Archive | High Court

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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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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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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Hawkins to pay $13.4 million to fix leaky new school

Justice Mathew Downs has ordered Hawkins Construction to pay $13.4 million + gst for remediation of a Botany high school which opened only in 2004.

Hawkins Construction North Island Ltd built the school’s buildings between 2003-09. The company’s name was changed to H Construction North Island Ltd in 2017, when Downer NZ Ltd bought the construction business from the McConnell family.

The claim was taken to the High Court by the Education Minister, Secretary for Education and the board of trustees of Botany Downs Secondary College.

Justice Downs said in his decision, out today: “The sum is not small, but Hawkins was paid approximately $28 million to build the school; pupils & teachers have not had the benefit of healthy code-compliant buildings for 8 years; and the award reflects the amount necessary to repair the school, not more.”

Judgment: Botany Downs Secondary College decision

  • More to come on this judgment once I’ve been through the detail.

Attribution: Judgment.

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Judge overturns year-old highrise consent next to heritage substation because of non-notification

High Court judge Rebecca Ellis has set aside a year-old resource consent for a 10-storey 39.5m building Equinox Capital Ltd proposes to build in central Wellington because the owners of a 2-storey heritage-listed former substation next door weren’t notified.

In her decision issued last Wednesday, Justice Ellis wrote: “In summary, I consider: (a) Sydney St Substation Ltd should have been given limited notification of Equinox’s resource consent application; (b) there was a material error in the 14 October 2016 decision not to publicly notify Equinox’s resource consent application; and (c) there were material errors in the 14 October 2016 decision granting Equinox’s resource consent application.

“There have been no matters raised which persuade me I should not exercise my discretion to grant relief here. I therefore make orders setting aside the notification decisions & the substantive resource consent decision, all of which are dated 14 October 2016.”

The dispute concerns buildings (heritage & proposed) a few doors from the courthouse, on what was Sydney St until 1993 and is now Kate Sheppard Place in Thorndon, a street noted for its “Elizabethan & Jacobean” architecture.

The category II heritage building is the old Sydney St substation at 19 Kate Sheppard Place, which has historical significance as one of the first substations constructed to distribute electricity in Wellington after the Mangahao hydro power station began operation in 1924.

Justice Ellis said it also had “some architectural significance due to what has been described as its ‘quirky mixture of architectural styles’”.

The lower of its 2 storeys originally housed the transformers & other substation equipment. The upper level has always been a home. “That unusual & experimental combination of utilitarian & residential design is regarded as adding to its architectural interest. A heritage covenant was placed on the building in 2011.”

In 2013 the Government sold the substation building to Sydney St Substation Ltd, owned by Trevor & Jillian Lord. They renovated & strengthened the building to some acclaim, with the assistance of a Wellington City Council grant. The entirety of the building is now used for residential purposes.

Justice Ellis concluded: “There can be no real doubt that the substation’s heritage value was highly influential in the decision to purchase it, and to renovate it at some expense. To suggest that an adverse effect on the substation’s heritage value does not, equally, adversely affect its owner seems unattractive. So if there is a minor adverse effect on the heritage value of the building there is a minor adverse effect on Sydney St Substation Ltd.

“Even if there is some flaw in that logic, there remains the further & more substantive (“anticipated development model”) issue. The views I have expressed about that strongly support the conclusion that the adverse effects on the owner of the substation (in terms of the matters of which discretion is restricted under rule 13.3.4, namely design, external appearance, siting & placement of building mass) have been understated and are at least minor.

“On any of the above analyses, therefore, Sydney St Substation Ltd was an affected person and should have received limited notification of Equinox’s resource consent application.”

In contrast with the judge’s view, the council notification said: “There are no affected persons in respect of this application (sections 95B/95E). It is noted that neighbours have registered an interest in works occurring on the subject site. Neighbour interest does not deem them to be affected parties under the tests of the act or qualify as special circumstances under the act in this case.”

