Franchise: One New Zealand v. Knox

 

Seven years after their Vodafone franchise was terminated following allegations of dishonesty, Grant and Linda Knox were in court unsuccessfully seeking damages in a claim that Vodafone did not act reasonably when terminating their franchise.

They claim Vodafone jumped the gun with termination less than four months into their franchise, allegedly acting at the behest of interests associated with former franchise holder GSM Retail Ltd seeking to recover its franchise.

The High Court was told GSM Retail previously held franchise rights for Vodafone stores at major airports: Auckland, Wellington, Christchurch and Queenstown.  Vodafone his since re-branded as One New Zealand.

With GSM’s rights up for renewal in 2017, Vodafone signed up Grant and Linda Knox as replacement franchisees.  At the time, they were GSM employees.  Within weeks, GSM management contacted Vodafone reporting allegations of theft by Linda Knox; misuse of GSM Prezzy cards.

Evidence was given of Ms Knox contacting Vodafone, confessing to having ‘fucked up’ while working for GSM and tearfully exonerating her spouse from any involvement.

At a subsequent meeting between Vodafone and the Knoxes, she did not deny the earlier thefts.  A pre-prepared letter was handed over, immediately terminating their Vodafone franchise.  Interests associated with GSM were appointed as replacement franchisee.

Ms Knox was subsequently convicted of theft.

Associate judge Taylor ruled immediate termination was justified.  The franchise agreement allowed termination for any fraudulent or unethical behaviour.

Ms Knox said her criminal behaviour was unrelated to their Vodafone franchise; it was an employment matter between her and former employer GSM.

Judge Taylor ruled Vodafone had not acted unreasonably or in bad faith.

Ms Knox’ prior dishonesty was relevant to her ongoing suitability as a franchise holder.

One New Zealand Group v. Redfone Ltd & Knox – High Court (22.03.24)

24.073

Restraint of Trade: Harcourts Paremata v. Cardno

 

A mass exodus of sales staff from Harcourts Wellington Paremata office to rival Bayleys resulted in a High Court order blocking them from local real estate work for a period of three months.  Legal argument centred on whether real estate ‘leads’ as compared with ‘listings’ counted as Harcourts’ confidential information.

In early December 2023, Paremata senior sales manager Tony Fitzimons gave notice.  Harcourts paid out his employment entitlements and he left immediately.  He gave no indication of future plans.

A fortnight later, fellow staff members Martin Cardno, Tanya Davis, Ralph Kindl and Holly Williams followed him out the door.  These sales staff were independent contractors, not employees.

The High Court was told a new Bayleys office opened the following month within several hundred metres of Harcourts Paremata branch.  Advertised on its website were the former Harcourts staff together with listings of properties offered for sale.

Harcourts market share for local sales fell from some 67 per cent to 36 per cent in the period immediately after the mass exodus.

Harcourts sued.  It alleged Bayleys’ new listings could only have been generated from contacts made whilst its staff previously worked for Harcourts, and as such was a misuse of Harcourts’ confidential information.

Evidence was given that Harcourts requires its sales staff to log information about potential leads: details of properties potentially coming on the market together with information about vendors; whether they are price sensitive plus personal and family information relevant to marketing.

Harcourts alleged both Ms Williams and Mr Kindl downloaded parts of its client contact database shortly before their departure.

Mr Fitzimons returned his company laptop on departure cleaned, following a factory reset.  Harcourts expressed suspicions that confidential information had been accessed before being wiped.

In the High Court, Justice Isac ruled it was arguable that ‘leads’ do amount to confidential information Harcourts was entitled to protect.

Mr Fitzimons’ employment contract contains no restraint of trade clause.  He was free to set up in opposition to Harcourts immediately on his departure.  Employment law does prohibit former employees from misusing confidential information gained during employment.  This is an issue for Harcourts to take up with the Employment Relations Authority should it choose to do so, Justice Isac said.

The other four sales staff had signed contracts prohibiting them from misusing confidential information and further prohibiting them from selling real estate within Harcourt’s Paremata area (from Tawa to Pukerua Bay) for six months after leaving Harcourts.  They were not prohibited from immediately starting elsewhere in the wider Wellington area.

Justice Isac ruled these four sales staff had to surrender or destroy any confidential information taken from Harcourts and further ordered not to sell real estate in Harcourts’ Paremata area for a period of three months.

Evidence was that progression from a lead to a listing usually occurs within a three month period.  A six month restraint period was excessive and likely to be ruled unreasonable, Justice Isac said.

