LawNews - Issue 43

THIS WEEK’S ARTICLES

Issue 43 4 Dec 2020

‘Chilling impact’ of the Megaupload decision p1

Limited liability: when property managers might be responsible for damage p3

Should I buy an investment property? p7

LawNews adls.org.nz

CRIMINAL/COPYRIGHT LAW

‘Chilling impact’ of the Kim Dotcom decision

By Diana Clement

Photo by Michael Bradley/Fairfax Media via Getty Images

Few Kiwis could have missed the stir created by a recent Supreme Court decision that moves internet entrepreneur Kim Dotcom and his co-defendants Mathias Ortmann, Bram van der Kolk and Finn Batato a big step closer to being extradited to the United States to face criminal copyright-related charges.

But many would have missed the implications of the decision for other users of copyright law.

Lawyers working in this area say the court’s ruling raises big questions about copyright in the digital arena and significantly weakens the legislated ‘safe harbour’ from prosecution relied upon by ISPs (internet service providers) for the past 30 years.

They say more is at stake than the future of Kim Dotcom, his co-defendants and Megaupload, the company at the centre of the dispute. And, some suggest, an extradition hearing is an unusual forum for trying to resolve copyright issues.

The devil is in the detail of the 194-page judgment in Mathias Ortmann v United States [2020] NZSC 120. And it could have what Dotcom’s New Zealand barrister Ron Mansfield calls an “immediate and chilling impact” on the internet in New Zealand and beyond.

Mansfield is not the only one concerned about the court’s interpretations of copyright law. The decision was also troubling for Rick Shera, a business, information technology and media lawyer at Lowndes Jordan.

What concerns Shera the most is the implications for the safe harbour provisions. Sites such as Megaupload and its related sites, Dropbox and OneDrive, have billions of uploads and can’t scrutinise every single one, he says. What’s more, only a fraction of material infringes copyright.

The Megaupload defendants make a court appearance in Auckland following an FBI-led raid on Kim Dotcom’s Coatesville mansion in January 2012. From left: Bram van der Kolk, Finn Batato, Mathias Ortmann and Kim Dotcom

Some of the ways the court grappled with the digital issues weren’t as clear as the industry might like them to be. Sometimes they didn’t reflect the clearest understanding of the technology

“Any ISP and any cloud storage company will be sitting there going, ‘well, how do we deal with this? Because traditionally what we’ve done is we’ve received notices, we complied with the safe harbour regime’.

“The decision makes it difficult to provide advice to clients [because of] the strange way in which the takedown regime of receiving notices was used as evidence of wrongdoing,” Shera says.

The concept of safe harbour dates from the 1990s when fledgling internet platforms had difficulty ensuring the information being uploaded and shared by users did not breach copyright.

A social bargain was struck in the United States, which filtered through into other countries’ laws, including New Zealand’s, that ISPs would be given immunity from infringing material uploaded by its Continued on page 2

CRIMINAL/COPYRIGHT LAW

‘Chilling impact’ of the Kim Dotcom decision Continued from page 1 users on certain conditions.

Those included not promoting the infringing material or encouraging users to upload it. And when the providers received takedown notices, they were required to action them or be liable.

Safe harbour was included in New Zealand’s Copyright Act 1994 as well as sections 92A to D of the Copyright (New Technologies) Amendment Act 2008.

But they haven’t worked for everyone. For those creating the material, the safe harbour has “overshot”, says Paula Browning, chief executive of Copyright Licensing New Zealand.

Just because online systems are designed with a certain level of automation that makes files quicker to access doesn’t mean they know the particular contents of those files

notices. The US government, however, argued that this wasn’t enough to satisfy ‘without more’. “The court seems to have, in my view, been somewhat dismissive of this.”

Shera says in the United States, Australia and other countries with safe harbours, there is a lot more detail around what is meant by ‘without more’. “If you start promoting the information, or you start dealing with the information to make money out of this and so on and so forth, then you would fall outside the safe harbour.”

In the Dotcom case, he says, the court looked at ‘without more’ and said because Megaupload tried to comply with the safe harbour requirements, it must mean it knew the information was infringing and therefore was more likely to be acting criminally. “It seems very odd,” Shera says.

A different story He points out the Dotcom decision is very different to the Roadshow Films v iiNet Limited case in the High Court of Australia. iiNet, a large ISP, was sued by a group of Hollywood film studios for copyright infringement. It had received tens of thousands of notices and chose to forward them to the police because it had no way of knowing whether the material was infringing or not. The trial judge dismissed the case.

Shera said it was interesting that the iiNet case wasn’t referenced in the Dotcom proceedings. “It seems to me that if you take that line of reasoning, then you would have to say the safe harbour should apply.”

“What we’ve got now isn’t really [what was intended]. We’ve got businesses that are able to benefit from the safe harbour and then, on the other side, where’s the regulation that helps when the safe harbour rules aren’t being played by?”

Creatives who depend on micro revenue streams struggle to get infringements resolved, she says.

He and others also contend that an extradition hearing is an unusual environment to try to assess copyright law. The focus of the hearing was on whether the defendants’ behaviour was sufficiently criminal, and if it reached the criminal standard in the United States.

The “immediate and chilling impact” referred to

by Dotcom’s lawyers relates to the way the court interpreted the safe harbour provisions, as well as what Shera calls the “delightfully vague” words ‘without more’ which appear in the 1994 and 2008 legislation.

Internet New Zealand senior policy advisor, James Ting-Edwards, agrees it wasn’t the ideal test of copyright law. “There are some digital copyright issues,” Ting-Edwards says. “But this is mainly a case about extraditing people for prosecution overseas. That said, it’s useful that we’ve had the case.”

“So, ‘without more’ [being done to encourage copyright infringement], you won’t be liable,” Shera says. Megaupload was actioning takedown

Other aspects While Megaupload actioned takedown notices,

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several aspects of the businesses “were not a good look”, says Shera. But that didn’t necessarily mean it had breached safe harbour rules.

The United States argued a number of other technical issues that related to ‘without more’.

One oddity, he says, was the fact that there was no search capability across the Mega sites. “[This] was used as an example of trying to avoid the requirements.”

