Clyma & Ors v Kaminski
[2023] NZHC 3026
•30 October 2023
IN THE HIGH COURT OF NEW ZEALAND ROTORUA REGISTRY
I TE KŌTI MATUA O AOTEAROA
TE ROTORUA-NUI-A-KAHUMATAMOMOE ROHE
CIV-2019-463-000035
[2023] NZHC 3026
UNDER the Companies Act 1993 and the Fair Trading Act 1986 IN THE MATTER
of prejudiced shareholders and misleading nd deceptive conduct
BETWEEN
THOMAS JAMES CLYMA, QIAN WANG, JU LI, CHRISTINA KALESITA CLYMA, JIA ZHAO, XIANMEI MENG, MARCO DUMAS and STEPHEN MICHAEL
REILLY as shareholders of KIWI RIDER LIMITED
Plaintiffs
AND
THOMAS KAMINSKI
Defendant
Hearing: 1-5 May 2023 Appearances:
E St John (1 May 2023) and S Maloney for the Plaintiffs Defendant in Person
Judgment:
30 October 2023
JUDGMENT OF WALKER J
[Interim judgment as to liability]
This judgment was delivered by me on 30 October 2023 at 4 pm Pursuant to Rule 11.5 High Court Rules
Registrar/Deputy Registrar
CLYMA & ORS v KAMINSKI [2023] NZHC 3026 [30 October 2023]
[1] This claim arises out of a failed tourism venture promoted and set up by the defendant, Thomas Kaminski, in 2016. The plaintiffs each invested in the venture in return for a shareholding in Kiwi Rider Limited (Kiwi Rider). Kiwi Rider is the corporate vehicle for the venture which traded as the Rotorua Orbserver. The plaintiffs claim they invested in reliance on representations by Mr Kaminski which were misleading or deceptive within the meaning of s 9 of the Fair Trading Act 1986 (the Act).1 They bring this claim to recoup their investment losses.
[2] The plaintiffs comprise most of the shareholders in Kiwi Rider but not all shareholders are plaintiffs.2 Mr Kaminski is the single largest shareholder in Kiwi Rider despite not contributing any start-up capital.
[3] It is common ground that Kiwi Rider was Mr Kaminski’s idea. He discovered tethered helium hot air balloons at various international locations offering rides to passengers. The plan was to buy a balloon and cable/winch system from an international supplier to offer the experience of panoramic views over Rotorua for up to 20 passengers at a time from a fixed site. Mr Kaminski’s aspiration was to expand to other tourist hotspots in New Zealand, and then to Australia.
[4] The obstacle was Mr Kaminski’s financial circumstances. He was not in a position to fund a start-up. Finding investors was crucial. Two friends, Marco Dumas and his wife Ju Li, became involved. Other investors, invited by Mr Dumas and Ms Li, followed. Mr Kaminski distributed an information memorandum to would-be investors. He then met them to introduce himself and present his vision for the venture. It is principally statements in the information memorandum and at that meeting on which the claim for misleading and deceptive conduct is based.
[5] The venture was beset by problems from the start. Delay (and the reasons for it) absorbed investor funds even before the balloon could be launched. Having missed the 2016 summer tourist season, the eventual launch in April 2017 failed to ignite
1 There is a second cause of action under the Companies Act 1993 which, while not formally abandoned, was not pressed in closing submissions.
2 The plaintiffs comprise eight of the 12 current shareholders of Kiwi Rider and represent 69 per cent of the shareholding. Mr Kaminski currently holds 27.5 per cent of the shareholding. Three investors with a combined shareholding of three and a half percent of Kiwi Rider are not parties to the claim.
much interest. Three months later, in July 2017, the balloon was severely damaged in a storm. By that time, Mr Kaminski was no longer a director in Kiwi Rider. The other shareholders had shut him out of the operation and decision-making. The shareholders (other than Mr Kaminski) resolved to accept proceeds from an insurance policy and wind down Kiwi Rider rather than replace the damaged balloon. The liquidation is held up by this litigation.
[6] The insurance proceeds have yet to be distributed to shareholders. Based on current shareholding, Mr Kaminski stands to receive the largest share of those proceeds. As part of the relief in this proceeding, the plaintiffs ask the Court to transfer Mr Kaminski’s shareholding to them to hold in trust for the benefit of all shareholders so that the insurance proceeds need not be shared with Mr Kaminski.
Summary of the claims
[7] The statement of claim pleads two causes of action. The first alleges prejudicial conduct under s 174 of the Companies Act 1993. The pleading, as relevant, is that:
During the defendant’s time as director, the affairs of [Kiwi Rider] were conducted in a manner that was oppressive, unfairly discriminatory and/or unfairly prejudicial to the plaintiffs and the non-party shareholders.
The plaintiffs and the non-party shareholders have invested $1.745 million into [Kiwi Rider], and these funds have been wasted due to the defendant’s mismanagement and misrepresentations.
[8] The second cause of action pleads that Mr Kaminski made misleading or deceptive representations in trade which induced them to invest in Kiwi Rider and/or to allocate an initial 40 percent shareholding to Mr Kaminski.3 The alleged representations fall into three broad categories:
(a)Mr Kaminski’s industry experience and credentials.
