Legal Costs: New World v. Wang

A rap over the knuckles for New World, ordered to pay the full legal costs of Shaojun Wang who needed court assistance to extract her Auckland property from a forced sale triggered by the supermarket’s claim that Wang was simply hiding assets owned by a former New World employee who had stolen over $300,000.

Ms Wang was dragged unwillingly into New World’s orbit after its employee Qian Zhang was ordered to repay money stolen from the supermarket chain.  Looking to recover its losses, New World registered a charging order over an investment property in Auckland suburb Hillcrest recorded in Zhang’s name.  New World refused to accept that Ms Wang was the beneficial owner, with Zhang on the title as trustee.  When New World took steps to sell, Ms Wang was forced into court.

The High Court was told Ms Wang and Zhang both provided cash contributions which together with an ASB mortgage funded their 2016 purchase of the property.  One year later, the two agreed Ms Wang would buy out her partner.  She paid $70,000 to buy out Zhang’s share of the equity. There was no dispute that this was a fair market price.  Both signed a deed acknowledging that during such time as Zhang’s name remained on the title, Ms Wang was the sole owner.  This paperwork was drawn up at a time when New World was about to take legal action against Zhang.  There was no evidence that Ms Wang was aware of Zhang’s New World thefts.  New World refused to accept that Zhang no longer had any financial interest in the Hillcrest property.  New World’s unsuccessful argument that Zhang’s shared liability on the ASB mortgage amounted to an interest in the Hillcrest property was taken all the way to the Court of Appeal.

Justice Peters criticised New World for failing to properly consider all the evidence provided by Ms Wang’s solicitors and for pursuing a forced sale in the face of clear evidence as to Ms Wang’s sole ownership. Ms Wang was entitled to recover her legal costs in full, Justice Peters ruled.  The court was told she had spent over $55,000 in legal costs blocking New World’s forced sale.

New World (New Zealand) Ltd v. Wang – High Court (20.04.23)

23.051 

Guarantee: Sika (NZ) v. Lawry

Crossing out references to a guarantee on his company’s credit application with supplier Sika (NZ) Ltd meant company director Gavin Lawry was not personally liable to pay $244,100 owed by his company.

The High Court was told Mr Lawry’s Canterbury company Pegasus Engineering Ltd used Sika (NZ)’s product for fire retardant coatings on steel installed at a Lincoln University site.  About $244,100 of the bill was left unpaid.  There was an unresolved dispute over on-site application of the product.  Sika sued.

In the High Court, Associate judge Paulsen ruled terms of the supply contract required Pegasus Engineering pay the agreed contract price on time and in full.  Any disputed set-off claim had to be sorted out after full payment.

Sika also argued Mr Lawry was personally liable as guarantor. Evidence was given of Sika’s standard term supply contract: a two page document combining both a credit application and a guarantee.  Mr Lawry had signed the credit application on behalf of his company Pegasus Engineering next to the notation director.  He deleted the word ‘guarantor’ when he signed and he also crossed out in the body of the credit application some, but not all, references to the word guarantee. Mr Lawry told the court he does not give personal guarantees on his company’s credit applications and that is why he amended the document.

Judge Paulsen dismissed summary judgment against Mr Lawry on the guarantee.  It was clear no guarantee was intended, he said.  A full court hearing is needed if Sika wants to pursue a detailed claim arguing the document’s amended wording meant a valid guarantee still existed.

Sika (NZ) Ltd v. Lawry – High Court (19.04.23)

23.050

Asset Forfeiture: Commissioner of Police v. Marshall

As the proceeds of crime regime beds in, it is becoming a simple cost/benefit analysis as police and dealers negotiate over the dollar amount to be forfeit as revenue from drug dealing; police are never exactly sure how much cash dealers took in and the cost of any detailed investigation to get a better picture just chews up police resources.  Payment of $200,000 satisfied all parties following one week’s police surveillance of dealing from a Waiuku property.

Evlyn Dawn Marshall, David Simon Marshall and Zach Marshall faced proceeds of crime forfeiture orders after police surveillance of their Waiuku property.  Police told the High Court that on average nearly 120 people each day visited the property over the four full days and two half days of surveillance.  It was conservatively assumed twenty dollars was paid for a drug purchase on each visit.  Police said that if this level of dealing had started three years previously, revenue over three years would total $1.67 million.

Police found $26,700 cash at the property.  The Marshalls’ bank accounts contained unexplained banking of some $47,000.  Restraining orders were placed over the Waiuku house and all their bank accounts.

Forfeiture of assets requires High Court approval.  In approving the $200,000 proceeds of crime settlement, Justice Jagose said he was in no position to second guess the parties’ calculation of $200,000 as being the value of income unlawfully received by the Marshalls.

If the Marshalls cannot pay $200,000 from cash resources including their frozen bank accounts, the Waiuku property is to be sold to make up the shortfall.

Commissioner of Police v. Marshall – High Court (18.04.23)

23.049

Sham: Maryland Bassett Co. v. Taihe Innovation

Auckland mortgage funder Taihe Innovation Management Ltd is in receivership with receiver Chris McCullagh left trying to enforce a deal which appears to have Taihe director Lei Zhang party to a sham transaction with a third party used as trustee to hide Zhang’s increased equity investment in Australian listed company MIE Pay paid for with Taihe’s money.

Allegations of a sham loan were front and centre when the receiver had Taihe Innovation sue Weidong He’s Auckland company Maryland Bassett Company Ltd for nearly $660,000 claimed to be principal and interest due on a loan made by Taihe Innovation in October 2019.  Maryland said the loan was a sham, disguising Zhang’s increased investment in MIE Pay Ltd just prior to its listing.

