Archive | Court of Appeal

Appeal Court tells council & unitary plan panel to issue new Oteha Valley decisions

Palmerston North developer John Farquhar’s commitment to intensification on an 8ha site above Oteha Valley Rd at Albany hasn’t wavered despite a conflict with officialdom over 18 years, first with the North Shore City Council and, since 2010, Auckland Council & Auckland Transport.

On the Friday before Christmas, Mr Farquhar’s companies, North Eastern Developments Ltd & Heritage Land Ltd, won a telling judgment from the Court of Appeal setting aside decisions of Auckland Council & the independent hearings panel on the council’s new unitary plan, and directing the council & the panel to make new decisions.

The Court of Appeal bench which heard the case comprised Justices Raynor Asher, Graham Lang & Simon Moore.

Central issue

The central issue in the court’s finding of procedural unfairness was that the panel had relied on council evidence which the council had indicated to Mr Farquhar it would no longer rely on. The council then changed its mind, relied on this evidence but didn’t notify Mr Farquhar & his companies, whose lawyer had obtained permission to cross-examine the council planning witness in question but, unaware of the change of mind, didn’t pursue that cross-examination.

Over a period when the term “crisis” has been in daily use in reference to the lack of provision of new housing in Auckland, the unitary plan hearings panel recommended to the council in July 2016, and the council then decided in August 2016, not to adopt the Albany 5 precinct and not to zone the land within the proposed sub-precinct B business – mixed use.

Those zonings are central to Mr Farquhar’s intention to develop up to 500  apartments, plus some commercial & retail outlets, on 8ha at 56 Fairview Avenue and 129 & 131 Oteha Valley Rd.

Intensification plans date back to 2001

Mr Farquhar, whose family has been heavily involved in development in Palmerston North for 80 years, bought the bulk of his 8.4ha Oteha Valley site in 2001 and a small access lot in 2006. He secured regional land use consents in 2004, but North Shore City Council eventually declined consents for all 3 components of his proposed development in 2009. A joint memorandum resolved the appeals in principle in July 2012.

Then came an application by Auckland Transport to extend Medallion Drive, an arterial route running through the suburbs between the Northern Motorway (State Highway 1) & East Coast Rd, so it would cross Oteha Valley Rd, rising to Lonely Track Rd via Fairview Avenue to improve access for new housing above the old Albany village and the newer Albany City developments. Lonely Track Rd is the boundary between the urban North Shore and a bush precinct above the southern edge of rural Rodney.

The panel recommendation

On the Albany 5 precinct, the unitary plan panel said in its recommendation: “The purpose of the precinct was to establish a policy & rule framework for the land that recognised its potential for intensive residential development to a higher intensity & height than that set as the benchmark for the residential – terrace housing & apartment buildings zone and for a mixed use development fronting Oteha Valley Rd. The precinct sought the inclusion of 3 sub-precincts to provide for differing building heights:

  • Sub-precinct A: 27m on the major, more elevated part of the site fronting Fairview Avenue
  • Sub-precinct B: 23m for the mixed use area along Oteha Valley Rd, and
  • Sub-precinct C: The southernmost and lowest area of the site, 34m or 60m through the residential – terrace housing & apartment buildings zone.

“The underlying zone of the proposed new precinct under the notified proposed unitary plan is mixed housing suburban & mixed housing urban. Those zones provide for a maximum building height of 8m & 11m respectively, and yard controls ranging from 1.3m to 2.5m. The proposed new precinct would more than double the maximum building height limits from those proposed in the underlying zones. The zone controls for building height & yards are set at levels that are appropriate for the zone. A proposal to exceed the height limits can be pursued through a resource consent application. The resource consent process would involve assessment of any dominance, privacy & shading effects on the surrounding neighbourhood.”

Fairview Avenue to the Westfield mall at Albany – across State Highway 1, past the Albany bus station, 2.2km.        

Whether or not one planner’s evidence was unfairly submitted, the panel’s suggestion that a proposal to exceed height limits could be pursued through a resource consent application was an abysmal failure to acknowledge 15 years of applications, litigation & decisions relating to more intensive use of land just 2.2km from the Westfield mall at Albany, and on a road where the first serious attempt at intensification was undertaken in the 1980s.

The hearing panel said evidence of Auckland Council planner Terry Conner explained why the council didn’t support the change of zoning Mr Farquhar sought: “In summary, it is inappropriate to encourage more intensive residential development in this area without appropriate assessment of the effects.”

Hearings panel chair David Kirkpatrick, now an Environment Court judge, heard plenty of evidence about intensification of this site in 2013, as a council hearing commissioner.

Ms Conner’s evidence to the hearings panel in January 2016 highlighted these points:

  • Do not support change to terrace housing & apartment buildings of either site, due to access concerns, but support an alternative change for 39 Fairview Ave from single house/mixed housing suburban to solely mixed housing suburban to avoid split zoning. Mixed housing suburban is an appropriate zone for properties not close to centres and the regional freight network to recognise the planned suburban built character of the area. Mixed housing urban is proposed to be retained on 56 Fairview. Access to much of this area is constrained by a 1-lane bridge and is not conducive to a safe pedestrian walk to public transport. Retention of the respective zones and the proposed change to mixed housing suburban are the most appropriate ways to achieve the objectives of the mixed housing suburban & mixed housing urban zones and gives effect to the regional policy statement, and
  • The outcome of the Environment Court hearing of the proposed Auckland Transport requirement for improvements at Medallion Rd, currently underway, may have a material impact on this issue.

Panel agreed with potential, but adopted council conclusions

The panel said it agreed with Mr Farquhar that “this site has considerable potential for residential development,” but said it wasn’t convinced by the evidence that a precinct as proposed “is necessary or appropriate. The panel supports the evidence on behalf of the council in opposing the precinct provisions.

“The panel has instead agreed with the submitter [Mr Farquhar] that a more intensive zoning is appropriate and has recommended that the entire 8ha site be rezoned residential – terrace housing & apartment buildings zone. The proposed business – mixed use zone for a portion of the land is not supported in this location, which is relatively close to but physically separated from the nearby metropolitan centre at Albany. If any future specific proposal seeks to exceed the height provisions of that zoning, the panel considers that such a proposal would need to be tested by way of a resource consent application.

“The panel is confident that the Auckland-wide provisions, together with the provisions of the residential – terrace housing & apartment buildings zone, will appropriately enable the future development of this site, give effect to the regional policy statement and achieve the purpose of the Resource Management Act 1991.”

The panel then set out its formal recommendations & reasons: “The panel, having regard to the submissions, the evidence & sections 32 & 32AA of the Resource Management Act 1991, recommends that the Albany 5 precinct not be adopted. The rezoning of the land within the proposed precinct to residential – terrace housing & apartment buildings zone is considered the most appropriate way to enable the development of the proposed precinct site and to give effect to the regional policy statement and achieve the purpose of the Resource Management Act 1991.”

A straightforward proposal

Mr Farquhar’s summarised evidence was that the site was eminently suitable for intensification: “This precinct is located between Oteha Valley Rd & Fairview Avenue east of Albany Town Centre. It involves nearly 8ha of greenfield land which is fully serviced and is close to community facilities, employment & transport infrastructure. The precinct presents a rare opportunity for comprehensive development for intensive apartment living together with a mixed use commercial centre on Oteha Valley Rd that serves the adjacent residential catchment.