One of the big challenges is that with changing technology, people are a bit unclear around what they can and can’t do

The US asserted that Megaupload’s business model was predicated on users uploading popular copyright-infringing material and allowing others to search for that material through third-party linking websites.

Another issue was that Megaupload sold advertising to go alongside its content and the most popular pages were those containing the infringing material. The US government argued that the defendants knew that copyright-infringing material increased their advertising revenue.

A mixed bag ISPs will likely be scratching their heads over the decision’s ramifications for safe harbour provisions.

Ting-Edwards says the ruling was a mix of good and bad for ISPs, but some big questions remain about copyright in the digital world.

“Copyright and digital issues affect everyone. A bit of context in a digital world copyright law covers more of the things you do every day such as when you’re sending an email attachment or making a backup. Those are pretty ordinary acts, but they can be limited by copyright law,” he says.

Continued on page 4

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LawNews Issue 43 | 5 Dec 2020

PROPERTY

How property managers might be liable for damage services) but also specific as to the signing and retention of tenancy agreements, collecting bond and rent and doing routine inspections.

By Joshua Pietras

In Sainty & Sainty v Property Brokers Limited, the New Zealand courts considered, for the first time, whether a property manager could be held liable for damage caused by tenants.

As the alleged breaches were premised on specific failures, it was difficult for the court to gauge an objective standard of reasonableness. While some of the alleged breaches were accepted as uncontroversial, others were advanced without a clear and unarguable standard against which those breaches could be measured.

Although the plaintiffs’ claim was dismissed at the summary judgment stage, the court found that a property manager could owe a professional duty of care to the landlord in certain circumstances.

It also found that a property manager could be held liable for breaching the Fair Trading Act 1986 where it had made misrepresentations about the quality of the rental management services, the guarantees it offered to customers and the suitability of the tenant.

The Sainty decision paves the way for holding property managers liable for damage caused by tenants. But it also shows the difficulties when using summary judgment in cases involving allegations of negligence or breaches of statutory duties. These types of cases involve complex factual issues that need to be tested at an ordinary trial.

The facts Roger and Margaret Sainty were a retired couple from Lower Hutt with several rental properties in Taumarunui. For many years they had used Century 21 to manage their rental portfolio.

At the start of 2015, Property Brokers acquired Century 21’s business, including the plaintiffs’ three rental properties. As part of its sale pitch, Property Brokers made various representations about the quality of its services. After the handover of Century 21’s business, the plaintiffs did not enter into a separate written contract with Property Brokers.

In September 2015, Property Brokers found a replacement tenant for one of the plaintiffs’ rental properties, describing them as a “lovely couple who are expecting their first child and are existing tenants with us”. But when the keys were handed over to the new tenants, Property Brokers failed to obtain a written tenancy agreement or collect the full bond amount.

Throughout the tenancy, Property Brokers made various representations to the plaintiffs about the quality of its services and the guarantees it offered to customers. From time to time, Property Brokers also informed the plaintiffs that the tenant was a “good” tenant.

But Property Brokers did not monitor the property closely. During the 30-month tenancy, it undertook only two inspections, despite promising to do inspections “up to four times a year”.

When the plaintiffs visited the property in late March 2018, they discovered the tenants had caused extensive damage, carried out unsightly

Joshua Pietras

renovations and contaminated the property with methamphetamine.

The local police confirmed the property was a known drug house and was frequented by patched gang members. Police records revealed there had been 19 callouts, involving 32 police cars, to the property in the previous six months.

After obtaining a methamphetamine report, the plaintiffs instructed Property Brokers to apply to the Tenancy Tribunal for an urgent eviction order.

But Property Brokers filed an incorrect application form, meaning the Tenancy Tribunal hearing was postponed for a further six weeks. The tenants remained in the property and caused further damage.

Court bailiffs eventually evicted the tenants and two weeks later, the plaintiffs terminated their management authority with Property Brokers.

The plaintiffs obtained a compensation order against the tenant in the Tenancy Tribunal but could not track her down. So, they made demand on Property Brokers for payment of $46,074.25.

When no substantive response was received, they began summary judgment proceedings against Property Brokers, alleging two causes of action: negligence and a breach of the Fair Trading Act. Negligence At the outset, the court said claims in negligence were generally regarded as unsuitable for summary judgment because a close examination of the facts was required.

The court found there would have been some form of contractual relationship between the Saintys and Property Brokers, even if no written contract existed. It said it was difficult to see what duty of care Property Brokers would have owed the plaintiffs apart from the duties it would have owed as implied terms of a property management contract.

This made it problematic to define the scope of Property Brokers’ duty of care. The plaintiffs alleged it was both general (to exercise reasonable care and skill when providing rental management

In the court’s view, Property Brokers should have retained a signed copy of the tenancy agreement so its terms were clear. There was also no question whether Property Brokers ought to have collected the full bond amount. However, whether it was reasonable for Property Brokers not to have inspected the property for six months was difficult to determine at the summary judgment stage.

The more difficult issue was whether Property Brokers’ “breaches” caused the plaintiffs’ losses.

The evidence established that significant damage and methamphetamine contamination had been caused to the property sometime between late September 2017 and March 2018. But it was difficult to say that Property Brokers’ failure to do a scheduled inspection in December 2017 or January 2018 would have prevented any of the damage.

In the court’s view, the only loss suffered by the plaintiffs for which Property Brokers was unarguably liable was the shortfall on the bond.

Property Brokers had a duty to collect it, failed to do so (or tell the plaintiffs they had not collected the full amount) and were responsible for the plaintiffs’ lack of recourse to the full amount of the bond when they obtained a compensation order in the Tenancy Tribunal.

Since the plaintiffs could not establish that Property Brokers had no arguable defence to the negligence claim, the application for summary judgment on this cause of action failed.

The Fair Trading Act Quality Representations The court focused on the quality representations arising from the information published on Property Brokers’ website, This described Property Brokers as having experience in residential property management, a strict tenant selection process based on “unique tenant selection criteria” and advanced software to allow clients to access records online.

The website represented that Property Brokers would inspect each rental property every three to four months.

