SUMMER 2009
Take time
to read up
on REINZ
New REINZ land sale agreement
– potential pitfalls
ALEXANDRA ISHERWOOD
Come on – Share your plans with us!
From our experience the best lawyer/
client relationships are the ones
where there is a deep understanding
between lawyer and client. Such
relationships don’t just happen – or
happen overnight, it normally takes
many shared experiences and a period
of time. We both need to invest time
and energy working out the best ways
to deliver value to you – the client.
Tony Southall
Partner,
Gibson Sheat
We find that business clients who share
their long-term strategic plans with us
are more likely to get better outcomes
and better value from us. It enables
us to be more proactive, rather than
reactive. If we know where you want to
take your business we can often give
better strategic legal advice, and often
through our extensive network of contacts,
introduce you to people, or other
businesses, who may help you achieve
your goals faster.
A good example is with your exit
strategy. If we know when you want to
exit your business we can better position
your business, from a legal perspective,
to extract maximum exit value. Often we
can introduce you to potential buyers or
intermediaries who can access buyers or
ways to release capital from your business.
So go on – give us a call and let’s have a
chat about your plans and ways we can
help you to achieve them. You will be
pleasantly surprised by the value we
can add.
Thanks for your feedback
Carol Patton
General Manager,
Lawlink
Thanks to all readers that completed the
Connect survey. Respondents seem to like
the new format, and enjoy the variety of
articles in each issue. Most like receiving
Connect in hard copy with only a few
opting for an electronic version. We will
investigate electronic delivery of Connect.
great way to ensure your lawyers are up to
date with legal and law firm management
issues so that your lawyers can provide you
with the best advice possible. As well as an
annual conference Lawlink facilitates other
meeting opportunities to enable exchange
of information and ideas.
Some have mentioned it would be useful to
have articles on our website, and I take this
opportunity to advise that all articles are
on the Lawlink website, www.lawlink.co.nz.
Articles are categorised for ease of searching,
for example, Employment, Property, Trusts.
In this issue, we have an article that looks
at the changes to the District Courts Rules
which will ensure civil claims are dealt with
simply, cheaply and as promptly as possible.
There is also an article that looks at the
recent controversial decision from the High
Court involving a vineyard, farm land and
a relationship property claim. There is
also an article that discusses government
assistance for residential care.
We also learned that many of you are
unaware of our other publications. Your
Lawlink firm has a series of useful client
booklets, and these are Corporate
Governance, Your Business and the Law,
Family Trusts and Estate Administration.
If you would like any of these booklets,
please contact your Lawlink firm.
I would like to take this opportunity to wish
all our readers and their families a happy
and safe holiday period and we look
forward to a brighter 2010.
We are busy preparing for our 2010
conference. Lawlink conferences are a
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New REINZ land
sale agreement
– Potential pitfalls
In this article Alexandra Isherwood, a
solicitor with Anderson Lloyd, comments
on the new agreement for buying and
selling real estate form produced by
the Real Estate Institute of New Zealand.
The standard form Agreement for Sale and
Purchase of Real Estate jointly produced by
REINZ and the Auckland District Law Society
(‘the ADLS form’) is probably the most widely
used legal document in New Zealand.
The Real Estate Institute of New Zealand
(‘REINZ’) has now produced and is marketing
its own standard form sale and purchase
agreement of real estate (‘the REINZ form’).
The REINZ form is markedly different both
in form and substance from the ADLS form.
With REINZ reporting around 100,000 house
sales every year, the contents of this new
form could well impact on many prospective
buyers and sellers who need to be aware
of any potential pitfalls of the new form.
Key changes
Changes to form of agreement
The REINZ form is drafted in ‘Plain English’
and, ‘was designed to do away with
ambiguity and complexity’ says the REINZ
CEO, Christine Le Cren.1 The intention is to
make the form more easily understood
by the public. While the language and
layout may indeed be easier for the
layperson to read, the implications and
effect of those words will not necessarily
be fully understood. In addition, the form
introduces new terminology not defined
by case law which will almost certainly lead
to uncertainty in interpretation – possibly
creating more ambiguity and complexity.
The ADLS form has been around for many
years and has been tried and tested by the
courts so that the clauses and terms have
been well defined and interpreted. This is not
so for the REINZ form which does not have
the assistance of case law to help bring
certainty to the terms of the agreement.
For example, the word ‘warranty’ has been
replaced with the word ‘promise’. While
the term promise is better understood by
the average New Zealander, the question
remains whether it will translate in court to
having the same power and enforceability
as a warranty? How questions such as this
will play out in the courts remains to be seen.
Alexandra Isherwood
Solicitor,
Anderson Lloyd
Section A contains the details
of the individual transaction
while Section B contains the
standard terms of sale.
Contents
1
3
4
New REINZ land sale agreement
– Potential pitfalls
6
What to do when the recession
hits you
Start planning for farm succession now
9
Completing an agreement for sale
and purchase of real estate
12 Government assists elderly in need
Repossession – When you are the
dreaded ‘repo’ man
of care
14 Dairy effluent prosecutions
15 I’ll see you in court (or will I?)
16 Personal Properties Securities Act –
Seven years on and still misunderstood
18 A thorny issue
Connect Summer 2009
1
It is for reasons such as this that some legal
commentators have criticised the REINZ
form as flawed in certain respects, some
going as far to say it is unsafe to use.
The REINZ form for negotiated sales is
comprised of two sections, Section A and
Section B. Section A contains the details
of the individual transaction while Section
B contains the standard terms of sale. It is
intended that the standard terms of sale
are just that and should remain constant.
The promoters of the REINZ form suggest
that if any amendments to those standard
terms are required, these can be achieved
through Section A which allows for the
deletion or amendment of the standard
terms contained in Section B. Section B
containing the ‘fine print’ terms need not
be actually attached to the agreement
that is signed. Buyers and sellers must
sign Part 3 of Section A declaring that
they have received a copy of Section
B. However, to ensure an agreement is
enforceable by everyone affected, care
will need to be taken to ensure everyone
has been given a copy of Section B, as
there may be room for argument that a
party cannot be bound by any standard
terms they have not in fact received.
Anna Fitzgibbon, ADLS’s president, has
warned that the form ‘markedly favours
purchasers. It attempts to introduce new
principles into settled areas of vendor and
purchaser law – perhaps unsuccessfully’.2
While there may be other provisions which
favour of the buyer, the REINZ form also
attempts to make it more difficult for both
the seller and the buyer to cancel the
agreement. It is already being suggested
that in fact the agreement, to the contrary,
gives clever solicitors acting for purchasers in
particular more scope to cancel a contract.
What to look out for
Approval treated as given
The conditions clauses in the REINZ form
differ from those in the ADLS form and it
is important for the buyer and seller to be
aware of all conditional dates. Where a
buyer or seller is required to approve a
condition in the agreement such as LIM,
title, or building report conditions (‘the
approver’) and the date for confirmation
has passed without confirmation, the
other party can issue a ‘warning notice’
requiring the approver to issue a ‘refusal
notice’ in respect of that condition. If the
approver fails to give the refusal notice
within three working days of receipt of
the warning then they will be treated as
having approved the condition, and lose
the right to raise issues.
Conditions
Title
Take time to read
up on REINZ.
While there may be other
provisions which favour of
the buyer, the REINZ form
also attempts to make it
more difficult for both the
seller and the buyer to
cancel the agreement.
Under the ADLS form, if the title to a property
is defective the buyer can give notice to the
seller requiring the seller to remedy and if
the seller doesn’t comply either party can
cancel the agreement. This is known as
the right to requisition the title. This right has
been replaced in the REINZ form by a clause
which provides for the buyer’s lawyer to
withhold consent to the title for anything that
‘could’ be registered on the title that ‘might’
affect the buyer’s use of the property. This
new condition is causing concern amongst
practitioners for its wide discretion in favour
of the buyer. The buyer must, however, give
notice to the seller detailing the reasons for
not giving approval to the title (‘the refusal
notice’). If the objections can be rectified
the seller has five working days to do so.
Upon rectification, the buyer’s approval is
treated as being given.
LIM/Building report
Under the REINZ form the conditions relating
to a building report and LIM also require the
buyer to issue a ‘refusal notice’ giving the
reasons for not confirming the condition.
The seller then has the opportunity to
remedy those ‘defects’. This process is
similar to the standard LIM condition in
the ADLS form. However, in using the ADLS
form it is common to insert a specific LIM/
2
Connect Summer 2009
Title/Building Report condition which does
not require the buyer to give the seller the
opportunity to remedy. Buyers need to
be careful when signing a REINZ form that
the standard provisions are modified if
necessary to meet the buyer’s requirements.