Harcourts Paremata v. Cardno – High Court (14.03.24)

24.072

Joint Venture: Shiu v. Luo & Yip

 

Learning that fellow investor Annie Shiu had fraudulently claimed real estate commissions were levied on their joint venture purchases, Robert Luo and Ang Yip upped the ante claiming this dishonesty extended to her failure to include them in a neighbouring development.  There was no evidence they were to share, the Court of Appeal ruled, reversing a High Court order that Ms Shiu pay $2.6 million damages.

Ms Shiu, also known as Annie Chen, started in 2016 assiduously buying up undeveloped land at Pokeno on Auckland City’s southern boundary with plans for residential subdivision.

She entered into separate joint venture agreements with different individuals for the purchase of contiguous blocks of land, having these individuals stump up cash for the various purchase prices in return for interest payable on the risk capital advanced and a promised share in profits on subdivision.  Mr Luo and Ms Yip were attracted to these proposals.  Unknown to each other, they separately entered into joint venture arrangements with Ms Shiu to buy land at separate addresses on Henslee Road.     

Ms Shiu lied to both of them, taking several hundred thousand dollars from funds advanced as supposed reimbursement of real estate commissions paid.  No commission had been charged. Their complaint to the Serious Fraud Office in late 2018 led to Ms Shiu’s conviction for obtaining money by deception.  She repaid the money stolen.

Subsequently, Mr Luo and Ms Yip sued alleging they had been cut out of potential profits from Ms Shiu’s overarching subdivision plans.

The Court of Appeal was told Ms Shiu had paid extravagantly to assemble a portfolio of undeveloped land, all contiguous but yet to receive subdivision consent.  Some purchases were funded with family money, others by joint venture investors such as Mr Luo and Ms Yip.  All were aware it was a long-term project, risky in that subdivision consent might not be granted.

In the High Court, Mr Luo was awarded $1.04 million damages; Ms Yip’s investment company $1.6 million: damages for their potential share in expected development profits.  The trial judge ruled Ms Shiu misrepresented that the two would share in overall development profits.

The Court of Appeal said there was no proof of a promise to pool profits.

There was no third party evidence of Ms Shiu making such promises.  Mr Luo’s and Ms Yip’s extensive joint venture documentation made no mention of pooling profits from the whole development, only profit shares on development of the single purchase each had separately funded.  It was not plausible, the court said, that Mr Luo and Ms Yip would have entertained a pooling arrangement having them share risk with others over whom they had no control, particularly without detailed written documentation.

There was no causal link between Ms Shiu’s lack of honesty in lying about commission payments and any suggestion she had lied about pooling profits, the Court of Appeal ruled.  This single lack of honesty was not reflected in terms of the joint venture relationships actually entered into.

The court indicated Mr Luo and Ms Yip had assumed they were intended to share in overall project profits only after a local real estate agent highlighted Ms Shiu’s foresight in combining adjacent properties to her economic advantage.  This real estate agent had no knowledge of any conversations Ms Shiu may have had with her fellow investors.

The fact that it was two years after court action was underway before Mr Luo first raised the question of pooling profits, further raised doubts whether any such promise had been made, the court said.

Shiu v. Luo & Yip – Court of Appeal (7.03.24)

24.071

Insurance: IAG v. Degen

 

Insurance companies have drawn the line on Christchurch property owners gaming insurance payouts for earthquake damaged homes by now refusing to make upfront lump sum payments for owners opting to manage their own repairs; reimbursement will be made only as and when invoices are submitted for repairs completed.

Settlement of Mr Degen’s NZI insurance claim was much delayed with a dispute whether his property could be repaired or required demolition and a rebuild.  Their dispute reached the Canterbury Earthquakes Insurance Tribunal, set up in 2019 to provide a speedier and more flexible judicial forum to settle insurance disputes.

A 2022 Tribunal ruling found in favour of NZI: Mr Degen’s house could be repaired; a rebuild was not necessary.

But NZI objected to the Tribunal’s ruling that NZI’s owner, IAG Insurance, make a lump sum payment as soon as Mr Degen had signed a building contract for repair.

The insurance industry has faced a pattern of property owners gaming upfront payouts for owner-managed repairs.  A promised repair contract might be cancelled or heavily amended after a cash payout is made, or no repairs made at all.  Christchurch property marketing campaigns frequently advertise properties selling on an ‘as is, where is’ basis; often a case of the vendor having taken a cash payout for owner-managed earthquake repairs, undertaking little or no repairs, then later selling.

