: Goria Jean's Coffees v. Daboko Ltd

Straining basic tenets of contract law, Justice Gault accepted variations to a Gloria Jean’s Coffee franchise were enforceable despite operating to the overwhelming benefit of the franchisee.

In March 2012, Darina Borisova moved to New Zealand from Russia to study English.  Within twelve months she was negotiating the purchase of a Gloria Jean franchise in Auckland’s central business district.  What exactly were terms of this franchise agreement came to trouble the High Court seven years later.  An initial franchise agreement dated April 2013 was markedly different from a replacement franchise agreement agreed one month later: May 2013.  The first had the Gloria Jean franchise expire in October 2022; the second an April 2018 expiry date.  Ms Borisova’s announcement in 2018 that she was no longer paying franchise fees came as a surprise to Gloria Jean.  The master franchise’s new owner had not been aware of any negotiated variation.  It claimed the May 2013 replacement agreement was a sham.  All signatories to the second agreement agreed in court to circumstances of its signature; new owners of the Gloria Jean master franchise had no knowledge of events in 2013.

Justice Gault accepted the second franchise agreement, expiring in April 2018, was the operative agreement.  He questioned whether this second agreement was enforceable; for lack of consideration.  General rules in contract law require each side provide a benefit to the other before promises are enforced.  In legal jargon, ‘consideration’ is required.

The second franchise agreement promised a benefit to Ms Borisova (a quicker exit from the franchise); there was no apparent benefit to Gloria Jean.  Justice Gault ruled Gloria Jean enjoyed a ‘benefit in practice.’  There was evidence Ms Borisova’s husband, then still in Russia, was refusing to remit funds to New Zealand unless the franchise term was reduced.  Following agreement to a shorter franchise period, money was sent to complete the purchase.

The court ordered payment to Gloria Jean: franchise fees totalling $56,500 unpaid up to the April 2018 expiry date; plus interest for late payment.

Gloria Jean’s Coffees International Pty Ltd v. Daboko Ltd – High Court (28.01.20)

20.022

Land: McKenzie v. Mortimer

Owners of adjoining cross-leased units on Auckland’s North Shore in dispute over parking arrangements and the refurbishment of one unit were told to go to arbitration as their cross-leases required. 

The High Court was told of escalating disharmony between the Mortimers in flat two and the McKenzies as owner of flat three, cross-leased properties on Beach Road in Castor Bay.  The McKenzies refused to sign off on the Mortimers’ plans to build a pop-top on the roof of flat two; did not agree to an alternative plan to change part of the existing flat two iron roofing with clear glass; and took legal action when the Mortimers then set about making internal alterations within their flat.  Their dispute escalated with the McKenzies complaining that the Mortimers parking arrangements for a car and campervan constituted a legal nuisance, obstructing safe exit and entrance to the property.

Cross-lease developments were a crafty legal workaround first developed to overcome Auckland Council’s then restrictions on subdivision sizes.  There was no subdivision, lawyers argued.  All flat owners part-owned the undivided freehold, granting each a 999 year lease over a specified area for their own personal use.  Each lease is in identical terms, bar identification of the area each claims as their own.  The cross-lease sets out rights as between owners.

The McKenzies went to court arguing the Mortimers’ activities breached terms of the cross-leases.  They want the Mortimers to remove all internal alterations, returning flat two to its original layout.  Associate judge Smith ruled their dispute must first be put to arbitration.  Their cross-leases require arbitration for any ‘differences’ arising out of the leases ‘operation.’

McKenzie v. Mortimer – High Court (17.01.20)

20.021

Construction: Youssef v. Maiden

An adjudicator’s Construction Act determination intended to settle a dispute over construction of a Northland house was quashed because of a conflict of interest; he had a close professional relationship with the builder’s law firm.  

In a bid to keep legal delays and costs to a minimum, construction contracts often require disputes be put to an adjudicator.  The Construction Contracts Act sets out a detailed process for appointment of adjudicators and consideration of claim and counter-claim.

