Trial Delay: Kipping v. Electrical Workers Registration Board

 

Removing heat pumps from two houses for non-payment led to Electricity Act convictions and fines for Christchurch pensioner John Brian Kipping.

Where ownership of any retrieved item has already passed to a new owner, ‘self-help’ remedies for non-payment can amount to theft.

Kipping was described as helping a friend when recovering the heat pumps.  His friend was annoyed at being left unpaid by a building contractor after it went into liquidation.

The High Court was told Kipping accessed two different Christchurch properties in 2019, in each case turning off the heat pump’s exterior isolator switch, stripping out wiring attached to the exterior unit and carting the unit away.

Kipping was not charged with theft, but was prosecuted by the Electrical Workers Registration Board for doing prescribed electrical work while not registered as an electrician.

The High Court was told Kipping had passed the necessary examination and practical requirements for registration back in 2006, but never registered.

When charged, Kipping said his removal of the heat pump units did not amount to ‘electrical work.’  After turning off the isolator switch, he inserted wire into the switch, making it difficult to turn back on.  There was no safety issue, he argued.

Wires formerly attached to the pump were left exposed.

The High Court confirmed a trial judge’s earlier ruling that the pumps removal amounted to ‘electrical work,’ and that the job was left unfinished.  The site had not been made safe.  Should the isolator switch be turned back on, the exposed wires would become live.

The heat pump had been wired in; it was not like a household appliance plugged into a power outlet.

The High Court confirmed Kipping’s conviction, but reduced the fine imposed by twenty-five per cent, down to $2250.

This reduction reflected inordinate delays in bringing the prosecution to trial, in breach of Bill of Rights entitlement to be tried without undue delay.  Kipping’s District Court trial took place four years after the Registration Board first received a complaint about his actions.

Kipping v. Electrical Workers Registration Board – High Court (13.06.24)

24.149

Charity: Toailoa v. Eliu

 

Assets of South Auckland’s Samoan Seventh Day Adventist Church are under control of BDO’s Andrew McKay after a High Court ruling there is a real risk of ongoing financial mismanagement with Pastor Willie Papu still in effective control of trust assets despite a Charities Board ruling disqualifying him from acting in any management role.

Pastor Papu’s daughter Elizabeth Papu was convicted in 2017 following theft of $1.6 million from Church funds; sentenced to two years nine months’ imprisonment.

The High Court was told a Charities Services investigation found Pastor Papu’s son wrongfully received over $316,000 for his personal benefit.  Both father and son dispute this finding.

Charities Services also named other Church officials allegedly receiving amounts without proper authority, including Church treasurer Joseph Stowers named as taking nearly $499,000 of Church funds as undeclared income.

In 2020, the Charities Registration Board de-registered the Samoan Independent Seventh Day Adventist Church Trust, on grounds of Ms Papu’s and Mr Stowers’ ‘unlawful or corrupt’ use of Church funds.

Meanwhile, the Church transferred its substantial property holdings to a separate property trust, avoiding the tax consequences of de-registration.  Church assets are estimated to total forty million dollars.

It is alleged Pastor Papu controls operation of this Property Trust, despite his current disqualification order.

Justice Wilkinson-Smith said email evidence indicates Pastor Papu is in de facto control of Trust assets with his approval needed for all financial decisions.  Tithes and donations paid to the Church are being paid into bank accounts controlled by Pastor Papu’s supporters, she said.  

There have been complaints about lack of accountability: decisions made without proper meetings; poor record keeping; and no financial statements.

The High Court was told the Church auditor resigned in frustration, lacking proper information to complete his audit of the 2019 accounts.  No financial statements for Trust assets have been completed since that date.

Mr McKay was appointed under the Charitable Trusts Act to take control of Church assets, to identify the extent of its assets and liabilities, and to report back to the High Court every three months.

No time limit was imposed on his appointment.  A time limit creates potential for obstruction with a view to simply waiting out the management period, Justice Wilkinson-Smith said.

Toailoa v. Eliu – High Court (10.06.24)

24.147

 

Post judgment Note: Pastor Papu and interests associated with him are appealing the High Court’s appointment of a temporary manager.  Mr McKay’s appointment is stayed, pending this appeal.