The High Court was told Taihe Innovation’s Zhang and Maryland Bassett’s He had a business relationship stretching back to 2015 when Alibaba’s online payment platform got underway in New Zealand.  Zhang gifted He an equity interest in his business then known as IE Money in appreciation of He having helped him obtain a New Zealand licence for Alipay.  

Plans to list IE Money on the then secondary NXT market in New Zealand later morphed into a listing as MIE Pay on the Australian National Stock Exchange.

He told the High Court that as part of MIE Pay’s listing process, he was asked to buy shares on Zhang’s behalf with money provided by Zhang.  Zhang wanted to keep this increased equity investment hidden from fellow MIE directors to avoid revealing his increased voting power, He said.

This proposal was documented as a loan from Zhang’s Taihe Innovation to He’s Maryland Bassett with Maryland acknowledging it was holding the shares purchased as bare trustee for Zhang.  Backup documentation required Zhang to indemnify Maryland Bassett for its costs.

Receiver Chris McCullagh told the High Court he had no evidence of any backdoor deal between Taihe Innovation and Maryland Bassett. As far as he was concerned, the loan was a straight-forward commercial debt owed by Maryland Bassett to Taihe Innovation. Taihe’s director Zhang had been uncooperative, the receiver disclosed.  Zhang did not give evidence.

Associate judge Sussock ruled it was arguable that the loan was a sham transaction.  The disputed debt could not be used as part of fast-track summary judgment procedure to have Maryland Bassett Ltd forced into liquidation.

Maryland Bassett Company Ltd v. Taihe Innovation Management Ltd – High Court (17.04.23)

23.047 

Squatter: Pascoe v. Ngati Tama Custodian Trustee

Squatters rights do not exist under New Zealand law, defeating claims by a North Taranaki farmer that his long-term use of neighbouring land for grazing was sufficient to disrupt Waka Kotahi’s plans to develop a bypass around Mt Messenger. 

The Pascoe family has farmed in Mangapepeke Valley for nearly seventy years.  They object to construction of a Mt Messenger bypass through the valley, realigning part of the state highway running between Hamilton and New Plymouth.  Part of Pascoes land has been compulsorily acquired under the Public Works Act for road construction.

The High Court was told the Pascoes had grazing rights over about 3.2 hectares of neighbouring land from the 1950s.  In 1985, the Minister of Forests issued the Pascoes a formal licence, allowing grazing for a six year period expiring in 1991 at a cost of $50 per year.  Subsequently, this land came under control of Department of Conservation.  The Pascoes were offered the opportunity to continue grazing under a Conservation Act concession.  They did not take up the offer.  With the earlier licence having expired, the Pascoes were at law trespassing by continuing to use the land for grazing.

Ownership of the land passed to Ngati Tama in 2003 as part of its Treaty settlement, negotiated with government as compensation for breaches of the Treaty of Waitangi.  At the time, it was recognised that the Pascoes were exercising informal grazing rights over 3.2 hectares of the land.  The Pascoes had long since stopped paying any $50 annual fee.

Justice Grice said the Pascoes had no legally enforceable right to graze stock on the land.  At best, they had informal permission to use the land, permission which had been revoked by Ngati Tama in 2019 when it gave formal notice that grazing rights were at an end.

The Pascoes’s request for a High Court injunction preventing Waka Kotahi from blocking their continued access for grazing was refused by Justice Grice.

Pascoe v. Ngati Tama Custodian Trustee Ltd – High Court (17.04.23)

23.046

Asset Forfeiture: Commissioner of Police v. McQuade

Seized by police as proceeds of crime, Alan McQuade protested that his Holden motor vehicles should not be sold ahead of next year’s scheduled forfeiture hearing.  They were appreciating in value as collectibles now that Australia no longer manufactures Holdens, he claimed.

McQuade was sentenced to five years three months imprisonment in March 2022 for methamphetamine offences.  On his arrest, police seized five vehicles alleging they were purchased with proceeds of crime, including a 2013 Holden HSV Clubsport, a 2016 Holden HSV GST and a 2003 Holden Monaro.

Police applied for an order the cars be sold ahead of a scheduled 2024 proceeds of crime court hearing with the sale proceeds meanwhile to be held in trust.  The High Court was told storage costs are running at $14.30 per day for each vehicle. In addition, market values based on Inland Revenue depreciation rates are falling by thirty per cent each year, police said.

McQuade challenged police assessments of future value. He said Holden vehicles were appreciating in value, as evidenced by asking prices for similar vehicles advertised on Trade Me.

Police had the vehicles inspected by an industry expert. He reported they were not all in the condition claimed: the Holden Clubsport had evidence of previous accident damage and was probably imported from Australia as an insurance write-off; the Holden GTS had double the odometer reading claimed.  Values for second-hand Holden vehicles viewed as collectibles had climbed sharply throughout 2020/21, the expert said, but had since shown a steady decline with vehicles marketed at premium prices remaining unsold for long periods.

Justice Woolford approved the vehicles’ early sale.

Commissioner of Police v. McQuade – High Court (17.04.23)

23.048

P&I Insurance: Maritime Mutual v. Silica Sandport

In December 2018, the barge NRC Resolute capsized and sank in international waters north of Trinidad in circumstances yet to be fully explained. A disputed insurance claim now sees the warring parties in court; one side suing in New Zealand, the other in Guyana.

Silica Sandport Inc, had insured its barge with a New Zealand-based P&I Club: Maritime Mutual Insurance Association. Unlike a typical marine insurance company which is owned by its shareholders, a Protection and Indemnity Club (P&I) is a member-only club with members agreeing to pool risk according to their P&I rules.  No dividends are paid.  If claims in any one year exceed premiums collected, a ‘call’ is made on all members to top up the kitty.  Silica Sandport’s claim for total loss of its barge at USD1.176 million resulted in a call on members.