The REINZ form requires builders’ reports to
be from a ‘qualified builder’ so you cannot
get a mate around to ‘kick the tyres’ and
request a price reduction. The report must
be from a ‘suitably qualified person’. This term
is not specifically defined in the Agreement
and parties may have to look to the courts
to determine who is ‘suitably qualified’.
Onerous seller obligations
Sellers need to look carefully at the
obligations under clause 19 ‘Promises’ of the
REINZ form and will likely wish to vary some
of the more onerous obligations imposed
under this clause. For example, under
clause 19.4 the seller promises to remove
documents registered against the title to
the property on settlement. Some of these
documents may be intended to remain
registered on the title. It may therefore be
beyond the seller’s control to have them
removed and the Seller could be in breach
of the contract through no fault of their own.
Dispute resolution
Under the REINZ agreement all disputes
arising out of the agreement must be
referred to mediation as a first resort but
the agreement fails to provide for any
further processes should the mediation
not resolve the dispute. The problem with
this is that when a dispute arises, parties
may feel that mediation will not resolve
the issues and are often opposed to
entering into mediation with the other
party, particularly in more fractious
situations. It might be prudent to vary
the REINZ form in all cases to clarify the
mediation obligations and lead on to
other dispute resolution processes.
Be careful
The issues discussed in this article are
possibly equivalent to the tip of an iceberg
in relation to matters that might arise from
the use of the new REINZ form. Before
signing, a prudent buyer or seller should
ensure that everything in the agreement
being created is what the person signing
expects and wants. Your solicitor’s advice
is available to provide that assurance.
© Anderson Lloyd
Email alexandra.isherwood@andersonlloyd.co.nz
Website www.andersonlloyd.co.nz
1 ‘REINZ sale form flawed says lawyer’, NZ Herald,
electronic version retrieved 16/08/2009 from
http://www.nzherald.co.nz/property/news/article.
cfm?c_id=8&objectid=10588670
2 Letter from Anna Fitzgibbon, Auckland District
Law Society to All Practitioners in New Zealand
dated 30 July 2008
Start planning for
farm succession now
Liam Hehir
Graduate Solicitor,
Fitzherbert Rowe
Liam Hehir, a graduate solicitor with
Fitzherbert Rowe, gives some practical
advice when it comes to planning for
the future of the family farm.
For farmers, the decision about who from
the next generation gets the farm is fraught
with peril. However, it’s important to make
the right decision as soon as possible.
Making the wrong one, or even worse, not
making a decision at all, can tear families
apart and ruin generations of work.
The family legacy
Chris, a fifth generation dairy farmer,
has a dilemma. He has to plan for the
future of a farm and he has four children.
Chris desperately wants the farm to stay
in family hands. His eldest children, Ben
and Rachael, have both expressed an
interest in farming.
Chris is unsure if the farm, based on its
current profitability, can produce enough
income for two families.
Chris feels he would have to sell the farm
to Ben and Rachael at fair market value.
His own retirement is at stake and he wants
to see that his younger children are treated
equally. The price of dairy land, though
subject to fluctuation, is still high. Paying
market value will put a big dent in Ben
and Rachael’s hopes of farming profitably.
An age-old bugbear
This isn’t a new problem. Farmers like
Chris face a problem similar in nature,
if not in scope, to one that had horrific
consequences in 19th century Ireland.
The potato famine happened, partly,
because farms in Ireland were subdivided
as passed down to each generation.
A man with a small farm and six sons left
behind six smaller farms when he died.
Potatoes were the only viable crop to grow
on such small plots. Eventually, almost five
million people became dependent on this
barely viable method of farming. Blight
caused successive potato harvests to fail
from 1841. The result was that Ireland’s
population today is about one-half of
what it was when the crops started to fail.
This is a good, if dramatic, illustration of the
perils of poorly managed succession. A less
dramatic example is what unfortunately
has, in the past, happened more often than
it should when the farmer has deliberately
favoured a son or sons, at the expense of
daughters (or other sons). This has caused
anger and resentment at the unfair
treatment meted out to the daughters
and has sometimes torn families apart.
There has to be a better way to plan
for succession!
Profit: the True North
The figures appearing in the rating valuation
or in the financial statements of the farm are
one thing, but the real value of a family farm
is the income it generates for its owner.
A farm that is worth millions
on paper is of little real value
to farmers and their children
when, as a business, it
does not produce enough
income to service debts
and provide a reasonable
income.
Facing reality
Ultimately, farmers like Chris can’t have it
both ways. It is probably impossible to treat
all of the children equally, provide for his
and his wife’s future, and ensure the farm
stays in family hands. Some special financial
assistance will have to be given to those
children who will take over the farm.
Of course, if this step is to be taken, there
is much farmers can do to minimise the
perception of unfairness.
The first thing you should do is to stand
back and have a good look at the farm’s
business model:
• do you think there is room for growth?
• can you move into a lower-cost model?
• how is the farm protected against
fluctuations in income and expenses?
Next, see your lawyer or accountant,
who will be able to help you come to an
arrangement to help you to achieve your
succession goals. They may suggest:
• utilising companies and other ownership
structures to protect the next generation
from liability, minimise taxation, maximise
profit, and give all of the children a ‘stake’
in the farm;
• using trusts to give some assistance to the
non-farming children, perhaps for tertiary
education or buying a home; and
• ways in which you can use the farm’s
assets to develop other investments,
or even expand your farming
operations, to broaden the base from
which you can provide for yourself and
your family.
After becoming informed, but before
making any decisions, you should have
a frank and open discussion with all of
your children.
It may not be possible to reach a consensus,
but forearmed with your lawyer’s advice,
it should be much easier to ease any
disappointments, to ‘sell’ a fair solution,
and you will have demonstrated that your
ultimate solution is rational and well advised.
However, the cardinal rule is that it is the
ability of one or more of your children to
make a profit from the farm that will be
the key to whether it stays in family hands.
© Fitzherbert Rowe
Email l.hehir@fitzrowe.co.nz
Website www.fitzrowe.co.nz
Connect Summer 2009
3
Completing an
agreement for sale and
purchase of real estate
Owen Culliney is a solicitor with
Harkness Henry in Hamilton with over
three years’ experience in commercial
law including transacting the sale and
purchase of real estate. In this article,
Owen discusses some of the issues
that need to be considered when
preparing an agreement for the sale
and purchase of real estate.
Decisions decisions
Owen Culliney
Solicitor,
Harkness Henry
4
Connect Summer 2009
As discussed in Alexandra Isherwood’s
article, New REINZ land sale agreement –
Potential pitfalls, there are now two main
choices of agreement when buying or
selling real estate. The Auckland District
Law Society’s agreement for sale and
purchase of real estate (‘ADLS agreement’)
and the REINZ agreement for buying and
selling real estate (‘REINZ agreement’).
Whether you use the REINZ agreement
or the ADLS agreement when buying
or selling real estate may well depend
on the preference of the parties or their
advisers. However, before you sign any
agreement, make sure you seek guidance
from your lawyer. While the documents are
standard your circumstances are unique.
Accordingly, the standard documents
may need minor or major adjustments to
account for your particular circumstances.
Always bear in mind that
once an agreement is
signed its provisions are
binding on both parties –
the time to make sure an
agreement meets your
needs is before it is signed.
The agreement
This article sets out some items that you
should discuss with your lawyer if you
are looking to purchase a property. The
relevance of those same items for vendors
is discussed at the end of this article. You
should ask your lawyer to check any draft
agreement before you sign it. Although you
can include a solicitor’s approval condition
in any agreement you sign before obtaining
legal advice, these conditions are often
limited in scope.
Some of the matters your lawyer will want
to discuss with you are:
1. The identity of the property Your lawyer will
ensure that the property you are buying
is the one described in agreement.
2. Timing Make sure that the dates
for settlement and the fulfilment of
conditions within the agreement provide
enough time for you to complete all
the steps necessary to comply with
your obligations. Your lawyer can
advise you on what time frames will be
appropriate. Also ensure that if you are
selling your existing property to finance
the purchase that the settlement dates
for both agreements coincide.
3. Purchase price The price paid for a
property is solely at the discretion of
the parties and is generally the most
negotiated item in any agreement. It is
quite common for this negotiation process
to involve writing down a proposed
purchase price with that proposal being
crossed out and replaced by the other
party. This process can be repeated
several times and this can create a
messy agreement with the final agreed
purchase price being unclear. You
need to make sure that the final agreed
amount is easily discernable from the
numbers that have been struck out.
4. Deposit Do not ignore the significance of
the deposit. This is the sum that you must
pay first. It should be affordable for you
but vendors will want to ensure that it is
significant enough to cover their costs if
you default. Your lawyer will be able to
advise you on whether a deposit figure
is reasonable or not. If the deposit is
significant or if you have concerns about
the financial stability of the vendor, your
lawyer may recommend that you take
steps to make sure the deposit is held
by an independent party until the
sale is settled.