Debt: Trow Group v. Horotiu Cartage & Hire

 

Demolition contractors Trow Group allege it was ripped off by Shane Holland’s Horotiu Cartage charging excess fees of some $118,000 for dumping construction waste cleared from a Waikato Kainga Ora site.  These allegations surfaced when Horotiu sought unsuccessfully to wind up Trow Group over disputed cartage and disposal charges.

The High Court was told Trow Group alleges Horotiu Cartage and Hire Ltd charged as if demolition waste was taken to waste processor Purpose Fill Ltd for processing when loads were in fact re-routed to another site, dumped as clean hard fill and billed at a lower rate.

Trow Group says it only became aware of the practice in October 2023, six months after an uptick in dumping charges.  It alleges scam billing saw it paying invoices for non-existent processing at Purpose Fill when the actual cost was lower dumping charges elsewhere as clean fill.  The differential charging was up to 800 per cent, it claims.

Trow Group stopped paying Horotiu’s cartage and dumping invoices while the dispute simmered.  Horotiu Cartage retaliated by taking steps to put Trow Group into liquidation.

Associate judge Taylor put Horotiu’s claim on hold.

There is a genuine and substantial dispute about the debt, he said.

A full court hearing is needed to consider Trow Group’s allegations of collusion between Purpose Fill and Horotiu Cartage to overcharge for waste disposal.

Trow Group Ltd v. Horotiu Cartage and Hire Ltd – High Court (10.06.24)

24.146

Franchise: Top Ten Group v. Tasman Tourism NZ

 

Top Ten holiday park franchise is facing stiff trans-Tasman competition with Australian providers Tasman and Hampshire buying up New Zealand Top Ten sites.  The High Court refused to block sale of Caron and Sean Steffert’s Top Ten Coromandel Holiday Park to Tasman.

The Stefferts franchise agreement with Top Ten runs until 2027.  Sale of their Rings Road holiday park to Tasman is arguably in breach of their current Top Ten franchise deal, Justice Moore said.  But the sale can proceed, he ruled.  Top Ten’s remedy is to sue for damages, claiming breach of contract.

Top Ten Group currently franchises some 48 holiday parks.  Generally, each park is in private ownership.  Owners benefit from advertising under the Top Ten brand.  While dressed up as a franchise, goodwill sits with the owners of each holiday park.

In economic terms, Top Ten operates as a marketing co-op.  It has a contractual interest in each franchise holder’s business turnover.  Holiday park owners pay a levy to Top Ten based on their short-term accommodation revenue.

The High Court was told two Australian-owned corporations have made inroads into the New Zealand market.  In 2020, Tasman Tourism New Zealand Ltd scooped up three previous Top Ten franchises: Waihi Beach, Beachhaven and Christchurch.  In 2023, Hampshire Holiday Parks Ltd acquired Queenstown, Kaikoura and Ohope. 

When the Stefferts asked Top Ten in 2023 for release from its current contract, in preparation for sale of their Coromandel site to Tasman, Top Ten responded that it did not ‘approve’ the sale.

Lawyers’ letters followed.

The Stefferts say no ‘approval’ is needed.  It is merely a question of how much they have to pay for release from their current Top Ten contract.

Top Ten responded with High Court applications to block the sale and a separate claim against Tasman alleging Tasman is liable in tort for allegedly inducing the Stefferts to breach their existing Top Ten contract.

In the first round, Justice Moore ruled the Stefferts’ sale to Tasman could go ahead.

Arguably, they are in breach of their Top Ten contract.  It has a little over three years to run.

Top Ten indicated it would be seeking damages for cost of changing marketing materials which list Coromandel Top Ten plus recovery of three years’ lost income.

Top Ten Group New Zealand Ltd v. Tasman Tourism New Zealand Ltd – High Court (10.06.24)

24.145

Real Estate Commission: Mid West Realty v. Monsoon NZ

 

Wording in the listing agreement was clear; Bayleys Palmerston North franchise was entitled to its $270,000 commission on finding a tenant for part of Monsoon’s commercial site on Main Street.

Monsoon director David Stiassny’s comment to Bayleys’ staff that Monsoon would not be paying any commission until the entire site was leased was of no moment; Bayleys never agreed to deferred payment.