In the High Court, Justice Hinton ruled IAG was not required to make an upfront cash payout on Mr Degen’s claim.  Payment was due only after Mr Degen had incurred costs of repair, had submitted invoices and IAG was satisfied the costs are reasonable and relate to the risk insured.

It is implicit in any insurance contract promising ‘cover’ for insured risks that any payment must relate to making good the loss, Justice Hinton ruled.

In passing, the High Court was asked to consider the legal effect of wording in the Fair Insurance Code requiring insurers to ‘settle all valid claims quickly and fairly.’  Justice Hinton emphasised the key word is valid.  No valid claim requiring ‘quick’ payment exists where there is an ongoing dispute with the insurer over the extent of coverage and the amount to be paid.

IAG New Zealand Ltd v. Degen – High Court (6.03.24)

24.069

Minimum Wage: Mt Cook Airline v. E Tu

 

Salaried staff working a part-time roster have their salaries pro-rated against full time salaries for that position, the Court of Appeal ruled; avoiding a Minimum Wage Act claim by union E Tu which could potentially see a salaried Mt Cook Airline cabin crew member on a twenty per cent load earning five times per hour that of a colleague working full time.

The employment law dispute centred on application of the 2021 Minimum Wage Order to Mt Cook’s 2019 Collective Agreement.

As with most airlines, Mt Cook’s cabin crew are predominately female.  Since 2012, it has allowed salaried cabin crew to work part-time, a practice welcomed by staff as allowing flexible work options.     

E Tu claimed wording of the 2021 Wage Order meant part-time salaried staff were entitled to a minimum of $1600 per fortnight, even where their salary pro-rated for the number of hours worked for a particular eighty-hour fortnight failed to reach this figure.

Mt Cook said this would result in ridiculous anomalies.

Requiring employers to pay a minimum fixed amount to salaried part-time employees regardless of how many hours they had actually worked per fortnight could distort the relativity between part-time and full-time employees, the Court of Appeal said.  This would potentially discourage employers from offering part-time roles and could disadvantage employees seeking part-time work; students, employees looking to take on secondary employment, staff returning to the workforce, and those with childcare commitments.     Payment for salaried part-time staff is to be calculated pro-rata to the appropriate full-time salary according to the number of hours worked, the court ruled.  This is consistent with the statutory purpose of minimum wage legislation, it said.

Evidence was given that Mt Cook’s collective agreement allowed cabin crew to work a two-thirds roster: six rostered days per fortnight instead of nine.

Mount Cook Airline Ltd v. E Tu Inc – Court of Appeal (6.03.24)

24.070

Relationship Property: Kemp v. Kemp-Upton

 

Six years after their property assets were divided as part of a relationship property agreement the two are back in court; there was no written agreement as to division of joint liabilities, in particular a $1.7 million Westpac mortgage.

Jan Kemp and Andre Kemp-Upton separated in 2014 after a 32 year marriage.

The High Court was told at that time they had joint control of five Auckland properties and a property in Fiji, all held through a family trust.  With the assistance of their then accountant, a schedule of joint assets and liabilities was drawn up and agreement in principle reached on division of assets and liabilities.  Seeking to avoid the need to make any cash adjustments, it was agreed the properties would be valued and then parcelled out between the two; Andre took two Auckland properties and their interests in Fiji, Jan the remaining three Auckland properties.

A formal relationship property agreement signed three months later agreed transfer of the properties but made no specific reference to liabilities, other than joint liability for their personal credit card debts at time of separation.

In 2021, Andre sued, claiming he had paid more than his half share of their joint liabilities.  He demanded payment of some $136,000 to square their obligations.

Jan took the fast-track summary judgment route, claiming there was never any agreement to share liabilities.  Provision for existing mortgage liabilities was dealt with in net asset valuations for the properties since shared out, she says.  Her former husband’s current claim suggests their previously agreed property valuations were skewed in his favour she says.  In addition, there had never been any valuation made or credit given for her share of Andre’s business, Our Space Architecture Ltd, which was agreed to be a relationship asset, she states.

Disputed facts cannot be dealt with in fast-track summary judgment applications, Justice Robinson said.  It needs a full court hearing.

It is for Andre to establish how the original property valuations were calculated and to explain why their relationship property agreement failed to state liabilities were to be shared equally as he now claims, Justice Robinson ruled.

Kemp v. Kemp-Upton – High Court (1.03.24)

24.065

Loan: Chen v.Tawa Trade Finance

 

Auckland property investor Liyun Chen was ordered to pay $1.1 million as guarantor after her company defaulted on a loan refinancing properties in Auckland suburb Flat Bush.  This amount will increase, with interest running at 28 per cent until payment.