The management fee charged was stated on the website to include tenant screening, completing tenancy agreements and lodging bonds, issuing appropriate breach notices and providing Continued on page 10 3

Continued from pages 1, 2

Rick Shera

James Ting-Edwards

Paula Browning

“It’s very unusual to have a Supreme Court decision about [copyright issues]. Because of this, some of the issues weren’t dealt with as clearly as we might like. There was a lot of emphasis on interpreting terms that seem quite basic, such as [infringing] ‘objects’.

Whether or not Megaupload was a criminal activity is sort of beside the point in this scenario because I’m much more interested in what the court is saying about safe harbours which has applicability to other people

“There’s no effective mechanism to enforce your rights,” says Copyright Licensing NZ’s Paula Browning. “It’s almost not worth having them. All the power rests with the business that has the safe harbour exception. And because we’re not a litigious country, we don’t tend to go to court to get interpretations of the legislation.

But that’s a really difficult exercise, to get a predictable and clear answer on in terms of a court decision.

“There’s that strong recognition [in safe harbour] that internet service providers need space to operate and they don’t always know what their users are doing. But there’s also a series of arguments around when they might not, or might, be responsible for what their users are doing. And some of those arguments are more persuasive [than others],” he says.

“Some of the ways the court grappled with the digital issues weren’t as clear as the industry might like them to be. Sometimes they didn’t reflect the clearest understanding of the technology.”

Not a defence On the plus side for ISPs, the court determined that the safe harbour rules apply by default and don’t have to be argued actively, Ting-Edwards says.

“That’s a really practical outcome,” he says, “because acting as an ISP means you might be handling millions or tens of millions of user interactions that you don’t have knowledge about.

So, it could be quite unrealistic to demand that people in that position come back and argue, as a defence, that ‘we didn’t know’.”

On the other hand, there were some questionable arguments around what counts as evidence of knowledge. For example, the US government argued that Megaupload designed a front page to conceal that it knew copyright infringement was happening. There could be many other reasons behind the design of a front page, he says.

More concerning for the broader industry is the argument that Megaupload designed access to its files so the most popular, and likely infringing, 4

files were stored in a system of faster access.

“And so they’re saying [that] designing the system efficiently might count as evidence that they know about the copyright infringing files,” Ting-Edwards says.

“But that doesn’t follow. Just because online systems are designed with a certain level of automation that makes files quicker to access [doesn’t] mean they know the particular contents of those files.”

Not litigious enough As a result of the court’s Megaupload decision, safe harbour has been significantly weakened, Shera says.

“Whether or not Megaupload was a criminal activity is sort of beside the point in this scenario because I’m much more interested in what the court is saying about safe harbours which has applicability to other people,” he says.

New Zealand has a dearth of copyright cases that make it all the way through the courts.

“For things like safe harbour, you’ll have businesses who will go to the limits on that and it’s too expensive for the people who are likely to object to how their businesses behave and to go to court.

“So, we don’t get the judicial interpretation way of shaping our legislation here like you might see in the UK, for example,” she says. The UK has implemented a small claims process for copyright infringement.

Ting-Edwards would like to see a case that is principally about copyright go all the way to the Supreme Court to get some guidance. “Because one of the big challenges is that with changing technology, people are a bit unclear around what they can and can’t do,” he says.

Copyright Act review Ting-Edwards says the reliance on background documents in the Megaupload case from the last set of changes to the Copyright Act might suggest the law is less clear than it could be. Shera, too, says the Dotcom case has shown the legislation needs to be more certain.

Browning is looking forward to MBIE’s review of the Copyright Act 1994, which is underway.

“It’s really important that the Act review is centred on the needs of the creative community,” she says. “New Zealand has a reputation and a strong overseas profile on our creative community here and the creative economy is a real opportunity for New Zealand to diversify what we earn money from.”

She says one of the issues is the Copyright Act is small – about a quarter of the size of the Australian equivalent.

LawNews Issue 43 | 5 Dec 2020

TECHNOLOGY

Online legal services ramp up with Aussie merger

By Diana Clement

Covid-19 is boosting online dispute resolution in New Zealand. The pandemic led to an estimated 60,000 court hearings being rescheduled with some Kiwis waiting six to 12 months for cases to be heard.

As a result, service and technology providers doing everything from mediation to fully online court hearings are booming. A key player in this market, former solicitor-general Michael Heron QC, this month merged his online dispute resolution company, CODR, with Australian legal technology company, Immediation, launched three years ago by Melbourne-based barrister Laura Kiely.

Laura Kiely

“We have a business that is similar to what Mike had developed in New Zealand,” says Kiely. “That is an online dispute resolution platform, originally designed to provide out-of-court solutions to people with a view to improving access to justice.”

Heron has transferred his business assets to Immediation but it’s really a merger, says Keily. “It’s Mike’s capability and his panel and his connections in New Zealand, combined with our intellectual property, design, process and platform.”

The new company, Immediation NZ, will provide a video conferencing platform, designed by lawyers for lawyers and linked to CODR’s panel of experts with the intention of resolving disputes online at a significantly reduced cost. Heron will stay on in a governance and strategic role.

Kiely says it was a natural fit because she and Heron both have the practical know-how of the legal industry operates in both countries and how to best translate dispute resolution into an online environment.

Earlier this year Heron told LawNews he imagined a future where private online dispute resolution services such as CODR would be superseded by the courts. But that day is not yet here. The game plan, says Kiely, is to build the platform in New Zealand and provide online dispute resolution both in and out of court.

The two companies collaborated earlier this year to participate in a New Zealand government scheme to provide subsidised mediation and arbitration for commercial tenants and landlords at loggerheads about rent relief during Covid-19.

Immediation/CODR became one of three approved providers offering dispute resolution services for a $40 million Ministry of Justice package.

Kiely says the bid process for both the commercial property work and several other government contract bids in progress highlighted to Immediation the differences between the two countries.

Mike Heron QC

“As we’ve learnt it’s really important that we approach this with a Kiwi lens because there are very important cultural differences between the two countries. We’re very, very cognisant of that and want to make sure it’s an appropriate solution for the New Zealand community. It’s not a one-size-fitsall.”

The two companies formally merged earlier this month.

When Heron and Kiely first met at a dispute resolution conference a few years ago, most in the legal industry didn’t believe that online would take off. This year has proved them wrong, says Heron.