“A degraded section of the Waikahikatea Stream flows through the site parallel to Oteha Valley Rd, in particular along the interface between sub-precincts A & B. There is potential for this part of the stream corridor to be redeveloped as part of a comprehensive development to provide significant environmental & amenity benefits for the future precinct community as well as effective connections to the surrounding areas.

“Active investigation of development of this land has been underway since 2001.

“There are several sub-components to the precinct (called sub-precincts) where particular outcomes can be achieved through objectives & policies, however the intention is to ensure that while development may occur in stages there is integrated development with each sub-precinct to secure the objectives & policies for this precinct.

The landform & size of the precinct means that it could be capable of accommodating taller buildings than the underlying zones in order to enable the achievement of a vision for the site that includes:

  • Extensive redevelopment of the stream corridor along the interface between sub-precinct A & B with intimate connection to adjacent activities
  • Clear & generally flat pedestrian connections through & within the precinct
  • Maximising underground carparking for residents & the commercial activities
  • Maximising functional communal open space through a range of structured spaces
  • Strong community focus with a range of community facilities such as gym, swimming pool, childcare
  • A mixed use centre providing shops, cafés & restaurants serving not only the precinct but wider catchment
  • Access & mobility-friendly design throughout the precinct, and
  • Planned points of vehicle access from both Fairview Avenue & Oteha Valley Rd.

“The purpose of the precinct is to provide a policy & rule framework that encourages & supports building efficiencies only available to such large, fully serviced sites and realises the community potential that stems from a comprehensive & integrated development, including benefits to the wider catchment.”

Mr Farquhar’s proposals for the 3 sub-precincts were:

  • Sub-precinct A, most of the site, is suited to high density residential apartment living
  • Sub-precinct B, the land fronting Oteha Valley Rd, is suited to commercial & retail service activities, with apartments above ground-floor level, and
  • Sub-precinct C, the southern part of the site, is suited to high density apartment living; the boundary between sub-precincts A & C is the easterly side of the proposed Medallion Drive extension as proposed by Auckland Transport.

Following a revision by the High Court of its original decisions, the Court of Appeal ruled that costs should be re-apportioned in accordance with the appeal outcome.

Court of Appeal decision 21 December 2018, North Eastern Investments Ltd & Heritage Land Ltd v Auckland Council (2018 NZCA 629)
Independent hearings panel recommendations, 22 July 2016, Changes to rural urban boundary, rezoning & precincts, annexure 4 precincts north (at page 158)
Auckland Transport, Albany developments

Earlier stories:
27 January 2016: Commissioner agrees long designation period for link road above Oteha Valley, but supports landowner’s fast-track proposal
20 September 2013: Plan change above Oteha Valley approved
16 September 2013: 420-plus homes ready to go, but council might take decade putting road to elsewhere through site
9 May 2007: Rezoning to give greater density above Oteha

Attribution: Court of Appeal, hearings panel.

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Court rules James Hardie parent company can’t wash its hands of cladding defects

The Court of Appeal has dismissed claims by building products company James Hardie Industries PLC that it shouldn’t be found liable for defective products made, marketed & sold by its New Zealand subsidiary.

James Hardie had contested claims by a group of owners, or former owners, of homes, commercial buildings & retirement villages clad with exterior cladding products manufactured & supplied by the James Hardie business in New Zealand. The claims were taken to court through a class action organised by Auckland lawyer Adina Thorn.

The claimants alleged that the James Hardie products were defective, not watertight, and failed to comply with prevailing building standards.

The defendants were 4 operating companies & 3 holding companies in the James Hardie group, but it was the holding companies that pursued this appeal. They argued that, since they didn’t manufacture, market or supply the allegedly defective products, the claimants couldn’t succeed against them. James Hardie Industries protested the jurisdiction of the New Zealand courts to determine the proceeding against it, while its New Zealand subsidiary & RCI Holdings Pty Ltd applied for summary judgment against the claimants.

The claimants’ properties were constructed or reclad with James Hardie product between 1983 & 2011. They were clad in fibre cement sheets with one or other of the brand names Harditex, Monotek or Titan (sometimes also known as Titan Board) manufactured by either Studorp (before 1998) or James Hardie NZ.

The appeals were heard in June and the Court of Appeal issued its decision yesterday.

Apart from the individual claimants, the retirement villages in the action were Waitakere Group Ltd, Metlifecare Pinesong Ltd, Forest Lake Gardens Ltd, Vision (Dannemora) Ltd (now Metlifecare Dannemora Gardens Ltd) & Metlifecare Coast Villas Ltd.

Court of Appeal decision, 13 December 2018: James Hardie Industries PLC v White 

Attribution: Judgment & court release.

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2 Hamilton agencies lose price-fixing appeal case

2 Hamilton real estate agencies & their directors will face penalties in the  5-year-old agency price-fixing case following a decision of the Court of Appeal released on Friday.

The court overturned a High Court ruling that had cleared Lodge Real Estate Ltd & Monarch Real Estate Ltd & the 2 companies’ directors, Jeremy O’Rourke (Lodge) & Brian King (Monarch), of engaging in price-fixing in breach of the Commerce Act.

The Court of Appeal didn’t set penalties, but referred the case back to the High Court to do that.

This case is one of many brought by the Commerce Commission after agencies reacted to a decision by Trade Me to change its billing practice of charging agencies low monthly fees for their ads.

Agency heads met in 2013 and agreed to pull their ads from Trade Me, and to switch to a vendor-funding model.

The High Court has so far imposed penalties of $16.425 million on Hamilton-based defendants Lugton’s Ltd & Success Realty Ltd, Manawatu-based defendants Unique Realty Ltd & Manawatu 1994 Ltd, as well as Barfoot & Thompson Ltd, Harcourts Group Ltd, LJ Hooker NZ Ltd, Ray White (Real Estate) Ltd & Bayley Corp Ltd, either by agreement or after court hearings.

In the Lodge & Monarch case, High Court judge Pheroze Jagose ruled that, although there was an arrangement or understanding between the agencies & directors and they gave effect to it, the agreement didn’t have the purpose or effect of fixing, controlling or maintaining the price for Trade Me listing services.

Under Trade Me’s old scheme, agencies paid a base fee plus a fee for every listing, capped at $999/month/agency office, with some variations. Most agencies absorbed this cost and offered standard Trade Me listings to vendors for no extra charge.

In mid-2013, Trade Me decided on a new fee structure for standard residential property listings. It proposed a single fee for each standard residential listing of $199, of which $40 was to be commission payable to the agency. Trade Me later dropped that commission, so the proposed fee was $159. This was a New Zealand-wide proposal, and provoked a New Zealand-wide reaction.

Lodge faced an increase from an annual Trade Me cost of $8–9000 to one of $200–220,000. Monarch faced an increase of $36,000 to nearly $225,000. The general manager of the NZ Realtors Network began to organise a meeting of local agencies.

Following the meeting it was the general intention to cease using Trade Me for listings of residential property for sale in January 2014, and advertise primarily on the industry-owned website, All Trade Me listings after January 2014 were to be vendor funded.