The High Court was told Silica has not paid its call. Insurance cover was cancelled. Silica then sued Maritime Mutual in the High Court of Guyana for loss of its barge together with further claims against Maritime alleging misrepresentation, fraud and professional negligence.  In Guyana, Maritime is challenging whether the dispute should be heard in that country.

Meanwhile in New Zealand, Maritime Mutual got a High Court ‘anti-suit’ injunction telling Silica it had no right to take legal action in a foreign country without first submitting to the arbitration rules set out in their P&I agreement.

Silica alleges Maritime Mutual has refused to go to arbitration; a claim Maritime disputes.

Maritime Mutual is owned by interests based in Gibraltar.  Its directors are based variously in Guernsey, Liechtenstein, Hong Kong, Switzerland and New Zealand.

Maritime Mutual Insurance Association (NZ) Ltd v. Silica Sandport Inc – High Court (14.04.23)

23.045 

Market manipulation: FMA v. Zhong & Ding

Wei Zhong and Regina Ding face fines for market manipulation in breach of the Financial Markets Conduct Act after the High Court ruled they organised phony on-market trades to prop up the market in shares for their now delisted Oceania Natural Ltd.  Business acquaintances and Ding’s parents were used to set up pre-arranged buy/sell matched orders.  

Oceania Natural listed on the then separate NXT board in 2016.  It operated as an exporter, primarily manuka honey and Cook Island noni juice.  Husband and wife, Zhong and Ding both hold MBA degrees from Singapore.  He was executive director and chief executive officer for Oceania; she headed up sales and marketing.  Their combined 61.6 per cent holding in Oceania Health at time of listing was valued at $10.2 million.  Oceania is now in liquidation with unsecured creditors claiming $1.22 million.

The High Court was told of a series of on-market transactions through 2016 and 2017 having the effect of propping up Oceania’s share price.

Some involved use of ASB Securities customer accounts held in the separate names of Ding’s parents.  Zhong traded on Ding’s father’s account, masquerading as her father to place orders.  Zhong also made use of a phone registered to his five year old daughter in an attempt to muddy the trail.  Ding traded on her mother’s account, posing as her mother.  As is common custom in China, Ding’s parents do not share the same last name.  ASB Securities came to suspect collusion when it realised matching buy/sell orders came from client accounts with near adjacent numbers and then twigged that the accounts were in the name of husband and wife: Ding’s parents.  These two accounts were then suspended.

Evidence was also given of Zhong and Ding liaising with business associates to execute phony trades.  The court was told of a repeated pattern seeing a series of short phone calls and WeChat messages from Zhong or Ding to business associates followed by matching buy/sell orders.  These business associates were compensated for their costs.

Zhong’s and Ding’s enthusiasm in boosting the market price fell foul of trading rules; one buy order was not forwarded to the stock exchange because it would have had the effect of increasing the then market price by fourteen per cent in one trade.  Buy/sell prices are expected to move incrementally.

All the matched trades had the effect of increasing the market price for Oceania’s shares.

Fines for Zhong’s and Ding’s market manipulation require a further court hearing.

Financial Markets Authority v. Zhong & Ding – High Court (6.04.23)

23.044

 

Post-judgment note: Zhong was subsequently ordered to pay a $1.33 million penalty; Ding $760,000.

Legal Costs: Cayman Spectrum v. 2Degrees

Alleging that collusion between Spark and 2Degreees prejudiced its chances to acquire wireless spectrum rights, off-shore bidder Cayman Spectrum has been penalised, forced to pay 2Degrees full legal costs after abandoning attempts to get sensitive commercial information out of 2Degrees.

Part of ongoing and yet to be finalised litigation between Cayman Spectrum and Spark, 2Degrees was dragged unwilling into the fight as a non-party following allegations Spark assisted 2Degrees in its bid for wireless spectrum to the commercial disadvantage of Cayman Spectrum.

As part of pre-hearing manoeuvres, Cayman demanded disclosure of documents held by Spark.  As an aside, it demanded similar disclosures from 2Degrees.  This demand was abandoned by Cayman on the day of a scheduled court hearing disputing what was demanded and what was appropriate given that 2Degrees was not a party to the Cayman/Spark legal bunfight.

Justice Lang ordered Cayman pay 2Degrees full legal costs of some $47,100.  2Degrees was justified in lawyering up taking a ‘belts and braces’ approach, he said. The breadth of Cayman’s disclosure demand was forcing 2Degrees to disclose confidential and commercially sensitive information which potentially included management and board reports, budgets, predictions and strategy papers.

Cayman Spectrum (NZ) Co v. Spark New Zealand Trading Ltd – High Court (5.04.23)

23.043

Property: Tadd Management v. Ruth Weine Family Trust

A Wellington family trust was ordered to pay $592,000 damages after marketing material prior to auction of a commercial building highlighted a ‘good NBS rating’ when later seismic surveys identified the building was an earthquake risk. 

Wellington sits on a recognised earthquake fault. Purchasers are wary of potential costs to bring buildings up to standard.  Buildings in Wellington assessed at less than 67 per cent of New Building Standard (NBS) are treated as an earthquake risk.

The High Court was told Ruth Weine Family Trust sought to allay purchaser concerns by including a seismic report in its marketing pack when selling by auction in 2017 a three-storey commercial building on Queens Drive in Lower Hutt.  This included an engineering report assessing the building at 60 per cent NBS and the later addition of a covering letter which said a 70 per cent NBS assessment was possible following a more detailed assessment.

Tadd Management Ltd bought at auction, paying $1.22 million.  It intended to upgrade the building.  Engineering reports Tadd Management subsequently obtained assessed the NBS rating at time of purchase as being between ten per cent and thirty per cent. Tadd Management sued.  It was awarded damages for both misrepresentation and mistake.

