Construction: Cancian v. Tauranga City

As project manager for multiple Tauranga housebuilds, Danny John Cancian was liable to ensure work complied with building consents.  He was fined $36,000 for breaches of the Building Act.

Cancian and his company Bella Vista Homes Ltd gained notoriety when Tauranga Council closed down as dangerous, building sites in a subdivision known as The Lakes.  Poor construction forced demolition of some homes; remediation for others.  Cancian was charged with breaches of the Building Act in respect of eight properties.  After a trial and several appeals, convictions and fines stood in respect of two properties.

Justice Lang confirmed conviction and a $20,000 fine in relation to an Aneta Way build.  Poorly finished cladding breached the Act.  Cancian could not lay the blame on an apprentice working on site.  As the licenced building practitioner responsible, it was Cancian’s job to supervise his apprentice, Justice Lang said.

Building Act charges in relation to one Lakes Boulevard build centred on foundation footings for a rear wall.  Footings poured were inadequate for a consented wall one metre high and were in fact used to support a wall that was nearly three metres high.  Cancian was held liable as project manager, even though another licenced building practitioner personally supervised pouring of the inadequate footings.  A $20,000 fine was reduced by $4000 after Cancian’s further Lakes Boulevard conviction for filing with Tauranga Council an incorrect record of the completed work was overturned on appeal; filing a record of work is not ‘building work’ as defined by the Act, Justice Lang ruled.

Cancian was ordered to pay Tauranga City ninety per cent by value of the fines imposed. 

Cancian v. Tauranga City Council – High Court (28.3.22 & 29.04.22)

22.081 

Bankruptcy: re Clarke

Bankrupted more than eight years ago and sentenced to two years three months imprisonment during that time for Insolvency Act offences, former Auckland chartered accountant Stuart Francis Clarke was released from bankruptcy on condition that he not act as a trustee or director until August 2024.

Clarke was bankrupted in March 2014 on a Westpac guarantee for money used to purchase a Hamilton commercial building.  In the normal course of events, he would expect to be discharged from bankruptcy three years later.  But the three year clock does not start ticking until a bankrupt files with Insolvency Service a personal budget together with details of all assets and liabilities. The High Court was told Clarke provided incomplete information and refused to answer Insolvency Service questions. The clock never started.  He was imprisoned after pleading guilty in 2018 to multiple Insolvency Act offences including managing a business whilst bankrupt, concealing assets and contributing to the extent of his insolvency with extravagant spending around the time of his bankruptcy.  Evidence was given that he spent some $84,000 on personal expenses over a 21 week period.

Insolvency Service did not challenge his court application for discharge.  The High Court was told Clarke is now aged 65, his only income a state benefit.  He has no assets, but holds assets in his name as an independent trustee of client family trusts.

Associate judge Sussock ruled that it is not in public interest to leave a person perpetually in bankruptcy.  There is a point where they have to get on with their life. She discharged Clarke from bankruptcy with immediate effect, subject to the condition he not act as a director or trustee before August 2024.

re Clarke – High Court (29.04.22)

22.082

Sofitel Auckland: Een v.Body Corporate 384911

Investors allege Pandey-controlled CP Group running the Sofitel Auckland Viaduct Harbour Hotel put on the squeeze; blocking disgruntled absentee apartment owners from earning revenue hosting Airbnb guests, forcing some to sell at reduced prices to CP Group.    

Viaduct Harbour has 175 residential units; the majority under control of the Pandey family.  About eighty apartments are managed privately with owners mostly living offshore, predominately in Singapore and Malaysia.  These private owners refuse to lease their apartments into CP Group’s Sofitel hotel operations.  Each are having to pay annual body corporate levies of some $24,000 a year.  They dispute the size of annual levies and are challenging CP Group’s use of common areas for hotel operations.

The High Court was told CP Group used its majority voting in September 2020 to amend body corporate rules, stopping private apartment owners from using other providers to let out their apartments. This left them with no revenue while still liable for corporate levies, disgruntled owners said.  Five gave up, selling to a Pandey-controlled company for prices ranging between $150,000 and $170,000.  CP Group has since conceded the new rules are invalid and cannot be enforced.

Litigation over disputed use of common areas carries on. CP Group stalled, demanding private owners stump up security for its legal costs.  They live overseas and may not pay if they lose, it said.  Associate judge Taylor ruled against security for costs. Offshore owners own assets in New Zealand; their apartments at Viaduct Harbour.  CP Group’s attempt to block private owners from earning letting revenue counted against its demand of security for costs, Judge Taylor said.

Een v. Body Corporate 383911 – High Court (29.04.22)

22.080

Royalties: Talley's Group v. MacLab

Talley’s claim MacLab is not properly paying royalties for supply of mussels resulted in a counterclaim by MacLab for $3.4 million alleging overcharging for stock supplied.

A 2014 supply agreement saw Talley’s Group Ltd and MacLab (NZ) Ltd joined at the hip in a long-term arrangement.  MacLab processes raw mussels, producing powder for health products having claimed anti-inflammatory properties.  The deal sees Talley’s receiving five per cent of MacLab’s gross revenue as royalties.  Talley’s disputes the amount paid in royalties and the manner in which it is paid.  It was envisaged payment would be made in kind, through issue of shares in a company holding MacLab assets, Talley’s claims.  It has been refused access to MacLab’s internal records to allow verification of royalty payments, it says.

When sued by Talley’s, MacLab kicked back, alleging Talley’s overcharged for mussels supplied.  MacLab has to prove what was the market price.  The New Zealand market is dominated by Talley’s, MacLab and Sanford. MacLab dragged Sanford into its litigation seeking a court order for release of Sanford pricing information.

Sanford agreed to release pricing schedules and invoices covering mussel sales to its customers for the six year period ending December 2018.  It refused to release aggregated data.  That could identify pricing strategies developed over time and could be extrapolated to determine current pricing strategies, it said.  In the High Court, Associate judge Sussock agreed, refusing to order disclosure of aggregated information.  Judge Sussock also ruled Sanford was not obliged to disclose any information it held regarding pricing by other suppliers.  If MacLab wants this information, it should be approaching these other suppliers, Sanford said.

MacLab has to pay Sanford’s costs in assembling pricing information being released.

