Lease: Centro Pilgrim v. Mathew Barr Motor Group

 

Anger over what Christchurch commercial landlord Centro Pilgrim saw as attempts by tenant Nissan dealership Mathew Barr Motor Group to sabotage sale of its Sydenham units led to litigation over disputed lease payments.  Tit for tat litigation saw Centro liable for unpaid rent rebates.

The High Court was told Motor Group leased units at Pilgrim Place in Sydenham from Centro Pilgrim Ltd.  It was agreed annual lease payments would initially be $240,000, with subsequent inflation adjustments.  The deal was structured with Motor Group’s monthly rentals stated as totalling $316,950 per year, leavened by Centro making a return payment each month leaving Motor Group with a net annual payment of $240,000.  This rebate was labelled a ‘capital repayment,’ initially treated as tax free for Motor Group.

Later told these rebates were taxable in hands of Motor Group, the rebate formula was changed to ensure Motor Group’s effective annual lease cost stayed at $240,000 as agreed.  This change had the effect of increasing the amount rebated to Motor Group each month, at Centro’s cost.

The new payment/rebate formula operated for some years without interruption before differences over Centro’s proposed sale of Pilgrim Place came to a head.  Motor Group said the lease gave it first right of refusal on any sale.  It sent a copy of the rebate agreement to Centro’s real estate agents.  Potential buyers would discount the price offered on learning that the lease headline rent rate supposedly paid by Motor Group as sitting tenant was not the effective rent rate.

Annoyed that Motor Group was disrupting sale plans, Centro immediately claimed some $128,000 from Motor Group, claiming there had never been any valid agreement to alter the rent rebate formula and that Motor Group had been overpaid.  Centro stopped paying further monthly rebate invoices.

Associate judge Paulsen ruled there had been a valid variation.  Centro, in part, alleged the disputed variation was a stitch up negotiated by a former Centro director to Motor Group’s advantage.  Centro was liable for the actions of its former director, Judge Paulsen said.

Centro was ordered to resume payment of the varied rebate and to make good all arrears.  Failing that, Motor Group can put Centro into liquidation, Judge Paulsen said.  At time of the court hearing, Centro rent rebate payments to Motor Group were in arrears by some $56,000.

Centro Pilgrim Ltd v. Mathew Barr Motor Group Ltd – High Court (19.06.23)

23.093

Liquidation: Delorme SE24 Ltd v. Spot X Ltd

 

Auckland property developer Cheng Tih Lee, otherwise known as Brandon Lee, saw the High Court whip away control of his company Spot X Ltd following allegations he was actively hiding from insolvency practitioners seeking to track down $300,000.  At the same time Mr Lee was allegedly trying to spirit assets away from their grasp.

Mr Lee is in the sights of liquidators seeking to track down assets of a company called Delorme SE24 Ltd.  Delorme is insolvent.  They identified $300,000 cash from Delorme had found its way to another company called Spot X Ltd.  Mr Lee controls both companies.

Delorme liquidators had trouble contacting Mr Lee.  He no longer lived at the address noted on Companies Office records.  He was subsequently served by text and email with formal notice to attend the liquidators’ office and to answer questions about Delorme’s assets.  He didn’t show up.

Liquidators then took steps to force Spot X Ltd into liquidation in order to recover what was presumed to be a $300,000 intercompany loan.  Through intermediaries, Mr Lee let the liquidators know that Spot X’s listed registered address was no longer being monitored, offering no alternative as to where legal documents could be drawn to his attention.    

To their consternation, Delorme liquidators then discovered Mr Lee was rearranging shareholdings in his various related companies which would have the effect of shifting assets away from Spot X.  They asked the High Court immediately put Spot X into interim liquidation; a formal liquidation application would take some time.

Associate judge Sussock appointed Insolvency Service as interim liquidators with power to take control of Spot X assets.  Company assets are in jeopardy, she ruled.

Delorme SE24 Ltd v. Spot X Ltd – High Court (15.06.23)

23.091

Dotcom: R. v. Ortmann & van der Kolk

 

Having struck a plea bargain with US authorities, Kim Dotcom’s lieutenants Mathias Ortmann and Bram van der Kolk were jailed in New Zealand on a raft of charges for conspiracy to commit copyright fraud.  Evidence at sentencing highlighted how Dotcom’s Megaupload set out to defraud not only film and video copyright holders but also Megaupload’s own customers.

