Will: re Estate Shannon Rastrick

The same day that police constable Shannon Rastrick filled out a document she considered to be her last will, she died in a single vehicle crash hitting a tree on state highway five at Tapapa east of Tirau in the Waikato.  A High Court hearing followed because this document did not comply with strict legal requirements for a will.

The High Court was told the day she died in June 2022 Ms Rastrick filled out a standard-form document sold as a New Zealand will kit.  She had not signed the document nor had it witnessed; formalities required by the Wills Act for a valid will.

Strict legal formalities govern wills.  Once a person is dead, they cannot be called back to confirm that a particular written statement expressed their final wishes regarding disposal of assets or that the signature on the document is theirs.  The statutory requirement for a signature and a requirement that this signature be witnessed by two others who themselves are not to inherit under the will is intended to provide certainty and to minimise fraud.

Similar rules in the United States came into play with long-running litigation in 1978 over a handwritten document claimed to be the last will of reclusive billionaire Howard Hughes.  After a seven-month trial, the will was ruled a forgery.  No valid will was ever found.

In New Zealand, the Wills Act allows the High Court to validate some testamentary documents which do not strictly comply. Evidence was given that the document left by Ms Shannon was in the form of a will, disposed of all her assets and was in her handwriting.  It was not signed or witnessed.  Justice Venning ruled the document clearly expressed her intentions.  It was formally validated as a will.  Terms of her will were not disclosed in the court ruling.

If the will were not validated, she would have died with no will and her assets would have been divided between blood relatives according to a statutory formula; default rules set out in the Administration Act. In this case, that would mean division of her assets between her estranged parents. 

re Estate Shannon Rastrick – High Court (13.07.22)

22.122

Fua'amotu Hotel: Commercial Factors v. Scenic Hotels

In 2011, Terry Haydon’s Commercial Factors converted its $5.7 million unpaid mortgage advance over Tonga’s Fua’amotu Hotel into ownership of the hotel buying in at a receivership sale.  At a subsequent ‘fire sale’ it sold the hotel for a pittance, described to the Court of Appeal as being either $100,000 or $65,000. Tantalising out of reach, is a disputed claim to share in a $3.3 million insurance payout for hotel damage suffered in 2018 by cyclone Gita.

Commercial Factors must rue the day it agreed to finance construction of Fua’amotu by entrepreneur Sam Wong.  When Wong defaulted on his loan, Commercial Factors sought to recover its money by acquiring the hotel, setting up a joint venture with Hagaman family Scenic Hotels and then selling off the business.  Tonga’s tourism industry took a hit in 2013.  Air Chathams stopped its regular services after Tonga decided to start its own airline with a plane supplied by China. New Zealand government warned passengers not to book tickets; there were concerns about the aircraft’s airworthiness.

Fua’amotu hotel operations never ran at a profit.  Commercial Factors allowed Scenic occupation rent-free; Scenic provided management services.  Occupancy rates were dismal. Commercial Factors looked to wind down its joint venture with Scenic Hotels.  The two were immediately in court arguing what were terms of their joint venture.  Commercial Factors said it was owed $6.25 million as the purchase price of the hotel sold to the joint venture.  The High Court ruled their joint venture never purchased the hotel; Commercial Factors remained owner.  It further ruled there had never been agreement as to how hotel operating losses would be split.  These rulings were confirmed by the Court of Appeal.

Evidence was given that Commercial Factors discovered just prior to this High Court trial of $3.3 million due to Scenic; an insurance payout for material damage and business interruption after cyclone Gita. Scenic had paid the initial annual premium of some $202,000.  Most of this claim arose from damage to the hotel.  An interim payment of one million dollars was made.  In separate court proceedings, the two dispute who is entitled to the $3.3 million payout.  The one million dollars interim payment is currently frozen, held in a trust account.

Commercial Factors Ltd v. Scenic Hotel Group Ltd – Court of Appeal (8.07.22)

22.121

Club Rules: Frewer v. Canterbury Radio Car Club

Aggrieved that Canterbury Radio Control Car Club would not sanction his plan to allow tyre modifications for model racing, long-time enthusiast Kevin Frewer called the High Court in aid, only to be black-flagged; changing the rules is a decision for members.  

Now aged 72 and retired, Mr Frewer helped found the Canterbury model Car Club in 1975.  The Club races radio controlled cars, off road.  Racing rules are specified for each class; imposed internationally by the International Federation of Model Auto Racing and nationally by the New Zealand Radio Car Association.  The High Court was told Mr Frewer sought to promote use of foam tyres for what was described as the 1/8^thscale GT class; more expensive than rubber tyres but more durable.  Fellow Club members were not supportive.  An informal poll of Club drivers in 2019 ruled out their use.  Mr Frewer was briefly suspended from the Club after allegations he had intimidated other Club members.

In the face of threats of litigation by Mr Frewer, the question of tyre choice got a hearing at the Club’s 2021 annual meeting. He then sued, alleging he didn’t get a proper hearing at the meeting and that proper meeting procedure was not followed. Justice Dunningham said what rules should apply to hobby car racing is quintessentially an internal matter for the Club, not for the courts.  Clubmembers decide.

The court was told the New Zealand Association has also voted to ban foam tyres for the GT class.  Mr Frewer complains this was the result of individual Canterbury members lobbying the National Association.

Defending a High Court claim does not come cheap. Club financial statements for the year prior to Mr Frewer’s High Court hearing itemise some $10,600 spent by then on Club legal expenses.

Frewer v. Canterbury Radio Control Car Club Incorporated – High Court (7.07.22)

22.120

Asset Forfeiture: Commissioner of Police v. Milosevic

Four years prior to conviction for money-laundering profits from cannabis dealing, Irene Raki gifted a Kawerau house to her son.  The house was seized from son Te Ohorere as proceeds of crime; the High Court ruled that he was aware the house had been purchased by his mother from criminal profits and that his claim to have personally funded his mother’s purchase lacked credibility.   

Raki came to own the house in Newall Street after bidding $39,000 at a 2015 mortgagee sale.  Two years later, Raki and her extended family were under police surveillance as part of Operation Notus investigating members of the Kawerau Mongrel Mob.  Raki’s spouse Frank Milosevic and son Slobodan were convicted and imprisoned in 2020 on charges of dealing in cannabis.  Raki herself was convicted of money laundering and sentenced to two years six months’ imprisonment.  Her other son Te Ohorere, charged with cultivating cannabis, was found not guilty.