“Now, it’s kind of routine that civil hearings, non-witness hearings and other hearings are proceeding online,” he says. “Yesterday my junior barrister did a High Court hearing totally online. Judge, opposing party, all the documents, via Microsoft Teams. It’s sad that it took Covid to do it but great that we’re on the journey.”

Covid-19 has boosted Immediation’s Australian business. The company is now providing its technology to the Australian court system, says Kiely. “We have been providing both mediation and virtual courtrooms into courts and some tribunals in Australia. That was not happening before Covid.

“We offered our solution to [the courts] because we knew the solution we built for our business was probably the most progressed in the market. The rapid adoption this year has really made a massive difference.”

Kiely says New Zealand lawyers should be aware they can use the Immediation NZ platform for mediation and arbitration in everyday matters. It is purposebuilt, rather than an attempt to adapt Zoom.

Immediation is also looking at an expansion into the United States.

ADLS COUNCIL

New ADLS council member appointed The ADLS Council is delighted to announce that Auckland lawyer Andrew Skinner has been appointed to the council of ADLS. Andrew is a partner at Martelli McKegg and has more than 20 years’ experience in corporate and commercial work. His specialist industry areas include building and construction and he was general counsel at Carters Building Supplies for a number of years. Andrew also specialises

in franchising and has advised many of New Zealand’s leading franchising systems.

Andrew has a particular interest in governance matters, is a qualified chartered secretary and a member of Governance New Zealand and sits on the Membership and Admission’s Committee for that organisation. Andrew is also vice-chair of the Frame and Truss Manufacturers Association.

ADLS President Marie Dyhrberg QC, along with all council members, is very confident that Andrew will

bring considerable additional expertise to the council and is confident he will make a very valuable contribution.

Following this appointment, Andrew will stand as an elected ADLS council member in elections to be held next year.

5

CLIMATE CHANGE

By David Hall, Raven Cretney & Sylvia Nissen

The emergency response to the Christchurch earthquakes is a case in point. Limiting civic participation in the rebuild led to public ambivalence over the results, which were too often determined by the interests of the state rather than the aspirations of local communities.

There is no question that we must act, and act fast, on climate change.

This week’s climate emergency declaration by the government acknowledges the urgency of the climate crisis and the need to collectively confront it.

Of course, it isn’t inevitable that any tyrannical urges will be unleashed. Arguably, the meaning of climate emergency is still to be determined. From one angle, it is a blank page, an empty signifier, which means nothing in particular.

But a declaration is not the same as action. Prime Minister Jacinda Ardern has been frank that the declaration is a symbolic gesture: “It’s what we invest in and it’s the laws that we pass that make the big difference.”

But the flipside is that the term has a surplus of meaning – that is, it means many things to many people. Some of these meanings are not easily dismissed, including those that conflict with justice.

In saying this, she echoes the sentiments of some local councils during the first wave of climate emergency declarations in mid-2019.

Read more: Prepare for hotter days, says the State of the Climate 2020 report for Australia.

The long emergency Campaigners for a climate emergency will continue to use this language to ratchet up ambition, but they should be aware of these tensions. If a climate emergency is to be compatible with other ideals like democracy and decolonisation, then it must be fought for on those terms.

For all that, it is wrong to imagine a declaration will make no difference at all. Language has power.

Words like “emergency” have an impact in the real world, especially when endorsed by political leaders.

Political language frames how we interact with one another and the planet, and how we imagine our collective future. In that respect, the consequences of such emergency declarations – with their attendant sense of panic and fear – remain unsettlingly vague.

What does ‘emergency’ mean?

On one hand, a declaration is a way for campaigners to hold the government to account.

For the young people in the School Strike 4 Climate movement who made an emergency declaration a key demand, it may prove a moment of inspiration and empowerment.

If it is taken as a sign that social movements can effect political change, reset the agenda and compel governments to listen, the declaration could embolden efforts to hold the government to its word – and to implement the laws and investments that will deliver emission reductions and adaptation to climate risks.

Read more: Mining companies are required to return quarried sites to their ‘natural character’.

But is that enough?

On the other hand, the politics of emergency come with baggage, established in precedent and law, by which ordinary political processes are suspended to expand state power.

An unsettling legacy It’s important to recognise that this notion of emergency politics, like the idea of climate emergency declarations, was imported to Aotearoa New Zealand. It is another example of New 6

Zealand’s “fast follower” approach to climate policy.

The low-emissions transition has accelerated under Ardern, but largely by way of policy transfer from the UK and EU, not by homegrown innovation.

The climate emergency concept made a parallel journey via social movements such as Extinction Rebellion.

Yet the state’s emergency footing, where ends justify extraordinary means, is inherently problematic in the context of recent colonial history. Legislation such as the Public Works Act, for example, empowered the Crown to compulsorily acquire land for infrastructure development — land often owned by Māori.

Read more: How life-cycle assessments can be (mis)used to justify more single-use plastic packaging.

A climate emergency might be only symbolic, but its language carries this legacy of alienation and disenfranchisement. Moreover, it risks reviving those imperialist tendencies, by treating processes of consultation and consent as impediments to urgent action.

Where does democracy fit?

Emergency is also risky to democracy, especially when the crisis is not temporary but long-lasting, as the climate crisis is. Although many climate campaigners prioritise justice and equity as essential to the low-emissions transition, others treat democracy as a barrier to climate action rather than a vehicle for it.

For example, the School Strike 4 Climate demands a climate emergency declaration must “uphold our democratic values and obligations under Te Tiriti o Waitangi”.

Read more: Why our response to climate change needs to be a just and careful revolution that limits pushback.

If climate change is an emergency, it is a “long emergency”. It has taken decades, even centuries, to create — and will take comparable timeframes to undo. It requires us to reimagine the structures of our societies, cities, economies and our politics.

If Aotearoa New Zealand is to shift from being a follower to a leader or pioneer in climate governance, it must involve local knowledge, especially Māori knowledge and leadership, to respond in ways that reflect our local circumstances.

If action is to be sustained over years and decades, it requires behaviour that springs from hope, not fear.

