Company: Walters v. Neale

 

Tani and Margaret Neale were told to cough up $177,000 proceeds from sale of Wanaka-based TMC Transport’s trucks with the High Court saying the company would be put into liquidation if they did not sort out their differences with fellow shareholder Luke Walters.

The court was told two trucks and a flat deck trailer previously owned by a company controlled by Mr Walters were sold in 2018 to a new company called TMC Transport 2018 Ltd.  TMC was owned 50 per cent by Mr Walters and 50 per cent by Tani and Margaret Neale.  Their business relationship fell apart in a little over a year.  The Neales fired Mr Walters as one of the two directors.  He left the company.  The High Court subsequently ruled this supposed dismissal of Mr Walters was invalid; correct company procedures for removal of a director had not been followed.

The trucks and trailer were sold after Mr Walters departed.  The Neales kept the $207,000 net sale proceeds; saying initially this was in repayment of money they had lent the company, later saying they were holding the money in ‘safe-keeping’.  There was no evidence that the money was being held on deposit, in trust.

Mr Walters sued, complaining the Neales had taken for themselves all proceeds from sale of company’s assets leaving him with nothing.  Some $30,000 of this money was used by the Walters to pay TMC Transport’s GST obligations.

Associate judge Lester ruled the Neales’ unilateral removal of Mr Walters as director amounted to prejudicial behaviour in breach of the Companies Act.   If the two sides cannot agree on how the sale proceeds should be divided, a liquidator will be appointed, he said.

The Neales were given seven weeks to sort out their differences with Mr Walters.  Failing that, a court appointed liquidator takes control.  If automatic liquidation kicks in, the Neales must repay $177,000 to the company within ten days.

Walters v. Neale – High Court (15.05.23)

23.068

'Spencer on Byron:' Body Corporate 2017624 v. Grimshaw

 

Leaky home specialists, law firm Grimshaw & Co, was ordered to pay $3.2 million damages after failing to properly advise on distribution of a twenty million dollar 2013 settlement for remediation of Spencer on Byron in Takapuna, Auckland.

Cost increases incurred while apartment owners fought over division of the pie were a direct result of Grimshaw not properly identifying owners’ rights, the High Court ruled. 

Twenty storeys high, Spencer on Byron stands out on the North Shore skyline.  It was plagued by construction defects.  The Spencer body corporate hired Grimshaw as legal adviser.  Grimshaw negotiated a twenty million dollar out of court settlement with builder Multiplex and Auckland City Council.

As is common with expensive remediations, a legal claim was first filed forcing both Multiplex and the Council into mediation.  Named as plaintiffs were both the Spencer body corporate and named apartment owners.

Not all apartment owners signed up, though all were levied for payment of ongoing legal and consultancy fees.  Arguments over whether apartment owners who had not joined the legal action were entitled to share in the twenty million dollar settlement led to remediation delays.  On Grimshaw’s advice, the court was asked to rule on apartment holders’ entitlements.  This delay resulted in further legal costs and an increase in remediation costs.  Grimshaw was held liable for these increased costs: $3.2 million.

In anticipation of the 2013 settlement, Grimshaw had prepared three years prior a distribution agreement setting out a formula for division between apartment owners who had signed up (compensation for cost of apartment repairs) and the body corporate (for repair of common areas).  Apartment owners who did not sign up took the view that they would benefit at least from the body corporate repairing common areas that all made use of.

But Unit Titles Act rules changed between the time a draft distribution agreement was floated and the time it was actioned; apartment owners no longer shared ownership of common areas, ownership lay with the body corporate.  Apartment owners who had not joined the legal action missed out, the body corporate said.  All settlement money would go to those who signed up.

Justice Tahana ruled Grimshaw was negligent in not advising a redraft of the distribution agreement in light of the Unit Titles rule change.  Legal costs disputing application of the distribution agreement and subsequent remediation delays were a direct result of this failure, she said.

The court was told a mediation agreed between all apartment owners in 2015 resulted in eighty per cent of the twenty million dollar settlement directed to remediation of common areas, the balance to apartment holders who had signed up for the initial litigation.  Those who had not signed up did not receive a payout.

Body Corporate 2017624 v. Grimshaw & Co – High Court (28.4.23 & 15.05.23)

23.070

 

Post judgment note: The Court of Appeal subsequently ruled Grimshaw was not negligent; the earlier distribution agreement remained valid despite changes to the Unit Titles Act.  In addition, the court ruled Grimshaw's advice did not cause the claimed $3.2 million loss.