Police claimed Newall Street and a Ford Ranger now both owned by Te Ohorere were ‘tainted,’ liable to confiscation as proceeds of crime.  A criminal conviction is not necessary to have assets seized as proceeds of crime; knowledge that assets were purchased from proceeds of criminal activity is sufficient.

Police analysis of Te Ohorere’s bank records showed there was insufficient overt income available to support his family, let alone fund purchase of Newall Street or a Ford Ranger.  Te Ohorere said his declared income was supplemented with cash transactions from legitimate businesses: trapping opossums for their skins and breeding puppies.  Police inquiries of Bay of Plenty commercial fur traders found none had dealt with Te Ohorere and in any event none paid suppliers in cash; payments were made into bank accounts.  Claims to have earned income as a puppy dealer foundered when police identified Te Ohorere had registered only one dog with the local council and had used local vet services to treat only one animal.

Justice Gordon ruled Te Ohorere’s claim to have legitimate but undeclared sources of cash was not plausible.  His cash income was derived from Milosevic family cannabis operations, she said.  Assets purchased with this cash were tainted and forfeit under the Criminal Proceeds (Recovery) Act.

Commissioner of Police v. Milosevic – High Court (6.07.22)

22.119

Hotel Lease: Herbert v. USAR

The Court of Appeal dismissed out of hand claims by brothers Malcolm and Anthony Herbert that they were no longer liable to pay $510,000, the unpaid balance of compensation promised after they cancelled a lease to the Sarin Group for a Napier hotel then under construction.

Auckland-based Sarin family manage a chain of hotels throughout New Zealand in conjunction with recognised international hotel brands. USAR Napier Ltd, a Sarin investment company, agreed to lease a Napier building under construction by Thackery Trust. USAR intended to operate under the Hilton brand.  Anthony Herbert and Stephen Lunn control Thackery.  The deal turned sour when Thackery cancelled USAR’s lease; it was pursuing a more favourable deal with hotel chain Swiss-Belhotel with Swiss-Bel to receive a management fee and the Herberts retaining all other income.   USAR sued.

The court was told of last hour negotiations prior to a December 2020 court hearing.  Thackery agreed to pay USAR $625,000 damages in instalments for cancelling the lease with payment guaranteed personally by the Herbert brothers.  The first tranche of $115,000 was paid.  Subsequent tranches were not.  Malcolm Herbert said payment was delayed because of circumstances beyond his control.  He did not respond when asked what were these circumstances.  Delayed payment with money sourced from Fiji was offered.  A request for proof of funds held in Fiji was ignored.

USAR sued for recovery of the $510,000 settlement balance plus agreed interest for late payment running at 18.25 per cent.  The Herberts alleged USAR itself was in default; failing to promptly take down online listings for future hotel accommodation bookings under the Hilton brand prejudiced attempts by Swiss-Bel to take forward bookings, they said.  If Swiss-Bel were able to take online bookings sooner, they would have been able to borrow against this anticipated future income stream to finish construction of the Napier hotel quicker, the Herberts said.  Malcolm Herbert claims delays in taking down the Hilton listing cost Swiss-Bel one million dollars in forward bookings.

The Court of Appeal questioned why the Herberts brought up this issue only after being sued.  If the status of listings were critical, why was it not included as part of the negotiated settlement agreement, it asked.  The court was told Hilton removed its Napier listing promptly when requested. Malcolm Herbert’s assessment of the volume of pre-bookings Swiss-Bel might have attracted and the possibility of then getting finance to complete hotel construction lacked credibility, the Court of Appeal said.  New Zealand borders were closed and local covid-19 lockdowns were in effect while the hotel was under construction.

Now open, the hotel operates as Swiss-Belboutique Napier.

Herbert v. USAR Napier Ltd – Court of Appeal (4.07.22)

22.118

Tax: Clearmont v. Redwood Group

Tony Gapes’ Redwood Group unsuccessfully argued it was entitled to an extra $1.6 million from Queenstown’s Five Mile project.  In dispute was terms of a 2019 mediation agreement with Mr Gapes using legal gymnastics to claim Inland Revenue confirmation of when sales might be tax free to justify an extra slice of the pie even when sales were liable to tax.

Auckland property developers Craig Greenwood and Tony Gapes, embroiled in multiple court cases over their joint venture at Frankton near Queenstown, thrashed out their differences at a mediation in 2019 finishing at 1.00 am shortly before having to appear in court.  All appeared done and dusted; an agreement to settle their differences and divvy up profits from their Five Mile project.  Not so.  They later disagreed over what was agreed.

The High Court was told part of the mediation centred on whether tax would be payable on profits from sale of Five Mile properties; a mixture of retail, commercial and light industrial.  While there were plans to hold some Five Mile properties long term, it was recognised some sales were necessary to pay down bank debt and further sales to buy out Mr Gapes 24.9 per cent interest held through Redwood Group Ltd. Redwood is a property developer.  In the normal course of events, its share of profits on sale would be taxable.  Tax law catches companies associated with any developer as also being liable to tax; they are ‘tainted.’  Mr Greenwood considered his company was ‘tainted,’ triggering a tax liability for both investors on all immediate Five Mile sales. Profits on sale of properties held long term can be held tax free; application of the so-called 10-year rule.

Evidence was given that Greenwood and Gapes at their 2019 mediation conference could not agree on whether a potential tax liability on sales should be taken into account when valuing Redwood Group’s share of profits.  A compromise was reached: Redwood was entitled to an extra $1.638 million if in the next two years it obtained from Inland Revenue a binding ruling that ‘all of the properties in the Five Mile project are held on capital account.’

Redwood subsequently asked Mr Greenwood to sign off an application to Inland Revenue for a binding ruling that if the properties were held for ten years no tax was payable.  He refused to sign.  This was not consistent with the mediation agreement, he said.

Justice Katz agreed.  Both sides were aware at the time of mediation that holding properties for ten years would reduce tax otherwise payable.  Inland Revenue confirmation of the ten year rule could not justify an extra payout of $1.6 million in the context of property sales to be made immediately after mediation, Justice Katz ruled.      