Justice Gwyn ruled the Ruth Weine Family Trust was liable for misrepresentation by stating in publicity material as an ‘investment highlight’ that the building had a ‘good NBS rating.’  This was a misstatement of fact, entirely independent of the engineering report and covering letter supplied in the publicity pack, she ruled.

The Trust was also liable in mistake.  Both the Trust and Tadd Management as parties to the sale were labouring under the common mistake that the NBS was at least 60 per cent.  The result of this mistake was that Tadd Management paid too much.

Damages of $592,000 were assessed as the difference between the price paid by Tadd Management and the actual value of the building when sold.

Tadd Management Ltd v. Ruth Weine Family Trust – High Court (5.04.23)

23.042

Loan Fees: Mega Capital v. Pearlfisher Capital

With a seven million dollar deposit paid and penalty interest running at $10,000 per day for late settlement on its 2022 purchase of land in south Auckland ripe for redevelopment, Mega Capital was desperately shopping around for finance to cover its thirteen million dollar shortfall.

Mega Capital was held liable to pay initiation fees totalling some $627,700 on proposed borrowing from Pearlfisher Capital after abandoning the Pearlfisher deal in favour of alternative funding. 

The High Court was told Mega Capital Group Ltd agreed to buy land at Karaka for $19.8 million with the prospect of creating 180 residential lots to be on-sold for some one hundred million dollars.  In the seven month gap between agreeing to buy and having to pay, Mega Capital found it was unable to get bank funding.  It turned to Pearlfisher Capital Ltd.  A deal was struck for a $10.2 million six month bridging loan at eight per cent.  The loan was never taken up.  Mega Capital borrowed elsewhere.  Pearlfisher sued for fees totalling $627,700 covering establishment fees and brokerage. Mega challenged the amount as being harsh and oppressive; in breach of the Credit Contracts and Consumer Finance Act.

Associate judge Taylor ruled Mega Capital liable to pay. Mega Capital was not a vulnerable consumer, he said.  It was an experience property developer.  The deal was negotiated with the assistance of professional advisers.  During loan negotiations, fees due were specifically discussed and it was made clear these fees were payable after initial documentation was signed even if Mega did not subsequently draw down the loan.

Mega Capital Group Ltd v. Pearlfisher Capital Ltd – High Court (5.04.23)

23.041

Debt: Multistop v. Innovate Civil & Construction

Sued for $442,000 unpaid on two construction contracts, it was not credible for director Jason Campbell to defend a summary judgment claim by simply stating his company was not liable and that the wrong company was being sued.

The High Court operates a fast-track summary judgment procedure for debt claims.  Provided there are no disputed facts, unpaid creditors get a prompt court ruling giving the creditor extra leverage when chasing payment.  Judges are wise to contrived factual conflicts designed by debtors to re-route a fast-track summary decision into a slow-track process forcing delays with a full court hearing.  

Auckland plasterer Multistop Ltd was left chasing just over $442,000 for work done during 2020 and 2021 on building sites in Mangere and Te Atatu.  There was no written contract.  Multistop thought it was working for a company called Innovate Civil and Construction Ltd.  Directors at the time were Jason Campbell and Barry Hayes.  Companies Office records show Mr Hayes resigned as director in October 2021.  When Multistop later sued, Mr Campbell said it was not an Innovate Civil debt; the money was owed by a separate company controlled by Mr Hayes.   

Multistop told the High Court that agreement to do the job was made on site in discussions with Mr Campbell.  He was wearing a high-vis vest carrying the Innovate Civil logo and on-site signage advertised the work as an Innovate Civil project.  Interim invoices, which were never paid, were addressed to Innovate Civil.  Emails promising payments, which never came, were sent from an Innovate Civil email address.

It was only when Innovate Civil was sued that Mr Campbell said payment was his former business partner’s responsibility.  Multistop was suing the wrong company; Mr Hayes company B&R Property Maintenance Ltd was liable, he said.

Associate judge Lester ruled there was no direct evidence of any contract between Multistop and Mr Hayes’ company.  Mr Campbell at no time during contract discussions explained that he was acting as a ‘go-between’ or was acting as an agent on behalf of Mr Haye’s company, Judge Lester said.  It was an Innovate Civil debt.  Summary judgement was entered against Innovate.

Multistop Ltd v. Innovate Civil and Construction Ltd – High Court (5.04.23)

23.040

Insurance: Saijad v. Tower Insurance

 Owners of a tenanted south Auckland property failed in their fire insurance claim because of a material non-disclosure when taking out the policy, failing to tell Tower Insurance the house had been partitioned into two separate tenancies occupied by two separate families.

A Papatoetoe rental owned by Saijad Ali Maqbool and his fatherwas severely damaged in 2013 following a kitchen fire.  Tower refused to pay.

The general rule with insurance law is that those seeking cover must disclose all relevant information material to the risk.  Only then, can insurers determine the risk and set the premium.  The questions asked in an insurance proposal form are not the full extent of information required; any other relevant information must be disclosed.  Policies can be cancelled following any material non-disclosure.

This rule has caused much anger and heartbreak amongst property owners; only when a claim is made does an insurer carry out due diligence on the risk and consider voiding the policy – often for reasons which a typical property owner would never consider relevant to an assessment of the risk. The high water mark for insurance companies is a century-old legal case in which an English judge ruled an insurance contract could be cancelled after a claim was made because the insured failed to disclose he was not born in England.

Following the Papatoetoe house fire, Justice Lang ruled the owners did not disclose all material information.  The house had been divided into two residential units with a partitioned hallway and creation of a separate kitchen.  The two areas were separately tenanted, occupied by two different families.  One of the tenants had arranged for the work to be done, with the consent of the property owner.