The Court of Appeal bench of Justices Raynor Asher, Brendan Brown & Murray Gilbert held that funding by an individual agent was consistent with, and part of, the definition of vendor funding in the arrangement as pleaded by the Commerce Commission.

Justice Asher wrote in the Court of Appeal decision: “The evidence objectively established a consensus & mutual expectations between the agencies that they would move to vendor funding. Whilst many of the agencies were unlikely to be able to absorb the increased costs of Trade Me listings and were likely to shift to vendor funding, the evidence established that the agencies appreciated that, unless they all shifted to vendor funding, they may lose listings to other agencies. The arrangement, which involved a co-ordinated withdrawal from Trade Me and shift to vendor funding in January 2014, was not simply conscious parallelism.”

The Court of Appeal held that the Commerce Commission didn’t have to establish the existence of a moral obligation between the agencies, provided there were consensus & mutual expectations.

The court also held that the fact that the agencies retained a discretion to fund Trade Me listings themselves didn’t mean there was no anti-competitive effect, that an arrangement as to a starting point or offer price has the purpose & likely effect of price-fixing, and a consensus needn’t be absolute to be anti-competitive. 

The commission took cases against Barfoot & Thompson Ltd, Harcourts Group Ltd, LJ Hooker NZ Ltd, Ray White (Real Estate) Ltd & Bayley Corp Ltd. It also alleged Property Page (NZ) Ltd aided & abetted the agencies in establishing & implementing the agreement. Property Page is an incorporated company owned by Harcourts, LJ Hooker, Ray White, Barfoot & Thompson and Bayleys, and owns 50% of property listing website, which is a competitor to Trade Me.

The maximum penalty for breaches is the greater of $10 million or either 3 times the commercial gain obtained from the breach (if readily ascertainable) or 10% of the company turnover from trading within New Zealand.

Court of Appeal judgment, 23 November 2018: Commerce Commission v Lodge Real Estate Ltd

Earlier stories:
12 April 2017 (I need to return to all the decisions to tally up the penalties – this article may include $1.5 million of penalties a second time): Manawatu decision lifts price-fixing penalties to $17.95 million
3 July 2016: Bayleys lands $2.2 million penalty for anti-Trade Me agreement
17 December 2015: Commission files action against agencies over reaction to Trade Me move

Attribution: Court of Appeal decision & release.

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Judgment on Green empire doesn’t end hostilities

The Court of Appeal issued a judgment on Friday in the ongoing battle for control of the late Hugh Green’s property & business empire between his eldest 2 children, John & Maryanne.

It’s unambiguous, but it doesn’t end the battle over a business empire worth an estimated $400 million, best known for its land subdivisions around Auckland.

The 3 judges – Stephen Kós, appointed president of the court shortly before the hearing in July, with Justices Rhys Harrison & Christine French – went into detail in support of Justice Helen Winkelmann’s High Court finding against John Green of undue influence resulting in will & role changes in his father’s final 2 years. Justice French wrote the court’s reasons.

Justice Winkelmann is also now on the Court of Appeal bench, appointed on 1 June 2015, 2 days before issuing her decision in this case. She heard the Greens’ dispute in 2014, when she was chief judge of the High Court.

Hugh Green wanted John Green and another sister, Frances, to become more involved in running the family business. But Maryanne, who’d joined it in 1987 and was chief executive for most of the time since then, questioned John’s honesty over cattle transactions before he left for Australia in the 1990s and rejected her father’s desire for her to run the group with John.

Hugh Green emigrated from Ireland in 1951 and formed Green & McCahill Ltd with another Irishman, Barney McCahill. In the early 2000s they dissolved their partnership, by then a complex group with wide property, trading & investment interest, and the Green family carried on under the Hugh Green Group name. Mr Green was diagnosed with a terminal illness in 2010 and, over the next 2 years, tried to work through family plans for the businesses’ future. He died in July 2012, aged 80.

Justice Winkelmann held that trust resolutions in December 2011 appointing John & Frances as directors weren’t validly passed by the required majority. She also held that grounds were made out for the removal of John & Frances as trustees on the grounds that the level of hostility they felt & exhibited toward Maryanne and her adopted daughter Alice “is sufficient to undermine the execution of the trusts for the benefit of all beneficiaries”.

Over a period of 9 months Hugh made a number of decisions, the combined effect of which was to remove Maryanne completely from control of any aspect of the Green Group and to put John & Frances & Auckland barrister Michael Fisher – who was also John Green’s golfing partner – in charge.

The level of influence

In the Court of Appeal judgment, Justice French wrote: From 7 November 2011 onwards, Mr Fisher purported to act as Hugh’s primary legal advisor. He played a central role in the events at issue. It was Mr Fisher who advised Hugh that Maryanne was in breach of her duty as a trustee for refusing to co-operate, even though he did not know the detail of just how Maryanne’s refusal to co-operate had manifested itself.

“It was Mr Fisher who suggested and then drafted a letter from Hugh purporting to put Maryanne on notice that she was at risk of being removed. And it was Mr Fisher who was responsible for drafting the formal documents effecting Maryanne’s removal and his own appointment as trustee & director. He organised critical meetings, expressed strong antipathy to Maryanne and generally aligned himself with John.”

Justice Winkelmann had already noted that Mr Fisher’s involvement was irregular from the outset. Justice French: “Although he had acted from time to time for the family & their interests, he was not the usual lawyer acting for the [family] trusts. He was a barrister specialising in civil litigation. He had no instructing solicitor and he did not obtain a letter of engagement.

“Another irregular feature of Mr Fisher’s involvement was that most of his instructions, including the initial instruction to act, came not from Hugh but from John. John & Mr Fisher had known each other since teenage years and played golf together. In addition to taking his instructions from John, Mr Fisher also used John as a post box for documents he had prepared for signing by Hugh & [Hugh’s wife] Moira.

“John claimed in evidence that when instructing Mr Fisher he was simply passing on Hugh’s instructions. John further claimed that Mr Fisher ‘always’ confirmed with Hugh the instructions he had received from John.

“Justice Winkelmann did not, however, accept John’s claims and we consider with good reason. Mr Fisher did not have any file notes of discussions with Hugh. His phone records did not contain evidence of any telephone discussions with Hugh. Nor did his time sheets, apart from 2 or 3 entries. In contrast, his records showed extensive contact with John. The communications between the 2 include a very telling email in which John asks Mr Fisher to meet to discuss ‘tactics’.

“Another troubling feature of Mr Fisher’s conduct is that he acted at John’s direction even when it was John (and indeed Mr Fisher himself) who stood to benefit personally from those directions.”

The judges noted evidence that, “within 24 hours of signing the deeds removing Maryanne as trustee, Hugh was both denying having removed Maryanne and giving the impression he really did not know why she had been removed, did not know who had prepared the papers and who had brought them to him to be signed. He caused the deed of removal to be torn out of the trust minute book and handed it to Maryanne, saying ‘You are my trustee’.