Mr Greenwood had doubted whether Five Mile could avoid paying tax on profits for sales within ten years.  The agreed compromise was to give Mr Gapes an opportunity to get an Inland Revenue ruling stating otherwise.

Clearmont (Queenstown) Ltd v. Redwood Group Ltd – High Court (4.07.22)

22.117

Iridium: Tracplus Global v. v2track

Accused of putting Queensland park and wildlife staff at risk, Cambridge-based Bevan and Kylan Diprose were ordered by the High Court to disconnect Iridium GPS tracking connections for the Queensland park authority currently managed by their company v2track.  It was alleged the connection dispute is part of a simmering argument between the brothers Diprose and US-based Tracplus including disputed allegations that Bevan Diprose dishonestly took over some Tracplus clients.

The High Court was told Tracplus Global Ltd agreed in May 2020 to buy out v2track which then managed about 600 Iridium GPS client connections.  Hardware installed in aircraft, vehicles and boats linked to the Iridium satellite constellation enables tracking of precise GPS locations.  A valuable income stream exists for companies providing real-time tracking services, recording and managing this data.  In December 2021 some nineteen months after its purchase of v2track’s client base, Tracplus agreed to sell some of its client connections back to a new company set up by the Diproses: v2track (2022) Ltd.  The two sides have differing views about what has been sold.  Tracplus alleges Bevan Diprose misrepresented himself to the Iridium consortium as a Tracplus employee, covertly arranged the transfer of an excessive number of Iridium client connections from Tracplus to v2track (2022) doing so slyly over a long weekend.  He denies any wrongdoing.  

Evidence was given that their dispute reached a head when one client, Queensland Parks and Wildlife Services, requested v2track disconnect its service which at that time tracked 109 park service vehicles and aircraft; it wanted to use Tracplus.  Queensland Parks says v2track’s service was inadequate.  It was losing connections for various amounts of time.  With staff working in the outback, any connection downtime could prove fatal in the wrong circumstances.  

v2track stalled on the requested disconnections. Its dispute with Tracplus over terms of the 2021 contract had first to be clarified, it said.  When Tracplus complained that delay meant Queensland staff were being put at risk, v2track said the remedy lay with Tracplus; it could replace Iridium hardware in Queensland Parks vehicles with its own product. This was estimated to cost about $250,000.  Instead, Tracplus sued in the New Zealand courts, claiming v2track was causing loss by unlawful means.  It alleged v2track is wrongly retaining Queensland Parks’ existing Iridium connections with the intent of preventing Tracplus from earning income with its alternative service.  

Justice Campbell ruled that on preliminary evidence before the court, Queensland Parks was no longer under contract to v2track and was free to find a different provider.  In the interim, v2track was ordered to disconnect its Queensland Parks’ Iridium tracking connections.  v2track was left to come back to court to sort out its dispute with Tracplus.

Tracplus Global Ltd v. v2track (2022) Ltd – High Court (1.07.22)

22.116

Financial Advertisements: Du Val Capital v. FMA

Financial Markets Authority’s demand that property developer Du Val Group rework its marketing campaign for a $100 million mortgage fund offering a 10 per cent return was upheld by the High Court.  Du Val claimed to be targeting ‘wholesale investors’ only, while placing ads on social media and widely read news websites.

Ultimate ownership of the Du Val Group rests in part with Charlotte Clarke who with husband Kenyon has seen their upmarket lifestyle splashed across both print media and social media.  Legal issues followed a 2021 media campaign promoting Du Val’s $100 million mortgage fund.  The FMA claimed advertisements and promotional material were misleading in that they understated investment risks using wording that implied the best of both worlds: both high security on offer and the promise of high returns.  FMA issued a direction order demanding specified wording and phrases be deleted from advertisements and that a publicity video be taken down.  Direction orders are at the lower end of FMA’s enforcement arsenal.

Du Val challenged the direction order.  It said Du Val’s investment offer was aimed at ‘wholesale investors’ only; sophisticated investors who are capable of making their own assessment of a potential investment, having no need for the detailed disclosures mandatory when investments are offered to the public in general.  FMA said use of social media as a marketing channel inevitably meant that less experienced investors would be attracted to the proposed investment.  It was no defence, FMA said, for Du Val to say it would weed out unqualified investors.  Some investors might deliberately or unwittingly certify themselves as wholesale investors. 

In the High Court, Justice Gault referred to advertising guidelines issued by the Australian Securities & Investment Commission.  Permitted content is to be measured against the audience an advertisement actually reaches, not the audience the promoter would like.  Du Val’s challenge to FMA’s direction order was dismissed.

Du Val Capital Partners Ltd v. Financial Markets Authority – High Court (30.06.22)

22.115

Law Firm: Tavendale & Partners v. Dineen

Mark Dineen’s departure from Canterbury law firm Tavendale was followed by allegations he had wrongly taken business data with him, poached clients and wrongly appropriated interest paid by clients. The High Court put legal action on hold; the dispute must first go to arbitration.

In 2009, Mark Dineen signed up as a shareholder and director of Tavendale & Partners Ltd, joining with Mark Tavendale and Andrew Leete.  In 2014, they merged with Ashburton law firm Cooney Silva Evatt Ltd.  In a classic case of the cobbler’s shoes being the last repaired, the combined firm concentrated on getting their clients’ affairs in order rather than first properly documenting business terms for the now larger Tavendale.  Argument over what had been agreed was disputed when Mr Dineen left in 2021, joining a rival law firm.

Tavendale alleges Mr Dineen is in breach of fiduciary duties owed the company: setting up loan transactions with Tavendale clients and failing to account to Tavendale for interest received; poaching clients; and taking with him Tavendale electronic records.

Mr Dineen says their business agreement requires all disputes first go to arbitration.  Terms of the 2014 merger went no further than signed heads of agreement. The big picture was covered: rules for joining and leaving the business together with funding requirements; but no fine detail.  The heads of agreement did itself contain an arbitration clause, Associate judge Paulsen pointed out.  Before the court could be asked to rule on what might be the fine detail, the question had to first be considered by an arbitrator.  Evidence was given of multiple drafts prepared after the merger of a shareholders’ agreement intended to cover the fine detail.  No final agreement was signed.  Mr Dineen argues rules agreed in 2009 when he joined Tavendale still apply. 