There was evidence from the insurance industry that unconsented property alterations increase claim costs.  Here, the addition of a second kitchen and the lack of proper fire proofing meant a higher risk of fire and the likelihood of greater damage resulting from any fire.

Alterations to the property should have been disclosed to Tower at the very latest when the annual fire policy came up for renewal, Justice Lang said.

Saijad v. Tower Insurance Ltd – High Court (28.03.23)

23.039

Mining: LMCHB Ltd v. Buller Coal

Piqued at losing a USD40 million claim in the Supreme Court by a narrow 3:2 margin, L&M Holdings then claimed Bathurst Resources subsidiary Buller Coal was instead liable to pay, only to lose a second time.  Buller’s liability as guarantor had not crystallised, the High Court ruled. USD40 million was owing, but not due.   

In hard fought litigation spread over six years and multiple court cases, L&M Holdings (now known as LMCHB Ltd) has been chasing what it claims are instalment payments due from Bathurst on a USD160 million sale in 2010 of West Coast coal mining rights.

Bitterly disappointed that a Supreme Court ruling saw it wave goodbye to the final USD40 million claimed, L&M Holdings reversed course and sued Buller Coal which had guaranteed Bathurst’s obligations on the USD160 million deal.

The 3:2 split in the Supreme Court turned on interpretation of a series of contracts between L&M and Bathurst negotiated over several years while Bathurst was obtaining resource consents to start coal extraction, negotiating rights of access with Department of Conservation and seeking finance for the project.  The majority of judges in the Supreme Court ruled payment of the last USD40 million did not fall due so long as royalty payments were being made on coal extracted. This suited Bathurst; it had closed down its West Coast operations.  With coal no longer being mined, no royalties were currently payable but equally payment of the final USD40 million was suspended.  L&M was enraged.  In its view, Bathurst had agreed upfront to payment of a full USD160 million but now with its short-payment of the agreed price had effectively passed back to L&M the commercial risk of mining on site becoming uneconomic.

In the High Court, Justice Isac said terms of Buller Coal’s guarantee held it liable for money owing by Bathurst.  But any money ‘owing’ changed over time as a result of the extensive series of contracts negotiated between L&M and Bathurst. Since the Supreme Court had ruled a USD40 million balance of the purchase price owed by Bathurst was not due because of the current royalty agreement, there was no present obligation by Bathurst to pay the USD40 million demanded.  Since Bathurst was not liable, Buller Coal was not liable as guarantor.

The court was told periodic royalty payments were earlier agreed by L&M to temporarily assist Bathurst with its then cash flow difficulties whilst seeking to raise finance for the project.

LMCHB Ltd v. Buller Coal Ltd – High Court (27.03.23)

23.038

Compensation: Cooper v. Hastings District

 With 2.76 hectares of her land in Howard Street Hastings re-zoned residential in 2019, Karen Cooper was entitled to compensation at residential value for that part of the land compulsorily taken for roading and stormwater.  Hastings Council said compensation should be less, assessed on its former rural zoning.

When private land is taken for public works, the Public Works Act requires payment of ‘full and fair’ compensation. Hastings Council said since the land taken for subdivision infrastructure was previously zoned for cropping, viticulture and orchards it should be valued as such.

In the High Court, Justice Cooke ruled the zone change was independent of subsequent roading and stormwater requirements.  By changing land use zoning to residential, Council was enabling private developers to carry out a residential subdivision. Public works involving roading and stormwater did follow re-zoning but were not ‘caused’ by re-zoning.  Compensation for land taken should be assessed on residential value, being its value at the time taken.  The difference in value was not disclosed.

Separately, Hastings Council argued without success that no compensation should be paid at all; the increased value accruing to Dr Cooper’s land after being re-zoned residential more than offset the value of that part of the land taken for public works.  She had suffered no loss, Council said.

Re-zoning land, by itself, is not a ‘public work,’ Justice Cooke ruled.  Any increase in value arising from re-zoning could not be set off against compensation due for taking part of that land for public works.

Cooper v. Hastings District Council – High Court (24.03.24 & 3.05.23)

23.037

Restraint of Trade: Colville v. Colville

Suing his brother alleging he welshed on an agreement not to go into competition, Mathew Colville is in court seeking detail of what he claims is his brother’s backdoor buy into a rival building franchise disguised as a personal loan.

Mathew Collville bought out his brother Adam’s share of their West Coast GJ Gardiner housing franchise.  Adam agreed not to set up in competition; a common commercial arrangement justified as protecting the existing business’ customer base.

Mathew alleges brother Adam then turned around and bought into a West Coast Stonewood Homes franchise at a cost of $200,000, in breach of their agreed restraint of trade.  This involved doing a deal with Stonewood’s new West Coast franchise holder Peter Bright, Mathew alleges.  Mr Bright is resisting disclosure of any deal.

Adam says payment of $200,000 was a personal loan from him to Peter Bright.  Meanwhile Stonewood Homes publicity material in June 2021 proclaimed its delight in welcoming both Peter Bright and Adam Colville as Stonewood’s ‘newest’ franchise holders.

In the High Court, Associate judge Lester ordered Mr Bright to disclose any documents concerning financial details of Adam’s involvement in Stonewood Homes.  Disclosure of computer records was also ordered.

Colville v. Colville – High Court (24.03.23)

23.036

Money Laundering: re Qian DuoDuo Ltd

Internal Affairs scrambled to restore Auckland money remitter Qian DuoDuo Ltd to the Companies Office register after the company quietly disappeared in the middle of a criminal prosecution charged with breaches of money laundering legislation.  

Owned by husband and wife Zenhua Qian and Ye Hua, Qian DuoDuo Ltd has been under investigation since 2015 for alleged breaches of the Anti-Money Laundering and Countering Financing of Terrorism Act.  The two shareholders and their company came under suspicion following failures to report a significant number of transactions totalling close to $100 million.

