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Celestion finance deal lawyer pleads guilty

The lawyer accused of serious fraud relating to finance for development of the Waldorf Celestion apartments hotel in 2009 pleaded guilty in the Auckland High Court on Friday to one Crimes Act charge of obtaining by deception.

Timothy Upton Slack (55) was one of 4 men charged by the Serious Fraud Office with making false statements in order to obtain a credit facility from the ANZ Bank NZ Ltd to allow Emily Projects Ltd to develop the Celestion between Anzac Avenue & Emily Place in Auckland.

The Serious Fraud Office has alleged that a loan facility of about $40 million was obtained.

Mr Slack’s name suppression was lifted, but non-publication orders relating to third parties remain in place. He faces up to 3 years’ jail. Mr Slack was adjudicated bankrupt in 2013 and automatically discharged in April 2016.

The other 3 defendants – property developer Leonard John Ross, company director Michael James Wehipeihana and self-employed consultant Vaughn Stephen Foster – will face trial on 5 June 2018.

Earlier stories:
12 April 2017: Remand on Celestion development fraud allegations
17 February 2017: SFO alleges fraud in Celestion development loan deal
9 October 2009: Apartments at centre of Blue Chip case go on market
8 May 2009: Ross’ Emily Projects starts work on ex-Blue Chip site

Attribution: SFO release, insolvency register.

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Ratepayers get small court victory in scrap over Mangawhai sewer scheme levies

High Court judge Ailsa Duffy has brought to an end an episode in the scrap over the secretively funded & heavily over cost Mangawhai Ecocare sewerage scheme.

The Mangawhai Ratepayers’ & Residents’ Association & its chair, Bruce Rogan, fought the imposition of rates to pay for the sewerage system after its cost blowout was exposed – the district council secretly borrowed $58 million for its capital cost – resulting in a Validation Act being passed as the association was heading to court for a judicial review.

In 2014, Justice Paul Heath found the Validation Act passed to make those rates lawful did just that – made them lawful.

Some ratepayers, led by Mr Rogan, refused to pay Kaipara District Council rates, and refused to pay Northland Regional Council rates when they discovered the regional council had no authority to hire the district council to collect them.

Justice Duffy found in an interim judgment that these regional council rates were unlawful. In a second judgment on that case yesterday, she quashed the regional council’s rates for the rating years 2011-12 to 2015-16 and also set aside the penalties imposed for non-payment.

However, she said the ratepayers’ association & Mr Rogan hadn’t sought reimbursement in their claim and she made no order directing the regional council to refund the relevant rates & penalties.

Attribution: Judgment.

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Top court rejects golfcourse levy on Pauanui Lakes subdivision section owner

Pauanui Lakes homeowner Hartley Vincent has defeated the final attempt, in the Supreme Court, to make him pay levies to the golf club which runs the Coromandel development’s golfcourse.

Gary MacDougall (Pauanui Lake Resort Ltd) began his ambitious $34 million resort project in 1998 — 153 residential sections, mostly round the edge of an 18-hole golfcourse, and a 60-room lodge on a 100ha Duck Creek property that runs along a valley 4km from Hoppers’ Pauanui coastal development, but that original development company went into receivership on 1 August 2001.

Other developers took on the project but also collapsed in 2009 as the global financial crisis took hold.

Mr Vincent, co-owner of Harpers Fashions Ltd whose family trust owns lot 75 of the residential subdivision developed around the course, and current golfcourse business owners & managers Lakes International Golf Management Ltd & The Lakes International Golf Course Ltd squared off before Associate Judge Hannah Sargisson in 2 separate summary judgment cases in the High Court in 2013, for a nil decision.

The case then went to trial in the High Court before Justice Paul Heath, who found the golfcourse businesses were entitled to levy Mr Vincent for fees. Justice Heath found that Lakes International Golf Management was entitled to enforce the covenant originally to have been held by an incorporated society, which was never formed, and that Mr Vincent was required as owner of a subdivision lot to join the golf club.

Mr Vincent appealed to the Court of Appeal, which supported his case in 2014.

The Court of Appeal said: “In our view, the scheme of the covenant and the wording of the definition of ‘golf club’ are clear and permit of only one meaning. The obligations were imposed in relation to a golf club that was to be incorporated as an incorporated society to provide for playing rights on the golf course.”

However, in the Supreme Court decision written by Justice Sir Willie Young & issued on Wednesday, the country’s highest court said it was satisfied “that there is no occasion for us to reach a concluded view in respect of them [arguments over whether a society as postulated would meet what was envisaged by the covenant]. This is because the case must be determined by reference to what has, and not what might have, happened.

