Deathbed Trust: Parbhu v. Parbhu

Defeating property claims by estranged family after death through adroit use of deathbed family trusts is being tested in the High Court.

A burgeoning trusts industry is developing seeing assets shuffled into a family trust just prior to death leaving a deceased estate penniless.  Estranged family members looking to sue under the Property Relationships Act or the Family Protection Act are greeted with news that this is a waste of time and money; the estate is valueless.  Disputed assets are now held separately, protected in a family trust, managed and distributed according to terms of the trust.     

In the first step towards challenging a deathbed family trust, members of the Parbhu family had the High Court appoint an independent lawyer to investigate what had happened to their late father’s assets.

The High Court was told Mohan Parbhu died in 2021. Terms of his will appointed his second wife Lilawati Mohan Parbhu as executrix of his estate.  Lilawati together with a daughter of Mohan and Lilawati are the sole beneficiaries.  Children of his first marriage received no bequests.  Learning that Mohan had transferred all his assets to a family trust shortly before his death, these children challenged Lilawati’s appointment as executrix.  Assets transferred include three residential properties.  They argue these assets should be clawed back into Mohan’s estate, becoming available should their personal statutory claims succeed against their late father’s estate.

Justice Peters removed Lilawati as executrix, appointing an independent lawyer in her place.  Lilawati cannot be expected to act in an impartial manner as executrix when her entitlements as a beneficiary are being challenged, Justice Peters ruled.

Evidence was given that Mohan’s sole asset on death was cash totalling some $19,000.  The independent lawyer was empowered to make a full investigation.

Parbhu v. Parbhu – High Court (25.11.22)

23.006

 

Undue Influence: Hingston v. Hingston

There was a valid explanation for a family financial arrangement looking at first glance to heavily favour a son and his family trust at the expense of his father the Court of Appeal said, overturning a High Court ruling of undue influence.

Litigation followed a 2009 family arrangement enabling Keith Hingston to remain in occupation of his Welcome Bay home in Tauranga following a Family Court order that he pay his then wife $295,000.  Aged in his seventies, Keith was unable to raise finance. In a letter to his father, son David spelt out starkly the options open; financial assistance from David and his family trust or sale of Welcome Bay.  The letter set out pros and cons for each option.

The Court of Appeal was told Keith wanted to remain in Welcome Bay until, in his words, he was carried out in a pine box.  He became determined to take up his son’s offer of financial assistance as the only option.

The agreed arrangement saw sale of Welcome Bay to David’s family trust with his father retaining rights of occupation under an agreement to occupy.  Sale price for Welcome Bay was agreed at a figure the High Court described as being $130,000 less than market value and $55,000 below what a registered valuer determined as being forced sale value.  There was an objective basis for this apparently low sale price, the Court of Appeal said.  Market prices were depressed, sale costs were avoided and son David was also looking to recover legal costs paid by the Trust on behalf of Keith.

Also questioned in the High Court was the $115,700 owed by Keith for purchase of his lifetime right to occupy Welcome Bay. Based on sale price for Welcome Bay and Keith’s life expectancy, this figure was fairly and objectively calculated, the Court of Appeal said.  This $115,700 debt owed David’s family trust includes a contingent liability to pay interest at 4.25 per cent, if demanded.

The arrangement also saw Keith transfer future Jacques Martin pension payments and all his personal property to his son’s family trust.  This was explained as providing security for the $115,700 debt.  Keith retained possession of his personal property.  Pension payments were in reduction of the debt. David’s family trust had borrowed to buy out Keith, having an interest bill to meet and no income since Keith had rent-free occupation of Welcome Bay.

There was conflicting evidence as to whether unnecessary pressure was put on Keith at the time he signed.  He said in evidence that son David was present when he signed. The Court of Appeal said the weight of evidence was that David and Keith were in different rooms and in different cities when Keith signed.        

There was no undue influence, the Court of Appeal ruled. Keith received independent legal advice. The Court of Appeal emphasised it was ruling only on whether there had been undue influence; it was not commenting on overall fairness of the transaction or whether it was commercially a ‘good deal.’

Separately, the case was sent back to the High Court to resolve disputed claims by each side that the other had not fully honoured terms of the agreement.

Hingston v. Hingston – Court of Appeal (22.11.22)

22.178 

Agent: Nelson Honey & Marketing v. Gu

Facing the legal problem of suing a customer in China for $1.7 million allegedly unpaid, Nelson Honey & Marketing turned its guns on Grace Gu in New Zealand claiming she had guaranteed payment.  The claim was thrown out.  She acted merely as consultant to Nelson Honey and incurred no personal liability for customer’s unpaid accounts.

In 2013, Nelson Honey & Marketing (NZ) Ltd met with Ms Gu for advice on marketing its product in China.  She provided contact with a Mr Jack Wang. Through Mr Wang’s company Horizon, Nelson Honey’s product was sold online through a trading company called VIPShop.  Over a five year period some $8.7 million of product was supplied to Horizon.  In early 2018, Nelson Honey claimed about $1.7 million remained unpaid.  Threats to sue Mr Wang and Horizon in China were put on hold; Ms Gu was sued.

The High Court was told a formal consultancy agreement between Nelson Honey and Ms Gu had been drafted, but never signed.  For a period, a company controlled by Ms Gu was used as a conduit for the export transactions.

Associate judge Johnston ruled there was no evidence that Ms Gu had guaranteed payment of Horizon invoices.  In fact, part of the unsigned draft consultancy agreement indicated Ms Gu would never be liable for Horizon accounts.

Nelson Honey & Marketing (NZ) Ltd v. Pureality Trading Company Ltd & Gu – High Court (16.11.22)

23.005

Directors' Duties: Viranda Partners Ltd v. Guest

Alleging Andrew Guest and Stephen Donovan diverted potential benefits from a multi-million dollar Auckland land development into their own pockets, joint venture partner Tim Chen is in the High Court seeking to work around legal roadblocks Guest and Donovan are exploiting to prevent legal action.   

The three are directors of a company called Viranda Partners Ltd.  Investors represented by Chen allege Viranda Partners was robbed of a business opportunity near Warkworth just north of Auckland valued variously between $25 million and $54 million.  The land in question sold in 2021 for $200 million.