Megaupload was launched in 2005, ostensibly to provide locked cloud storage facilities.  By late 2010 it had fifty million daily users accessing pirated movies and videos.  At that time, it commanded four per cent of global internet traffic.  Over a decade, it was estimated to have garnered revenues of US$175 million from both user subscriptions and advertising inserted in and around pirated product.  Kim Dotcom is alleged to have snaffled most of this income for himself; a total of some US$100 million.  Ortmann, as chief technical officer, admitted to getting approximately US$19 million; talented coder and lead programmer van der Kolk, US$3 million.

After nearly a decade of legal manoeuvring to avoid extradition to the United States on charges of copyright fraud, Ortmann and van der Kolk struck a deal with US authorities.  They would not stand trial in the US.  They would plead guilty in the New Zealand courts, serve whatever sentence a New Zealand court imposed, surrender any remaining cash received from Megaupload and assist US authorities in their prosecution of Kim Dotcom.

Evidence was given of Megaupload’s attempts to mask the extent of copyright infringement; what Ortmann described as an ‘innocent front end’ with ‘private back-end access.’  Each movie or video uploaded to the site was identified with its discrete URL.  Copyright holders issuing takedown notices did so by reference to the specific URL.  Megaupload dutifully complied with a takedown request for that URL, leaving in place multiple copies of the same product sitting behind a different URL.  For copyright holders, it became a fruitless game of whack-a-mole.

Megaupload customers were rewarded for uploading frequently viewed product with payment in either cash or subscription privileges.  This encouraged further copyright infringement and increased the number of paying users.  At least three million dollars were paid out in cash rewards.  A policy decision was made to reduce the cost of paying cash rewards by denying payment on grounds that product uploaded was in breach of copyright, with Megaupload cynically still hosting and distributing this same material.

The High Court was told ninety per cent of Megaupload’s registered users had never uploaded a file; they paid for access to view and download content.

Pleading guilty to participating in an organised criminal group, deception and dishonesty: Ortmann was sentenced to two years and seven months imprisonment; van der Kolk two years and six month’s imprisonment.  After Megaupload was shut down, the two established their own cloud storage service: Mega, offering end-to-end encryption for customers.

R.v Ortmann & van der Kolk – High Court (15.06.23)

23.092

Lease: Gama Foundation v. Fletcher Steel

 

With its Christchurch site lease expiring in August 2016, Fletcher Steel and landlord Gama Foundation were poles apart on Fletcher’s contractual obligations for end-of-lease repairs and reinstatement.  Fletcher chose to simply vacate the site it had occupied for four decades, leading to a legal dispute over liability for end-of-lease costs. 

Gama Corporation is a non-profit philanthropic charity set up by Grant and Marilyn Nelson.  The Court of Appeal was told representatives of Gama and Fletcher Steel met in the year before Fletcher’s planned site departure, achieving limited agreement on required repairs.  Little of even this work was done before Fletcher departed.  Repair work would have disrupted Fletcher’s daily on-site operations.

Gama subsequently carried out the work, at a cost of $1.75 million.  Fletcher reimbursed $900,000 of this cost, accepting it was a lease liability.  It refused to pay the balance, saying Gama was trying to have Fletcher pay for reinstatement beyond lease requirements.   

The two went to arbitration, as required by their lease.  The arbitrator required Fletcher to pay a further $320,000 saying this covered work Fletcher should also have carried out.  Fletcher paid the extra.

Gama Foundation sued, claiming the arbitrator got it wrong.  Gama said it was entitled to the full $1.75 million.  By failing to reinstate, Fletcher was in breach of the lease and the full $1.75 million was recoverable as costs incurred in mitigating the breach of contract, it said.

The Court of Appeal said the arbitrator got it right.  As tenant, Fletcher was liable to pay only for the reasonable cost of repair and reinstatement work which it should have carried out.

Gama Foundation v. Fletcher Steel Ltd – Court of Appeal (15.06.23)

23.090

PwC: PriceWaterhouseCoopers v. Zag Ltd

 

Facing significant reputational risk for cost overruns on a delayed $56 million HR software makeover for New Zealand Police, PwC is fighting to keep under wraps its 2018 damages settlement.  A project sub-contractor now being sued by PwC wants to see details.

In 2014, National government commissioned improvements to Police staff information systems.  Oracle PeopleSoft was then in use.  PriceWaterhouseCoopers was appointed head contractor on a project expected to generate $56.2 million revenue over ten years.  Documents released under the Official Information Act show there were government concerns six months out from the go-live date that implementation targets would not be met.  The project was delivered late and over budget.

