Sacred Hill: Mason v. McKay

Last ditch attempts by David Mason to rescue his Sacred Hill group failed as he pinned hopes on continuation of a US wine supply contract he claimed was generating annual profits of twelve million dollars.

Sacred Hill Marlborough Vineyards Ltd and Sacred Hill Vineyards Ltd, both controlled by Hawkes Bay vintner David Mason, were pitched into receivership by Westpac in May 2021.  Property Law Act notices demanded payment of $53 million by mid-July; precursor to a forced sale by Westpac.

The High Court was told Sacred Hill receivers agreed to sell company assets to Marlborough wine processor, Vinlink Marlborough Ltd for some $41 million.  This was a back-up deal, conditional on Mr Mason being unable to refinance the Westpac loan by its mid-July deadline.  Same day as the Westpac deadline expired, Mr Mason was in court demanding the Westpac deadline be extended.  This would have the result of blocking sale of Sacred Hill assets to Vinlink.  The receivers’ sale to Vinlink was at an undervalue, he claimed.  It did not include the value of a long-term Sacred Hill contract for the supply of product to a Louisiana company in the United States which in turn supplied the Costco chain, he said.  This supply contract had at least five years to run, carrying a potential profit of sixty million dollars over the next five years, he claimed.

Mr Mason claimed to have third party support in hand offering sufficient funding to pay Westpac.  Justice Lang ordered the Westpac deadline for repayment extended by two days.

Mason v. McKay – High Court (13.07.21)

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Post judgment note: Two days later, Mr Mason was back in court claiming he had conditional interest from Japanese investors willing to recapitalise Sacred Hill.  Justice Jagose dismissed Mr Mason’s further attempt to extend the Westpac deadline saying this offshore expression of interest ‘carries little more weight than the paper on which it is written.’ Companies in the Sacred Hill group went into liquidation three weeks after the extended deadline expired.

Leaky Building: Roberts v. Jules Consultancy

It was an innocently misleading statement which resulted in Wellington property manager Jules Leloir being held liable for Michael Roberts’ losses when overpaying for a leaky apartment, but the Court of Appeal reduced damages by forty per cent for Mr Roberts’ failure to carry out his own proper due diligence.

In 2014, Mr Roberts signed up to buy a three-bedroom apartment in Wellington’s Sirocco Apartments for $397,000.  The building was then managed by Ms Leloir’s Jules Consultancy Ltd.  She responded to a phone query from Mr Robert’s lawyers stating that Sirocco’s weather tightness issues related only to walkways and that had been rectified. His lawyers were following up on Council records suggesting Sirocco had potential weather tightness issues.  Minor works carried out on the building exterior a few months after Mr Roberts’ purchase led to suspicions there were serious weather tightness problems.  As it turned out, the eleven story Sirocco building proved to need major rectification.

In the High Court, Ms Leloir was ordered to pay Mr Roberts $93,500 damages for breaching the Fair Trading Act.  Mr Roberts challenged the calculation of damages; estimated repair costs for Sirocco had more than doubled to $22.7 million between the date of his Sirocco purchase and the High Court hearing.  Damages of $671,000 better reflected his loss, Mr Roberts said.

Damages required a calculation of the difference between what Mr Roberts agreed to pay and the value of what he got, assessed at the date of purchase, the Court of Appeal ruled.  This difference was calculated by the trial judge as being $110,000 taking into account Sirocco apartment sales around the time of Mr Roberts’ purchase.  Ms Leloir had no legal responsibility for Mr Roberts’ share of ongoing Sirocco repair costs.

Ms Leloir said Mr Roberts should shoulder a greater share of responsibility for his losses than the fifteen per cent contributory negligence fixed by the trial judge.  The Court of Appeal increased Mr Roberts’ responsibility to forty per cent. The Council LIM report raised a red flag; Mr Roberts should have obtained a specialised building report. Such a report would have identified Sirocco design features led to a high probability that it was a leaky building, the Court of Appeal ruled.  Mr Roberts’ purchase was conditional on his being entirely satisfied with Sirocco body corporate records.  He did not ask for copies.  Committee minutes at that time showed minor leaks in a number of apartments, believed at the time to be plumbing issues from apartments above.

Increasing Mr Roberts’ liability to forty per cent meant Ms Leloir was ordered to pay $66,000 for her misleading statement about Sirocco’s weathertightness.

Roberts v. Jules Consultancy Ltd – Court of Appeal (9.07.21)

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Loan: Goldstone v. Sheath

It started with May Kam Kiu Sheath asking her then seventy year old neighbour for a loan to bail her estranged husband from jail.  Over the years, requests for loans grew more frequent.  The High Court has ordered her repay $589,450 to a former Remuera neighbour who is now aged 82 and living in a retirement village.

The High Court was told of repeated failures by Ms Sheath to repay borrowed monies and subsequent failures to make repayments required by an agreed repayment schedule.

Ms Sheath befriended her neighbour when at home raising two young children while her husband worked long hours, operating a wine bar.  The first request for a loan came after Ms Sheath had separated from her husband and she was seeking funds to post bail when he was imprisoned in Australia.  The neighbour continued to assist financially over a period of several years, believing Ms Sheath’s Hong Kong parents were extremely wealthy.  In the six years to 2014, Ms Sheath borrowed $400,000.  There were always reasons offered explaining failures to repay.  Sporadic partial repayments were made.

In November 2015, there were attempts to put all previous loans on a more formal footing with written agreement as to how much was owed, provision for interest and fixed repayment dates.  Repayment deadlines were not met, resulting in loans being rolled over and new repayment terms agreed.  A December 2020 written agreement fixed the full amount then due and set out a schedule of monthly payments.  Only one scheduled payment of $10,000 was made, and that was paid late.

In the High Court, Justice Woolford entered judgment against Ms Sheath for $589,450 unpaid.  She did not attend the court hearing.

Goldstone v. Sheath – High Court (7.07.21)

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Land: Inspire Holdings v. JSM Properties

Claims by Auckland real estate agent Anyos Gonczy that his purchase of three Pukekohe sites was in the bag were dismissed by the High Court; price at $2.4 million was agreed, but GST liability was never finalised.

Over a two week period in early January 2021, Mr Gonczy was negotiating with JSM Properties Ltd for purchase of adjoining sites in Seddon Street and Dublin Street, Pukekohe. Through his company Inspire Holdings Ltd, he offered ‘$2.4 million inclusive of GST.’  JSM countered with its offer to sell at ‘$2.4 million inclusive of GST (if any).’