5. When is the deposit payable? The terms
of both the ADLS and REINZ agreements
state that the deposit becomes payable
on execution of the agreement unless
provided otherwise. Your lawyer may
recommend that you make a change
so that the deposit is payable when the
agreement becomes unconditional.
6. GST It is strongly recommended that you
get advice about the GST implications
of your agreement, particularly if the
property is tenanted or if any sort of
business is being conducted from the
property. Missing out on or having to
pay 12.5% of the purchase price to
the IRD could end up being a very
significant unexpected cost.
7. Should the agreement be subject to
finance? Particularly now that the banks
have their purse strings tied so tightly,
your lawyer may recommend that the
agreement be subject to finance. You
should not commit yourself to complete
a purchase without first knowing that
you have the money to do so. If you are
able to obtain pre-approval from your
bank to complete the purchase your
bargaining position will be improved in
that the agreement will not be subject
to finance. However, now more than
ever, you will need to be certain of
finance being available before signing
up without this protection.
8. Get a LIM A Land Information
Memorandum (‘LIM’) will give you
all of the information that the local
council has collected on the property.
This document is relatively inexpensive
to obtain but will provide you with
important details about the property
such as whether or not all building work
on the property has been undertaken in
compliance with the relevant legislation
and council expectations.
9. Vacant possession or tenanted? If there
is a tenant, the details of the tenancy
arrangement need to be added to
the agreement. If you do not want
to buy the property with a tenant in
possession, your purchase agreement
will need to provide that the property
is to be transferred to you with vacant
possession.
12.Add further terms There are many
other conditions and terms that can be
added to the agreement. For example,
you can include conditions to deal with
matters such as:
• obtaining a specialist
weathertightness inspection;
• obtaining a valuation report;
• obtaining a soil/geotechnical report;
• obtaining solicitor’s approval of title,
the agreement, a lease or other
legal documents; or
• completing the sale of your existing
property.
What about vendors?
If you are selling your property, you will
also need to be sure that the agreement
protects your position and covers all of
the issues that are important to you. As a
vendor, you will also need to keep an eye
on all the items listed above. If you receive
an agreement from a purchaser wanting
to buy your property, you should contact
your lawyer to discuss the agreement
before signing it. All of the issues raised in
this article have important (but often quite
different) implications for vendors.
When buying or selling
real estate, whether you
are using the new REINZ
agreement or the tried and
true ADLS agreement, consult
your Lawlink lawyer before
signing up.
© Harkness Henry
Email owen.culliney@harkness.co.nz
Website www.harkness.co.nz
10.Is the chattels list complete? Both
standard agreements include a list of
standard chattels. You may need to add
or remove chattels from the standard
chattel list so that the correct chattels
are included in the purchase. If there
are heat pumps or additional fittings
that are to be included in the sale,
they must be listed in the agreement.
11.Builder’s report The REINZ agreement
contains a standard builder’s report
condition. While this condition does
not appear in the ADLS form, your
lawyer can add such a provision to
that agreement. A builder’s report
may reveal issues with the property
that are not included within the
LIM report or apparent by way of
a superficial inspection.
5
What to do when
the recession hits you
Matthew Peploe, a senior associate with Harkness Henry, outlines some legal
options available if you are struggling financially.
6
Connect Summer 2009
Bankruptcy
The purpose of bankruptcy is to provide
people who cannot pay their debts with
an opportunity to make a fresh start.
Bankruptcy is a legal procedure dating
back to the European city states in the
Middle Ages. In New Zealand bankruptcy
is governed by the Insolvency Act 2006.
Matthew Peploe
Senior Associate,
Harkness Henry
As the world’s financial difficulties
continue, more New Zealanders are
struggling to meet their financial
obligations. For some, these challenges
can be managed through careful
budgeting and prudent spending.
For others, the situation is more
serious. If you are struggling to meet
your financial obligations you need
to carefully consider your financial
position and the legal options available
to you. The purpose of this article is to
outline some of these legal options.
If you are struggling to meet
your financial obligations the
first step you need to take
is to review your finances to
determine whether you are
legally insolvent.
You should check all invoices, statements
and contracts which establish your debt
and asset position. Your accountant or the
Insolvency and Trustee Service forming part
of the Ministry of Economic Development
can assist you with this process.
You are legally insolvent if:
• you cannot pay your debts as they
fall due; or
• the value of your debts exceeds the
value of your assets.
If you are insolvent, you can file for
bankruptcy with the Insolvency and Trustee
Service. Alternatively, your creditors can
apply to the court to have you declared
bankrupt. A court hearing will then be held
to determine whether you are insolvent.
If you do not meet the court’s requirements
(which generally require payment of the
creditor’s debt within a certain time frame)
you can be declared bankrupt. This can
occur even if you refuse or fail to attend
the relevant court hearings.
If you are declared bankrupt an officer
from the Insolvency and Trustee Service,
known as an ‘Official Assignee’, will be
appointed to take control of your assets.
You will remain in bankruptcy
for a period of three years
(although this period can
be extended in some
circumstances).
Once you have been declared bankrupt,
your creditors will no longer be able to
recover from you the debt owed to them.
However, while you are bankrupt, your
assets and income will belong to the
Official Assignee and may be used to
pay your creditors. You will not be able
to use your assets or income without the
Official Assignee’s permission.
The Official Assignee will allow you to retain:
• applying to the Official Assignee for
a Summary Instalment Order; or
• applying for administration under the
no asset procedure contained in the
Insolvency Act 2006.
This article reviews each of these options.
• co-operate fully with the Official
Assignee;
• provide the Official Assignee with a full
statement of your financial affairs;
• advise the Official Assignee if you change
your name, address, employment status,
income or expenditure;
• make payments towards your debts; and
• in some cases, leave your land and
buildings.
Furthermore, you cannot:
• withhold information;
• obtain credit for or borrow more than
$1,000 without disclosing you are
bankrupt;
• leave New Zealand without the Official
Assignee’s consent;
• be involved in the management or
control of any business without the
Official Assignee’s consent; or
• be employed, directly or indirectly,
by any relative without the Official
Assignee’s consent.
You can be fined or face imprisonment if
you do not comply with these obligations.
At the end of your bankruptcy, you will be
discharged from any obligation to repay
the debts you incurred before bankruptcy.
However, you remain liable for:
• fines;
• court ordered reparation;
• maintenance and child support
payments;
• necessary household furniture and
personal effects;
• amounts owing to WINZ; and
• a motor vehicle (provided that it is
worth less than $5,000); and
The Official Assignee is able to sell all of your
other assets to meet your outstanding debts.
• applying for bankruptcy;
• entering a compromise with your
creditors;
During your bankruptcy, you must:
• necessary tools of trade;
• cash up to a maximum of $1,000.
If you are insolvent, your legal options
include:
than you need to cover your day-to-day
living expenses you will need to pay some
of your income to your creditors. If your
income changes during your bankruptcy,
you must notify the Official Assignee.
Although you can earn an income
while you are bankrupt you will need to
complete a budget to show the Official
Assignee how much of that income you
need to cover your living expenses. If you
are in a relationship, the Official Assignee
can take into account any income earned
by your partner. The Official Assignee will
then decide how much of your income
you can keep. If your income is more
• any debts you incurred after you
became bankrupt.
The opportunity to make a fresh start
through bankruptcy comes at a significant
cost. You will lose control of your assets
and income for a number of years and the
bankruptcy is a matter of public record
affecting your future prospects. Before
considering bankruptcy you should look
at all of the other options available to you.
Connect Summer 2009
7
Compromise with creditors
One way to avoid bankruptcy is to discuss
your situation with creditors and negotiate
payment arrangements. If you can agree
terms for the repayment of your debts you
may avoid bankruptcy. Your creditors may
agree to accept a lesser amount than
they are owed in full and final settlement.
Such an arrangement, referred to
as a ‘compromise with creditors’:
• can help you to avoid bankruptcy;
• provides your creditors with an
enforceable repayment plan; and
• saves costs and avoids delays for you
and for your creditors.
A compromise with creditors can be a
purely private arrangement between
you and your creditors. The Insolvency
and Trustee Service does not need to
be involved if all of your creditors agree
to your proposals. Consequently, these
arrangements do not become a matter
of public record. However, you will need
to ensure that all of your creditors agree to
your compromise proposals. Any creditors
that do not agree could take legal action
to place you into bankruptcy.
• the procedure only lasts for one year
(whereas a bankruptcy generally lasts
for three years);
If you enter a private compromise with
creditors it is important to clearly record
the terms of the compromise and for
you to comply with those terms. Your
creditors can still apply to the court for
your bankruptcy if you fail to comply. We
therefore recommend that you speak with
your lawyer to document the compromise
agreement appropriately. If you cannot
reach a private compromise agreement
with all of your creditors, you may be able
to obtain a formal compromise agreement
under Part 5 of the Insolvency Act.