The High Court was told Monsoon New Zealand Ltd was seeking tenants in June 2022 for 2,340 square metres of commercial space in central Palmerston North.

Auckland-based Monsoon has extensive commercial property holdings valued at some $64 million.

Bayleys introduced Monsoon to cinema operators Otter Group.  It was interested in 1,500 square metres.  It did not want the whole site.

Heads of agreement were negotiated with Otter Group to lease 1,500 square metres and separately with a gym operator taking the balance.  Both deals were conditional: the gym operator had to secure finance; Otter Group wanted Monsoon to contribute $3.5 million towards fit-out costs.

The proposed gym did not go ahead.

Cinema operations did.  By July 2023, Otter Group’s Palmerston North operations were open for business.

Monsoon ignored Bayleys invoice for $270,000 commission.  When pressed, Monsoon said no commission was payable until there were unconditional lease contracts for the entire floor space.

Bayleys sued, threatening to put Monsoon into liquidation.

Associate judge Gardiner ruled commission was due.  Their listing agreement states commission is payable when the property ‘or any part of’ the property is leased.

A lease for part of the space was concluded when Otter Group went into possession, even though their finalised agreement was yet to be recorded in a formal lease.

Monsoon was given five days to pay; failing that, Bayleys could put Monsoon into liquidation for non-payment.

The court was told Monsoon had paid the disputed commission into its lawyers’ trust account prior to the court hearing.

Separately, Monsoon disputes how Bayleys’ commission was calculated.  Judge Gardiner was not asked to rule on this calculation.

Mid West Realty Ltd v. Monsoon New Zealand Ltd – High Court (31.05.24)

24.144

Church Assets: Toailoa v. Eliu

 

Disputed control of church assets valued in the tens of millions saw the High Court intercede in a power struggle following a schism within a Samoan Seventh Day Adventist church group currently spending thirty million dollars on a new church in Mangere, South Auckland.  At issue: the whereabouts of a one million dollar Bitcoin purchase and the disputed transfer of multiple church assets into control of a breakaway group. 

The Samoan Independent Seventh Day Adventist Church was de-registered as a charity in 2021 after the Charities Registration Board decided its founder, Pastor Willie Papu, was party to gross mismanagement of Church assets and had exercised undue influence over poor quality investment decisions.

Pastor Papu is currently disqualified from acting in a management role with any charitable entity for a four year period, ending early 2025.

The Church has accumulated substantial assets with tithes drawn from members of its congregation.  The full extent of assets held is not publicly available; financial statements have not been filed on the Charities Register as required.  The High Court was told the Church currently controls nineteen separate properties.   

A group of Church elders allied with former Church leader Pastor Siaosi Toailoa claim some members of the Church, allegedly at the bidding of Pastor Papu, have improperly taken control of Church assets.

In 2020, a new church named as the Universal Remnant Church of the Living God was established in Samoa.  Pastor Papu is named as its spiritual leader.

It is alleged named Remnant supporters have improperly transferred four of the Independent Seventh Day Adventist Church properties to a separate company they control: Sunrise Global Homes Ltd.

The Independent Church wants to know what has happened to a 2021 one million dollar Bitcoin purchase made allegedly at the behest of Pastor Papu.  The High Court was told the Bitcoin wallet was stored on a computer at the Church’s Mangere headquarters.  It is alleged Pastor Papu’s son took the computer, its location now unknown.     

Pastor Toailoa, and his supporters, sought pre-trial High Court approval for their legal fees to come out of Church assets before triggering legal action against Pastor Papu and named Remnant allies.  They seek a ‘prospective costs’ order, labelled by lawyers as a Beddoe order.

Beddoe orders reverse usual court procedure; the court rules upfront as to who will pay legal costs, rather than ruling on costs after a hearing takes place.

Beddoe applications are commonly sought in disputes over trust assets where trustees want to make sure they will not be forced to pay legal costs personally.  They want the trust to pay.

Justice Johnstone ruled the Independent Church and its associated Property Trust are to pay the reasonable legal costs of legal action taken by Pastor Toailoa and his supporters to investigate Church operations.

The relationship between the Independent Church, its Property Trust and the newly-founded Remnant Church require examination, he said.