Following a closed-door mediation, PwC agreed in 2018 to pay damages.  The amount paid is confidential.  As head contractor, PwC accepted liability for the failure to perform.

PwC alleges sub-contractor Zag Ltd bears some of the blame.  Previously known as Soltius Ltd, this company has had a revolving door of New Zealand resident shareholders over the years.  Its ultimate owner is international consulting company, Accenture.

In the High Court, Zag Ltd demanded to see details of the 2018 out of court mediation and settlement with Police.  The general Evidence Act rule is that mediation proceedings cannot be used in any subsequent court case.  This is to ensure full and frank disclosure in mediation discussions.

Justice McQueen ruled Zag Ltd could see documents used as part of the mediation, but Zag itself had to keep this information confidential.  PwC says the payout to Police was intended as compensation for financial losses.  Zag Ltd is entitled to see the detail to determine whether settlement terms were reasonable, Justice McQueen said.  It was known during mediation that PwC would be looking to recover some of its settlement costs from sub-contractors.  Police agreed at the mediation to assist PwC in any action taken against project sub-contractors.

The extent of Zag Ltd’s liability, if any, has yet to be decided.

PriceWaterhouseCoopers v. Zag Ltd – High Court (13.06.23)

23.087

Estate: Barnard v. Estate Margaret Barnard

 

On her death in 2019, Palmerston North resident Margaret Barnard left an estate valued at $4.4 million with son Graeme aggrieved that he did not receive an equal share with his two brothers.  An unequal distribution was explicable, the Court of Appeal ruled.  Graeme had been treated financially more favourably than his brothers during their mother’s lifetime and she was concerned about potential claims from Graeme’s estranged wife.

Graeme sued under the Family Protection Act claiming his mother had failed in her ‘moral duty to provide proper maintenance and support.’  The court was told that on one calculation of the estate distribution Graeme was to receive about 22 per cent by value, brothers Timothy and Roger nearly forty per cent each.

When Graeme and his wife separated in 2006, Margaret helped finance their relationship property settlement, taking part share in Graeme’s home as part of the deal.  This share of the home was gifted to Graeme by will on Margaret’s death.  Graeme’s marriage was not formally dissolved until after Margaret’s death.

Graeme was bequeathed, as were his brothers, a one third share on sale of their mother’s Palmerston North home.

He was given tightly constrained rights to a one third share of Margaret’s share portfolio: his brothers were gifted outright a one-third share each; Graeme was given a life interest in the income only on the remaining one-third share.  And on Graeme’s death, this one third share goes not to Graeme’s children but to his two brothers and their children.  The court was told Graeme’s annual after-tax income on this one-third share would be about $26,000.

Graeme’s two brothers claim that their mother limited Graeme’s share bequest to only a life interest because of concerns over his business acumen and the fact Graeme and his estranged wife were still married.

Graeme contested the will, claiming its terms failed to properly recognise the care and support he provided to his mother.  The Court of Appeal said Graeme’s greater support for their mother in her later years arose because he lived closest to her.  There was no breach of a moral duty by Margaret to her son, the court ruled.  The will provided Graeme with substantial property, capital and income, it said.  Graeme’s financial position could not be described as precarious before or after his mother’s death, the court said.

Barnard v. Estate of Margaret Barnard – Court of Appeal (13.06.23)

23.089

Family Trust: Nobilo v. S. Nobilo Family Trust

 

Members of the west Auckland Nobilo wine dynasty are back in court.  Having agreed to bail out brother Steve with a short term loan in 2016, Mark Nobilo was forced to sue Steve’s family trust to recover $670,500 principal and interest unpaid.

Bringing their wine-making tradition with them from Croatia, the Nobilo families’ vineyards at Huapai are now prime residential real estate.  Winding down the family trust established by patriarch Nikola has seen sons Nick, Steve and Mark at daggers drawn.

Sale of the former family homestead on Station Road opened a can of worms.  Both Nick and Steve had used the homestead, a family trust asset, as security for their borrowing to pursue separate personal business interests.  At a family meeting in 2015 following their mother’s death, the three sons thrashed out an agreement to wind up their father’s family trust.  The trust specified each would share equally on final distribution.  They mutually agreed to a different formula, recognising that Mark had not enjoyed the economic benefit of using trust assets for personal borrowing.  The new 30:30:40 formula saw Mark getting a larger share.

That was not the only issue.  Nick and Steve needed to agree on allocation of loan costs for the $2.3 million borrowings secured over the homestead.  The two also needed to refinance these loans when the homestead was sold.