The High Court was told JSM Properties is owned by a consortium of private investors.  They were aware Inspire might be claiming a GST refund on any purchase. As protection against a potential loss of $313,000 from the purchase price, JSM Properties wanted the contract worded as including GST ‘(if any).’

Mr Gonczy subsequently sent back an amended version of the previously amended agreement for sale and purchase with the bracketed phrase ‘(if any)’ struck out and with that change initialled.  The High Court was to later rule this amended document amounted at law to a new offer; terms offered by JSM in the previous interchange had now lapsed.    

Evidence was given of a flurry of emails then resulting in a consensus that the bracketed phrase ‘(if any)’ could stay, with the addition of a GST warranty clause, terms of which were yet to be agreed. Mr Gonzcy promptly sent off a reprint of the JSM counter offer from days previously, duly signed and initialled. He claimed there was now a binding contract at $2.4 million, with the price inclusive of GST (if any).

There was never any agreed contract Associate judge Andrew ruled.  Signing a reprint of the earlier JSM counter offer was not an acceptance of that counter offer; the counter offer was not capable of acceptance since it no longer existed, it had lapsed when Mr Gonzcy made a subsequent offer striking from the document the phrase ‘(if any).’  The flurry of emails did not create a contract either; agreement was conditional on negotiating a GST warranty clause and that had not been finalised. Contract negotiations made it clear there was no binding deal until everything was reduced to writing and signed off by both sides, Judge Andrew said.

Inspire Holdings Ltd v. JSM Properties Ltd – High Court (7.07.21)

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Land: McCaw v. Owen

Susan McCaw’s aunt agreed to sell her half a 33 hectare block of family land at Moerewa in Northland, left her with the job of getting separate titles surveyed off and then refused to go ahead with the sale after already receiving half the purchase price and letting them start building a home on site.  The High Court ordered Mary Owen honour the sale. 

In 2018, Aunt Mary told Susan and John McCaw to leave the Moerewa property.  She planned to keep the $42,250 already received as part payment for purchase of the land, claiming the money as rent for occupation of her property.  The McCaws stayed put, suing to prove ownership.

The High Court was told Mary Owen owned in conjunction with her late husband’s estate a 33 hectare block of poorly managed farmland near Moerewa.  A March 2016 contract was signed with her niece Susan and husband John McCaw selling a fifteen hectare slice for $90,000.  It transpired there was no resource consent for a subdivision and no survey yet completed to determine title for the McCaws’ fifteen hectares.  A new deal was struck: the McCaws would arrange and pay for costs of the subdivision; the purchase price was reduced to $85,000; Mary would receive the $20,000 deposit directly even though there was as yet no clear title; and the McCaws could shift on site immediately and start building their family home.

Council subdivision requirements took longer than expected.  Meanwhile, Mary demanded payment of the full purchase price.  By early 2017, the McCaws had paid her half the purchase price and were holding the consents required from Far North District Council. All that was required was Mary’s signature as registered owner of the land being subdivided.  She refused to sign, blocking the issue of new titles.

In the High Court, Justice Woolford ruled there was a binding contract for sale of fifteen hectares to the McCaws.  Mary Owen was ordered to sign the approved subdivision plan. If she refused, the registrar of the High Court at Whangarei was authorised to sign the paperwork necessary to have title issued and land transferred to the McCaws.

McCaw v. Owen – High Court (7.07.21)

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Estate: Wakefield v. Wakefield

Helena Wakefield moved into the family home and cared for her mother in the last eight years of her life, then failed to carry out terms of her late mother’s will, leading to court orders removing her as an executor of the estate and evicting her from the family home in Remuera, Auckland.

Her mother, also named Helena, died in 2019.  Her last will named daughter Helena and son Larry as joint executors and left a half share in her estate to each of them. The High Court was told Helena refused to co-operate with her brother.  Two years later a High Court order saw her brother appointed as sole executor of their mother’s estate.  Helena was ordered to pay the $21,800 legal costs incurred sorting out appointment of an executor.

Helena refused to co-operate with her brother as executor and refused to leave their late mother’s home in Dempsey Road, Remuera. In June 2021, she was given formal notice to leave in the next three months with an offer of $600 per week as an interim payment for six further months to help with alternative accommodation, these payments to be deducted from her share of their late mother’s estate.

At a subsequent High Court hearing, she was ordered to give up possession of Dempsey Road as an ‘unlawful occupier’ and further to pay an occupation rent at $575 per week from end of March 2021 to the date she vacates.  Helena did not appear at the court hearing.

Wakefield v. Wakefield – High Court (6.07.21)

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Land Dispute: Robertson v. Robertson

Manoeuvring by one brother to get a price advantage over the other was cut short by the Court of Appeal; 8.3 hectares in the centre of Warkworth valued in excess of seven million dollars owned by Conrad and Martin Robertson is to be sold at auction with each entitled to bid.

The two purchased the land in early 1980s, carrying on a family boat building business alongside the Mahurangi River.  In 1995, Martin left to continue boatbuilding from other sites.  He remained co-owner of the Mahurangi site with brother Conrad; the two as landlords leased the site to Conrad’s business.  The Court of Appeal was told each at various times offered to buy out the other, with nothing ever agreed.  In 2007, the lease to Conrad expired, running-on as a monthly tenancy at the previous rent.  Over time, this rental began to diverge markedly from market rents.

Discussions over what to do with the land stalled. Conrad wanted full ownership so he could expand his boat building business operating from the site; Martin had plans for development as residential housing.  Conrad’s court application to have the land partitioned under the Property Law Act saw a court ruling the land be sold at auction with each entitled to bid and each receiving half the net proceeds on sale.  Conrad appealed. He variously wanted: that the court fix a price at which he would buy out his brother; that part of land occupied by his boatyard be carved off for him to take sole ownership; that he be entitled to buy out his brother at a earlier 2020 valuation.

Criticising what it called a kaleidoscope catalogue of changing proposals from Conrad, the Court of Appeal confirmed the earlier court ruling that the land be sold at public auction.  This was the best method to determine current market value. Either brother could bid; each had the bidding advantage of receiving back half the price paid.