“Another telling piece of evidence relates to events in January 2012 regarding Maryanne’s status as trustee. As mentioned, Hugh had said he wanted her to continue. That was said on 21 December 2011. Yet in January 2012 John was pressing ahead to implement her removal as trustee. On 12 January 2012 Mr Fisher received instructions from John to prepare documents that referred to Maryanne as having been removed as trustee. John’s instructions to Mr Fisher were not only at odds with what Hugh had said on 21 December, they were also at odds with what Hugh had told Mr [Robert] Narev [another trustee] on 11 January 2012. Hugh had told Mr Narev he assumed Maryanne had been reappointed. Hugh later reiterated to Maryanne on 2 separate occasions in April 2012 that she remained a trustee.”

Summing up this aspect of the case, Justice French said the presence or absence of independent advice is often a critical factor when deciding whether to draw an inference of undue influence: “In this case there was compelling evidence Hugh was not receiving independent advice. His chief advisor throughout the relevant period was a man who was not his usual lawyer, who had minimal contact with him and who was doing the bidding of the person exerting the pressure.

“In those circumstances we consider the judge [Justice Winkelmann] was correct to characterise Mr Fisher’s role as facilitating John’s influence, instead of neutralising it and protecting Hugh as he should have done.”

Justice French said that, although Hugh undoubtedly wanted to appoint John & Frances as trustees and for the children (now in their 50s & 60s) to work together, “it does not logically follow he also wanted to remove Maryanne completely”.

In conclusion on the substantive judgment, Justice French wrote emphatically: “The High Court judgment contains a thorough & comprehensive analysis of the evidence. In our assessment, there was a solid evidential basis for all the findings and they are findings with which we agree, having ourselves independently reviewed the evidence. The findings are supported not only by Maryanne’s narrative, but also importantly by contemporaneous documentation, including John’s own written communications. The judge did not misapply the law. Nor did she misconstrue the facts. The appeal against the substantive judgment is dismissed.”

The appointment & removal orders

Justice Winkelmann made an order recalling the grant of probate for the will dated 26 April 2012, and a series of orders on appointments:

  • Declarations that Mr Fisher & lawyer John Gosney weren’t validly appointed as trustees of the Hugh Green Trust or the Hugh Green Property Trust
  • An order removing John & Frances as trustees of the 2 trusts
  • A declaration that Maryanne is a director of all group companies from which she was removed as a director from 2 April 2012, and a declaration that she shouldn’t be liable as a director for any directors’ decisions or actions between 2 April 2012 and the date of the relief decision
  • A declaration that John, Frances, Mr Fisher & Mr Gosney weren’t validly appointed and were & are not directors of any of the companies in the Green Group
  • A declaration that Maryanne is a trustee of the 2 trusts
  • An order appointing 2 independent interim trustees of the 2 trusts until further order of the court, and
  • An order restraining Maryanne from exercising her power to vote as a trustee pending further order of the court and from attending trustee meetings unless called upon to do so by the interim trustees.

The continuing hostilities

Justice French said the Appeal Court had been told Mr Fisher & Mr Gosney did not intend to resume office as trustees. The judge added: “The reports show the interim trustees have put appropriate governance structures in place, are dealing with beneficiaries in a fair & even-handed manner, communicating with them and working well with Maryanne as their co-trustee.

“Notwithstanding this, the appellants say they are ‘devastated’ by the High Court decision because the outcome is the very antithesis of what Hugh wanted. Strangers are running the business and the only trustee who is a family member is Maryanne, and she does not enjoy the support of the rest of the family and therefore does not represent their interests. We were told that, apart from Maryanne & Alice, all the other beneficiaries (15 in total) support John & Frances and want the High Court decision quashed.”

At the Appeal Court hearing, they sought the reinstatement of either: both John & Frances, or one of them with the retention of Maryanne and the 2 independent interim trustees. An alternative & less favoured option was the removal of Maryanne, leaving the trust to be run solely by the independent trustees.

“After the hearing, counsel for John & Frances filed a memorandum dated 6 September 2016. The memorandum advised John & Frances wished to withdraw the submission that both or either of them should be trustees together with Maryanne. Removing Maryanne and having the trust operated by independent trustees only was now the preferred option.

“This possibility had not been advocated by the appellants at the hearing until it was raised by us. We raised it because of the obvious need for there to be a long-term solution and because of concern that Maryanne’s continued participation as trustee could fuel yet more discord & more litigation. This concern was shared by Justice Winkelmann and was the reason the judge made an order imposing interim limitations on Maryanne’s trusteeship.

“There is, however, a separate proceeding, as yet undetermined, that has been brought by the appellants in the High Court seeking to remove Maryanne as trustee. Maryanne consented to the interim limitations on the basis the appellants’ application for her removal as trustee would be promptly heard & determined. That has not happened.

“On further reflection, we consider that, quite apart from possible jurisdictional problems, it would be wrong for us to consider removing Maryanne without there having been a proper process where that issue has been directly & fully ventilated. Like Justice Winkelmann, we also wish to stress that our raising the possibility should not be taken to suggest we think Maryanne is unfit to be a trustee. The interim trustees report that Maryanne has demonstrated ‘a fair-minded, objective & responsible approach to all matters affecting the trusts & the beneficiaries’.”

Justice French said that, when Hugh Green’s 1 November 2011 will again takes effect, the power of appointment & removal of trustees will vest in Moira & Mr Narev, and Moira at least is closely aligned with John & Frances. That raised the prospect of the removed trustees being reappointed anyway, regardless of the outcome of this appeal.

However their counsel, Mark O’Brien, said that if the Court of Appeal upheld the High Court orders, “his clients could not & would not reinstate those whom a court did not consider fit to be a trustee”.

Control, and unequal treatment

The court action goes well beyond animosity between 2 siblings or the running of a business, extending to the treatment of their children, including Maryanne’s adopted daughter, and of one of Hugh & Moira Green’s 5 children, one of whom was a nephew who was adopted.

Justice Winkelmann found not only that hostility existed, but that it was of such intensity it was sufficient to undermine the proper execution of the trusts for the benefit of all beneficiaries.

“In support of that conclusion, the judge pointed to evidence of unwillingness on the part of the trustees to communicate directly with Maryanne & Alice, unwillingness to provide them with information and the failure to make any inquiry into Alice’s circumstances to establish her needs, despite her being a young mother who had recently separated from her partner. The judge considered this contrasted sharply with the way the trustees had considered and met the needs of John & Frances’ children….

“We note too that after Hugh’s death an issue was raised about Alice’s eligibility as a beneficiary under the Hugh Green Trust on the ground she is adopted. Proceedings have been issued (the interpretation proceedings). If Alice were to be excluded along with Hugh’s adopted nephew and the nephew’s children, it would mean that most of the wealth Hugh created would ultimately go to the 6 children of John & Frances.”

Permanent solution still not in sight

Justice French said the appellants might have been expected to deal with the matter by way of a consent court order & a deed of indemnity or family arrangement. After the court expressed disquiet that the appellants wanted to take this to a fresh High Court hearing, they filed a memorandum on 6 September advising that John, Frances & Moira would agree to consent orders.

Justice French said the Court of Appeal considered the issuing of these proceedings and the position taken by the appellants until very recently to be significant in 2 respects: “First, it reinforces Justice Winkelmann’s view that John & Frances cannot be relied upon as trustees to act in Alice’s interests and, second, it sits uneasily with the appellants’ claim to be only wanting to honour Hugh’s wishes.