The High Court was told Ms Chen misled financier Tawa Trade Finance Ltd by signing a loan contract as guarantor for her company LC1521319 Development Co Ltd promising Tawa Finance would have first mortgage security when rights to a first mortgage over Flat Bush had already been promised to General Finance.     

The Tawa Finance loan was a short-term six month loan dated June 2022, rolled over for six months at her request.  Security was offered over multiple Flat Bush properties.

Unable to refinance at end of the roll-over period, Ms Chen raised a raft of legal reasons why Tawa Finance could not force repayment, variously alleging: promises of a further extension had been made; Tawa was in breach of the Credit Contracts and Consumer Finance Act; there had been a failure to comply with the Anti-Money Laundering and Countering Financing of Terrorism Act; there were breaches of the Fair Trading Act, and; that Tawa Finance had failed to get the best price when selling up the Flat Bush properties.

Associate judge Taylor dismissed all these claims.  LC Development was in breach of contract from the start because it was never in a position to give Tawa Finance the promised first mortgage security.

Evidence was given that Tawa Finance was owed some $2.5 million subsequent to the discovery it did not have first mortgage security, instead ranking behind General Finance.  It first had to account to General Finance before claiming monies from forced sale of the Flat Bush properties.

General Finance’s right to first mortgage security was contained in an agreement to mortgage, later protected by a caveat registered against title to the Flat Bush properties.

Ms Chen claimed Tawa Finance sold the properties at below market values.  Tawa said Ms Chen was incorrectly using as her benchmark market values as at 2021.  Market prices had fallen since.

Ms Chen said Tawa Finance had unreasonably rejected a conditional sale she herself had organised.  Judge Taylor said Tawa was under no obligation to accept a conditional offer and further was under no obligation to accept a deal on offer whereby $100,000 of the price was to go to Ms Chen’s former partner.

Ms Chen also complained that Tawa Finance was delaying sale of one property so as to accrue more penalty interest, wiping out any equity in the property.

Judge Taylor ruled Tawa Finance had acted properly, taking advice from reputable real estate agents in how to best market the Flat Bush properties.

Chen v. Tawa Trade Finance Ltd – High Court (1.03.24)

24.067

Joint Venture: Chen v. Huang

 

A relationship beginning as friends ended with allegations of dishonesty in handling Chinese investment in the New Zealand wine industry.  Xiaolin Chen was ordered to repay $1.2 million and Waihopai Valley Vineyard Ltd ordered to repay $1.17 million; money advanced to take Waihopai Valley Vineyard out of receivership in 2013.  Chen interests subsequently sold Waihopai assets without accounting for the proceeds.

It was a friendship between their respective spouses that saw Xiaolin Chen, also known as Chris Chen, join forces with Hongzhao Huang back in 2006 with plans to develop vineyards in New Zealand.  A New Zealand citizen since 2001, Mr Chen promoted New Zealand wines in China though franchised outlets branded as Chateau Kiwi.  Mr Huang lived in China.

The Court of Appeal was told their joint business interests first commenced with plans to buy land in Matakana, north of Auckland, intending to develop a lifestyle subdivision within a vineyard.  Ownership at Matakana was taken in the name of Mr Chen.  Mr Huang stayed in the background; lacking New Zealand citizenship, he needed Overseas Investment Office consent before surfacing as an owner.

The Matakana purchase adjoined land owned by the Vegar family.  They introduced Mr Chen to another business opportunity, developing a further vineyard in Marlborough; a proposal which eventually became Waihopai Valley Vineyard Ltd.  The Vegars were to develop and manage this project on his behalf.

By 2013, the Marlborough project as in deep financial trouble: contractors unpaid; crop yields down; and a dispute with the Vegars over payments due for the current harvest.  ASB Bank appointed receivers to protect its mortgage security over the vineyard and its current crop.

Mr Chen’s relationship with Mr Huang then got a lot more complicated.  At a time when their Matakana business relationship was underway, Waihopai needed rescuing.

Mr Chen floated the idea of having ASB repaid by merging Matakana and Waihopai, with Huang interests putting in cash and taking an equity interest in the Marlborough vineyard.

The two were later in court arguing over the status of Mr Huang’s $2.3 million cash injection used to repay ASB.

Mr Huang claimed it was a loan, as yet repaid.  Mr Chen said it was an equity investment.  Mr Chen had some explaining to do, Mr Huang said.

The Court of Appeal was told Mr Chen sold off Waihopai assets after the company came out of receivership, distributing the $7.4 million proceeds to Chen interests, with nothing for Mr Huang.  He learnt of the asset sales months after the event.