Guest and Donovan deny any wrongdoing.  Legal rules require court action over the dispute to be taken in the name of their joint venture company: Viranda Partners Ltd. It is Viranda which has been allegedly harmed.  Viranda has no money; it cannot pony up cash to pay lawyers.  An investors agreement requires unanimous consent from all Viranda directors before any calls are made to raise further cash from shareholders. The High Court was told Guest and Donovan have made it clear; they will veto any call for cash from shareholders to fund legal action by Viranda against them.

Associate judge Lester granted Chen’s company Veritas Capital Company Ltd status to bring legal action in Viranda’s name against Viranda directors Guest and Donovan.  Veritas Capital is a Viranda shareholder.  While Veritas will fund the litigation, it has a right to claim reimbursement from Viranda should Guest and Donovan be found liable for breach of directors’ duties and ordered to pay damages to Viranda.

The effect of the High Court ruling is to shift control of current legal action against Guest and Donovan from their joint venture company Viranda where they can veto any progress to shareholder Veritas Capital and Veritas’ investors where Guest and Donovan have no say. 

Viranda Partners Ltd v. Guest – High Court (14.11.22)

23.004

Directors' Duties: Haines v. Bassett-Burr

After improperly triggering insolvency procedures attempting to force payment of a disputed debt claimed by Lynx Trustees Ltd, Wellington director Roy Barrett-Burr was held personally liable for $21,600 court costs subsequently levied against Lynx which is currently in liquidation. 

The costs order against Mr Barrett-Burr personally arose out of a long running dispute between Lynx Trustees and Quentin Haines.  Each claims money is owed by the other.  This dispute is further complicated by an equally long running personal dispute between Mr Haines and Harry Memelink who is Mr Barrett-Burr’s brother-in-law.  Mr Memelink is bankrupt.

In 2019, Mr Barrett-Burr signed five formal statutory demands in name of Lynx Trustees claiming sums from Mr Haines and from companies associated with Mr Haines for amounts ranging between $140,800 and $421,300.  This was a preliminary legal step seeking to bankrupt Mr Haines and to put his companies into liquidation.  The courts take a dim view of insolvency procedures being used when there is still a dispute over debts claimed.

In the High Court, Mr Haines had these statutory demands set aside.  How much was owed was still in dispute.  Following a further formal court application, Mr Haines got a court order holding Mr Barrett-Burr personally liable to reimburse his costs of $21,600.  The demands were issued in the name of Lynx Trustees, but Mr Barrett-Burr as Lynx director was personally liable for not acting prudently and for improperly issuing in Lynx Trustees’ name statutory demands for debts that were clearly in dispute.

Haines v. Bassett-Burr – High Court (11.11.22)

23.003

Freezing Order: ANZ Bank v. Lee

Hearing its customer Jinwon Lee had returned to Korea after a fire sale of business assets, ANZ Bank got a freezing order over his Auckland home and further court orders that other financial institutions disclose any financial dealings they had with Lee, otherwise known as James Lee.

The High Court was told Mr Lee had guaranteed finance provided to his import businesses, Hanyang Corporation Ltd and Hanyang International Ltd.  These businesses imported food products from Korea for retail sale in New Zealand.  He disappeared off the bank’s radar after ANZ called up its loans.  The Bank discovered his warehouse and retail store were left scattered with debris after a quick-fire discount sale of stock held.  A container of food with an invoice value of US$60,000 had been left abandoned at Port of Auckland.  His landlord had seized remaining business chattels to cover unpaid rent.  His home at Sartors Avenue at Browns Bay on Auckland’s North Shore was listed for sale.

Fearing sale proceeds from Sartors Avenue would be transferred out of New Zealand, ANZ Bank got a High Court order freezing any proceeds of sale.  The Bank also got disclosure orders against CFML Lending, Kookman Bank, Heartland Bank and Westpac requiring disclosure of their recent dealings with Mr Lee.  ANZ said this might identify other assets Mr Lee may have in New Zealand.

ANZ Bank v. Lee – High Court (9.11.22)

23.002

Money Laundering: R. v. Jiaxin Finance

 Failing to comply with customer due diligence as required by money-laundering legislation when transferring some $53 million from China saw Qiang Fu fined $180,000, his foreign exchange business Jiaxin Finance Ltd fined $2.55 million and his mother Fuqin Che fined $202,000.  Remitted via 311 separate transactions, the $53 million is alleged to be illicit proceeds from a fraudulent pyramid selling scheme in China engineered by Xiao Hua Gong, also known as Edward Gong.   

The High Court was told Che, also known as Lily Che, had dealings with Mr Gong as far back as 2011.  She was then managing a business owned by her son called Global Concept Capital Investment and Finance.  This relationship continued when Fu’s new business, Jiaxin Finance, subsequently took over Global Concept’s client base.

They were convicted of failing to carry out customer due diligence and failing to keep adequate records.  Justice Walker said the sheer volume and frequency of remittances processed through Jiaxin Finance on behalf of Mr Gong should have raised suspicions.  There was no stated commercial objective for the foreign exchange transfers other than laundering funds from China.

Using Mrs Che as a buffer creating the appearance that she, not Mr Gong, was Jiaxin’s customer did not excuse Jiaxin from looking beyond Che to identify and to undertake due diligence on the actual customer.

Police said Mr Fu has convictions in China dating back to March 2013 for foreign exchange trading offences.  Their relevance to an increased penalty when sentencing in a New Zealand court for similar offences cannot be taken into account without formal proof of conviction from China authorities, Justice Walker said.      

R. v. Jiaxin Finance Ltd, Qiang Fu & Fuqin Che – High Court (3.03.22) & Supreme Court (4.11.22)

23.001

Negligence: Sharma v. Foster-Bohm & Corbin

Nelson lawyer Anjela Sharma was ordered by the District Court to pay $37,500 damages for negligently failing to file clients’ employment claims within time limits and in addition was unsuccessful in suing for unpaid fees.

Her High Court appeal against both rulings was dismissed.

The courts were told clients Gail Foster-Bohm and Andrew Corbin retained Ms Sharma to bring a personal grievance claim against IHC New Zealand after they both lost jobs in 2015, part of IHC restructuring. In 2016, the Employment Relations Authority dismissed their unjustified dismissal claims as being filed out of time. Employment law imposes a strict ninety day time limit.