Tavendale & Partners Ltd v. Dineen – High Court (30.06.22)

22.114

Money Laundering: Sun v. Police

What started as a favour for her then boyfriend, turned into a conviction for money laundering with potential disastrous consequences for her career as an accountant.

In April 2022, Yixuan Sun was convicted but not fined after she pleaded guilty to breaching the Financial Services Providers (Registration and Dispute Resolution) Act.  The trial judge was told Sun received a commission from her boyfriend for acting as an intermediary using her WeChat account to broker a cash swap of Chinese RMB50,000 for NZD10,000.  Unbeknown to Sun, her boyfriend was under police surveillance as part of a money-laundering investigation.  When charged by police for providing unregistered financial services, Sun pleaded guilty and agreed to give evidence against her boyfriend.

The trial judge acknowledged Sun played a very minor role in the money laundering and was at very low risk of reoffending.  A discharge without conviction was refused.

On appeal, Sun said she was at risk of losing her job as a management accountant if the conviction remained.  Her employer said he was unaware at the time of the trial that she was facing criminal charges.  He could not continue to employ her as an accountant if convicted.

Justice Hinton overturned the conviction.  Sun was at best very gullible in dealings with her then boyfriend and perhaps over-impressed by his apparent wealth, Justice Hinton said. She instructed that a copy of the court proceedings be forwarded to Chartered Accountants Australia & New Zealand for its information.  Criminal convictions are not a bar to registration with CA ANZ as a chartered accountant, but are among the circumstances taken into account.  

Sun v. Police – High Court (29.06.22)

22.113

Takeover Code: Takeovers Panel v. New Image Group

The first ever fine for a takeovers code breach was triggered by an unnamed complainant following through on threats to marketing company New Image that if an unrelated legal claim was not withdrawn a complaint would be laid with Takeovers Panel about New Image’s privatisation six years previously.  The whistle blower cost New Image $1.5 million in fines.

In early 2013, Graeme Clegg took steps to privatise New Image Holdings Ltd, then listed on the New Zealand stock exchange.  There were some 1200 shareholders.  He held a 70.5 per cent stake.  Using a company called New Image Trustee Ltd, Mr Clegg took his listed company private with an offer of 26 cents per share.   He subsequently admitted to the Takeovers Panel of what he described as unintentional breaches of the Takeover Code: failing to disclose the full extent of shares he controlled in concert with others and a failure to disclose a side deal whereby senior management of the then-listed New Image would be offered a shareholding in the privatised company.  These failures breached a basic tenent of the Takeover Code, the panel said.  Full information was not provided to public shareholders and some shareholders were offered a selective deal, not open to all.     

The High Court approved as appropriate a $1.5 million fine negotiated between the Takeovers Panel and New Image.

Takeovers Panel v. New Image Group Ltd – High Court (28.06.22)

22.112

Charity: Attorney-General v. Family First NZ

Ruling that Family First did not qualify for charitable status and with it the tax benefits that follow, the Supreme Court said Family First’s overt political advocacy meant it could not satisfy the legal test for a charity.

Legal definition of a charity is governed by the Charities Act and coloured by centuries of case law precedent.  Charities do not pay tax on their income.  Donations made to charities registered with the Charities Commission generate a tax rebate for the donor.  Activities ‘advancing education’ can be charitable.

Family First New Zealand promotes ‘traditional family values.’  Its trust deed explicitly sets out education as one of its objects: promoting research, publishing relevant material, participating in public debate and educating the public.

There is a thin line between education and propaganda, the Supreme Court said.  Family First activities had crossed this line, it ruled.  Many Family First research papers lacked balance or neutrality, the court said.  These papers sought to persuade people to Family First’s point of view and to seek support for its efforts to bring about, or resist, a change to the law. Family First published research papers on topics as diverse as euthanasia, child poverty, gender identity, screen time, sex education, abortion and the effect of regular family dinners on family life.

Attorney-General v. Family First New Zealand – Supreme Court (28.6.22)

22.111

 

Customs Fines: Vienna Group v. Kerry Logistics

Transnational freight forwarder Kerry Logistics is fighting off a $2.2 million claim from importer Vienna Group after extra excise duty was imposed following incorrect paperwork understating alcoholic strength for Vienna’s imported German beer.

The expansive name of importer Vienna Group Ltd somewhat overstates reality; the company was a husband and wife operation controlled by Scott Browne, operating out of their Auckland home.  In 2015, it went into liquidation insolvent after Customs imposed an extra $2.2 million duty.  How beer imported between 2011 and 2015 was declared understrength is in dispute. Kerry Logistics, which cleared the consignments through Customs, says it completed customs entry forms on the basis of oral information provided by Mr Browne.  Commercial invoices lacked full information.  Mr Browne disputes he provided the wrong information.

With Vienna Group in liquidation, liquidators sued Kerry Logistics (Oceania) Ltd to recover the understated duty claimed by Customs. Kerry denies liability.

In the High Court, Kerry argued Vienna Group was out of time, beyond the six year Limitation Act rule for bringing its claim. Associate judge Sussock ruled it is reasonably arguable that the six years did not start running until Vienna’s liability arose when the extra duty was imposed. Detailed legal argument requires a full trial.

Kerry Logistics also argues that, even if liable, terms of trade with Vienna Group limits its liability to $100.

Separate from the High Court case, Kerry Logistics was fined $67,700 by Customs who said it was not reasonable for the freight forwarder to rely, as claimed, solely on Mr Browne’s verbal confirmation as to the beer’s alcohol strength.

Vienna Group Ltd v. Kerry Logistics (Oceania) Ltd – High Court (23.06.22)

22.110 

Family Trust: Stratford v. Stratford

Placing south Canterbury farming assets into a family trust complicated a relationship property split after 44 years marriage.  Brian Stratford alleges the trust was structured by wife Lynn to give her extra leverage in negotiations; she says her primary control of trust responsibilities was necessary because of Brian’s mental illness.

The High Court recommended Lynn resign as trustee but did not order her removal.  There was no evidence that her actions as trustee were putting trust assets at risk.