(b)Mr Kaminski’s research and preparation said to underpin the business model; and
3 Fair Trading Act 1986, ss 9 and/or 10. Section 10 did not feature in the submissions.
(c)representations as to the suitability of the AB20 tethered helium balloon supplied by AeroBalloon.
[9]The prayer for relief in respect of both causes of action seeks:
(a)compensation of $900,000 to be adjusted on determination of the insurance claim and final calculation of assets held by Kiwi Rider on liquidation;
(b)an order that Mr Kaminski transfer his shareholding in Kiwi Rider to the plaintiffs to be held in trust for the plaintiffs and non-party shareholders;
(c)an order that the plaintiffs are to distribute any payment from Mr Kaminski and any disbursements accruing to his shares to the plaintiffs and the non-party shareholders in proportion to their relative shareholdings; and
(d)interest on any sums awarded pursuant to the Interest on Money Claims Act 2016 plus costs.
[10] The plaintiffs did not explain the order in (c) above and it did not feature in the evidence or submissions.
[11] The plaintiffs are not under any illusion of recovery if an award of damages is made in their favour. In practical terms, the issue is the entitlement of all shareholders to recover a proportionate share of the insurance pay-out. As at the date of trial, the plaintiffs together own 69 per cent of Kiwi Rider. Mr Kaminski, after a forced sale of his shareholding, owns 27.5 per cent. The plaintiffs’ recovery from the insurance money therefore depends in part on whether Mr Kaminski is to receive a proportion of insurance money commensurate with his shareholding.
[12] In their written closing, the plaintiffs submitted that the Companies Act claim is secondary to the claim under the Act but not abandoned.4 Save for that mention, the plaintiffs did not make any submissions on this cause of action.
Summary of the defence
[13] Mr Kaminski admitted that he solicited investors in late-2015 to mid-2016. He admitted making certain representations in an information memorandum to some of the plaintiffs only but denied making other representations or that he made representations to all the plaintiffs as prospective investors. He argued that he only had direct involvement with Mr Dumas, Ms Li and Mr Reilly, and that it was Mr Dumas and Ms Li who made representations to the other plaintiffs to convince them to invest.
[14] He denied that any of the representations were made in trade or were misleading or deceptive. He argued that his stated experience in the field provided him with the relevant skill and knowledge to start an adventure tourism business. He contended that the research into the venture was as extensive and correct as he represented; the plaintiffs had adequate time and materials to fully undertake proper due diligence; they invested knowing and appreciating the risk of investment. He pleaded that the business became unviable because the balloon vendor supplied a substandard product which did not comply with WorkSafe standards, in breach of contract. He maintained that once operational, the business produced promising returns up until the balloon was destroyed in July 2017 under the management of Mr Dumas and Ms Li.
Evidence
[15] I heard evidence from Mr and Mrs Clyma, Mr Dumas and Ms Li for the plaintiffs.5 No reason was given as to why the other plaintiffs did not give evidence.
4 As Mr Kaminski was self-represented at trial (although had been assisted in earlier stages of the case by experienced counsel), I gave the parties the option of filing written submissions at the conclusion of the evidence. Both took up that option. I invited the plaintiffs to particularly address me as to the claim under s 174 and whether it was “fit for purpose” on the evidence.
5 There was a faint suggestion that other shareholders were overseas based and do not speak English although I note that each has a New Zealand address recorded on the Company Office register.
[16] Mr Kaminski was the only witness in his defence. Much of his brief of evidence was challenged by the plaintiffs as irrelevant and/or inadmissible. In response, Mr Kaminski omitted significant tracts of the challenged material. He confirmed that he was no longer advancing an argument as to who was responsible for the destruction of the balloon. This was proper since the fact of the destruction of the balloon is potentially relevant to causation of loss (by breaking the chain of causation) but the mechanism of damage or responsibility for the damage fell outside the pleaded defence.
[17] Despite clear notice that any supplementary evidence inserted into written closing submissions would not be admitted, Mr Kaminski appeared to resurrect the issue of responsibility for destruction of the balloon in his closing. He also attempted to include other supplementary evidence in closing submissions. I have put that material to one side.
Background
[18] The background narrative, at least from Mr Kaminski’s perspective, was not set out in any convenient form and must be pieced together from the voluminous contemporaneous documentation. I set out below only the matters which are salient for the purposes of determining the claim.
[19] Mr Kaminski is a German immigrant to New Zealand with a varied commercial background. He has lived and worked in New Zealand for many years in various diverse sectors. He is at least bilingual. He holds a tertiary degree in logistics (Speditionskaufmann). He has worked as a factory supervisor, in operations for a door manufacturer, as an independent consultant instal ing a manufacturing performance monitoring program, and in senior management roles for education providers, including as education manager for St John.