David Hall is a senior researcher in politics at the Auckland University of Technology, Raven Cretney is a postdoctoral fellow at the University of Waikato and Sylvia Nissen is a senior lecturer in environmental policy at Lincoln University The above was first published in The Conversation and is republished with permission

Photo by Lynn Grieveson - Newsroom/Newsroom via Getty Images

By declaring a climate emergency Jacinda Ardern needs to inspire hope, not fear

LawNews Issue 43 | 5 Dec 2020

INVESTMENT

Is investment property the best way to grow wealth?

By Patrick Fogarty

objective analysis of the components that make up a property’s total return.

Property advocates are everywhere. No surprise really when one considers the wealth amassed in the past 20 years by those lucky enough to be in the right house at the right time.

But what about rental income?

Any assessment of investment property would be incomplete without considering rental income.

Income generation is, for many New Zealanders, the primary motivation for buying property in the first place. The logic is simple: buy the asset, pay off the debt during one’s earning years, then live off the rental income in retirement. It is a workable solution, one successfully deployed by a generation of Kiwi investors. But is it optimal?

The growth of the residential housing market has fuelled an almost unshakeable confidence in the sector, ever strengthening the belief that real estate is the undisputed best asset class for creating long-term wealth.

I often see back-of-the-napkin calculations that seek to evaluate the attractiveness of a particular property through the gross rental yield calculation (annual rental income/property value) x 100.

But is this really the case? If return on capital is our test and New Zealand is our area of focus, then the answer is a no, not by a long shot.

My house is my castle For the most part, I think owning a home should be the goal of everyone with the means to do so.

Patrick Fogarty

In 1997 I sat down to watch what remains to this day one of my favourite movies of all time, the cult Australian classic The Castle. Set on the outskirts of Melbourne, The Castle tells the story of the Kerrigans, an unsophisticated and endearing family attempting to protect their home from the Australian government’s airport expansion plans. During the ensuing legal battle, the QC defending the Kerrigans appealed to the judge by commenting, “Sure the Kerrigans built a house, then they built a home and family. You can acquire a house, but you can’t acquire a home. Because a home is not built of bricks and mortar, but love and memories. You can’t pay for it and you’re only short-changing people if you try.”

A house is a depreciating asset that will start to lag behind more modern houses in key areas of desirability unless substantial reinvestment is made

Buying a home is clearly more than an economic decision, one that provides a host of benefits unrelated to one’s total wealth. This however is not today’s topic; rather, this article will focus on the decision many New Zealanders face when they find themselves in the fortunate position of looking beyond their primary residence.

Even after adjusting market returns by 0.25% per annum to account for the fees one would need to pay to access the market through a basic index tracker or ETF, the net return of the market still outpaced median house-price growth by more than 200%, returning approximately 527%.

Stock market vs property returns If 20 years ago you were in this position, and pondering the best way to maximise your savings, you would have likely been considering the two most commonly deployed investment strategies: either to buy more property or to invest in the stock market.

If you had chosen the former you would have done well. The median house price in New Zealand at the end of September 2000 was $171,000. Wind on 20 years and the median sits at around $680,000, a 298% return on your capital.

So, how did this compare to the stock market?

Over the same timeframe, an investment in the New Zealand market (as represented by the NZX50 index) would have delivered an approximate return of 552%, a significantly better result than the average homeowner achieved.

The median house fallacy The case for property, at least from a returns perspective, is further challenged when one considers that the ‘median house’ is not actually an investment that can be bought, held and then sold.

Sure, median house prices have gone up over time, but so has the size of the median house, the quality of the materials in the median house, the quality of the electricity and plumbing in the median house, the insulation of the median house and the design and aesthetics of the median house.

A house is a depreciating asset that will start to lag behind more modern houses in key areas of desirability unless substantial reinvestment is made. This factor is rarely accounted for when people look at growth in the housing sector and almost never addressed in media coverage that tends toward sensationalist reporting, rather than

Example: Property value $700,000, expected rent $500 a week $26,000 (annual rental income) ÷ $700,000 (property value) x 100 Yield = 3.71% An annual rental yield of 3.71% can, on the surface, seem quite attractive. The devil however is in the detail. There are many layers of operating expenses attached to rental properties that need to be considered to get a genuine sense of the income one can expect.

After factoring in transaction costs, insurance, income tax, management fees, vacancy, regular maintenance, irregular maintenance, rates and debt servicing costs, the true (net) yield can often be disappointing. What’s more, we haven’t factored in time. Even with third-party management, properties need far more attention than a diversified investment portfolio, and the cost of your attention and time is rarely considered.

But leverage!

Now to leverage, the trump card, the unassailable argument that tends to end the conversation.

The ability to gear capital is certainly a key factor in the value people ascribe to property, one that leads many homeowners to double-down when approaching the end of their first mortgage.

While this has been a successful strategy throughout the boom years for New Zealand real estate, it is also an approach that comes with a number of idiosyncratic disadvantages.

Let’s consider a hypothetical example, a successful couple who purchased a home in Auckland 10 years ago that is now worth $2.5 million. They are within touching distance of paying off their mortgage and are considering their next move.

The road commonly travelled would be to use a combination of cash and/or equity to fund the purchase of an investment property. While this Continued on page 10 7

To view all ADLS CPD & register: adls.org.nz/cpd Email us: cpd@adls.org.nz Phone us: 09 303 5278

Featured CPD Jumping off the page The use of extrinsic material in the interpretation of contracts and statutes In person | Live Stream The late Justice Antonin Scalia (and RBG bestie) once quipped that “the main business of a lawyer is to take the romance, the mystery, the irony and the ambiguity out of everything [s]he touches”. A large part of that exacting business is the task of interpretation. It is the bedrock of our legal work. Many disputes turn on the meaning of a written contract, or of a statute, or both. Lawyers constantly fret: “what on earth do these words mean?” The answer, often knife-edge, can have enormous consequences. The New Zealand courts have been tightening up their approach to interpretation, re-emphasising the primacy of the text. Judges have admonished parties for excessive reliance on external material that is inadmissible, only remotely relevant, or “singularly unhelpful”. This seminar will explore what may properly be put before the court.

 Seminar

Livestream

CPD 1.5 hrs

 Mon, 15 Feb 4pm – 5.30pm

 Presenter Gillian Coumbe QC, Barristers at Chancery

Learning outcomes: •

•

•

•

Update your understanding of the principles governing the interpretation of written contracts and of statutes, including the most recent case law.