Family dynamics were coloured by the fact Brian has a bipolar disorder exhibited by occasional manic episodes.  The High Court was told that shareholding of their four farming companies was transferred to a newly formed family trust in 2015.  At this point the two had separated.  Both were named as trustees, but Lynn was given sole power to remove and appoint trustees.  This power was exercised five years later to remove Brian as trustee and some months later to appoint David Vance as an independent trustee.  Trust shareholding was used to remove Brian as director of the farming companies.   In July 2020, Lynn applied for a protection order against Brian; in April 2021, he was trespassed from parts of the farming business.

Brian asked the High Court to remove Lynn’s controlling interest over the trust and also to remove her as director of their farming companies.  Her control of the trust was hampering agreement over a split of relationship assets, he claimed.  He disagreed with farming management decisions being made and concerned that he was now excluded from management of farms he helped establish.

Removal of Lynn as trustee does not turn on whether their relationship has broken down, but whether proper administration of the trust has been seriously affected, Justice Eaton ruled.  Changing trustees would not resolve their underlying dispute over division of relationship property; this is not the trustees’ role, he said.

Lynn remains as a trustee.  She agreed not to exercise her power to appoint or remove further trustees until a full court hearing about their dispute and further agreed not to spend any trust money other than on routine trust expenses.

Stratford v. Stratford – High Court (22.06.22)

22.109

Lease: Reid v. Estreich

Lessors refusing without proper grounds to sign off on transfer of their lessee’s interest are liable for damages, the High Court ruled in a dispute over a Northland rural property held on a 999 year lease.  

In 1957, owners of rural land near Moerewa restructured their legal ownership, retaining the freehold interest while selling off a 999 year leasehold.  Any transfer of the leasehold interest required consent of the freehold owner. Annual rent payable by the leaseholders was ten dollars per year; for all practicable purposes, ownership of the leasehold interest was like being the freehold owner.

By 2021, Stephen Noel Estreich was in sole control of the freehold interest.  The then leaseholders, Geraldine and Brandon Reid, were looking to sell on to their son Elias and wife Heeni.  The necessary legal documents were sent to Mr Estreich asking him to sign off on the transfer.  He refused, saying he wanted to build a retirement house on what he described as ‘my land.’  Changing tack, he said they could buy the freehold of him for $100,000; the Reids were not interested.  Threatened with court action for his refusal to give consent, Mr Estreich claimed the Reids were in breach of the lease.  They had not kept the rural property in proper condition as required by the lease, he claimed.  A subsequent court hearing decided the Reids had kept the property in good condition. When forced into court, Mr Estreich said he would sign the necessary documents, but then failed to do so.  Justice Toogood ruled Mr Estreich had unreasonably refused consent to transfer of the leasehold interest.  He was held liable for losses suffered by Elias and Heeni; increased mortgage interest of $5920 they were forced to pay on a two year bank loan because his delays resulted in a better mortgage offer lapsing.

Reid v. Estreich – High Court (20.06.22)

22.108

Investment: Deng v. Zheng

Disputes between Chinese investors pouring money into property development has led to Supreme Court guidance on how Asian cultural mores should be viewed in New Zealand courts. Many of these investors do not have written agreements setting out their respective rights; this is a western European tradition derived from countries where the courts can be trusted to enforce contractual rights.  Many Asian investors come from countries where courts are not to be trusted; judges are corrupt or they lack independence simply following dictates of their political masters, ignoring what might have been agreed between investors.

Investor disputes in New Zealand courts now more frequently involve recent Chinese immigrants.  There may be little or no written evidence of what was agreed. Investors may have shifted in and out of projects over time on the strength of oral agreements over who owes whom what.  Guanxi or interpersonal connections are important. A need to trust fellow investors is paramount.  Kinship links aid in enforcement of prior agreements.

This business model is not peculiar to Asian investors; similar principles apply in all cultures where there is no rule of law coupled with weak enforcement of property rights.  Within traditional Maori culture, customary rights were dealt with by negotiation and failing that by use of physical force.  Within pakeha culture, property rights are also first dealt with by negotiation, but failing that there is use of legal force; an appeal to independent courts for an enforceable ruling based on established legal principles.

Where disputed business agreements are based on conduct, rather than being in writing, New Zealand judges are left to assess the credibility and plausibility of individual witnesses who may present differing versions of the same event.  The Supreme Court warned against trial judges applying their own cultural ‘rule of thumb’ assessments when assessing truthfulness of witnesses operating within a different cultural setting.  Expert evidence can be used to explain the cultural ramifications of actions taken by a particular witness; what might seem to be inconsistent or insignificant behaviour in conflict with the story being told to the court may be explicable as part of the business relationship:guanxi.  A cultural dimension provides context, the Supreme Court said.

Deng v. Zheng – Supreme Court (20.06.22)

22.107

Villa Maria: Fistonich v. Gibson

Receivers are holding some $40 million after the wind-down of Villa Maria Estate’s assets.  They are entitled to keep $5.16 million in their back pocket to cover expected legal costs defending claims by Villa Maria director Sir George Fistonich that company assets were sold too cheaply, the High Court ruled. He complains money belonging to him is being used to defend legal claims brought by him.

Concerns over Sir George’s management of wine company Villa Maria led to creditors ANZ Bank and Rabobank joining forces to ease him out of the job and to organise an orderly sell down of company assets.  The High Court was told he was removed from daily management from 2019.  He subsequently agreed to sale of the business, but retained a right of veto over any sale.  It was his 2020 veto of a proposed $247 million sale which propelled Villa Maria into receivership.  Receivers subsequently sold the assets for $265 million.  Nearly $40 million is left after paying off creditors.  This surplus, after payment of remaining receivership expenses, goes to Fistonich family interests.

Sir George alleges Villa Maria assets were sold too cheaply.  He is suing receivers Calibre Partners for damages.  He said Calibre should not be allowed to dip into the remaining $40 million dollars to pay for their own legal expenses defending a claim for negligence.

Justice van Bohemen ruled a receiver’s right to be paid out of receivership assets for receivership expenses extends to legal expenses defending claims.  But if the receivers are found to be liable, they must pay back any receivership money used to fund their defence, he said.

Sir George’s claim against Calibre Partners is yet to go to trial in the High Court.