Owners of a home under construction in Robert Hastie Drive, Mangawhai, agreed to adjudication after a stand-off with builder Bespoke Design and Build Ltd.  Owners said they would not pay for cost overruns they allege arose from inefficiencies. Bespoke downed tools, saying work was suspended until the issue was resolved.

Surveyor Richard Maiden was appointed adjudicator. In October 2018, he decided the owners unlawfully cancelled the contract.  He awarded Bespoke damages of $125,600, including lost profits assessed at $44,700.

The general Constructions Act rule is that parties agreeing to adjudication are stuck with the result; adjudicators’ determinations are a debt immediately payable.  Argue in court later about the calculation.  Courts have limited power to quash determinations.  Judicial review looks at process; how the determination was made.

The owners complained Mr Maiden had a conflict of interest.  The court was told Auckland law firm Martelli McKegg acted for Bespoke.  Martelli McKegg had other building clients for whom Mr Maiden was acting, primarily giving expert industry evidence in leaky home claims.  The owners said Mr Maiden might have failed to adjudicate its dispute purely on its merits given his ongoing professional relationship with Martelli McKegg. Favouring the law firm’s clients would maintain and enhance his relationship with the law firm, with further work to follow.

A fair minded lay observer might reasonably apprehend Mr Maiden might not bring an impartial mind to the adjudication, Justice Peters ruled.  The adjudication was quashed.  There is no suggestion that Mr Maiden in fact favoured Bespoke, Justice Peters emphasised. It is appearances that matter.

The court was told there is a relatively close-knit relationship between law firms specialising in construction law and the pool of adjudicators available in Auckland.  Before appointment, adjudicators’ potential conflicts of interest should be disclosed and consent to continue obtained from all parties, Justice Peters said.

Youseff v. Maiden – High Court (20.12.19)

20.020

Conspiracy: Plumpton v. Terry

Former UCFX Ltd employees: James Terry, Brent Colbert and Scott Maynard, were ordered to pay $681,200 damages for conspiracy after attempting to transfer UCFX staff, clients and business opportunities across to their own new venture.  They left UCFX in 2015, just after the company received recognition as Microsoft Partner of the Year.  

UCFX Ltd got off the ground in 2013, specialising in software technology.  Driving force was entrepreneur Kevin Plumpton.  James Terry took on the role of chief operating officer, unpaid; Brent Colbert was employed to bring in customers; Scott Maynard for his software design expertise.  The High Court was told cracks were appearing by early 2015: promises of increased remuneration after the early start-up period had not eventuated; Mr Plumpton’s management style was seen as non-collaborative leading to a toxic work environment; there were concerns UCFX in Australia was getting priority over New Zealand operations.

Evidence was given of confidential company information leaked to a bank and potential investors with an inference that a new company was to be carved out of UCFX.  Existing UCFX employees were told their company was on the rocks, about to close down; described as an attempt to have them shift across to a proposed new company controlled by Terry, Colbert and Maynard.  Justice van Bohemen ruled the three conspired to appropriate UCFX staff, clients and business opportunities.  All three conspirators were in breach of duties to keep UCFX information confidential.  Breaching obligations of confidence in discussions with third parties while making false and malicious statements to UCFX employees amounted to an unlawful conspiracy.

Damages were calculated as $307,000 for the net cost of bringing in staff from Australia to stabilise the business together with $374,200 for business opportunities lost whilst re-establishing New Zealand operations.

Plumpton v. Terry – High Court (19.12 19)

20.019

GST: Y&P NZ Ltd v. Wang

Wrongly claiming GST had to be paid on a $2.43 million property deal is costing Auckland property company Y&P NZ Ltd $980 a day in interest for late settlement with one million dollars now lopped off the purchase price as it unsuccessfully argued its case in court. 

In 2016, Yang Wang agreed to buy four blocks of bare land in the west Auckland suburb of Henderson.  The price was described as $2.43 million ‘plus GST (if any).’  Y&P was registered for GST.  It expected Mr Wang to be paying GST on the purchase price. Evidence was given that on day before settlement Mr Wang advised he was now registered for GST, making the transaction zero-rated.  Y&P could be left paying GST on the deal out of its own pocket.