The High Court was told Steve was having trouble refinancing.  Mark assisted with a short term eight-week loan funded with his share from sale of the homestead plus another $100,000 from personal savings.  These funds were loaned to Steve’s family trust; repayment due in April 2016.  Steve’s family trust defaulted.  Steve died in 2019.  Mark sued in 2022.

Steve’s family trust denied it had borrowed the money.  It had been a loan to Steve personally it claimed and was a debt of Steve’s estate.  The Trust further claimed interest was due only on the $100,000 component of the money advanced.

Associate judge Gardiner ruled the written record of emails, minutes of family meetings and cash distributions made on sale of the homestead were clear; Steve’s family trust was the borrower and interest was due on all the money advanced.  The S Nobilo Family Trust was ordered to pay $670,500.

Separately, Steve’s family trust claimed the 30:30:40 division formula no longer applies.  It alleges there was never any proper agreement regarding allocation of loan costs on the $2.3 million between Steve and brother Nick.  Judge Gardiner said this dispute is of no relevance to the debt due Mark.

Nobilo v. S Nobilo Family Trust – High Court (13.06.23)

23.088

Property Share Agreement: Mallon v. Griffiths

 

A property sharing agreement between relatives morphed into a legal argument whether it was a landlord/tenant relationship or shared ownership: Carolyn Mallon and her husband claim part-ownership of her son’s Bay of Plenty property; son Lewis Griffiths says she and husband Anthony were only tenants who had sought building extensions to allow them a more comfortable retirement.  It was not the first time the Mallons claimed ownership rights to a family member’s home.

In 2017, Mr Griffiths finalised purchase of a home on Tawhero Street at Mamaku, near Rotorua.  He borrowed $20,000 from his mother and stepfather to complete the purchase.  Two years later, the Mallons shifted in with what later became a disputed living arrangement.

The High Court was told all three jointly agreed on plans for an extension to Tawhero Street.  Further bank funding was arranged with an extension to Mr Griffiths’ existing mortgage.  As a condition of this further loan, the Mallons funded repayment of a $24,500 personal debt of Mr Griffiths and signed a tenancy agreement for their continued occupation of Tawhero Street.  The Mallons paid half the cost of architect’s plans and resource consents before building work commenced.

A February 2022 property share agreement between all three required the Mallons pay $285 per week; in return Tawhero Street could not be sold without their consent, they could not be evicted without their consent and should Ms Mallon die before her husband then he similarly could not be evicted without his consent.

Within months, possibility of eviction arose.  Mr Griffiths had separated from his partner.  Sale of Tawhero Street loomed as part of a relationship property settlement.  The court was told there was an altercation in late 2022 when Mr Griffiths attempted to change the locks at Tawhero Street and to remove the Mallons’ vehicle and their belongings.

The Mallons registered a caveat against title to Tawhero Street, claiming shared ownership by reason of their contributions to the purchase and subsequent extensions.  They claim $131,400 cash plus a one half share of any capital gain on sale.  Mr Griffiths says their contributions were a combination of unsecured loans, to be repaid, and rent paid as tenants.

Associate judge Taylor ruled the caveat remain.  It is arguable a constructive trust existed, he said.  Proof of any ownership interest requires a full court hearing.

Mr Griffiths told the court a common pattern has become apparent; in 2017 the Mallons registered a caveat over his sister’s property in respect of a converted garage on that property where they had then been living.  The Mallons say they paid to convert this garage into a two bedroomed cottage for their retirement.

Mallon v. Griffiths – High Court (12.06.23)

23.086

Family Trust: Cooper v. Cooper

 

Rights to share in family trust assets were front and centre in a dispute over housing used communally by a Pasifika family in Pukekohe, south Auckland.  This after attempts to remove as beneficiary a daughter-in-law who had contributed financially to the families’ home.

The 2004 purchase of a Cooper family home on Lough Bourne Drive in Pukekohe was set up with two family trusts as owners.  Finance for the purchase came from Westpac.  George and Tekura Cooper had ten children.  One son, Mosiah, was quadriplegic with injuries suffered in a diving accident as a teenager.

Two separate dwellings connected by a garage at Bourne Drive enabled George and Tekura to live in one house and Mosiah with wife Eleanor to live at the other.  Of the four, Eleanor was the breadwinner.