Talley’s Group Ltd v. MacLab (NZ) Ltd – High Court (20.03.20, 29.10.21 & 28.04.22)

22.078

Property: van der Byl v. van der Byl

Family confusion over financial assistance to support their mother came to a head when Robin van der Byl needed a High Court order to force sale of her Palmerston North home in order to buy a home for himself.  Justice Simon France dismissed family suggestions that Robin had muddied the waters in gaining part share of their mother’s home.

The High Court was told of van der Byl family discussions in 2006 about support for their parents.  Son Robin suggested construction of a granny flat alongside the family home with their parents shifting into the granny flat and Robin with his then wife shifting into the main house.  Neither his parents nor his siblings were in a position to provide financial support for the build.  Robin put up $100,000.  He told the court his parents offered to transfer a one-third share of the property to him ‘to protect’ his contribution.  The High Court was told this amount roughly equated to one-third of the then market value of the property.  Each had separate lawyers finalise the transaction.  His father died whilst granny flat construction was underway.  Three years later, in 2009, Robin moved out of the main house.  Other members of the wider family subsequently shifted in; some paying rent, some not.

Some twelve years later, Robin was living in Australia in straightened circumstances.  His only income was a national pension.  His accommodation was a bedroom rented from a relative.  Attempts to realise his share of the Palmerston North family home was met with more than dismay; some relatives were outraged that his 88 year old mother should be required to sell up and buy elsewhere in order to pay out his share. Robin should wait until his mother died, they said.  Questions were raised about how Robin came to be part-owner.

Justice Simon France ruled there was nothing sinister in Robin becoming part-owner.  The transaction was clearly documented.  He was entitled to cash-out his part share.  While his mother had lived at the property for nearly thirty years and any question of a move was stressful, Robin faced financial hardship in looking to buy a home for himself, Justice France said.  Robin’s mother was offered the opportunity to buy out her son’s share of the Palmerston North property at a court-ordered valuation, failing that it is to be sold.

An online valuation values the property at $850,000. Evidence was given that Robin had accidentally wound up as half owner of the Palmerston North property after his father’s death because of a lawyer’s mistake in naming Robin as a joint owner rather than owner as tenant-in-common with a one-third share.  In the High Court, Robin asked to be cashed-out at a one third share, being the intent of the 2006 financial arrangement.

van der Byl v. van der Byl – High Court (28.04.22)

22.077

Insolvency: Scutter v. Tawa LP

Fiddling the books to avoid payment of $391,000 GST came at a cost; liquidator of Wellington-based Matrix Homes clawed back $2.1 million as a voidable payment after Matrix went into liquidation insolvent.  What were claimed to be pre-payments on a building contract were Matrix shareholder loans, the High Court ruled.

Matrix Homes Ltd was in the business of assembling homes from factory-built modular units, a departure from the usual practice of on-site builds.  After its 2018 liquidation, Matrix liquidator John Scutter challenged transactions that saw Tawa LP, controlled by Matrix’s Sean Murrie and Joseph Hannah, wind up with ownership of a Matrix property development in Tawa without payment. Matrix had agreed to build eleven duplex style modular apartments at William Earp Place for a fixed price of $2.75 million.

The High Court was told Matrix was insolvent from the get-go.  Banks refused to fund the project.  Working capital was drip fed by Mr Murrie and Mr Hannah.  Deposits paid by purchasers were recorded as pre-payments, with GST payable. Evidence was given that Mr Murrie’s and Mr Hannah’s working capital contributions for Matrix were supposedly Tawa LP pre-payments but were recorded in Matrix accounting system as shareholder loans to Matrix.  Mr Murrie told the High Court that Matrix accounting staff had made a mistake. Justice Gwyn ruled there had been no mistake; Mr Murrie had instructed staff to record the transactions as Matrix shareholder loans to avoid liability for GST.

Shortly before Matrix was propelled into receivership by Sean Murrie himself, a flurry of accounting entries saw the shareholder loans transformed into payments by Tawa LP of the purchase price for Earp Place apartments.  Tawa LP took ownership.  Matrix liquidator challenged this arrangement; Tawa LP had gained a Matrix asset but had not paid for it, he said. Tawa LP was ordered to pay Matrix $2.16 million; the face value of credit invoices drawn up to re-categorise the Matrix shareholder loans as Tawa LP pre-payments.

Scutter v. Tawa Limited Partnership – High Court (28.04.22)

22.079

Fraud: Hu v. Yu

Wei Hu alleges he was defrauded by foreign currency dealer Chunglin Yu.  He now has a further problem; she is detained in prison in China.

The High Court ruled Dr Hu had to sue in the China courts.  That created yet another complication; if successful, he would face difficulties enforcing any decision made by China courts in New Zealand to seize the one asset Ms Yu appears to have in this country, a property in Auckland suburb Dannemora. The High Court refused a freezing order over Dannemora.

Dr Hu appealed.  He cannot take legal action in China, he said.  Government policy in China does not allow private citizens to sue for losses following financial scams, he claims.

Ms Yu said she cannot attend any trial in New Zealand because she is in prison.  Her imprisonment similarly causes difficulties for any court hearing in China, the New Zealand Court of Appeal pointed out.

There is no point in requiring Dr Hu to sue in China should his case not be accepted by courts in that country, the Court of Appeal said.

Meanwhile, the Court of Appeal imposed a freezing order over Dannemora.  The case was returned to the High Court to allow any challenge by Ms Yu to the freezing order.

Hu v. Yu – Court of Appeal (27.04.22)

22.076 

Annuity: re Lifetime Income Ltd

Low interest rates are starting to bite in the life assurance sector.  Lifetime Income Ltd paid out annuity holders leaving them to fend for themselves, saying it could not meet increased solvency requirements demanded by the Reserve Bank.    

Annuities are sold on the premise that you are leaving experts to make your investment decisions; pay a capital sum up front and the insurer will make agreed monthly payments for the rest of your life.  It is a gamble.  Die earlier than your actuarial-assessed lifespan and the insurer wins; die later and the insurer bears the cost.  To cover this risk, life insurers create a liquidity buffer, typically adding a few extra years to every customer’s actuarial lifespan and investing customers’ capital contributions in ultra-safe interest-earning investments.   

Lifetime Income’s annuity business was established by Ralph Stewart in 2015.  Its customer base was boosted with a 2017 purchase of annuity policies originally issued by Government Life.  Lifetime is part of Mr Stewart’s Retirement Income Group.