They then sued Ms Sharma in the District Court for professional negligence.  The trial judge assessed chances of success in their IHC employment dispute as being 75 per cent if the dispute had gone to an Employment Relations hearing.  Mr Corbin was awarded $20,000 damages; Ms Foster-Bohm $17,500.  The differing amounts reflected their respective lengths of IHC employment.

Ms Sharma said the filing deadline was missed because she thought the two were working out four weeks’ notice ending early September 2015.  IHC in fact made payment in lieu of notice and their employment was terminated immediately.

The trial judge ruled Ms Sharma had been made aware of the early termination and failed to act promptly or to request a time extension for filing.  This ruling was upheld on appeal.

There was evidence that Ms Sharma acted unprofessionally towards her clients with delays in responding and also in failing to disclose she did not have professional indemnity insurance.

Ms Sharma’s claim for unpaid fees was dismissed in both the District Court and the High Court.  The trial judge said justice in this case meant the clients should not be required to pay for negligent legal work.  Ms Sharma was fired in May 2017.  This was after she had arranged for mediation between her clients and IHC, then telling her clients she would not be attending.

Sharma v. Foster-Bohm & Corbin – High Court (3.11.22)

22.181

Asset Forfeiture: R. v. Duthie

Unable to prove that a south Waikato lifestyle property was purchased from proceeds of crime, police instead used the Sentencing Act to claim half Richard Alan Duthie’s equity in the 5.1 hectare property as an ‘instrument of crime.’  A house on the property was used as a clandestine lab to cook methamphetamine.

Duthie pleaded guilty in February 2022 to charges of possessing equipment for manufacture of meth, manufacturing meth and possession of meth for supply.  Charges followed a search of his Lichfield property.  Forfeiture of the property under the Criminal Proceeds (Recovery) Act would require proof the property was ‘tainted’ in that income from illegal sources was used to purchase Lichfield or to pay down a mortgage.  Police inquiries identified that Duthie purchased Lichfield in 2019 for $300,000 with 100 per cent mortgage financing from Avanti Finance. About $297,000 was still owing.

Police laid claim to the equity in Lichfield; manufacturing methamphetamine on site meant the property was an ‘instrument of crime.’ On the basis of valuations before the court, Justice Campbell assessed Duthie’s current equity in the property as being some $650,000.  One half of this value was forfeit to the government, he ruled.  The property was not used solely for the purposes of crime. The fact Lichfield was also Duthie’s residence meant all equity in the property was not forfeit.

Duthie’s sentencing following his earlier guilty plea was deferred, allowing any forfeiture imposed under the Sentencing Act to be taken into account.

R. v. Duthie – High Court (2.11.22)

22.179

Money Laundering: Commissioner of Police v. Shahidan

Funds totalling $1.8 million held frozen in BNZ bank accounts were seized as proceeds of crime following a High Court ruling the bank accounts were used for money laundering by Shahidrawadey Bin Shahidan, part of an investment fraud operating out of Malaysia.  

Police inquiries were triggered by Bank of New Zealand after it blocked further activity by Shahidan on two bank accounts in May 2016 after he failed to respond adequately to Bank ‘please explain’ requests.  Suspicious of the flow of funds into these accounts, BNZ asked Shahidan for the source of deposits.  He claimed to own a business providing software services but was unwilling to provide any documentatary support.  In the High Court, Justice Katz described as simply not credible Shahidan’s claim to have generated more than two million dollars selling software services over a seven month period while having no records to corroborate his claim.

Shahidan’s day job ostensibly was chief operating officer for a business called VenusFX.  Its website advertised investment advice on foreign investments and claimed to have over 2,000 clients.  Its Facebook page profiled large profits received by Venus investors. VenusFX falsely claimed to have registration within New Zealand as an authorised broker, displaying as evidence on its website the certificate of incorporation issued as a matter of course to all companies registered in New Zealand.  It also falsely claimed to be a member of the Financial Services Complaints dispute resolution scheme.

Ordering the frozen $1.8 million be forfeit to government, Justice Powell described VenusFX as a fraudulent investment scheme based in Malaysia with evidence indicating BNZ accounts were set up to launder profits from the fraud.

Commissioner of Police v. Shahidan – High Court (8.06.21 & 2.11.22)

22.180

Bankruptcy: Moxham Milk v. Clark

Failing to return funds mistakenly credited to a bank account led to bankruptcy for Bay of Plenty resident Stephen George Gibson Clark.

The High Court was told Levin-based Moxham Milk Ltd paid some $26,500 into an ANZ bank account in June 2018 mistakenly thinking payment was going into the account of fertiliser supplier Zenith Ltd.  Getting the money back proved difficult.  Moxham Milk claimed an account controlled by Opotiki resident Stephen Clark made a windfall gain and that Mr Clark refused to return the funds.  Mr Clark admitted the account was in his name but said he did not control the account and had never been ‘in possession’ of the mislaid money.  The account was a trading account for Eco-Farm, he said. Moxham Milk was to later learn that much of the missing money was transferred five days after receipt into the account of Eco-Farm Aotearoa Ltd.

Moxham Milk sued in the District Court.  Mr Clark was ordered to repay $34,660; the amount due now increased by fees and legal costs.  Mr Clark disputed Moxham Milk’s High Court application to bankrupt him for non-payment.  Moxham provided email evidence from the Police, ANZ Bank and another fertiliser supplier all confirming that Mr Clark owned and controlled the bank account mistakenly receiving Moxham’s money.

While ultimate control of the account into which funds were mistakenly paid is unclear, this does not relieve Mr Clark from personal responsibility for repayment, Associate judge Taylor said.

Moxham Milk Ltd v. Clark – High Court (21.10.22)

22.177 

Reckless Trading: Smartpay Ltd v. Kumar

Liable for reckless trading, Auckland company director Manas Kumar was ordered to pay $850,400 compensation to Smartpay an unpaid creditor of his company Optimizer Corporation Ltd left high and dry with Optimizer having no assets and no income from the day it started trading. 

The High Court was told Mr Kumar established Optimizer in 2013 to exploit a software product called Swipe HQ.  It allowed retailers to process debit and credit card transactions.  When allied with a mobile EFTPOS terminal, transactions could be processed wirelessly. In 2014, Optimizer signed a deal giving Spark the right to market and sell Swipe HQ.  Optimizer was responsible for supplying the EFTPOS terminals.  On behalf of Optimizer, Mr Kumar hired terminals from Smartpay Ltd with an upfront hire charge, monthly rentals for each terminal and an obligation to pay Smartpay 0.35 per cent of transactions processed.  Evidence was given of Optimizer immediately falling behind in payments due to Smartpay.  One year on, Spark had terminated its contract and Optimizer was in liquidation.  Optimizer kept no proper accounting records.  It had received no income; revenue was instead channelled to its holding company.  Payments made by Optimizer to Smartpay were sourced from other companies under Mr Kumar’s control.