The judge said most other buildings in the vicinity were multi-level office blocks “of limited street appeal”. The Lords sought judicial review of Wellington City Council’s approval of resource consent “authorising the construction of another such building immediately adjacent to the substation, on a site which is presently a carpark. In short, Sydney St Substation Ltd says that the council was wrong to grant the consent and also wrong to even consider it on a non-notified basis. They say that the substation will be significantly adversely affected by the proposed construction.”

Equinox (Chong Du Cheng & Kerry Knight) has plans for 63 apartments, a 39-room hotel with ground-floor lobby and ground-floor commercial space with a total floor area of 32,422m².

An important factor in the judge’s consideration was that the proposed building would exceed the height limit of 35.4m in the “low city” area, set out in the district plan.

According to the district plan guidelines, “Where a new development adjoins a heritage building that is 4 storeys or less, its height should be not more than one storey above the heritage building, over an area extending approximately 5-8m along & back from the street frontage at the common boundary with the heritage building”.

Link: Substation judgment

Attribution: Judgment.

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Lawyer gets home detention for Celestion project finance deception

Lawyer Timothy Upton Slack (55) was sentenced to 10 months’ home detention today for his role in getting finance for the Celestion apartments hotel project in 2008.

The development by Emily Projects Ltd (Leonard Ross) was close to not proceeding in the early days after the global financial crisis had started to impact, for lack of sales.

ANZ Bank NZ Ltd agreed to advance $41 million under an agreement signed in December 2008, provided Emily Projects had qualified presales on 80 of the proposed 127 apartments, all buyers unrelated to the developer & with cash deposits.

In the Auckland High Court today, Justice Kit Toogood said Mr Slack gave the bank several undertakings & personal assurances “that you knew were blatant lies”.

The judge said: “Although you said there was minimum risk to the bank, it was for the bank to decide that…. Deliberate & planned deception increases your culpability.” He said the bank was likely to reconsider its lending procedures.

Mr Slack made false representations that the preconditions had been satisfied. In fact, Justice Toogood said, “Emily Projects had in fact achieved few if any of those presales. The letters of acknowledgment were entirely false. In fact no deposits had been paid and no cash deposits were held.”

The judge said Mr Slack “had no idea the deposits & letters of acknowledgment were false”, but he went on to provide several false undertakings that his law firm held deposit funds in its account. The firm charged Emily Projects $488,000 in fees for its work.

The bank also didn’t lose out. The project, between Emily Place & the foot of Anzac Avenue in the Auckland cbd, was completed, the bank collected interest on its loan and the development finance was paid back.

Mr Slack pleaded guilty on 1 September to one representative Crimes Act charge of obtaining by deception. Justice Toogood said the maximum jail term was 7 years, but the agreed starting point in setting penalty was 4 years’ jail.

He told Mr Slack: “You were disciplined by the Law Society in 2005 for another misdemeanour. That disqualifies you from any discount for good character.”

However, the judge discounted the prospective jail term by 16% for remorse & future consequences and took the discount to 25% for an early guilty plea, plus 20% for the “moderate” degree of support he gave the Serious Fraud Office, which prosecuted.

Justice Toogood told Mr Slack: “Your complicity was essential to the deception [but] you did not devise the fraud scheme yourself.”

The judge also said Mr Slack’s humiliation & loss of income – and there is doubt that he will retain his certificate to practise as a lawyer – added to the discount, reducing the potential jail term to 22 months: “That means you are eligible for home detention.”

Justice Toogood did not explain how a longer jail term translated into a shorter period of home detention, but commented: “I regard your reactions to your disgrace that you have real insight into your offending & its causes and pose no risk of reoffending…. Imprisoning you would serve no useful purpose.”

Mr Slack was adjudicated bankrupt in 2013 and automatically discharged in April 2016.

The other 3 defendants in this case – property developer Leonard John Ross and 2 men who worked for him, company director Michael James Wehipeihana and self-employed consultant Vaughn Stephen Foster – will face trial on 5 June 2018.

Justice Toogood told Mr Slack: “I have made no findings at all about the guilt or innocence of your codefendants.”

Earlier stories:
3 September 2017: Celestion finance deal lawyer pleads guilty
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: Court sentencing.

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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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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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$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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