Fistonich v. Gibson – High Court (16.06.22)

22.106 

Caveat: First Choice Property v. William Gong Lawyers

Lawyers lodging caveats against land on behalf of clients without proper reason leave themselves open to claims for damages.  An Auckland property company was awarded $24,300 damages after the director’s former lover held up financing when his lawyers lodged a caveat against title to a residential development.   

The High Court was told Qian Du was sole director and shareholder of First Choice Property Investment Ltd.  Her company was building on Kea Road, in Silverdale. Construction was delayed in May 2021 with financing frozen after the lender found it could not register its mortgage security over Kea Road because of a caveat lodged against the title two months earlier in name of Suxuan Li.  Mr Li had law firm William Gong Lawyers Ltd register the caveat shortly after his relationship with Ms Du came to an end.  He claimed to have lent $150,000 for the project and further claimed that Ms Du had promised to give him security over the development with an agreement to mortgage.

The High Court ruled there was never any agreement to mortgage.  Mr Li had no legal grounds for a caveat, which had the effect of freezing title and preventing any dealings being registered against the land.  When registering the caveat on behalf of Mr Li, law firm William Gong similarly had no grounds to believe Mr Li had a valid claim over the land. Agreements to mortgage land must be in writing.  There was no written evidence of Mr Li’s claimed agreement.

William Gong Lawyers was ordered to pay First Choice $24,293 damages: legal fees to have the caveat removed and interest charged for the period access to mortgage funds was on hold.  William Gong Lawyers did not appear in court to defend the claim.

First Choice Property Investment Ltd v. Ma & William Gong Lawyers Ltd – High Court (16.06.22)

22.105

Leaky Home: Weber v. Tremain Real Estate

Acting as a mere conduit, passing information from seller to intending buyer did not make a real estate agent liable for alleged misrepresentations about a leaky home.

In 2015, Tony and Robyn Weber purchased a home on Te Mata Peak Road, Havelock North.  Only when looking to sell three years later did they become aware it was apparently a leaky home.  Wood sampling undertaken from exterior cladding by interested buyers as part of pre-purchase due diligence identified decay and high moisture levels.  They decided not to buy; the Webers withdrew Te Mata from sale and looked to recover damages in respect of their own previous purchase. Claiming $1.7 million damages in respect of their previous $1.32 purchase in 2015, the Webers sued a long list of defendants including Tremain Real Estate.  Tremain acted for the 2015 vendors: Donald and Murray Gilbertson.     

The Webers allege Tremain Real Estate was party to misrepresentations about Te Mata’s weather tightness.  Tremain denies all liability, saying it merely passed on information including local council records provided by the Gilbertsons.  Tremain did not add to or endorse the accuracy of the information provided.

Associate judge Johnston struck out the Webers claim against Tremain Real Estate.  As a real estate agency, it relayed information acting purely as a conduit. Tremain was not liable for its accuracy, whether the information was misleading or not.

Webers other claims against Hastings District Council and the Gilbertsons are yet to be decided.

Weber v. Tremain Real Estate – High Court (15.06.22)

22.104

Ombudsman: Financial Services Complaints Ltd v. Chief Ombudsman

The Parliamentary Ombudsman’s Office lobbied parliament changing the rules in 2020 to prohibit any further private sector dispute resolution bodies from being called ‘ombudsman.’  Having Mary Holm as one of its five directors, private sector financial dispute resolution service Financial Services Complaints Ltd subsequently survived a seven year legal battle to use the title ombudsman.  

The law change was triggered by Financial Services 2015 application to use the label ‘ombudsman’ for its retail dispute resolution service.  A Banking Ombudsman Scheme and an Insurance and Savings Ombudsman Scheme were rival private sector services already in operation.

Copied from Sweden, the parliamentary ombudsman is a public official acting as a peoples’ representative, empowered to investigate use and misuse of government power.  It took offence at private sector organisations using a similar moniker as a brand to attract custom.  The parliamentary ombudsman had been receiving some 25 enquiries a month from confused retail investors; their complaints should have been sent for investigation to private sector providers such as the Banking or the Savings ombudsman.

As far back as 2011, Financial Services Complaints Ltd had contacted the then Chief Ombudsman pointing out the competitive advantage private sector businesses were gaining through use of the word ‘ombudsman.’ Either they should be prohibited from using the term, or all providers should be allowed to join in, it said.  This was at a time when consent of the Chief Ombudsman was need for private sector businesses to use the word in their name.

In 2015, Financial Services formally requested approval to rebrand as an ombudsman-titled service.  Seven years and multiple court cases later, the Court of Appeal ruled in its favour.  In successive court cases, judges criticised Chief Ombudsman refusals for use of the name: one case ruling the Ombudsman was being overly protective of the title; a second that the Ombudsman had not properly considered Financial Services application.  A 2021 Court of Appeal ruling forced an independent re-assessment of Financial Services’ application.  The 2020 law change prohibiting private sector use of the title specifically kept alive Financial Services then current application.

Financial Services appealed the requirement for an independent re-assessment.  This was independent in name only, it said.  The decision would still lie with someone appointed by the Chief Ombudsman; a person who would receive a background briefing from the Chief Ombudsman. Any adverse outcome would inevitably be challenged by Financial Services, the Court of Appeal said.  The court directed the Chief Ombudsman to allow Financial Services use of the ombudsman name for its dispute resolution scheme.

Financial Services Complaints Ltd v. Chief Ombudsman – Court of Appeal (15.06.22)

22.103

Director Disqualification: Olliver v. Registrar of Companies

Unsuccessfully challenging Companies Office’ four year ban from acting as a company director, Greg Olliver blamed his estranged spouse Sarah Sparks for BBG Holdings’ failure, an allegation she disputes.

BBG Holdings Ltd was controlled by Mr Olliver. It is in liquidation, insolvent. Unsecured creditors will be repaid in part, according to the most recent liquidation report.  The liquidator comments that dealing with disputed claims totalling $7.9 million from entities controlled by Mr Olliver led to increased liquidation costs; all allied to BBG’s entitlement to receive payment of  $836,000 for subdivision earthworks.

Mr Olliver said BBG’s financial difficulties had their genesis in his relationship with Ms Sparks whom he married in 2000.  An acrimonious split has seen claim and counter claim over ownership and control of properties in Auckland’s eastern suburbs. Mr Olliver alleges steps she took without his knowledge frustrated subdivision plans, causing secured creditor BNZ to step in.