“During his lifetime, Hugh made no distinction between family members who were adopted and those who were not. He treated all equally and, in particular, made distributions from the Hugh Green Trust to them all, including Alice.”

With that, the court saw no grounds for interfering with the orders Justice Winkelmann made in her relief decision.

The higher court also said the measures Justice Winkelmann put in place were working well, but were only a stopgap: “There is a need for a permanent solution, which ultimately can only be achieved by the family itself.”

On the contents of these 2 judgments, a permanent solution seems unlikely.

Hellaby millions may be cashed up

One large Green Group investment which might be turned to cash soon is its 27.2% holding in NZX-listed Hellaby Holdings Ltd. Australian automotive aftermarket parts company Bapcor Ltd made a full takeover offer for it at $3.30/share, which prices the Green interest at $87.7 million. Hugh Green Group has accepted the offer, but the independent committee of the Hellaby board has advised shareholders to wait until an independent report by Grant Samuel is received.

Managing director, chief executive & board committee member Alan Clarke said on Friday: “The preliminary view of the independent directors is that the proposed offer is opportunistic and does not represent fair value for Hellaby.”

Hugh Green bought his initial investment in Hellaby in the 1980s when it was the high-flying Renouf Corp Ltd and headed by Sir Frank Renouf.

Earlier stories:
27 September 2016: Australian auto parts company Bapcor bids for Hellaby
22 June 2015: Judge rules on Hugh Green family’s feud

Attribution: Judgments, NZX.

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Court baulks at windfall for Te Atatu litigation funder

The Court of Appeal has denied a litigation funder a windfall return in a case revolving around land on the Te Atatu waterfront which the Auckland Harbour Board decided in 1949 should become a new port.

The litigation funder, S40 Ltd, has 10 shareholders headed by interests associated with director David Pritchard, of Otaki. They backed the claim by 13 individuals and the Royal NZ Foundation of the Blind, as successors to the interests of the former 7 landowners.

Mr Pritchard, a former director of Housing NZ Ltd, Port Marlborough NZ Ltd and Wellington International Airport Ltd, has had a wide range of property interests. He became a tetraplegic at the age of 61.

The other director is Brian Fitzgerald, a former director of Strategic Finance Ltd who’d moved on well before its demise 5 years ago. He’s maintained a number of property finance interests, including Mondial Associates Ltd, Triumph Capital Ltd, Wakefield Capital Ltd & Willeston Capital Ltd, and owns a number of interests on Princes Wharf, Auckland, including Euro Bar Ltd, parking & commercial units.

S40 refers to section 40 of the Public Works Act 1981, which requires land taken for a public work but no longer required for that purpose to be offered back to the former owner or successor.

The court found against Auckland Council, the successor to the harbour board, on some central points, but baulked at allowing the windfall, largely because of council input over the last 30 years.

The judges – Justices Rhys Harrison (who wrote the court’s reasons), Christine French & Jillian Mallon – said in their ruling, issued last Friday: “We accept, of course, that the owners have established the council’s breaches of their rights; and that in the normal course they should be vindicated by declaratory relief. But, where the owners’ delay has been prolonged and where the effect of allowing them to assert their rights now would be adverse to the council & its ratepayers, the interests must be balanced.

“In undertaking this balancing exercise we repeat that the purpose of section 40 is remedial, designed to confer a personal, not an economic, benefit on those with an attachment to the land. The effect of the litigation funding arrangements is that, in the event of success, the owners will be bound to transfer the land immediately to S40 Ltd. Precisely what they will receive in return was the subject of some disagreement between the parties at the hearing and in additional submissions filed afterward.”

The harbour board notified the owners of the 7 properties in 1949 that their rural land was within an area designated for the construction & development of port facilities and, over the next few years, the board acquired over 75ha from them. But by the late 1970s it became apparent that the port proposal wouldn’t proceed, and the land was progressively rezoned and used for other purposes. Some is now a residential subdivision, most is within a public park and its potential value for housing is very substantial.

Successors of the 7 original owners applied to the High Court for declaratory relief in 2005. Justice John Fogarty upheld all their substantive claims except on a discrete point of statutory interpretation, which he decided in the council’s favour. As a result, the owners’ claims failed.

The Court of Appeal disagreed with Justice Fogarty’s conclusion on the point of statutory interpretation, but otherwise agreed with his dismissal of the council’s defences other than on the standing of 3 owners to sue. As a result, 4 of the 7 owners satisfied the legal elements for their claims.

And then came the crunch: “The final & ultimately decisive question will be whether we should exercise our discretion to grant the owners’ applications for declaratory relief. In this respect the factors of delay and the nature of the owners’ interests in the Te Atatu land will assume particular importance.

“We agree with Justice Fogarty that as a matter of fact the Gazette notice effectively froze both the market & the price. Allowing the council to rely on circumstances which have arisen in the 13 years between the board’s failure to address section 40(2)(c) in a timely way and the council’s resolution would undermine its remedial purpose and enable the council to benefit from its predecessor’s default. And we add that the council’s reliance in its resolution on the section 40(2)(b) factor – of a significant change in the character of the land for the purpose of the public work for which it was held – could not be sustained where no steps had been taken before 1 August 1983 to develop the land for a harbour….

“We have concluded the board was under a duty from 1 August 1983 to offer back the Williams, Flavell, Robertson & Stewart land.”

The Court of Appeal said it appeared undisputed that the owners didn’t learn of the harbour board’s breach of its section 40 obligation until they were approached by representatives of their litigation funder, S40 Ltd, in the early 2000s. The 2 parties who were earlier aware of their rights were both met by the board’s absolute denial of any obligation or by silence.

“The question is whether, with knowledge of the facts giving rise to a right of action, the owners have by their inactivity placed the council in a position where it would be inequitable or unreasonable if the remedy were later asserted.”

In October 1995, Waitakere City Council had 35ha designated for the Harbour View residential subdivision, some became coastal reserve and the remaining 30ha was designated for a public area. The Court of Appeal said the landowners or their successors should have known by then the council intended to use the land for purposes other than for a port.

The council imposed a special levy to develop the Harbour View–Orangihina Park, which was partially funded by a uniform annual charge raised on all properties in Waitakere City for 5 years from July 2001.

Counsel for the landowners’ successors, Colin Carruthers QC, sought to counter the difficulties the council would now face in transferring the Te Atatu land to private interests and unwinding the formal changes to its legal status, saying the council would always be in a position to reacquire it.

“However, this submission serves to highlight an inequity which undermines the owners’ claims. S40 Ltd, the owners’ litigation funder, would be the principal beneficiary of success. The company would acquire the Te Atatu land at 1983 prices, without any adjustment for the time value of money in the intervening 22 years. Inflation over this period, and the rapidly increased demand for land for residential purposes, mean its 1983 value is a fraction of its current market worth. On one estimate, the value of the Te Atatu land as a whole is about $50-70 million. To allow the owners, or more particularly S40 Ltd, to take at the council’s expense the benefit of windfall profits attributable solely to extraneous factors would be contrary to the policy underlying section 40.

“We accept, of course, that the owners have established the council’s breaches of their rights; and that in the normal course they should be vindicated by declaratory relief. But, where the owners’ delay has been prolonged and where the effect of allowing them to assert their rights now would be adverse to the council & its ratepayers, the interests must be balanced.”