Insurance: Polladio Holdings v. New India Assurance

A $745,000 insurance claim was denied after a commercial property owner lied about the circumstances in which weather damage was first discovered.

Polladio Holdings Ltd owns the Grosvenor Hotel in Timaru.  Director Ping Lim claimed on a New India insurance policy for hail damage to the roof.  A hail storm passed over Timaru in November 2019.  It was not until September 2020 that a claim was made.

New India queried the delay.  Mr Ping said he was not aware of the damage until the roof was inspected one year later, prior to planned renovations.  It came out in evidence at the High Court that Mr Ping was aware of hail damage back in November 2019 when contractors made temporary repairs to the roof.

New India’s policy invalidates claims made dishonestly and further requires that ‘true statements’ are made when claiming.  Justice Wylie ruled Mr Ping’s false statement about when the damage was discovered, by itself, was sufficient ground for New India to refuse payment.

Changes to insurance law in 1977 prohibited insurance companies from denying cover on the sole ground of delay in making a claim.  The amount paid out can be adjusted if any delay increases costs for the insurer.  For Polladio Holdings, the justification for non-payment was not the delay in reporting damage, but the fact of lying about the delay.    

Separately, Justice Wylie ruled there were two further grounds for New India to refuse payment.  A policy exclusion for damage caused by ‘marring and scratching’ was sufficient to deny payment; cosmetic pitting and scratching to the roof caused by hail damage fell within this exclusion.  Where severity of the hail storm had punched holes in the roof, this was due to rust and corrosion in the roofing material, again an excluded condition.

Polladio Holdings Ltd v. New India Assurance Co Ltd – High Court (12.05.23)

23.067

Theft: Purucker v. Huebler

 

Common sense suggests conviction for theft quickly leads to an open and shut claim to recover funds stolen.  But the law and common sense are often strangers, as experienced by Takaka café owner Alexandra Purucker trying to recover $873,300 she said was stolen by erstwhile friend Iris Huebler.

Huebler was sentenced to four years imprisonment after pleading guilty to five counts of theft.  The High Court was told Ms Purucker travelled regularly to her native Germany over the period 2011-2018, leaving Huebler in charge of business affairs.  Huebler was subsequently charged with theft following a forensic accountant’s analysis identifying suspicious transactions totalling $873,364.

As part of plea bargain negotiations between Huebler and prosecutors prior to sentencing, the amount allegedly stolen was reduced to $700,000.  Jumbled in with these negotiations were allegations of theft by Huebler against another person.  Charges in respect of this further theft were withdrawn.

One year on, Ms Purucker took legal action against Huebler seeking to recover $873,300 as a civil debt.  Huebler challenged the debt claim, saying any money supposedly taken had been paid back.  This lead to a legal tussle in the High Court as to the status of her prior theft conviction when applied to a civil claim for recovery.

The general rule is that conviction is proof only of a conviction, not the factual circumstances surrounding an offence.  Criminal liability requires proof beyond a reasonable doubt; civil liability, proof on the balance of probabilities.  The differing rules has led to the Gilbert & Sullivan situation of two trials, one criminal the other civil, with conflicting outcomes.  High profile cases overseas have seen a person found not guilty of murder in criminal proceedings ordered to pay damages for unlawful killing in a subsequent civil case.

In New Zealand, the Evidence Act rule is that while conviction is proof that the person committed an offence, that fact can be challenged in subsequent civil cases.  In any subsequent civil case, a judge must first assess whether there are sufficient grounds to challenge the fact of the conviction.

Justice Isac ruled Huebler had no grounds to challenge her recorded conviction for theft of $700,000.  She provided no evidence at the time of her plea negotiation that there had been no theft.  In the time since conviction, she had not taken any steps to disprove evidence of theft provided by the forensic accountant.

Consequently, Huebler’s theft conviction is evidence that that she is liable to repay Ms Purucker, but only up to $700,000; the amount agreed in the plea negotiations.  That leaves a shortfall of $173,000 allegedly stolen.  It is open for Huebler to dispute in a civil debt recovery claim whether this further amount is owed, Justice Isac ruled.