Y&P refused to settle the deal unless the extra fifteen per cent GST was also handed over.  It said the standard-form agreement for sale and purchase required at least two days notice prior to settlement of any change in GST status.  Both the High Court and the Court of Appeal ruled Y&P was in breach of contract by failing to settle on payment of $2.43 million without addition of GST.  Goods and Services Tax legislation is specific; GST status is assessed as at the date of settlement.  A requirement in their agreement that two days notice be given was for administrative convenience only; an agreement for sale and purchase cannot override rules in a statute.  Specific performance was ordered, requiring Y&P hand over title.

The agreement for sale and purchase stated both vendor and purchaser were potentially liable to pay interest at 14 per cent for any late settlement.  Since Y&P had no legal grounds to refuse settlement, it was in breach of contract. The dispute has been running since 2016. Mr Wang is now owed over one million dollars for late settlement, to be set off against the purchase price.

Y&P NZ Ltd v. Wang – Court of Appeal (18.12.19)

20.018

Asset Forfeiture: Commissioner of Police v. Lau & Chang

Penalties totalling $1.4 million were imposed after Yat Ming Lau was sentenced to seven years imprisonment for illegally importing pseudoephedrine.  Profit forfeiture extended to assets held in the name of girlfriend Shuo Chang.

Ms Chang unsuccessfully defended Criminal Proceeds (Recovery) Act claims.  She said assets in her name were funded with her own money plus loans from her parents in China. Under the Act, police did not have to prove she participated in illegal drug importations, only that she knowingly benefitted.

The High Court was told that over a seven year period to May 2014 a total of $1.3 million in unexplained funds passed through bank accounts controlled by Ms Chang and Mr Lau.  During this period, Mr Lau’s declared annual taxable income was $44,900, Ms Chang’s $38,300.  A forensic audit identified substantial amounts spent on jewellery and other luxury items.  This spending stopped shortly after Mr Lau’s arrest.

There was evidence of funds being used to service loans on an Auckland property in Richard Farrell Avenue, Remuera, owned by a Lau family trust.  A second Lau property at Rukutai Street in the Auckland suburb of Orakei was sold to Ms Chang, with funding provided by Mr Lau, police said.  A BMW car registered to Ms Chang was similarly funded by Mr Lau, police said.

Ms Chang knew Mr Lau was repeatedly importing pseudoephedrine and she helped conceal his interests in property, Justice Downs said. She knowingly benefitted from Mr Lau’s illegal activities.  The two had been ‘good friends’ since 2002.  On one power utility account she was described as Mr Lau’s ‘wife.’  Spending on expensive jewellery and extended trips to China ended abruptly after Mr Lau’s arrest.  Ms Chang was required to surrender Rukutai Street and the BMW as tainted property, purchased with proceeds of crime.

Commissioner of Police v. Lau and Chang – High Court (17.12.19)

20.017

Fraud: Lal v. Worksafe

Ten months home detention for Deepak Yogesh Lal after forging safety compliance certificates was confirmed by the High Court.

In December 2017, new regulations governing handling of hazardous substances came into effect.  Employees working in the industry were required to complete specified education courses, obtaining compliance certificates.  Lal had not completed equivalent courses when the new rules became operative.  The High Court was told Lal did not undertake the required new qualification, instead forging a completion certification using a fellow employee’s certificate as a template.  When told this was at a lower level to the course he was required to complete, Lal then forged another completion certificate using yet another employee’s valid certificate. Evidence was given that the forgery was so good that Worksafe New Zealand initially thought the forged certificate was valid.

When a Worksafe investigation uncovered the true picture, Lal was charged with using forged documents to obtain a pecuniary advantage; getting paid employment at a higher rate was the pecuniary advantage.    