• there are significant limits on who can
use the procedure.
This establishes a complicated procedure
for avoiding bankruptcy with the agreement
of at least 50% of your creditors provided
that those creditors are also owed at least
75% of your total debt. As this procedure is
reasonably complicated you should seek
professional advice from your lawyer if you
want to pursue this option.
Summary instalment orders
If you cannot reach a private
compromise agreement
with all of your creditors,
you may be able to obtain
a formal compromise
agreement under Part 5
of the Insolvency Act.
• have total debts of less than $40,000;
• not have used the no asset procedure
before;
• not have been declared bankrupt
before;
• have no realisable assets (excluding
cash up to $1,000, a motor vehicle
worth less than $5,000, personal
and household effects and tools
of trade); and
• prove that you are unable to repay
these debts.
Even if you can meet these strict
requirements the Official Assignee can
still reject your application if:
• your creditors object;
You can only apply for an SIO if:
• you incurred debts knowing that you
would be unable to pay them; or
• your total unsecured debts (excluding
fines, reparation orders and student
loans) are less than $40,000; and
• you are unable to pay those debts
immediately.
Under an SIO you are obliged to repay
some (if not all) of your outstanding debts
within three to five years, generally by
way of instalment payments. You can
negotiate with your creditors how much
you will pay and once the SIO has been
entered your creditors cannot take further
action against you unless you fail to follow
the terms of the order.
The no asset procedure
Another option available to you is to apply
to the Official Assignee for administration
under the no asset procedure provided
for in the Insolvency Act. This procedure
provides an alternative to bankruptcy.
It is similar to bankruptcy but:
Connect Summer 2009
If you want to use the no asset procedure
you must:
If your debts are reasonably modest
another option available to you is to apply
to the Insolvency and Trustee Service for
a summary instalment order (‘SIO’). Your
creditors can also apply for this order.
An SIO is therefore similar to bankruptcy
in that it is a formal arrangement, is
administered by the Insolvency and Trustee
Service and prevents your creditors from
taking further action against you. However,
it is preferable to bankruptcy because you
do not lose control of your assets.
8
• you can only make use of the procedure
once; and
• bankruptcy proceedings have already
been initiated and your creditors are
likely to obtain a better result through
those proceedings;
• you commit an act that would be an
offence under the Insolvency Act if
you were bankrupt.
Given these significant limits, the no asset
procedure is not available to many people
facing insolvency. If you want your debts
to be administered through the no asset
procedure, you will need to carefully
consider whether you meet the strict criteria
before applying to the Official Assignee.
Conclusion
As the world’s financial woes continue,
more New Zealanders are struggling to
pay their debts or finding that their debts
exceed their assets. If this is the case for you,
consider the legal options available and
proactively address your financial difficulties.
Seek financial and legal advice as soon as
insolvency becomes a possibility for you.
If you do so there are options available for
managing your way out of financial difficulty
that are less onerous and of shorter-term
effect than bankruptcy. But if you fail to seek
advice and take active steps yourself, you
may lose control of your assets when creditors
give up waiting and take action themselves.
© Harkness Henry
Email matthew.peploe@harkness.co.nz
Website www.harkness.co.nz
Do you have a business selling
household goods or renting them
out? Customers aren’t paying up?
This article, written by Rowena Smith,
a solicitor with Webb Ross, will help to
explain the repossession process from
start to finish and how it may apply
to your small business.
goods unless the right has been set out
clearly in the contract, and the disclosure
requirements of the Credit Contracts and
Consumer Finance Act have been met.
Introduction
The Act refers to ‘consumer goods’ only,
and defines these as goods that are used
or acquired for use primarily for personal,
domestic, or household purposes.
Depending on the nature of your business,
you may retain ownership of goods you
have sold until all payments are made,
or you may wish to list certain goods as
security for a loan. Either way, if someone
stops paying and a guarantor does not
take over the repayments, good business
sense would dictate that you repossess the
goods and sell them to offset your losses.
Rowena Smith
Solicitor,
Webb Ross
The Credit Contracts and Consumer
Finance Act 2003 is the main law
designed to protect consumers in credit
contracts. When someone signs up to a
credit contract, the creditor must provide
accurate information about the cost of
the arrangement to the consumer. This
information is contained in a disclosure
statement which must be given before the
contract is made or very shortly afterwards.
The creditor’s right to repossess must be
set out and explained in the contract.
The creditor will have no right to repossess
If a creditor has a right to repossess, he or
she must then follow the steps set out in the
Credit (Repossession) Act 1997 (‘the Act’).
What gives you the right to
repossess?
A creditor or their agent must not repossess
any goods unless the debtor is in default
under the security agreement, or the
goods are at risk. ‘Security agreement’
is the term used in the Act for a contract
to which it applies.
The Act defines goods as being ‘at risk’ if the
creditor has reasonable grounds to believe
that they have been or will be destroyed,
damaged, endangered, disassembled,
removed, or concealed contrary to the
provisions of the contract. An example of
goods being at risk might be that they have
been advertised for sale by the debtor.
You must be able to prove that you have
grounds to believe the goods are at risk.
Repossession
– When you are the
dreaded ‘repo’ man
Connect Summer 2009
9
A clause designed to keep ownership
of the goods with the creditor, although
possession of the goods has gone to the
buyer, is called a ‘Romalpa’ or ‘Retention
of Title’ clause. If the buyer defaults on
payment, the creditor is allowed to retake
possession of the goods sold. As it is a form
of security, it needs to be registered on
the Personal Property Securities Register to
ensure appropriate priority is recognised.
Although the Act will apply whether
or not a financing statement has been
registered, by registering your interest in
the goods you should take priority over
any other creditor.
A pre-possession notice
does not need to be served
if you have reasonable
grounds to think the goods
have been, or will be,
damaged or removed.
The retention of title clause must have been
brought to the attention of the customer
before the goods were purchased. For the
clause to be effective, there is a requirement
that you can identify the goods and prove
that they belong to you when invoking
this condition. If your goods are mixed or
incorporated into another product this
identification becomes more difficult.
The clause that actually authorises you
to enter the debtor’s premises is also
important. You will generally only have
authority to enter the debtor’s premises;
debtors usually cannot authorise entry
onto a third party’s premises. Only in
extraordinary circumstances would you
be able to repossess goods located on the
premises of a third party.
The six-step process
Once you have established that you do have
the authority to repossess the goods, there
are six basic steps that must be followed.
In order for you to be able
to repossess goods, you
must have a written and
signed contract that states
that ownership of the goods
does not pass until the final
payment is made, and
that you have authority to
repossess if there is a default
on the contract.
10
Connect Summer 2009
Goods can only be
repossessed if they are listed
on or are specific to that
contract.
It is often best to get your
lawyer to draft such a
contract for you. You do
not want to find yourself in
a situation where you are
unable to recover your losses
because this has been
inadequately provided for
in your contract.
1. Send a pre-possession notice.
Before taking possession of the goods, you
must have served on the debtor, and on
every guarantor of the debtor, a notice
explaining the nature of the default and
the amount owing, and requiring the
debtor to remedy the default within a
certain period (no less than 15 days after
service of the notice on the debtor).
A pre-possession notice does not need to
be served if you have reasonable grounds
to think the goods have been, or will be,
damaged or removed. ‘Reasonable’ is
not defined in the Act, but just means
that common sense should be used,
taking into consideration the individual
circumstances of each case.
2. Repossess the goods.
If no payment is made after the period
given to remedy the default, then you may
repossess the goods.
You are able to enter the
debtor’s premises yourself, or
you may appoint an agent
to do so on your behalf.
Anyone can act as a repossession agent
as long as they have not been convicted
of a crime of violence or dishonesty in the
past five years, sentenced to 10 years in
prison, or released from prison within the
last year.
The repossession agent can only enter
the debtor’s premises between 6 am and
9 pm on a Monday to Saturday, and not
on a public holiday unless the debtor
Some points to consider are:
• a time frame to show when you want
ownership of the goods to change;
• wording that shows clearly that
possession of goods does not necessarily
mean ownership;
• a clause to ensure that the agreement
authorises you or your company to enter
premises to seize goods when there has
been a breach of contract;
• a statement that goods are not to leave
New Zealand unless paid for in full.
has consented in writing to their premises
being entered outside these times.
That word ‘reasonable’ is used again
where the Act states that the creditor
must enter the premises in a ‘reasonable
manner’. You are expected to take care
and cause as little damage as possible.
When you enter the premises you must
produce a copy of the pre-possession
notice, as well as evidence establishing
your authority to take possession of the
consumer goods (for example, written
proof that you are, or are working for,
the creditor).