Purucker v. Huebler – High Court (11.05.23)

23.065

Mortgage: Perpetual Trust v. Bolton

 

With Ken Bolton refusing to remove a mortgage blocking transfer to his sibling of their late father’s Tauranga property, the High Court ordered removal instead be signed off by the court registrar.  This followed Ken Bolton’s thirty years’ mishandling of their late father’s estate.

Ken took over estate administration in 1993, after the death of his sister, the prior executor.

The High Court was told that after their father’s death in 1975, his three children as beneficiaries mutually agreed that one of their number, Alan, would buy their father’s Sutherland Road property.  Ken said he would take care of the paperwork, to save legal costs.  Alan handed over $20,000 cash.  He paid the balance in gold bars then valued at around $80,000.  Ken was to sell this gold.  He didn’t.  He placed the gold bars with Gold Corp on the assumption this would generate a good return.  The value of these gold bars was lost when GoldCorp went into liquidation in the 1980s, insolvent.

Unbeknown to Alan, Ken never transferred to him title for Sutherland Road.  Ken instead transferred Sutherland Road to a company he controlled and signed a mortgage giving himself rights as secured creditor over the property.  Rating charges Alan paid to Ken were not handed on to Tauranga Council. The full picture later emerged when Alan learnt of a threatened Council sale for rate arrears.

The High Court removed Ken as executor of their late father’s estate, appointing Perpetual Trust in his place.  Perpetual found Ken unco-operative.  He did not respond to requests for removal of the Sutherland Road mortgage.

Justice Walker subsequently ruled there was no justification for the mortgage.  She ordered Ken remove the mortgage within fourteen days, failing that court staff could sign off on the mortgage discharge.  Justice Walker signalled Ken would be held liable for the estate’s legal costs having forced a court hearing to have the mortgage removed.

Perpetual Trust v. Bolton – High Court (11.05.23)

23.066

Wireless Spectrum: Cayman Spectrum v. Spark

 

Part of an ongoing spat with Spark, telco entrepreneur Malcolm Dick alleges Spark made false statements intended to defeat the course of justice during a 2015 Commerce Commission merger application and that Spark employees misled the Commission.  He failed in an attempt to have the High Court refer these complaints to the Law Society and the Commission. 

The dust up between Spark and Mr Dick is playing out as part of ongoing litigation between Cayman Spectrum (NZ) and Spark.  In that litigation, Cayman alleges Spark knowingly assisted Cayman director Boyd Craig in ripping off Cayman.  Mr Dick is the controlling figure behind Cayman.  He also has interests in another telco, Blue Reach.

Mr Dick alleges Spark lied to the Commerce Commission during a 2015 application when seeking to buy Woosh Wireless and Craig Wireless.

It is alleged Spark failed to tell the Commission in 2015 that Blue Reach intended to enter the retail market.  Mr Dick claims documents Spark were required to disclose as part of the current Cayman Spectrum/Spark litigation make it clear that Spark was aware back in 2015 that Blue Reach was likely to become a market participant at retail level.  The High Court was told that at the Commerce Commission hearing a Spark employee stated that Spark’s understanding was that Blue Reach intended to offer wholesale telco services only.

The wholesale market is a different ‘market’ to retail.  Market concentration is a central issue in Commerce Commission deliberations.

Mr Dick applied to have the Cayman/Spark litigation documents handed over to both the Commerce Commission and the Law Society for disciplinary action against Spark and several named employees.

Blue Reach and Spark have a bruising backstory.  In 2018, Blue Reach had a claim against Spark struck out.  This concerned a Blue Reach allegation that Spark had misled the Commission.  Justice Lang described the current 2023 case as another effort by Blue Reach to have Spark’s behaviour investigated. 

Rules governing documents ordered to be handed over prior to a court hearing cannot be used for any collateral or ulterior motive, except in exceptional circumstances.

Blue Reach was making use of documents it had no right to access, Justice Lang ruled.  Blue Reach is not party to the current Cayman Spectrum/Spark litigation.  Through Cayman, Blue Reach opportunistically learnt of the documents’ existence simply by reason of Mr Dick’s holdings in both Blue Reach and Cayman.

Staff at both the Law Society and the Commerce Commission will be aware of Mr Dick’s complaints and have power to initiate their own investigation if warranted, Justice Lang said.

Cayman Spectrum (NZ) Ltd v. Spark NZ Trading Ltd – High Court (10.05.23)

23.064

Real Estate: James v. Luxury Real Estate

Ordered to pay a $125,000 commission on sale of their Queenstown property, claims by Ross and Nona James that real estate agent Terry Spice had cancelled his agency agreement in a heated argument over negotiating strategy were dismissed in the High Court.

