New Zealand Credit Law Bulletin - Vol 5, No 6, August 2005

A free, plain English review of recent law and items of interest for creditors, produced by Hattaway & Associates Ltd, Credit Consultants. To subscribe send a blank email to: nz-bulletin-join@hattaways.com

Plain language disclaimer:
This bulletin is not legal advice. Do not make decisions on legal matters based on a brief commentary. Instead, get professional legal advice.

In this issue:

The hidden dangers of lending to a Maori incorporation
Bad news for the lender and bad news for similar organisations wanting to borrow
Absolutely the first PPSA case
A debtor tries to remove the PPSR registration - the creditor deals with it
Going to law is like losing a cow for the sake of a cat
By world standards we have an excellent legal system - try to avoid using it!
Will judges let defendents delay matters interminably?
Not in this case they won't

1. The hidden dangers of lending to a Maori incorporation

Proprietors of Matauri X Incorporation v Bridgecorp Finance Ltd [2005] NZCA 92 (3 May 2005)

Matauri X was incorporated on 7 March 1967 by order of the Maori Land Court acting pursuant to s 271 of the Maori Affairs Act 1953. The order incorporated multiple Maori interests in 544.3 ha of land surrounding a beautiful beach at Matauri Bay in Northland.

Matauri X, like all Maori incorporations, was managed by a committee of management. In 2001, Matauri X’s management committee had Hemi-Rua Rapata as chairperson. Ngaire Pera was a member and was also secretary. Matauri X was asset rich and cash poor. Although its Matauri Bay land was worth $9 million or more, there was little income with which to pay rates. With the support of other members of the committee, Mr Rapata was keen to raise funds for investment in off-site business ventures. He planned to use the Matauri Bay land as security for the loans.

Mr Waari Ward-Holmes, previously chief executive officer of the Maori Development Corporation, was an acquaintance of Rapata. Ward-Holmes and a Mr Nathan York had set up an investment company, MTech Investments Limited, to find investments for Maori incorporations to invest in, with the incorporations using their land as security and providing the capital. MTech came up with a proposal to acquire and operate a water bottling plant, Eternal Springs, at Whakatane as a joint venture.

An engineer, Janusz Kubs, MTech, and Matauri X each ended up with one-third of a business. Matauri X was to borrow $2.5 million, the loan being secured by a first mortgage over its land. MTech put in $300,000. Kubs put in no money. MTech estimated that in return for the investment of approximately $2 million, Matauri X would gain $11.5 million within two years.

On 9 July 2001, Mr Rapata and Ms Pera attended the office of Matauri X’s solicitors. There they signed the detailed term loan contract, mortgage, and other documents. They signed as chairperson and secretary, witnessing the affixing of the common seal of Matauri X. Bridgecorp advanced the loan money the following day.

At the Matauri X annual general meeting on 29 September 2001, the shareholders voted by 2,509 votes to 1,800 to support the committee of management’s decision to invest in Eternal Springs. Unfortunately the Eternal Springs project did not prosper. When more cash was needed Matauri X borrowed another $750,000 from Bridgecorp, but before long the venture failed altogether. The joint venture company was put into receivership. Matauri X has not repaid the loan or paid interest.

When Bridgecorp sought to rely on its security, Matauri X argued that the loan was void, having been beyond its powers. In the High Court, this argument was rejected. Matauri X appealed to the Court of Appeal.

The Court of Appeal looked at the law on the powers of a Maori incorporation under the Maori Affairs Act 1953, then under the Maori Affairs Amendment Act 1967, then under the Te Ture Whenua Maori Act 1993. Finally it looked at the No 2 Amendment Act 1993 which, among other things, introduced a new section 358A to the Te Ture Whenua Maori Act 1993.

The upshot of all this legislation was that while the Te Ture Whenua Maori Act 1993 gave Matauri X a general power “to carry on or undertake any business or activity, do any act, or enter into any transaction”, s358A added a restriction. The general power was subject to any existing objects of incorporation.

The original objects all related to using the land – for farming, timber, mining, tourism, etc – or selling or leasing the land. The Court of Appeal concluded that “borrowing was not for any of its objects: it was borrowing for an extraneous purpose, namely investment in shares in an offsite company.” The High Court’s decision in favour of Bridgecorp was set aside.

However, the Court of Appeal did not make any declaration on whether Bridgecorp missed out completely. There were three further lines of argument which needed to be explored. The matter was sent back to the High Court to allow this to happen.

Your comments please!