Litigation centred on Chinese cultural norms of guanxi, the importance of maintaining ongoing relationships unfettered by any need for written documentation, a practice most commonly seen with intra-family financial arrangements.

The Court of Appeal ruled this was not a case where guanxi was relevant.  The two had a business relationship stretching back years.  In their business dealings, the practice had been to formalise their relationship with legally-drafted contracts.

Mr Huang’s $2.3 million Waihopai cash injection was a loan, not an equity investment, the court ruled.

There was no evidence of an agreed integration of the Matakana and Waihopai businesses, such that Mr Huang was an equity investor in Waihopai.  Both sides had circulated various merger options.  These were no more than ‘suggestions’.  Shareholdings were never decided, being dependent on further due diligence and asset valuations.

One stumbling block in their Waihopai merger negotiations had been Mr Huang’s demand to see copies of Waihopai’s financial statements, copies which Mr Chen never handed over.  It was later discovered Mr Huang’s cash advances were recorded in Waihopai’s financial statements as loans, albeit as ‘shareholder loans.’

In addition, Mr Chen had confirmed to the Overseas Investment Office in 2018 that the $1.2 million he received from Mr Huang was a loan.  This at a time when the Office was suspicious that Mr Chen had been improperly acting as trustee for Mr Huang, potentially part of a scheme to end-run overseas investment rules requiring Mr Huang to first get approval before making equity investments in New Zealand land.

The court ruled Mr Chen was personally liable to repay the $1.2 million received from Mr Huang.  Waihopai was liable to repay $1.17 million it received direct from Mr Huang.

Action is being taken against Chen interests to recover cash stripped out of Waihopai following the Waihopai asset sales.

Chen v. Huang – Court of Appeal (1.03.24)

24.068

Fraud: re Cryptopia Ltd

 

Liquidation costs to date exceed $23 million for Cryptopia liquidators Grant Thornton chasing down cryptocurrency assets hacked in a 2019 online attack and seeking both to identify Cryptopia customers and to reconcile customer accounts.  The High Court has set out rules for customer repayments with a December 2024 deadline for claims.

Based out of Christchurch, Cryptopia Ltd was supposedly a secure custodian for nearly one million account holders from some 180 countries storing hundreds of different cryptocurrencies.

The hack targeted ‘hot wallets’ on Cryptopia’s servers used to meet requests for outgoing cryptocurrency.  Currencies stolen were only Bitcoin, or cryptocurrencies readily exchangeable for Bitcoin.  Liquidators’ report that nine per cent of Cryptopia’s Bitcoin holdings were stolen.  Those responsible have never been identified.  Seventeen Cryptopia Bitcoin were later recovered in the United States by the FBI.  The true owner could not be identified; this Bitcoin had been put through ‘the mixer.’

Four years into liquidation, Grant Thornton applied to the High Court for directions on distribution of assets held.

They told the court all cryptocurrencies held at date of liquidation had been moved to a secure server and accounts frozen.

Liquidators are separately holding $855,000 on behalf of 12,000 depositors; crypto currencies paid into Cryptopia for safekeeping subsequent to the widely publicised 2019 hack and apparently in ignorance of advice not to make further deposits.  Individual depositors are known.  These funds are to be returned.

More complicated is allocation of losses between Cryptopia depositors as at date of the hack.

The High Court ruled each type of cryptocurrency on the books is to be treated as a separate class.  Depositors for each currency prove against Cryptopia holdings of that crypto asset.  Liquidators can ignore low account balances where nominal value due for repayment is less than that account holders share of liquidation costs.  They are to be written off.

The High Court approved a ‘soft cut-off date’ and a ‘hard cut-off date.’

Grant Thornton has set up a claims portal to interact with account holders.  Some 25 per cent are based in the United States.

Liquidators told the High Court that as at November 2023, over eighty per cent of account holders had opened their email advising of the portal.  Only thirteen per cent had completed the registration and identification process.  Liquidators said this low response rate was typical of overseas cryptocurrency frauds.  Account holders may suspect the process is an ‘exit scam’ seeking to steal more money, or may have been hiding illicit proceeds from money-laundering or fraud, or have already written off any claim as not worth pursuing.

The proposed ’soft-cut off’ date is 90 days from the date liquidators email account holders advising claims procedure is closing.  This provides a window within which account holders are told what is the liquidators’ assessment of funds held on their behalf.  Account holders can challenge this calculation, providing evidence to the contrary.