Robertson v. Robertson – Court of Appeal (5.07.21)

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Kelstworural Ltd v. Mounsey-Ross & Ross

Former owners of Red Fox Tavern at Maramarua were ordered to pay $936,000 for trading whilst insolvent and also using company cash for personal expenses.  In addition, Kelly William Ross and Kelly Michelle Mounsey-Ross siphoned off $216,000 proceeds from selling the business by channelling their sale through a company controlled by Mr Ross’ mother.

Operating through their 50/50 company Kelstworural Ltd, the two took over Red Fox Tavern in 2011, closing down and selling the business six years later.  The High Court was told the business was under-capitalised from the start and was trading whilst insolvent almost from the get-go.  They paid trade creditors to ensure the Tavern was supplied on order, but defaulted on PAYE and GST payments due Inland Revenue.  By the time Kelstworural was forced into liquidation by Inland Revenue, tax arrears pus interest and penalties totalled some $610,000. Inland Revenue was the only creditor in Kelstworural’s liquidation.

Liquidators PriceWaterhouseCoopers sued them for breach of directors’ duties.  Justice Jagose ordered the two pay $609,700 to the company for trading whilst insolvent. There was no evidence they made any effort to ensure Inland Revenue was paid on time, he ruled.  Unpaid PAYE and GST was used as working capital.  At a time when Inland Revenue was unpaid, the two benefitted from $326,000 company cash used to pay personal expenses.  The liquidators also sued them to recover these personal drawings.

Kelstworural Ltd v. Mounsey-Ross & Ross – High Court (2.07.21)

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Freezing Order: Millionaire Makers v. Portman Project

Peter Chevin, currently disqualified from acting as a company director, is alleged to have used false advertising to lure investors into a proposed property development.  Investors had $260,000 held in a Kiwibank account frozen by High Court order.

Portman Project Ltd was set up in September 2020 as a single purpose company to carry out a fifteen lot subdivision.  Stephen Lunn was sole director, holding a five per cent stake through his company Lunbros Ltd; balance of the shares were held by a company called Totara Sea Trustee Ltd, a company described as holding shares on trust for Mr Chevin.

The High Court was told a November 2020 Trade Me advertisement called for a new investor willing to put up $260,000 to replace a current Portman investor who wished to sell out for personal reasons.  Reference to a ‘current investor’ was a complete fiction; cash was needed urgently to pay a deposit on the land to be subdivided.  Mr Lunn challenged Mr Chevin about the fact of the Trade Me advertisement and its content.  He had never been consulted.  Investors who had seen the advertisement had by then already met with Mr Chevin, later signing an investor agreement and paying $260,000.  These investors demanded their money back.  There was no binding contract with the company, they said.

At a time when Mr Lunn was sole director, the investors’ contract was signed on behalf of Portman Project by an Alexander Russell Constable.  Described by Mr Lunn as being a ‘mere bookkeeper’ for Portman, Mr Constable had no authority to sign on behalf of the company, he said.  Evidence was given of Mr Chevin and Mr Constable conniving to change the company register to show Mr Constable as Portman’s sole director.  This change to the register was filed one day after the date of the investors’ disputed contract.  Mr Constable was never validly appointed as a director, the investors say. Mr Lunn disputes Mr Constable’s claim to be a director.

Investors also claim the funding arrangement was based on a misleading advertisement in breach of the Fair Trading Act.

Justice Duffy ruled the investors have a good arguable case for return of their money.  Pending trial, the $260,000 freezing order was confirmed.

Millionaire Makers International Ltd v. Portman Project Ltd – High Court (1.07.21)

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Bankruptcy: Watson v. Attorney-General

After buying into a newly constructed apartment block plagued with building defects, Andrew Philip Watson was forced into bankruptcy in 2014.  Ownership passed to Insolvency Service.  High Court has now passed title to the apartment back to him as a ‘disclaimed’ asset.

On bankruptcy, ownership of Mr Watson’s apartment in Mountain Road, Mt Wellington, passed to Insolvency Service as an asset in his bankruptcy.  Insolvency Service ‘disclaimed’ the asset, taking the view bankruptcy creditors would not benefit from a forced sale given owners of flats in Mountain View apartments faced substantial costs in remediating the building.  As a legal consequence of the apartment being disclaimed, ownership passed by default to Treasury. 

The Insolvency Act allows any person affected by a disclaimer to have title to the property vested in them.  Justice Jagose ruled it is only fair that title be returned to Mr Watson.  He was discharged from bankruptcy in 2019.  Whilst bankrupt, he continued in employment and kept up payments due on the property, including mortgage payments.  The court was told that with ownership returned, Mr Watson plans to sell the apartment, now free of any claim by pre-bankruptcy unsecured creditors.

Watson v. Attorney-General – High Court (30.06.21)

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Relationship Property: Meo v. Meo

It was double counting to treat $75,500 retained earnings in a family company as relationship property when those same retained earnings are included in the company share valuation.

Jacqueline Meo challenged a Family Court ruling that she pay former husband David some $51,000 to settle a relationship property dispute after their twenty-one year marriage ended.

On appeal, two issues were in dispute: the value of Wellington shoe wholesaler Meo Imports New Zealand Ltd and family trust mortgage repayments.

Meo Imports Ltd was relationship property.  The company had declined in value since separation; first because of customers switching to online purchasing and secondly because of reduced sales during pandemic lockdowns.  The Family Court assessed Meo Imports’ value as being $84,000 at date of their 2014 separation and $76,800 at later date of the first court hearing.  Jacqueline had valued the company at $209,000 as at 2014.  Her accounting adviser treated profits retained within the company but available for distribution as a separate item of relationship property. Not correct, Justice Isac ruled.  Retained earnings are included in any share valuation; remove retained earnings in a notional distribution, then the share value drops proportionately.  Jacqueline’s half interest in Meo Imports as relationship property proved not to her net benefit; her personal drawings from the company, being a debt she owed the company, exceeded her half share of the company’s value.

The court rejected David’s claim that payments he made personally on loans secured over family trust properties were post-separation payments making a ‘contribution to the marriage.’  Post separation payments by one spouse can be taken into account as a relationship liability where payments protect or preserve a relationship asset.  Evidence was given that David personally paid some $73,800 principal and interest on loans secured over five properties owned by their family trust in the immediate period after separation and before four of the properties were sold.  These payments were not relationship liabilities, Justice Isac ruled.  The properties were not relationship assets; they were owned by a family trust.