In relation to contracts, get practical guidance about what evidence is admissible (or not) under the “factual matrix”, commercial context, prior negotiations, and subsequent conduct.

In respect of statutes, hear the latest word on permissible and impermissible extrinsic aids relating to legislative history.

Overall, learn how far beyond the written page you should look in giving advice, or in bringing or defending a proceeding involving an issue of interpretation.

Mortgagee Sales: Avoid the Pitfalls With businesses closing or downsizing, incomes being affected and jobs being lost, it likely won’t be long before the economic turmoil wrought by Covid-19 plays out in an increase in mortgagee sales. These present a special status and rights. Are you prepared for advising and acting? Providing property and litigation perspectives, this webinar will assist you to advise those contemplating, or confronted with, a mortgagee sale.

Learning outcomes:

 Webinar CPD 1.5 hrs

 Tue, 16 Feb 12pm – 1.30pm

 Presenters

In respect of mortgagee sales: • Deepen your knowledge of when the process might be commenced, and what is involved.

• Explore the options that exist, and trends in play.

• Get to grips with the twists and turns the process can take.

• Delve into where challenges to a proposed sale might arise.

• Gain insights into common traps and complications and how to avoid or deal with them.

Nicola Robertson, Director, Sanderson Weir Limited Tony Johnson, Partner, Martelli McKegg

Future Planning: Alternative Mechanisms for Selling the Family/Small Business

 Webinar

Globally, 80% of businesses are family owned, however only 25 to 30% of these businesses will successfully transfer to the second generation, leaving two thirds of business owners to find an alternative mechanism to sell their family owned businesses. This webinar will focus on preparation for sale, compare sale processes, discuss the value of the business, the role of management or joint venture partners and working with advisors.

Learning outcomes: • •

• •

Learn more about the mechanisms for family business succession in a post COVID environment.

Gain an increased understanding of the role of management or new joint venture partners in release of equity to business owners through the succession process.

Learn more about the changing dynamics around business values.

Gain insights into advising clients on preparation for sale and the various sale processes.

Bully or Client - Where is the Line?

In person | Live Stream Lawyers are ethically obliged to accept instructions in their practice area from any client, unless they have “good cause” to refuse them. But at what point does the client’s behaviour justify terminating or rejecting an engagement? There has been considerable recent focus on bullying in the workplace, bullying between professionals, and bullying from the bench. We have heard less about the bullying client, and it’s a fraught topic!

Learning outcomes: •

• • •

Gain insights into proposed changes to the Lawyers and Conveyancers Act (Lawyers: Conduct and Client Care) Rules 2008 (RCCC) to include bullying from clients and other changes Learn to identify when client behaviour amounts to bullying (and when it does not) Understand lawyers’ legal and ethical obligations and options in this context Be able to identify options for dealing with bullying behaviour and associated legal instructions

CPD 1 hr

 Wed, 17 Feb 12pm – 1pm

 Presenter Tim Howe, Partner, Ocean Partners

 Seminar

Livestream

CPD 1.5 hrs

 Thu, 18 Feb 4pm – 5.30pm

 Presenters Janine Stewart, Partner - Construction MinterEllisonRuddWatts Katie Karpik, Solicitor, MinterEllisonRuddWatts

 Chair Dennis Jenkin, Barrister

Property Law Half-Day Conference 2021 In person | Live Stream Save the Date - More Information to Follow. The Half-Day Conference will again provide practically-focused sessions on a range of pertinent and interesting property law topics presented by experts in their fields. It will be of value to all those practising in the area of property law.

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 Conference Livestream CPD 4 hrs

 Thu, 25 Feb 12.30pm – 5pm

LawNews Issue 43 | 5 Dec 2020

CPD in Brief Youth Advocates Conference In Person | Live Stream The Youth Justice system in New Zealand has always been pioneering, and following amendments to the Oranga Tamariki Act in July 2019 practitioners in the Youth Justice space have even more tools at their disposal when working with rangatahi.

It is a brave, exciting, new world and a time to make the most of what the Act, the Convention and the Treaty offer. The Youth Court is a specialist jurisdiction, requiring Youth Advocates to have special characteristics in order to be appointed, and special skills to do their work in addition to their legal skills. This conference will give an overview of the Youth Justice System and focus on the function and procedures in the courtroom.

 Conference Livestream CPD 4 hrs

 Fri, 26 Feb 10am – 2.30pm

The conference will focus on: • The Youth Court • Family group conferences • Arrest, Police procedures and remands • Disposition – sentencing Presenters: Her Honour Judge Otene; Dana George; Maggie Winterstein; Maria Pecotic; Renee Karena; Judith Malcolm; Amosa Samuelu; Gary Earley; Presenter/Chair: His Honour Judge FitzGerald

Criminal Law Pot Pourri™ In person | Live Stream Join us for our annual Pot Pourri of the topical issues in Criminal Law. A must-attend event covering the following topics: • Guiding principles for s 27 reports.

• The Sexual Violence Bill.

• Name suppression and the impact of social media.

• Parole – lack of available programmes is resulting in parole being denied.

Presenters: Marie Dyhrberg QC, President, ADLS; Emma Priest, Barrister; Ish Jayanandan, Barrister; Lucy Smith, Barrister Chairs: His Honour Judge Bergseng; Her Honour Judge Aitken

Financial Service Providers – Compulsory Registration Law Updated Law governing the controversial Financial Service Providers Register (FSPR) has been substantially updated. The updated law comes into force in early 2021. A wide range of financial service providers (FSPs) are required to register on the FSPR including lenders, financial advice providers, custodians and licensed FSPs. Under the updated law some FSPs are no longer required (or permitted) to register, and some off-shore FSPs with NZ customers are required to register for the first time.

Presenter: Simon Papa, Director, Cygnus Law

Personal Effectiveness Workshop

What are your goals for the coming year? Are you performing at your peak? Is there room for improvement in your work methods? Returning for 2021, this well-received workshop will provide a range of personal effectiveness insights and tools to help increase your productivity and return-on-effort at work. It is facilitated by a leading high-performance consultant.

Places are limited. Register now to avoid missing out.