Justice Downs ruled Mr Kumar was in breach of his statutory duties as director of Optimizer by trading whilst insolvent. His company had no assets, had no income, and had no legally enforceable promises of financial help from related companies.

Mr Kumar was held personally liable to pay Optimizer’s unpaid Smartpay debt of $850,400 for unpaid fees and lost terminals.  The court was told Smartpay supplied Optimizer with just over 2100 terminals; 1002 were recovered.

Smartpay Ltd v. Kumar – High Court (13.05.22 & 19.10.22)

22.176

Will: re Estate of Adrienne Judith Peacock

Emotionally torn between family members, Judi Peacock left contradictory instructions as to how her assets should be distributed on death causing the High Court to rule an earlier will leaving everything to her now divorced husband was her final will.

Adrienne Peacock, known as Judi, died suddenly in 2021 aged 74.  She worked as a counsellor in the Waikato.  After her death, three documents written across a three year period were found on her computer each marked ‘draft’ with various formulations as to division of her assets between her sons and grandchildren on death.  Also found was a subsequent document, handwritten, which dealt with only one asset, her home.  At the time of her death, she also owned a second property in Tirau.

The High Court was asked to rule if any of these informal documents could be approved as a valid will.  Informal documents which do not comply with strict formalities of the Wills Act can be validated provided the document clearly expresses the deceased person’s testamentary intention at time of their death.

The 2017 handwritten document stated that one of her sons, Jamahl Sean Khan, could purchase her home at a price of $150,000 with this money to go in its entirety to her other son, Saleem Paul Khan.  In 2021, this property had a rating valuation of $1.46 million.  Saleem is now known as Samuel Jay Steel.  He has served terms of imprisonment for what the High Court was told were indecencies with children.  The two brothers are estranged.

Justice Brewer ruled that none of the draft documents on her computer nor the 2017 handwritten document represented Judi Peacock’s testamentary intentions at time of her death.  There was evidence that whilst alive she vacillated between how family should be treated and whilst she wished to treat her sons equally she had grown exasperated at son Samuel’s criminal behaviour.  Telling her lawyers in 2019 that she did not want one of the early computer drafts finalised as a formal will was strong evidence that she had not reached any final decision, Justice Brewer ruled.

Approved as her final will was a 2005 will naming her then husband as sole beneficiary.  They separated in 2013 and divorced in 2017, but remained friends. Her former husband told the court that he recognised he had no valid moral claim to his former wife’s assets. Both sons are claiming for a share of their late mother’s estate under the Family Protection Act.  Justice Brewer recommended everyone get around the table and agree in an out of court settlement how her assets are distributed using as a guiding principle Judi Peacock’s long history of treating family members as equally as possible.

re Estate of Adrienne Judith Elizabeth Peacock – High Court (6.10.22)

22.175

Maori Land: re Totoro Trust

When the Peacocke family looked to sell their King Country farm red flags popped up; the land was designated Maori land.  Part of the farm was Maori land, the Court of Appeal ruled, following administrative mistakes way back in 1980 with Maori Land Court consent still needed for any future sale.

Ownership of Maori land has a troubled history in New Zealand ranging from outright confiscation following invasion by colonial troops, through quasi-legal manipulation of land purchases by the colonial government followed by paternalistic intervention with Maori Land Court consent required to validate sales.

Most land in New Zealand is now general land with ownership recorded on Land Information’s electronic register.  Ownership of land remaining in customary Maori ownership is recorded separately on registers held by the Maori Land Court.  For administrative convenience, some Maori land is now recorded on the Land Information electronic register where it is denoted as Maori freehold land.  For the Peacockes, sale of their King Country farm ran into legal difficulties when it was discovered ownership recorded on the Land Information register did not match Maori Land Court records.

The Court of Appeal was told the Maori Land Court in 1976 consolidated ownership of customary Maori land in the Maniapoto known as Puketiti 2B2B1 as being owned by Raimona Lee as to 44.8 shares and Puku Doherty as to 9.2 shares.  Maori custom sees land pass to descendants on death, resulting in ownership splintering into ever smaller shares over time.  This rule does not apply to general land owned by Maori; they are free to sell, mortgage and bequeath this land as can any other owner of general land.

In 1980, Ms Lee sold her 44.8 shares in Puketiti to an Ian Walsh.  He did not purchase Mr Doherty’s smaller share.  As was required, approval from the Maori Land Court was given to the Walsh purchase from Ms Lee.  In an administrative error, Maori Land Court authorisation for ownership to be also recorded on the Land Information register with issue of a certificate of title saw Mr Walsh being recorded as sole owner, having ownership of both Ms Lee’s and Mr Doherty’s interest in the land.  Ownership of Puketiti has subsequently passed through several hands, each purchaser unaware of Mr Doherty’s descendants having rights as part-owners and also unaware that Maori Land Court consent was needed for each subsequent sale.

Asked to unravel the shambles, the Court of Appeal ruled legislation in force at time of the 1976 Walsh part-purchase meant Puketiti was and remained Maori freehold land.  Maori Land Court consent was needed for any further sale and also for any re-description of the land from Maori freehold status to general.

Land Transfer Act rules mean the Peacockes are now legal owners of all the land.  They purchased in good faith, unaware of the earlier mistake.  Mr Doherty’s descendants are entitled to compensation. The Maori Land Court and Land Information each blame the other for the 1980s error.

re Totoro Trust – Court of Appeal (5.10.22)

22.174

Guarantee: Borlase v. Robertson Engineering

Liability on a personal guarantee all depended on interpretation of a dangling pronoun; did ‘you’ refer to a director or to his company?

When Charles Borlase’s company Command Aviation Ltd went into liquidation in 2020 following an aircraft accident, he was sued by creditor Robertson Engineering Ltd for Command’s unpaid helicopter lease commitments.