Disallowing the $73,800 David claimed as a relationship liability reduced the amount Jacqueline was ordered to pay David to a total of $14,900. 

The court was told there is separate litigation underway between the two regarding entitlement to family trust assets.

Meo v. Meo – High Court (30.06.21)

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Property: Waimauri Ltd v. Mahon

Interests associated with property developer Tim Edney are pushing for bankruptcy of fellow property developer Neville Mahon on a $831,000 debt, just one of multiple disputes between the two currently working through the courts.  Bankruptcy will stop dead Mr Mahon’s ability to actively defend claims; Insolvency Service takes over.

Any trace of an amicable working relationship between the two foundered long ago.  There has been a sequence of court cases disputing their joint involvement in property transactions in Queenstown, south Auckland and now the Station Hotel on Beach Road in Auckland’s central business district.

In 2020, the High Court ordered Mr Mahon pay Mr Edney’s Waimauri Ltd some $395,000 plus accrued interest, then calculated at $437,000. This was well below the multi-million dollar sum claimed as arrears on the Mahon-guaranteed loan from Waimauri, a loan used for redevelopment of Station Hotel.  While ruling Waimauri was entitled to the sum ordered, Justice Muir was moved to comment on aspects of Mr Edney’s conduct as being ‘rapacious;’ such as requiring Station Hotel upgrades be financed with Waimauri money and then subsequently benefitting on sale from the increased capital value of the project.

Mr Mahon asked for time to pay the court-ordered amount. Mr Edney demanded full financial disclosure before agreeing to any concession.  Mr Mahon refused; Mr Edney would use this information against him in other ongoing litigation between the two, he said.  Mr Edney issued a bankruptcy notice; a legal precursor forcing Mr Mahon into bankruptcy if payment was not made.  Mr Mahon applied to have bankruptcy proceedings halted. Associate judge Sussock ordered a halt, continuing until such time as Mr Mahon’s appeal against the court-ordered $831.000 debt is decided.

Mr Edney alleges Mr Mahon is stalling.  An appeal was filed late and Mr Mahon has delayed getting a hearing date fixed, he said.

Waimuri Ltd v. Mahon – High Court (25.06.21)

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Asset Forfeiture: Commissioner of Police v. Salter

Facing potential forfeiture of his waste oil recycling business as proceeds of crime and with restraining orders freezing his properties, Ron Salter went to the High Court for an order holding police liable for financial losses should their case fail.

For the first time, police have used the proceeds of crime regime against an ordinary commercial business convicted of health and safety offences.  Salter and his south Auckland business Salters Cartage Ltd were convicted of multiple offences after an explosion in 2015 at its Wiri site killed a contractor installing a catwalk next to a waste oil tank; petrol, kerosene and oil vapours in a tank containing about 3000 litres of liquid exploded, ignited by sparks either from a welding torch or a grinder.  Salter and Salters Cartage were collectively ordered to pay $128,000 compensation to the victim’s family and Salters Cartage fined $202,500.  Further prosecutions followed when Salter ignored ‘make safe’ demands by WorkSafe, continuing to operate the Wiri site in breach of health and safety rules.  Salters Cartage was fined a further $56,250 and Salter sentenced to four and half months’ home detention with a fine of $25,000.

Police say Salter systematically operated his business in breach of health and safety and hazardous substance laws for at least seven years.  Revenue earned was unlawfully derived, police allege, and should be forfeit under the Criminal Proceeds (Recovery) Act.  With a full court hearing years away, police obtained a restraining order over properties owned by Salter either personally or through family trusts: two houses in Paerata, a property on Waiheke Island and the business premises occupied by Salters Cartage in Wiri.  The court was told market value of all four properties is $9.675 million.  They are used as security for BNZ funding; working capital for Salters Cartage.

Salters Cartage has over 3000 customers.  Salter says the restraining orders are hampering business operations; they prevent debt being increased and currently none of the restrained properties can be sold as part of any business sale.  He demanded an indemnity from police; they should pay damages for Salter Cartage financial losses if the proceeds of crime case fails. It can be up to three or four years before a proceeds of crime case gets to court.  The Act gives to judges a discretion to order an indemnity.

Justice Palmer ordered police pay damages if unsuccessful.  The longer it takes to get to trial the greater the possibility of financial complications for Salter’s business.

Commissioner of Police v. Salter – High Court (25.06.21)

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Environment: Rutherford v. Canterbury Region

Having invested time and money publicising resource management prosecutions, it can be difficult for local authorities to handle defeat; Canterbury Region resisted North Canterbury farmer Jan Scott Rutherford correcting an injustice after prosecution, conviction and a fine for supposedly unauthorised earthworks on the Waiau River.

Mr Rutherford’s farm is bounded by the Waiau, a braided river running through Hurunui District.  Canterbury Regional Council prosecuted for supposed breaches of the Resource Management Act when he levelled, seeded and fertilised a seventy hectare area bordering the river.  Mr Rutherford said this work was above the edge of the river: a well-defined gravel bank, he claimed.  Canterbury Region argued the river bed extended to an old river terrace, above the newly grassed pasture.  He was prosecuted for ‘unconsented work’ in the bed of the river.  The two disputed what was the river bed.

The High Court was told Mr Rutherford’s prosecution was underway at the same time as a similar prosecution against a Canterbury farmer on the Selwyn River.  When this case decided a ‘river bed’ encompassed all land underwater when the river was at full flood without overtopping its banks, Mr Rutherford threw in the towel, pleading guilty, and was fined $34,000.  The Selwyn case was subsequently appealed, leading to a new definition of river bed; land underwater during the usual flow of water as measured over a reasonable period of years.  Mr Rutherford was vindicated.  The land he bought into pasture was above the Wairau river bed.

Canterbury Region challenged his appeal against conviction.  The mere fact there has been a change of law since the conviction does not, of itself, justify setting aside a conviction, it said.

Mr Rutherford’s conviction for encroaching on the Waiau River bed was quashed by Justice Dunningham.  A substantial injustice would follow if the convictions remained, given Mr Rutherford argued the point from the outset and a criminal prosecution was forced on him when the District Court refused his request for an adjournment pending an appeal then underway in the Selwyn River case, an appeal which subsequently clarified the definition of a river bed for resource management purposes and determined Mr Rutherford was correct all along.

A single conviction against Mr Rutherford was upheld; allowing sediment to enter the river without resource consent whilst carrying out the disputed earthworks.

