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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.

Links:
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.

Link:
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, realestate.co.nz. 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 realestate.co.nz, 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.

Link:
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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Both sides appeal steel mesh penalty

Steel & Tube Holdings Ltd followed the Commerce Commission back into court yesterday as both filed appeals against a fine imposed last month relating to the company’s steel mesh.

Judge Warren Cathcart fined Steel & Tube $1.885 million in the Auckland District Court on 24 October for breaching the Fair Trading Act by making false & misleading representations about its steel mesh products which are used in construction to provide strength & stability in the event of an earthquake.

Steel & Tube pleaded guilty to 24 charges relating to conduct between 1 March 2012 & 5 April 2016, covering 482 batches & about 480,000 sheets of steel mesh, which Steel & Tube sold for about $24 million.

Judge Cathcart adopted a starting penalty of $2.9 million for the misrepresentations and discounted this to a $1.885 million penalty to reflect Steel & Tube’s guilty pleas, co-operation with the commission & remedial measures.

The commission said it had appealed on the bases that the judge erred by:

  • failing to properly attribute the knowledge of a Steel & Tube manager to the company, and
  • not adequately taking into account the size of Steel & Tube and the potential for it to gain from the conduct.

Steel & Tube said yesterday it had carefully reviewed the decision and believed the fine was excessive. In its statement yesterday, Steel & Tube said that when the judge released his decision it had apologised to its customers, shareholders & staff for the historic breaches of the Fair Trading Act and stressed that the breaches were unintentional.

The company added: “Both the Ministry of Business, Innovation & Employment and the Structural Engineering Society have indicated that homeowners should not be concerned about the safety or ductility of steel mesh in their homes. The Insurance Council also recently reassured homeowners they should not be unduly concerned about insurance claims in respect of homes containing steel mesh from Steel & Tube.”

Earlier story:
24 October 2018: Steel & Tube fined $1.885 million for misleading steel mesh representations

Attribution: Commission & company releases.

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Kauri export opponents get partial win in Supreme Court

The Northland Environmental Protection Society has won one ground of appeal to the Supreme Court on the export of kauri products, but has failed to get a declaration from the court on exports of swamp kauri.

The court issued its judgment today.

The declarations sought relating to the operation of the Forests Act included a declaration that light surface carvings or decoration don’t meet the definition of finished or manufactured indigenous product and a declaration that the Ministry for Primary Industries had acted unreasonably in approving exports of swamp kauri.

The majority held that, to be lawfully exported, an item must be a product in itself and in its final or kitset form.

The court majority concluded, on the Forests Act appeal: “We have differed in a number of major respects from the Court of Appeal’s interpretation of the definition of finished or manufactured indigenous timber product. This means that the appeal on this point must be allowed.”

The court held that the Protected Objects Act doesn’t cover swamp kauri as a category, and dismissed that appeal.

However, the court majority suggested that, given swamp kauri is a finite resource and the threat to living trees from kauri dieback disease, “a review of the legislative framework with regard to swamp kauri may be desirable”.

Justice Willie Young reached the same conclusions but provided separate reasoning, primarily around certification. Since 2004, no mandatory certification process applied to exports of finished or manufactured indigenous timber product.

Justice Susan Glazebrook wrote the majority decision. The other judges on the bench were Justices Mark O’Regan, Ellen France & Terry Arnold.

Link:
Supreme Court kauri export decision

Attribution: Judgment.

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Ross & Wehipeihana jailed for Celestion development loan fraud

Property developer Leonard John Ross (52) & Michael James Wehipeihana (46), a small shareholder in Mr Ross’s company that built the Waldorf Celestion apartments hotel in downtown Auckland, were both jailed for over 4 years today for fraudulently obtaining a $41-million development loan for the project.

In the Auckland High Court, Justice Rebecca Edwards sentenced Mr Ross to 4 years & 4 months’ jail, and Mr Wehipeihana to 4 years & 3 months’ jail on charges brought by the Serious Fraud Office.

Mr Ross & Mr Wehipeihana lied to the ANZ Bank NZ Ltd about the number of genuine presales they had made to obtain the development loan for Emily Projects Ltd.

They used forged documents, including sale & purchase agreements, to support the loan application. Later, they used additional forged documents when the apartments were onsold to genuine buyers.

After an 8-week trial, a jury found them guilty in July on all charges they faced – 3 of obtaining by deception & 2 representative charges of using forged documents.

The other 2 men involved in the fraudulent scheme were sentenced to 10 months’ home detention. Vaughn Stephen Foster (56), a self-employed consultant, pleaded guilty to one representative charge of obtaining by deception just before the trial began and was sentenced in June. Timothy Upton Slack (56), a lawyer, pleaded guilty to one representative charge of obtaining by deception on 1 September last year and was sentenced later that month.

The Waldorf Celestion has 2 towers on adjacent sites between Emily Place & Anzac Avenue, containing a total 127 apartments.