Appealing his sentence, Lal said the offending was not that serious.  Justice Jagose said the intent was to avoid health and safety objectives.  The behaviour was flagrantly dishonest.  Home detention was confirmed.  The Sentencing Act allows individuals on home detention to seek day release, enabling them to continue in employment.

Lal v. Worksafe New Zealand – High Court (16.12.19)

20.014

Fraud: R. v. Keenan

Former police officer Shaun Joseph Keenan is to serve at least half of a three year eight month fraud sentence before eligible for parole.  Keenan pleaded guilty to misappropriating $486,000, part of Treaty settlement monies intended by 1800 members of Ngati Te Whiti for construction of a marae in Taranaki.  

Keenan left the police in 2012 to become founding chief executive officer of the Te Whiti Trust Board, responsible for managing construction of the hapu’s new marae.  He unsuccessfully appealed the length of his non-parole period.  He said the sentencing judge failed to take into account his remorse and his status as a first offender.  The High Court ruled there was little evidence of remorse; Keenan promised in the two years after the fraud was discovered that he would make good the money taken.  Nothing was repaid.  During this period he transferred assets out of his name: signing over ownership of a life policy and signing a relationship property agreement transferring his half interest in the Stratford family home to his wife.  A cultural report before the court indicated Keenan’s primary focus was on his immediate family, not the harm caused fellow Te Whiti hapu members.

The High Court was told Keenan stole a further $24,000 from another organisation after being fired by Te Whiti Trust Board.

The extended non-parole period was necessary to denounce Keenan for his actions and to deter Keenan and others from similar offending, Justice Churchman said.

R. v. Keenan – High Court (16.12.19)

20.016

Asset Forfeiture: Commissioner of Police v. Nicholls

Admitting to benefit fraud and dealing in cannabis, Richard James Nicholls and Sarah Michelle Nicholls agreed to pay $134,000 in a negotiated settlement under the Criminal Proceeds (Recovery) Act.  In a deal confirmed by the High Court, they were given the opportunity of refinancing a Levin property to raise the necessary cash. 

The Nicholls’ property on McDonald Road, Levin, was subject to a restraining order while police criminal inquiries were underway. Police allege the Nicholls received $81,300 from cultivation and supply of cannabis and $62,900 from benefit fraud. The Nicholls admitted McDonald Road and a Toyota Hilux were purchased in part with funds generated by illegal activities.  They agreed to hand over payment totalling $134,000 plus a boat, outboard motor and trailer.

Commissioner of Police v. Nicholls – High Court (16.12.19)

20.015

Overseas Investment: Land Information v. FFG Investment Ltd

Two property companies part-owned by Chinese offshore interests were ordered to pay fines totalling $123,000 after breaching the Overseas Investment Act; land purchased for subdivision on Auckland’s North Shore adjoined a reserve, triggering the need for Overseas Investment Office consent.  

Kauri Glen Reserve in Birkenhead is listed in the Reserves Act.  Neighbouring land is deemed ‘sensitive land’ requiring government consent before purchase by overseas interests.  In 2013, FFG Investment Ltd purchased 2.8 hectares adjoining Kauri Glen.  FFG was owned forty per cent by Fei Wen, a Chinese national. As an ‘overseas person’ Mr Wen’s stake made FFG also an ‘overseas person.’  A company is an overseas person if more than 25 per cent is owned by overseas interests.  FFG Investment was not aware it needed government consent.

The High Court was told cost overruns on a planned 27 lot subdivision resulted in FFG selling its assets to a new company: Grand Sky Ltd.  It too was an ‘overseas person.’  Mr Wen similarly held a forty per cent stake in Grand Sky.  

The two companies negotiated an agreed penalty of $123,000 for their breach of overseas investment rules.  The penalty payable was reduced because both companies co-operated fully in the Overseas Investment Office investigation.

Land Information v. FFG Investment Ltd – High Court (13.12.19)

20.013

Asset Forfeiture: Commissioner of Police v. Rowland & Zammit

Convicted on seven charges of importation and supply of controlled drug N-ethylpentylone, Matthew Aaron Rowland surrendered assets to the value of $1.75 million as part of a negotiated settlement under the Criminal Proceeds (Recovery) Act, including properties in both New Zealand and the United Kingdom together with cryptocurrency. 

