Class Action: Strathboss Kiwifruit v. Seeka

Kiwifruit growers class action against government claiming losses of $400 million after PSA bacteria ravaged orchards resulted in a payout of 6.3 cents in the dollar following a government out of court settlement at $40 million and payment to litigation funders of $14.7 million for their costs and fees.

In late 2010, PSA spread from Te Puke orchards resulting in many orchards having to rip out vines and replant.  Growers sued government, alleging the bacteria was introduced through pollen imported from China and negligently cleared for domestic use by Primary Industries.  A total of 214 growers banded together in a class action, seeking compensation.

The High Court held government liable; a ruling reversed in the Court of Appeal.  With a further appeal to the Supreme Court in the offing, government settled out of court at $40 million.  Government now sits in the box seat.  It has a Court of Appeal ruling in its favour to wave at future litigants seeking compensation for failures at the border, having paid a price of $40 million to avoid the possibility of this ruling being reversed in the Supreme Court.

Terms of the PSA class action required High Court approval before distribution of any successful damages claim to growers.  Individual grower’s positions varied depending upon severity of the PSA outbreak, type of kiwifruit grown, remedial action taken and any insurance recoveries received.

The High Court approved a distribution schedule that first saw initial claimants getting back $1.32 for each dollar paid for their initial class action registration fee (first growers to join paid registration back in 2015) with the balance divided on a ‘broad brush’ approach based on number of hectares temporarily lost to production with claimants separated into two ‘loss groups’ dependent upon the kiwifruit variety grown by each particular grower.  The average payment made to claimant growers amounts to about $10,000 per hectare.

Strathboss Kiwifruit Ltd v. Seeka Ltd – High Court (30.11.21)

22.100

Estate: re Thomas Gemmell

Patricia Gemmell was removed as administrator of her late husband’s estate after selling his farm at Raupunga between Napier and Wairoa to his nephew at less than market price leaving estate beneficiaries in the cold.  The High Court appointed a new administrator and ordered recovery of the land.

Thomas Gemmell died in 2008, leaving no will.  Statutory rules in the Administration Act saw his 79 hectare Raupunga farm and a home in Masterton divided between his widow Patricia and his four children, three of whom were children from a previous relationship.  The High Court appointed Patricia to act as estate administrator.  As such, she was registered on title to the properties.

Evidence was given that Patricia came to the view that since she was registered as the owner, the properties were hers.  Advice from lawyers that she held title as trustee were ignored.  Instead of having title later re-registered in names of estate beneficiaries she proceeded to transfer title over the Raupunga farm to her sister-in-law’s son: Padre Phillips.  The farm was valued at $325,000 two years after Thomas’ death.  The sale to Padre nearly a decade later was at a price of $150,000 with the only cash changing hands being a $15,000 deposit, money paid by Padre’s mother Bessie.  Padre said money he had spent managing the farm served as a credit for the balance of the purchase price.  The price paid was low because the farm was run down, he said.

Justice Isac expressed doubts about justifications provided for the deal.

Patricia was removed as administrator with one of Mr Gemmell’s sons appointed as replacement.  Title to the farm was transferred into his name as administrator.  Both Patricia and her sister-in-law Bessie were in breach of trust for selling the land at undervalue, Justice Isac ruled.  Padre was also liable, having arranged with mother Bessie for the deal to be done.

Patricia was penalised for her breach of trust as administrator with Justice Isac ruling she was not to share in the value of the Raupunga farm as a beneficiary; the value of the farm was to be split only between Thomas Gemmell’s four children as beneficiaries.

re Estate Thomas Gemmell – High Court (30.11.21)

22.009

Estate: re Estate Robyn Andrews

Robyn Andrews wrote into her will that loans made to each of her sons were to be taken into account before dividing her estate equally between the three of them.  On her death, son Stephen argued that his borrowings of $439,700 could be ignored; he had been bankrupted and these debts were no longer owing.

The High Court was told of their mother’s detailed estate planning, given her then serious concerns about Stephen’s financial circumstances.  His company NZNet Internet Services Ltd had gone into liquidation insolvent some six years before she signed her final will.  She had lent his company about $340,500 as a secured creditor.  She got back about $9000 following liquidation.

Robyn Andrews signed her final will in 2017.  The document stated loans made to each son were to be taken into account before making any distribution.  Her will listed how much each son owed at that date: Richard ($115,000); Evan ($8900) and Stephen ($439,700). The will specified Stephen’s share of the estate was not to be paid to him personally, but paid to a trust named the Andrews-Runnymede Trust which listed as beneficiaries Stephen and his children, but not his wife.

Unbeknown to his mother, Stephen was bankrupted seven days before she signed this will.  He was discharged from bankruptcy in March 2020, three months before her death. The effect of bankruptcy discharge is to write off all unsecured pre-bankruptcy debts; no legal action can be taken to enforce them.

Stephen challenged plans to include the $439,700 as a debt he owed his late mother’s estate before dividing the estate residue three ways.  Justice Gordon ruled use of words in the will such as ‘loans’ and ‘amount outstanding’ were to be read as a proxy for money provided to her sons during her life and not as debts legally due.  Further, lawyers’ file notes recorded that when giving instructions for her will, she made it clear that she wanted to treat her three sons equally, having regard to money they had already received.

The $439,700 lent to Stephen was to be taken into account, Justice Gordon ruled.  The size of Robyn Andrews’ estate was not disclosed.

re Estate Robyn Andrews – High Court (29.11.21)

22.008

Lease: Stylo Medical Services v. Hum Hospitality

Roseanne Armitage’s company Hum Hospitality Ltd persistently failed to pay rent on time for its lease of 123 Grafton Road in central Auckland.  The High Court ordered her arrest for contempt of court following a failure to vacate Grafton Road after the lease was cancelled.