Feedback from previous workshops includes the following comments: • “Great style and presence. Very useful and enjoyable morning” • “Covered a range of topics valued to the industry” Presenter: Tony Gardner, Managing Director, Archetype Leadership + Teams

 Seminar

Livestream

CPD 2 hrs

 Tue, 2 Mar 4pm – 6.15pm

 Webinar CPD 1.25 hrs

 Wed, 3 Mar 12pm – 1.15pm

 Workshop CPD 4 hrs

 Thu, 4 Mar 9am – 1.15pm

CPD Pricing Delivery Method

Member

Non-Member



Webinar (1 hour)

$80 + GST

$115 + GST

Webinar (1.25 hour)

$90 + GST

$130 + GST



Seminar (2 hour in person)

$130 + GST

$185 + GST

Seminar (2 hour live stream)

$130 + GST

$185 + GST

On Demand (1 hour recording)

$90 + GST

$130 + GST

On Demand (2 hour recording)

$145 + GST

$205 + GST

 

CPD On Demand Earn CPD hours by completing On Demand activities via your computer or smart device visit: adls.org.nz/cpd

For group bookings for webinars and seminars, contact cpd@adls.org.nz ADLS members and non-member lawyers who have registered their Airpoints™ membership with ADLS can earn Airpoints Dollars™ on eligible ADLS CPD purchases.

Terms and conditions apply.

Mortgagee Sales: Avoid the Pitfalls Tuesday 16 February | Webinar | 1.5 CPD hours Visit adls.org.nz for more information.

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Continued from page 3

Continued from page 7

representation at the Tenancy Tribunal.

approach provides exposure to a large asset with the potential for capital gains and rental income, the success of the strategy is now intrinsically linked to a singular concentrated factor, in this case the Auckland property market. The proverbial ‘eggs in one basket’ situation.

The court rejected Property Brokers’ argument that the representations did not apply to the relationship because the plaintiffs did not enter the property management relationship in reliance on these representations.

It found the management relationship was terminable at will so if the plaintiffs read the online representations during the property management relationship, then the representations could reasonably have induced them to remain with Property Brokers.

In the court’s view, it was clear that Property Brokers did not fulfil some of the online representations, including: retaining a copy of the tenancy agreement; conducting three - or four-monthly inspections; and collecting the full amount of the bond.

Despite these obvious breaches, it was at least reasonably arguable that the plaintiffs’ losses were not due to a failure by Property Brokers to meet the standards represented in their online advertising, with the obvious exception of their failure to collect the full bond.

Concentrating assets in one area is almost never a prudent approach, and with memories of the 2011 Christchurch earthquake and the more recent declines in Sydney’s housing sector still fresh, it is not difficult to see real-life examples of events that would have catastrophic implications for the tried and tested ‘property always goes up’ mentality.

So, how could our hypothetical investors approach this differently? One option might be to utilise part of the equity they have built in their home. They could, for example, borrow the equivalent value that they had intended to spend on a rental property – let’s say $1m – and invest in a highly diversified managed portfolio.

In addition to higher expected long-term returns, our clients will have mitigated much of their NZ concentration risk and have a portfolio of potentially 10,000+ liquid securities that can be sold down should cashflow be required in the future.

that its rent collection process is such that it guarantees to pay the rent if the tenant will not;

No magic bullet Unfortunately, there is no singular approach that fits every investor. Every individual and family is different and each situation requires careful consideration before good advice is prescribed. I am not intending to advocate a particular strategy, nor am I opposed to owning property. I am, in fact, currently on the hunt for a home in Auckland myself.

if a client is not happy with its service, Property Brokers will pay the management fee;

My intention is, rather, to highlight that the commonly deployed approach of blindly loading up on as much property exposure as possible has its flaws.

if the property becomes untenanted and Property Brokers does not sign up a tenant within 28 days of it being available, Property Brokers will pay the rent.

Guarantee Representations The court then turned to the guarantee representations arising from further online material, in which Property Brokers represented:

The service guarantee statements were apparently subject to “full terms and conditions”, which neither party had produced in evidence. As a result, the court could not discern the parameters of the guarantees and the circumstances in which they would apply.

Tenant Representations The tenant representations consisted of Property Brokers writing to the plaintiffs at the beginning of the tenancy and during the tenancy, saying the tenant and her partner were:

A “lovely couple who are expecting their first child…and are existing tenants… who are great and are very happy to have found your property”; “A good tenant”; “A low maintenance tenant”; “good for many years”.

The court said there was insufficient evidence to conclude these statements were inaccurate representations, at least until the property was found to be extensively damaged in late March 2018.

By that stage, the tenant had been occupying the property for two and a half years, apparently without incident. The two previous inspections carried out

by Property Brokers in April 2016 and September 2017 did not record any noticeable damage.

The court found the tenant’s performance clearly did not match Property Brokers’ description. But when the representations were made, there is insufficient evidence that Property Brokers’ assessment of the tenant was inaccurate.

For this reason, the court concluded it was at least reasonably arguable that Property Brokers’ misrepresentation did not lead to the plaintiffs’ losses, except for the shortfall with the bond.

The Fair Trading Act cause of action was dismissed.

Joshua Pietras is a senior solicitor at Thomas Dewar Szirany Letts and a member of the ADLS Civil Litigation committee 10

When viewed objectively, property falls short of ‘magic bullet’ status. Like most things, the best approach is likely to be more balanced, one that considers risk, diversification, costs and liquidity.

Patrick Fogarty is a personal wealth adviser at The Private Office

WILL INQUIRIES LawNews The no-hassle way to source missing wills for $80.50 (GST Included) Email to: reception@adls.org.nz Post to: ADLS PO Box 58, Shortland Street, DX CP24001, Auckland 1140 Fax to: (09) 309 3726 For enquiries phone: (09) 303 5270

Wills Please refer to deeds clerk. Please check your records and advise ADLS if you hold a will or testamentary disposition for any of the following people. If you do not reply within three weeks it will be assumed you do not hold or have never held such a document.

William Joseph PRITCHARD (aka William PRITCHARD), Late of 13 Vodanovich Road, Te Atatu South, Auckland, separated but in a de facto relationship, senior community work supervisor, aged 61 (died 06’11’20)

LawNews Issue 43 | 5 Dec 2020

Leo Farmer

Princes Chambers | Office for Lease

Shortland Chambers is pleased to announce that Leo Farmer has joined as a member.