N-ethylpentylone, sometimes called ‘bath salts’, is frequently mis-sold as ecstasy but is far more potent.  The High Court was told of Rowland’s arrest as part of ‘Operation Manuka’ investigating illegal drug deals in the Wellington district.  He was sentenced to four years and seven months imprisonment. Police investigations traced proceeds of drug dealing into: a property in Woodville; a removable house in storage at Upper Hutt, and four United Kingdom properties, in Blackpool.  All were surrendered as assets obtained with the proceeds of crime, together with cash seized from various properties and storage lockers, the proceeds of New Zealand and offshore bank accounts, bitcoins and ethereum held in online wallets under Rowland’s control, plus several motor vehicles and motorcycles.

Associate Ashleigh Marie Zammit pleaded guilty to one representative charge of money laundering; assistance in purchase of tainted assets to the value of $219,400.

Commissioner of Police v. Rowland & Zammit – High Court (13.12.19)

20.012

Real Estate: Wyatt v. Real Estate Agents Authority

Unsuccessful in a complaint against Auckland real estate agent Barfoot and Thompson filed with the Real Estate Agents Disciplinary Committee, Orewa resident Gregory John Wyatt later annoyed industry regulators by setting up a company using a name matching that of the regulator.  The High Court upheld objections, forcing a name change.  

A February 2012 decision of the Real Estate Agents Disciplinary Tribunal records an unsuccessful complaint by Mr Wyatt alleging unsatisfactory conduct by Barfoot and Thompson over sale of rural land owned by a family trust.  Subsequently, Mr Wyatt registered a company named Real Estate Authority Ltd.  Companies Office staff ordered a name change. Battle was joined in the High Court, with regulator Real Estate Agents Authority taking up the running.  It said the company’s name breached the Flags, Emblems and Names Protection Act, prohibiting private individuals using names which suggest government patronage.

Mr Wyatt said the industry regulator’s statutory name is the Real Estate Agents Authority.  This is different from his company name of Real Estate Authority Ltd, he said.  The regulator commonly uses an abbreviated name of ‘Real Estate Authority’ as an operating name in its public pronouncements.

Justice Gault ruled government entities can choose to use abbreviations of their names for trading or for operating purposes.  Mr Wyatt’s company name was so similar as to suggest it was part of or supported by the regulator.  A name change was necessary.

Wyatt v. Real Estate Agents Authority – High Court (13.12.19)

20.011

Mutual Wills: McNeish v. McArthur

A promise to ‘honour your mother’s wishes’ was not enough to establish existence of mutual wills when stepchildren sued unsuccessfully to recover from their stepfather’s estate. 

Lorraine and Ian McArthur married in 1984, each with children from prior relationships.  When Lorraine died in 2005 leaving all her assets to Ian, Lorraine’s children did not contest her will believing they would share in Ian’s estate on his death.  That did not happen.  When Ian died in 2018 his estate passed to his children alone.

The High Court was told Ian and Lorraine signed mirror wills in 2002 each leaving their respective estates to the other, with a gift over should one predecease the other; the survivor’s estate was to be split 50/50 between their respective children: Ian had six children; Lorraine three. When Lorraine pre-deceased Ian, her assets passed to him.  When Ian died, a subsequent will signed in 2013 left all assets to his children.

Lorraine’s children sued, claiming the 2002 wills were mutual wills; Ian was obliged to respect the 2002 arrangement.  Legal rules governing mutual wills require there be an agreement not to revoke mutually agreed arrangements by means of a subsequent will.  These rules are now codified into the Wills Act.  There must be clear evidence of a mutual agreement.

Lorraine’s children said evidence was provided shortly after their mother’s death.  This was when Ian was arranging a shift from Brisbane back to New Zealand and demanding the return of funds they lent Lorraine’s son to purchase a home for Ian’s and Lorraine’s use in Australia.  The High Court was told of considerable tension at the time between Ian and his stepson.  The stepson took Ian’s comments after Lorraine died of ‘honour[ing] your mother’s wishes’ as reinforcing earlier family references indicating each branch of the family would eventually get a fifty per cent share.