If applicable you must also
produce the debtor’s written
consent to entry outside the
prohibited hours.
If the occupier of the home is not present,
you are still able to enter the premises
to take the goods, but must take steps
to ensure that the premises are not left
obviously open. As well as leaving a copy
of the documents stated above, you must
also leave in a prominent place a notice
stating that the premises have been
entered, the date of entry and a list of the
consumer goods that you have taken.
Special rules apply if the goods you are
taking are accessions – ie, installed in,
or affixed to other consumer goods as
there may be other people who have
an interest in these goods. If you damage
an accession, then YOU may be liable
to reimburse for the damage caused.
You must give notice to anyone who has
an interest in the accession, and they
are able to refuse permission to remove
any goods unless you have given them
adequate security for the reimbursement.
3. Send a post-possession notice.
After the goods have been taken, you
must serve a post-possession notice on
the debtor within 21 days of repossession.
The notice must state that, to get the
goods back, the debtor must within
15 days pay the money due under the
contract, or arrange another option
with you.
4. Debtor has 15 days to pay up.
Now is the chance for the debtor to
contact you about entering into another
agreement. As the debtor has this time,
you must not sell the goods before the
15 days given under the post-possession
notice has expired.
The debtor has a right to reinstate
the original contract. They must pay
the amount owing on the debt, costs
incurred by you in repossessing, as well
as remedying any other default. You must
then return the repossessed goods to the
debtor. A point to note before returning
the goods is that you cannot repossess
them a second time for the same breach
if they have already been returned to
the debtor.
This may be done by auction, tender,
or private sale as long as you use all
reasonable efforts to obtain the best
price for the goods.
The debtor should be given notice of
any auction or tender, unless the goods
are perishable or liable to drop in value
quickly.
6. Statement of account to be sent
within 10 days of sale.
When the goods have been sold the
creditor must give the debtor a statement
of account within 10 days showing the
sale proceeds, costs of the sale, and the
balance owing to or from the debtor.
Conclusion
As unpaid debts and the necessity for
repossession may become more common
during these hard financial times, creditors
need to make sure the process is carried
out correctly. As this article gives only a
brief outline of the repossession process,
it would be wise to pay a visit to your
lawyer to ensure you have the appropriate
authority at every step of the way.
© Webb Ross
Email rowena.smith@webbross.co.nz
Website www.webbross.co.nz
5. The goods can be sold if there is no
action from the debtor.
If the default is not remedied, then you
are able to sell the repossessed goods.
Connect Summer 2009
11
Government assists
elderly in need of care
In the current economic climate any
extra financial assistance can help
make ends meet. If you or someone you
know is part of the baby boomer bubble
that we so often hear about and is
about to enter a rest home, that person
may be able to get financial help from
the government. In this article Isabel
Blake, a solicitor with Webb Ross, looks
at government funding available for
elderly in need of care.
Isabel Blake
Solicitor,
Webb Ross
Residential Care Subsidy:
what is it and who can get it?
The residential care subsidy offers financial
help towards the cost of long-term
residential care for people in rest homes
and hospitals. The government is required
by the Social Security Act 1964 and the
Social Security (Long-term Residential Care)
Regulations 2005 to give you financial help
if you meet the following test:
12
Connect Summer 2009
• be a New Zealand citizen or resident;
• be aged 65+ or 50-64 and single with
no dependent children;
• have a needs assessment that shows
you need ongoing, long-term residential
care in a rest home or hospital;
• have a financial means assessment that
shows your assets are equal to or below
the asset threshold and how much of
your income will go towards your care
costs; and
• receive care from a rest home or hospital.
Step 1: have your needs assessed
The first step is to have your needs
assessed. If you need long-term care
in a hospital or rest home you can apply
to have your finances assessed.
Step 2: have your finances assessed
Gifts in recognition of care
The second step is to have your assets and
income assessed. This assesses whether you
qualify for financial help. Your application
can be backdated up to 90 days if your
assets have been equal to or below the
threshold since then.
If your gifts come to less than $27,500,
you can also give someone a gift to thank
them for caring for you. That gift must
meet the following test:
Assessment of your assets
Your assets (minus your debts) must be
equal to or below the threshold. If you are
65+ and single, or you have a spouse who
is also in care, the threshold is $190,000.
If you are 65+ and you have a spouse who
is not in care (for example still living in the
family home) you have a choice between
two thresholds: $190,000 or $95,000
excluding the value of your home and
car. If you are 50 to 64 and single with no
dependent children your assets will not
be assessed (but your income will be).
Your ‘assets’ are all the things
that belong to you and your
spouse.
Included are the values of things that you
have given away up to five years before
applying, any money you will receive
if you move out of a retirement village,
and any income or property you have
deprived yourself of on purpose. Exempt
assets, allowable gifts and gifts given in
recognition of care are not counted.
Exempt assets
The following assets are not included
in an assessment of your assets:
• the value of the home where your spouse
and/or dependent child lives and the car
used by your spouse (except if you elect
the threshold of $190,000);
• pre-paid funerals for you and your
spouse up to $10,000 each;
• lump sum payments from ACC;
• KiwiSaver contributions;
• household furniture and effects,
personal belongings (eg clothing,
jewellery), personal collectables, family
treasures and taonga (eg art works,
books, stamps, antiques); and
• some compensation and goodwill
payments.
Allowable gifts
Allowable gifts are not counted. You can
give away up to $27,500 of real or personal
property (eg money) in the five years
before applying for the subsidy.
• it is given within 12 months before
your application; and
• is given to someone who lived in the
same house as you and cared for you
for at least 12 months; and
• that person is not your spouse or
dependent child; and
• the gift is not over $5,500 for each
12 months of care.
Assessment of your income
Your income is assessed when your assets
are equal to or below the threshold. This
decides the weekly amount that you must
pay from your income towards the cost
of your care.
Your ‘income’ is money (after tax) given to
you and your spouse, for example, wages,
benefits, 50% of any superannuation
and life insurance allowances, clothing
allowances and residential care subsidies.
This assessment does not include income
from your assets of $879 each year for a
single person, $1,758 for a couple with both
in care or $2,636 for a couple with one
partner in care; some compensation or
goodwill payments; and any interest from
pre-paid funerals for you and your spouse.
Assets and income can be
clawed back
Sometimes assets and income can be
‘clawed back’ and included in the
assessment.
You risk losing your subsidy
when you deprive yourself
of income or property.
You have deprived yourself if the
following happens:
• you make a gift when the total of all gifts
made in the last five years is more than
$27,500. Getting rid of property for no
cost or selling it for an amount less than
its market value is treated as a gift;
• you do not make someone repay
money they owe you;
Assets owned by your family trust are not
treated as being owned by you personally.
That means gifts given and debts forgiven
to your family trust may also be ‘clawed
back’ and included in the assessment.
Outcome of your assessment
Those who meet the test for the residential
care subsidy must pay the decided amount
towards their care (minus a personal
weekly allowance of $34.87) and the
government will pay the rest. If you get the
subsidy you will also get a yearly clothing
allowance of $246.91.
Those who need care but
do not meet the test for
the subsidy must pay a set
amount for their care.
The government will pay the difference
between that amount and the cost of
the care. If you do not meet the test for
the subsidy you may be able to get a
residential care loan.
Residential care loan as a back-up
You can apply for a residential care loan
when your assets are above the subsidy
threshold and you meet the loan conditions.
This is an interest-free loan to help pay for
your care. It will be secured against your
property. Your assets (other than your
home) must be less than $15,000 for a
single person and $30,000 for a couple.
The loan must be repaid six months after
you die or when your home is sold. If you
get the residential care loan you will also
get a clothing allowance each year.
If, later on, you think your assets are
getting close to the threshold, or your
circumstances have changed, you can
apply to be reassessed. If your assets
are equal to or below the threshold you
will get the residential care subsidy. The
loan balance will not be wiped and
the loan repayment conditions will
continue to apply.
Please see your lawyer if you think you
should be getting the residential care
subsidy or loan.
© Webb Ross
Email isabel.blake@webbross.co.nz
Website www.webbross.co.nz
• you invest money in something that
does not give you income.
Connect Summer 2009
13
Dairy effluent prosecutions
In this article Nikki Edwards, a solicitor
with Harkness Henry, outlines the
consequences for farmers who pollute.
No farmer has the right to pollute
‘No farmer has the right to pollute.’ That was
the message delivered by the Minister of
Agriculture on 30 July 2009 at the Farmers’
Mutual Group Annual General Meeting.
It is a message that is being reinforced by
Fonterra which announced earlier this
year its plans to introduce a milk payout
deduction system for those who pollute.
Our experience with clients in the Waikato
region is that Environment Waikato is
vigilant in its detection and enforcement
of effluent offences. This is supported by the
statistics, which show that prosecutions in the
agricultural sector are increasing significantly.