Rutherford v. Canterbury Region – High Court (24.06.21)

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Partnership: Rathore v. Bhatti

Vinod Rathore claimed to be partner to a 2011 purchase of a rural property on Monk Road at South Head near Helensville.  Ilyas Bhatti claimed the property was his.  In the High Court, Justice Lang preferred an innocent email exchange as proof of ownership, dismissing much of the oral evidence put forward as describing events that were highly improbable.  

Deciding that the only evidence that could be relied on as accurate was an innocuous email exchange about further bank borrowing, Justice Lang ruled the two were in partnership and Mr Rathore was entitled to half the equity in Monk Road after repayment of cash contributions put in for the purchase.

The High Court was told the 35 acre Monk Road property was purchased in 2011 for $450,000.  Mr Rathore put in $57,000 cash; Mr Bhatti and his wife $101,000. Westpac funding completed the purchase. Title was taken in the name of a newly formed company: Fivestar Properties Ltd.  Richa Choubey, later to marry Mr Rathore, was sole director and shareholder of Fivestar.

Mr Rathore resigned from his job as a mortgage advisor and left to live in Australia shortly after the Monk Road purchase.  This was to escape a Serious Fraud Office investigation into mortgage fraud, Mr Bhatti alleged.  It came out in evidence at the mortgage fraud trial that Mr Rathore received several payments totalling some $6000 for his role in approving and recommending loans for those on trial.

Mr Bhatti claimed he was the beneficial owner of Monk Road; Fivestar held the property in trust for him, he said.  He had no contact with Mr Rathore for some seven years following purchase and had repaid the $57,000 ‘loan’ Mr Rathore put up for the purchase, he said.  He commonly put into the names of others properties he purchased; to protect his assets from creditors, he said.

Mr Bhatti put forward four supposedly independent witnesses supporting his claim that the $57,000 payment was a loan which had been repaid.  Justice Lang rejected their evidence.  These witnesses were variously financially dependent upon Mr Bhatti or hostile to Mr Rathore.  When pressed, witnesses were evasive about the manner and circumstances of the supposed repayment.  Reasons for why Mr Rathore may have needed the money were not plausible.  Mr Bhatti had no written receipt for any repayment. He could not produce a power of attorney he claimed Ms Choubey had signed giving him control of Fivestar. Mr Bhatti’s failure to properly disclose all his assets in a relationship property dispute with his wife added to questions over his credibility, Justice Lang said.

The critical evidence proved to be email exchanges between Mr Rathore and Ms Choubey in late 2011 where they discussed Mr Bhatti’s demand that bank borrowing on Monk Road be increased.  Mr Bhatti desperately needed cash to settle purchase of another property at Hayr Road in Mt Roskill.  The email chain relayed discussions between Ms Choubey and Mr Bhatti suggesting further bank finance be obtained to buy out Mr Rathore’s share or that alternatively Monk Road be sold.  Neither happened; the Hayr Road purchase fell over.     

This email chain was unambiguous evidence that Mr Bhatti regarded Monk Road as a partnership asset with profits to be shared on sale, Justice Lang ruled.

Rathore v. Bhatti – High Court (21.06.21)

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Deadlock: Geerkins v. Sietec Wholesale

Asking the High Court to liquidate a joint venture company was a legitimate tactic when shareholders had fallen out but were still in negotiation to settle their dispute, the High Court ruled.

Dennis Geerkins and John McAdam are 50/50 owners of Auckland telecommunications equipment supplier, Sietec Wholesale Networks Ltd.  All is not well between the two.  Mr Geerkins complains that he is being squeezed by Mr McAdam with profits diverted through excess charges imposed on Sietec Wholesale.  Their joint venture company rents space from interests associated with Mr McAdam.  Mr Geerkins alleges unreasonable costs, management fees and operating expenses are being wrongly charged their joint venture.  Access to Sietec Wholesales’ database has been blocked, he says.

In September 2020, Mr Geerkins filed a High Court application to have Sietec Wholesale put into liquidation.  This prompted a quick response.  Both agreed the liquidation application would not be advertised, while Mr McAdam would not compete against Sietec Wholesale in bidding for work and that they would jointly work towards resolving their differences by having one buy out the other.

Some nine months on: Mr Geerkins alleges Mr McAdam has failed to honour his undertaking not to compete; Mr McAdam is in court asking for liquidation proceedings to be struck out.  It is an abuse of process to seek liquidation of Sietec Wholesale when both sides are in negotiation, he says.  A pending liquidation application is having an adverse effect on business, he says.  The threat of liquidation is being used to force up the buy-out price, he complains.

Liquidation proceedings remain on hold.  Associate judge Bell refused to strike out Mr Geerkins’ liquidation application.

Geerkins v. Sietec Wholesale Networks Ltd – High Court (21.06.21)

21.104

Xerox: Fuji Xerox NZ v. Whittaker et al

It is not just an employment law dispute requiring an Employment Relations Authority hearing; Fuji Xerox can continue with High Court action against three former executives in a multi-million dollar claim alleging overpayment of bonuses and commissions totalling $3.6 million and loss of business totalling $86.3 million after business customers abandoned Xerox service contracts when learning of accounting irregularities.   

Former managing director Neil Whittaker, former chief financial officer Mark Donald Allright and former general sales manager Gavin Pollard are alleged to have manipulated reporting of Xerox transactions to artificially boost revenue reported for the periods 2012-2015, with knock-on benefits for their bonuses and commissions.

Photocopier sales by Xerox are commonly structured as lease transactions.  Accounting rules differentiate between finance leases and operating leases. Xerox alleges the three former executives mis-categorised thousands of transactions, to their personal benefit.

Xerox demands repayment of $3.6 million allegedly overpaid for commissions and bonuses.

Xerox also claims Mr Whittaker and Mr Allright inappropriately structured a five million dollar receipt as being an inducement to surrender an existing office lease on Auckland’s College Hill when it was an inducement to lease new premises in Newmarket.  Different accounting treatments for lease surrenders as against inducements to rent lead to differing consequences for reported profits.

Separately, former chief financial officer for Xerox New Zealand Mr Allright is being sued by Xerox Singapore for deceit.  It is claimed intercompany advances of some $174.5 million would not have been made but for the alleged accounting deceit.