“What has happened is that the golf club as established is not of the kind stipulated in the covenant. That it might have been no less onerous for Mr Vincent to join a golf club which was an incorporated society is of no moment as he cannot be compelled to do something which is different from what he agreed.”

The 5 members of the Supreme Court who heard the case in March were Chief Justice Dame Sian Elias and Justices Sir Willie Young, Susan Glazebrook, Mark OʼRegan & Ellen France.

Link: Supreme Court decision

Earlier story:
U: The names behind the action, the week to 24 April 2011, part 1, Richard & Susan Herbert’s insolvency proposals go to joint hearing

Attribution: Supreme Court decision.

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3 ex-Masala restaurants nearly make $8 million forfeiture order price tag at auction

3 restaurants in the former Masala chain were sold for $7.875 million at Bayleys’ auction yesterday, just short of a forfeiture order made in February.

Image above: Dining room of the former Masala restaurant in Mt Eden.

A Glen Eden shop with the Mad Butcher as tenant and a Dilworth apartment at the foot of Queen St were also sold under the hammer.

The restaurants, owned by JKK Holdings Ltd (Supinder Singh & Daisy Kaur) were taken to auction by the Official Assignee under the Criminal Proceeds (Recovery) Act after Justice Rebecca Edwards agreed in the High Court to an $8 million assets forfeiture order between the Commissioner of Police and 8 companies & 2 individuals associated with the Masala restaurant chain.

Justice Edwards said in her decision approving the settlement: “The settlement sum of $8 million represents almost all of the unlawful benefit said to have been derived from the tax evasion offending. The settlement sum is expected to be met in full through the sale of restrained properties.”

The 2 individuals, Joti Jain & Rajwinder Singh Grewal, were sentenced in 2015 to home detention and ordered to pay reparations on a long list of immigration & exploitation charges.

In March, Ms Jain was reported to have left New Zealand ahead of an appeal against being deported, but she was in the auctionroom yesterday.

All 3 restaurants in Mt Eden, Stanmore Bay & Birkenhead attracted multiple bidders. The properties were marketed for sale on an “as is where is” basis and subject to occupancy.

Apartments

CBD

Queen St

Dilworth, 22 Queen St, unit 5L:
Features: one bedroom, high stud
Outcome: sold for $530,000
Agents: Julie Prince & Diane Jackson

Commercial

Isthmus west

Mt Eden

510 Mt Eden Rd:
Features: 554m² section, 200m² restaurant in converted villa at corner of Disraeli St in Mt Eden village, additional 206m² downstairs area gives potential to split risk
Outcome: sold for $3.61 million on “as is where is” basis, subject to occupancy
Agents: Scott Kirk, Adam Curtis, John Algie

North-east

Birkenhead

188-192 Hinemoa St:
Features: 835m² site, development potential, 280m² restaurant in converted villa, wraparound covered deck, vacant office area below restaurant previously used as accommodation
Outcome: sold for $2.535 million on “as is where is” basis, subject to occupancy
Agents: Adam Curtis, John Algie & Damian Stephen

Stanmore Bay

195 Brightside Rd:
Features: 1783m² site, 276m² restaurant
Outcome: sold for $1.73 million on “as is where is” basis, subject to occupancy
Agents: Jeremy Milton, John Algie & Adam Curtis

North-west

Glen Eden

5 Oates Rd, unit 5:
Features: 292m² corner unit in block of 13 shops, dual access, split internally between retail, office storage, meat processing & cool storage, opportunity to split or occupy the tenancy
Rent: $92,040/year net + gst from established tenant, the Mad Butcher
Outcome: sold for $1.375 million at a 6.7% yield
Agents: Adam Curtis, Adam Watton & Oscar Kuang

Earlier story:
28 February 2017: $8 million Masala assets forfeiture agreed

Attribution: Auction.

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Judge told to reconsider 19 dismissed charges against Hawkins loan companies

The Commerce Commission has won its appeal against a district court decision to dismiss 19 charges against 2 finance companies controlled by former Equiticorp chief Allan Hawkins.

In the Auckland High Court, Justice Rebecca Edwards found in the commission’s favour in a judgment issued on 11 April and remitted the 19 charges back to Auckland District Court judge David Sharp for determination.

Judge Sharp found the 2 companies guilty on 106 charges last year. Dismissing the other 19, he said they concerned representations about the companies’ right to charge interest & costs on contracts entered into before 6 June 2015, following repossession & sale of borrowers’ property where Budget & Evolution had security interest over multiple items.