The message to farmers is clear – you
should ensure that you are complying
with the Resource Management Act 1991
(‘RMA’) because failure to comply has
significant consequences.
Prosecution statistics
Recent statistics released by the Ministry for
the Environment (MfE) show that regional
councils are taking a firm approach towards
non-compliance by the agriculture sector.
The MfE surveyed RMA prosecutions for the
period 1 May 2005 to 30 June 2008. The
table below compares this survey period
against the previous two survey periods.
RMA prosecutions
Statistic
19912001
20012005
20052008
375
171
260
Total prosecutions
Agriculture sector
prosecutions
(% of total prosecutions)
Highest fine
Average fine
Average of 30
highest fines
18
64
110
(5%)
(37%)
(42%)
$50,000 $55,000 $86,500
$6,500
$8,167 $12,463
$20,367 $20,307 $37,142
Source: Ministry for the Environment: ‘Study into the
use of Prosecutions under the RMA 2005/2008’
The key messages from the statistics are:
1. Prosecutions in the agriculture sector
are rapidly increasing. For the most
recent period they represent 42% of
all RMA prosecutions. Within that sector
unlawful discharges to water, or to land
14
Connect Summer 2009
that may enter water, were the activities
that were most frequently prosecuted.
2. If prosecuted, there is a strong likelihood
of conviction – 93% of the 260 prosecutions
in 2005-2008 resulted in convictions.
3.During the 2005-2008 survey period,
the Waikato Regional Council was the
most active local authority, bringing
17.4% of all prosecutions (followed by the
Canterbury Regional Council and the
Otago Regional Council).
4. The average fines imposed for RMA
prosecutions have increased significantly.
5.While a fine is the key punishment for
non-compliance with the RMA, the
courts have shown a willingness to
impose other forms of punishment with
38 enforcement orders, two prison
terms (six and eight months), and 12
community work sentences imposed
in the 2005-2008 period.
Penalties for effluent offences
The current maximum penalty under the RMA
is $200,000. Recent cases have determined
the appropriate fine for effluent discharges
by categorising the offence into one of the
following categories:
Categorisation of effluent offences
Seriousness of offence
and description
Range
Level 1 – less serious
Unintentional one-off
incidents, system failure
$0 to
$15,000
Level 2 – moderately serious
Unintentional but careless
discharge, recurring over
period of time
$15,000
to
$30,000
Level 3 – serious
Deliberate or extremely
careless, multiple discharges
or one large event
$30,000
and
above
Nikki Edwards
Solicitor,
Harkness Henry
Act 2009 (‘Act’) to $300,000 for individuals
and $600,000 for companies. The courts will
also have the power under the Act to review
consent conditions in this punitive context.
While the largest fine imposed to date
under the RMA is $86,500, the recent
increase in the maximum penalty is likely
to signal to sentencing judges a need to
increase the fines imposed. If the increase
in maximum penalties is reflected in
fine levels proportionally, considerably
increased fines can be expected.
Conclusions
In no circumstances does a farmer have
the right to pollute. The RMA is a strict
liability statute, so even unintentional
discharges may attract prosecution unless
the limited defences available apply.
From our experience, the circumstances
that have commonly led to unauthorised
discharges have included:
• an increase in herd size without
a corresponding system upgrade;
• operating at the margins (no tolerance
for unusual weather events);
• inadequate systems maintenance;
Source: Waikato Regional Council v Chick Limited
(27/09/07, Judge Whiting, DC Thames CRN0707950094)
Judge Thompson has recently criticised the
level of fines imposed to date for not having
‘enough sting … to be really felt on the
offenders financial bottom line’ (Hawke’s
Bay Regional Council v Stockade Pastoral
Farms Limited (20/03/09, DC Napier, CRI2008-081-000096, paragraph 16)).
The maximum penalty has recently
increased under the Resource Management
(Simplifying and Streamlining) Amendment
• delegation without appropriate
supervision; and
• unfamiliarity with relevant rules
(eg Waikato Regional Plan Rules).
Our advice to farmers is to ensure familiarity
with the relevant regional council rules,
educate staff and ensure systems are
properly operated and maintained. Failure
to do so significantly increases the risk of
being prosecuted and the fines that are
likely to follow are significant.
© Harkness Henry
Email nikki.edwards@harkness.co.nz
Website www.harkness.co.nz
I’ll see you in
court (or will I?)
Therefore, a plaintiff is still required to file
their claim in the High Court if they wish
to claim more than this amount.
Kent Arnott
Solicitor,
Gascoigne Wicks
Kent Arnott, a solicitor with Gascoigne
Wicks, looks at the innovative changes
to ensure that civil claims in the District
Court are dealt with as simply, cheaply
and promptly as possible.
Rarely do civil claims in the District Court
actually make it to trial in New Zealand.
Figures vary between centres but the
numbers show that in some places only
3% of claims make it this far. The vast
majority of cases lodged with the court
either settle or do not proceed.
The District Courts Rules have recently
been replaced in an attempt to ensure
civil litigation in New Zealand is more costeffective and user-friendly for all parties and
the court itself. These changes are due to
come into force on 1 November 2009.
After a claim has been filed in the
District Court, a decision will be made
as to what is the best forum for the claim
to be determined in. The court will usually
allocate claims of less than $20,000 to the
Disputes Tribunal (whose jurisdiction has
been increased to $20,000 – or $15,000
if the parties do not agree to extend it
to the higher amount – on 1 August 2009).
Claims above this amount or which are
not appropriate to be determined in
the Disputes Tribunal will remain in the
District Court and will be allocated either
a judicial settlement conference or
a short trial.
Judicial settlement conference
A judicial settlement conference (‘JSC’)
is a meeting between the parties and their
lawyers led by a judge.
The judge works with the parties in an
attempt to reach a settlement of the
claim. This is done through negotiation
and mediation.
JSCs already occur in the District Court.
However, currently, both parties must
consent before a court can allocate one.
Under the new rules a JSC will be deemed
a first priority and allocated whether or not
both parties agree to it.
Short trials
The new rules set out that the
main objective of the District
Court in civil litigation is to
secure the just, speedy, and
inexpensive determination
of proceedings.
In recognition of the fact that more than
90% of civil cases will be settled before
trial, and so do not require a hearing, the
new rules place settlement as the basic
objective in civil litigation.
The process for filing a claim in the District
Court will change substantially to reflect the
above. However, the upper figure of what
can be awarded will remain at $200,000.
Short trials are new in the District Court
process. They have been created by the
new rules.
Short trials are intended to deal with
simple claims involving only one or two
witnesses on each side that do not require
more than a day to hear.
A claim will be allocated a short trial
only if the court is satisfied that the time
required for the short trial is less than the
time required for a JSC.
What if claims do not settle at the JSC?
If a JSC is allocated and settlement cannot
be reached then a hearing is necessary.
The judge who conducted the JSC will
make directions as to what type of hearing
is deemed necessary and allocate it
accordingly. The judge will have three
options under the new rules:
1. Summary judgment
Summary judgment consists of a judge
hearing from both parties and making a
decision without hearing from witnesses
except by affidavit (sworn written) evidence.
Judges conducting JSCs will allocate
claims to be heard by way of summary
judgment rarely and only in cases where
they are confident the defendant has no
reasonable ground of defence.
2. Simplified trial
A simplified trial will be used for cases that
involve a small number of issues and/or a
small number of witnesses. It is expected
judges will select this option the majority
of the time for claims that do not settle at
the JSC. At a simplified trial there are time
limits for the presentation of and challenge
to evidence, and only 30 minutes is
allowed to each party to present legal
submissions and argument.
3. Full trial
Full trials in the District Court will be similar
to those conducted in the High Court. This
will be a long and expensive process with
extensive procedural requirements. As a
result, judges will only allocate full trials where
there are many issues and/or witnesses.
What if the defendant ignores
the claim?
A plaintiff can be awarded judgment
by default if the defendant fails to attend
court when required or does not act in
accordance with the court’s directions.
As a result, plaintiffs will have a more
effective tool to counter delay or inaction
on the part of the defendant.
Conclusion
Traditionally, it has just been accepted that
civil litigation is a very long, expensive and
sometimes very unsatisfactory process.
However, the new rules will help ensure
claims are dealt with as simply, cheaply
and as promptly as possible. It is hoped
that unnecessary delays will be a thing
of the past.
Judicial settlement conferences will be
the primary resolution resource under the
new rules. Shortened trial processes will be
a secondary priority. Full civil trials will be
a last resort because of their inherent cost
and delay.