Justice Doogue ruled this comment was not clear evidence of mutual wills.  Neither parent had promised they would not revoke their 2002 will.  At no stage had Lorraine’s children been told of any written or oral agreement not to revoke.  Justice Doogue contrasted this situation with other examples of litigation over mutual wills where family conferences had been held and children expressly told the terms of their parents’ wills and told of an agreement not to change those terms.

McNeish v. McArthur – High Court (12.12.19)

20.009

Land Title: Mau Whenua Inc v. Shelly Bay Investments

Development economists point to lack of secure title to land as a common feature holding back economic growth in third world countries.  At risk of being kicked off their land, occupiers cannot borrow for further development.  Lenders refuse to lend.  In New Zealand, the High Court dismissed claims by disaffected Maori that recent changes to land title legislation provided leverage to kick property developer Ian Cassells off his proposed Shelly Bay development in Wellington.

Taranaki iwi received land at Shelly Bay on Miramar peninsular as part of its Waitangi Treaty redress.  Formerly in use as an air force base, the land was valued at $15.2 million on transfer to its new Maori owner: Port Nicholson Block Settlement Trust.  In 2016, Port Nicholson was looking to rationalise its property holdings.  Plans to sell Shelly Bay created a furore: individual Maori adamant the land should never be sold; local citizens critical of development plans.  By late 2019, developer Ian Cassells had cleared multiple local authority consent hearings and judicial challenges to his plans.  He was ready to start, blocked only by a caveat lodged over title to Shelly Bay by individual Maori.  They allege Port Nicholson trustees acted in breach of trust by selling to Mr Cassells’ company and transferring title to Shelly Bay.   Their caveat had the effect of blocking any further dealing with the land.

The Land Transfer Act grants ‘indefeasible’ title to registered owners of land; in general terms, title cannot be overturned unless the now registered owner is guilty of fraud.  Land transfer fraud has a specialised legal meaning.  Individual Maori allege companies associated with Mr Cassells are guilty of ‘fraud’: they got title to Shelly Bay in the full knowledge there was a running dispute over Port Nicholson’s right to sell.  They said changes in 2017 to land title legislation extended the definition of land transfer fraud.       

Associate judge Johnstone ruled a sale accompanied by a vendor’s alleged breach of trust does not affect title to land.  The new owner gets clear title, not open to attack.  The caveat over Shelly Bay was removed. Aggrieved claimants’ remedy is to sue Port Nicholson trustees, Judge Johnstone said. Separate legal proceedings alleging the trustees were in breach of trust have yet to be heard.

Mau Whenua Incorporated v. Shelly Bay Investments Ltd – High Court (6.12.19)

20.008

Fraud: R. v. Demarco

‘The greatest betrayal I have ever experienced:’ Sir Peter Jackson commenting on frauds perpetrated by former employee Eugene John DeMarco.  DeMarco was sentenced to two years five months imprisonment for an elaborate series of lies when selling replica vintage aircraft owned by Jackson’s company, Vintage Aviator Ltd. 

The High Court was told DeMarco brokered the sale of three Vintage Aviator aircraft to New Zealand Warbirds Association in 2016. Funding came in part from a Warbirds’ enthusiast.  Warbirds was told there was an excess mark up of $622,000 on the list price because Warbirds’ benefactor was a friend who wanted to put extra money in DeMarco’s pocket. This was a lie.  The benefactor had never met DeMarco and was unaware of the mark-up, thinking he was paying list price.  Of the $2.1 million paid for three aircraft, none went to Vintage Aviator. DeMarco diverted payment to a company he owned, a company called The Old Stick and Rudder.