Their business traded under the name Lidong Foreign Exchange.

In 2018, Qian DuoDuo Ltd was ordered to pay a civil penalty of $356,000 for breaching the Act.  An Internal Affairs criminal prosecution is underway.

The High Court was told the company was struck of the companies register in August 2022 after it failed to provide Companies Office with detailed documents requested.  Internal Affairs realised two working days after the Companies Act striking-off notice period expired that Qian DuoDuo was disappearing.  It was too late; Companies Office refused to reinstate the company.

In the High Court, Associate judge Taylor ordered reinstatement over objections from Qian DuoDuo’s shareholders.  They said it was pointless continuing a criminal prosecution against their company.  It cannot be sent to jail.  It cannot pay a fine; it had no money when struck off, they claim.

Reinstatement enables Internal Affairs to put the company into liquidation if it does not pay any fines imposed and then have a liquidator investigate what happened to company assets.

The High Court was told both Mr Qian and Ms Hua also each face criminal prosecutions for breaches of the Act.

re Qian DuoDuo Ltd – High Court (23.03.23)

23.035

Creditor Freeze: re Black Dog Consulting Ltd

Intended to provide a short breathing space keeping creditors at bay allowing a decision on whether a struggling business is viable, Wellington insolvency specialist Heath Gair instead got High Court approval to downsize a contracting business under the umbrella of an extended creditor freeze using Companies Act voluntary administration rules.

Lobbying by insolvency practitioners saw a system of voluntary administration included in company law.  Too many companies were pushed under by creditors when there was a chance they be turned around, they said.  A short-term freeze on creditors rights would allow an assessment of a company’s likely future.  Voluntary administration legislation allows for a twenty day freeze, with creditors then given a chance to vote at a so-called ‘watershed’ meeting; either approving any restructuring proposal put up or instead pushing the business into liquidation.

The High Court was told Peter Jones put his Wellington consulting company Black Dog Consulting Ltd into voluntary administration in February 2023. Black Dog’s net profit of some $894,500 for the 2020 financial year was followed by a $74,300 loss the following year.  Liquidity was maintained by failing to pay PAYE, GST and income tax.  Inland Revenue is owed $548,000.       

Appointed as Black Dog administrator, Heath Gair told the High Court that no recommendation could be made to creditors within the required twenty days, leading to likely liquidation of Black Dog and loss of employment for the sixteen staff employed.  But if given a further ninety days he could slim down the company, he said.  Mr Gair proposed selling off surplus vehicles and equipment and pro-actively chasing two large outstanding invoices.

Justice McQueen extended the creditors freeze out to June 2023 with the proviso that any aggrieved creditor could challenge this extension.

re Black Dog Consulting Ltd – High Court (21.03.23)

23.034

Patent: Thaler v. Commissioner of Patents

Artificial intelligence cannot be an ‘inventor’ registering a patent for a novel product, ruled the High Court in a landmark case.  An inventor must be a person.  The immediate consequence is that any product developed solely by artificial intelligence cannot be patented.

Dr Stephen Thaler took a test case to the High Court seeking a patent for his new type of food container.  Designed to hold liquids, it has fractal walls, allowing it to interlock with other containers.

He has developed an AI system which he calls DABUS: Device for the Autonomous Bootstrapping of Unified Sentience.  When submitting the patent application, Dr Thaler said the final product was the result of unsupervised generative learning by DABUS with no contributions from himself or anyone else.  Naming himself or any other person as the inventor would leave the patent open to challenge.

The Patent Act does not specifically state that an inventor has to be a person, Justice Palmer said.  But New Zealand patent legislation in its various guises since 1860 has been predicated on the assumption that the inventor is a person.  The most recent patent legislation in 2013 was enacted at a time when the existence of and capabilities of artificial intelligence were known.

Any expansion of the definition of ‘inventor’ to include artificial intelligence is for parliament to decide, Justice Palmer said. The UK government has decided not to expand the definition when reviewing its patent legislation, he noted.

The court was told Dr Thaler has named DABUS as the inventor in similar patent applications in the United Kingdom, the United States and Australia.  In each case, patent registration was refused. Dr Thaler is based in the US.

Thaler v. Commissioner of Patents – High Court (17.03.23)

23.033

Charity: re Tikipunga Children's Home

Charitable trusts live forever.  When their charitable purpose has ended, they have to be legally killed and buried; now required for a Whangarei children’s trust set up in 1925 but now defunct. 

Charitable trusts differ from the hundreds of thousands of discretionary family trusts existing in New Zealand.  Charitable status requires all trust income and assets to be applied for the benefit of a defined but wide sector of society.  Too narrow a focus and the purpose is no longer charitable.  The focus of family trusts is typically extended family; too narrow to be a charity. These family trusts are invalid if they do not have a specified limited life, a hangover from English legal rules which prohibited malign testators ruling from the grave attempting to tie up their assets forever.  But charitable trusts live forever, on the assumption they provide a public benefit. 

The High Court was told what became the Tikipunga Protestant Children’s Home was established in 1925 with the purchase of land in Corks Road by Mr and Mrs Frederick Seymour Potter.  An orphanage was subsequently built on the site with funds provided by both the Potters and the local council.  The original trust deed stated the orphanage was for the benefit of ‘orphans and destitute children who must be brought up in the protestant faith.’  The orphanage closed in 2012, at that time the last privately-run establishment of its type in New Zealand.

A subsequent court-approved change to its trust deed allowed the Trust to sell off its land and distribute most of the $4.8 million sale proceeds to charities around Northland supporting disadvantaged children. As acknowledgement of the Potters pioneering work, a playground was built in Whangarei for local children to enjoy; known as Potter Park.  Now, $22,937 is left in the kitty.