Litigation followed the March 2017 sale of the James’ Queenstown property for $3.15 million, sold to a Singapore buyer alerted to the listing by James’ next door neighbour.  The James refused to pay commission and marketing expenses billed by listing agency Luxury Real Estate Ltd.

The James expectations were a likely sale at $3.3 million.  Evidence was given of initial discussions directly between the James and eventual buyer Chivukula Bharadwaja with Mr Bharadwaja signalling he would offer $3.25 million.  The James were disappointed to receive a written offer to buy at a lesser price: a flat three million dollars.  They considered they were being ‘played.’

Over the following days, two more expressions of interest surfaced; both from Australia.  Luxury Real Estate agent Terry Spice initiated a multi-offer process, requiring all three to submit their best and final offer by deadline.  When the two Australian prospects later withdrew without making an offer, the James objected to Mr Spice then advising Mr Bharadwaja that he was the only one left in the running.

A blazing row ensued.  Uncomplimentary language was exchanged.  Mr Spice walked out.  The James said Mr Spice’s actions amounted to cancellation of the agency agreement; no commission was payable on the subsequent sale.

Justice Osborne ruled the heated argument did not amount to cancellation.  Subsequent emails between Mr Spice and the James were evidence of steps taken to progress a sale.

The James further argued that if there was no cancellation, commission was not payable because of Mr Spice’s breach of duties as an agent.  Mr Spice’s disclosure to Mr Bharadwaja that there were no competing offers was a wrongful disclosure of confidential information, they said.  Mr Spice said he is ethically required to tell a multi-offer bidder that all other bidders have withdrawn, otherwise he has misled a prospective purchaser and is open to liability under the Fair Trading Act.

Justice Osborne ruled that Mr Spice was in breach of his duties as an agent only to the extent that he had not fully explained to the James from the outset as to how a multi-offer process might work out.  The James suffered no loss from this breach, he ruled.  The sale price of $3.15 million was the price Mr Bharadwaja submitted as part of the multi-offer process.  There was no evidence of this being below market value.

James v. Luxury Real Estate Ltd – High Court (10.05.23)

23.063

Contract: Progressive Livestock Ltd v. Donaldson

Failing to clearly show that a livestock contract was signed on behalf of his company meant director Scott Donaldson was personally liable to pay a $473,400 company debt.

The High Court was told Mr Donaldson was farming in the West Coast and mid-Canterbury regions through the 2019/2020 season under the company name SLD Agriculture Ltd.  Livestock were sourced from nation-wide company Progressive Livestock Ltd under several lease agreements.  One year on, Mr Donaldson was disputing payments due.  Progressive sued.

An immediate legal complication was sloppy paper work evidencing the lease arrangements.  The original contracts named as lessee ‘Scott Donaldson trading as SDL Agriculture.’  The name of Mr Donaldson’s business ‘SLD Agriculture Ltd’ was incorrectly recorded on the written contracts as ‘SDL Agriculture.’

Justice Osborne ruled lease payments were not company debts; the contracts were with Mr Donaldson personally.  To avoid personal liability for a company debt, Companies Act rules require the company name be clearly and correctly stated on any contract.

The paper work signed by Mr Donaldson not only transposed his company initials SLD into SDL but also left off the critical designation ‘Ltd.’  The abbreviation ‘Ltd’ signals to potential creditors that the contracting party is a limited liability company; owners accept no personal liability for debts of the business.

Progressive Livestock Ltd v. Donaldson – High Court (10.05.23)

23.062

One Pure: Wang v. Kang

Jianping Wang, majority shareholder in bottled water exporter One Pure, finds business operations are being hampered by the financial woes of minority shareholder Yongnan Kang who has gone missing, whereabouts unknown.

Mr Kang initially ran into financial difficulties following default on a RMB fifteen million loan from Guangzhou Dongjiang Petroleum.  A charging order was imposed by Dongjiang on Mr Kang’s twenty-five per cent shareholding in One Pure International Group; a first step towards enforcing a court judgment issued by a Guanzhou court in China.  Dongjiang is currently owed some $3.25 million.