In 2021, Companies Office exercised its administrative powers to ban him from acting as a company director.  It alleged Mr Olliver was reckless in his management of BBG, using the company as a vehicle for his own personal benefit with disregard for company creditors.  Mr Olliver took to the High Court asking further evidence be taken into account. Companies Office did not appreciate the full picture, he said.  Problems at BBG were a direct consequence of his former spouse’s litigious behaviour, he alleged.

Justice Wylie ruled against reconsideration of the four year ban.  The further evidence was of no or limited relevance, he said.  It runs to nearly 500 pages.  It is largely a self-serving narrative in which Mr Olliver seeks to clear himself of allegations of mismanagement, he said.

Mr Olliver had every opportunity to provide Companies Office with all relevant evidence before the ban was imposed, Justice Wylie ruled.

Olliver v. Registrar of Companies – High Court (10.06.22)

22.102

Lotto: Lipsham v. Helmbright

Two years after his $17 million Lotto windfall, Mark Lipsham hired Kim Helmbright as his ‘financial, property and spiritual’ adviser.  Three years further on, he was in court demanding she explain what happened to $2.8 million dollars he claims was supposed to be used to buy properties in his name. She says the money was payment for her services.

Court attention centred on a disputed Freelancing Agreement dated October 2019 which stated she would receive $2.8 million. Mr Lipsham alleges the date is forged. He did sign a document in December 2019, he says, but this was after the $2.8 million was handed over and the document was represented to him as recording payment for properties to be purchased in his name.  The High Court was told Ms Helmbright purchased in her own name a $1.65 property at Waipapa in January 2020 and a $660,000 property at Okaihau in March 2020.

Mr Lipsham claims these properties were purchased with his money and that Ms Helmbright holds the properties in trust for him. Ms Helmbright was separately paid about $70,000 for her services, he says.

After a preliminary High Court hearing, Ms Helmbright was ordered to hand over for inspection: all relevant tax records; her correspondence with lawyers over the property purchases including her anti-money laundering disclosures as to source of funds; and any documentary proof of work done to justify a $2.8 million fee.

Also ordered to hand over electronic records relating to the disputed Freelancing Agreement, Ms Helmbright says the document was compiled on a laptop which she disposed of in early 2020 without keeping a backup.  The court was told a template for the Freelancing Agreement exists on the documaticapublic website.  Templates can be downloaded on payment of a fee.  Ms Helmbright was ordered to disclose bank statements and credit card records to identify if and when she purchased the template.

Lipsham v. Helmbright – High Court (9.06.22)

22.100

Estate: Smith v. Endean

After living together for 45 years in their Auckland Cockle Bay home and raising five children, Jocelyn Smith failed in a claim to her late husband’s half share in the property because they were estranged at the time of his 2019 death and there was no expectation she would benefit.

Together with evidence provided by her children, Jocelyn painted a picture of a spouse who during her married life paid all household bills, did all the housework and all the gardening whilst fully involved first in a cleaning business and later in their meat transport company.  Cockle Bay was initially purchased in their joint names.  In the normal course of events, her husband’s half share would pass to her on survivorship following his death.  The High Court was told that their registered ownership was changed five years prior to Mr Smith’s death at his suggestion, from a joint tenancy to a tenancy in common. The legal effect was to remove the right of survivorship; whoever died first kept their half of the property as an asset in their estate.

George Smith was 90 when he died; Jocelyn 80. Evidence was given that five years prior to his death Mr Smith took legal steps to end their marriage and divide relationship property.  An agreement was drawn up.  Mr Smith signed; Mrs Smith didn’t.  The two lived apart for the last three months of his life.

Mr Smith’s executor wanted Cockle Bay sold to free up cash for the estate.  Mr Smith’s will left his estate in trust for his grandchildren.  Mrs Smith sued, alleging a constructive trust existed allowing her to continuing living at Cockle Bay for the remainder of her life.

Associate judge Gardiner ruled there was no constructive trust.  This required evidence that through her actions Mrs Smith expected to have a life interest in her husband’s share of Cockle Bay after his death.  All evidence pointed the other way.  The unsigned separation agreement, the change of joint ownership to tenants in common plus lawyers’ correspondence stretching back three years prior to his death were clear; it was intended to sell Cockle Bay and split the proceeds.

The court was told seven of her nine adult grandchildren wanted their grandmother to stay at Cockle Bay for as long as she wished.

Smith v. Endean – High Court (9.06.22)

22.101

Court Costs: Blair v. Street

A Wellington property dispute over court costs of a few thousand dollars was chased all the way to the High Court, leading an exasperated judge to question such a disproportionate use of legal resources.  While he does hold an undergraduate degree in drama, Justice Isac was unimpressed by legal theatrics surrounding the dispute.

It started in 2020 when Mr Blair agreed to buy a Wellington residential property being sold by a family trust, then withdrew. It progressed through colourful correspondence between lawyers with allegations of sophistry and pained expressions of distaste about unwanted lectures in basic principles of contract law. It ended with arguments over legal costs.  

Mr Blair’s purchase was conditional on a satisfactory building report.  After getting a building report, Mr Blair withdrew from the contract.  Trustees then found a new buyer, paying a better price.

Vendor trustees asked for a copy of Mr Blair’s building report, as permitted by terms of the now cancelled sale contract.  He immediately provided a three page ‘client summary’ received as part of the full report.  Trustees demanded the full report.  Mr Blair said he had been told the client summary would suffice, and in any event, his building inspector specified the full report was not to be released to third parties without consent.

The High Court was told the trustees repeatedly asked for a copy of the full report.  Legal threats followed.  Their dispute came to a head with trustees asking the District Court to order release of the full report.  Mr Bair immediately handed it over.  No court hearing was necessary.  The two sides then argued over who paid the trustees’ legal costs.  Trustees had threatened they would demand full legal costs, indemnity costs, if the District Court was involved.   

As a general rule, the winning litigant in a court case is awarded only a contribution towards legal costs calculated on a set scale.  Full recovery, or indemnity costs, are awarded as a sanction for blatant failures to comply with court directions. 

The District Court ordered Mr Blair pay trustees’ full legal costs of $13,581.  Mr Blair appealed.  The High Court was told that even before this District Court decision, the two sides had been negotiating about how much Mr Blair would contribute to the trustees’ continuing legal costs.  Negotiations fizzled out with two sides only $1500 dollars apart.