David Reyburn, secretary of the Trust, administered the last rites getting a High Court order that the Trust be put into liquidation with any surplus after liquidation costs going to another charity: CCS Disability Action.

re Tikipunga Protestants Children’s Home – High Court (17.03.23)

23.032

David Reid franchise: Swann v. Canterbury Design & Development

Christopher Swann’s sale of part interest in his Canterbury David Reid Homes franchise sees a dispute with new business partners over payment of his $50,000 working capital contribution.

The High Court was told Swann agreed in November 2020 to sell a two-thirds interest in his David Reid franchise to Aaron Hooper and Carl Fordyce.  Canterbury Design and Development Ltd was set up to operate the restructured business with each to hold five hundred shares and with each to be represented on the board. Two years later there was an argument over whether Chris Swann had paid in a promised $50,000.

Evidence was given of a January 2022 email exchange after which a $50,000 invoice was paid relating to a Bishop Street build in St Albans, Christchurch.  Bishop Street was not a Canterbury Design project.  Mr Swann said the $50,000 he paid was his Canterbury Design working capital contribution; Mr Fordyce said it was payment of an unrelated debt and Mr Swann’s promised $50,000 working capital for Canterbury Design is still outstanding. Mr Swann took issue with the fact that he had yet to be allocated his promised one-third shareholding in Canterbury Design and that his chosen nominee as director had not been appointed to the board.

Associate judge Lester said the shareholding and directorship rights were acknowledged in a 2020 shareholders agreement.  These rights were entirely separate from each promising to put in $50,000 working capital.  The required $50,000 payment was not payment for an issue of shares.

Disputes between shareholders over Mr Swann’s allocation of shares and appointment of a director were governed by an arbitration clause in their shareholders agreement.  First stop for the warring shareholders was arbitration, Judge Lester ruled.  This arbitration will most likely also sort out the provenance of Mr Swann’s claimed payment of $50,000 working capital, he said. Failing that, back to court.

Swann v. Canterbury Design and Development Ltd – High Court (16.03.23)

23.031

 

Further Note: Prior to its sale in 2020 to Canterbury Design, the David Reid Homes Canterbury franchise was owned by Mr Swann through his company First Design & Build Ltd.  A Companies Office search discloses that some ten months after this sale, First Design was in liquidation insolvent owing secured creditors $1.2 million.

Liquidation: re Tiny Town Properties Ltd

They thought they were buying houses, but in court it was legal argument about sale of goods when New Plymouth-based Tiny Town Projects Ltd went into liquidation insolvent leaving partly finished relocatable houses in its yard.  The High Court ruled buyers were secured creditors having an equitable lien over each of their incomplete houses. 

Tiny Town went into liquidation in November 2022. Director and sole shareholder James Cameron is bankrupt.  Six customers were left in the cold; three had paid in full for relocatable homes with construction complete but awaiting a council code of compliance certificate and three had partly paid for houses under construction.  Tiny Town sold custom-built relocatable homes constructed on a steel trailer ready for transport to a site of the buyer’s choice.  Prices started at just under $156,000.

Tiny Town liquidators asked the High Court for a ruling on each house buyer’s status.  If treated as unsecured creditors they would get nothing; no house and no refund.

Justice Venning ruled buyers could not claim ownership of the house each had signed up for.  Being built on a trailer meant it was a sale of goods.  Ownership of each house did not pass until the house was ‘completed.’ The build contract stated completion did not occur until a code compliance certificate was issued.

But an equitable lien gave each purchaser the status of a secured creditor, Justice Venning ruled.  Each house under construction was clearly identifiable as being built for a specific customer.  Each instalment payment by each customer gave that customer an equitable claim over their house.

As a result, each was allowed to uplift their house from the yard after paying for any extra work done by Tiny Town not covered by payments previously made.

re Tiny Town Projects Ltd – High Court (14.03.23)

23.030

Eric Watson: Kea Investments v. Wikeley Family Trustee

 

It is just another Eric Watson fraud, designed to hamper recovery of GBP129 million damages due following an earlier fraud, Sir Owen Glenn alleges.

After nearly a decade attempting fruitlessly to recover his money following an investment fraud orchestrated by Watson, Glenn now alleges Watson and his associates have created a bogus US claim against his investment company Kea Investments seeking to extort USD136.2 million.

Glenn claims the conspiracy was hatched in a UK prison where Watson was briefly imprisoned in late 2020 for contempt of court after his failure to disclose assets.

The High Court was told Kea Investments is embroiled in US litigation with a Kentucky court ordering payment of USD136.2 million for breach of a ‘Coal Funding and JV Investment Agreement’ dated October 2012.  Eric Watson’s signature appears as witness to the agreement between NZ-based company Wikeley Family Trustee Ltd and Kea.  Kea says the contract is bogus.  It says it never signed any such agreement, never received notice of the intended Kentucky court action where judgment was entered against by default and claims the whole arrangement is an attempt either to wind up Kea or to extort money from the company.

Kea’s application to reopen the Kentucky case was unsuccessful.  Notice of the court proceedings was properly served on Kea, the US court ruled.  Kea says notice was served on its British Virgin Island’s agent but not passed on.      

Adding to Kea Investments’s woes are activity by a Rizwan Hussain who Kea says had Kea’s genuine directors removed from the record, replaced by so-called ‘protective directors’ who then supposedly agreed to settlement of the Kentucky court case at a price of USD100 million.  Kea says Watson and Hussain met in prison and that Hussain has a UK track record of using fraudulent schemes to hijack companies.  In 2022, the English High Court described Hussain’s manipulation of Kea directorships as being a legal absurdity and ruled his actions were abusive proceedings conducted for the benefit of Eric Watson.  These proceedings included legal action by Kea initiated by the ‘protective directors’ against both Sir Owen Glenn and lawyers who acted for him in the earlier litigation where Watson was held liable for fraud.