The High Court was told Retirement Income was broadsided by an August 2020 Reserve Bank edict requiring increased solvency margins; required capital reserves were doubled from five million dollars to ten million.  Solvency margins are designed to protect investors, should costs outstrip earnings. Lifetime was Retirement Income Group’s biggest problem.  It faced the same problem as annuity providers worldwide; income earned from short-term debt investments plummeted as interest rates fell dramatically after governments poured billions into their economies, responding to the covid-19 pandemic.

The High Court was told Lifetime had some 160 life annuitants.  With fixed annual operating costs in excess of $250,000, it could not magic up a further five million in capital.  Lobbying Reserve Bank to reduce the increase was unsuccessful.  A public capital raise through Forsyth Barr fell over; minimum subscription levels were not achieved.  Attempts to sell its annuity customer base failed.  The High Court approved a Companies Act scheme of arrangement giving a lump sum payout to each annuitant, cancelling their annuity.

Not all annuitants were happy.  One pointed out she would have to find investments paying 9.6 per cent in order to match her former annuity paying to an assumed actuarial age of ninety.  Others said that at their advanced age they did not want to be making difficult investment decisions on investment of the capital sum now falling into their laps.

Evidence was given that Lifetime’s average annuitant was aged 89 receiving an annual annuity before cancellation of some $7000. One (aged 89) was receiving $94,300 per year; two others (aged 79 and 81 respectively) were sharing $58,250 annually.

re Lifetime Income Ltd – High Court (20.04.22)

22.075 

Restraint of Trade: Gordon v. Christensen & Purdon Family Trusts

Selling parts for cars is a different market segment to a dealership selling cars, the Court of Appeal observed when ruling Tim Gordon was not in breach of a restraint of trade when selling aluminium products after his earlier $1.92 million sale of office fit-out specialist Trans-Space Industries.

When selling Trans-Space in 2019, Mr Gordon agreed not to compete against his former business for the next three years.  Trans-Space specialised in manufacturing and installing complete fit-outs for the likes of schools, hospitality venues and commercial offices.  Within months, Mr Gordon bought partition supplier then known as Autex PSL. Trans-Space purchasers promptly got a High Court order aimed at stopping Mr Gordon in his tracks.  He was setting up in competition, in breach of the agreed restraint of trade, they claimed.

Generally, courts frown on restraints of trade; they limit competition.  Restraints on future business activity are acceptable if they protect a property right. On purchase of a business, that property right frequently is goodwill, paid to protect an existing customer base; the vendor is paid extra in return for a promise not to turn around and immediately poach previous customers.

There was no dispute that a restraint of trade was legally acceptable when Mr Gordon sold Trans-Space.  Terms of this restraint came under forensic examination in the Court of Appeal.

Mr Gordon agreed not to operate a rival business for: ‘the manufacture … distribution … of …partitioning systems or door systems.’ The court ruled Mr Gordon’s new business was not involved in ‘manufacture’ or ‘systems.’  It supplied components to building contractors who then completed a fitout to client instructions.  His business held only four items in its product line, most selling for less than one hundred dollars each.  In contrast, Trans-Space manufactured components for bespoke fitouts, at an average value of $20,000.

Mr Gordon was not in breach of the agreed restraint of trade when immediately buying Autex PSL, the Court of Appeal ruled.

Gordon v. Christensen & Purdon Family Trusts – Court of Appeal (12.04.22)

22.074

Caveat: Cowan v. Cowan

Christine and Te Rahui Cowan’s attempts to stop their father selling the Wellington family home to a property developer have foundered while litigation piles up exposing both of them to claims for hundreds of thousands of dollars damages.

After their mother’s death in 2019, tensions in the Cowan household coalesced around their father’s sale of the Lyall Bay family home to property developer Kurt Gibbons.  Having purchased five neighbouring sections, Mr Gibbons $1.1 million purchase of the Cowan family home enabled his property development to be extended from 21 townhouses to thirty.  All thirty townhouses have been pre-sold, the Supreme Court was told.

Christine and Te Rahui claim their late mother intended the family home be retained as papakainga; a home base.  Christine has lived at the property nearly all her life. The house was purchased by their parents in 1974 with loan assistance from the then Maori and Island Affairs Department.  Their mother Marama was Maori; her widowed husband John is Pakeha.

Learning of their father’s sale, Christine and Te Rahui lodged a caveat over title to Lyall Bay.  This had the effect of blocking the sale, pending a court case arguing claims of papakainga.

The Supreme Court was told this caveat lapsed inadvertently.  It took a court case to get a replacement caveat registered.  And with it came a court-ordered requirement that Christine and Te Rahui compensate their father for any financial damages suffered should their claim fail.  Potential personal liability spiralled.  John’s contract for sale has a penalty interest clause for late settlement with penalty interest in excess of $120,000 already due.  Any delay in completing the sale also exposed John to damages for Mr Gibbon’s increased building and financing costs.

Regardless of the outcome of their papakainga claim, Christine and Te Rahui face liability for substantial damages; compensation to their father.  They applied to the Supreme Court for a cap on liability, limited to the sum of $10,000 Christine lodged in a lawyer’s trust account.  Rules around registering a second caveat require substantial protection for the property’s owner should a claim not succeed, the Supreme Court stated.  Christine and Te Rahui remain fully liable for all losses their father faces whilst the caveat remained, the court ruled.

Evidence was given that the Lyall Bay caveat was removed after a court hearing in 2021, enabling the property to be transferred to Mr Gibbon’s property development company.  The court ordered net proceeds of sale be held in a solicitor’s trust account until the papakainga claim is resolved. 

Cowan v. Cowan – Supreme Court (12.04.22)

22.073

Fraud: Kidd v. van Heeren

Alex van Heeren has spent in excess of $11 million dollars on legal fees in twenty five years of litigation in which he was found to have defrauded his then business partner, the late Michael Kidd. The Court of Appeal ruled van Heeren could not dip into funds held in court to pay further legal expenses; this money is held on Mr Kidd’s behalf pending final calculation of damages payable by Mr van Heeren.

Mr Kidd died two weeks after Mr van Heeren paid into court US$25 million being a preliminary estimate money owed Mr Kidd. Mr van Heeren paid this money belatedly into court, some six years after he was ordered to make payment within one month.  Within days, most of the money was disbursed to Mr Kidd for payment to his ligation funder. There is about US$6.8 million left sitting in court.  Mr van Heeren applied to have his continuing legal expenses paid out of this money.