The commission’s case was that, for loans entered into before 6 June 2015, lenders were prohibited under the Credit (Repossession) Act from charging interest & costs after the first security item had been repossessed & sold. Budget & Evolution argued that where a loan was secured over multiple items, all items had to be repossessed & sold before they needed to stop charging interest & costs.

Budget & Evolution also appealed all 106 convictions on multiple grounds, but Justice Edwards rejected all appeals.

Mr Hawkins headed the Equiticorp finance group in the 1980s but, after the 1987 sharemarket collapse, he ended up in civil & criminal trials over the group’s activities and was sentenced to 6 years’ jail for fraud.

He formed the Cynotech group of finance companies about 12 years ago, using the shells of his 1980s companies.

Mr Hawkins’ listed company, Cynotech Holdings Ltd, was delisted in September 2013 after his private company, Cynotech Securities Ltd, acquired 71% of the shares in 2010 in a bid to fully privatise it. In July 2013, Cynotech Holdings went into liquidation after his backers ended their support.

Mr Hawkins resigned as sole director of Budget Loans on 9 July 2013 but was reappointed on 13 August 2013. He remains a director of Broadway Mortgage Custodians Ltd, Cynotech Finance Ltd & Evolution Finance Ltd, and is one of 4 directors of Budget Loans Group Ltd (renamed from Cynotech Securities Group Ltd in July 2013; in liquidation November 2013).

Link:
Commerce Commission enforcement response register, including judgments

Earlier stories:
18 July 2016: Hawkins’ finance companies guilty on loan contract enforcement
17 December 2014: Commission files criminal charges against 2 Allan Hawkins finance companies
9 November 2013: Commission tells Allan Hawkins’ finance companies to stop repossessions
11 July 2013: Cynotech share trading halted after backers end support
28 July 2010: “Welcome letter” from Hawkins’ Budget Loans to National Finance borrowers came with an illegal $15 fee

Attribution: Commission release, judgments, Companies Register.

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Remand on Celestion development fraud allegations

The developer of the Waldorf Celestion apartments hotel at the foot of Anzac Avenue in Auckland, Tasman Cook Group Ltd owner Leonard Ross, and 3 associates were remanded in the Auckland District Court today until 22 June, on 4 Crimes Act counts of obtaining by deception and 2 of using forged documents, with the expectation that the case will be sent to the High Court for a jury trial.

Mr Ross (50) is living in Melbourne and was excused from appearing in court today. One of the other defendants whose name is suppressed was also excused from appearing.

The other 2 defendants, company director Michael Wehipeihana (45) & self-employed consultant Vaughn Foster (54), appeared in court and were remanded on bail.

The charges arose in relation to allegedly making false statements & using forged documents to obtain a credit facility from ANZ Bank NZ Ltd to allow the project company, Emily Projects Ltd, to develop the Waldorf Celestion, which opened in 2009. It’s alleged that a loan facility of about $40 million was obtained.

Emily Projects, 88% owned by Mr Ross, went into voluntary liquidation on 22 December 2011. Original liquidator Chris Horton was replaced in 2014 by Tim Downes & Greg Sherriff (Grant Thornton), who said in their final report in 2015 they’d recovered $610,244 of assets. 2 unsecured creditors claimed $671,000 and 53 investor claims totalled $2,890,951.

The one distribution to unsecured creditors was 11.8c in the dollar for a total $420,310.

The whole project was controversial because Mr Ross, who’d developed property for Mark Bryers’ Blue Chip NZ Ltd, acquired the Celestion site at mortgagee sale from a lender to Blue Chip.

A Blue Chip company bought the 1081m² site between Anzac Ave & Emily Place, on the eastern fringe of the cbd, for $4 million in 2004 and it was transferred in 2006 for $10.9 million to another of Mr Bryers’ companies.

Under Blue Chip, the development was known as the Emily and it was to have had 149 units. 85 were sold and investors paid an estimated $11.2 million in deposits.

Emily Projects bought the property after it was put up for mortgagee sale in 2008 by the NZ Guardian Trust Co Ltd, owed $4.475 million. The purchase price covered the Guardian Trust debt and Guardian Trust stayed in behind ANZ Banking Group Ltd as second mortgagee on the new project.

Earlier stories:
17 February 2017: SFO alleges fraud in Celestion development loan deal
9 October 2009: Apartments at centre of Blue Chip case go on market
8 May 2009: Ross’ Emily Projects starts work on ex-Blue Chip site

Attribution: Court hearing.

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$8 million Masala assets forfeiture agreed

The High Court has agreed to an $8 million assets forfeiture order between the Commissioner of Police and 8 companies & 2 individuals associated with the Masala restaurant chain.