[20] Mr Kaminski was also an independent video operator physically operating next to the AJ Hackett commercial bungy jump site in Queenstown where he filmed, edited and sold video tapes of bungy jumping, paragliding, rafting and other adventure activities. He then moved to Auckland where he worked as a video operator and “bungy jump master” at a mobile crane bungy operation. He claimed to have helped
set up a purpose-built bungy tower in Spain in 1992, training the first jump team and assisting operations until the commercial opening in 1993 followed by set up of a company trading as “Bungy Natural” in the Spanish Pyrenees.
Inquiries of balloon suppliers
[21] After learning of tethered passenger helium balloons on Facebook, Mr Kaminski sourced information about three types of such balloons from internet searches:
(a)a system marketed and sold by a French company, Aerophile;
(b)a British system sold by Lindstrand Technologies;
(c)a system called AeroBalloon manufactured by AeroBalloon Inc based in the United States.
[22] He noted that the Aerophile and Lindstrand systems were similar in price and size with a maximum of 30 passengers while the AeroBalloon offering was smaller, with a maximum of 20 passengers, and cheaper.
[23] It is apparent that Mr Kaminski’s “research” at this early stage went no further than trawling internet sites and associated media reporting.
[24] In May/June 2014, Mr Kaminski emailed the three balloon suppliers he had identified. With the subject heading “Price Inquiry” he asked for an indication of cost for a moored balloon system including all required equipment and set up to operational readiness, with capacities between 10 and 30 passengers per flight.
[25] Aerophile responded with generic sales information, access to a downloadable product site and asked specific information about the project and intended place of operation. Mr Kaminski followed up with a blunt request on the same day for response to his initial queries. That elicited a response by Aerophile for more information to which Mr Kaminski replied:
Now I need to find out, whether you will be a good business partner, and so far you are losing the battle big time. Costings have already been prepared for both your competitors. If I do not receive a detailed costing proposal for a complete system to operation standards…you will simply not hear from me again.
[26] Aerophile then provided a quote for the Aero30NG balloon designed for 30 passengers along with a polite warning that Aerophile had already been contacted by a potential customer in New Zealand, that some sites appear to be windy and a more recently developed product, the Aerobar, is worth looking at. Mr Kaminski responded saying that “we are aware of issues relating to wind speeds and helium availability” and that Aerophile’s quote would be analysed against competitors before integration into a business proposal to attract venture capital.
[27] Aerophile emailed Mr Kaminski again on 3 June 2014 recommending that any analysis should take into account known cashflows of existing operations over the world and durability of the equipment. It provided further technical and commercial information to assist preparation of a business plan.
[28] On the same day, just over a week after reaching out to Aerophile, Mr Kaminski emailed Aerophile again to advise that its proposal was not accepted. Reasons he gave were that it was substantially less cost-effective than smaller systems proposed by competitors (who offered systems with a maximum load of 20 passengers but with increased operational efficiency); the comparative costs of helium both in terms of the initial fill and monthly depletion rate; operating and maintenance costs; and Aerophile’s lack of responsiveness.
[29] Perhaps surprisingly given the tenor of the correspondence, Aerophile’s General Manager then stepped in to provide frank (and ultimately prescient) advice. He advised that New Zealand is windy so requires a bigger, stronger balloon. He noted that a bigger balloon can fly with a gentle breeze by decreasing the number of passengers but a smaller balloon will be grounded at the slightest gusts. He specifically advised caution as to the difference between mean wind and wind gusts and that a smaller balloon will never succeed—it will very likely get destroyed by the first storm as happened in Chicago and Thailand; and even if there is no big storm and the balloon stays inflated, it will not have enough capacity to be profitable.
[30] Mr Kaminski responded to the General Manager in more congenial terms conceding the points made but stating that he “found a couple of very touristy locations where wind speeds are not known to ever go above 4.2 knots (4.8 mph or 7.8 km/h).” He emphasised that the financial costs and risk factors are crucial to attracting venture capital but hoped this would be the first of many similar projects in New Zealand and the Australian markets.
[31] The final exchange was another warning from the general manager of Aerophile in which he stated that to his knowledge, no smaller balloon has ever lasted more than two years constantly inflated.
[32] Mr Kaminski gave evidence that he also approached Lindstrand but no correspondence was produced in evidence.
[33] In parallel with his approaches to Aerophile, Mr Kaminski approached AeroBalloon USA, Inc by email on 24 May 2014 seeking a cost indication for supply of a complete AB20 system including commissioning and staff training for instal ation in New Zealand. Three days later, he followed up seeking a response. Douglas Hase responded on 29 May 2014 and asked for a telephone call. That call took place.6 Mr Kaminski said it was a lengthy discussion. Mr Hase responded with another email dated 29 May 2014 setting out an offer for an AB20 complete system including engineer labour from an AeroBalloon engineer for on-site balloon assembly. The price of USD 490,000 was significantly cheaper than that offered by Aerophile. It was also, on its face, cheaper than the marketed “list price” of USD 750,000.
[34] Mr Kaminski entered into a memorandum of understanding (MOU) with Douglas Hase of AeroBalloon dated 26 July 2014. The circumstances were not explained in his evidence and Mr Kaminski did not explain what steps he took, if any, to investigate AeroBalloon’s credentials. He did however give evidence that he and Mr Hase had bonded over their mutual interest in bungy jumping and paragliding.