In 2018, Mr Borlase had sent an email to Robertson Engineering’s director Maurice Wooster giving ‘an unconditional Personal Guarantee in regards any moneys owed by [Command] to you.’

When sued by Robertson Engineering on the guarantee for some $82,500 Mr Borlase said the wording only covered debts owed by Command Aviation to Mr Wooster personally and Command did not owe Mr Wooster anything; its debt was owed to Robertson Engineering.

There was potentially some ambiguity in wording of the guarantee, Justice Churchman said.  Left dangling, the pronoun ‘you’ could apply to either Mr Wooster or his company.  Any ambiguous wording is resolved against the party who wrote it, he ruled.

Given the context in which Mr Borlase as director of Command Aviation was writing to Mr Wooster as director of Robertson Engineering, the debt Mr Borlase was guaranteeing personally was the $82,500 debt Command owed to Robertson Engineering, Justice Churchman ruled.

There was never any debt owed by Command to Mr Wooster. Giving a guarantee for a non-existent debt made no commercial sense.

Borlase v. Robertson Engineering Ltd – High Court (4.10.22)

22.173

Timeshare: re 'The Retreat'

Declining demand for timeshare holiday accommodation sees ‘The Retreat’ sitting on 4.7 hectares of land overlooking the marina at Lake Taupo joining other local timeshares being sold up.  Owners at The Retreat can anticipate a return of about $11,800 for each timeshare week sold.

In recent years, other local timeshares have been wound up and sold: Village Resort, Phoenix and Turangi Leisure.  Increased maintenance and refurbishment costs plus the strictures of fitting holidays around timeshare availability has seen owners selling or abandoning their timeshare ownership.  Winding up a timeshare resort under the Unit Titles Act requires a 75 per cent vote plus High Court approval.

High Court approval to wind up The Retreat was delayed following objections from the Ray Thorpe Trust, owner of two timeshare weeks. With eight accommodation units, The Retreat has ownership spread across 408 timeshare weeks.  A 2021 vote to windup received 86 per cent support. Included in this majority was Murcia Holdings Ltd owned by the Clark family. Murcia alone carried votes for 225 timeshare weeks.  Nearly 180 of these weeks were purchased when the original developer went bust.  Over the years, Murcia had bought out owners looking to quit their interest in The Retreat.  Holding 225 timeshare weeks meant Murcia was now having to pay some $216,500 in annual maintenance levies.  The Clarks said they had supported The Retreat financially for over thirty years and it was time to wind up what was an uneconomic and unworkable model.

In the High Court, Ray Thorpe Trust challenged the manner of the vote.  They alleged Murcia Holdings had gained control by buying up cheaply weeks offered for sale and further alleged the Clarks could benefit as insiders from any sale because they lived in accommodation on site.  There was a power imbalance, the Trust said, which disadvantaged minority time-shareholders looking to co-ordinate objections.

Justice Cooke approved dissolution of the timeshare scheme subject to conditions.  A $510,000 credit balance in the timeshare’s refurbishment account is to be distributed only between owners of timeshare weeks for the eight accommodation units; the unit occupied by the Clarks had not contributed to this fund.  And neither the Clarks, Murcia Holdings or any interests associated with them could buy the 4.7 hectare site without first applying to the court and establishing that there were no other buyers offering a better price.

Sale by tender rather than by auction was approved by the court.

re Body Corporate 39826 – High Court (3.10.22)

22.172

Building Consents: Nuwave Software v. Objective Corporation

The boys from Sydney sneaked into New Zealand under cover of darkness, incurring a $1.54 million Commerce Act fine, planning to seize control of local authorities’ use of online systems for processing building consents.  A High Court injunction blocked poaching.

Wellington-based Nuwave Software Ltd alleges Australian-owned Objective Corporation Solutions is party to illegal commercial conduct attempting to dominate online building consents.

The High Court was told Nuwave joined with Master Business Systems in 2016 to develop an end-to-end online system for processing building consents.  Their joint venture company GoCouncil provides bundled software to about twenty local authorities under the brand GoGet.  Terms of the joint venture prohibit both Nuwave and Master Business from hiring each other’s employees or poaching clients; to protect each company’s goodwill and know-how, the agreement says.

In June 2022, Master Business along with three other companies was merged into Objective Corporation Solutions NZ Ltd, under ultimate control of Sydney-based investors.  This merger fell foul of the Commerce Act.  In the course of a Commerce Commission investigation, Objective Corporation acknowledged the merger was likely to substantially lessen competition.  It was fined $1.54 million.  Commerce Commission did not seek to reverse the merger.  Divestment would likely disrupt building consents filed throughout the country.

This left Nuwave with the risk that Master Business staff operating their joint venture GoCouncil portal would be used to staff up Objectives’s operations, stealing clients and leaving GoCouncil to wither. Justice Palmer issued an injunction prohibiting Objective from approaching GoCouncil customers.  Objective is free to offer its services to local authority consenting authorities that are not current GoCouncil customers.  

Objective claims Nuwave’s non-poaching agreement is itself anti-competitive.  This claim requires a further court hearing.

Nuwave Software Ltd v. Objective Corporation Solutions NZ Ltd – High Court (30.09.22)

22.171

Tax Fraud: Sami v. Inland Revenue

The High Court refused Rajesh Sami leave to appeal his 2017 conviction for tax fraud; his last ditch effort to avoid deportation to Fiji.

Sami pleaded guilty in 2017 to Inland Revenue charges of tax fraud totalling some $669,800; failing to declare cash jobs for income tax and failing to register for GST or to pay GST over a seven year period. Sami worked as a builder.  He was sentenced to two years ten months imprisonment.

On his release, Sami was issued with a deportation order.  He is a Fiji citizen and a New Zealand resident, but is not a New Zealand citizen. The High Court was told Sami unsuccessfully appealed his deportation to the Immigration and Protection Tribunal. A claim to refugee status was also unsuccessful.

He then asked the High Court for leave to appeal his conviction for tax fraud; an attempt to remove the reason for his deportation.  His appeal rights had lapsed four years previously.

Sami said he would never have pleaded guilty if he had known conviction would result in deportation.  He has lived in New Zealand for about 24 years.  His wife and three children also live in New Zealand.