Mr Ross, who headed the Paxton Pacific development group, incorporated Emily Projects in July 2008 to develop & sell the Celestion apartments on a site bought from the receivers of Blue Chip Financial Solutions Ltd.

Mr Ross was the director and majority shareholder of Emily Projects.

The Serious Fraud Office said Mr Wehipeihana (46) was Mr Ross’s ‘right-hand man’ at the time of the offending and had a small shareholding in Emily Projects Ltd.

Earlier story:
1 August 2018: Trial ends with 2 more guilty of $41 million Celestion development fraud

Attribution: SFO release.

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Stephen Gubb’s wife sentenced to home detention for joint fraud

Shirley Anne Johnston (66), of Wanaka – wife of twice-jailed fraudster Stephen Gubb – was sentenced yesterday to 7 months’ home detention & 200 hours of community work on charges brought by the Serious Fraud Office.

Ms Johnston, a real estate agent, obtained commissions from the Selwyn District Council that she wasn’t entitled to. The council made the payments for 13 property sales she purportedly organised in relation to Izone, a Selwyn District Council business hub developed in Rolleston, Christchurch.

As an employee of Hughes Developments Ltd, Mr Gubb sold land, leases & design-build packages for Izone. Ms Johnston & Mr Gubb fraudulently obtained over $300,000 in commission payments from the council. Almost half of the money was eventually transferred to a bank account controlled by her & Mr Gubb.

Mr Gubb, in his capacity as a property consultant for Hughes, which was supervising the council development, instructed a law firm to pay commissions to a real estate agency that Ms Johnston worked for. The agency then paid Ms Johnston $149,094 for her purported work as its agent.

She was sentenced at the Christchurch District Court on a single representative charge of “obtaining by deception”.

Mr Gubb, who was her co-defendant, admitted the charges in March and was sentenced in May to 2 years 9 months in jail.

Mr Gubb was sentenced to 4 years’ jail in Auckland in 2003, on Serious Fraud Office charges involving about $1.18 million. Victims then included the property consultancy where he was a director & shareholder, Grafton Group Ltd, and another company where he & his second wife, Helen, were shareholders, Beauford Properties Ltd.

Earlier stories:
12 July 2018: Stephen Gubb’s wife admits role in joint Christchurch fraud
24 May 2018: Gubb jailed for fraud again

Attribution: SFO release.

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Ministry loses case over tree seizure without compensation

The Government has lost a court case over the Ministry of Primary Industries’ decision to seize & destroy over 47,000 fruit trees without compensation.

Estimates of the cost of this action to orchardists ran as high as $1.5 billion.

Waimea Nurseries Ltd, of Nelson, & other tree suppliers sought judicial review of the ministry’s action at a hearing in the Wellington High Court on 16-17 August.

Justice Francis Cooke ruled yesterday that the ministry’s seizure of plants was unlawful without compensation. There was already an interim agreement in place on biosecurity measures excluding seizure, which lasts until 5 working days post-judgment.

According to the court summary of the judge’s decision, the ministry claimed the trees were unauthorised goods because they had obtained biosecurity clearance following the receipt of misleading information.

But Justice Cooke ruled they weren’t unauthorised goods. He held that misleading information must relate to the particular goods, and there was no such information here. He also held that the trees planted in the ground weren’t “goods” because they had become part of the land.

Finally, the judge said the appropriate biosecurity powers in this case were, instead, found in sections 114, 121 & 122 of the Biosecurity Act, which allow for statutory compensation.

The ministry sought to seize, contain or destroy 47,827 trees as unauthorised goods. They’d been tested between 2012-18 by a US institution which subsequently lost its accreditation status after incorrectly reported test results were discovered during an audit.

Link:
23 August 2018: High Court judicial review decision, Waimea Nurseries & others against Director-general for Primary Industries

Attribution: Judicial review decision & summary.

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Steel mesh supplier Brilliance fined for misleading representations

Auckland District Court Judge Robert Ronayne has fined Brilliance International Ltd (Wu Guanghui & Wu Donghui, both of Dannemora, Auckland) $540,000 for making false & misleading representations relating to its steel mesh products which are used to earthquake-strengthen buildings.

Following the judge’s decision, released on Friday, class action legal specialist Adina Thorn encouraged Brilliance steel mesh customers to join a proposed class action against several companies that have supplied non-compliant steel mesh product.

Judge Ronayne sentenced Brilliance on 20 charges brought by the Commerce Commission under the Fair Trading Act. Brilliance pleaded guilty to making false & misleading representations for its 147E steel mesh product, which it marketed & sold as being earthquake grade ‘500E’ steel mesh, between 30 September 2012 & June 2016.

11 charges were for making representations on the Brilliance website that were liable to mislead the public and on product tags that its 147E steel mesh complied with the Australian/NZ Standard for reinforcing steel suitable for structural use in an earthquake zone, when it did not comply.