© Gascoigne Wicks
Email karnott@gwlaw.co.nz
Website www.gascoignewicks.co.nz
Connect Summer 2009
15
Personal
Property
Securities Act
– Seven years on and still misunderstood
The Personal Property Securities Act 1999 (‘PPSA’) has been in force since 2002 but many
people remain unaware of the changes it has made to traditional concepts of rights in
personal property. Ownership is now irrelevant in many situations. The recent increase in
insolvency events highlights the need for better understanding and new business practices
as outraged suppliers compete with receivers and liquidators of insolvent businesses.
What is a security interest?
Why register?
A security interest is an interest in personal
property that is created whenever
you enter into a transaction that uses
personal property to secure payment or
performance of an obligation. The PPSA
also deems certain other transactions
to be security interests.
Registering a financing statement
records your security interest on the
PPSR. A financing statement contains
information about your security interest.
You are not required to upload your
security agreement or terms of trade
online or required to provide any financial
information of any kind.
Common situations where the PPSA
applies include:
Marie Callander
Solicitor,
Anderson Lloyd
• supply of goods on credit (even
where you have retained title);
• goods sold on your behalf by a retailer;
This article from Marie Callander, a
solicitor with Anderson Lloyd, provides
a back-to-basics overview of the PPSA
as it applies to suppliers of goods and
some illustrations of issues arising when
insolvency events occur.
Scope of the Act
The PPSA governs security interests in
personal property. Personal property is
defined broadly and includes essentially
anything other than large ships and land.
16
Connect Summer 2009
• leases of goods or equipment;
• goods stored in someone else’s
possession.
The Personal Property Securities
Register (‘PPSR’)
The PPSR is a public register where security
interests over personal property may be
registered and searched. For a small fee
anyone can use the PPSR 24 hours a day
seven days a week. The PPSR website
address is www.ppsr.govt.nz.
If you do not register your security interest
and your debtor is made bankrupt or is put
into receivership or liquidation, other secured
creditors’ claims will have priority ahead of
you in relation to that property even where
you may in fact own that property.
While registering a financing
statement does not always
guarantee you will get what
is owed in an insolvency
event, it increases your
chances and puts you in a
better position than creditors
who have not registered.
Essential steps
Mixed goods
Before you supply any goods on credit
to a customer you should take the
following steps:
If you have a security interest in goods that
become mixed with other goods so as to
become indistinguishable from the whole
mass your security interest continues in
the whole. For example, suppliers supply
eggs, sugar and butter to a biscuit factory
on a retention of title basis. If they all have
signed terms of trade and have registered
financing statements on the PPSR their
security interests will continue in the
biscuits. They will be able to claim a share
in the value of the biscuits. Special rules
apply to determine each supplier’s share
in mixed goods.
1. Ensure that you have up to date terms
of trade that include a retention of title
clause and clauses dealing with PPSA
matters.
2.Ensure that these terms are signed
by the debtor.
3.Register a financing statement on
the PPSR.
The order in which you complete steps 1 to
3 does not matter so long as all the steps are
completed before you supply the goods.
Priority rules
In general a registered security interest
takes priority over all unregistered security
interests.
If there is more than one registered
security interest the party who was first
to register will normally take priority.
If you have completed steps 1 to 3 when
you sell goods on credit you can obtain in
certain cases a ‘super priority’ ahead of a
bank or other lenders which have a prior
registered general security agreement.
The PPSA provides special rules of priority for:
Liens for repair work and other
services supplied in relation to goods
If you supply materials and services in
respect of goods (for example, a garage
that repairs a car) you may have priority
ahead of all security interests. However,
there are some rules governing liens; for
instance, you must keep the goods in your
possession until you receive payment or
you could lose your priority position.
Goods attached to other goods
If goods become attached to other
goods they become an accession; this
means they become absorbed into those
other goods. For example, you supply a
new motor on credit that is installed in
your customer’s boat. Unless you have
completed steps 1 to 3 before you supply
the motor you could lose priority to prior
and even subsequent security interests
registered over the boat.
Goods attached to land
Goods are often installed in such a way
that they become permanently attached
to land. For example, steel supplied to
construct a hay barn becomes part of the
land once it is permanently attached. It is
no longer personal property, and even if
you have registered your security interest
on the PPSR, you will lose your priority over
the steel to a mortgagee of the land. To
protect your interest in the steel, you may
need to take security over the land as well.
Transfer of goods
If the goods are sold or leased in the
ordinary course of the debtor’s business
the person buying or leasing those goods
normally takes the goods free of your
security interest. However, your security
interest may continue in the proceeds
of any inventory sold.
If the debtor transfers the secured goods
other than in the ordinary course of
business (for example, they sell their
business to someone else) you must
update the debtor details on the PPSR
within 15 days from the day you become
aware of the transfer to retain your priority.
Ownership is irrelevant under the
PPSA – examples
A retention of title clause is no longer in
itself effective against third party claims.
This means that if you supply goods on
a retention of title basis but do not have
signed terms of trade and a financing
statement registered on the PPSR, you
will lose out if a receiver or liquidator is
appointed over the debtor and there
are insufficient funds available to pay
all creditors.
Other examples of circumstances where
ownership of goods is irrelevant are:
• You supply on commercial consignment.
Businesses supplying goods on
commercial consignment such as
designers and artists are vulnerable
during insolvency events. For example,
when Auckland homeware store Eon
went into receivership many suppliers
lost their battle to claim back the
furnishings they had supplied on
commercial consignment. They had
retained ownership of the goods but the
secured creditor who had registered a
general security agreement over all the
assets of Eon had priority ahead of the
suppliers who had not registered. Angry
scenes erupted in the Auckland store
when counter staff were confronted
by furnishing suppliers demanding the
return of their goods. Enraged blog
comments followed with some suppliers
blaming their professional advisers
for not informing them about the
implications of the PPSA.
• You supply goods under a lease for
a term of more than one year or
for an indefinite term. For example,
Portacom New Zealand Ltd leased
portable buildings to NDG Pine Ltd
for four years but failed to register on
the PPSR. Portacom lost out to NDG’s
bank which had registered its general
security interest on the PPSR. The bank’s
registered security interest had priority
ahead of Portacom’s unregistered
security interest (Graham v Portacom
New Zealand Ltd [2004] 2 NZLR 528).
• You leave your goods stored with
someone else for more than a year.
For example, grape growers may entrust
their grapes to a winery for processing
and subsequent storage of the wine
produced. If produce is left in the
possession of the processor for more than
a year a security interest is deemed to
be created in the produce. The owner’s
interest may be ‘trumped’ by another
party with a better (registered) security
interest in the produce. If the owner of
the grapes has not registered on the PPSR
they may find that when the processor
goes into receivership the receiver will
claim the right to sell their goods. Some
uncertainty surrounds such situations, as
at the time of writing New Zealand courts
have not yet considered the question.
To avoid uncertainty, before supplying
the produce to the processor the owner
should enter into a written security
agreement with the processor and
register a financing statement on the
PPSR that describes both the produce
and the final products.
Conclusion
The PPSA is probably the most significant
change in commercial law during the
lifetime of any business owner alive today.
You can no longer rely on Romalpa
clauses alone to protect your interests
when you supply goods. Suppliers who
ignore the need for up to date terms of
trade and who fail to register financing
statements on the PPSR risk losing any right
to claim back their goods if their debtors
go into receivership or liquidation.
If you have questions about the PPSA
or registration on the PPSR talk to your
Lawlink lawyer.
© Anderson Lloyd
Email marie.callander@andersonlloyd.co.nz
Website www.andersonlloyd.co.nz
Connect Summer 2009
17
Brenda Baines
Solicitor,
Hesketh Henry
A thorny
issue
Brenda Baines, a solicitor with Hesketh
Henry, discusses a controversial
decision of the Supreme Court involving
a vineyard, farmland, and a relationship
property claim.
A recent high-profile ‘divorce’ case has
stirred controversy among both the legal
profession and the general public. The
Supreme Court decision in Rose v Rose1
earlier this year gained a fair amount of
media attention and prompted strong
responses both for and against the ruling.
The Property (Relationships) Act 1976
(‘Act’) defines both relationship property
and separate property. Property owned
by a partner before the relationship began
and property inherited by a partner are
both, prima facie, the separate property
of that person and owned by that person
solely. However, there are several sections
in the Act which can cause separate
property to ‘become’ relationship
property and therefore be subject to
division between the partners at the
end of their relationship.
The case of Rose v Rose
focuses on these sections
and provides some insight
into how these provisions will
be applied by the courts
in the future.