Landlord, Stylo Medical Services Ltd has spent many hours in court trying to lever its tenant out of the property.  Hum Hospitality operated the site as a community drop-in centre with advertised plans to renovate the century-old villa. In November 2020, Hum Hospitality’s rent was over $150,000 in arrears.  Threatened with cancellation of the lease, Hum paid the arrears but then regularly failed to pay GST on subsequent rental payments.  In February 2021, the High Court ordered the lease cancelled.  Hum Hospitality had to shift out.  Ms Armitage unsuccessfully challenged cancellation in the Court of Appeal.  By August 2021, further rent arrears were in excess of $93,000.  Stylo Medical’s attempts to retake possession with police in attendance were called off in the face of a hostile response from demonstrators in support of Ms Armitage.    

In November 2021, the High Court issued a warrant for Ms Armitage’s arrest following her ‘wilful and inexcusable disregard’ of the order to vacate.  At the request of Stylo Medical, Justice Downs suspended operation of the arrest warrant until February 2022, giving her a final chance to leave.

Stylo Medical Services Ltd v. Hum Hospitality Ltd – High Court (26.11.21)

22.007

Open2View: On-Line Digital Solutions v. Riddick

Australian-owned business Open2View took its time challenging New Plymouth real estate photographer Deane Riddick’s actions in setting up in competition, causing Justice Isac to suggest there was some ulterior motive behind its deferred legal action when he refused an interim injunction to bring Riddick’s new business to a halt. 

In 2006, Mr Riddick bought into an Open2View franchise for the Taranaki.  Over subsequent years this extended to all of the lower North Island, excluding Wellington. After 14 years operation, Open2View’s New Zealand franchisor On-line Digital Solutions Ltd terminated Mr Riddick’s franchise rights on one month’s notice and sued, alleging he was in breach of a restraint of trade prohibiting him from setting up in competition.

The High Court was told there had been ongoing niggles between Open2View and Mr Riddick for a period of time.  Mr Riddick said attempts to sell off his franchise rights were being thwarted by Open2View.  Mr Riddick set up business on his own, initially continuing to use an Open2View Facebook page and mobile phone contact.  There was evidence that some New Plymouth real estate agents were sympathetic to Mr Riddick, expressing the view he was being ‘screwed over’ by Open2View.  Over thirty former Open2View clients transferred their business to Mr Riddick personally.  Lawyers fronted up in court.  

Open2View said the 2006 franchise agreement required renewal every five years.  Mr Riddick had never given notice of renewal.  After the first five year term expired, the franchise simply ran on as a monthly agreement and could be terminated on one month’s notice, it said.

Mr Riddick said Open2View had never required formal notice of renewal.  It was in breach of contract by firing him on one month’s notice and a consequence of this breach was that any restraint of trade did not apply.

Justice Isac said Mr Riddick has an arguable case that Open2View was in breach of contract by giving only one month’s notice. He questioned why Open2View took so long to take legal action, waiting for nine months after firing Mr Riddick before challenging his right to set up a rival business.  He was critical of it not disclosing evidence supporting Mr Riddick’s case.  He ruled Mr Riddick could continue operating his rival business pending a full trial into the dispute.

A restraint of trade clause in the Open2View franchise agreement supposedly prohibits Mr Riddick from ever working again anywhere in New Zealand in real estate photography.

On-Line Digital Solutions Ltd v. Riddick – High Court (26.11.21)

22.006

Class Action: Smith v. Claims Resolution Service

After another unhappy client bailed out of a proposed class action seeking compensation from Claims Resolution Service for allegedly doing a poor job in settling Christchurch earthquake insurance claims, Claims Resolution got a freezing order over both Karlie Smith’s home and the proceeds of sale to recover unpaid fees. 

Claims Resolution Service Ltd offered a ‘one-stop shop’ service for Christchurch homeowners disputing compensation offered for insured earthquake damage.  Customers allege that claims were settled at an undervalue and that Claims Resolution prejudiced customers with a sweetheart deal passing all legal work onto a single law firm.

Ms Smith was initially named as the nominal representative plaintiff in a class action against Claims Resolution.  She has since withdrawn.  Meanwhile, Claims Resolution is pressing for fees owed on the previously disputed work completed on her behalf.  Interest is running on unpaid invoices at two per cent per month. Claims Resolution sprung into action after receiving a series of emails in late 2021 from Ms Smith stating she was broke and had sold her house.  Within ten days, Claims Resolution had a High Court order imposing a freezing order over both her home and the proceeds of sale, protecting a sum of $200,000.  The amount actually owed for unpaid fees has yet to be settled.

Smith v. Claims Resolution Service Ltd – High Court (18.11.21)

22.005

Overseas Investment: Social Credit v. Land Information

Overseas investment in dairy factories does not amount to investment in ‘farm land’ triggering need for Overseas Investment Office approval, the Court of Appeal ruled quashing objections by the Social Credit political party to purchase of Westland Dairy by Chinese interests. 

Social Credit holds itself out as protector of small business interests.  It campaigns for local control of the New Zealand economy.  It challenged the 2019 purchase of Westland Dairy by Inner Mongolia Yili Industrial Group Ltd.  Westland Dairy was then in a dire financial position.  Its 430 suppliers, mostly on the West Coast, were being paid less for their raw milk than that offered by other processers such as Fonterrra.  A mass departure of suppliers from the dairy co-operative was in the offing.  Westland desperately needed further investment capital.  Further borrowing was not possible.  Departure of more suppliers would throw a greater debt burden on suppliers remaining, accelerating supplier departures.  

Inner Mongolia rode to the rescue offering $240 million to take control of Westland and a promise that it would for the next ten years match the raw milk price on offer from Fonterra.  Inner Mongolia had previously bought out Oceania Dairy in the South Island.

A 94 per cent majority of Westland milk suppliers approved the deal.  The $240 million purchase price was distributed to suppliers as shareholders in the Westland co-operative.

Social Credit challenged Overseas Investment Office approval given the purchase.  Westland’s processing facilities at Hokitika and Rolleston should have been categorised as ‘farm land,’ requiring a more thorough investigation, it claimed.  