The other 9 charges related to false & misleading representations on Brilliance’s website that the product had been tested by independent testing laboratory SGS NZ, when it had not. The charges relate to about 35 batches of 147E steel mesh, or 56,125 sheets.

Commission says non-compliance undermines NZ Building Code & Standards

Commerce Commission chair Dr Mark Berry said in response to the judgment: “The safety & durability of New Zealand’s buildings depend on them being constructed with materials that comply with the relevant standards. False & misleading representations about building products are a priority for the commission because compliance with standards is critical to both public confidence & safety,”

Judge Ronayne said in his judgment: “It is self-evident that standards are fundamentally important. The defendants’ conduct… plainly undermined the NZ Building Code & the objectives of NZ Standards in general.

“The defendant’s conduct is highly culpable because its behaviour has left consumers in a position of uncertainty, because it cannot now be known whether all of the [steel mesh] complied. This position of uncertainty is what the free trade agreement and the standard seek to avoid.”

Steel mesh cases

The commission filed charges against a number of companies relating to false & misleading representations about 500E steel mesh. In 500E, the ‘E’ stands for earthquake and the standard specifies strength & ductility (elasticity) requirements for steel reinforcing materials. The standard also specifies the procedures (ie, sampling & testing) that must be followed to produce steel of the specified standard, including:

  • manufacturing methods that must be used by steel manufacturers
  • chemical, mechanical & dimensional requirements of mesh
  • sampling & testing of every batch of mesh
  • identification & labelling of different grades of mesh.

To be sold in New Zealand as 500E grade steel mesh, the mesh must be produced in accordance with the requirements of the standard. If mesh is produced in any other way, it cannot be described as 500E mesh. The Ministry of Business, Innovation & Employment (MBIE) is the building regulator, and sets & enforces the standards & Building Code. The commission can investigate misleading or deceptive claims about compliance with the standard.

Investigations began in 2015

The commission has carried out a series of investigations into steel mesh following a complaint in August 2015. Following its investigations:

Links:
Commerce Commission case register, Brilliance Steel decision
Steel mesh class action

Earlier stories:
27 July 2018: Lawyer says interest in class action grows as steel mesh sentence awaited
26 April 2018: First companies sentenced arising from steel mesh investigation
29 November 2017: Steel & Tube owns up to mesh label & testing guilty pleas
8 June 2017: Updated: Commission files 29 charges against Steel & Tube over mesh
2 November 2016: Steel mesh testing rules tightened
25 April 2016: Commission lifts ‘stop’ on Euro Corp steel mesh
8 April 2016: Steel & Tube undertakes dual mesh testing
5 March 2016: Suppliers recheck as commission questions steel mesh, ministry not worried

Attribution: Decision, commission release, Thorn release.

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Trial ends with 2 more guilty of $41 million Celestion development fraud

An Auckland High Court jury yesterday found the owner of Waldorf Celestion apartment hotel developer Emily Projects Ltd, Leonard John Ross (51), and a small shareholder & representative of it, Michael James Wehipeihana (46), guilty of fraudulently obtaining a large bank loan to build the downtown Auckland block.

Mr Ross & Mr Wehipeihana were convicted on 3 charges of obtaining by deception & 2 representative charges of using forged documents, brought by the Serious Fraud Office.

They made false statements and used forged documents relating to apartment unit purchases to obtain a $41 million development loan from ANZ Bank NZ Ltd to allow Emily Projects to construct the building between Emily Place & Anzac Avenue, on the eastern fringe of Auckland’s central business district.

They’ve been remanded on bail until sentencing on 26 September.

2 other men associated with the project were both sentenced to 10 months’ home detention after each pleaded guilty to one representative charge of obtaining by deception.

The lawyer who acted for Emily Projects, Timothy Upton Slack (56), was sentenced last September. He was adjudicated bankrupt in 2013 and automatically discharged in April 2016.

Vaughn Stephen Foster (56), a self-employed consultant to Emily Projects, pleaded guilty just before the 8-week trial began and was sentenced in June.

Site bought from Blue Chip mortgagee

The site was already 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 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 Bank as second mortgagee on the new project.

The Celestion was developed as an apartments hotel, containing 119 non-permanent-stay apartments and run by NZ Waldorf Apartments Ltd. It has 16 levels fronting Anzac Avenue and 18 levels in a second tower on Emily Place.

Emily Projects, 88% owned by Mr Ross, 3% by Mr Wehipeihana, went into voluntary liquidation on 22 December 2011. Liquidators Tim Downes & Greg Sherriff (Grant Thornton) 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.

Earlier stories:
26 September 2017: Lawyer gets home detention for Celestion project finance deception
12 April 2017: Remand on Celestion development fraud allegations
17 February 2017: SFO alleges fraud in Celestion development loan deal
8 May 2009: Ross’ Emily Projects starts work on ex-Blue Chip site

Attribution: SFO release, Companies Register.

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