The High Court was told Mr van Heeren currently lives in South Africa.  He disputes how much is owed Mr Kidd’s estate following a 2013 South Africa court ruling that he defrauded Mr Kidd out of a half share of their steel trading business. Following an initial New Zealand High Court hearing, their business was calculated to be worth US$50.8 million as at 1991.  Payment of half this amount into court was ordered.  A final hearing is pending on calculation of interest; conflicts between South Africa law and New Zealand law on calculation of interest are at issue. Interest claimed is in excess of US$20 million.

Mr van Heeren asked he be allowed to recover US$2.5 million dollars in payment of ongoing legal expenses from the US$6.8 million sitting in court.  Assets he previously owned are tied up in trusts over which he has no control, he said. These legal obstacles were erected entirely by Mr van Heeren himself, the Court of Appeal observed.  The funds held in court are for the benefit of Mr Kidd, not Mr van Heeren, it ruled.

Kidd v. van Heeren – Court of Appeal (7.04.22)

22.072

Mistake: Greymouth Holdings v. Lundon

Greymouth Holdings’ director Robert Dunphy claims there was no mistake when his company agreed to buy an Auckland property for $5.9 million but having to pay the vendor only $4.1 million.  The vendor claims Mr Dunphy is exploiting what was an obvious mistake. 

The Herne Bay property in Argyle Street is owned by Ariki Trust, part of the estate of philanthropist and business man the late Adrian Burr.  Ariki owns the leasehold interest; the freehold was owned by a company called Swanson Land Ltd.

The High Court was told of negotiations in 2021 with Ariki rejecting Greymouth’s written offer to buy the leasehold interest.  That same day, Greymouth signed a deal with Swanson Land, agreeing to buy the freehold interest for $1.8 million.  Just over a week later, Ariki made a written offer to Greymouth offering to sell at $5.9 million.  This offer was for sale of the freehold interest, and with it a right to rents from the leasehold.  Greymouth accepted that day.  Ariki replied within an hour, saying there had been a mistake; it was offering to sell its leasehold interest only at $5.9 million, it did not own the freehold.  Greymouth says there was no mistake.  Since Greymouth now owned the freehold, Ariki was told it had to pay $1.8 million to buy the freehold from Greymouth in order to transfer the freehold back to Greymouth.  This legal roundabout has the effect of reducing payment to Ariki by $1.8 million with Greymouth then owning Argyle Street absolutely with the leasehold cancelled.

Ariki wants the contract cancelled.  Greymouth registered a caveat against title to Argyle Street to protect its claimed rights.

After reviewing each sides disputed views of who knew what at the time the contract was entered into, Associate judge Gardiner ruled the caveat stay in place pending a full court hearing.  Judge Gardiner said it was objectively clear that Ariki had made a mistake.  But the legal consequences of this mistake depends upon the state of Mr Dunphy’s knowledge.  Formal evidence in court is needed to resolve this question.  There had been market gossip of Ariki considering buying the freehold when putting Argyle Street’s leasehold on the market in order to maximise its market value.

Greymouth Holdings Ltd v. Lundon – High Court (1.04.22)

22.071

'Spencer on Byron:' Body Corporate 207624 v. Grimshaw & Co

Ordered to repay $67,500 received as a ‘wasted costs’ order claiming to be out of pocket following a trial delay, the High Court was told law firm Grimshaw was itself not ready to go to trial at time of the requested delay.  Grimshaw is defending allegations its negligence increased remediation costs for apartments at Auckland’s Spencer on Byron.

On 23 levels, Spencer on Byron suffered weathertightness defects, resulting in a $20.05 million payout in 2013.  Remediation was delayed following a dispute over who benefits. Initially, legal action was taken by Spencer’s body corporate on behalf of only a limited number of residential apartment owners.  At the outset, Auckland lawyers Grimshaw and Co had these owners sign a distribution agreement setting out how any payout would be divided between them as their contribution to remediation costs.  With a twenty million dollar settlement in the pot, other apartment owners piled in, claiming they too were entitled to a share.  It took another court case to rejig the distribution, enabling remediation to progress.

Spencer’s body corporate claims Grimshaw was negligent in not properly drawing up a distribution agreement at the outset. Delays caused by distribution arguments led to increased remediation costs, it says.   Grimshaw denies liability.  This dispute was set down for a July 2021 High Court hearing.  The body corporate asked for a delay; its lawyer was not available on that date.  A new trial date was set.  Grimshaw was awarded a ‘wasted costs’ order; compensation, having prepared for a trial that did not take place. The body corporate promptly paid $67,500 ordered. Six months later, Justice Campbell ordered Grimshaw repay this money.  The High Court was told the body corporate had learnt that Grimshaw was still sitting on some 1800 documents which it says should have been disclosed before the proposed July 2021 court hearing.  Grimshaw had not properly completed pre-trial procedures and was not itself ready for trial in July 2021, Spencer said, whilst implying that it was ready when making its claim for wasted costs.  Grimshaw claims these documents are peripheral to their dispute and of little relevance.  Spencer on Byron disagrees.

Body Corporate 207624 v. Grimshaw & Co – High Court (31.3.22)

22.070

Joint Venture: Young v. Remarkable Exquisite Design

Maria Young forced liquidation of their Queenstown joint venture property company after suspicions colleagues Geoffrey Short and Katrina Wardill were diverting company resources to their own benefit.

In 2019, the three jointly purchased a high-end apartment in Queenstown, intending to earn income renting as Airbnb accommodation. Title was taken in the name of their joint venture company, Remarkable Exquisite Design Ltd, with Ms Young holding a one-third share.  Living in Hamilton, Ms Young came to suspect her Queenstown-based colleagues were rorting the business.  A private investigator was hired.  Ms Young alleged her colleagues were diverting Airbnb income into their personal bank account and at times had been living rent-free in the apartment, charging their cleaning expenses to the joint venture.

The High Court was told Ms Young was refused access to the Airbnb online booking platform.  Her access to Remarkable’s Xero accounting data was blocked for over a year by Mr Short and Ms Wardhill.  The two did not fully respond to allegations raised by Ms Young, Associate judge Lester said.  The investors’ dysfunctional relationship meant their dispute could not be resolved by agreement. This lack of trust meant it was best to put the company into liquidation, Judge Lester ruled.  An independent liquidator was appointed to sell the apartment and sort out the financial dispute.