Toailoa v. Eliu & ors – High Court (31.05.24)

24.143

Property Development: Mudaliar v. Sharma

 

Primary school friends in Fiji, Paran Mudaliar and Rohineet Sharma later separately emigrated to New Zealand but their rekindled friendship ended with a dispute over funds lost in a Sydney property development.

Mr Mudaliar’s $430,000 downpayment on a proposed property development in south-west Sydney suburb Campbeltown was lost when their project failed to get off the ground.

Attempts to recover this loss from Mr Sharma failed.

It was a speculative investment with a failure to properly document what would happen if the project failed, Justice O’Gorman said.  There were no actionable misrepresentations or negligent advice by Mr Sharma, she ruled.  

The High Court was told Mr Mudaliar is a civil engineer.  Mr Sharma is a lawyer, struck off in 2015 after improperly paying off his home mortgage with Westpac funds raised to finance a commercial transaction.

Disbarred from legal practice, Mr Sharma moved to property development.  He had previously acted as legal adviser for Mr Mudaliar in various property transactions.  He introduced Mr Mudaliar to the proposed Sydney investment.

By December 2015, the two had signed a brief joint venture agreement agreeing to be 50/50 partners for their part-involvement in the venture.  Two other investors were also involved in the proposed project.

Financial projections were encouraging; redevelopment of the Campbeltown site with construction of 99 units could see each making a profit of more than one million AUD.  It was a highly geared project.  But no debt finance was forthcoming.  The project fell over; all deposits were lost.  The vendor put its property back on the market.

Mr Mudaliar sued, alleging Mr Sharma misrepresented what his $430,000 downpayment was being used for and further that he had relied on Mr Sharma for proper advice as a lawyer and trusted advisor.

Justice O’Gorman ruled their relationship was more that of two investors looking after their own interests.  At the time the proposal was being floated, Mr Mudaliar must have been aware that his friend had been struck off and was not acting as a professional adviser.

Mr Mudaliar claimed he was led to believe that other investors, including Mr Sharma, had put in their share when he paid across his $430,000 when in fact his money was first in.  He paid the money into a Sydney real estate agent’s trust account where it was lost as a forfeited deposit when the development did not go ahead.

Mr Sharma made no actionable misrepresentations, Justice O’Gorman ruled.  In essence, the problem was a failure to clarify from the outset how each of the four investors would contribute their share of the proposed project.

Mr Mudaliar should have asked questions to identify that his upfront payment was potentially at risk, Justice O’Gorman said.  At the time he made payment, Mr Mudaliar had seen nothing more than the listing agent’s real estate brochure, the court was told.

As events transpired, Mr Sharma personally lost more than AUD400,000 through advance payments he had made; the first payment a financiers fee when unsuccessfully seeking to raise the needed debt finance, second payment a deposit for a building contractor signed up for the proposed build – money all lost when the project failed.

Mudaliar v. Sharma – High Court (31.05.24)

24.142

Freezing Order: Service Foods v. Wang

 

Service Foods claims it lost $2.8 million with stock pilfered from its Hamilton warehouse and alleges former employee Gongqin Liu orchestrated the thefts, onselling to retail outlets through a company controlled by his spouse Qing Wang.

The High Court imposed freezing orders over three properties owned by the couple pending civil action by Service Foods Ltd to recover its claimed losses.

Mr Liu and Ms Wang were willing to allow Service Foods to lodge caveats on each title to protect its position pending a court hearing, an offer rejected by the High Court; a caveat alone would not stop them from eroding equity in their three residential properties with further borrowing against mortgages already registered.

The High Court was told all three properties currently carry secured debt totalling $2.3 million.

To obtain freezing orders, Service Foods had to prove an arguable case that Gongqin Liu, otherwise known as George Liu, and his spouse Qing Wang were party to a scheme defrauding Service Foods.

Service Foods is a substantial business.  It operates across seventeen branches with some 775 staff and a fleet of over 200 trucks delivering meat and seafood products to restaurants, hotels and retail outlets.

Mr Liu started work at Service Food’s Hamilton branch in 2019, becoming its distribution warehouse operations manager.