Sami said there had been a miscarriage of justice; his lawyer did not warn him that conviction could result in deportation.  Sami’s defence lawyer advised him to plead guilty in order to get a sentencing discount.  This was appropriate advice, Justice Davison said.  Even if the possibility of deportation had been raised at sentencing, there was never any realistic possibility that the trial judge could be persuaded to discharge Sami without conviction, he said.  Any appeal against conviction was hopeless, Justice Davison ruled.

Sami v. Inland Revenue – High Court (23.09.22)

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Leasehold: KOL Holdings v. Xu

Owners of twenty-one leasehold apartments on Auckland’s Remuera Road have had their leases cancelled following a rent strike when annual rents more than doubled in 2021 on a seven-year rent review.

The High Court was told owners had abandoned their leased properties with power subsequently cut off for unpaid arrears. Freehold title to the apartments at 267 Remuera Road is held by property company KOL Holdings Ltd with Anthony David Frith and Anna Kristina Frith named as both directors and shareholders.

Lease terms permit KOL to review rent every seven years. The 2021 review saw annual rent for the block of predominately small studio apartments rise from $250,000 to $645,000 with GST to be added.  Leasehold owners walked away.  Legal action was taken against eight owners who had not done a deal for surrender of their lease. The High Court ruled these eight were jointly and severally liable for rent arrears of some $1.03 million and rates arrears of just over $115,000. Joint and several liability leaves each of the eight leaseholders liable to contribute equally to the amount due, but if one does not pay then the other leaseholders have to make good the difference. At a minimum, each is liable to pay more than $140,000 with no compensation for loss of their leasehold interest. 

At KOL Holdings’ request, the High Court cancelled all twenty-one apartment leases giving KOL complete control of the site. A hotel advertising itself as the Devereux Boutique Hotel sits to the rear of the property, partially obscured by the studio apartments.

KOL Holdings Ltd v. Xu – High Court (22.09.22)

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Legal Costs: Criffel Deer Ltd v. ANZ Bank

Facing allegations of fraud from Wellington lawyer and entrepreneur Mike Garnham and his Garnham group of companies, ANZ Bank spent some $250,000 defending claims it said were improper, frivolous, vexatious and totally without merit.  After the claims were struck out, the High Court awarded ANZ $150,900 costs.  

The High Court was told ANZ bank poured considerable resources into preparing its defence to the Garnham claims filed in 2021. Bank records were searched and senior counsel hired.  ANZ said Garnham contributed to these costs by failing to comply with court rules, raising untenable arguments about admissibility of evidence and persisting in pressing forward with litigation in the name of a company which had been struck off.   

ANZ’s loan contract with Garnham Group included an indemnity clause allowing it to recover all costs in exercising and enforcing rights as creditor.  Mr Garnham argued the bank’s litigation costs were attempts to avoid scrutiny of its conduct rather than protection of its loan rights.  Justice Churchman disagreed.

Some, but not all, of ANZ’s costs were recoverable. While defending serious fraud allegations incurred costs, they were not strictly necessary in this case, he said. Final legal argument centred on only two issues, neither of them involving allegations of fraud.  ANZ was awarded $150,900 as its costs of dealing with these two issues: whether the Garnham claims were time-barred and whether there had been an out of court settlement.  ANZ went to extreme lengths in determining whether the Garnham fraud allegations had merit resulting in excessive costs which were not reasonably incurred, Justice Churchman said.  These excessive costs could not be recovered as part of the loan indemnity, he ruled. 

Criffel Deer Ltd v. ANZ Bank – High Court (21.09.22)

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Leasehold: Smith v. Paros Property Trust

Auckland commercial landlord Neil Christian thought he was dealing with just one pesky leaseholder running a hopeless legal argument about lease cancellation when the Court of Appeal ran a bulldozer through the entire case ruling that Christian’s Paros Property Trust invalidly raised rents for all its Freemans Bay leaseholders, failing to follow the correct statutory procedure for its 2018 rent review.  

Occupants of leased townhouses in Auckland’s Freemans Bay look to benefit with substantial rent credits; the 2018 review almost tripled previous annual rents.

Sixty years ago, slum housing in Freemans Bay was demolished by Auckland Council, replaced by townhouses sold on long-term leases. Council subsequently sold its leasehold interests.  Neil Christian’s Paros Property Trust Ltd snapped up the properties.  It now exercises all the rights as lessor previously held by Council.  The leases allow rent reviews every seven years.

Since 2018, Napier Street leaseholder Tim Smith has been waging a quixotic battle with Paros Property over his rights to purchase the freehold.  The Court of Appeal was told the dispute arose after Mr Smith received his 2018 rent review, raising annual rent from $31,000 to $81,375.  He signalled an interest in freeholding.  Neither side could agree on the process.  Mr Smith was adamant he had the right to choose a valuer to determine cost of freeholding; Paros Properties said the lease was explicit, it was for Paros as lessor to choose the valuer.  Mr Smith argued this stalemate meant the lease was cancelled and he was not liable for rental arrears.  The High Court ruled Paros had the right to choose the valuer and ordered Mr Smith pay over $240,000 in rental arrears.

Mr Smith appealed.  The Court of Appeal confirmed the lease was never cancelled, but then put Paros Property’s lawyers in a spin by ruling the 2018 rent review process was not properly carried out.  This had the effect of freezing rents at the pre-2018 rate.  Mr Smith’s liability for rent arrears dropped markedly to some $87,000.

The court ruled rent reviews required a prior valuation by three independent valuers to set market rates.  Both Mr Smith and Paros Property had assumed valuation was required from one valuer only.

After doing its own homework and then marking it as correct, the Court of Appeal ruled that supposedly repealed valuation procedures in the Municipal Corporations Act still applied.  This anomaly arose because of the legal history of Freemans Bay’s gentrification; properties were compulsory purchased and the area redeveloped by Auckland Council using 1945 legislation: the Urban Renewal and Housing Improvement Act.

Smith v. Paros Property Trust Ltd – Court of Appeal (21.09.22)

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De facto director: NZ Causeway International v. Wang

Whilst living back in China, Jie Cao left fellow shareholder Yi Wang in sole charge of their Auckland health food store.  Ms Wang was ordered to hand over $157,244 wrongly taken from the business and to account for profits from $370,700 stock she diverted to her own rival business.  