[35] The MOU records a commitment by Mr Kaminski representing Kiwi Rider Limited to take all reasonable steps to gain permission for operation of an AB20 in
6 The call was not referred to by Mr Kaminski in his brief of evidence but only in cross-examination.
New Zealand including gaining appropriate classification and certification by the authorities. He also committed to not engage with any other balloon supplier until 1 January 2015 and to purchase the AB20 at the agreed price of $USD490,000 once classification and certification have been granted in principle and to commence negotiations towards a sole purchase and supply agreement.
[36] AeroBalloon USA Inc on its part committed not to engage in any sales negotiations with any third or other party in New Zealand before 1 January 2015; to provide Mr Kaminski with the first purchase option for the AB20 and to negotiate towards a sole purchase and supply agreement once classification and certification have been granted. That MOU was extended more than once.
[37] When Mr Kaminski was contacting balloon suppliers he was a lone operator. The “business” was no more than a fledgling idea. There was no Kiwi Rider—the company was not incorporated until 7 March 2016. Mr Kaminski had no funds and was yet to overcome the obstacle of categorisation of tethered helium balloons as an aircraft under relevant legislation in New Zealand. Craft designed as aircraft come under the auspices of the Civil Aviation Authority (CAA). There was a prospect of costly modifications or need for an exemption process unless the craft came within the designation of an “amusement device”. Amusement devices are within the purview of WorkSafe New Zealand rather than the CAA.
CAA designation
[38] Mr Kaminski first wrote to the CAA on 13 June 2014 requesting advice as to the correct procedure and documentation to certify a stationary commercial passenger-carrying tethered balloon. The response from the CAA was that a tethered balloon is classed as an aircraft and needs an airworthiness certificate. The CAA invited Mr Kaminski to discuss it further once he had information about the airworthiness or design standards of the proposed balloon.
[39] Mr Kaminski wrote back to the CAA with some generalised information about the “American system”. On 19 June 2014, he wrote again asking the CAA to reconsider its position to avoid having to seek legal, public and political support. He
stated that substantial capital is currently raised for an intended operation in Rotorua planned to commence in December 2014.
[40] The CAA identified an available review process for Mr Kaminski and in October 2014, Mr Kaminski lodged an issue assessment petition with the CAA. In August 2015, frustrated by the delay, Mr Kaminski wrote to the Minister and Associate Minister of Transport in relation to his regulatory assistance request. His letter to the Ministers referred to his “associates” and their intention to import up to four AB20 balloons. (There were no “associates” at this stage and the intention was no more than aspirational.)
[41] It was not until September 2015 that the CAA reached a conclusion. It advised Mr Kaminski of the outcome by email on 7 October 2015. The letter stated, among other things:
The Panel has agreed with your suggestion that a tethered balloon can be regulated under the Amusement Device Regulations Act 1978.
…
[M, an employee of WorkSafe] and I have met and discussed the information that you have provided us so far on your proposals. [M] may discuss any further details that you provide with us as he works through the application process under the Amusement Device Regulations as we have offered to provide technical assistance on any aviation related matters.
We will also continue to be involved in any decisions on the location and height of the balloon to see whether Rule Part 77 of the Civil Aviation Rules (Structures in Navigable Airspace) needs to be considered.
[42]This was a significant development for Mr Kaminski’s idea.
TBK Capital involvement and preparation of an information memorandum
[43] The third limb of Mr Kaminski’s preparatory work from mid-2014 was meeting with TBK Capital Ltd (TBK Capital) with a view to engaging it to raise capital. The full extent of that engagement and its terms are opaque. Mr Paine, the director of TBK Capital, was not called to give evidence. It appears that at least two mandates were signed: the first on 11 June 2014 and the second on 16 July 2014. The later document records the client as Kiwi Rider Ltd or nominee, the guarantor as
Mr Kaminski and it appointed TBK Capital for a 6-month period to identify and secure investors to subscribe to a private placement of the shares in Kiwi Rider. The terms of mandate set out the role of TBK Capital to arrange funds and to assist, among other things:
(a)to prepare the documentation to present the offer to potential investors, being a short “Flyer” newsletter to send to the TBK subscription list followed by an Information Memorandum to be sent to qualified prospects both of which shall be signed off by Kiwi Rider and Mr Kaminski before distribution.
(b)to identify and secure investors to subscribe to the offer.
[44] The mandate also sets out the fee structure comprising a structure fee, and a success fee equal to seven and a half precent of the amount of funds raised by TBK Capital.
[45] Mr Kaminski’s evidence was that TBK was happy to source required funds from TBK’s database of qualified investors and was instrumental only in formatting a professional information memorandum (IM) rather than anything more substantive. As he explained it:
The signing fee of TBK’s engagement at the time was around $16,000. But I had no funds. [Mr Paine] thus provided samples and guidelines for me to furnish an IM to his client’s expectations, which he would then publish on one of his monthly newsletters and organise meetings with interested parties. He would do all that for free, provided I committed to sourcing the required funds exclusively through TBK. Since I was seeking $1.15 million for my first instal ation for 47% of the business, this would earn TBK a commission of around
$80k. I agreed.