The court understood the owners would receive payments in the range of 2.2-4.4% of the current land values (except for the Royal Foundation of the Blind, which was entitled to a larger sum, and David McCormick who would receive a fixed sum of $2 million). “On the other hand, as well as expressing disagreement with some of these calculations, Mr Carruthers emphasised alternative options for the owners under the agreements. Among them are settlement and acquiring shares of an equivalent value in a landholding company under S40 Ltd’s primary control. He also criticised the council’s valuation figures as misleading.”

Out of that, the court said these disputes were beside the point “because, even on Mr Carruthers’ approach, which results in a higher proportion of the land’s current market value going to the owners, the evidence establishes that S40 Ltd has the predominant interest in this litigation and that it is solely of a financial nature….

“However, the change would ultimately be one of degree only. Critically, S40 Ltd would still obtain a substantial windfall attributable to the relentless effects of inflation on land values in West Auckland since 2005. And the council would remain both exposed to a corresponding financial burden and vulnerable to losing the amenity value of the Te Atatu land. These factors would remain decisive against the owners’ amended position.”

The court said in its conclusion: “It is now too late to require the council to offer the Te Atatu land or part of it back to the owners. While the large balance not developed for housing still retains its original physical character, this area as a whole now has an obvious amenity value to the general public, to which local ratepayers have contributed by paying special levies. This value would be lost if the land reverted to private ownership and was later rezoned for development.

“By comparison, the owners would not lose the right which section 40(2) was designed to recognise – they have no personal interest or attachment to the land. Their only interest, or more particularly that of their litigation funder, is financial in nature.

“The owners seek recovery of the land for a windfall profit at the council’s expense in circumstances where the law assumes they have already been fairly compensated for the loss of their land; and where a declaration would effectively grant them a financial remedy which would otherwise be time-barred. The litigation funder would be in a real sense the ultimate beneficiary of the owners’ success.”

Because the court devoted much of its judgment to addressing some defences the council raised – “which, on an objective appraisal of the High Court judgment and the previous judgments on its unsuccessful application to strike out, should not have been pursued on appeal” – no order was made for costs.

Links: Court of Appeal judgment, Charles William Williams And Ors v Auckland Council
Media release

Attribution: Judgment, Companies Register.

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Appeal Court rejects peak indebtedness rule, but one High Court judge holds out

Liquidators David Levin & Viv Madsen-Ries (Deloitte Ltd) have failed to convince the Court of Appeal that they’re entitled to adopt the peak indebtedness rule to establish preferential treatment of a creditor.

The peak indebtedness rule is used in Australia, but in the 2 New Zealand cases the High Court judges had rejected its use. In one case that rejection made a $294,000 difference, and in the other an $18,500 difference in amounts recovered by the liquidators.

Writing the judgment in the combined appeal on the 2 cases, Justice Lyn Stevens said: “We are satisfied the peak indebtedness rule is not part of the law in New Zealand. If Parliament had intended to adopt it, it could have done so without difficulty. It chose not to do so. Any change to the legislative policy as we have interpreted it would be a matter for Parliament. We therefore dismiss the liquidators’ appeal & cross-appeal.”

Even so, the judge in another High Court case – heard & decided while the Court of Appeal was deliberating on these 2 claims – felt that New Zealand’s parliament had imported the language of Australian law on preference and that this should include the peak indebtedness rule.

In effect, the decisions boil down to how much of a copy & paste you accept.

The Court of Appeal heard both appeals together because each raised an important issue concerning the operation of section 292 of the Companies Act, relating to voidable transactions. The liquidators contended the High Court erred in each case by holding they weren’t entitled to adopt the peak indebtedness rule when calculating the start point for determining whether the creditors had obtained a preference. This rule would enable the liquidators to choose the point during the 2-year specified period when the relevant indebtedness was at its highest, as opposed to an earlier date taking into account transactions predating peak indebtedness.

The liquidators sought to apply this peak indebtedness rule to running accounts with the debtor companies. The specific issue in each case concerned the permissible starting point when assessing the existence & effect of a “single transaction” under section 292(4B)(c) of the Companies Act.

Mr Levin & Ms Madsen-Ries were appointed liquidators of Northside Construction Ltd in 2011 and Tarsealing 2000 Ltd in 2012. In the High Court, Associate Judge Jeremy Doogue dismissed the liquidators’ claim against Tarsealing 2000 creditor Z Energy Ltd for $293,555.86 plus costs & interest, said to comprise a voidable transaction under section 292. The parties agreed that if the appeal was dismissed, the claim would be at an end.

In the other case, Associate Judge David Abbott dismissed the liquidators’ claim for $47,963.95 made on the basis that there was a voidable transaction by applying the peak indebtedness rule. Instead, the judge found Timberworld received the sum of only $29,490.46 as a preference over other creditors,  calculated  by  a  straightforward  application  of  the  continuing  business relationship provision, established in s 292(4B). In addition, the sum of $44,250 was obtained after the end of the running account, independently constituting a voidable preference. Timberworld also appealed, contending the judge erred in 3 respects in awarding these sums to the liquidators, but also had its appeal dismissed.

Justice Stevens wrote in the appeal decision released on Friday: “These appeals are significant for both liquidators & creditors generally. Where there is a continuing business relationship between the parties, such as with a running account, the provisions of section 292(4B) may protect a creditor at the suit of a liquidator seeking to prove the existence of an insolvent transaction.

“Section 292(4B)(c) allows for consideration of all the transactions forming part of the relationship ‘as if they together constituted a single transaction’. Thus it is necessary to identify a start point from which all transactions (both supplies of goods & services and corresponding payments) are to be combined & considered as a single transaction.

“Naturally liquidators will wish to use the point where the indebtedness of the company is at its highest. On that basis, any later transactions under which the creditor provides further value to the company will be exceeded in value by other transactions, reducing the company’s indebtedness. Liquidators could then point to the net reduction in indebtedness as amounting to a preference. Suppliers, however, will seek to use an earlier date so any increase in indebtedness is offset by earlier transactions through which the creditor supplier gave value to the debtor company.”

In the High Court decision on the Northside liquidation, Associate Judge Abbott said: “In the absence of any  language  suggesting  that  Parliament intended to allow more than one way of determining the single transaction giving rise to the preference, it must be assumed that a single method was intended. There is nothing in the wording of section 292 to support the availability of more than one method of determining the single transaction, and there is no good reason, in my view, to read that into the statute.

“Legal commentators have pointed out a number of arbitrary features to the single transaction concept. However, ultimately that is a matter for the legislature. As I construe section 292, the single transaction is determined by reference to all transactions in the continuing business relationship, within the specified period.”

On that basis Associate Judge Abbott found the preference Timberworld received from the single transaction created by the running account within the specified period was $29,490.46. Had the peak indebtedness rule been applied, the preference from the single transaction would have been $47,963.95.

Both High Court judges referred to the Australian case of Airservces Australia in their rulings. Associate Judge Doogue noted the majority in the Australian court suggested the start point of the running account wasn’t a matter to be decided by the liquidator. He also referred to Associate Judge Abbott’s judgment in Shephard and concluded that, for similar reasons, he rejected the contentions of the liquidators that they were entitled to nominate the starting point of the continuing business relationship.