Whilst at law Bourne Drive was owned by family trusts, extended Cooper family treated George and Tekura as the owners.  Eleanor provided cash to meet household expenses for both families and kept up Westpac mortgage payments.  Eleanor was a borrower on the Westpac mortgage.

From mid-2010, Eleanor left fulltime employment to take care of Mosiah.  ACC care-giver payments went into father-in-law George’s bank account.  He paid an allowance to Mosiah and Eleanor.

Family dynamics changed with Mosiah’s death in 2019 and George’s death in 2022.  Extended family took steps to have Eleanor removed as a beneficiary of the two family trusts.

Mortgage payments to Westpac, previously made through George’s bank account, fell into arrears.  Eleanor took to paying Westpac direct.

The High Court was told there was dissension within extended family as to Eleanor’s right to trust assets.  Some family members were of the view that her contributions were no more than payments for rent and board.  There was evidence of prior acknowledgement by father-in-law George that Eleanor should have a thirty per cent share of trust assets.  Eleanor wanted payment now.  Family said she had to wait until death of her mother-in-in law Tekura.

Concerned trust assets might be run down in the period prior to Tekura’s death, Eleanor registered a caveat against title to Bourne Drive.  She claims a property right in Bourne Drive, given the financial contributions she provided for its purchase and upkeep.

Associate judge Sussock ruled the caveat remain, protecting Eleanor’s position pending a full court hearing on any entitlement she may have to family trust assets.

Cooper v. Cooper – High Court (7.06.23)

23.085

Estate: re Estate Basil Jones

 

Tensions between two children and their stepmother coupled with confusion over ownership of estate assets caused the High Court to appoint independent executors to take control of Nelson car dealer Basil Jones’ estate.  Little progress in estate administration had been made in the two years since Basil’s death in 2021 with ongoing hostility between Basil’s daughter Cindy and her stepmother Laurel.

In a will signed nine days before his death, Basil appointed as joint executors his children Cindy and Jason together with his wife Laurel.  He and Laurel had begun a de facto relationship some 32 years previously, before subsequently marrying.  Cindy and Jason are children of an earlier marriage.

All three were named as beneficiaries.  There were complications. 

Laurel was given a life interest only in the family home in Seaton Street, Nelson.  The High Court was told the executors cannot agree on a programme for repairs and maintenance or alternatively for sale of Seaton Street and replacement with a more modest home for Laurel.     

A commercial property in Collingwood Street was gifted in shares to Basil’s children Cindy and Jason and Basil’s grandchild Danielle.  This was not a stand-alone asset available to be gifted; it was an asset of his car dealership: Sun City Motors Ltd.  The Sun City Motors business itself was gifted in an equal three-way split to Cindy, Jason and Laurel.    

The court was told that after her father’s death, Cindy unilaterally took control of Sun City Motors; transferring company shares into her name, appointing herself as sole director.  She subsequently acknowledged that she holds Sun City in trust for her father’s estate.  Urgent steps were necessary on her father’s death to ensure the business kept trading, she said.  Laurel complains she is not being kept properly informed about Sun City’s profitability.

The court was told that Laurel has disclaimed all rights as a beneficiary in Basil’s estate.  She is bringing both a relationship property claim and a Family Protection Act claim against his assets.

Laurel acknowledged there was a conflict of interest.  She agreed to stand down as executor.  Cindy and Jason should do so also, she said.  Cindy and Jason claimed they could properly deal with the estate after Laurel’s departure.

Justice Isac ruled it was best to remove all three as executors.  They had failed to agree on how their competing claims might be resolved.  Their various conflicts of interest coupled with current hostilities meant agreement to resolve their differences was unlikely.  In any event, Jason was not actively involved in estate administration.  He is living in Thailand.

re Estate Basil Raymond Jones – High Court (7.06.23)

23.084

Ticket Rocket: BNZ v. Davey

 

Unsympathetic to claims he had no assets, the High Court bankrupted Ticket Rocket entrepreneur Matt Davey owing BNZ more than $4.7 million.  Associate judge Lester queried what happened to ticket buyers’ money which was apparently not held in trust.  Mr Davey is currently in Australia.

Mathew Robert Davey controlled Fortress Information Systems Ltd which traded as ticketing company Ticket Rocket, competing against Ticketek and Ticketmaster.  Ticket Rocket collapsed following event cancellations forced by covid pandemic lockdowns. Prior to that, Ticket Rocket was a ten million dollar company, Mr Davey claimed.