Mr Paine handed me some older samples of Information Memoranda and asked me to follow the concepts. I would then draft my IM and send it to Mr Paine, adding my name, the date and the version number. Mr Paine would then make notes and send the IM back, saving it with his name, the date and the version number. I would then make the requested changes and send it back with my name, the date and version number, and so on. Before the IM was acceptable by Mr Paine, it would have past [sic] back and forth close to twenty times, since I was an absolute novice. The whole process took about a year. When Mr Paine was satisfied, he advertised it in his newsletter.
[46] Mr Kaminski says that following publication of the IM by TBK, there were three meetings with interested parties but interest was muted because at that time the CAA regulatory requirements presented an obstacle. None of those meetings resulted in investment.
[47] Once the CAA shifted its position, and reclassified tethered helium balloons, Mr Kaminski decided to recast his relationship with TBK.
[48] As Mr Kaminski’s enthusiasm for the project increased, so did his propensity to discuss it. Mr Kaminski raised his business idea with long-time friend Marco Dumas and his wife Ju Li sometime in the last half of 2015. I accept there was no formal approach to the couple to invest. It was more of an organic process borne of the friendship, but Mr Dumas and Ms Li agreed to try to find investors through friends and associates.
[49] The precise timing of involvement of Mr Dumas is not material but I note that Mr Kaminski completed a Tourism Growth Partnership “pre-screening document” in September 2015 seeking $600,000 of government funding. As part of that application, he described himself as managing director of Kiwi Rider and identified Mr Dumas as the Commercial Manager. This document was not put to Mr Dumas in cross--examination but appears inconsistent with Mr Dumas’ evidence of when he first became involved.7
[50] Mr Dumas at that stage was working full-time in construction. He maintains his intention was to help out and join the project later. In December 2015, Mr Kaminski told Mr Dumas that the business was “ready to go” and that all that was needed was funds to purchase the balloon and related setup. At some stage, he also provided the IM to Mr Dumas. I infer that he provided more than one iteration of the IM and that each iteration had excised any reference to TBK. Therefore, on its face, the IM had been prepared solely by Mr Kaminski without any contribution from any professional adviser or any other party.
7 Two applications were produced in the common bundle—neither were put to a witness or referred to in opening submissions. The second application referred to an estimated total cost of $600,000 for a “hanging harness” on newly introduced AB20 balloons. The parties agreed that all documents in the common bundle were in evidence.
[51] A further MOU was entered into between Mr Kaminski and Mr Hase of AeroBalloon on 16 January 2016 for a six-month term. It set out Mr Kaminski’s commitment to take all reasonable steps to gain permission for the legal operation of the AB20 in New Zealand and in Australia in return for the supplier’s commitment not to engage in any negotiations with any third or other party in the territory. It included the expression of Mr Kaminski’s intent to become the sole agent and representative of AeroBalloon throughout Australia and New Zealand once the first AB20 was operational in New Zealand.
[52] On 31 January 2016, Mr Kaminski emailed Mr Dumas. The stated purpose was to summarise recent discussions in which Mr Dumas and Ms Li had expressed interest in becoming shareholders of Kiwi Rider. He recorded:
(a)Mr Dumas and Ms Li were talking to a number of associates interested in purchasing shares.
(b)The total amount to be raised to set up the first business operation was
$1 million in return for a 40 per cent shareholding. This was being sought through various channels including an investment brokerage.
(c)The remaining 60 per cent of the shares was to be distributed:
(i)51 per cent to Mr Kaminski as primary business owner;
(ii)two per cent to Sean Maxwell in exchange for an invested sum of $50,000.
(iii)seven per cent to be set aside for investment at $25,000 per share to Mr Dumas/Ms Li or other minority shareholders
(iv)allocation of shares was subject to approval of funding from the Ministry of Business, Innovation and Employment (MBIE).
(v)As a condition of the offer, shareholders must acknowledge that the opportunity is entirely based on Mr Kaminski’s idea, vision, work and planning throughout the last two years.
(d)A grant of $600,000 was being sought from MBIE’s Tourism Growth Partnership program. This would be in addition to any shareholder funds raised.
(e)Two different investment scenarios were under discussion including one in which the only investors would be Mr Dumas, Ms Li and Mr Maxwell should MBIE award the grant.
(f)If no grant was received, then Mr Dumas/Ms Li would seek additional investors to each purchase eleven percent of the shares for a combined total of 55 per cent of the shares and a total investment of $1.2 million.
(g)He and Mr Dumas would travel to the United States to observe AB20 operations and negotiate a sole purchase and supply agreement with AeroBalloon.
(h)In each scenario, TBK would be paid a consultant fee not exceeding
$25,000 for services rendered on the basis that “not paying TBK a fair remuneration for its assistance and work over the last 20 months would be unjust and may expose the business to a costly legal challenge from TBK”. A total of $75,000 had been budgeted for brokerage fees in the operating budget.