‘Farm land’ comprises the site where primary products are harvested or extracted, the Court of Appeal ruled.  It does not include off-site processing facilities.

NZ Democratic Party for Social Credit v. Land Information – Court of Appeal (15.11.21)

22.004

Fraud: Wu v. ACC

Spending $234,700 defrauded from Accident Compensation to impress his new girlfriend did not lessen Cheng-Yin Wu’s culpability for fraud the High Court ruled, confirming twelve months home detention as necessary to underscore the seriousness of his offending.

Wu is a 26 year old acupuncturist.  He was convicted of fraud after submitting false electronic payment forms to ACC over an eighteen month period from 2017 claiming payment for services he did not provide.  When told he was under investigation, Wu wrote up false clinical notes to support the false claims made.  When this ruse fell apart, Wu confessed to the false billing and repaid in full the $234,738 falsely claimed.    

Wu appealed a sentence of twelve months home detention imposed after a District Court hearing.  The fact he committed the fraud to promote a lifestyle impressing his new girlfriend lessened the seriousness of the offence, he said.

This was not a case of a young person impulsively stealing something of little value to impress the object of his affection, Justice Downs said.  It was a long running fraud spread over eighteen months.

Wu v. Accident Compensation Corporation – High Court (12.11.21)

22.003 

Joint Venture: Dairy Solutions v. Pacific Dairy

Food Supplier Pacific Dairy walked away from its promise to finance completion of Dairy Solutionz’ yoghurt culturing plant near Hamilton with funding intended from the placement of long-term standing orders for product.  Pacific Dairy exploited Solutionz botched assignment of their joint venture agreement to have the High Court order Dairy Solutionz repay Pacific Dairy’s $US50,000 cash contribution made towards plant construction costs.

The High Court was told Dairy Solutionz (NZ) Ltd and Pacific Dairy Holdings Ltd agreed in 2017 to jointly fund commissioning of Dairy Solutionz’ Rukuhia yoghurt manufacturing plant.  Pacific Dairy’s cash contribution of some $US50,000 was an unsecured interest-free debt owed by Dairy Solutionz, payable in 2020.  It was intended this debt would be repaid in kind, rather than cash, with Pacific Dairy placing long-term purchase orders for manufactured product.  No long-term orders were placed.

Pacific Dairy refused to take Solutionz’ product after a disputed E.coli contamination scare in December 2017.  Pacific Dairy was in liquidation seven months later. Come 2020, Pacific Dairy liquidator sued, demanding Dairy Solutionz repay the $US50,000 debt.

Dairy Solutionz was ordered to pay following a fast-track High Court summary judgment application.  Dairy Solutionz could not argue Pacific Dairy in turn owed it some two million dollars for failing to purchase product.  Dairy Solutionz had previously assigned all rights under the joint commissioning agreement to a related company.  Dairy Solutionz no longer had the right to claim damages for non-performance; this right was now held by a related company.

Ironically, Dairy Solutionz assigned its rights after Pacific Dairy went into liquidation assuming incorrectly that this would also get rid of its obligation to pay the promised $US50,000.  However, this assignment had the effect of later destroying Solutionz’ rights to raise a counter-claim defence to Dairy Products’ demand for repayment.  The assignment worked to assign rights, but not liabilities.   

Dairy Solutionz was ordered to pay Dairy Products $69,700: the New Zealand dollar conversion of $US50,000.

Dairy Solutionz (NZ) Ltd v. Pacific Dairy Holdings Ltd – High Court (11.11.21)

22.002

Joint Venture: Rockwell One Ltd v. Astoria Development

Failing to complete agreed joint venture capital contributions for a Tauranga residential subdivision meant investor Jinho Kwon did not share in development profits or get his money back. 

Mr Kwon alleged joint venture partner Mingon Kang diverted elsewhere initial cash contributions of $250,000.

The High Court was told the two joined forces in 2018 to develop 7.5 hectares of land.  Their agreement envisaged formation of a special purpose company called Rockwell Two Ltd, with Mr Kang to transfer land to Rockwell and Mr Kwon to put in nearly $4.4 million in staged payments.  Mr Kwon pulled out after contributing only $250,000, alleging Rockwell Two was not seeing the benefit of money paid. He sued, demanding both return of his $250,000 and a share of development profits.  

Evidence was given that the land was held in the name of Mr Kang’s company Astoria Development Ltd at time of their 2018 agreement.  The project was already underway, with invoices due for payment.  Mr Kwon’s initial $250,000 payment was used to pay these Astoria invoices.  Mr Kang copied in Mr Kwon on the payments and provided copies of invoices.  Mr Kwon stopped making further instalment payments, complaining his money was being used for purposes other than their agreed joint venture.  On Mr Kang’s side, he did not progress transfer of the land to their joint venture company: Rockwell Two.

Associate judge Lester said there was nothing underhand in using the $250,000 to pay Astoria creditors.  These payments related to the development.  Mr Kwon had no grounds to demand repayment of his $250,000; it was used for the purpose intended.  And Mr Kwon cannot have it both ways, Judge Lester ruled, by both stopping capital contributions and claiming their joint venture agreement is at an end  while saying simultaneously it still stands and he is entitled to share in profits.

Mr Kwon was told his best remedy was to cancel his joint venture agreement under the Contract and Commercial Law Act and then seek compensation.

Rockwell One Ltd v. Astoria Development Ltd – High Court (11.11.21)

22.001

Director Disqualification: re Clarke

Automatically disqualified from acting as a company director after conviction for a $1.7 million customs fraud, Paul Clarke got High Court reinstatement to management of his Dunedin heavy machinery business because it operated as a ‘one man’ band and jobs of 33 employees and several sub-contractors were otherwise at risk. 

Companies Act rules automatically disqualify from management for five years any person convicted of fraud.  Paul Clarke was convicted in 2021 of customs fraud, undervaluing the invoice price of heavy machinery imported primarily from Japan. It was a long-running fraud involving forged documents for some 74 importations since 2013.  False invoices meant GST was underpaid by some $1.75 million.