Evidence was given that the Remarkable Exquisite purchase was the third property owned jointly by the three.  Joint ownership of another Queenstown apartment had led to a welter of mutual recriminations.  Proceeds from selling this apartment are currently held in a lawyer’s trust account awaiting agreement on how the surplus is to be divided.

Young v. Remarkable Exquisite Design Ltd – High Court (31.03.22)

20.069

Ahu Whenua Trust: Walters v. Wikiriwhi

Trustees of a Taupo ahu whenua trust put loyalty to a friend ahead of their duties as a trustee, the Court of Appeal said, confirming removal of trustees from office and ordering review of the benefits gained by fellow trustee Tom Walters.  Maori Land Court had ordered Walters pay $128,000 to the Oruanui Lands Trust.

Beneficiaries of Oruanui Lands alleged trustees Michelle Satchell, Kori Trevelyan and Aperahama Withers had allowed fellow trustee Tom Walters, also known as Eric Walters, to buy trust land on the cheap in a sweetheart deal.

The Court of Appeal was told Oruanui Lands owned some 200 hectares of farm land near Taupo.  It leases the land, collecting rent.  As an ahu whenua trust, Oruanui has some 650 beneficial Maori owners.  In 2013, trustees considered buying adjoining farm land coming up for auction.  The vendor was looking to get $1.6 million; the then rateable value was $1.05 million.  Oruanui did not have sufficient resources to buy at these prices, but the trustees agreed between themselves that Mr Walters would put up one-third of any successful bid, in return getting ownership of a farm house on the land.  At the November 2013 auction, Oruanui was the successful bidder at just $595,000.  Oruanui could fund its purchase at this price with its own resources.  One month later, trustees confirmed Mr Walters could have the farmhouse plus an adjoining four hectares at one-third the bid price: $198,3000. There was no independent valuation of the property being onsold.  Beneficiaries complained Mr Walters was getting trust assets at below market price.

The Maori Land Court removed all the Oruanui trustees from office, ruling there was a conflict of interest in selling to a fellow trustee.  This ruling was confirmed by the Court of Appeal.  Mr Walters said he took no part in the decision.  He excused himself from that part of a meeting at a lawyer’s office when the contract was signed, he said.  The fact he excused himself from one part of one meeting did not counterbalance the vast volume of evidence that shows Mr Walters was intricately involved from beginning to end in Oruanui selling trust property to himself, the court said. 

The Maori Land Court also ruled Mr Walters pay $128,000: the value of the property transferred less the price paid together with a sum of $200,000 Mr Walters claimed to have spent upgrading the property.  A review of these figures was ordered.  In dispute is the value of the farmhouse and the extent of claimed improvements.

Walters v. Wikiriwhi – Court of Appeal (29.03.22)

22.068

Family Trust: re I.K. and D.L. Jury Family Trusts

High Court approval was needed to amend terms of two Taranaki family trusts to avoid a potential $320,000 tax liability and to protect assets from relationship property claims.

Ian and Debbie Jury transferred business assets into two family trusts in 1992.  Acting on accounting advice, the trusts were given termination dates of March 2022. Tax law has changed in the intervening thirty years; each of the trusts incur a $160,000 tax liability if wound up this March.

Following a last minute Trusts Act court application, the High Court agreed to extend the trusts’ lives to 2072, being eighty years from date the trusts were created.  Court approved changes are possible where circumstances have arisen which could not have been foreseen when a trust was established.

Beneficiaries in the Jury family trusts include children not of full legal age and children yet born.  This category of beneficiaries cannot give their consent to changes. The High Court gave approval on their behalf.  Extended family will benefit from management of the trusts’ potential tax liability, Justice Cull said.

The trusts were also amended to remove as beneficiaries the spouses and partners of Jury family beneficiaries.  Justice Cull commented it is now the norm with inter-generational family trusts to not include spouses and partners as possible beneficiaries, ensuring assets are protected for lineal descendants and not vulnerable to relationship property claims.

The High Court was told the Jurys have two adult married daughters.  The husband of one gave written consent to his removal as a beneficiary.  The other had not given consent; he is separated but the marriage is not yet dissolved.  Justice Cull waived the requirement to get his consent.  He is a discretionary beneficiary only.  He would only qualify for a discretionary payout if his estranged spouse died before March 2022.

re I.K. and D.L. Jury Family Trusts – High Court (24.03.22)

22.067

Land Title: Scott v. Rawenata

Looking to refinance their King Country farm, Cameron and Sue Scott were flabbergasted to find they no longer owned part of their property.  Maori Land Court mistakes had seen a chunk of their farm transferred to 58 individuals they had never heard of.  It took a High Court order to untangle the mess.

Registration against title is gold standard proof of land ownership.  The sorry tale of an ownership mix-up only came to light in 2021 when the Scotts looked to change banks.  As is the norm, lawyers checked title to land being offered as security.  The Scotts were no longer recorded as owners of what is called Block 2C, part of their farm near Pirongia.  Anthony Rawenata and 57 others were recorded as owners.

The High Court was told Maori Land Court had supplied documents to Land Information in 2009 for title registration which in error transferred Block 2C out of the Scotts’ names; the wrong title identifier was supplied.  Maori interests now recorded as owners of Block 2C knew nothing of their windfall; the Scotts similarly did not know part of their farm had been snatched away.

Correcting the mistake required a court application and notice given to each of the 58 new Maori owners, giving them the opportunity to challenge their removal from the title as owners of Block 2C.  None objected.  The High Court ordered re-registration of title in the Scotts’ name. They are entitled to compensation for costs and disruption.  Maori Land Court and Land Information were given three months grace to sort out who bears these costs and to agree suitable compensation with the Scotts.

Scott v. Rawenata – High Court (24.03.22)

22.066

Estate: Morais v. Catholic Church

Twice, nearly five years apart, Colin Morais took to the courts claiming rights to his late sister’s Christchurch property, both times without success.

His sister Carol died in 2016 owning a residential property on Harewood Road in Bishopdale.  Her will left the property firstly to the Catholic order of nuns, Sisters of Mercy; alternatively going to the Christchurch Roman Catholic Diocese if Sisters declined the gift. Elsewhere in her will, Carol stated the property was to go to her brother Colin if neither the Sisters nor the Diocese took up the gift.