The ‘hard cut-off’ date is 31 December 2024.  Account holders who have not engaged with the liquidators by this date are presumed to have abandoned any claim.  Account holders with valid claims will then be paid out.

After deduction of liquidators’ costs from each class of cryptocurrency, the crypto assets held by the liquidator will be returned pro-rata to account holders in that class.  There may be instances where there is a surplus; a lack of claims in one cryptocurrency class might mean there are enough crypto assets to achieve a full return to those account holders who do claim, with cryptocurrency left over. 

Liquidators told the High Court there are complications in making in specie cryptocurrency distributions to account holders in some countries.  They identified ten countries, including China and Vietnam, where it is illegal to deal in cryptocurrencies.  Liquidators said Cryptopia has some 1,100 account holders in these ten countries with holdings between them valued in excess of USD two million.  The High Court approved payment to these account holders in cash, following sale of their cryptocurrency holding.

The High Court signalled liquidators can return to court after their distribution to customers to decide how any surplus might be distributed.

Still standing in line are Cryptopia’s unsecured trade creditors, currently owed $2.9 million.  Cryptocurrency account holders not repaid in full will probably join them.

re Cryptopia Ltd (in liquidation) – High Court (1.03.24)

24.066

Ruapehu Alpine: Gibson v. Platt

 

Insolvency specialists separately managing skifield operations at Ruapehu joined forces to bat away legal argument from users that government interests are subservient to users rights at a time when taxpayers have provided over $17 million to keep the skifield open while a buyer is found.

A cascade of factors forced Ruapehu Alpine Lifts Ltd into a liquidation: heavy borrowing to fund construction of its $25 million Sky Waka gondola; covid pandemic travel restrictions and border closures keeping visitors off the mountain; and warmer weather meaning less snow.  Ruapehu Alpine owns skifield assets on the central North Island mountain, which coupled with a Conservation licence allow it to run commercial operations in what is a national park.

Its 2023 liquidation saw insolvency specialists at PwC appointed liquidators.

Prior to liquidation, eight million dollars of taxpayer support kept Ruapehu Alpine trading.  This was topped up with another tranche of five million dollars prior to the 2023 ski season; PwC needed to keep Ruapehu Alpine alive both to generate income from sales in the coming season and to maintain a viable business ready for sale.

In the background, financier ANZ Bank bit the bullet and exited what had been a catastrophic deal with Ruapehu Alpine.  ANZ funded the Sky Waka project.  By October 2023, ANZ was owed $16.1 million.  It sold this debt and its rights as secured creditor to government-owned Crown Regional Holdings Ltd for a nominal one dollar plus a deferred entitlement to receive fifty per cent of any funds recovered by Crown, capped at $638,400.  Exercising ANZ’s rights, Crown immediately appointed as receivers insolvency specialists at Calibre Partners.

This receivership annoyed some skifield users, complaining the appointment was invalid.  Members of Ruapehu Alpine’s liquidation committee led the charge.

Company law allows creditors of an insolvent company to band together, appointed as a committee to oversee a liquidation.

Ruapehu’s five person liquidation committee represents groups interested in seeing Ruapehu Alpine revived, including Ruapehu Alpine staff and skifield life pass holders.

The committee had its eyes on some $2.4 million cash in hand generated from Sky Waka ticket sales.  This money belonged to Ruapehu Alpine they claimed.  The cash was available to pay liquidation committee members for ‘actual out-of-pocket expenses necessarily incurred,’ as permitted by the Companies Act, it said.

Both PwC and Calibre Partners faced the possibility these ‘out-of-pocket expenses’ would extend to legal action challenging Crown’s appointment of a receiver, and with it, disruption to any sale of Ruapehu Alpine’s assets.  They jointly asked the High Court to rule on who was entitled to cash from Sky Waka ticket sales.

Justice Campbell ruled the money belonged to Crown Regional Holdings.  It had purchased ANZ’s rights.  These rights included a right to keep ‘after-acquired property’ relating to Sky Waka.  All cash from ticket sales was after-acquired property.

Justice Campbell rejected an argument that any cash coming into the hands of a liquidator must be held for the benefit of unsecured creditors and can be accessed by a liquidation committee.  While the liquidator did receive the cash, first claim on these ticket proceeds goes to any creditor who has security over gondola revenue.  It is similar to the liquidator of a retail store holding a ‘liquidation sale,’ he said.  In a retail context, the liquidator acts as agent for any creditor holding security over stock in store, getting in the cash before handing it over.

The High Court was told PwC and Calibre Partners had agreed between themselves a modus operandi, allowing the receivers to manage day-to-day operations of the skifield.  This arrangement was supported by a further tranche of government funding: $4.3 million.