Seeking a sentence indication before trial, Clarke was told he was facing a likely sentence of two years’ imprisonment and a $30,000 fine.  Coughing up GST underpaid plus penalties together with his promise to also immediately pay any fine coupled with a plea of guilty resulted in a reduced sentence: six months’ community detention and a $30,000 fine.  The trial judge said this would enable Clarke’s business to keep operating.  Jail or home detention would result in business operations closing down, with staff job losses.  Community detention imposes a night-time curfew, but otherwise allows people to continue working.

While the more lenient sentence was intended to allow Clarke to keep working, Companies Act rules automatically blocked involvement in management because of his fraud conviction.  These rules are intended to protect the public.  The High Court permitted his return to management, subject to tight restrictions.  For future heavy machinery importations, a strict paper trail was imposed.  Purchase details, customs entries and bank records for all importations must be centralised at the firm of chartered accountants completing GST returns for his business.  Clarke was warned any failure to comply with these requirements would result in an immediate ban from managing his business.

Customs recommended the High Court require a second director be appointed to the company, providing a check on Clarke’s activities. The court was told no-one approached was willing to take on the role.

re Clarke – High Court (9.11.21)

21.182

Loan: Waimauri Ltd .v Gordon

Behind a claim that nearly $600,000 is due on a $70,000 loan made in 2009 lies the tale of a 1949 Aston Martin DB1 recovered at some painful cost from underworld figures in Japan and now apparently in Australia.  Susan Gordon disputes the $600,000 claim being made against her late husband’s estate. 

The High Court was told that Tim Edney’s Waimauri Ltd made a short-term $70,000 advance to Colin Gordon in February 2009 with $93,000 repayable in three months.  Money was needed to repatriate the classic Aston Martin from Japan.  The vehicle had been sold to a Japanese buyer fifteen years previously.  Suspicions developed that the purchase was a con; the vehicle was stolen off the wharf on arrival in Japan and wound up in the hands of Japanese underworld.  It was a valuable prize.  Only fifteen of the model were produced.  Mr Gordon travelled to Japan.  He was badly beaten in the course of his investigations.  Japanese authorities eventually recovered the vehicle. Repatriation to New Zealand required payment upfront for storage costs in Japan and shipping costs.

Evidence was given that the repatriation loan was not repaid on the three months deadline. Waimauri made no formal demand for payment until nine years later.  With interest accruing, the amount outstanding then totalled $378,500.  Mr Gordon died the following year.  In 2021, two years after Mr Gordon died, Waimauri sued his estate claiming ongoing interest meant some $600,000 was now owed.

Associate judge Johnston dismissed Waimauri’s application for fast track summary judgment.  A full court hearing was required.  Mrs Gordon says failure over so many years to make demand or to take enforcement action meant that the amount claimed was ‘unjustly burdensome’ under the Credit Contracts and Consumer Finance Act.

There was evidence Mr Gordon sold the Aston Martin to an Australian buyer after repatriation from Japan.

Waimauri Ltd v. Gordon – High Court (3.11.21)

21.181

Negligence: BCH Investments v. Nguy

Auckland lawyer Jesse Nguy was ordered to pay $873,600 damages for negligence after failing to seek Overseas Investment Act clearance for a client’s $9.5 million Auckland purchase.

Owned by off-shore Chinese interests, BCH Investments Ltd committed in 2013 to the purchase of just on five hectares of subdividable land on Gills Road, Albany.  Initial plans were for BCH to buy in conjunction with interests associated with Paul Bublitz and Chris Cooke.  BCH contacted Mr Nguy.  Its client engagement letter saw Mr Nguy accept responsibility for all ‘incidental matters in respect of the development at Gills Road.’

The High Court was told Mr Bublitz reminded Mr Nguy overseas investment consent would be required.  Mr Nguy did suggest setting up a trust to disguise true ownership of the development, but nothing eventuated.  It is a breach of overseas investment rules to hide true ownership through trust structures.  The $9.5 million purchase eventually went through in the name of BCH Investments alone. Mr Nguy told the High Court that the owners of BCH had grown wary of both Mr Bublitz and Mr Cooke.  Mr Nguy did not take any steps to get investment approval.  There was no evidence that owners of BCH Investments were aware of a requirement to get investment consent.

Subsequently, BCH Investments paid over one hundred thousand dollars on legal fees having a succession of legal firms attempt to get retrospective overseas investment approval.  All to no avail.  BCH was prosecuted for its breach of the Overseas Investment Act.  A $300,000 penalty was imposed and BCH Investments ordered to sell the land.

Justice Venning ruled Mr Nguy was negligent in failing to seek investment approval.  $873,600 damages awarded included not only the $300,000 penalty imposed but also government prosecution costs BCH was ordered to pay plus all legal costs BCH incurred trying to get retrospective consent.        

BCH Investments Ltd v. Nguy – High Court (1.11.21)

21.180

Lease: Parkhurst Corporation v. Bisht

Wrongfully locked out of premises set up as Imaxx Café & Bistro at Parakai near Helensville, Madhan Bisht’s claim to some $66,000 damages was reduced to $11,300 by the High Court.  The opportunity lost of his onselling the restaurant business at any value was speculative given that the restaurant had never traded profitably.

Mr Bisht signed an eighteen year lease in 2015 giving him access to commercial premises on Parkhurst Road.  The High Court was told rent was paid late consistently from the outset.  Outgoings required to be paid under the lease were never paid.  The landlord heard in February 2017 of furniture and stock being taken from the restaurant in the dead of night.  The restaurant business had been shuttered since the previous December. Assuming Mr Bisht had abandoned the premises, the landlord changed the locks, retaking possession.  The District Court was to later rule that Mr Bisht had not abandoned the lease; the landlord had unlawfully locked him out.  Mr Bisht was entitled to damages for breach of contract.     