Attempts by all three to have the High Court case thrown out as an employment issue, where Employment Relations Authority has sole jurisdiction, did not succeed.  Xerox claim for restitution was a case properly for the High Court, Justice Jagose ruled.  Restitution does not seek to recover money paid under an employment contract; it seeks recovery of money allegedly paid in excess of the contract.  Companies Act claims for alleged breach of directors’ duties are also to continue in the High Court.

Xerox is also suing auditors Ernst & Young.

Fuji Xerox New Zealand Ltd v. Whittaker, Allright & Pollard – High Court (21.06.21)

21.103

Construction: Palmer v. Hewitt Building Ltd

Builder Mark Hewitt described her as obdurate, unreasonable and vindictive; Barbara Palmer described him as incompetent, unreliable and dishonest: the outcome of a Masterton home renovation that went seriously wrong.  He was ordered to pay $67,500 to remediate cladding and roofing.  A court order that his company pay $392,400 damages is likely to prove worthless.

The High Court was told Hewitt Building Ltd entered into a fixed price $526,300 contract in 2016 to renovate Ms Palmer’s recently purchased home on the outskirts of Masterton.  Five year’s later, no code of compliance certificate has been issued, Masterton District has issued a notice to fix deficiencies and Ms Palmer has sued.   

Hewitt Building Ltd did not defend.  It was ordered to pay $392 400 damages for failure to complete the job according to contract specifications.  Mr Hewitt told the court his company had no assets to meet any damages claim.

Ms Palmer also sued Mr Hewitt personally, alleging he was negligent in carrying out the work.  Evidence was given of multiple cases of cost cutting by Mr Hewitt ranging from use of sub-standard materials through variations in the construction envelope by reducing floor areas, wall heights and width of eaves plus failures to carry out some of the contracted work; each having the effect of saving money on the fixed price contract.  Mr Hewitt and Ms Palmer disagreed whether all variations had been approved.  Ms Palmer paid Hewitt Building Ltd some $543,000; paying an extra $18,000 on the original fixed price for agreed variations.  She later disputed performance of the building contract.

Mr Hewitt was not liable personally for breaches of contract by his company Hewitt Building Ltd, Justice Cooke said.  Mr Hewitt was not a signatory to the building contract.  But he was personally liable for workmanship failing to comply with the Building Code. Builders are personally liable for a failure to take reasonable care and in most cases that will be a failure to meet standards set by the Building Code, Justice Cooke ruled.

Mr Hewitt personally was ordered to pay $67,500 damages; the cost of ensuring items of cladding and roofing were fixed and made Code compliant.

Palmer v. Hewitt Building Ltd – High Court (18.06.21)

21.102 

Family Trust: Hawkins v. Hawkins

Payment of an $100,000 inheritance into a family trust by a Christchurch bankrupt will be of interest to Insolvency Service.  Any inheritance arising whilst bankrupt is ‘after-acquired’ property which goes to pay prior bankruptcy creditors.

Associate judge Lester indicated details of litigation between trustees of a Canterbury family trust should be copied to Insolvency Service.  The litigation revealed funding for purchase of a Picton Avenue property in Christchurch came in part from an inheritance that should have been disclosed to Insolvency Service.

Errol Hawkins together with his wife Denise were bankrupted in 2009.  The High Court was told they set up a family trust shortly after, with three named trustees: son Samuel, daughter Angela and a corporate trustee: St Martins Law Ltd. Samuel and Angela were to later disagree over whether a trust in fact existed and how it operated.  The evidence was that their parents subsequently used trust assets as if they were their own and the trustees were only called into action when legal documents had to be signed on behalf of the Trust.

The Trust’s first major transaction was to purchase a section in Timaru costing some $42,000.  This was funded with a $45,000 ACC payment received by mother Denise. She was bankrupt at the time, but the ACC payment did not have to be surrendered to Insolvency Service.  It is now disputed whether her $45,000 payment to the Trust was a loan or a gift.  On the death of Errol’s mother about a year later, Errol arranged for the Trust to purchase her Picton Avenue home as accommodation for himself and wife Denise. Errol was still bankrupt at the time. The purchase was funded by his estate inheritance and a bank loan taken in Samuel’s name with guarantees from all three trustees.  Picton Avenue was sold in 2016 to fund a planned purchase by Errol and Denise of South New Brighton Motor Camp.

The trustees fell out with arguments over how the motor camp purchase should be financed with proceeds from sale of Picton Avenue.  Two trustees, Angela and St Martins Law, wanted to see trust monies advanced as a loan; Samuel instead used the funds to capitalise a company owned by himself, his wife and his father with this company purchasing the camp ground. 

Samuel was sued for breach of trust.  In response, Samuel denied a trust ever existed; the Trust was a sham and did not represent the factual realties, he said.

At a preliminary High Court hearing, Judge Lester ruled detailed evidence in court was needed to determine circumstances surrounding the creation and the operation of the supposed Trust.  He suggested Insolvency Service be notified immediately of circumstances surrounding Errol’s inheritance from his mother’s estate at the time when he was bankrupt.

Hawkins v. Hawkins – High Court (17.06.21)

21.101

Receivership: Jackson v. Kerr

Receivers of George Kerr’s Pyne Holdings Ltd were entitled to see all the paper work relating to his negotiations with BNZ over a disputed debt, even though they were in fact appointed by BNZ as receivers of Pyne Holdings.  In a classic example of legal schizophrenia; receivers act independently of their appointing creditor while at the same time getting in cash for the benefit of that same creditor.

In April 2021, Bank of New Zealand put Mr Kerr’s Pyne Holdings Ltd into receivership claiming some $67.7 million.  Mr Kerr disputes how much is owed.  Receivers from Calibre Partners were rebuffed when they demanded access to all Pyne Holdings’ records.  It was wrong that BNZ-appointed receivers should see company documents and legal advice setting out negotiating strategies in Pyne’s dispute with BNZ, Mr Kerr said.

The courts recognise legal professional privilege over lawyer/client discussions arising in the course of a dispute.  Holding that advice confidential means a client is more likely to make frank admissions, putting legal advisers in the best position to give proper advice. 

Where loan documents create a security over all assets, company receivers have a statutory right of access to all company records under the Receiverships Act, Justice Walker ruled.  As outsiders, receivers need information to sort out a company’s financial position.  BNZ has security over all Pyne Holdings ‘personal property.’  That includes all written records and files, including legal advice received.         