Gibson v. Platt – High Court (28.02.24)

24.064

Investment Fraud: Huljich v. McCaffrey

 

If it were a film script, it reads like a scam built on a scam.  Entrepreneur Chris Huljich is chasing down proceeds of a USD 1.5 million investment stolen by a Hong Kong based investment broker and now allegedly misappropriated a second time by a UK-based recovery agent who was hired to follow the money.  Following an undefended High Court hearing, recovery agent Patrick John McCaffery was ordered to pay NZD 12.8 million.  There is no evidence McCafferty has any assets in New Zealand available to satisfy this court judgment.

The High Court was told Mr Huljich placed USD 1.5 million for investment in 1999, only to see the funds disappear within a year; part of a multi-million dollar theft by a Hong Kong based investment broker described in court only as ‘Mr H.’  Twenty-five years on, all Mr Huljich has is promises by a recovery agent that the proceeds have been tracked down.

Evidence was given that Mr Huljich signed up in 2003 with a fraud detection service called TASK International Ltd.  It undertook to trace where the stolen money had gone; in return for twenty per cent commission on any assets recovered, plus expenses covered in part by a USD 30,000 retainer.  TASK was recommended by the same adviser who recommended placement of the earlier stolen investment; a Mr Olliver.

Mr McCaffrey was the TASK contractor on the job.  He reported that some of the stolen money was used to buy valuable collectables: paintings, rare watches and pens, plus gold coins.  He said TASK did not have the resources to recover any of these items.

Subsequently, Mr McCafferty offered personally to recover the assets, sell them and account to Mr Huljich for the proceeds.  A formal contract was signed in 2012, after Mr McCafferty stated he was holding the assets in a UK warehouse, ready for sale. 

The 2012 contract was not straightforward.  A string of individuals stood in line to receive payment from any funds recovered: first a 7.5 per cent commission payable to Auckland barrister Charles Sturt (who witnessed the agreement); $100,000 due Mr Olliver for past expenses; then thirty per cent of the remainder for Mr McCafferty.  Any surplus after full repayment of Mr Huljich’s USD 1.5 million was to be split between Mr Huljich and Mr Olliver on a sliding scale.

Mr Huljich was provided with an inventory of assets seized, together with presumed values.  Mr Olliver reported that in the company of Mr McCafferty he had sighted the assets in warehouse storage in the UK.

A 2021 asset schedule sent to Mr Huljich valued the collectables in storage at GBP 8.8 million.

He was told intended sales of these collectables and conversion to cash had been complicated by death of one of the warehouse owners.  Mr Huljich told the High Court current whereabouts of these assets is now unknown.

In New Zealand, Justice O’Gorman ruled Mr McCafferty liable for breach of contract; failing to sell the reportedly seized assets and to account for the proceeds as promised in their 2012 contract.  Damages were calculated at NZD 12.89 million; being seventy per cent by value of the assets listed in the inventory supplied as valued by Mr McCafferty.

Huljich v. McCaffrey – High Court (28.02.24)

24.063

Relationship Property: Alalaakkola v. Palmer

 

Copyright in works of art produced during a relationship amount to relationship property, the Court of Appeal ruled.  But these copyrights need not be shared equally when a relationship ends.  Copyright can be valued with the artist buying out their former spouse’s half interest. 

Artist Sirpa Alalaakkola took strong exception to former spouse Paul Palmer exercising any control over commercial exploitation of her work saying her artistic output amounted to a personal brand; ‘I am my art and my art is me,’ she said.  Uncontrolled and unsanctioned exploitation of her work would affect ‘my good name, my identity and my soul,’ she explained.     

Ms Alalaakkola is renowned for her colourful artwork, much of it depicting holiday activities.

Relationship property law governs both works of art and copyright in reproductions.  The physical representation of a painting by itself is a chattel; an item of property.  The right to make reproductions is also a property right; an example of intangible property with exercise of these intangible rights prescribed by copyright law.

Ms Alalaakkola objected to copyright in various paintings being transferred to Mr Palmer as part division of their relationship property.  He indicated plans to make and sell reproductions.

Recognising that her art is highly personal, the Court of Appeal ruled that it was inappropriate and unfair to impose a transfer of copyright in selected paintings from Ms Alalaakola to her former spouse as part of a disputed relationship property claim.  A primary principle in the Copyright Act is that the artist personally controls any transfers of copyright.

The court ruled that copyright in all of Ms Alalaakkola’s artistic output held at the date their relationship ended be valued.