Damages for breach of a commercial lease can include damages for lost opportunity; the possibility otherwise lost of selling the business as a going concern along with rights to occupy the leased premises. Damages for lost opportunity awarded by the District Court were overturned on appeal.

There was no evidence as to what the restaurant business was worth or whether the landlord would have consented to a replacement tenant, Justice Walker said.  The fact that the business had never traded profitability and had been closed for some months before locks were changed meant any potential sale price was highly speculative.   

Justice Walker stated the landlord did have the right to recover possession of the premises for non-payment of rent, if only it had followed the correct Property Law Act procedure first giving notice. Had this been done, Mr Bisht would have had no grounds to sue.

Damages of $11,300 payable to Mr Bisht were confirmed; the value of chattels wrongly seized by the landlord less rent arrears.

Parkhurst Corporation Ltd v. Bisht – High Court (29.10.21)

21.176

Fraud: New World v. Zhang

Shaojun Wang needed a court order to prevent her Auckland investment property being sold to recover money colleague Qian Zhang stole from New World.

In 2017, New World sued Zhang getting a court order for repayment of some $329,600.  Recovery was not straightforward.  In 2020, it had a charging order placed on title to a property in Moore Street, Hillcrest, registered in Zhang’s name.  Charging orders are used as a precursor to a forced sale.  Ms Wang objected.  Zhang’s name was on the title, but Zhang held title in trust for her, she said. 

The High Court was told Zhang purchased Moore Street in 2016 for $1.18 million putting in $45,000 cash.  Balance of the purchase price came from an ASB loan together with a cash contribution of $309,000 from Ms Wang.  Zhang was registered as the sole owner. The two women agreed the property would be tenanted with Zhang personally liable for any shortfall between rent received and property expenses.  Over the next eighteen months, Zhang personally carried a shortfall of about $20,900.

In late 2017, their business relationship was reorganised.  A formal deed was drawn up and signed in which Ms Wang agreed to accept liability for the mortgage debt and all property outgoings, with Zhang paid $70,000 and agreeing to transfer title to Ms Wang when requested.  The deed stated Zhang now held Moore Street on trust for Ms Wang. Zhang said she wanted out because she intended to return to China.  There was no evidence that Ms Wang knew Zhang was then being pursued by New World for theft. New World claimed it had rights to Moore Street because beneficial ownership was transferred to Ms Wang at less than market value; it was a ploy to defeat New World’s rights as a creditor, it said.  Justice Peters ruled that Ms Wang’s payment of $70,000 was sufficient to cover both Zhang’s initial contribution to the purchase price and any modest capital gain which had accrued since Zhang’s purchase.  She ordered the charging order over Moore Street removed.

New World (New Zealand) Ltd v. Zhang – High Court (29.10.21)

21.178

Marine Insurance: JDA Co Ltd v. AIG

Suspecting some claims underwritten on a marine cargo policy for used cars exported to New Zealand from Japan were for vehicles already damaged, insurers had a close look at terms of cover after a series of typhoons ripped through Japan in 2018. 

In August and September 2018, Japan suffered extensive damage from a series of three typhoons named Cimaron, Jebi and Trami. Used cars held ready for export to New Zealand were damaged.  Claims were made on an open insurance policy known in the trade as the AIMS scheme, underwritten jointly by AIG Insurance, Vero and IAG New Zealand.  AIMS provided vehicle insurance cover from point of purchase in Japan to delivery in New Zealand.  An open policy meant insurance terms operated as an umbrella, with specific vehicles later nominated for cover and premiums paid.  New Zealand distributors using AIMS advised broker Sage Partners Ltd of vehicles they held in Japan ready for export; Sage then advised the insurance consortium of vehicles to be held covered.  This advice came in a monthly summary.

The effect of this open policy was that distributors could have insurance cover for several weeks before insurers were formally advised of the risk they were underwriting.  Insurers’ liability came to a head after typhoons Cimaron and Jebi swept through Japan.  Insurers imposed a moratorium on underwriting any new business in Japan two days ahead of typhoon Trami sweeping ashore in early September 2018.  At issue was the status of insurance for some 27,000 vehicles distributors claimed were held covered for the month of September.

The High Court was told this September total was not advised to insurers within seven days of the end of the month as required by the policy.  Insurers agreed it was not fatal that the September monthly declaration was a few days late, there had been a regular past pattern of accepting late declarations. Those distributors insuring under the AIMS scheme all vehicles shipped out of Japan kept their September cover, provided the vehicle had been correctly declared in the appropriate end of month declaration.  There was a penalty for sloppy paperwork.  There was no insurance cover on vehicles acquired in previous months which had been added to a later month’s schedule of vehicles insured, Justice Gault ruled.  There was also no back-dated open insurance cover for those distributors who did not insure all exported vehicles, instead taking ‘spot cover,’ opting into AIMS blanket marine cover for specific vehicles on a sporadic basis.  Their cover did not start until insurers received actual notice of the risk and agreed to provide cover.  

Insurers agreed to refund premiums paid on those vehicles the High Court ruled were not covered.  The High Court was told the insurance consortium cancelled in October 2018 its participation in the AIMS scheme.

JDA Co Ltd v. AIG Insurance – High Court (29.10.21)

21.177

Investment: Huang v. Huang

With extended Chinese family spread across several generations and living in four different continents, the High Court ruled legal dispute over $7.8 million generated from an Auckland subdivision should best be heard by courts in the People’s Republic of China. 

In 1999, the Huang family in Guangzhou formed a business group known in English as the Heli Group.  It has grown into a conglomerate with multiple investments held in the names of various Huang family members.

At issue was profits from a very profitable investment in an Auckland Silverdale subdivision by a company called Grand Silverdale Development Ltd.  JieHao Huang put in funds amounting to a 3/11ths share.  Grand Silverdale struck gold.  Its land purchase in 2017 for $32.8 million generated a $38.4 million profit two years later.  A dispute followed within Heli Group as to who was entitled to Huang’s ten million dollars profit share from Grand Silverdale.