Associate Judge Doogue said: “I consider that would be inconsistent with the policy identified as underlying the running account-type cases, to allow enquiry about whether there had been a voidable transaction to focus upon the state of the account at one particular point during the duration of the continuing business relationship and to nominate the indebtedness at that point as significant in measuring whether or not there had been a voidable transaction. To do so would be to ignore the importance of assessing the overall effect of all of the transactions making up the running account which the parties maintained pursuant to their continuing business relationship.”

Associate Judge Doogue was satisfied the business arrangements between the parties amounted to a continuing business relationship in the form of a running account. Further, the continuous business relationship covered the entire course of trading between Tarsealing & Z Energy. Accordingly the case fell to be dealt with under the New Zealand voidable preference law in section 292(4B).

With respect to the application of section 292, the liquidators could only claim a preference if the net or overall effect of the continuing business relationship was to result in Z Energy being able to receive more towards a satisfaction of a debt owed by Tarsealing than it would receive or be likely to receive in liquidation. But Associate Judge Doogue concluded the transactions in the sequence making up the running account were of neutral effect. There was therefore no possibility of Z Energy receiving more than it was entitled to in the liquidation and so no preference was conferred.

Given the existence of a running account covering the entire course of trading between the parties, Associate Judge Doogue concluded: “The enactment of provisions relating to a running account during the course of a continuing business relationship has the practical effect, in a case of this kind, that if the result of trading was to return the parties’ accounts to a neutral position where neither party owes the other, then there cannot be any voidable transaction.

“If, on the other hand, there had been an antecedent debt that came into existence independently of the dealings that comprise the continuing business relationship, and if a payment was made in the course of the relationship which exceeded the liabilities of the company arising from the relationship, then an insolvent transaction would be a possibility.

“Such a transaction would have occurred if the excess payments made by the company to the creditor were retained by the creditor and applied in reduction of the antecedent debt. That, however, did not occur in this case. At the commencement of the trading relationship, the indebtedness of the company to the respondent was nil. The various transactions making up the running account all set each other off, so that even had there been antecedent debt, the running balance would have been neutral in its effect.”

Accordingly, Associate Judge Doogue found there had been no insolvent transaction.

Complicating the Court of Appeal’s consideration, between that court’s hearing in August 2014 and its decision released on Friday, a third High Court judge found in favour of the peak indebtedness rule.

In the case of Farrell v Max Birt Sawmills Ltd, Associate Judge Roger Bell was faced with supplies going both ways between the parties to a continuing business arrangement. The creditor was to supply logs to the debtor company, which processed them and returned sawn timber to the creditor of roughly equal value. But an imbalance developed over time. The debtor company was eventually put into liquidation  and the  issue  to  be  determined  was  whether  the  liquidators  could  recover  from the creditor an amount representing a preference over other creditors.

The amount to be recovered depended on the start point taken and the availability of the peak indebtedness rule. Associate Judge Bell held that s 292(4B) permitted the liquidators to use this rule, saying, in summary: “In Farrell v Fences & Kerbs Ltd, the Court of Appeal declined to follow the Australian approach to ‘gave value’ in section 296(3)(c) [of the Companies Act 1996] because of crucial differences with the Australian statute.

“But in the case of a continuing business relationship in which debt levels fluctuate with supplies & payments, where the identical words in the Australian statute have been inserted into section 292, it would be perverse for the meaning of the statute to change according to the side of the Tasman it is applied on.

“Peak indebtedness does provide a rational basis for establishing a point from which any preferential reductions in debt can be measured. Taking an earlier point entails allowing an earlier transfer of value to be brought into account in working out whether there is a preference: that is inconsistent with the general approach in an effects-based regime for preferential transactions. There is nothing in the text or the purpose of the act for making a special case for suppliers in a continuing business relationship to require them to be treated more favourably than other creditors. Aside from debt spikes for commercially simultaneous supplies & payments, the peak debt is to be used in measuring the extent of preference under s 292(4B). For these reasons, I regretfully decline to follow other cases which have not applied peak indebtedness.”

Justice Stevens, in the Court of Appeal decision, acknowledged that New Zealand’s parliament had adopted the language of Australia’s Corporations Act section 588FA(3), but that didn’t “of necessity” involve importing the peak indebtedness rule: “The [NZ] legislature was plainly aware of the principles of Australian case law governing the running account provisions, but it does not follow that the peak indebtedness rule must also be adopted.”

On Timberworld’s appeal, Associate Judge Abbott concluded the liquidators had proved Northside was insolvent at the relevant period and rejected Timberworld’s challenges to that effect. Timberworld contended the court failed to distinguish between a company being “unable” to pay its debts as they fall due, as opposed to “choosing” not to pay its debts. Timberworld contended Northside simply chose not to pay its debts, but it was capable of doing so. The Court of Appeal didn’t accept those contentions.

Timberworld said it would be unfair to order it to repay the money because Northside’s insolvency arose out of its debts to Inland Revenue, which Inland Revenue allowed to accumulate from 2004 and took no steps to recover until 2011.   At   that   stage   the   debt had accumulated significantly, with more than half constituting penalties & interest.

Timberworld said it had no knowledge of this worsening tax position, was prejudiced by Inland Revenue’s inaction, and it would be unfair in the circumstances that Inland Revenue should be the sole beneficiary of any repayment of debt.

However, Justice Stevens said Associate Judge Abbott considered that Parliament had specifically prescribed, in section 296(3), conditions under which a payment must not be set aside in liquidation, on the basis of unfairness to the creditor. “He considered, therefore, that although there was some discretion to be exercised in section 295(c) in making orders, given the prescription set out in section 296(3), the threshold for invoking this residual discretion in section 295 ought to be very high. Anything less would undermine the statutory scheme established through section 296(3) and would be an unprincipled departure from the basic principle of fairness between creditors. While the judge accepted an element of unfairness in the situation before him, he did not consider it to reach the threshold required to invoke section 295. We see no reason to depart from the reasoning of Associate Judge Abbott.”

Justice Stevens said the central policy justification for the peak indebtedness rule was predicated on the pari passu rule: that insolvency law is based on equal treatment of equal creditors. It is contrary to that rule to allow trade creditors, who are paid, to receive a benefit over other trade creditors, who are not paid.

“This is a benefit at the expense of other trade creditors (or even all other unsecured creditors generally), and must be disgorged & returned to the pool for distribution generally. The High Court [Associate Judge Bell] in Max Birt Sawmills accepted this policy argument as the key basis for peak indebtedness. Trade creditors should not be treated as a separate class of creditors entitled to an absolute defence to preference claims. The solution, then, is the peak indebtedness rule.  We reject this as a matter of both practicality & policy.

“First, on a practical level, there is simply no correlation between the quantum of the amount calculated as a preference taken from the peak indebtedness of one creditor and any entitlement of any other creditor. By definition, that is driven by the circumstances of the trading between the company and each individual creditor. Any payment to a particular creditor harms other creditors only to the extent of the bare fact that value [is] taken out of the general pool of resources. Of itself, this is not an injustice to other creditors, nor does it disadvantage them. This is because, by definition, trade creditors either return the value they receive in supplies, or must return the value of their preference over & above supplies provided as an insolvent transaction.