In the New Zealand courts, Kea sued to block enforcement of the disputed Kentucky court judgment.  As the successful Kentucky litigant, Wikeley Family Trustee is chasing funds in the US held by Kea.  It said the New Zealand courts have no jurisdiction.  This is a dispute in the US courts.      

Justice Gault said Wikely Family Trustee Ltd is a New Zealand registered company and New Zealand courts have jurisdiction.  Kenneth David Wikeley controls Wikeley Family Trustee.  He lives in Queensland.  Temporary orders were imposed to stop enforcement of the Kentucky court judgment.

It is back to court later to decide on validity of the disputed 2012 Coal Funding agreement.

Kea Investments Ltd v. Wikeley Family Trustee Ltd – High Court (10.03.23)

23.029

Undue Influence: Gorringe v. Pointon

 

‘Judy bullied me to do it:’ an anguished complaint by a 97 year old widow or words spoken in mischievous jest, the Court of Appeal was asked to decide.  The outcome would decide half share of Joan Gorringe’s $1.5 million estate.

Joan died in 2019 aged 101 years.  Her final will dated in 2016 leaving all to daughter Judith was challenged by grandchildren Romiley and Ashley, children of Joan’s son Peter.  Peter had died suddenly of an aneurysm in November 2015.

The Court of Appeal was told Peter’s sudden death triggered a flurry of legal activity as extended family looked at the status of their then current wills.  Peter’s sister Judith was to later give evidence that their mother Joan indicated she also wanted to update her will.  Changes made led to allegations of undue influence by Judith.

Nine days after Peter’s death in 2015, Joan signed a new will having the effect of disinheriting Peter’s children who would otherwise have received the half share destined for their father.  Joan left the balance of her estate to Judith after cash gifts of $50,000 to each of her grandchildren.  Four months later, in 2016, Joan signed a further will which provided that should Judith die before her mother then Judith’s share of Joan’s estate would go in full to Judith’s husband.

The court was told of a conversation Joan had with Peter’s children shortly after Peter’s death.  They said Joan told them she had been bullied by Judith into changing her will, cutting them out.  They took legal advice, being told they had no right to see Joan’s will whilst she was alive and had to wait until Joan’s death to see what her will said.  Three years after Joan’s death, extended family were in court.

Judith denied she had exercised any undue influence over her mother and said that if her mother spoke of being bullied into signing a new will it was merely an example of her common teasing practice of deflecting acknowledgement of a decision she had made.  There was no evidence from rest home staff of Judith having bullied her mother.

The Court of Appeal said it is improbable that comments by Joan of being bullied into signing were mischievous.  While family are sometimes told in advance terms of a potential inheritance, it is not common to tell someone they have been disinherited.  It is more probable than not that the 2015 and 2016 wills were made as a result of Judith’s undue influence, the Court of Appeal ruled.  Joan’s age, the fact the 2015 will was drafted before Peter’s funeral, the fact Joan had become increasingly reliant on Judith to handle her personal affairs plus the lack of independent legal advice all indicated undue influence.

The 2015 and 2016 wills were ruled invalid, resulting in Peter’s children inheriting the half share of Joan’s estate that their late father Peter would otherwise have inherited.

Gorringe v. Pointon – Court of Appeal (7.03.23)

23.028

Defamation: Cato v. Manaia Media

 

Ordered to pay $240,000 damages, Manaia Media could not claim its defamatory comments about lawyer Kristin Cato were justified on public interest grounds.  Comments in New Zealand Horse & Pony painting Ms Cato as acting in an unethical and unprofessional manner had no relevance to Manaia’s defence in court that it was acting in the public interest by questioning governance issues at Equestrian Sports New Zealand.  

Following a 2017 tour of Australia by a New Zealand equestrian team, complaints of unacceptable behaviour by some team members led to a private mediation.  Details have not been made public.  Ms Cato acted for the complainants.  The Australian tour and its consequences resulted in online discussion within the equestrian community about how the complaints were resolved.

The High Court was told Horse & Pony website published a December 2017 article which called into question both Equestrian NZ’s handling of the dispute and Ms Cato’s subsequent release of a media statement.  Horse & Pony claimed Ms Cato’s media release both breached confidentiality rules at the mediation and since it was not a general media release was designed to financially benefit a rival publication produced by her mother.

Ms Cato was awarded $240,000 damages by a jury, deciding the Horse & Pony comments defamatory. Justice Robinson was then asked to rule whether the article, even though defamatory, could be excused on public interest grounds.  Published statements, even if untrue, can be justified if they are on a matter of public interest and the published communication was made responsibly.

Equestrian NZ’s complaints procedure is a matter of general public interest, Justice Robinson said.  But no reference to Ms Cato was needed to further this discussion, he ruled.  The article did not need to mention her at all, either directly or indirectly.  Nor did it need to mention Ms Cato’s mother, he said.  Manaia did not need to include defamatory comments about Ms Cato in order to make public comment about the performance of Equestrian NZ.

Cato v. Manaia Media Ltd – High Court (3.03.23)

23.027

 

Post Judgment Note: In June 2025, Court of Appeal ordered a retrial, ruling there had been a miscarriage of justice in relation to Manaia Media’s ‘public interest’ defence.  Manaia was not permitted to introduce at trial evidence supporting this defence whilst, in contrast, Ms Cato introduced evidence on this point described by the Court as being irrelevant and unfairly prejudicial.

In addition, the Court set aside the $240,000 damages award as being excessive.  The Court suggested damages of $75,000 would be appropriate should Ms Cato succeed in her defamation claim at any subsequent retrial.