The High Court was told that as Heli Group expanded, ‘first generation’ members gradually loosened control giving greater autonomy to ‘second generation’ members in making investment decisions. JieHao Huang is a second generation member.  Heli Group’s first generation members said the Grand Silverdale investment was funded with retained business profits which would otherwise have been distributed to them as dividends.  The entire ten million Grand Silverdale profit was theirs, they said.  JieHao Huang said the 3/11ths Grand Silverdale investment was funded not only by Heli Group but also by other investors he had assembled.  He had taken steps to return some three million dollars to first generation owners, but was withholding the rest.  That money was owed other investors, he said.    

Justice Campbell said this was not a dispute which could be decided in New Zealand courts.  China courts better understood the context and were best placed to rule on business practices within Heli Group and the significance of multiple WeChat messages between members of the extended Huang family regarding their Grand Silverdale investment.

Huang v. Huang – High Court (29.10.21)

21.178

Holiday Pay: Metropolitan Glass v. MBIE

Discretionary bonuses do not form part of gross earnings for calculation of holiday pay where the employer truly has a discretion whether to make bonus payments or not, the Court of Appeal ruled in a test case.

A discretionary bonus scheme established by Metropolitan Glass in 2016 wended its way to the Court of Appeal in a test case on calculation of holiday pay.  The Holidays Act requires employee holiday pay to be calculated on ‘gross earnings.’ Labour inspectors from Business, Innovation and Employment argued all discretionary bonus payments formed part of gross earnings and should be included in calculation of holiday pay.  The Metropolitan Glass scheme set specified financial targets as triggers for bonus payments.

The Court of Appeal ruled there is a Holidays Act distinction between payments subject to specific conditions being met (which are included in gross earnings) and payments where an employer may choose to make no payment even if specified conditions are met (which do not fall within the definition of gross earnings).    

Metropolitan Glass was not contractually bound to pay bonuses.  Its short-term incentive bonus scheme did set specific targets before payment of bonuses might be considered but the scheme specifically stated that the company retained a discretion to not make any payment even if all conditions were met.

Labour inspectors said this ruling will result in some employers paying a deliberately low salary and topping it up with regular so-called discretionary payments to both reduce liability for holiday pay and to discourage staff from taking holidays.  This scenario is an extreme example that cannot detract from a correct interpretation of the Holidays Act, the Court said.

Metropolitan Glass & Glazing Ltd v. MBIE – Court of Appeal (26.10.21)

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Halifax: Loo v. Halifax NZ Ltd

Allowing customers to keep derivative trading positions open when Halifax went bust did not mean they personally kept investment gains accruing after liquidation.  Trading gains went into the pool to meet deficiencies owed all customers because Halifax’ records of customer holdings did not match securities supposedly held on their behalf.

Australian financial services provider Halifax Investment Services Pty Ltd went into liquidation insolvent in November 2018, followed days later by its New Zealand affiliate.  Investigations found there was a $A19 million shortfall between securities supposedly held on behalf of customers and the stated value of individual customer accounts.  Customer funds were supposed to have been kept separate.  Instead, Halifax management used trust funds for working capital in breach of trust.

In a novel legal approach, judges in both New Zealand and Australia jointly heard evidence as part of the legal wash-up.  Judges on each side of the Tasman issued separate court rulings in respect of investors in each country, but with similar legal rules operating in both countries their final rulings were not contradictory.      

Evidence was given that administrators did not immediately close out customers’ open derivative positions when Halifax went into administration.  Some customers at that point argued they could trace rights of ownership to specific securities held by Halifax.  Others threatened to sue administrators if they did not first get a court ruling to close positions.  Leaving positions open meant some investors saw their derivative holdings decline in value, others saw an increase.

A derivative contract fixes a price today for performance at a later date.  Derivative values move daily as the market value of underlying assets move.  A derivative contract is closed, and the profit or loss crystallised, with the purchase of a derivative contract netting off the earlier obligation to perform. 

One Halifax customer holding open positions valued at $A361,500 as at November 2018 saw these same open positions worth $639,700 two years into Halifax’ liquidation.  As a gain arising from his greater investment skills this gain should be paid out to him personally, he said.  The investor was bearing no downside risk, Halifax liquidators pointed out.  Should value of his open derivative contracts have dropped, he would still be recorded as a Halifax creditor at the higher previous November 2018 value. 

Investment gains arising from open positions were not ‘owned’ by individual investors, the Court of Appeal ruled.  Customer accounts as at November 2018 were book-keeping fictions that did not accurately correspond with securities Halifax held on behalf of clients.  Once Halifax went into administration, unpaid investors had a shared equitable interest in the realised value of securities held by Halifax on their behalf.  Investor proportionate entitlements were to be assessed on the amount each was owed as at the November 2018 date of administration, the court ruled.

Loo v. Halifax New Zealand Ltd – Court of Appeal (26.10.21)

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Bankruptcy Notice: Calypso No.11 v. Fistonich

Three years on from the collapse of Accent On Construction Ltd’s new build in Auckland for Housing New Zealand, Accent director Ian Fistonich is fending off threats of personal bankruptcy on his guarantee of office rents.  

Accent on Construction is in both receivership and liquidation with a list of unpaid creditors a mile long and no promises of early resolution.  Accent on Construction leased office premises in Henderson, west Auckland.  Mr Fistonich guaranteed the rent.  In 2019, the landlord got a court order that he pay some $180,000 for rent unpaid after Accent on Construction went into liquidation. The landlord is having difficulty finding any assets owned by Mr Fistonich personally.  It registered charging orders against titles to two properties in Henderson having names of Ian Fistonich and Graeme Halse listed as owners. Charging orders against land are used to secure payment of court orders.  Mr Fistonich protested.  He and Mr Halse are registered on the titles as trustees of a family trust, he said. The properties are not owned personally, he said.  They cannot be sold to meet a personal debt.  The landlord removed the charging orders one week later.