DeMarco’s Old Stick and Rudder was used to perpetrate a separate fraud involving a P-40 Kittyhawk.  A DeMarco friend paid US$500,000 for what he thought was purchase of the aircraft and a share in Old Stick and Rudder.  The signed paperwork did not in fact transfer Kittyhawk ownership but did prohibit DeMarco from using the aircraft as collateral for any loans. Despite this prohibition, DeMarco gave mortgage security over the aircraft when refinancing a bank home loan. He fraudulently represented to the bank that he had unqualified authority to use the Kittyhawk as security.

In 1999, a United States court conditionally discharged DeMarco following his conviction for possessing a stolen aircraft.

R. v. DeMarco – High Court (5.12.19)

20.007

Conspiracy: Moeke v. Raukawa Iwi Development

What South Waikato District described as a ‘pre-emptive strike’ blocking the Tokoroa purchase of a potential Head Hunters’ ‘gang pad’ saw Council and property owner Raukawa Iwi Development jointly liable for conspiracy facing damages claims totalling $600,000. 

Ford Moeke is a patched member of the Head Hunters. His signature to a 2018 contract purchasing a site in the Tokoroa suburb of Amisfield caused a stir with rumours it was to be the site of gang headquarters.  The property was put up for sale by Raukawa Iwi Development Ltd. Raukawa has substantial assets following Treaty of Waitangi settlements derived from central North Island Kaingaroa Forests.  Local concerns in Tokoroa saw Raukawa write to Mr Moeke telling him the deal was off. Raukawa immediately sold to the local Council.  Mr Moeke sued.

The High Court ruled Raukawa was liable for breach of contract and Raukawa in conjunction with South Waikato District liable for conspiracy.  The two combined unlawfully with intent to thwart Mr Moeke’s purchase.  Ownership of the Amisfield site has since passed to a bona fide purchaser buying from Council.

Associate judge Sargisson said assessment of damages requires further evidence.  Mr Moeke claims $450,000 for breach of contract.  Ruakawa says damages are minimal; being only the difference between the price he agreed to pay and the property’s current value.  Mr Moeke says the current value is substantial; he had plans to subdivide.  Judge Sargisson said the claim for $150,000 exemplary damages is large compared with past court awards.  Orders for payment of exemplary damages are uncommon; they are ordered as punishment for outrageous behaviour.

Moeke v. Raukawa Iwi Development Ltd & South Waikato District Council

20.004

Bloodstock: Harris v. Berkley Stud

With a seventy per cent interest sold to Cambridge Stud in 2018 for $2.1 million, stallion Highly Recommended stands at the centre of a legal storm over nomination rights and entitlements to share in the sale proceeds.

Part sale of the stallion was made by Berkley Stud, based just outside Christchurch.  Berkley part-financed its 2013 purchase of Highly Recommended with sale of nomination rights.  Thoroughbred purchases can be funded from sale of part shares in the stallion, or from selling nomination rights giving an entitlement to future servicing.  Nomination rights are a form of forward contract; payment upfront for future delivery, in this case future delivery of a service in every sense of the word – the right to mate nominated mares with the stallion.

The High Court was told Berkley sold lifetime nomination rights at $10,000 each.  Nomination holders were entitled to a defined number of service rights.  Nomination rights are likened to tickets in a lottery. If progeny race successfully, the stallion’s market value increases and the nomination right itself becomes more valuable.  There is a downside.  The stallion may prove infertile, die, be sold, or leave progeny which race poorly. Express terms of a nomination agreement typically specify who bears some of these risks.

Purchasers of Highly Recommended nomination rights joined forces to sue for a share of the $2.1 million generated by the stallion’s part sale to Cambridge Stud. They said a plain reading of the nomination agreements entitled them to a two per cent share of the sale price; payment of $42,000 for each nomination right held.  

In the High Court, Associate judge Paulsen ruled in favour of Berkley Stud.  Reading the agreement as a whole, entitlement to share in the sale price arose only if a sale extinguished their nomination rights, he ruled.  Sale to Cambridge Stud did not bring their nomination rights to an end.