Justice Rebecca Edwards said in her decision approving the settlement today: “The settlement sum of $8 million represents almost all of the unlawful benefit said to have been derived from the tax evasion offending. The settlement sum is expected to be met in full through the sale of restrained properties. Forfeiture in that amount meets the deterrence purposes of the forfeiture regime as set out in section 3 of the Criminal Proceeds (Recovery) Act. It also reduces the ability of those associated with the criminal activity to continue with that criminal enterprise.”

Inland Revenue, Immigration NZ & the Department of Labour began investigations in 2012 into companies & individuals involved with Masala. Justice Edwards said: “Those investigations identified widespread & systemic tax evasion & immigration-related offending by those involved with the Masala group….

“It has also been agreed as a condition of the proposed settlement that upon the assets forfeiture order being discharged by the Official Assignee, Inland Revenue will refrain from taking any steps to recover the outstanding tax, any related penalties & use-of-money interest.

“Neither this undertaking nor the settlement affects the ability of Inland Revenue to bring criminal charges for the conduct underlying the proceeding against the respondents, for example, in relation to tax evasion.

“As that particular condition does not concern the forfeiture of assets, it falls outside the terms of the settlement to be approved by the court.

“The respondents have also executed separate deeds of agreement as between themselves which relate to certain of the properties. Those agreements do not form part of the settlement for which approval is sought by the court.”

The 10 Masala group parties to the settlement were Joti Jain & Supinder Singh individually and 8 companies – Investments Ltd, JKK Holdings Ltd, JKK Trustees Ltd, Bluemoon Group Ltd, Akl Sunrise Co Ltd, DC Empires Ltd, CHK Investments Ltd & SRKK Group of Trustees Ltd.

Ms Jain & Rajwinder Singh Grewal were sentenced in 2015 to home detention and ordered to pay reparations on a long list of immigration & exploitation charges.

Attribution: Judgment.

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SFO alleges fraud in Celestion development loan deal

The developer of the Waldorf Celestion apartments hotel at the foot of Anzac Avenue in Auckland, Tasman Cook Ltd owner Leonard Ross, and 3 associates were charged in the Auckland District Court yesterday on 4 Crimes Act counts of obtaining by deception and 2 of using forged documents.

The defendants with Mr Ross (50) are company director Michael James Wehipeihana (45), self-employed consultant Vaughn Stephen Foster (54) & one other. Their next appearance in court is scheduled for Wednesday 12 April.

The Serious Fraud Office, which laid the charges, said name suppression had been lifted on 2 of the defendants and wasn’t sought by another.

SFO director Julie Read said the charges arose in relation to allegedly making false statements & using forged documents to obtain a credit facility from the ANZ Bank NZ Ltd to allow the project company, Emily Projects Ltd, to develop the Waldorf Celestion, which opened in 2009. It’s alleged that a loan facility of about $40 million was obtained.

“The SFO alleges that the defendants conspired to mislead ANZ to secure a loan facility. The banks are entitled to expect that businesses will provide accurate information in support of their loan applications and a failure to do so may have cost implications for all.”

Emily Projects, 88% owned by Mr Ross, went into voluntary liquidation on 22 December 2011. Original liquidator Chris Horton was replaced in 2014 by Tim Downes & Greg Sherriff (Grant Thornton), who said in their final report in 2015 they’d recovered $610,244 of assets. 2 unsecured creditors claimed $671,000 and 53 investor claims totalled $2,890,951.

The one distribution to unsecured creditors was 11.8c in the dollar for a total $420,310.

The whole project was controversial because Mr Ross, who’d developed property for Mark Bryers’ Blue Chip NZ Ltd, acquired the Celestion site at mortgagee sale from a lender to Blue Chip.

A Blue Chip company bought the 1081m² site between Anzac Ave & Emily Place, on the eastern fringe of the cbd, for $4 million in 2004 and it was transferred in 2006 for $10.9 million to another of Mr Bryers’ companies.

Under Blue Chip, the development was known as the Emily and it was to have had 149 units. 85 were sold and investors paid an estimated $11.2 million in deposits.

Emily Projects bought the property after it was put up for mortgagee sale in 2008 by The NZ Guardian Trust Co Ltd, owed $4.475 million. The purchase price covered the Guardian Trust debt and Guardian Trust stayed in behind ANZ Banking Group Ltd as second mortgagee on the new project.

Earlier stories:                    
9 October 2009: Apartments at centre of Blue Chip case go on market
8 May 2009: Ross’ Emily Projects starts work on ex-Blue Chip site

Attribution: SFO release.