This will require some heroic assumptions as to the potential future income stream likely from sale of any reproductions.  The Court of Appeal delegated this task to a future Family Court hearing.

Mr Palmer is entitled to a credit for half the value of these copyrights in the final division of their relationship property.

Alalaakkola v. Palmer - Court of Appeal (21.02.24)

24.062

Contract: Heartland Bank v. Internet Business Systems

 

Described as a Heartland Bank delaying tactic, its claim that a $2.77 million disputed invoice should be argued in the New Zealand courts rather than Australia was dismissed.  IT company Internet Business Systems gets to have its claim heard in the state of Victoria.

The disputed invoice relates to an aborted Heartland project to set up a new online platform for its retail consumer car loan business.  Its previous dealings with Internet Business Systems Australia Pty Ltd had been successful; delivering software tracking inventory for Heartland’s lending to car dealerships. 

This initial project led to Heartland in 2021 issuing a ‘request for proposal’ to set up a retail platform.  Internet Business was again engaged, but terms and extent of this engagement are disputed.  Heartland cancelled the project expressing concerns whether Internet Business could deliver on time, or at all.

Internet Business sued in Australia for work done to date.  Both sides agreed there had never been any formal contract signed; the disputed work had progressed in tandem with an initial scoping ‘discovery’ phase.  Heartland paid an agreed $100,000 upfront for this discovery phase.

A preliminary legal issue arose; did New Zealand law or Australia law apply to their $2.77 million dispute?

The Trans-Tasman Proceedings Act governs jurisdictional disputes.

In the New Zealand High Court, Justice Andrew ruled Australia was the better jurisdiction.  Internet Business will likely succeed in a claim for quantum meruit; compensation for work done in the absence of any contract.

Quantum meruit compensation is specifically demanded by Internet Business in its Australia claim.  In New Zealand, Heartland is narrowly arguing no contract existed at all, ignoring any quantum meruit entitlement.

The High Court was told a Heartland executive emailed Internet Business at a time when the project was being put on hold, stating that Heartland would ‘mahi tika;’ do the right thing, paying for work done.

Heartland Bank Ltd v. Internet Business Systems Australia Pty Ltd – High Court (20.02.24)

24.061

Misrepresentation: Munroe Trustee v. Wang

 

Auckland property purchaser, Dabin Wang, says a $1.07 million claim for loss on resale following his default on an Auckland purchase is far too high; misleading information about the level of buyer interest caused him to bid too high in a closed tender offer, he says.  The vendor has to accept responsibility for misrepresentations by its real estate agent, he claims.

Mr Wang defaulted on a $2.96 million purchase, losing his deposit.  The vendor later resold at $1.78 million.

Munroe Family Trust put its North Shore property at Forrest Hill up for sale in July 2021.  Barfoot & Thompson’s Milford branch was appointed agent.  Kai Deng from Barfoot drew Mr Wang’s attention to the listing.  The property had potential for subdivision into townhouses.

Mr Wang is an immigrant from China.  He speaks poor English.  Dealing through Mr Deng had the advantage they could converse in Mandarin.  The High Court was told Mr Wang had previously purchased at least three properties through Mr Deng.

When tenders closed for Forrest Hill in July 2021, Mr Wang’s $2.96 million was the highest offer.  He was to later learn the next highest bid was $610,000 less.

When sued for Munroe Trust’s loss on resale, Mr Wang claimed Barfoot’s Mr Deng had misled him.  He claims Mr Deng talked up the level of buyer interest alleging he was told active buyers were offering in the range $2.7 million to $2.9 million.  He alleges Mr Deng said a bid near three million dollars would be needed to secure the property.

Mr Deng says he has ‘no memory’ of making such comments.

After a High Court fast-track summary judgment hearing, Associate judge Brittain ruled it was arguable that Mr Deng was acting as agent for vendor Munroe Family Trust when making the alleged pre-contract misrepresentation and that the Trust had to accept responsibility, if the comments are true.     

A full court hearing is needed to resolve the conflict in evidence between Mr Wang and Mr Deng, Judge Brittain ruled.  The nuances of what Mr Deng said speaking in Mandarin needs to be considered when translated into English, he said.

As a side issue, Mr Wang claims Mr Deng was also at fault for not explaining at time of the sale any potential consequences of defaulting.  Mr Wang said in China the only penalty is loss of deposit.  The New Zealand rule is that a defaulting buyer loses not only the deposit paid but is also liable for any loss on resale.

Munroe Trustee Ltd v. Wang – High Court (19.02.24)

24.060