While the receivers could have access to all company documents, BNZ had no absolute right to see this information, Justice Walker cautioned.  The receivers act independently.  It is their decision, while acting in the best interests of Pyne Holdings, to determine how otherwise legally privileged information is used: to settle, to sue or to abandon any claim against BNZ.

Calibre Partners told the High Court it would not disclose to BNZ any legally privileged documents it accessed.  The High Court was told Mr Kerr currently lives in the United Kingdom.

Jackson v. Kerr – High Court (15.06.21)

21.100

Fraud: Estate of Micheal Kidd v. van Heeren

For readers of Dickens, the litigation rivals Jarndyce v. Jarndyce. Michael Kidd sued business partner Alexander Pieter van Herren for fraud in 1996. Twenty five years later Mr Kidd is dead, the case unresolved and the sum of $US 25 million sits in court being run down in payment of legal expenses and expert witness fees.

It took nearly twenty years of litigation through both the South Africa and New Zealand courts for Mr Kidd to get a court ruling that he had been defrauded by Mr van Heeren in his operation of their international steel trading partnership.  The New Zealand High Court ordered an interim payment into court of $US 25 million pending a further court hearing over damages.  There was a six year delay before Mr van Heeren paid this money into court, a delay exacerbated by what the Court of Appeal called attempts by Mr van Heeren to wriggle and twist at every turn resisting liability being sheeted home and any accounting for his wrongdoing.  Mr Kidd died two weeks after payment into court.  Executors of Mr Kidd’s estate want access to this money. Mr van Heeren says $US 25 million is an extravagant assessment of how much is owed; it could be as little as $US 2.6 million, he says.  The final figure for damages has yet to be established.

Meanwhile, Mr Kidd’s estate is accruing huge liabilities. The Court of Appeal was told Mr Kidd had borrowed against his expected court winnings from a litigation funder: LCM Operations Pty Ltd.  Initial borrowings of $US 4.3 million had ballooned out to some $US 17.25 million.  LCM is charging interest at thirty per cent, compounding annually.

Back in the New Zealand courts, Mr Kidd’s executor asked for an early release of the funds held in court.  While sympathetic to the executor’s position, the Court of Appeal ruled there were too many unresolved issues to second-guess what might be the full damages payable to Mr Kidd’s estate.  The court likened the litigation to a game of musical chairs in which the participant with the greater stamina not only wins the game but also gets to take home all the chairs.

The money remains in court.

Estate of Michael Kidd v. van Heeren – Court of Appeal (11.06.21)

21.098 

Professional Negligence: CBL Insurance v. PwC

CBL Insurance liquidators’ $278 million claim against PwC was struck out by the High Court as being frivolous; PwC’s contract to provide actuarial services limited its potential liability to just over five million dollars: five times fees earned.

CBL Insurance Ltd was pushed into liquidation insolvent in February 2018.  Liquidators McGrathNicol filed a claim against fellow professional services firm PriceWaterhouseCoopers alleging negligence in PwC’s actuarial assessment of CBL’s long-tail liabilities.  In particular, liquidators allege CBL systematically under-priced premiums on cover offered for builders’ liability on French construction contracts and that it was unreasonably optimistic in reserving for potential claims.  Years of under-reserving resulted in CBL reporting inflated profits for the years 2013 – 2016.  In fact, no profits were earned, the liquidators allege.  PwC provided actuarial services to CBL, issuing solvency certificates in support of CBL’s continued registration as an insurer.

At a preliminary High Court hearing, PwC had the negligence claim struck out as being frivolous, vexatious and an abuse of process.  Justice Gault ruled the plain meaning of PwC’s contract with CBL Insurance limited potential liability to five times fees charged.  A claim for $278 million was ridiculous when PwC fees for the period in question totalled some $1.1 million.

Liquidators were given leave to re-formulated their claim for a lesser amount.

Also struck out was legal action taken against both a PwC partner and an employee who personally signed off on the allegedly negligent solvency certificates.  In the PwC contract, CBL Insurance had agreed in no circumstances would it sue either PwC staff personally or any contractors employed by PwC to carry out its work.

CBL Insurance Ltd v. PriceWaterhouseCoopers – High Court (11.06.21)

21.099

Harassment: Elliot v. Vandenberg

Self-proclaimed as the ‘best non-qualified legal bro in the biz’ and claiming to have never lost a case, Stephen Raniera Rangi Elliot was ordered to stop harassing Napier gym owner Kerri Vandenberg.

The High Court was told Ms Vandenberg obtained a Harrassment Act restraining order against Mr Elliot and his partner Kirsten Parcell after a falling out between the two women; Ms Parcell was previously employed at Ms Vandenberg’s gym.  Mr Elliot acted as her advocate in a personal grievance claim.

Ms Vandenberg’s harassment claim arose from a pattern of some 24 communications over a fifteen month period starting June 2018: most being email messages from Mr Elliot to Ms Vandenberg, her lawyers and her business associates; some being social media posts by Ms Parcell.  One email labelled her lawyer as ‘another greedy, lying lawyer.’  In another, Mr Elliot stated ‘the way I make money is through litigations.’ An email to Ms Vandenberg’s business associates described her as a ‘very nasty individual’ and ridiculed her physical appearance.  A social media post incorrectly stated Ms Vandenberg was wanted by Napier police for questioning

Mr Elliot appealed the restraining order.  A Human Rights Commission mediation had settled all claims, he said.  The High Court was told this mediation arose from a complaint by Mr Elliot about circumstances in which he was refused membership of Ms Vandenberg’s gym and threatened with trespass should he return.  Mediation led to a confidential settlement with Mr Elliot to receive an undisclosed amount.  This settlement was described as being ‘an absolute bar to any further or other claim.’

This full and final settlement applied only to circumstances surrounding Mr Elliot’s gym membership, Justice Osborne ruled.  The District Court ruling that Mr Elliot had harassed Ms Vandenberg stood, he said.  The court was told she now lives in Australia.

Elliot v. Vandenberg – High Court (10.06.21)

21.097

Defamation: Staples v. Freeman

Heavy-handed debt collecting led to a defamation action and a High Court order to pay $350,000 aggravated damages.