The High Court was told that despite having Colin named in her will as a residuary beneficiary, Carol left a separate document with her lawyers saying she did not want Colin to inherit Harewood Road.  She referred to funds Colin had previously received from both herself and their parents which he had put towards the purchase of four separate properties.

Shortly after Carol died, Colin contested her will claiming each had exchanged promises that the survivor of the two would have the right to live in the other’s home for the rest of their life.  This claim under the Law Reform (Testamentary Promises) Act was dismissed.  The High Court ruled Carol had never made such a promise.

Colin then started again, claiming the Diocese (who had taken ownership after the Sisters declined) was not using the property as specified in Carol’s will and by implication had renounced the gift.  The property should go to him as residuary beneficiary, he said.

Terms of Carol’s will came under close examination in the High Court.  Her bequest to the Diocese stated the property was to be ‘for the exclusive use’ of clergy.  Putting tenants in the property and collecting rent did not satisfy this condition, Colin said.  Justice Mander ruled clergy did enjoy ‘exclusive use’ in that rental revenue was used to support their pastoral activities and to provide funding for housing retired priests.

Morais v. Christchurch Roman Catholic Diocese – High Court (21.03.22)

22.065

Tax: Li v. Inland Revenue

Agreeing to pay $575,000 to Ministry of Justice as proceeds of crime, Zhiwei Li failed in his argument that this sum should be credited to his tax liability.  Inland Revenue needs to be brought to the negotiating table when settling proceeds of crime litigation, Justice Wylie observed.

Li was caught in a sting after a journalist enrolled undercover for a business course offered by a private training establishment and was awarded his diploma without attending any classes or completing any course work.  Media publicity resulted in Li being convicted for fraud in 2015 and sentenced to four months’ home detention.  This publicity attracted attention of both police and Inland Revenue.  Police inquiries identified $1.8 million banked into accounts in the name of both Li and his wife over a three year period. Cash totalling $135,000 was seized following a search of their North Shore home in Auckland.  Police took action under the Criminal Proceeds (Recovery) Act alleging these assets came from both the diploma fraud and tax evasion. Li claimed much of the money was sourced from his accounting practice, AA Taxation & Accounting Service Ltd, paid into their personal bank accounts.  He acknowledged income tax from his accounting practice was underpaid.

In 2017, Li and police negotiated a court-approved settlement of the proceeds of crime claim.  Li paid $575,000.  Two months previously, Li had written to Inland Revenue making a voluntary disclosure of underpaid tax by both himself and AA Taxation.  Inland Revenue inquiries were still under way when the proceeds of crime settlement was signed.  Inland Revenue was not party to the settlement.  The document specifically stated it was for Inland Revenue to decide on the tax status of the $575,000 payment.

One year later, negotiations with Inland Revenue saw Mr Li agreeing to pay tax arrears of some $242,600; AA Taxation $211,800.  Inland Revenue refused to allow a tax credit for the $575,000 paid earlier to Ministry of Justice.  Mr Li sued.  He was being forced to pay twice over, he complained.

The proceeds of crime settlement made it clear the $575,000 payment was to have no bearing on Mr Li’s potential but as then unascertained tax liability to Inland Revenue, Justice Wylie ruled.  Police and Mr Li were at that time content to let Inland Revenue decide.

Rules in the United Kingdom prohibit double recovery. 

Li v. Inland Revenue – High Court (18.03.22)

22.064

Asset Forfeiture: Wu v. Commissioner of Police

With no source of legitimate income and having lived for twelve years with a spouse later convicted of drug dealing whilst accumulating an Auckland residential property, a Ferrari 458, a Porsche Cayman, a collection of designer handbags and jewellery plus having unbanked cash lying around the house meant Chien-Hui Wu must have been aware her assets were purchased with proceeds of crime, the Court of Appeal ruled when confirming a court order to pay $5.3 million.

After Ka Kit Yim was sentenced to eleven years and six months’ imprisonment on conviction for possession and dealing in methamphetamine, his spouse Chien-Hui Wu challenged seizure of her assets as proceeds of crime.  Ms Wu came to New Zealand from Taiwan as a student in 1994, later gaining New Zealand citizenship.  She met Yim in 2003.  She said purchase of her assets were funded with gifts from her parents, successful foreign exchange trading and a one million dollar loan from a Hong Kong friend: Lilian Liu.  The existence of Ms Liu was challenged at a High Court hearing when a loan document supposedly prepared by Ms Liu misspelt her name.  A person at the contact address provided for Ms Liu declined to admit to her existence.

Under the Criminal Proceeds (Recovery) Act assets are ‘tainted’ if purchased with proceeds of criminal activity.  It is not necessary to prove owner of the assets was responsible for, or aware of, the criminal activity.  Separately, assets can be seized and sold as part of a ’profit forfeiture order’ where owner of the assets benefitted from significant criminal activity, whether or not the assets were ‘tainted’ or not.

Ms Wu challenged a High Court ruling that assets she owned be seized; the assets were not ‘tainted’ and she was not aware of any criminal activity by her husband, she said.

Ms Wu’s extensive trading in foreign currencies through money remitters was evidence the money was more likely than not derived from significant criminal activity, the Court of Appeal said.  Significant amounts of cash available to pay off her house mortgage and possession of luxury items evidenced her knowledge of criminal activity, the Court ruled.

Collectively, Yim and Ms Wu were ordered to pay $5.3 million.

Wu v. Commissioner of Police – Court of Appeal (18.03.22)

22.063

Maori: Aorangi Awarua Trust v. Maori Carbon Collective

Catering to Maori sensitivities about further loss of land, Maori Carbon Collective offered a chance to exploit the value of carbon credits on forested land with what it called no risk of losing ancestral land.  Aorangi Awarua Trust is now facing a $43.7 million claim on a Carbon Collective deal that went sour. 

Aorangi Awarua owns land in the North Island hinterland near Taihape.  In early 2020, it signed a deal with Maori Carbon Collective Ltd designed to exploit carbon credits generated under New Zealand’s emissions trading scheme.  It was proposed some 2000 hectares of Aorangi Awarua land would be planted in forest with Maori Carbon managing the forest for the next thirty years and value of resulting carbon credits shared. Within one year, it had turned to custard.  Aorangi alleges Maori Carbon unlawfully misappropriated part of its share in the joint venture, unilaterally transferring units valued at a little over $300,000.  Aorangi cancelled the project.  Maori Carbon sued, seeking a court ruling that the project still stood; failing that an order for loss of profits totalling $43.7 million.