In the High Court, Justice Isac ruled the trustees were not entitled to indemnity costs, they get scale fees only.  Mr Blair gets a partial refund. Indemnity legal costs are reserved for any misconduct in failing to follow court directions, Justice Isac said.  Mr Blair did not act in contempt of any District Court directions; he handed over the full report as soon as legal action was filed.  Mr Blair was awarded scale costs for legal fees on his successful appeal.

Blair v. Street – High Court (8.06.22)

22.099

Leaky Building: Miles v. Gadd

Unaware it was leaky building, vendor of an apartment in central Wellington’s Sirocco development was not liable to compensate a disgruntled buyer for potential remediation costs. But a legal obligation on vendors to disclose future earthquake strengthening costs now joins requirements to disclose known leaky building remediation costs, following a Court of Appeal ruling.

The Miles purchased their Sirocco apartment from business consultant Bruce Gadd in 2013, paying $540,000.  He had owned the apartment for some nine years, but was absent overseas as a career civil servant for extended periods.  Eight months after their purchase, the Miles learnt along with other owners in the eleven-story building that scheduled minor maintenance had uncovered extensive moisture penetration.  Further investigations recommended a reclad for the entire building.  As at 2020, remediation costs were estimated at $22 million.  The Court of Appeal was told no decision has yet been made to remediate.

The Miles sued Mr Gadd, alleging proper disclosure was not made at the time of their June 2013 purchase.  In addition to statutory disclosures required when selling a unit title apartment, the standard agreement for sale and purchase required Mr Gadd as vendor to disclose ‘any other liability.’

This required disclosure of potential future special levies to deal with remediation costs to the entire complex arising from the likes of earthquake strengthening or water ingress, the Court of Appeal ruled. But Mr Gadd was unaware of any latent water ingress issues and consequently had no knowledge of any potential future special levies to remediate the problem, the Court of Appeal said.

Sirocco’s external Harditex cladding had the potential to leak.  The Miles were advised in their pre-purchase valuation report that buildings using similar cladding had leaked.  They chose not to get a building report.  There had been sundry minor issues affecting Sirocco whilst Mr Gadd owned his apartment: leaking taps and toilet in one apartment; a shower leak in another; a leak from the deck of a further apartment; the need to remediate stormwater outflow from one outlet.

Reports to Sirocco’s body corporate from cladding specialists at the time Mr Gadd was an owner stated jointing in the Harditex cladding was being kept under review but that no issues were apparent.  There was nothing to cause a vendor in Mr Gadd’s position to believe that ongoing work could not be managed under Sirocco’s regular maintenance fund such that a special levy would be required, the Court of Appeal said.

Seven years after buying for $540,000, the Miles sold their Sirocco apartment for $305,000.

Miles v. Gadd – Court of Appeal (7.06.22)

22.098

Minority Shareholder: Vijayakumar v. Vasanthan

Treating their joint venture property company Manukau Family Doctors Ltd as if it were his own resulted in a High Court order that Siva Vasanthan pay nearly $750,000 to minority investor Sothilingin Vijayakumar, buying out his fellow investor’s forty per cent share.

In 2005, the two jointly purchased commercial premises on Great South Road, at Manukau in Auckland, which was then fitted out for use as a medical clinic.  The 60/40 shareholding recognised their respective contributions to the purchase price. Dr Vasanthan is sole director.

The following year, Dr Vijayakumar moved to Australia, leaving his fellow investor to manage their property investment.  Fifteen years later, he was in court with a long list of complaints about Dr Vasanthan.  In particular, Dr Vijayakumar complained of failures to pay bank loan interest on time (resulting in threats of a mortgagee sale); a further bank loan being raised without his consent and apparently used to meet personal expenses of Dr Vasanthan; lease of the premises at below market rental to interests associated with Dr Vasanthan; charging to their company operating costs more properly paid by a tenant; using company cash to pay personal legal expenses; and excessive management fees charged by Dr Vasanthan.  Evidence was given that Manukau Family as landlord received no rental income at all for one four year period and that in other years income received was consumed by management fees charged by Dr Vasanthan.

Dr Vasanthan did not appear in court to answer these allegations.

Justice Fitzgerald ruled Dr Vasanthan was in breach of the Companies Act; managing the company in a manner oppressive to his fellow investor as minority shareholder.  He was ordered to buy out Dr Vijayakumar’s minority interest paying some $750,000: $445,000 as the value of his minority shareholding; $222,300 he loaned to the company and $79,200 as a proportion of direct losses suffered by leasing the building at below market rental.

Vijayakumar v. Vasanthan – High Court (1.06.22)

22.096

Subdivision: Shaw v. Dixon Homes Ltd

Having already constructed 115 houses on its Dixon Road subdivision in Hamilton, Dixon Homes Ltd is bogged down in legal dispute with neighbours over further subdivision.  Dixon says neighbours, the Shaw family, have welshed on an agreement to progress subdivision; the Shaws say Dixon has already benefited from a land swap without holding up its part of the deal.

Their dispute has origins in a 2013 agreement in which the Shaws agreed to transfer ten hectares of their land to Dixon Homes. In return, Dixon Homes agreed to extend planned infrastructure services and roading up to the new boundary.  The Shaws allege Dixon Homes has failed to bring reticulated gas to the boundary and has left the proposed road link 27 metres short, creating what they call a ‘spite strip’ deliberately leaving a legal gap in the proposed road.  Dixon Homes allege the Shaws are deliberately blocking further subdivision plans by refusing to sign Council applications and by dismissing their entire legal and technical teams to stymie progress.  Since these dismissals, the Shaw family have corresponded with Dixon Homes directly under the letterhead ‘De Jure Sovereign Territorial Authorities ki Nukuhau.’

Dixon Homes said the deal is off; the Shaws lodged a caveat over part of the subdivision seeking to have their agreement enforced.

Associate judge Andrew ruled the caveat remain.  The Shaws have an arguable case that Dixon Homes had no valid grounds to cancel the agreement, he said.  A full trial is needed to establish the disputed facts.

Shaw v. Dixon Homes Ltd – High Court (1.06.22)

22.097