Cao and Wang agreed to join forces in 2017 setting up a health supplement store when Mr Cao as a recent immigrant met Ms Wang working as store manager on Dominion Road in Mt Eden.  NZ Causeway Bay International Trading Ltd was registered with Mr Cao as sole director and shareholding split 70:30 between Mr Cao and Ms Wang.  Unbeknown to Mr Cao, Ms Wang joined with another investor within months to set up a rival business trading as Oceania Health Care Product which set up shop over the road from Causeway Bay’s retail store.

The High Court was told Mr Cao spent most of his time in China, leaving Ms Wang in full control of Causeway Bay operations.  He became suspicious when she stopped providing financial information.  He later discovered she was diverting company cash for personal expenses, used her own WeChat barcode at Causeway Bay’s counter to divert store revenue into her own bank account and also transferred Causeway’s stock to Oceania Health across the road.

Justice Tahana held Ms Wang liable for a breach of directors’ duties as if she were a director of Causeway Bay.  She was not in fact a director, but treated at law as a ‘de facto’ director since she had complete control of Causeway’s management decisions in the absence of Mr Cao.  As a de facto director she did not act in good faith and she did not act in the best interests of Causeway Bay, Justice Tahana ruled.

Ms Wang did not appear in court to defend the claim.

NZ Causeway International Trading Ltd v. Wang – High Court (20.09.22)

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Stonewood: Boult & Merrick v. Cain

Creditors can be told details of a $3.5 million confidential settlement between liquidator of Stonewood Homes and directors James Boult and Brent Mettrick which resulted in no payment for unsecured creditors, the High Court ruled. 

In 2016, Stonewood Group went into liquidation.  Reports filed by the liquidator identify $3.5 million recovered in an agreed out of court settlement with directors.  Stonewood’s secured creditor has not been paid in full. There is nothing available for unsecured creditors.

In 2022, unsecured creditor Geoff Ball applied to the High Court for access to settlement details.  Associate judge Paulsen said the better course of action was to ask Stonewood’s liquidator to release the information.  Mr Ball is a member of Stonewall’s liquidation committee.

In any insolvent liquidation, unsecured creditors can vote for a liquidation committee.  It provides oversight, both protecting creditor interests and assisting the liquidator.  Unpaid creditors can provide industry insights, helping with the location and sale of company assets.

Mr Ball was joined by two other creditors on Stonewood’s liquidation committee requesting terms of the confidential settlement. When the liquidator indicated his intent to allow disclosure, Mr Boult and Mr Mettrick were back in front of Judge Paulsen claiming that disclosure was in breach of their settlement agreement and that the request was being made for an improper purpose, being the potential for legal action taken by individual creditors.

The liquidation committee has Company Act rights to inspect all liquidation records and documents, subject only to a liquidator having reasonable grounds to believe this would prejudice the company’s liquidation, Judge Paulsen ruled.  There was no such prejudice here, he said.

The High Court was told the liquidator proposed members of the liquidation committee be allowed to read the file, but not take notes or make copies.

Boult & Merrick v. Cain – High Court (20.09.22)

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Construction: United Builders v. MKOD Developments

It seemed like a good idea at the time; have an acquaintance hold deposits as a stakeholder for later onward payment to a builder.  Now both builder Munesh Chand and property owner Mavis Wolfgramm are having trouble extracting their money from stakeholder Chandar Prakash in payment for building work completed.

The High Court was told Mr Prakash assisted Ms Wolfgramm following a fire at an Auckland home in Mt Roskill owned by her company Wolfgramm Contracting Ltd.  He drafted plans for renovations and arranged with Mr Chand’s United Builders Ltd to do the job.  United Builders quoted $529,000 in May 2022 for the work.  Ms Wolfgramm was unwilling to pay upfront a requested deposit of $211,600. She asked Mr Prakash to act as ‘middleman.’  

Evidence was given that Mr Prakash then offered an alternative payment schedule to Ms Wolfgramm with the initial deposit being only $69,000 on a full contract price of $529,000.  She paid the $69,000 deposit to his company: MKOD Developments Ltd. At the same time, Mr Prakash confirmed a payment schedule with United Builders which specified a higher contract price payable: $667,000.

Three months on, United Builders complained its invoices were not being paid, with only $40,000 received to date.  Ms Wolgramm said she had paid $219,000 across to Mr Prakash’s MKOD Developments.  There was $179,000 unaccounted for that should have been passed on to United Builders, she said.

Mr Prakash said payments were held back because of concerns about quality of the work done and a need to get Council signoffs.           

Learning that Mr Prakash had been convicted of GST offences for a failure to pay some $170,000 to Inland Revenue and that he was in that habit of travelling overseas to Fiji, the two asked the High Court to put MKOD Developments into liquidation immediately to preserve what assets it holds. Associate judge Gardiner refused. A formal court hearing is necessary to establish exactly what were the terms on which MKOD held funds as stakeholder. The fact that there is no written agreement between United Builders and MKOD or Wolfgramm Contracting and that their respective payment schedules do not reconcile means all sides need to be heard in court, she said.

United Builders Ltd v. MKOD Developments Ltd – High Court (16.09.22)

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Lease: Tobem Holdings v. Kid Country Holdings

Sued for more than one million dollars in a dispute over lease of commercial space intended for use as a childcare facility, tenant Kid Country Holdings pulled the plug just prior to a scheduled court hearing; acting hand in hand with the liquidator using liquidation to stifle its claim, landlord Tobem Holdings alleges. 

The High Court at Auckland was told Tobem Holdings Ltd purchased the commercial property in February 2019 and along with it an existing lease to tenant Kid Country Holdings Ltd with Kid Country committed to annual rental payments of $390,000.  Tobem never received any rent.  Kid Country disputes how rentals are assessed and also disputes the area of usable space potentially available for operation as a childcare facility.

Tobem cancelled Kid Country’s lease in June 2020. It is now suing Kid Country for over one million dollars: arrears of rent; the cost of finding a replacement tenant; and the shortfall in rent between what Kid Country agreed to pay and what the new tenant is paying.

Two years after Tobem filed its claim and two weeks before trial date, Kid Country shareholders put their company into liquidation.  This killed the litigation stone dead. Ongoing litigation can continue after liquidation only with approval of either the liquidator or the court.  Kid Country’s chosen liquidator refused approval. Tobem’s attempts to remove the liquidator failed.  There are only three unpaid Kid Country creditors, it says: two each owed less than $7000 voted for the existing liquidator to remain; Tobem voted for removal. It was outvoted 2:1. The liquidator refused to identify who were the two creditors who kept him in office.        