Four years later, an audit identified irregular inventory transactions previously recorded on Mr Liu’s user ID.  Some 700 stock items were reallocated from Hamilton branch to Auckland branch.  With no onwards sale record for these items, the loss fell on Auckland, not Hamilton.

A follow up Hamilton stocktake found high levels of meat in store, well in excess of amounts sold within the next month by which time ‘use by’ dates would have expired.

Alert levels were raised when Service Foods received Inland Revenue notification of a necessary change to Mr Liu’s tax code, signalling his annual taxable income now exceeded $180,000.  At the time, his Service Foods salary was $85,000.

Previously, his manager had expressed surprise that Mr Liu was driving an Audi RS6,  a vehicle that would have cost some $220,000.  Mr Liu waved away the inquiry by stating he was minding the car for a friend who was currently overseas.

Further inquiries identified truck drivers had been delivering some stock to specific customers without the usual paperwork.  A new account, G&C Trading Ltd, was prominent.

When asked to explain who was the person named as Qing Wang in control of G&C, Mr Liu did not disclose that she was his spouse.

Evidence was given that G&C Trading Ltd banking records have a ‘g.liu’ receiving regular payments averaging $342,100 per annum across several years.

Upholding the freezing orders, Justice Gordon said Service Foods has demonstrated a good arguable case that G&C Trading sourced misappropriated meat from Service Foods supplying it to various customers.

Separately, Service Foods is suing Mr Liu in the Employment Court.

A number of businesses which dealt with G&C Trading provided evidence to assist Service Foods freezing order application.

Service Foods Ltd v. Wang – High Court (31.05.24)

24.141

Licence to Occupy: B&Z Trades v. Bei

 

Living in an Auckland property as squatters rent-free gave Yong Sheng Bei and his wife no rights of continued occupation when told to leave.  They had lived at the Onehunga property for nearly ten years with the tacit approval of a company controlled by their son.

B&Z Trades Company Ltd purchased the Galway Street property in 2010.  At time of this purchase, B&Z was controlled by their son Yao Ping.

No objection was made to his father Yong Sheng living at the Galway Street house.  The property was used in part for B&Z’s business of importing used cars.

Family differences arose when Yao Ping decided in 2022 to sell Galway Street.  He told his father that it was time to move.  Yong Sheng wanted to stay.  Multiple litigation followed.

B&Z’s Tenancy Tribunal application to evict Yong Sheng was dismissed.  There was no tenancy agreement for the Tribunal to consider. 

Yong Sheng’s claim in the High Court to be in partnership with his son and with it continued use of Galway Street as a partnership asset was dismissed.

Associate judge Brittain ruled Yong Sheng’s occupation was that of a bare licence to occupy, which could be cancelled at any time.

In legal jargon: a licence to occupy, given without consideration, is revocable at will.      

Yong Sheng was not paying rent or providing any other benefit to B&Z to justify a continued right of occupation.

His licence to occupy was revoked when told B&Z was going to sell, Judge Brittain said.

Any person in occupation as a bare licensee is entitle to a reasonable time to vacate, he ruled.

Yong Sheng was given four weeks.

B&Z Trades Company Ltd v. Yong Sheng Bei – High Court (27.05.24)

24.140

Burger Fuel: Burger Fuel Group v. Mason Trustee

 

An unsuccessful challenge by Burger Fuel founder Chris Mason to the listed company’s return of four million dollars to shareholders was dressed up as a failure to comply with Companies Act rules for schemes of arrangement, but was at heart a rant against a depressed share price and current management’s performance.

While pressing the High Court to refuse on legal grounds a proposed return of capital at 27 cents per share, Mr Mason was willing to shut up and go away if paid 53 cents per share.

He was the driving force behind Burger Fuel’s growth, from its 1995 New Zealand start to world-wide expansion.  It was hiccoughs with its US expansion that saw Mr Mason and Burger Fuel part company in 2018.

Current management’s recent proposal to return cash to shareholders earned his ire, with Burger Fuel explaining the cash return followed its withdrawal from the US market.

Mr Mason says the cash return will damage shareholder value: reducing the company’s capital base; limiting potential future business investment.

The company proposed a pro-rata cancellation of existing shares, cancelling thirty per cent of shares held by each shareholder, with 27 cents paid for each share cancelled.