Located in one of the oldest character buildings at 3 Princes Street, Auckland Central. Strategically positioned between the High Court and Auckland’s financial and legal precinct.

Leo practises in regulatory and commercial dispute litigation.

Before joining the bar Leo was a litigation partner at Meredith Connell.

We currently have one large office (62sqm) suitable for a small team and one smaller office (18sqm) for an individual barrister on offer.

We wish Leo well in his career at the bar.

Lease includes the use of meeting room, courtyard, and kitchenette.

Please email: richardtan@timbergrow.co.nz or phone 0212768168.

Offices Available Following some barristers leaving as a result of Covid, we have four offices available for rent, of varying sizes.

The Chambers share a refurbished floor (with separate areas) with Hussey & Co., a boutique forensic and general accounting firm. There are shared meeting rooms (a formal boardroom and a less formal meeting room), and communal entrance and client waiting area.

Telephones, internet connection, printing and secretarial services also available and some furniture available.

Cost depends on office size and range from $150 – $300 per week plus gst. No long-term commitment required.

Photographs of the Chambers can be viewed at www.hco.co.nz/gallery.

Contact: Shane Hussey for further details, Shane@hco.co.nz 09 300 5481

BRITOMART OFFICE AVAILABLE Expressions of interest are sought from an established or an intermediate barrister to share, on a licence arrangement, a modern inner city/Britomart office situated close to Britomart transport, ferries, restaurants and Commercial Bay. There is potential to share some existing resources.

Expressions of interest, or requests to view the room, should be directed to: brettt@brettharris.co.nz

www.shortlandchambers.co.nz

Experienced Property Lawyer Required • Quality, varied work

• Mentoring

• A medium-sized firm with great prospects of advancement and succession Lovegroves is a long-established successful law firm with quality clients.

We are looking for an experienced property-based lawyer who is interested in good and rewarding work on a wide range of investments and transactions.

We are seeking a person with between 5 and 10 years’ experience who is clientfocused and has excellent interpersonal and communication skills and is able to competently manage files.

We see a long-term future within the firm including partnership prospects.

If you wish to apply in confidence for this position please email: jradley@lovegroves.co.nz Applications should include a covering letter detailing relevant experience, CV and academic transcripts.

ROOM AVAILABLE Vulcan Building Chambers has a spacious room in the historic Vulcan Buildings in Vulcan Lane available to a barrister wishing to share reasonably priced facilities with six other collegial barristers.

Facilities include: Website, boardroom, library, kitchen, shower, ultra fast broadband, networked printing and photocopying and VOIP phone system. The chambers have a dedicated and capable office manager.

BRETT HARRIS BARRISTER

Please email: eden@vulcanbuilding.co.nz or phone 09 300 1253

This space could be yours

SOUTH AUCKLAND LAW PRACTICE FOR SALE

LawNews reaches a discerning audience of nearly 6000 lawyers, judges, politicians and academics every week.

Get your message in front of them.

Call our advertising executive, Darrell Denney, on 021 936 858 or email Darrell on Darrell.denney@adls.org.nz

A highly profitable boutique law practice with a large and longstanding client base offers the potential for both lifestyle and success for a general practitioner. Situated in the South Auckland area, this is a unique opportunity to walk into a solid and ever-expanding profitable base of private and small to medium business clients.

The practice has a substantial conveyancing, commercial, trusts and estates clientele with room to expand into civil litigation and family law. The possibilities are endless for an ambitious general practitioner.

Very flexible arrangements are available for transition to the new ownership.

Expressions of interest c/- Matthew Pasley, Keegan Alexander, Lawyers Auckland, mpasley@keegan.co.nz

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LITIGATION LAWYER – PQE 1-4 YEARS

Trustees (2) Auckland Community Law Centre is looking to appoint two new trustees, including a new Chairperson, who can bring fresh thinking and energy as we implement our new strategic plan.

We are looking for people prepared to make a commitment for 2-3 years.

You will be a lawyer qualified to practise on your own account, with strong connections at senior levels of the profession, strong connections to your community, and experience in governance.

LeeSalmonLong is a fast-paced, thriving Auckland City-based, specialist commercial litigation firm. We are looking for talented litigation lawyers with one to four years’ post-qualification experience to join our respected firm.

We challenge our lawyers to develop their legal experience in a working environment that offers a high degree of mentoring. Our lawyers work on a range of files and engage in high levels of client contact and file responsibility in a modern working environment. They also work directly with external counsel and senior counsel and are given opportunities to develop their own ‘brand’.

Our lawyers regularly appear in the District, High and Appellate courts, in arbitrations, specialist tribunals and mediations.

This is an opportunity not to be missed.

You will be passionate about promoting access to justice and be able to demonstrate your commitment to it.

You will have opportunities to engage with senior members of the profession on the future of access to justice, including the judiciary, regulators, professional associations and policy makers.

Candidates for Chairperson will also have strong leadership and governance experience.

While these are voluntary roles, the trust has discretion to provide small honorariums.

To apply for these roles please email a short cover letter and CV (one page is sufficient) to: Darryn Aitchison, General Manager, at: recruitment@aclc.org.nz Applications close 11 December 2020 A full overview of the roles can be viewed here.

If this position sounds like you, please email in confidence your CV and impressive academic record to: kiaora@lsl.co.nz

Relationship Property Lawyer Established busy, expanding, central city law firm.

1 principal, 1 senior lawyer, 2 junior lawyers, supporting law clerks and up-to-date systems.

Seeks to engage an experienced Relationship Property Lawyer.

Partnership and practice acquisition opportunity.

Contact; Warwick Wright, RAINEY COLLINS WRIGHT LAWYERS Mob: +64 27 294 4102, Email: wwright@rainey.co.nz

Jumping off the page The use of extrinsic material in the interpretation of contracts and statutes Monday 15 February | 1.5 CPD hours This seminar would be of benefit to all lawyers involved in advising on, or litigating (in court or in arbitration) the meaning of contracts or statutes, as well as those who draft these instruments

T 09 303 5278

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E cpd@adls.org.nz

W adls.org.nz