The High Court was told the landlord then served a bankruptcy notice on Mr Fistonich for the unpaid $180,000 rent.  Bankruptcy follows failure to pay the amount claimed in a bankruptcy notice.  Mr Fistonich applied to have the bankruptcy notice set aside.  He had a valid cross-claim against the landlord, he said. Each owed the other money; he was quits on the unpaid guaranteed rental, he claimed.

Mr Fistonich told the court proposed refinancing of one of the trust properties was disrupted by the charging order registration.  This led to a loss of substantial profits anticipated on a new project, he said. Finance was being sought for a proposed build of four houses in west Auckland.  Financiers were scared off by the sudden appearance of a charging order on title to the property being offered as security, he alleged.  The landlord was liable for this loss of profits, he claimed.

Associate judge Gardiner ruled Mr Fistonich did not have a genuine, triable cross-claim.  His claim against the landlord was based on pure speculation, Judge Gardiner said.  Speculation as to the possibility of successfully raising finance, speculation as to the possibility of the project going ahead and speculation as to the possibility of the project being profitable.

The fact Mr Fistonich did not proceed with proposed refinancing after the charging order was removed, despite the intended project being described as ‘certain and potentially lucrative,’ emphasised how speculative was his cross-claim, Judge Gardiner ruled.   

The bankruptcy notice remained in place.

Calypso No.11 Ltd v. Fistonich – High Court (20.10.21)

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Tax: Inland Revenue v. Husman Ltd

Lockdown restrictions keeping an Auckland restaurant closed was no defence to Inland Revenue forcing liquidation for unpaid tax debts totalling $348,200 when tax payments were in arrears before the pandemic struck and the restaurant had little prospect of paying arrears since it had persistently traded at a loss.  

Husman Ltd operated a restaurant in Auckland’s central business district.  The High Court was told it had cashflow difficulties from the outset, having commenced trading in late 2018.  Payments due Inland Revenue were not made for GST and PAYE.  Trading stopped during government-mandated pandemic lockdowns in 2020 and 2021.  By time of the first lockdown, tax arrears already totalled $160,800.  Government wage subsidies accessed during the lockdowns totalled some $222,000.  Husman had failed to account for PAYE on these wages, Inland Revenue said.

With Inland Revenue threatening liquidation for non-payment, Husman made a series of escalating offers to pay arrears: first to pay arrears then totalling $267,000 in $2000 weekly instalments; later to pay continuing arrears at $2500 per week.  Inland Revenue rejected all offers.  The business had no chance of making offered payments and still meeting continuing tax obligations, it said.   

Justice Robinson ordered Husman into liquidation. Inland Revenue is justified in forcing liquidation where there has been flagrant and on-going failure to comply with tax obligations and where proposals to pay by instalments are of dubious commercial merit, he ruled.

Claims that Inland Revenue’s liquidation application was blocked by the Civil Defence Emergency Management Act were dismissed. Quarantine restrictions were not an ‘emergency’ as defined by the Act, Justice Robinson ruled.  And even if they were, the Act does not relieve taxpayers from their tax obligations, he said.

Inland Revenue v. Husman Ltd – High Court (20.10.21)

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Sale by Text: Gittos v. The Toy Shop

Auckland surgeon Mark Gittos was ordered to pay $33,900 damages after backing out of an agreement to sell a McLaren Formula One body shell.  A valid contract of sale was agreed by exchange of text messages, but the buyer’s identity was disputed. 

Looking to sell the Formula One body shell in March 2019, Mr Gittos approached Max Fletcher, a specialist selling European marque vehicles through his Auckland business: The Toy Shop.  Mr Fletcher contacted the previous owner in Canada and found a willing buyer.

Having agreed on a price at $125,000, Mr Gittos had second thoughts and refused to go ahead.  When sued by Toy Shop, Mr Gittos argued he had no contract with Toy Shop; Toy Shop’s Mr Fletcher was acting on his behalf in a sale to an undisclosed buyer, he said.  

In court, text messages between the two were closely analysed.  Mr Gittos pointed to a text from Mr Fletcher stating he would receive a ‘commission’ and another text from Mr Fletcher claiming to have ‘moved the guy up’ to a higher price. Mr Fletcher was acting as his agent, Mr Gittos said.  It could equally mean Mr Fletcher was acting as agent for an undisclosed principal, in this case his company Toy Shop, Justice Gault said.  The word ‘commission’ could be viewed as a loose expression by Mr Fletcher referencing his estimated profit.

Acknowledgement that there was a sale to Toy Shop was highlighted by one text interchange where Mr Gittos referred to GST benefits for Mr Fletcher’s Toy Shop as buyer.  If Mr Gittos personally was selling off-shore in a transaction arranged by Mr Fletcher as his agent, the sale would be zero-rated as an export transaction.

Damages of $33,900 were assessed as the profit lost by Toy Shop when Mr Gittos refused to hand over the body shell for onward sale to Toy Shop’s Canadian buyer.

Gittos v. The Toy Shop (Auckland) Ltd – High Court (19.10.21)

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Fraud: Panoptic v. Lisbet

Failing to push on with a court case filed some nine years previously alleging embezzlement was dismissed for want of prosecution; part of a series of inter-family disputes also involving arguments over child access and a home improvement loan.

All names were supressed following a hearing in the High Court at Whangarei.  In 2006, a family business was established, given the name Panoptic for the court record. Directors were given aliases as a Mr Acker with his son-in-law as a Mr Lisbet.  They were 50/50 shareholders.  The two fell out spectacularly when Mr Acker accused his son-in-law of stealing Panoptic property and setting up a rival business in competition.  In 2012, Panoptic took legal action against Mr Lisbet alleging a breach of directors’ duties.  This court case was put on hold when Mr Acker laid complaints of theft with police.  Police charged Mr Lisbet with theft in 2014 after a search warrant was executed at his home.  They later decided not to proceed; charges were withdrawn.  Mr Acker then hired a private investigator. This led to police laying one further charge against Mr Lisbet for theft.  Police offered no evidence when the case was called; the charge was dismissed and a suppression order imposed. Yet another criminal charge against Mr Lisbet in 2020 was withdrawn by police five months later.