The price per share was calculated as the volume-weighted average Burger Fuel share price for the eleven month period starting one month prior Burger Fuel’s announcement in October 2023 of its proposed cash return.

Burger Fuel CEO Josef Roberts controls 66 per cent of Burger Fuel; former CEO Chris Mason, five per cent.

Mr Mason complained that the deal was in part a plan by Mr Roberts to privatise Burger Fuel.  This complaint made no sense to corporate finance specialists; a pro rata share cancellation does not change shareholder proportionate voting strengths.

The lion’s share of the proposed four million cash return goes to current CEO Mr Roberts, giving him a sizeable war chest of some $2.64 million.

Burger Fuel’s cash return was achieved through a Companies Act Part 15 scheme of arrangement.  Part 15 schemes require support from 75 per cent of affected investors plus High Court approval to ensure the scheme is properly explained to investors prior to the vote and that the scheme is such that an ‘intelligent and honest person of business’ might approve.      

Of shareholders voting, 92 per cent voted in favour.

Burger Fuel management say a Part 15 scheme is the most tax efficient way to return cash to shareholders.

When the scheme came before Justice Andrew for approval, both Mr Mason and the NZ Shareholders’ Association criticised the paucity of information provided to investors in advance of the Part 15 meeting.  It was their intervention that had forced Burger Fuel to belatedly make public the fact of shareholders’ Companies Act rights to challenge any successful vote.

Mr Mason said court approval should be refused because Burger Fuel management failed to disclose what alternative business opportunities were open to the company, rather than simply returning cash to shareholders.

Mr Mason’s primary complaint that Mr Roberts was angling to take Burger Fuel private was of no direct relevance to court consideration of a Part 15 scheme, Justice Andrew said.

While the proposed scheme was not fairly put to shareholders and there were deficiencies in the information provided prior to the vote, more fulsome information would not likely have changed the outcome, he ruled.

The cash return and corresponding pro-rata share cancellation were given court approval.

Burger Fuel Group Ltd v. Mason Trustee Ltd – High Court (27.05.24)

24.139

Market Manipulation: FMA v. Hill

 

Former New Talisman CEO Matt Hill has been ordered to pay $100,000 for market manipulation following nearly a decade of anonymous posts on Sharetrader, making bullish comments about his company and denigrating others who questioned the Coromandel goldminer’s prospects. 

The High Court confirmed a cash penalty negotiated between Matthew Geoffrey Hill and the Financial Markets Authority for making false and misleading representations about New Talisman Gold Mines Ltd securities, in breach of the Financial Markets Conduct Act.

The court was told Hill posted once a month on average, disguising his involvement with New Talisman through use of two pseudonyms: Bullish and Epithermal.  Readers with industry knowledge would recognise ‘epithermal’ as a reference to a particular type of gold deposit, adding a sheen of expertise to Hill’s posted comments.  Including technical information and commentary in his posts further added an air of authority.

The flavour of his posts was to talk up New Talisman’s prospects, and praise company management.  Naysayers were flamed with derogatory responses.

His posts had the potential to move market prices.  New Talisman is listed in both New Zealand and Australia.

At the time, Hill was a director, CEO and a shareholder of New Talisman.

Sharetrader disabled Hill’s access when learning his identity.  Shortly after, he was dismissed as CEO of New Talisman.

Hill admitted his actions when under investigation by the Financial Markets Authority.  Justice Gault ruled the negotiated $100,000 settlement was a suitable penalty.  Financial Markets has first claim on this money for its costs.

Financial Markets Authority v. Hill – High Court (27.05.24)

24.138

Contract: Huang v. Zhang

 

Youfeng Zhang left for China with his family after duping fellow investor Weihong Huang out of his share of their Hamilton liquor store.  He was ordered to pay $219,600 damages.

The High Court was told the two agreed in 2016 to set up a 50/50 company to buy an existing liquor outlet on Peachgrove Road in Hamilton East.  Mr Zhang had previous experience in the industry.  He was to become sole director.  Each were to put in $400,000 cash to buy the business.

Mr Huang paid across his $400,000.