Adding to Mr Kang’s financial difficulties, fellow One Pure shareholder Mr Wang is looking to recover from him $23.7 million; in part, compensation for what an arbitrator ruled was a breach of contract in Mr Kang’s $33.6 million sale to Mr Wang of a seventy-five per cent One Pure stake in 2018.  Mr Wang had a second charging order placed over Mr Kang’s minority One Pure shareholding.

A charging order has the effect of ‘freezing’ an asset, prior to a forced sale.

Mr Wang subsequently told the High Court these two charging orders were hampering One Pure’s business operations.  He said the charging orders should be removed; the shares were no longer Mr Kang’s property as he no longer had any right to the shares.  Since Mr Kang was a ‘defaulting party,’ terms of their shareholders’ agreement meant Mr Kang’s shareholding was forfeit; the shares had passed to him, Mr Wang said.

Justice Peters ruled there was no automatic transfer.  If Mr Kang is a ‘defaulting party,’ then any share transfer requires his One Pure shareholding to first be valued.  This had not been done.

She further ruled that the Dongjiang charging order should remain for recovery of its China court judgment.  Dongjiang said it would remove its charging order only if paid the lesser of either the $3.25 million owed or the value of Mr Kang’s twenty-five per cent One Pure shareholding.

Wang v. Kang – High Court (9.05.23)

23.061

Bankruptcy: Scott v. BNZ

More than ten years after his bankruptcy started, self-employed artist Michael Craig Scott, also known as Makoure Scott, remains bankrupt with a discharge refused following his abject failure to engage with both Insolvency Service and the courts.  Details emerged of Scott wrongly pocketing whilst bankrupt a USD100,000 refund from Virgin Galactic, his deposit for a commercial space flight.

The High Court was told Scott was bankrupted by Bank of New Zealand in 2012 after sale of his Carey’s Bay property in Dunedin left a shortfall of some $483,000 owed the Bank.  He has apparently lived overseas since; in the United Kingdom and more recently Australia.  Creditor claims in his bankruptcy totalled $673,100; personal property and paintings left behind in Dunedin raised $3,114 at an Insolvency Service auction.

Because he failed to file with Insolvency Service a statement of financial position, the three year period for automatic discharge from bankruptcy never started running.

In 2022, whilst in Australia, Mr Scott applied to the High Court for a bankruptcy discharge, saying he was not going to return to New Zealand while still bankrupt.  He failed to attend the New Zealand court hearing by audio-visual link.  He claimed to have no assets.  Discharge was refused.

Associate judge Paulsen said that creditors received no distribution in the bankruptcy, that Scott had failed to provide information to Insolvency Service as required and that there was evidence of assets being hidden from Insolvency Service, in particular his status as beneficiary of a family trust and a USD100,000 Virgin Galactic refund.

Insolvency Service told the court Mr Scott did provide some financial information in March 2021 such that an automatic discharge from bankruptcy will operate from March 2024.

Scott v. Bank of New Zealand – High Court (5.05.23)

23.060

Whales: Hart v. Director-General Conservation

In England, stranded whales become the personal property of King Charles III, though in practice it is the quaintly named Receiver of Wrecks who takes possession.  In New Zealand, Maori have ownership of stranded whales, a customary right preserved by the Treaty of Waitangi.  That does not stop disputes between Maori iwi over territorial rights to particular strandings.  Rangitane and Ngati Kura/Ngai Tahu each claim they are entitled to bone from two whale strandings on the north-east coast of the South Island.

The High Court was told the two iwi are arguing over bone from dead sperm whales washed ashore; one in 2009 near the Awatere River mouth, the other in 2018 further down the coast at Marfells Beach.  Department of Conservation arranged for the carcasses to be buried.  The jaw bones were first removed and buried separately, awaiting a decision by the two iwi as to final ownership.  Both iwi have cultural ties to the area.  Evidence was given that whilst Rangitane and Ngati Kura/Ngai Tahu were both aware of the strandings, they never sat down together to decide ownership. 

While the Marine Mammals Protection Act requires a Conservation permit for any person to have possession of whale bones, Justice Cooke ruled that Conservation does not have the power to act as arbiter deciding which iwi has rights of ownership.  In 2021, the then Minister of Conservation, Kiri Allen, decided allocation of the whale jaw bones would be decided by government.  The bones were dug up and trucked to Kaikoura.  Ngai Tahu lobbying saw it gain possession.  Rangitane complains it was never asked for its views.