[53]Mr Kaminski concluded the email:
I trust that this reflects the basis of our discussions and finds your and Ju Li’s agreement. Please discuss this with Ju Li to ensure that we are all in agreement about the above and then let me know by tomorrow night, as I am still negotiating with TBK at present and they expect my response by Tuesday. Or, alternatively, let me know ASAP if you have any concerns or questions in regards to any of the above!
[54]No response was produced in Court.
[55] Mr Dumas disavowed proposing “every single point in there” or that the scenarios were fairly characterised as proposals put by them. Under cross-examination, Mr Dumas said that “we never proposed anything in any way”. He also said that he did not believe there was any discussion about TBK because his wife wasn’t aware of TBK at all and was upset when TBK issued an invoice to Kiwi Rider. Whether or not it had been discussed, Mr Dumas must have been on notice of an intended commission payment to TBK by virtue of this email.
[56] Mr Dumas and Ms Li did take on the task of approaching other potential investors, armed with the IM provided by Mr Kaminski who asked that it be distributed to all interested parties.
The founders’ meeting
[57] The key meeting was set up on 23 February 2016. It was attended by Ms Li, Ms Clyma, Ms Zheng, Mr Dumas, Mr Maxwell and Mr Kaminski.
[58] There is a contest about the intent of the meeting and precisely what Mr Kaminski conveyed. Mrs Clyma, Mr Dumas and Ms Li saw the Founders’ Meeting as a pitch to investors, rather than a strategy meeting, as it was the first occasion that the investors came to meet Mr Kaminski. From Mr Kaminski’s perspective it was more akin to a first meeting of shareholders who were already committed or about to commit to the enterprise, to discuss and introduce strategy. This is evident from the shareholder meeting agenda in which he described the meeting as “our founding shareholder meeting”. He proposed an agenda covering matters such as election of a chairperson and appointment of executives.
[59] I find it more likely that the meeting was not an initial sales pitch but confirmatory—the last step before the investors committed investment funds and an opportunity to meet Mr Kaminski in person but I accept the evidence of Mrs Clyma as to what was said at the meeting. Her recounting of Mr Kaminski’s statements is generally corroborated by Mr Dumas and Ms Li and generally consistent with the content of the IM and other contemporaneous documents.
[60]I am satisfied that at that meeting Mr Kaminski stated:
(a)He had extensive experience and associated affiliations in the adventure tourism industry, and had helped to set-up and run the first ever bungy jumping operation with AJ Hackett in Queenstown.
(b)His past experience included setting up and managing businesses with turnover of over $30 million and that he had managed up to 300 staff.
(c)He had personally spent years undertaking all the required groundwork to bring the business to fruition (specifically the preparation of budgets and the IM).
(d)His years of work had generated “valuable intellectual property” which he was willing to give to the business in exchange for a majority shareholding.
(e)The AB20 balloon was the best available and already complied with WorkSafe NZ safety standards and would not require any upgrades.
(f)He had personally convinced the CAA to change the certification of tethered balloons from “aircraft” to “amusement device”.
(g)He had undertaken extensive due diligence to identify potential sites and that the best site was in Kuirau Park, on the corner of two of the busiest streets in Rotorua.
(h)If he could not get consent for Kuirau Park (which was unlikely as he was already negotiating a lease with the local Council), he had identified an alternative site at Government Gardens.
(i)Based on his research, the proposed activity would not require resource consent or public notification.
(j)The initial investment of $1.2 million would be recovered within two months of operation in the summer months.
(k)Even on a conservative estimate, the business would bring in over
$7 million per year.
(l)The business was a guaranteed money maker and the odds of it failing in its first year were “improbable”.
(m)The only remaining steps were securing capital to purchase the balloon, secure the site and set up the business.
[61] Mr Kaminski explained that his requirement for a 51 per cent shareholding was in recognition of his work in developing the concept and intellectual property and his time spent negotiating a discount with AeroBalloon. He also demanded to be appointed managing director to provide “ongoing expertise and experience”.
[62] Mr Kaminski prepared minutes of that meeting which were distributed to those present. There is no suggestion that the minutes are not accurate but they do not include Mr Kaminski’s explanations at the meeting.
[63] According to the minutes, all members confirmed their commitment to the strategy, processes, timelines, mission and budget as per the latest IM and an updated establishment budget. The minutes set out an action point list which included dates for deposit of investment funds. The first tranche of $400,000 was required on or before 15 March 2016.
[64] Kiwi Rider was incorporated on 7 March 2016. The directors at incorporation were Mr Kaminski, Mr Dumas and Ms Li. Mr Kaminski was appointed managing director and chairman of the board but his respective shareholding was reduced to 40 per cent rather than the 51 per cent he initially demanded. Curiously, the allocated shares in Kiwi Rider were not of the same attributed value. The share allocations were determined by Mr Dumas and Ms Li.