The story begins with Malcolm Gibson’s employment as a quantity surveyor in 2013 by Claims Resolution Service Ltd, a company set up by Bryan Staples to help Canterbury homeowners resolve earthquake insurance claims.  Mr Gibson misrepresented his qualifications.  When Mr Staples found out, he refused to pay Mr Gibson’s invoices totalling some $170,000 saying the work done was of no commercial value.  Mr Gibson responded by selling his alleged $170,000 debt to Ironclad Securities Ltd for the sum of one dollar.  Ironclad’s recovery methods involved confronting Mr Staples and threatening to kill him if he did not pay within seven days.  Justice Doogue described what followed as an extortion attempt with a publicity campaign alleging Mr Staples used his company to defraud, mislead and cheat people.  A Facebook page controlled by Richard Freeman published posts stating Mr Staples was a conman, ripping off innocent people while acting as a bully and threatening the media.  When sued for defamation, Mr Freeman sent documents repeating these allegations to member of parliament Winston Peters.  Justice Doogue said this was a deliberate attempt to have Mr Peters repeat the allegations in parliament under protection of parliamentary privilege.  Mr Peters repeated in parliament, almost word for word, the allegations made previously by Mr Freeman.

Statements made in parliament have absolute protection from defamation claims.  But the simple act of a private citizen forwarding defamatory material to a third party is at law a ‘publication’ creating liability in defamation.  Justice Doogue ruled Mr Freeman liable in defamation for ‘publishing’ the comments to Mr Peters. Mr Freeman was also liable in defamation for the Facebook posts.

Mr Freeman did not defend the court case.  Ironclad Securities was removed from the companies register in 2016.

Staples v. Freeman – High Court (4.06.21)

21.096

Property Sale: Angurala v. Fernandes

Evidence of a red hot property market; two purchasers each claiming to have purchased the same Auckland property.

Eugene Fernandes claimed she is the rightful purchaser of a Mt Roskill property with Keemati and Manpreet Angurala agreeing to sell for $1.53 million cash in a contract signed on 12 March 2021.  There was an existing contract in place; a conditional sale to a Mr Singh for $1.6 million.

Ms Fernandes was to tell the High Court that the Anguralas had made a $535,000 capital profit in little more than a year of ownership and that she in turn had plans to make at least a $300,000 profit redeveloping the site. 

The High Court was told Mr Singh’s prior $1.6 million contract was negotiated through real estate agent Harcourts.  He had three days to arrange finance.  This finance condition expired on 12 March.  On the evening of 12 March, an agent from Barfoot and Thompson told the Anguralas that the Singh contract was at an end; finance had not been arranged.  She presented a $1.53 million cash offer from Ms Fernanades which they signed. Barfoots had no listing agreement, leaving their commission at risk.  Barfoots had the Anguralas sign a listing agreement next day.

Several days later, Ms Fernandes registered a caveat against the Mt Roskill property to block any transfer to Mr Singh.

Justice Hinton approved transfer of title to Mr Singh.  His prior contract still stood.  While the finance condition was not satisfied until one day after the 12 March date specified in his $1.6 million contract, standard contract terms required written notice of cancellation before his contract was at an end.  No written notice had been given at the time of the second sale to Ms Fernandes.

Terms of the court order require the Fernandes caveat to be reinstated after transfer of title to Mr Singh, complicating Mr Singh’s plans for the property.  The Anguralas, Mr Singh, Ms Fernandes, Harcourts and Barfoot & Thompson all have an interest in how the double sale is resolved. 

Angurala v. Fernandes – High Court (4.06.21)

21.095 

Forestry: Nottingham Forest v. Unison

Unison Networks was awarded $195,000 damages from Hawkes Bay forestry companies following repeated power outages caused by trees falling across transmission lines running up Esk valley.

Unison’s network runs through some of the most heavily plantation-forested areas in New Zealand: Rotorua, through Taupo to Hawkes Bay. Its Esk feeder, running about 500 metres through a plantation of pinus radiata, suffered a series of outages from 2010 following tree strikes. Managing the forest, Forestry Management (NZ) Ltd refused to clear trees closest to transmission lines unless Unison paid.  Unison sued.

The Court of Appeal ruled forestry companies are liable in the tort of nuisance for outages caused by persistent tree strikes. In Esk valley, Unison’s transmission lines ran through the forest along a cleared thirty metre wide corridor. Planted out in 1994, the trees had grown to nearly forty metres in height.  Wind storms and snowfalls periodically pushed down trees.  Those trees planted on a slope had fallen over the transmission line, causing multiple outages over several years; the worst, a six day outage in 2016 affecting some 380 customers.

There was no need to prove Forestry Management was ‘at fault,’ the court ruled.  It was strictly liable.  The continuing occurrence of tree strikes amounted to a legal nuisance.

Nottingham Forest Trustee Ltd v. Unison Networks Ltd – Court of Appeal (3.06.21)

21.094

Construction: George Grant Engineering v. Fabrication & Pipe

Claiming poor welding on steel fabrication at a Bupa retirement village under construction in Hamilton cost it some $320,000, engineering firm George Grant Engineering sued Fabrication & Pipe Services, without success.  Fabrication’s standard terms excluded all liability and were enforceable despite the contract being signed after work started. 

The High Court was told South Auckland engineers George Grant Engineering Ltd contracted to supply and erect steel framework for a Bupa village at Te Rapa.  Its original welding contractor pulled out at the last minute.  Hamilton welder Fabrication & Pipe Services Ltd was called in as a late replacement.

It took time for paper work to catch up with the job. On 17 January, Grant Engineering offered by email to pay $65 per hour for a Fabrication welder.  One day later, Fabrication agreed, sending by email a ‘credit application’ for completion.  Included in the email was Fabrication’s terms of trade, including an extensive exclusion clause excluding all liability by Fabrication for any losses. The email narrative made no mention of these terms of trade.

By 21 January, a Fabrication welder was on the job. Only after follow-up by Fabrication office staff did Grant Engineering return a signed credit account application on 31 January with the terms of trade attached.  The signed credit application included a statement confirming Grant Engineering had read and agreed to the terms of trade.  When suing for remediation costs of some $320,000 Grant Engineering said the exclusion clause had never been brought to its attention and it did not form part of their contract.

Fabrication disputed whether its welder’s work was not up to agreed specifications, but said the exclusion clause blocked legal action by Grant Engineering in any event.

The exclusion clause was part of the contract, Associate judge Andrew ruled.  Grant Engineering did have notice of the exclusion clause when receiving the emailed request to complete a credit application.  This was confirmed when the signed credit application was later returned to Fabrication.

George Grant Engineering Ltd v. Fabrication & Pipe Services Ltd – High Court (2.06.21)

21.093