Mr Zhang was left in control of the business.  Without Mr Huang’s knowledge, Mr Zhang sold the business two years later.  He was told of the sale just before Mr Zhang left the country.

With their company in liquidation, Insolvency Service had a forensic accountant investigate company records.

It transpired that Mr Zhang had put no money at all into the company, despite their earlier agreement that he would contribute a $400,000 half share.  Instead, he had arranged a Westpac loan in the company’s name in place of his half share.

Mr Zhang pocketed an unknown amount following sale of the business after repayment of secured debts, including the Westpac loan.  Other company debts were left unpaid.

Justice Moore ruled Mr Zhang was in breach of contract by failing to front up with his promised $400,000 equity contribution.  Damages were assessed at $219,600; primarily a return of Mr Huang’s $400,000 plus interest paid on loans taken out in the company’s name by Mr Zhang for his unpaid equity contribution less Mr Huang’s share of loss on Mr Zhang’s resale of their business.

Huang v. Zhang – High Court (24.05.24)

24.136

Unconscionable: Tisot v. Selak

 

A family friend for over fifty years, Anthony Tisot was in court seeking to enforce removal of building restrictions affecting development of his West Auckland property, a removal supposedly agreed with neighbour Danny Selak back in 2016.  This agreement was set aside by the High Court; Mr Tisot took advantage of his friend’s learning difficulties when having him sign.

If enforced, the agreement would have resulted in a $3.1 million benefit to Mr Tisot’s family trust, with no compensation for the Selaks.

At issue were legal rights attached to neighbouring properties at Scott Point in Hobsonville.  Formerly zoned rural, the area is now intensively subdivided.

In 2001, the Tisot Family Trust purchased a 2.3 hectare Scott Road property burdened by a restrictive covenant prohibiting building on over half of the land.  This covenant protected sea views from a house on the neighbouring site.

The Selak Family Trust purchased this neighbouring property in 2016.  The 2.3 hectares next door remained bare land.

The High Court was told of discussions between Mr Tisot and Mr Selak at time of the Selak purchase.  What was agreed later became subject to detailed cross-examination in the High Court.

Mr Selak said his understanding was that Mr Tisot was seeking neighbourly approval to support Mr Tisot’s removal of redundant Auckland City consent conditions requiring removal of any noxious vegetation and building materials on the site.  The document he signed was a in fact a deed agreeing to deletion from the title its existing building restriction covenant, allowing the entire 2.3 hectares to be built on.

Justice Gordon cancelled the deed.  Mr Tisot had taken advantage of Mr Selak to engineer an unconscionable bargain, she ruled.

Rules regarding unconscionable bargains are intended to protect those with a disability where one party takes advantage of that disability.  The rules do not apply to those merely regretting their agreement to a foolish transaction.

Evidence was given of Mr Selak’s lifetime learning difficulties.  Poor hearing meant that at school he never learnt properly to read or to write.

This did not hamper his very successful business career running several retail businesses together with a landscaping business, but he relied on others to read and explain important documents.

Mr Selak’s former lawyer gave evidence of having to call Mr Selak into his office for explanations on proposed legal transactions; any letter sent to his client was followed by a phone call asking for a detailed explanation of its contents.

Evidence was also given of circumstances surrounding witnessing of the disputed deed.  Mr Selak’s signature was witnessed by a car salesman at a meeting arranged by Mr Tisot.  The primary reason for the meeting was Mr Selak’s purchase of a car, a purchase Mr Tisot was intimately involved in as he was assisting his friend in reading and understanding the paperwork.

Without a proper explanation of the deed he signed removing building restrictions, Mr Selak was not able to assess his best interests, Justice Gordon said.  Mr Tisot was aware of his friend’s difficulties with reading comprehension, she said.

At the very least Mr Tisot was careless in putting the document in front of his friend for signature without full explanation of its contents, she said.  The fact Mr Tisot actively discouraged Mr Selak from getting independent legal advice for a transaction which would reduce the value of Mr Selak’s property while increasing the value of Mr Tisot’s by some $3.1 million was further evidence of an unconscionable bargain, Justice Gordon said.

Separately, Mr Tisot made a Property Law Act application to the High Court for amendment to terms of the building restriction covenant.  Justice Gordon ruled some amendment is appropriate, given changes over the last two decades to Hobsonville zoning regulations.