At a preliminary hearing, Aorangi asked the High Court to strike out Maori Carbon’s loss of profits claim.  Their joint venture agreement specifically excluded any claims for consequential loss, it said.  Associate judge Johnston dismissed the strike out application.  A full trial is needed to determine whether any proved loss of profits could be considered a recoverable direct loss, rather than an excluded consequential loss.

Aorangi Awarua Trust v. Steedman & Maori Carbon Collective Ltd – High Court (17.03.22)

22.060

Charitable Trust: Malthus v. Laura Fergusson Trust

Individuals aggrieved at closure of the Laura Fergusson rehabilitation centre in Auckland and angry that they were refused membership of Fergusson Trust will get their day in court.  Trust attempts to strike out their claims were dismissed by Justice Hinton.

For over fifty years, Laura Fergusson Trust provided residential accommodation and rehabilitation for the disabled.  The Trust is named after and grew out of concerns raised by the spouse of a former governor-general who was dismayed to see hospital geriatric wards being the only accommodation available for disabled patients.

In 2019, the board decided to close down Laura Fergusson’s operations on its valuable Epsom site, selling the land for development as residential apartments.  Sale price has not been publically disclosed beyond reference in Trust 2021 financial statements to receipt of a $9.9 million deposit, $186,000 from sale of furniture, equipment and motor vehicles and $116,000 paid board chair Chris O’Brien for ‘provision of advice’ in relation to the Epsom sale.

Friends of Laura Fergusson have been campaigning against the sale and proposed use of the proceeds.  In particular, they say the Board is acting contrary to its own constitution should it enter into a proposed joint venture with Autism New Zealand. 

Friends allege existing board members of Laura Fergusson Trust are improperly protecting their own position by refusing Trust membership to any person likely to vote them out of office.  Friends claim up to 135 individual applications for membership have been declined, without giving a reason.

Justice Hinton allowed Friends to continue with court proceedings against the Trust alleging that it is in breach of contract by refusing membership applications and that it is restricted as to how it uses Epsom sale proceeds.  Friends are also asking for a formal inquiry into Trust management and Trust operations.

Malthus v. Laura Fergusson Trust Inc. – High Court (17.03.22)

22.062

Fraud: Business Control (Schweiz) v. Shibalova

Conviction in an Italian court for a US$10 million dollar fraud has its denouement in a New Zealand court with a disputed claim for US$3.36 million as commission for recovery of the funds.

In 2012, Andrey Ivanov was convicted in Italy of embezzling almost US$10 million from his then partner, Inna Shibalova.  Previously, Ms Shibalova signed a contract with Australian investigators MPOL Group agreeing to pay 35 per cent commission on all money recovered.  Following Ivanov’s conviction, seven million euro frozen in an Italian bank account was ordered returned.  Swiss company Business Control (Schweiz) AG claims MPOL’s commission contract was assigned to it and that it is entitled to payment of US$3.36.

Round one was fought out in the High Court at Auckland.

Ms Shipalova says she is not liable to pay any commission.  She never received the money she says.  It was paid to her father, she claims.  She also claims Business Control (Schweiz) has no right to sue.  The assignment of MPOL’s rights to Business Control is a fiction and never took place, she alleges.  

Business Control in turn wants access to Ms Shipalova’s financial records.  It alleges the recovered funds were eventually returned to her and suspect they were used to buy property in Auckland and Taipa.  The High Court ordered disclosure of Shipalova’s bank statements for the eight year period commencing 2012 and further ordered disclosure of source of funds used to buy the two properties.

Business Control was ordered to pay into court before trial a total of $40,000 as security for Ms Shipalova’s legal costs should she be successful after a full court hearing.

Business Control (Schweiz) AG v. Shibalova – High Court (17.03.22)

22.061

Asset Forfeiture: Commissioner of Police v. McMahon

Craig Anthony McMahon’s home in Fitzherbert Street, Featherston, together with his 2007 Ford Mustang were seized as profits of crime with McMahon sentenced to 23 months’ imprisonment for possession and supply of cannabis, money laundering and theft of electricity.

The High Court was told McMahon banked over $470,000 through bank accounts over a three year period, a time when he was in no paid employment.  He admitted to using proceeds of crime to pay down his mortgage and to buy the Ford Mustang. In a negotiated settlement with police, it was agreed $470,000 represented his gross revenue generated from drug dealing.

The High Court ruled McMahon’s assets to a value of $470,000 were forfeit as proceeds of crime, starting with sale of the Ford Mustang and confiscation of $27,200 cash found at Fitzherbert Street.  The balance was to come from $12,700 McMahon held in sundry bank accounts and the equity in his home.

If a loan cannot be raised on security of his home to pay the balance, a forced sale is likely.

Commissioner of Police v. McMahon – High Court (16.03.22)

22.059

Market Manipulation: FMA v. Meng & Qian

Meng & Associates’ web page proudly states integrity is a core component of its business.  Sean Meng and Sam Qian, two chartered accountants with Meng & Associates, were each fined for market manipulation over share trading in Oceania Natural Ltd: Meng ordered to pay $180,000; Qian $130,000.

Oceania listed on the NXT small-cap market in 2016, delisting in 2018 before NXT stopped operating as a separate trading platform in 2019.  The company specialised in health foods and health supplements.  Financial Markets Authority is currently prosecuting majority shareholder Walker Zhong and wife Regina Ding alleging market manipulation of Oceania shares.  Fellow shareholders Sean Ming and Sam Qian admitted FMA charges, saying they had no intention of manipulating market prices but that their trading had this effect.

The High Court was told of share trading between related parties in 2016 which ramped up Oceania’s share price.  Shares in small-cap companies are thinly traded.

Evidence was given of backstage messaging between Zhong, Meng, Ding and Qian which saw above market buy orders matched with sell orders to create the illusion of active trading, driving up Oceania’s share price.  A rise in market price increased the value of Meng’s and Qian’s Oceania holdings.  Oceania is now in liquidation, insolvent.