Hearing of the move, Rangitane sued.  Justice Cooke ruled Ngai Tahu’s continued possession of the jawbones was unlawful; the iwi did not have a Mammals Protection Act permit issued by Conservation. He further ruled that government’s decision to truck the jawbones to Kaikoura was in breach of the Treaty; it was for the two iwi to first resolve customary rights to the whale bone.

Hart v. Director-General of Conservation – High Court (2.05.23)

23.059

Bankruptcy: Westpac v. Chen

Now working in Dubai as a self-proclaimed forex trading specialist, Jiayuan (Georgia) Chen said she should be excused a $350,000 Westpac debt because writing off this amount would be ‘a tiny drop in Westpac’s kitty’ compared with its record profits.  She was bankrupted at Westpac’s request. 

The High Court was told this debt arose from a loan used to buy an investment property in Auckland suburb Millwater.  Named as co-guarantor was Mathew McKenzie.  According to Companies Office records, they then shared the same Auckland residential address.

The Millwater property was purchased by their company J & MWM Holdings Ltd in December 2017.  Mortgage repayments were irregular.  The loan was put on Westpac’s watchlist with an agreement payments would become interest only.  No payments at all were made after February 2020.  Evidence was given that Ms Chen had been diverting rental receipts to an account she held at another bank.

Under pressure from Westpac, Ms Chen put Millwater on the market.  A sale for $1.17 million in late 2020 left a shortfall owed Westpac of approximately $350,000.

The High Court was told negotiations with Mr McKenzie saw him making part-payment on his guarantee to Westpac.  Ms Chen claimed that her renegotiation discussions with Westpac got nowhere and that should be grounds to excuse further liability.  Westpac had demanded current arrears be made good before it would look at negotiating new terms.  She further claimed Westpac should look solely to Mr McKenzie for further payment.

Associate judge Lester said it was a simple case of Ms Chen refusing to accept the commercial reality of being called to account on her guarantee.

Ms Chen said she had no assets in New Zealand and that bankruptcy was pointless.  The bank account Ms Chen used to divert rental income will be the starting point for Insolvency Service to identify where the money went, Judge Lester said.

Westpac v. Chen – High Court (1.05.23)

23.058

Leaky Home: MacFarlane v. Sewell

Mark Sewell was ordered to pay $524,500 damages for negligence after telling a Lower Hutt purchaser that her intended purchase was ‘definitely not a leaky home’ when it was.

Described as a trade-qualified experienced inspector, Mr Sewell was hired by vendor Alex Sim to provide a building report prior to sale of a two-storey townhouse at McBain Grove, Lower Hutt.  His contract with Mr Sim contained a detailed disclaimer stating it would be a visual inspection only with no invasive testing and that the report could not ‘100% guarantee no moisture ingress issues.’  His subsequent report was neutral; describing the property’s overall condition as reasonable, with only minor maintenance issues.  Purchaser Rosemary MacFarlane was to later find there was extensive damage and decay to framing caused by water ingress with the possibility thirty per cent of timber framing would need replacement.      

The High Court was told a real estate agent gave Ms MacFarlane a copy of the building report prior to her purchase, but not a copy of the initial contract with Mr Sim which severely limited the extent of the then promised inspection.  After receiving the report, Ms MacFarlane contacted Mr Sewell direct.  He told her McBain Grove was ‘structurally sound’ and ‘definitely not a leaky home.’  Mr Sewell was to later say he had no recollection of this conversation.

Justice McQueen ruled both Mr Sewell and his company Informed House Inspections Ltd liable for negligent misstatement and also liable under the Fair Trading Act.

The building report stated it was prepared for the sole benefit of the vendor.  The Fair Trading Act is a consumer protection statute and those in trade cannot contract out of the Act, Justice McQueen ruled.  Building inspectors preparing building reports solely for vendors can expect these will be shown to prospective purchasers, she said.

Mr Sewell and his company were held jointly liable to pay $524,500: remediation costs ($414,000); cost of alternative accommodation during repairs ($18,700); general damages for stress and anxiety ($30,000) and legal fees ($61,700).

 

Mr Sewell was present in court but not permitted to defend the claim.  Justice McQueen ruled that his late compliance in lodging a defence and failure to pay a court filing fee on time plus his failure to comply with court orders requiring production of named documents meant the case would proceed without him.  Mr Sewell has to bear the cost of challenging the order to pay $524,500 damages should he claim there was a miscarriage of justice, Justice McQueen said.