In the High Court, Justice Gordon ruled the one million dollar litigation could continue.  All parties were ready for trial when liquidation intervened.  The claim can be dealt with immediately.

The alternative would see the liquidator assessing Tobem’s claim.  Tobem said its expectation was that the liquidator would reject its claim, causing further delays while it waited for a new court hearing date to challenge any adverse decision by the liquidator.

Companies Office records name David Lowry and Paul Hamlyn as directors of Kid Country; Narendra Patel as director of Tobem Holdings.

Tobem Holdings Ltd v. Kid Country Holdings Ltd – High Court (16.09.22)

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Land: CSR Pokeno Ltd v. Yes Investments

It was a game of high stakes poker. Interests associated with Annie Shui and her much litigated attempts to develop a residential subdivision at Pokeno south of Auckland were on the hook for late settlement interest running at $3830 per day when taking out a short term loan to complete a $12.5 million purchase. A call option imbedded with the loan saw South Island-based investors seize control of the entire project which now has a reputed value of $150 million.

Ms Shui was convicted on two charges of fraud and ruled to be in breach of the Fair Trading Act in separate civil litigation as she worked to combine several land holdings in Pokeno West for an intended 1600 lot subdivision. By 2022 she was left with a one per cent stake in CSR Pokeno Ltd, with Andrew Shui as a named director.  The High Court was told CSR committed in January 2017 to paying $12 million for its Pokeno purchase.  After failing to settle the purchase in May 2022, settlement was deferred to the following August at an increased price of $12.5 million.  Part payment was then made.  This left default interest running at $3830 per day with CSR still nine million dollars short.

Evidence was given of a deal subsequently struck with Yes Investment NZ Ltd, getting money in the door completing the purchase.  Companies Office records show Yes Investments owned primarily by investors based in Christchurch and Dunedin.  Yes put up some four million cash for a thirty per cent stake in the project, coupled with a $4.9 million two year loan.  A call option was attached to the loan; Yes Investment could call for transfer of CSR’s seventy per cent stake in Pokeno West at no cost other than forgiveness of the $4.9 million loan.  Yes Investment exercised this option in August 2022 when the two year loan fell due, unpaid.

In the High Court, CSR challenged exercise of this option. It claims seizing control amounts to a penalty; taking assets valued well in excess of the unpaid $4.9 million loan. There was evidence of a third party conditional offer to buy Pokeno West’s assets for $150 million.  CSR also claims Yes Investments improperly blocked attempts to refinance the loan.

Justice Jagose refused to block the call option. At best, CSR is entitled to damages if successful following a hearing of its claims at a later court hearing, he ruled. CSR should not be allowed to tie up Pokeno West’s valuable resources pending trial, he said.

Companies Office records show Yes Investments assuming full ownership of Pokeno West twelve days after the High Court ruling.  Andrew Shui resigned as director the day of the ruling.

CSR Pokeno Ltd v. Yes Investments NZ Ltd – High Court (16.09.22)

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Class Action: Body Corporate 91535 v. 3A Composites GmbH

German manufacturer of aluminium cladding alleged to be high fire risk fended off litigation funders saying there was no ‘commonality of interest’ to support a class action; experts are divided on whether 3A Composites’ product is a fire risk. 

Risk of fire spreading through aluminium cladding in high rise buildings came to public attention after the 2014 Lacrosse Tower fire in Melbourne and the 2017 Grenfell Tower fire in London.  In New Zealand, a three story Mount Maunganui resort apartment was reclad with 3A Composites product in 2008 at a cost of nine million dollars.  Now joined by Argosy Property, they both are suing for damages claiming the product is not fit for purpose.  Argosy made use of the product for commercial buildings in Auckland suburbs of Albany and Mangere.

The High Court was told both the resort and Argosy have entered into litigation funding agreements with investors providing cash to fund legal expenses in return for a share in any recovery.  Terms of the agreements were not disclosed.  They applied for court approval to label their court proceedings as a representative action; colloquially known as a class action. This would have owners of other properties with the same aluminium cladding tied into the litigation.  Class actions require a ‘commonality of interest’ such that a decision from a single court case can be applied across a multiple of disputes; saving time and costs.

The litigation funders argue 3A Composites’ product is inherently incapable of meeting building code requirements.  This is disputed.

Justice Jagose ruled there is no commonality between affected building owners.  Fire risk code compliance for cladding differs from building to building depending on when it was built, where it was built, how high it was built and the building’s use. Any argument that the product is inherently in breach of the Code is a ‘potentially contrived allegation’ designed to get around issues of commonality, Justice Jagose said.  The application for class action status had the appearance of being primarily for the benefit of litigation funders, he said.

Drawing more property owners into the current litigation would potentially increase the payout for litigation funders; the bigger the pot the bigger the litigation funders’ return as a share of that pot. The court was told there are at least thirty buildings across New Zealand supplied with the disputed product. Terms of the class action application would have seen these property owners automatically included as part of the class action, unless they formally opted out, leaving the litigation funder controlling terms of any potential out of court settlement and the size of their pay out.  

Body Corporate 91535 & Argosy Property v. 3A Composites GmbH – High Court (14.09.22)

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Fraud: Pome'e v. Inland Revenue

Confirming Sione Na’aniumotu Pome’e 27 months’ imprisonment for a $1.8 million tax fraud, the High Court said this sentence was generous given that a promised $200,000 voluntary reparation was never paid. 

Pome’e pleaded guilty after an Inland Revenue audit uncovered a long running seven year tax fraud.  He was sole director and shareholder of labour hire company Pome’e Engineering.  Returns filed with Inland Revene understated levels of employee PAYE deductions.  Payment deadlines to Inland Revenue were met late or missed altogether.  The court was told over one million dollars was diverted to a joint account held in the name of Pome’e and his uncle.  Money was used for: overseas travel; personal expenditure; and gifts to a wide social circle including family members, employees and $25,000 to support a nephew’s burgeoning music career.

Evidence was given that Inland Revenue recovered some $224,000 from liquidation of Pome’e Engineering and a further $125,000 from bank accounts.  Pome’e voluntarily paid back some $366,200.  Pome’s promise prior to sentencing by the trial judge to make a further voluntary payment of $200,000 came to nothing.

Pome’e v. Inland Revenue – High Court (14.09.22)

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