Fortress had funding from Bank of New Zealand; repayment supported by Mr Davey’s personal guarantee.  The High Court was told Mr Davey responded to lockdown event cancellations by repaying ticket holders with BNZ money; overdrawing Fortress’ BNZ account without BNZ agreement to the tune of $1.7 million.  Receivers took control of Fortress.  BNZ sued to bankrupt Mr Davey on his guarantee.

Mr Davey said bankruptcy was pointless (he had no assets, he claimed) and would hamper attempts to restart his life in Australia (he was having trouble getting credit, he said).

He claimed BNZ should be held responsible for alleged negligence by Fortress’ receivers, reducing the amount owed BNZ.  Judge Lester said chances of making a successful claim against BNZ were limited.  As a general rule, secured creditors are not responsible for the actions of any receiver they appoint to recover a secured debt.  Claims must be made against the receiver directly.  Judge Lester said he was unwilling to defer Mr Davey’s bankruptcy for the several years it would take to get to trial on a speculative claim against BNZ.  Following bankruptcy, it is for Insolvency Service to decide whether there is any merit in continuing such a claim for the benefit of Mr Davey’s creditors.

BNZ v. Davey – High Court (31.05.23)

23.083

Family Trust: Official Assignee v. Black

 

As bankrupt creditors of their family trust, any pretence that use of a trust protected their lifestyle block from creditors quickly collapsed when Insolvency Service got a High Court order allowing sale of Nigel and Joanne Black’s north Canterbury property at Cheviot.

The High Court was told the Blacks were bankrupted in August 2020.  Circumstances had conspired against them; first suffering earthquake damage to their 7.32 hectare Munro Road lifestyle property, and then losing earthquake damage compensation received when attempting to prop up their failing business.  Munro Road is owned by their family trust: Mountain Meadow Trust.  They are the trustees. 

Insolvency Service review of Meadow Trusts financial statements identified that the Trust owed Nigel some $291,500 and Joanne a similar amount.  Suggestions from Insolvency Service that the two, acting in their capacities as Meadow Trust trustees, might arrange for sale of Munro Road and repay the debts owed came to nothing.

Exercising the Blacks’ rights as creditors of Meadow Trust, Insolvency Service obtained a High Court order ordering sale of Munro Road to recover funds to pay the Blacks’ bankruptcy creditors.  The right to sell Munro Road arose from the general rule that any trustee has the right to sell trust assets to meet debts owed by a trust.

The High Court was told that Munro Road is mortgaged.  Net proceeds of sale are unlikely to repay in full the $583,000 owed the Blacks.

Official Assignee v. Black – High Court (30.05.23)

23.082

Maori: Poukani Claims Trust v. Attorney-General

 

Still fighting for recognition of customary rights over Waikato riverbed underneath the Maraetai and Whakamaru hydroelectric dams, Pouakani scored significant protection for a future claim to water resource rights with a High Court ruling that Mercury Energy’s water rights at the dams are subject to any successful Treaty of Waitangi claim. 

Mercury Energy was spooked by Treaty claims over that portion of the Waikato river running through the central North Island.  A successful claim could lead to demands for resource rentals over water running through Mercury’s hydroelectric dams, increasing Mercury’s costs.

A 2014 Supreme Court ruling left open the possibility of Pouakani claiming customary rights to the riverbed.  This requires proof of continuing use by Pouakani not lost by sale of riverbank land or by passage of time.

Legal attention immediately turned to the extent of Mercury’s water rights.  Beds of both the Whakamaru and Maraetai lakes are owned by the Crown.  Power generation assets were transferred to Electricity Corporation of New Zealand in 1988 as part of state trading assets corporatisation.  In 2010, the Whakamaru and Maraetai assets were transferred to what is now Mercury Energy.  Easements were registered against Crown lakebed title to protect Mercury’s use of water for power generation.

Poukani complained that creation of these easements did not comply with the State-Owned Enterprises Act.  Crown assets subject to potential Treaty of Waitangi claims can be sold, but with a tag.  This tag gives notice to subsequent owners of as yet unresolved Treaty claims over the asset.

Pouakani said the easements registered against title to the lakes in favour of Mercury Energy should have been tagged.  Government was sympathetic, agreeing to amend the easements.  Mercury objected.  The 2010 transfer of assets to Mercury was not part of the 1980s process of corporatisation, it said.  The State-Owned Enterprises Act and any requirement to tag assets with potential Treaty claims was of no relevance, it claimed.