[65]The initial investment by investors and the allocation of shares in KRL were:
Name Shares (total 200) Total Investment Thomas Kaminski 80 (40%) $0 Ju Li 21 (10.5%) $75,000 Marco Dumas 21 (10.5%) $75,000
Christina Clyma 11 (5.5%) $150,000 Thomas Clyma 11 (5.5%) $150,000 JiaoJia Zheng 30 (15%) $400,000 Qian Wang 22 (11%) $300,000 Sean Maxwell (a friend of Mr
Kaminski’s)
4 (2%) $50,000 TOTAL $1,200,000
[66] The defendant’s 40 per cent share at start-up was nominally worth $480,000 on an asset valuation basis but he did not contribute any capital then. The plaintiffs say they agreed to the shareholding allocation to Mr Kaminski on the basis of his representations as to his groundwork, research and know-how up to that point in time.
[67] On 17 March 2016, Kiwi Rider entered into an agreement to purchase the AB20 balloon for USD 490,000 (approximately NZD 750,000). This committed two-thirds of the start-up capital.
[68] The business plan prepared by Mr Kaminski and associated budget involved a tight timeframe to enable launch by 1 October 2016 to capture the most important summer months for the tourism industry. Problems arose immediately.
[69] First, the site at Kuirau Park was impossible for two reasons. It was within an airport exclusion zone which did not allow objects higher than 30–50 metres. The expected height of the balloon was 150 metres. It was also an emergency landing spot for the rescue helicopter for the local hospital. The same restrictions applied to the alternative venue identified by Mr Kaminski. This was a significant setback which came as a surprise to the plaintiffs. It necessitated finding a new site which took over three months. Eventually, a site was found and a lease negotiated with local iwi. However, this site required significant investment into infrastructure for it to be usable.
[70] The second setback was that the supplied balloon required upgrades to comply with WorkSafe standards. Mr Kaminski lays blame at the door of the supplier. He maintains that the supplier supplied an incorrect control unit for the winch in that it did not have the electronic and mechanical fail-safe systems instal ed to meet New Zealand requirements. Mr Kaminski maintains that the supply contract required a fully compliant system. The upgrades took over five months to complete and cost
an unexpected $300,000 but offset in part by Kiwi Rider’s refusal to pay the last tranche of the balloon cost of approximately $USD90,000.
[71] The third set-back was that the business required publicly notified resource consent which was not obtained until December 2016. Even then, the conditions of the consent were unfavourable because they prohibited advertising sponsorship. This cut off one of the four sources of projected income.
[72] Needless to say, these matters impacted the budget projections. Additional capital was required to open. This was primarily achieved by selling some of Mr Kaminski’s shareholding. Mr Kaminski also borrowed funds of $200,000 from an associate. Mr Dumas’ evidence was that he understood this was intended to be a personal loan but it was in fact documented by Mr Kaminski as a loan to Kiwi Rider.
[73] None of the setbacks deterred Mr Kaminski. On 24 August 2016, Mr Kaminski wrote to a former colleague in Melbourne proposing development of the next two sites for a commercial opening in October 2017 in Australia and January 2017 in Queenstown and to appoint him as General Manager for Australia. Mr Kaminski’s faith in the yet-to-be operational business bore little relationship to reality. He was suggesting that his colleague advise the Australian regulators of an intention to have a tethered helium balloon operation by August 2017 in Melbourne, although no site had been selected or even investigated.
[74] Although the Rotorua Orbserver was not yet commissioned, Mr Kaminski also contacted a German balloon manufacturer.8 In that email correspondence, Mr Kaminski stated that Kiwi Rider was in the planning phase for Queenstown and about two to three months away from a solid order for a second balloon. Again, there was an air of unreality to Mr Kaminski’s communications.
[75] The second tranche of ‘investment’ in Kiwi Rider occurred in the first quarter of 2017.
8 The correspondence was conducted in German. Mr Kaminski translated that correspondence for the purposes of the common bundle of documents. As Mr Dumas is also a native German speaker, no objection was taken to the translation.
[76] Mr Kaminski had himself emailed various people offering to sell 10 percent of his shares. He emailed Mr Reilly on 13 February 2017 seeking investment. On 16 February 2017, he sold two shares to Mr Reilly for $30,000. On 22 February 2017, he emailed a third party offering up to 20 shares at a pre-operational value of $15,000 per share and committed to inject funds into the business as additional working capital.9 The email attached the February 2016 IM, an establishment budget dated February 2016 and first year Budget. It also explained that while the IM is fundamentally, conceptually and strategically still relevant, there are now financial variations due to time delays which the email then explained. Though operation had not yet commenced, Mr Kaminski referred to an intention to instal another three similar systems in New Zealand and a further five in Australia in the next five years. He noted that the plan was no longer to buy more systems from the United States but that “we are currently negotiating an exclusive supply agreement with a German supplier for the balloon, and will develop our own system for an estimated $2.4 mil for expansion into Queenstown by April 2018.”
[77] By March 2017, there was a further iteration of the IM. It appears that this was the IM distributed for a further round of capital raising. Mr Dumas’ evidence was that this iteration had also been prepared by Mr Kaminski. There were changes to the first IM. As far as relevant, those changes were:
(a)It now says it was prepared by Kiwi Rider and references in the introduction to Mr Kaminski were replaced with references to Kiwi Rider.