Financial Markets Authority v. Meng & Qian – High Court (16.03.22)

22.058

Lease: Kuoch v. Morar Trust

Described as an opportunistic attempt by Auckland landlord Morar Trust to pass increased Watercare capital levies onto a commercial tenant by refusing a lease renewal, the High Court ordered renewal of a laundromat lease.

The High Court was told Johnlee Kuoch signed up in 2018 for lease of premises used as a laundromat in Chartwell Avenue, Glenfield. Unbeknown to Mr Kuoch, landlord Morar Trust had recently received a Watercare notice advising capital charges of $103,780 were being levied as a consequence of increased water use on site following installation of the laundromat; what Watercare called an infrastructure growth charge, a contribution towards upgrading its network.

Over the next three years Morar trustees just ignored the Watercare notice, springing into action only after receiving Watercare’s $103,000 invoice.  They first tried to push the full cost onto Mr Kuoch, later retreating when asked why he should be responsible for a levy imposed before he took up the lease. When Mr Kuoch inadvertently overlooked giving formal notice seeking a 2021 renewal of his lease, Morar Trust seized the opportunity to demand payment towards the Watercare levy as a pre-condition for renewal.

Mr Kuoch sued under the Property Law Act, asking the High Court exercise its discretion to order renewal.  Justice Powell said Mr Kuoch was a good tenant who had simply overlooked the requirement to give notice.  Loss of his lease would result in loss of his business.  Justice Powell ordered renewal of the lease, allowing Mr Kuoch to remain in business, but made it clear it was still for the two parties to negotiate terms of the continuing lease.

Kuoch v. Morar Family Trust – High Court (14.03.22)

22.057

Medical Practice: Singh v. Care Group

Imprisoned after conviction for unlawful sexual connection with a patient, Dr Kul Vant Singh was later rapped over the knuckles for misleading the court in a dispute over the value of his share in Auckland medical service provider then known as East Care Ltd.

East Care, now known as Care Group, owns and operates a number of medical centres across Auckland.  It has about fifty shareholders, predominately general practitioners.  Prior to his conviction, Singh held 6809 shares; a 4.46 per cent shareholding.  In 2019, he was sentenced to two years ten months imprisonment.  Care Group gave notice to compulsory purchase Singh’s shareholding on grounds he was in breach of the company’s constitution.  His conduct was ‘prejudicial to the best interests of the company,’ it said.

With no advance notice to Care Group, Singh got a High Court temporary injunction to block the compulsory purchase.  Justice Venning subsequently ruled there was no need for urgency; it was not disputed that Care Group could take back the shares, it was just an argument about price.  Care Group had been put to unnecessary legal cost.  Singh was ordered to pay an increased contribution towards Care Group’s court hearing legal costs when he later withdrew his application for a permanent injunction.

Care Group says Singh’s shareholding was worth $904,100. Singh claims $1.13 million, based on a revaluation of Care Group shares near the time compulsory purchase was triggered.  Justice Venning ordered the shares be compulsorily purchased at the lower figure of $904,100.  Singh can recover damages if able to prove his shares had a higher value.  Legal argument will turn on timing of the compulsory purchase notice.

Singh v. Care Group Ltd – High Court (14.03.22)

22.056 

Bankrupt: Coupe v. Remmington

Aaron Peter Coupe has a flair for self-publicity but this was of no avail as he was bankrupted a second time, this time following a failed hotel development in Auckland’s CBD.

Mr Coupe had high hopes for a proposed joint venture to develop and operate a hotel in Auckland’s Greys Avenue.  Funding was expected from US investor Gary Oda, with a hotel management contract inked with Castle Group, a Hawaii-based company.  It did not turn out well.  A US court has ordered Mr Coupe pay $US 2.07 million damages to his joint venture partner.  Mr Coupe disputes the validity of this case.  In New Zealand, Bank of New Zealand sold Greys Avenue in a mortgagee sale.

Steps were taken to bankrupt Mr Coupe.  Rather than register their US judgment in the New Zealand courts and use this to bankrupt Mr Coupe, his former joint venture partners instead took a cheaper route; relying on unpaid costs orders for some $42,500 Mr Coupe was ordered to pay following unsuccessful action taken in the New Zealand courts.  The High Court dismissed Mr Coupe’s claim that these costs have been paid; part of a deal with his former business partners.

He was bankrupted with effect from 11 March 2022. Mr Coupe was previously bankrupted in October 2010.

Coupe v. Remmington; Coupe v. NZ Castle Resorts – High Court (11.03.22)

22.054

Overseas Investment: Land Information v. Hur & Choi

Covering up his client’s Overseas Investment Act breach when purchasing a Helensville property cost lawyer Dr Jaeho Choi a $62,500 fine for obstruction followed by a $30,000 penalty for breaching the Act and suspension from legal practice for nearly six months. 

Auckland lawyer Choi is a Korean citizen holding a New Zealand permanent resident visa.  Fellow Korean Won Joo Hur agreed to buy a 18.5 hectare Helensville rural property in 2016 for three million dollars.  Dr Hur is a medical practitioner.  He had previously purchased property in New Zealand.  He also is a New Zealand permanent resident.  Lawyers then acting for Dr Hur advised very late in the piece that he would require Overseas Investment consent for his Helensville purchase, despite being a permanent resident, because he was no longer ‘ordinarily resident’ having spent too much time outside New Zealand.  Dr Hur took his legal problem to Choi who recommended setting up a dummy company as interim purchaser until the question of consents was sorted out.  The Overseas Investment Act prohibits these tactics.

When Overseas Investment Office made enquiries, Choi and Hur produced false documents purporting to show the interim purchaser was an independent third party.  They later pleaded guilty to obstruction: Choi fined $62,500; Hur $100,000.

The two later negotiated civil penalties to be paid for admitted breaches of the Act in purchasing Helensville rural land in excess of five hectares without Overseas Investment consent.  Hur was ordered to pay a further $100,000; Choi $30,000.  Choi pleaded poverty, saying a greater fine would leave him bankrupt.  The High Court was told Land Information had previously agreed it would accept Choi’s payment of his fine by instalments at $500 per month.  Hur separately asked that his $100,000 fine be deferred for one hundred years, or alternatively paid by instalments at $100 per month.  Justice Fitzgerald left any question of instalment payments to be negotiated between the two and Land Information as Overseas Investment Act regulator.

Choi was suspended from legal practice after a professional disciplinary hearing.

Land Information v. Hur & Choi – High Court (11.03.22)

22.053