In the High Court, Justice Churchman ruled in favour of government and Pouakani.  Mercury’s easements should have been tagged. While the easements were created in 2010, this was part and parcel of the original process of corporatisation, he ruled.  The subsequent easements simply formalised an initial 1988 sale agreement which corporatised state-owned power generation assets.

Pouakani Claims Trust v. Attorney-General – High Court (30.5.23)

23.081

Realtionship Property: Lobb v. Ryan

 

Bitter that his wife was claiming a half share of relationship property when he had provided the bulk of relationship assets, Stuart Lobb attempted to end run a court-ordered 50/50 split of the value of an Auckland home held by their family trust by later claiming former spouse Verena Ryan had to contribute to half the cost of repaying a $1.4 mortgage.

Their family home named ‘Lothbury’ on Orakei Road in Auckland suburb Remuera was held by a family trust at time of their 2016 separation.  They personally remained jointly liable on a Westpac mortgage secured over the property despite ownership being held separately by trustees of the family trust.

The High Court was told Mr Lobb lived at Lothbury after separation.  Under pressure from Westpac, Mr Lobb subsequently repaid the mortgage with financial assistance provided by his father.  Mr Lobb claimed his former spouse was liable to pay him half the cost of the repaid Westpac mortgage.  She was liable to contribute half the cost because his full repayment had removed her personal liability to repay, he said.

There is a backstory.

While Mr Lobb’s claim for an equitable contribution to the mortgage repayment was underway, separate relationship property proceedings saw Ms Ryan awarded a half share of family trust assets with her half share being settled on a new trust in Ms Ryan’s name.  As part of the calculation, Ms Ryan was acknowledged as being jointly liable under the Westpac mortgage; $700,000 was deducted from her share of trust assets.  Now, Mr Robb was in the High Court separately arguing she was still liable for this $700,000 share.

As a general rule, all claims regarding relationship property start in the Family Court.  Having assets tied up in family trusts can create complications.  Justice Walker dismissed Mr Lobb’s High Court claim for an equitable contribution following the family trust’s refinancing of the Westpac mortgage.  Both Mr Lobb and Ms Ryan were liable on the Westpac mortgage.  This debt was a ‘transaction’ governed by the Property (Relationship) Act, she said.  The Family Court had jurisdiction to deal with this debt and had done so, she ruled.

Lobb v. Ryan – High Court (29.05.23)

23.080

Maori: Shearing Services Kamupene v. Tarahau Farming

 

Facing possible sale of ancestral land, Pessiman Te Whata attempted to use the Companies Act voluntary administration procedure not to benefit creditors but to thwart them.  He was unsuccessful.

Shearing Services Kamupene Ltd is in liquidation owing Inland Revenue $4.3 million.  Liquidators sued related company Tarahau Farming Ltd to recover loans made by Shearing Services between 2013 and 2016.  Mr Te Whata is a director of both companies.   Tarahau currently owes Shearing Services about $232,500.

Tarahau’s main asset is a dry stock farm south of Kaikohe, situated on land historically associated with Mr Te Whata’s hapu.  This land is currently mortgaged to ANZ Bank.  It is at risk of a forced sale by Shearing Services’ liquidators seeking to recover the $232,500 debt.

In response, Mr Te Whata unilaterally put Tarahau Farming Ltd into voluntary administration.  Companies Act voluntary administration procedures provide a breathing space for businesses in financial difficulty.  A short-term moratorium is imposed on creditor claims, allowing an independent administrator to take stock of company prospects.

In court, Mr Te Whata claimed he was acting under authority of his hapu’s marae which had issued orders cancelling all tax debts owed by Tarahau Farming and had further cancelled ANZ rights as secured creditor.  Tarahau’s voluntary administration blocked attempts by Shearing Services liquidators to recover the $232,500 debt owed by Tarahau Farming, he said.

The Court of Appeal ruled Tarahau Farming was not in voluntary administration.  Companies Act rules had not been followed; there had been no resolution by Tarahau directors as required to initiate voluntary administration and the person appointed as administrator was not qualified to act as such.

Shearing Services Kamupene Ltd v. Tarahau Farming Ltd – Court of Appeal (26.5.23)

23.079

Family Trust: Hemara v. Lowe

Expecting that the family home would remain within their family, it was a shock to find descendant Kellee Lowe had borrowed money against the Hikurangi property in Northland and was trying to sell it.  The High Court removed her from the title for breach of trust.