Nomination holders argue it is common practice in the throughbred industry for nomination holders to share in any sale price even where nomination rights continue.  This requires a full trial with evidence provided by industry experts, Judge Paulsen said.

Harris v. Berkley Stud – High Court (4.12.19)

20.006

Banking: NZ Association of Credit Unions v. Finzsoft

Facing a rupture to online banking facilities after Credit Union Baywide moved to consolidate control, Co-op Money NZ had the High Court block Finzsoft Solutions’ plans to terminate support for its mobile banking. 

The NZ Association of Credit Unions, known as Co-op Money NZ, provides back-office services for credit unions.  Co-op Money signed a licensing agreement with Finzsoft in 2014 agreeing use of Finzsoft’s mobile banking app for credit unions’ banking customers.  Co-op Money charges participating credit unions.  About 10,000 retail customers regularly use the service.

The High Court was told one Co-op member, Credit Union Baywide, has moved aggressively seeking to gain effective control of the Co-op.  Some credit unions have jumped ship.  Co-op Money NZ had seventeen participating credit unions in 2014; down to three after Baywide sought effective control.  Early November 2019, Finzsoft gave notice of termination; withdrawing Co-op Money’s use of its banking app.  Finzsoft’s licensing agreement allows for termination if there has been a ‘change of control’ at Co-op Money.

At Co-op Money’s request, the High Court suspended operation of this termination notice.  Co-op denies there has been a change of control as envisaged by the licensing agreement.  Next step for Co-op Money is to start talks with Finzsoft triggering a dispute resolution procedure set out in the licensing agreement, Justice Wylie ruled. Co-op Money was warned not to dally; dispute resolution is to be started promptly.  Meanwhile termination is suspended pending further order of the court.

NZ Association of Credit Unions v. Finzsoft Solutions (NZ) Ltd – High Court (4.12.19)

20.005

Yarrow v. Westpac

Paul Yarrow’s 2017 bankruptcy on a $14.8 million Westpac guarantee was confirmed by the Court of Appeal.  In successive claims, Mr Yarrow argued unsuccessfully that the guarantee was a forgery, the debt had been paid and that the guarantee was unenforceable because Westpac was in breach of fiduciary duties owed him as guarantor.   

Founded in Taranaki, Yarrow Bakers had been in family hands for three generations until receivership in 2011.  Six years earlier, Paul Yarrow took control of Yarrow Group, buying out his brother.  Paul signed a guarantee of Yarrow’s Westpac debts in 2009.

When sued by Westpac, he first argued his signature on the guarantee was a forgery.  This was disproved with evidence from the lawyer witnessing his signature.  He then claimed the guaranteed debt had already been repaid by Yarrow Bakers.  Evidence from Westpac proved otherwise.  He then claimed the guarantee was unenforceable; Westpac owed him a fiduciary duty of disclosure and had failed to disclose onerous lease terms affecting Yarrow’s profitability.

The lease in question was a 2007 commercial transaction in Australia called the ‘Minto lease.’  The court was told an Australian Yarrow company owned ultimately by Mr Paul Yarrow’s family trust purchased a commercial site with funding from Westpac Australia, leasing the property to a Yarrow Group subsidiary.  Lease payments generated an 18 per cent yield.  Paul Yarrow argued above market rentals affected Group profitability, prejudicing Yarrow Group.  Westpac’s failure to disclose this information was a breach of fiduciary duty, he claimed, reducing payments due on the guarantee.

Westpac NZ was not aware of the Minto lease when Mr Yarrow signed the bank guarantee, the Court said.  The Minto lease was a Westpac Australia deal.  Mr Yarrow likely knew, or could easily have discovered, terms of the Minto lease before signing the guarantee, it said.  He controlled the ultimate owner of Yarrow Group.  Legal documents provided by Westpac before the guarantee was signed made it clear it was Mr Yarrow’s responsibility to get any relevant financial information he required from Yarrow Group.  Mr Yarrow was an experienced businessman who received his own independent legal advice, the court said.

Yarrow v. Westpac – Court of Appeal (3.12.19)

20.003