Mr Selak told the court he was amenable to some alterations.  The two families were given the opportunity to consider what changes might be agreed and the extent of any compensation payable to the Selaks.

Tisot v. Selak – High Court (24.05.24)

24.135

Family Trust: Zhou v. Lassnig

 

A family trust set up by Bart Lassnig and Qian Zhou within months of their marriage was treated as if they were business partners in a property investment when their marriage foundered within three years.  In dispute was division of trust net equity totalling $1.9 million; capital profits from increases in Auckland property prices over the last decade.

Family trust assets do not generally form part of relationship property to be divided 50/50 when a relationship ends.  Failing agreement between estranged spouses, rules in the Family Proceedings Act are used by judges to unravel family trusts as being ante-nuptial or post-nuptial settlements.

This Act gives courts wide discretion as to how a family trust might be divided.

Attempting to establish guidelines, judges have laid down a formula for calculation of the shared interest in family trust assets: neat in expression; woolly in application.  The figure conjured up by this formula is then divided at the court’s discretion.  

The formula is what were trust benefits enjoyed by a spouse at the time a relationship comes to an end, compared with what would have been the outcome if the relationship had continued.

Applying this test to a typical discretionary family trust is problematic; trustees commonly have the power to do anything and everything with trust assets at any time.  Evidence turns to hypothetical speculation about spouses’ expectations regarding trust assets.

The High Court was told Mr Lassnig and Ms Zhou met in June 2012, married two months later and then separated within three years.

Within nine months of meeting, they had set up a family trust, purchasing three Auckland properties funded primarily with bank debt coupled with cash contributions from each.  Of their joint cash contributions: Ms Zhou contributed just over 82 per cent; Mr Lassnig eighteen per cent.

Ms Zhou brought to their relationship a background in property management.  She retained as her separate property other Auckland properties she held through both a separate family trust and a property-owning company.

Evidence was given that both had been married at least once before and had children from previous relationships.

Respective financial contributions to their family trust were meticulously recorded in Trust accounting records.

Both agreed their family trust was intended to provide both a home for them to live in and to support them on retirement.  These plans turned to dust with the end of their relationship.

The Court of Appeal treated their family trust as if it were an investment partnership; surplus capital after repayment of loans each had made to the Trust and repayment of expenses each had made on behalf of the Trust is to be divided in rough proportion of their initial capital contributions: 80/20.

On this calculation, Mr Lassnig’s return of cash advanced plus his twenty per cent share of capital profits comes to some $682,000 – based on 2021 valuations for the Trust properties.

Ms Zhou is to assume sole control of their Trust assets after Mr Lassnig’s share is cashed out, with Mr Lassnig removed as both trustee and beneficiary of their family trust.

Zhou v. Lassnig – Court of Appeal (24.05.24)

24.137

Fraud: Watson v. Police

 

Overwhelmed by remorse and concerned about the effect on her family, Katie Watson pleaded guilty to a $517,000 fraud perpetrated on her employer Allied Petroleum, only to find she had also pleaded guilty and been convicted of theft; a further charge that police had withdrawn after offering no evidence.

The $327 theft conviction was quashed on appeal to the High Court which then confirmed her two year four month jail term for the $517,000 fraud.

The court was told 37 year old Katie Dianne Ruth Watson worked at the Wiri office of Allied Petroleum, one of a small team of four employees at that site.  Over nearly a decade, she worked her way up to office manager and inventory controller.

From this position she perpetrated three different frauds: overstocking courier bags and prepaid envelopes used by Allied and selling the excess on Trade Me; stealing oils and lubricants from Allied stock, selling these items on Trade Me; and using her company credit card to buy Countdown gift cards, supposedly for use as staff performance incentives but keeping the cards for her own use.

The court was told Watson has a gambling addiction.  She admitted to the frauds and assisted Allied’s investigation once she came under suspicion.

The $517,000 fraud netted Watson a personal profit of some $240,000.  The stock taken from Allied was sold at a substantial discount to market price when listed on Trade Me. 

Only $16,000 was available as reparations; the current balance of her Kiwisaver account.

Watson v. Police – High Court (24.05.24)

24.134