MacFarlane v. Sewell – High Court (26.04.23)

23.057

GST: Aggarwal v. DSD Homes

Dalvir Dhaliwal was ordered to repay fifteen per cent of the purchase price on an Auckland house sale after promising his vendor company was not GST registered and hence ineligible to recover GST, when in fact it was.

The High Court was told his company DSD Homes Ltd sold a property in McKean Road Manurewa to Rajesh Aggarwal and Sakshi Khanna in September 2021.  An extra clause was written into the standard-form sale and purchase agreement: DSD stated it was not GST registered; the price was to be reduced by fifteen per sent if it was registered; and both DSD and its director Mr Dahliwal were liable to repay the fifteen per cent if DSD was in fact registered.

Initially Mr Aggarwal and Ms Khanna intended to occupy McKean Road as a family home.  Plans changed.  Considering the house was not ideal for their family, they decided instead to redevelop the property.  They registered for GST one month before completing the purchase.  Only when applying for a GST credit did they learn DSD was in fact GST registered.  The legal effect of both vendor and purchaser being GST registered was that no GST credit was allowed; the transaction was zero-rated.

They sued both DSD Homes and director Mr Dhaliwal.  Justice Tahana ruled terms of the contract were unambiguous.  Mr Dhaliwal and his company were ordered to repay $166,956.  In addition, they were liable to pay interest at 14 per cent; the default interest rate in the sale agreement.

Neither Mr Dhaliwal nor his company appeared in court to defend the claim.

Aggarwal v. DSD Homes Ltd – High Court (24.04.23)

23.055

Farm Sale: PGG Wrightson v. Routhan

Ordered to pay $1.6 million for negligence on sale of a West Coast dairy unit, PGG Wrightson Real Estate had damages reduced to $300,000 on appeal.  While PGG did negligently provide purchaser Phil Routhan with incorrect milk production figures, it was not liable for all losses incurred following the purchase, ruled the Court of Appeal.

In 2010, Mr Routhan purchased a 105 hectare dairy unit near Hokitika.  He had a high national profile in plumbing and gasfitting.  Farming had been a long-held dream.

The $2.8 million purchase was funded almost entirely with debt finance.  Ten years later, the farm was sold at Rabobank’s insistence for $1.5 million in a forced sale.  Farm-gate milk prices had halved in the five years following his purchase, never returning to 2010 levels by time of the forced sale.

Mr Routhan sued PGG Wrightson, claiming he never would have gone ahead with his 2010 purchase if made aware of the dairy unit’s actual milk production levels.  A PGC Wrightson agent had negligently overstated production levels at time of the sale by about ten per cent.

The Court of Appeal said PGG Wrightson acting as agent on the sale did not underwrite all financial consequences of Mr Routhan’s purchase.  PGG did not advise him on whether to purchase the dairy unit, it merely provided him with information to assess a price at which he might offer to buy.  PGG Wrightson was liable for the direct consequences of providing incorrect production figures.  Overstating milk production by ten per cent resulted in Mr Routhan overpaying $300,000 for the farm, the Court ruled.

PGG Wrightson was not liable for post-sale events which resulted in losses suffered by Mr Routhan such as: market movements (the drop in farm-gate milk prices); and Mr Routhan’s spending on capital improvements, part of his strategy to boost production (building a concrete feed pad, upgrading races, re-fencing and replacing the water supply system).

PGG Wrightson Real Estate Ltd v. Routhan – Court of Appeal (24.04.23)

23.056

Court Delays: PBL Solutions v. AFT Pharmaceuticals

PBL Solutions alleges NZX-listed AFT Pharmaceuticals stole a drug they were jointly developing.  Delays in issuing a court ruling means arguments over the drug’s potential profitability are now affected by a rival’s likely entry into the EU market, confirmed after last year’s High Court hearing.

Called ‘pascomer,’ the drug in dispute treats facial deformities caused by a rare genetic defect.  Pascomer is claimed to be part of an orphan drug programme under development by AFT Orphan Pharmaceutical Ltd, a company owned by AFT and PBL.  Pascomer is yet to receive regulatory approval for sales in the profitable US and EU markets.  PBL is suing to recover its claimed entitlement to a share of the income stream likely to flow from Pascomer sales.

PBL alleges that AFT stole pascomer from their joint venture and that AFT is now developing and commercialising pascomer for its own benefit.  AFT denies any theft and says in any event the present value of pascomer is nil.  PBL values pascomer at between US$53 million and US$67 million; a variance explained by the time it takes to get regulatory approvals and the risk of a rival being first to market.