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2. Absolutely the first PPSA case

One of the concerns that finance companies had about the Personal Property Securities Act was the fact that secured debtors could apply to remove a registration from the Personal Property Securities Register and after a certain period it would automatically be removed. Our Law of Credit Management presenter, Alan Liddell of Tauranga firm, Capamagian Liddell, alerted us to the first example of this and the response of the finance company concerned. One of the debtors of an Auckland finance company applied to remove the security registered over its assets. In an unreported matter, the finance company applied ex parte (without notice to the debtor) to the Auckland District Court and got an order that the registration remain in place. The solicitor involved was sole practitioner Bob Warburton of Auckland who was probably therefore the first to have actually run even a minor NZ case under the PPSA since he did this before the Portacom matter was heard.

Your comments please!

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3. Going to law is like losing a cow for the sake of a cat

Burke & Anor v The Western Bay of Plenty District Council [2005] NZCA 86 (27 April 2005)

Mr and Mrs Burke had a dispute with the Western Bay of Plenty District Council over compensation they claimed they were due for the creation of an esplanade strip over part of their property. When they didn’t pay their rates, the council sued. Mr and Mrs Burke counterclaimed and lost.

The interesting issue here is the costs of the exercise. Costs were finalised by the judge. The council therefore wrote to Mr and Mrs Burke demanding payment of the sum of $100,640.05, made up of the judgment on the rates claim of $22,296.10, interest on that judgment sum of $7,165.29, costs of $62,422.50 and disbursements of $8,756.16. Bear in mind that Mr and Mrs Burke will have faced a legal bill from their own solicitors also, and that there will have been a significant cost in terms of their time and no doubt enormous amounts of stress and numerous sleepless nights.

Sometimes you have to go to court – you can’t let people get away with ripping you off. But before you do, note a couple of relevant pieces of folk wisdom. One is a Chinese proverb: going to law is like losing a cow for the sake of a cat. The other is an Italian proverb: a lawsuit is a fruit tree planted in a lawyer’s garden.

From the council’s perspective there is no doubt also considerable inconvenience and cost but obviously, it isn’t so personal, and they won. No doubt they will get their rates and costs repaid.

The Burkes took their case to the Court of Appeal to argue that, even though the window of time for appeal had closed, they should be allowed to enter a late appeal. They lost and further costs of $1,500 plus disbursements were awarded to the Council.

2. Absolutely the first PPSA case

3. Going to law is like losing a cow for the sake of a cat

Burke & Anor v The Western Bay of Plenty District Council [2005] NZCA 86 (27 April 2005)

From the council’s perspective there is no doubt also considerable inconvenience and cost but obviously, it isn’t so personal, and they won. No doubt they will get their rates and costs repaid.

4. Will judges let defendents delay matters interminably?

FRANCIS HONE CLARK & ANOR v [2005] NZCA 61 (6 April 2005)

On 4 April 2005, the Public Trust was two days away from selling the property owned and occupied by Ngaire and Graham Clark. The Public Trust had obtained a writ of execution. The public report on the matter doesn’t say what this was for but it seems likely to be a debt collection matter.

However, on that day, the High Court heard an application from the Clarks’ son, Francis Hone Clark, for an interim stay – an order that the property could not be sold while the matter was appealed.

The judge, Venning J, granted a stay on various conditions which required either the payment of money or speedy action in progressing the appeal. In particular, wasted costs incurred in the course of the sale process totalling $3,888.75 were to be paid to the Registrar of the High Court by 4.00 p.m. on 5 April 2005.

The matter next appeared before a court – the Court of Appeal – on 6 April. The costs hadn’t been paid and the property was expected to come up for sale in 10 minutes time. Francis Hone Clark’s lawyer claimed that “the financial conditions … are such as to render the benefits of the stay order nugatory [of no real value]. That is because neither Mr Clark nor his parents, it seems, are in a position to raise the sum of $3,888.75.”

The court concluded that the High Court judge was “well placed to obtain a feel for the general tenor of this litigation. He has, in effect, exercised a discretion which this Court could not interfere with unless it was satisfied that the exercise of such discretion was plainly wrong. We are not so satisfied…”

The appeal was dismissed and a further $1,500 plus disbursements were added to the debt which had to be paid to the Public Trustee.

The Psychology of Dealing with People seminar

R Glynn Owens DPhil (Oxon), Professor of Psychology, University of Auckland, former Professor of Health Studies, University of Wales. Author of eight books and over 50 research articles, has worked in numerous fields including general medicine, clinical psychology, sports psychology, forensics and industry. Member of editorial board of Psychology, Health and Medicine. Active researcher in a number of areas including psychological assessment, statistics, decision-making and research design.
Glynn Owens

Alan Liddell LL.B. B.A. presents legal seminars for Hattaway & Associates Ltd. He is the principal in Tauranga law firm Capamagian Liddell and has practised since 1973. He has particular interests in finance company law, commercial litigation, and legal training. His book on the Personal Property Securities Act, cowritten with Peter Hattaway, has received praise for being the most readable and understandable text written on this complex piece of law.
Alan Liddell