“Second, on a policy level, it was the purpose of enacting section 292(4B) to give effect to Parliament’s intention to set apart certain trade creditors from the general pool of unsecured creditors. That is not a problem with the operation of section 292(4B) – that is a problem with its existence. We set out above the principled basis for the running account & its adoption.

“As was emphasised in Allied Concrete [another liquidation case], the reforms intended to extend protection to trade creditors and eliminate the ‘ordinary course of business’ test to promote certainty. Trade creditors would have an incentive to continue providing value to companies in financial distress, and recourse for ordinary creditors fell under section 296(3).  [Counsel] Ms Murphy’s submission that it is unfair to prefer certain trade creditors is a matter for legislative concern and not a matter for judicial intervention.

“Finally, to the extent there is a concern about the potential ‘over-inclusion’ of commercial relationships in the definition of ‘trade creditors’ to unjust effect, we consider that is assuaged by a careful application of running account principles to individual cases.”

Justice Stevens said one final factor supported the Court of Appeal’s rejection of the peak indebtedness rule, and that was the case of Allied Concrete Ltd v liquidator Jeff Meltzer, one of 3 cases involving voidable preference which the Supreme Court ruled on in February.

Justice Stevens said: “The Supreme Court was faced, in interpreting section 296(2), with what it described as a stark choice between competing policies. While the discussion focused largely on the issue of commercial certainty, the court noted the difficulty in balancing the interests of promoting collective realisation of assets in liquidation against the interest in ensuring fairness to individual creditors, giving value in good faith. The Supreme Court concluded that section 296(3) was one way in which Parliament had expressly provided for mechanisms to ensure fairness to individual creditors could be achieved where necessary, alongside the general principle of promoting collective realisation of assets to all creditors.

“The distinct treatment of trade creditors is, in our view, a similar mechanism. Parliament took the decision to set aside a particular group of creditors who continue to provide credit & goods on the assumption of future trade. That is seen as having distinct commercial benefits in the context of liquidation. It is a policy choice consistent with New Zealand’s insolvency scheme generally.”

Link: 2015 NZCA 111, Timberworld Ltd v Levin (pdf)

Attribution: Judgment.

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Propbd on Q F28Nov14 – Banks gets new trial, Bridgecorp receivers lose, Building consents up

Banks retrial ordered
Bridgecorp receivers lose insurance recovery claim
Building consents up after a dip

Banks retrial ordered

Former Auckland mayor, National police minister & Act Party leader John Banks has been granted a retrial over his 2010 mayoral electoral campaign expenses conviction.

Link: Court of Appeal decision: John Archibald Banks v R 

Bridgecorp receivers lose insurance recovery claim

In another Court of Appeal decision out today, property financier Bridgecorp Ltd’s receivers have lost an attempt to recover money from a payout by Lloyds underwriters of a claim by the liquidators of Bridgecorp’s broker, Herbert Insurance Group Ltd.

Herbert Insurance arranged insurance for Bridgecorp against losses when it realised on securities given by borrowers.

The court case revolved around section 9 of the Law Reform Act 1936 and jurisdiction questions.

Link: Bridgecorp Ltd v Certain Lloyds Underwriters under policy no B0701LS05809  

Building consents up after a dip

Building consents for new homes climbed back above the 2000 mark in November after slipping just below in September – 5 months above 2000, September at 1985, October at 2152.

Consents for the October year were up 21.7% to 24,363, but Statistics NZ said today the trend was downward.

There were 179 apartment consents in October and the number for the year has almost doubled, from 1714 to 3309.

Auckland housing consents were well above a year ago, up from 476 to 591, but the latest tally has been beaten 5 times this year.

Residential consents are running $1.8 billion ahead of the previous year at $9.3 billion, and the value of all consents for the year is up nearly $2.5 billion to $14.6 billion.

Attribution: Court of Appeal, Statistics NZ.

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2 courts uphold construction contracts principle of pay now, argue later on Okura project

The Court of Appeal has upheld a ruling on a $3 million Okura subdivision contract dispute requiring developer John Hamilton’s SOL Trustees Ltd to pay for work done before any counterclaim is considered.

Mr Hamilton claimed delays in earthworks by Giles Civil Ltd had cost him more than $1.1 million, so he didn’t make progress payments which came to about the same amount, even though his own engineer to the contract, Mike Lee (Airey Consultants Ltd), had approved about 6 months of extensions to the contract period.

Both High Court associate judge Hannah Sargisson and the Court of Appeal bench of Justices Christine French, Geoffrey Venning & Robert Dobson said Mr Hamilton’s responses to payment claims were inadequate, saying only that they were in dispute without specifying an alternative sum as required under the Construction Contracts Act 2002.

As well as the unpaid claims for work done on the 20-lot lifestyle subdivision at 268-278 Okura River Rd, at the top of the North Shore, Giles issued 2 statutory demands and has now applied to wind up Sol Trustees. 9 of Mr Hamilton’s other property companies have been wound up or removed from the Companies Register.

These 2 judgments emphasise the “pay now, argue later” basis of the 2002 contracts act, over-riding previous legislation which allowed disputes to run on without any payment of a claim for work done.

Under section 21 of the Construction Contracts Act 2002, a payer may respond to a payment claim with a payment schedule. If the scheduled amount is less than the claimed amount, the payment schedule must indicate how the payer calculated the scheduled amount, why the difference and, if it’s because the payer is withholding payment, why.

The Court of Appeal said in its judgments, released on 7 November: “We agree that technical quibbles should not be allowed to vitiate either a payment claim or a payment schedule that otherwise substantially complies with the requirements of the act. The issue in this case is whether the documents SOL relies on can be said to have substantially complied with the requirements of the act.

“It is clearly insufficient to simply assert the amount claimed is disputed, which is as far as SOL’s email responses to payment claims 13 & 14 went. SOL’s attempt to incorporate the earlier spreadsheet [setting out the costs of delay] as part of its payment schedule does not assist it. The spreadsheet cannot, either on its own or taken with the other emails referred to, satisfy the requirements of a payment schedule. At best it is SOL’s calculation of a potential counterclaim or setoff for delay.”

The court said a counterclaim or setoff of the nature SOL sought to raise couldn’t provide the basis for a payment schedule in response to a payment claim under the act: “To allow a counterclaim or setoff to be used in that way would be contrary to the purposes of the act to facilitate regular & timely payment by identifying the amount payable to the contractor for work done.”

Giles began work on the subdivision on 17 December 2012, with a scheduled completion date of 17 May 2013. The work wasn’t completed by then but the engineer to the contract allowed extensions which took the contract period up to 29 November 2013.

Mr Hamilton told Airey on 22 October that claim 10, for $565,000, was disputed, and prepared a cost over-run spreadsheet showing $1.12 million of resulting losses. However, he made a $230,000 part-payment of that claim. Airey certified the next 4 claims, and Mr Hamilton responded to each with an email saying they were disputed.

Counsel for SOL, Ben Molloy, submitted that the short email responses to claims 13 & 14 should not be read in isolation and could be read with the earlier spreadsheet & previous emails. However, the court concluded: “It is clearly insufficient to simply assert the amount claimed is disputed, which is as far as SOL’s email responses to payment claims 13 & 14 went.”

Attribution: Court of Appeal judgment.

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