In 2022, battle was joined in the High Court with hearings concluded early December.  Much of the evidence turned on the statistical possibility of pascomer ever getting regulatory approval or of ever being first.

In February 2023, a rival product cleared the first hurdle for EU regulatory approval.  AFT was immediately back in court.  No judgment had yet been issued subsequent to the December court hearing.  AFT wanted further evidence admitted, requiring the trial judge to take into account that a rival was very likely to beat pascomer into the EU market.  If accepted, this evidence would put a huge dent into any market valuation of pascomer.

Justice Fitzgerald refused to hear further evidence.  The prospect of a rival beating pascomer to market was canvassed at trial, she said.  Experts took this contingency into account when giving their valuations as to the present value of pascomer at date of the trial.

Justice Fitzgerald has yet to hand down her rulings on PBL’s 2022 claim.  Should Justice Fitzgerald rule that AFT did steal pascomer, she has to ignore the fact that at least one contingency affecting future value which was canvassed at trial has come to fruition.

PBL Solutions Ltd v. AFT Pharmaceuticals Ltd – High Court (21.04.23)

23.054

Asset Forfeiture: Commissioner of Police v. Liu

It read as a long rap sheet: smuggling, illegal gambling and loan sharking; none of which led to a criminal prosecution but instead to a court-approved proceeds of crime settlement with payment of $141,480.

A June 2021 combined police and customs search of Yanxian Liu’s home in the Auckland suburb Favona unearthed large sums of cash together with smuggled Chinese cigarettes and tobacco.  A search of his phone proved enlightening; images of individuals gambling with large sums of cash together with a ‘tick list’ which appeared to be a list of debtors owing gambling debts to Mr Lui.  The cash was from gambling on mah-jong games at a Chinese restaurant in Newmarket, Mr Lui admitted.  He also admitted to loan sharking; lending to gamblers.

Customs told the High Court there was no evidence that Mr Lui had paid excise duty or GST on the imported tobacco and cigarettes.  Internal Affairs said no gambling licence had ever been issued for mah-jong gambling in the Newmarket area.  There was no evidence of his registration as a financial services provider permitted to make loans.  No income tax had been paid on these various business activities.

The High Court approved an agreement between police and Mr Liu that the $141,480 seized from his home be forfeit under the Criminal Proceeds (Recovery) Act as proceeds of crime.

The court was told no criminal charges have been laid.

Commissioner of Police v. Liu – High Court (21.04.23)

23.053

Partnership: Moses v. Stark

With their Waikato farming partnership dissolved automatically on George Stark’s death in 2020, family complain son Keith is running down the Ohinewai farm treating farm assets as his own.  Receivers were appointed to take control of farm management and to recover partnership loans made to Keith, his former wife Linda and their company Keilin Farms Ltd.

Juliet Moses was appointed executor of George Stark’s estate.  She is also a partner in the GJ & EM Stark Partnership in her own right.  This partnership farms on Tahuna Road at Ohinewai.  The other partner is George’s widow, Eileen.  Son Keith controls Eileen’s interest in this partnership through a power of attorney triggered after Eileen was judged unable to manage her own affairs.  The High Court was told Keith manages the partnership farm in conjunction with a neighbouring farm he owns through a family company.

Juliet told the High Court that discussions with Keith over farming operations were deadlocked.  She alleges Keith is selling partnership livestock without correctly accounting for the proceeds and further alleges he is taking excessive fees for partnership management.  There was evidence from a farming consultant that the farm is run down and poorly maintained.   As a further complication, there is an application before the Family Court to have Keith removed as Eileen’s property manager.

The Partnership Law Act states partnerships come to an end automatically on the death of any one partner, unless the partnership agreement states otherwise.  The court was told the Stark partnership agreement was signed in 1965.  It was initially for a six year period, terminable on one month’s notice after this six year period finished.   

The GJ & EM Stark Partnership ended on the death of George Stark in July 2020.  In the normal course of events, it is for surviving partners to wind up a partnership.  No agreement could be reached because of the deadlock between Juliet as one partner and Keith acting as attorney for Eileen as the other partner.

Associate judge Brittain ruled appointment of a receiver was necessary because of Keith’s conflict of interest.

Moses v. Stark – High Court (20.04.23)

23.052