The Roses’ Story
Mr and Mrs Rose were married in 1979 and
separated in 2003. Before the marriage,
Mr Rose owned a block of farmland
known as ‘Cloverlea’. He was also in a
partnership with his father, Arthur, and
brother, Peter, which carried on a farming
business on Cloverlea and on two other
blocks separately owned by Arthur and by
Peter. Because the farming activities ran at
substantial losses during the 1980s, the two
brothers each sold a large section of their
18
Connect Summer 2009
land in 1989 to reduce debt. However, the
Mrs Rose’s claim
remaining land had potential for growing
Mrs Rose’s claim was divided into three
grapes and they later began to develop
separate claims under the Act. Her first claim
vineyards on each of their properties.
was over the partnership which owned
Arthur Rose died in 1995 and the two
sons inherited, equally, the majority of his
property (known as ‘Poplars’) and also his
share of the farming partnership. In 1999,
they sold part of Poplars to reduce debt
and a vineyard was developed on part
of the remaining land. The partnership
continued to make losses during Mr and
Mrs Rose’s marriage and even after their
separation. However, by the time the case
was heard at the Supreme Court in 2009,
the wine growing business was profitable
and, even before that, the value of the
blocks of land had increased considerably
due to Marlborough’s international
reputation as a wine growing area.
and planted the vines and ran the vineyard
business. The second claim was over
Poplars, the section of property inherited by
Mr Rose from his father. The third claim was
over Cloverlea, the property owned by Mr
Rose before the marriage.
The Partnership
Mrs Rose argued that her husband’s
interest in the partnership was relationship
property under section 8(1)(e) (property
acquired after their marriage began) or
section 8(1)(ee) (property acquired for
the common use or benefit of the family)
of the Act. She accepted, as part of this
claim, that the partnership debt was a
relationship debt.
Mr and Mrs Rose lived in the homestead
Mrs Rose argued that the partnership
on Cloverlea during their marriage.
business was effectively Mr Rose’s job by
Mrs Rose had previously been married
which he earned income and provided
and she brought to the marriage with
for his family. There was evidence from
Mr Rose most of the household chattels,
Mr Rose’s own testimony that the vineyard
the sum of $10,000 and two children. The
development was intended for common
$10,000 was spent during the course of
benefit and that he thought of the vines as
the marriage. Mr and Mrs Rose later had
being owned by him and his wife, together
two more children and Mrs Rose carried
with his brother. He also claimed that the
out the normal functions of a mother and
partnership debt was a relationship debt,
‘undertook all domestic duties expected
of a farming wife’. 2 In 1985, Mrs Rose
which implied that the partnership assets
were relationship property.
obtained a job as a salesperson, earning
an average salary, which was applied
The Supreme Court held that it was a
entirely to the support of the household,
reasonable inference that the vineyards
or otherwise within the domestic
assets were being acquired for the
relationship.
common benefit of Mr and Mrs Rose and
therefore held that Mr Rose’s share of the
Mr Rose worked long hours in the
partnership was relationship property.
partnership and the vineyards. In 1989,
part of Cloverlea was sold and the money
Poplars
was used to reduce debt and for family
As Mr Rose’s share of Poplars was inherited
purposes. Mr Rose drew annual earnings
from his father, this was his separate
from the partnership to support the
property. Mrs Rose claimed against the
family. However, as the partnership was
increase in the value of Poplars under
running at a loss for most of the time these
section 9A(1) of the Act. This section states
earnings were in fact funded by increased
that if any increase in the value of separate
partnership borrowings. The partnership
property is attributable (wholly or in part) to
borrowings were secured by mortgages
the application of relationship property then
over the properties of the two brothers.
the increase in value is relationship property.
the increase in value was therefore
relationship property to be divided equally
between the parties.
Cloverlea
Mr Rose owned Cloverlea before the
marriage and this too was his separate
property. Mrs Rose claimed a share of
the increase in the value of Cloverlea
under section 9A(2) of the Act. This section
provides that if any increase in the value of
separate property is attributable (wholly or
in part and whether directly or indirectly)
to the increase in value is relationship
property, with the share of each spouse
to be determined in accordance with the
contribution made.
Mrs Rose asserted that the increase in
value of Cloverlea was in part attributable
to her actions in caring for the children, in
managing the household and in earning a
substantial portion of the household income.
She argued that her domestic contributions
allowed Mr Rose to work long hours in the
farming business and the development of
the vineyard on Cloverlea. She also claimed
that if she had not contributed her income
to the household it is probable that the
husband would have been forced to sell
Cloverlea due to the level of debt by the
end of the 1980s.
The Supreme Court held that the inclusion
of the words ‘directly or indirectly’ in
section 9A(2) was intended to remove
the need for a claimant to show a direct
physical connection, such as work on the
separate property, or a direct financial
contribution, such as a payment for
an improvement to it. It is enough for a
claimant to establish that he or she has
indirectly contributed to an increase in
value and that will be so:
‘when the claimant’s actions have enabled
the other spouse to devote labour or
expenditure to his or her separate property
with a consequent increase in value. It will
also be so when the claimant has provided
financial support by paying for household
expenditure and thereby enabling the
owner of the separate property to pay
for work on it which increases its value’.3
In Mr Rose’s case, the mortgage security
included the homestead on Cloverlea.
The Supreme Court acknowledged that
The Family Court found that Cloverlea
been the product of inflation or a general
had increased in value by $911,473 during
rise in the value of land in Marlborough but
the marriage. Since the death of Arthur
stated that this did not defeat a section
Rose, Mr Rose’s inherited share in Poplars
9A(1) claim if some part of the increase (that
had increased by $760,000. The book
is more than trivial) is attributable to the
value of the partnership assets (which
application of relationship property. As Mr
included all the grapes on the three
Rose’s share in the partnership was assessed
properties, but did not include the land
by the Court as being relationship property,
upon which the partnership business
and the increase in value of Poplars
was conducted), was $2,619,937 but the
since 2000 was attributable in part to the
partnership debt was $2,712,990.
partnership (being relationship property),
some of the increase in value may well have
Connect Summer 2009
19
By her work both inside and outside
the home Mrs Rose enabled her husband
to spend long hours on the partnership
and allowed him to moderate his drawings
so that more money (or in reality more
borrowing capacity) was available to
the partnership for the development
of the vineyards, including the vineyard
on Cloverlea.
Unlike section 9A(1), this section does not
provide for automatic equal division of
relationship property. Therefore, once
the Supreme Court had decided that the
increase in value was relationship property
it had to determine the shares in which
that property would be divided between
the parties. The Court found that Mr Rose’s
contribution to the increase in value
was greater than that of his wife and so
awarded Mr Rose 60% and Mrs Rose 40%
of the increase in value of Cloverlea.
The Controversy
...‘when the claimant’s actions
have enabled the other
spouse to devote labour
or expenditure to his or her
separate property with a
consequent increase in
value. It will also be so when
the claimant has provided
financial support by paying
for household expenditure
and thereby enabling the
owner of the separate
property to pay for work on
it which increases its value’.3
20
Connect Summer 2009
This decision has caused strong reactions
by those both in support of and in
opposition to the ruling. Anthony Grant,
a barrister at Radcliffe Chambers
and regular contributor to NZ Lawyer
magazine, has written several articles
criticising the decision. He has also
appeared on TV One’s Close Up and
been interviewed by the NZ Herald on
the subject. He has been particularly
disapproving of the success of Mrs Rose’s
claim against the increase in value of
Cloverlea, dubbing it ‘annihilation by
stealth of separate property.’4 He argues
that it is hard to conceive that Parliament
intended that ‘housekeeping’ could
create a claim against separate property. 5
However, those in support of the decision
argue that this was a fair result. Mr Rose
worked long hours on his separate
property and Mrs Rose supported him in
many ways which enabled him to do this.
In effect, ‘she subsidised the husband in
his work for his separate property’.6 It must
also be noted that it was the increase in
value of the separate property that was
classified as relationship property, not the
separate property itself. Furthermore, in
regards to Cloverlea, the Court recognised
Mr Rose’s greater contribution to this
increase in value by awarding him 60%
and Mrs Rose 40%.
Regardless of the debate surrounding the
fairness of the ruling, it is clear that this
decision will have implications for the ways
in which people structure their property
ownership during relationships.
From the point of view
of those with substantial
separate property assets,
this case is a perfect example
of a situation where a family
trust and an up to date and
reasonable7 relationship
property agreement would
most likely have provided
greater protection for
separate property assets.
Trusts and agreements do not provide an
impenetrable defence against relationship
property claims but they may provide
greater protection than was afforded to
Mr Rose in this case.
© Hesketh Henry
Email brenda.baines@heskethhenry.co.nz
Website www.heskethhenry.co.nz
1 Rose v Rose [2009] NZSC 46
2 ibid para [10]
3 ibid para [44]
4 NZ Lawyer, 12 June 2009, p.15
5 ibid.
6 NZ Lawyer, Letters to the Editor ‘Rose v Rose’, p.6
7 Section 21J of the Act provides that the Court may
set aside a relationship property agreement if,
having regard to all the circumstances, it is satisfied
that the agreement would cause serious injustice.
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Issue 6, Summer 2009
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