In the interim, Mr Acker pursued a series of court cases against his son-in-law: judgment ordering repayment of monies lent for home improvement; a successful application to gain access to his grandchildren; and a conviction for contempt of court after Mr Lisbet failed to surrender a company laptop.

Then in 2021 new life was breathed into Panoptic’s 2012 case alleging Mr Lisbet’s breach of directors’ duties with an amended claim filed in court.  Mr Lisbet applied to have the case thrown out; his father-in-law was being vindictive, he said.

Associate judge Bell dismissed Panoptic’s claim for want of prosecution.  The long delay hampered Mr Lisbet’s ability to defend the case.  In dispute were events taking place between 2008 and 2012. He could not be expected to remember in detail events occurring that far back, Judge Bell ruled.  There was a real risk that there would not be a fair hearing.

There had been inordinate delay by Panoptic in progressing the case, Judge Bell said.  Civil action alleging breach of directors’ duties and criminal action alleging theft are not alternatives, he said.  Civil action by Panoptic against Mr Lisbet claiming damages could have proceeded in parallel with attempts to have police prosecute.

Panoptic v. Lisbet – High Court (18.10.21)

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Land Sale: Meates v. Topliss

She ran a string of racehorses and managed the Kumara town dump.  Now long-time West Coast identity Eileen Topliss claimed she was harassed and bullied into selling a 75 hectare block of pasture and scrub to relative Chris Meates and wife Donna.  Not so, ruled the High Court ordering the sale go ahead.  She manufactured evidence seeking to escape the sale after immediate family felt she could do better than selling to the Meates at $400,000, Justice Osborne decided.

Aged in her early eighties and widowed for nearly thirty years, Mrs Topliss had plans to separate off the 75 hectare block adjoining her home in Fifth Street, freeing up cash on sale.  In the close-knit Kumara community, her intentions soon became common knowledge.  Subdivision plans were prepared and ‘for sale’ signs went up.  An oral offer was made at her indicative price of $500,000 but interest waned when she tried to renegotiate at a higher price.    

The High Court was told her nephew Chris Meates subsequently expressed interest.  After getting a valuers’ report indicating a market value of $415,000 the Meates offered to buy at $400,000.  Eileen was content to sell to them at that price, they said.  No immediate progress was made.  There were delays in getting subdivision plans approved by Westland Council, Eileen claimed.  Seven months later in late 2017, Donna Meates met with Eileen.  Each subsequently disputed what transpired during a meeting at Eileen’s home.  Donna said the purpose of the meeting was to make some progress on firming up the earlier oral agreement.  Eileen signed a short note confirming details of the sale and was given $10,000 cash as a deposit.  Donna said that it was an amicable meeting and that both agreed putting the deal in writing protected everyone.  Eileen said that Donna stood over her in a threatening manner, forcing her to sign. Eileen said she refused the cash, but Donna left it behind when leaving.  It was not banked for some months.

Evidence was given that Eileen subsequently baulked at carrying through any sale after her brother and her two sons learnt of the 2017 written agreement with the Meates.  She claimed to have signed under duress and that the Meates had taken advantage of her advanced age to drive an unconscionable bargain.

Justice Osborne said that when committing to sell to the Meates she was her ‘own woman’ and knew what she was doing.  Her evidence denying there was any sale showed a tendency to invent explanations which were either not correct or took liberties with the truth, he said.

The piece of paper she signed in 2017 was sufficient to identify the parties, the price and the land to be sold.  It was an enforceable contract.

Meates v. Topliss – High Court (11.10.21)

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Mutual Wills: Clarke v. Clements

When Denise Ellis died in 2019 she bequeathed $4.2 million to her brother Martin.  Siblings of her late husband sued.  She had agreed with her husband that the survivor of the two would split assets half in half with each side of the family, they said.  It was a fraud on her late husband for Denise to bequeath all her assets to only her side of the family, they alleged.

Graeme and Denise did not have children.  He worked as a builder in Christchurch; she owned a hairdressing salon.  Successive wills signed during their 45 years marriage made differing arrangements for distribution of their assets on death.  Wills signed four years prior to Graeme’s death saw each intend to leave all assets to the other with a gift over if their spouse was already dead; the estate of the surviving spouse was to be divided one half to Denise’s only sibling, her brother Martin, and one quarter each to Graeme’s siblings, Velma and Mervyn.

Denise inherited all assets on Graeme’s death.  After Denise died, Graeme’s siblings sued when they learned she had signed a new will twelve months after Graeme’s death with her brother Martin now sole residuary beneficiary.  This breached an agreement made with her late husband, they alleged. Each side of the family was to inherit half, they claimed.  The High Court was told of comments made by Graeme at social occasions in Denise’s presence about the ‘half in half’ arrangement he and Denise had written into their wills.

The High Court was asked to determine whether their wills were corresponding wills (wills with similar terms) or mutual wills (wills with similar terms coupled with an agreement not to depart from those terms).  Subsequent wills can be overridden if there is a prior mutual will.  It is a fraud for someone to inherit benefitting from terms of a mutual will and then fail to honour terms of the mutual agreement. Courts require clear evidence that mutual wills were agreed.  Mutual wills create considerable inflexibility.  They tie up assets after one spouse’s death in a manner which may not be tax effective, failing to anticipate future changes to taxes and estate duties.

Justice Osborne ruled the prior wills signed by Graeme and Denise had similar terms but were not mutual wills.  There was at that time a ‘mutual expectation or desire’ that assets would be divided ‘half in half’ when both were dead but this was no more than an ‘honorary agreement.’  There was no binding enforceable agreement that the survivor would split assets equally between each side of the family.

Denise’s brother was entitled to retain all her assets.

Clarke v. Clements – High Court (11.10.21)

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