The court was told children of the late Joe and May Hemara agreed after their parents’ deaths that the family home at Waro Drive should remain within the family and ultimately be passed on to the next generation.  This Maori tradition proved difficult to fit within current land ownership registration rules.  Initially, all nine children were registered as owners.  Subsequently, ownership was transferred into the name of Kellee only.  She is the daughter of one of the Hemara children.   Kelle agreed not to mortgage or sell the property and to hold it in trust for descendants of Joe and May.

Legal action was taken when family discovered Kellee had mortgaged Waro Drive and was now looking to sell.  She did not appear in court, but sent a message from Perth denying any trust had been agreed and saying she would ‘never agree to the house being taken off her.’  She claimed to have rebuilt and extended the home at a cost of ‘hundreds of thousands of dollars.’

Justice Jagose ruled Waro Drive had been transferred to Kellee on trust and the terms had been breached.  Kellee was removed from title to Waro Drive, replaced by two other Hemara descendants as trustees.  The new trustees are required to prepare a formal deed of trust and then have it approved by the court.

Hemara v. Lowe – High Court (26.05.23)

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Building Works: Waikato Region v. Poseidon Holdings

New owners cannot be forced to comply with a Building Act ‘notice to fix’ ignored by a previous owner, the High Court ruled in a test case where owners of a pig farm sold out within a week of being ordered by Waikato Regional Council to fix an effluent pond.

The High Court was told NZ Pork Ltd as owner of a pig farm on Rawhiti Road at Te Aroha was issued in September 2016 with a ‘notice to fix.’  Waikato Region was concerned about stability of an effluent pond embankment.  Within days, NZ Pork sold the farm to Poseidon Holdings Ltd.  Companies Office records identify that Paparoa Trustees Ltd is a major shareholder in both companies.

Waikato Region challenged a District Court ruling that Poseidon Holdings as the new owner could not be held liable for the default of previous owner, NZ Pork.

In the High Court, Justice Wylie ruled there is no blanket Building Act obligation forcing a new owner to remedy non-compliance by a past owner.  There are specific Building Act rules where a current owner has to make good previous owner’s defaults.  Examples include: fire alarm and sprinkler systems; earthquake proofing; swimming pool fencing and maintenance of a building warrant of fitness.

Waikato Regional Council v. Poseidon Holdings Ltd – High Court (26.05.23)

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Director: Henderson v. Companies Office

Auckland-based David Stewart Henderson was banned from managing any company for three years expiring March 2025 after mismanaging a Christchurch apartment earthquake remediation leaving creditors unpaid.  A claim that his company Cambridge on the Avon Ltd was simply acting as a neutral trustee in the project cut no ice with either the Companies Office or the High Court.

In 2017, Cambridge on Avon purchased six earthquake-damaged apartments on Carlton Mill Road in Christchurch suburb Merivale.  The High Court was told a short-term loan was sourced; $2.1 million for six months at 16.75 per cent.  Repairs were not completed within this short timeframe.  Cambridge on Avon was put into receivership when refinancing fell through and then put into liquidation by an unpaid trade supplier.

The High Court was told that after sale of the partly-finished project, there was nothing left for unsecured creditors owed about $405,000.  A subsequent tax investigation resulted in Cambridge on Avon receiving a tax assessment for $181,200 plus penalties of $36,200. 

A Companies Office investigation followed.  Mr Henderson was in breach of his duties as a director by trading recklessly and failing to keep proper accounting records, it said.

Mr Henderson challenged Companies Office imposition of a three-year disqualification.  He claimed Cambridge on the Avon Ltd was not in business, did not have to keep any records and was not required to pay tax since it had tax registration as ‘non-active.’

Justice Davison ruled Cambridge on Avon was in business.  It may have held the Merivale property as trustee, he said, but contracts for repair work were negotiated by Mr Henderson in the company’s name.

The earlier arrangement negotiated with Inland Revenue that Cambridge on Avon was a ‘non-active’ taxpayer was a red herring, the court was told.  The company’s supposed tax status was of no relevance to questions of Companies Act compliance.

Justice Davison ruled Mr Henderson had traded Cambridge on Avon recklessly, with insufficient working capital.  It was reckless to assume the remediation could be finished and the apartments sold within six months.  It was also reckless to assume that no replacement funding would be needed.  Failing to keep any accounting records had exacerbated the loss to creditors; no cashflow forecasts were possible.

Henderson v. Registrar of Companies – High Court (24.05.23)

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Note: David Stewart Henderson, referred to in this blog post, is not to be confused with South Island property developer and serial bankrupt David Ian Henderson who was prohibited by the High Court from managing any business until December 2022.