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Meridian fails to overturn windfarm rating differential

Meridian Energy Ltd has failed in a High Court judicial review to convince Justice David Collins that Wellington City Council acted unlawfully by dividing Meridian’s windfarm properties in 2 for rating purposes.

The council relied on the use to which the land was put and the value of the wind farms, and used these criteria to set differential rates for the windfarm facilities and the rural land where they were built. The council placed the windfarm facilities portion of the rating units into the council’s commercial, industrial & business differential rating category.

Justice Collins said section 27(5) of the Local Government (Rating) Act 2002 enabled a local authority to divide rateable units into 2 or more parts when setting differential rates, and he was satisfied that the council didn’t act unlawfully.

The judge wrote his judgment in 2 parts, first setting out the background and explaining how rates are set, assessed & collected, the council’s rating instruments, how the council set the rates in this case and the basis of Meridian’s claim for judicial review. In the second part he analysed the issues and explained the reasons for his conclusions.

Link: Meridian v Wellington City Council decision

Attribution: Judgment.

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Moral victory only – no money – for bank clients in swaps case

High Court judge Dr Matthew Palmer issued a moral judgment on Monday in favour of a Taranaki farming couple who lost heavily in a swaps deal with the National Bank when the global financial crisis hit in 2008 – moral only, because he said the law precluded awarding damages.

The judge explained his predicament in the case of dairy farmers Craig & Lisa Swan, who borrowed $6 million from the National Bank to buy a dairy farm through their company, Cygnet Farms Ltd.

Theirs is the first of several cases brought by farmers who entered similar interest rate swaps agreements with banks a decade ago.

Justice Palmer said: “The difficulty with the outcome of this case lies in the lack of availability of damages as a remedy. Damages in tort restore the plaintiff to the position of the tort, the misrepresentation, not having occurred. Damages in contract restore the plaintiff to the position where the contract is performed on the basis the misrepresentation is true. And section 6(1)(b) of the Contractual Remedies Act provides that only contractual, not tortious, damages are available where a party to a contract has been induced to enter into it by a misrepresentation.

“This leads to an unfortunate result: (a) Liability for pre-contractual misrepresentation in contract is excluded by clause 10.1. (b) The Fair Trading Act claim is out of time. (c) Although I have found the bank liable in negligence & negligent misstatement, section 6(1)(b) of the Contractual Remedies Act precludes me from awarding Cygnet damages.”

Justice Palmer said he would send his judgment to the Law Commission to consider.

“This situation is unfortunate, given the equitable maxim ‘where there is a right there is a remedy’. But I consider that is the effect of the law. In precluding damages in negligence, for a misrepresentation inducing a party to enter a contract, Parliament created a gap in the law in 1979. The gap does not appear to have been highlighted directly by a case until now. Parliament intended the law of the contract, not torts, to govern the availability of damages. It is not clear to me Parliament appreciated the possibility that there could be no liability in contract and liability in tort, but no damages in tort. However, any change to the law must be made by Parliament.”

The Swans sought a declaration from the judge, which he delivered: “I declare that, in promoting & entering into interest rate swaps with Cygnet, the National Bank, now ANZ Bank NZ Ltd, breached the duties arising from its relationship to take reasonable care that explanations it proffered were accurate and that its replies to inquiries were correct.”

ANZ Bank NZ Ltd bought National in 2003 but retained the separate brand until 2012.

The judge said he was inclined to award costs to the Swans because they’d succeeded on liability and in obtaining declaration, if not damages, but asked for submissions from the parties on costs.

In a summary of the case, Justice Palmer said: “The bank represented to Cygnet that interest rate swaps were like a fixed rate loan but with upside & flexibility. It did not explain 3 potential downsides to swaps compared with fixed rate loans. It represented a swap was suitable for Cygnet. And it represented it would provide proactive advice to Cygnet about managing the risks & opportunities of its swaps. In January 2008, Cygnet agreed with the bank to structure a loan of nearly $4 million in the form of 2 interest rate swaps. In its contractual documentation the bank sought to exclude its liability.

“The swaps were disadvantageous for Cygnet when the GFC hit in mid-2008, since it could not take advantage of a precipitous fall in floating rates. In addition, Cygnet suffered from the swaps in a number of ways which would not have affected fixed rate loans and which it did not know about in advance:

(a) the bank imposed an additional credit limit on Cygnet in relation to the swaps, which it would not have done for a fixed rate loan, and which later affected the margin it charged Cygnet

(b) the break fees were calculated differently, and were higher, than for fixed rate loans, and

(c) the bank increased the margin it charged on the underlying loan, which it could not do on fixed rate loans.”

Attribution: Judgment.

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