(b)The photographs in the IM were now of the Kiwi Rider tethered balloon.
(c)References to the Kiwi Flyer are replaced by references to the Kiwi Rider Orbserver.
9 A subsequent email containing an offer to sell his shares referred to him gifting the sale proceeds to the business unconditionally to increase working capital and ensure sufficient reserves.
(d)The maximum height to which the balloon can carry passengers was corrected.
(e)A claim that well-located and -managed sites can process in excess of 1,000 rides per day was inserted.
(f)A claim was added that for its next installations, Kiwi Rider plans to develop its own unique system consisting of a German built balloon and winches and ride systems.
(g)References were made to plan to develop and instal two new systems every 12 months at an establishment cost of $2 million.
[78] Deleted from this version are the sections of the first IM lauding the characteristics of the AeroBalloon.
[79] Ms Li found other parties to buy Mr Kaminski’s shares. On 17 March 2017, Xianmei Meng purchased 10 shares from Mr Kaminski for $150,000 and on 13 April 2017, Jia Zhao purchased 10 shares from Mr Kaminski for $150,000. Ms Li arranged that the proceeds of the sale of these shares were to be lodged in Kiwi Rider’s bank account. There was no evidence as to how this sum was accounted for – whether as a shareholder advance or loan from Mr Kaminski – and its treatment appears unorthodox. Nonetheless, Mr Kaminski does not suggest that he did not agree to the sale of his shares in this manner or that he advanced the proceeds as a loan to Kiwi Rider.
[80] The tethered balloon finally launched in mid-April 2017. Working capital was nearly expended. In three months of operation, revenues were less than $51,000. By this time, the relationship between the plaintiffs and Mr Kaminski had completely broken down. Mr Kaminski resigned as director on 23 June 2017.
[81] Three weeks later, the balloon was severely damaged in a winter storm. Mr Dumas’ evidence is that when he contacted suppliers for replacement options, he learned that Mr Kaminski had previously been warned by Aerophile that the AB20
was not suited for New Zealand’s climate and that no similar small balloon had lasted more than two years constantly inflated. It was also discovered during the insurance investigation that the balloon equipment was already showing signs of corrosion from the sulphurous Rotorua atmosphere.
[82] On 4 August 2017, a shareholders’ meeting was held. Mr Kaminski was not present at the meeting. The plaintiffs chose to cut their losses. They resolved take the insurance pay out and close down the business. They commenced this claim to seek to recover the investment losses.
Legal principles
[83] In Red Eagle Corporation Ltd v Ellis, the Supreme Court provided guidance on the approach to a claim under s 9 of the Act.10 It also acknowledged that no single methodology is to be applied given the variable circumstances of such claims.11
[84] Section 9 of the Act is directed to promoting fair dealing in trade by proscribing conduct which, examined objectively, is deceptive or misleading in the particular circumstances.12 There is no requirement of intent to mislead or deceive. Whether it is objectively reasonable for a claimant to be misled is contextual. One of the relevant circumstances is the characteristics of the person or persons said to be affected by the misleading conduct.
[85] If a s 9 claim is made out, the next inquiry is into the loss (if any) the claimant has suffered.13 The claimant or claimants must establish a causal connection between any false representation and loss or damage claimed to have been suffered. The question may be framed as whether the defendant’s conduct in breach of s 9 was an operating cause of the claimant’s loss or damage, or put another way, an effective or the effective cause. Damages to be awarded can take into account conduct on the part of a claimant that may have contributed to its financial loss. The exercise of the power
10 Red Eagle Corporation Ltd v Ellis [2010] NZSC 20, [2010] 2 NZLR 492.
11 At [26].
12 At [28].
13 At [29].
to make an order for payment under s 43 is a matter of doing justice to the parties in the circumstances of the particular case and in terms of the policy of the Act.14
Issues
[86] The parties agreed a statement of issues prior to trial. These evolved. Some fell away during trial. Using that statement as a starting point, I consider the case under the Act turns on the following issues:
(a)Did Mr Kaminski make the pleaded representations, or any of them, to the plaintiffs or any of them, prior to their investment in Kiwi Rider?
(b)Were the representations were made in trade?
(c)Were any representations misleading or deceptive in terms of s 9 and/or s 10 of the Act?
(d)Did the plaintiffs rely on the representations and if so, was such reliance reasonable?
(e)Are the plaintiffs entitled to damages and/or an order that Mr Kaminski transfer his shares to them to hold beneficially for all shareholders other than Mr Kaminski.
[87] As noted, the plaintiffs did not make submissions in closing on the cause of action under s 174 of the Companies Act.15 I say no more about that cause of action other than that on the evidence before the Court that claim faced significant difficulties. The pleaded misleading conduct of Mr Kaminski occurred prior to the plaintiffs becoming shareholders and negligent management of a company does not without more establish unfairly prejudicial conduct.16 The Court will not use s 174 to correct poor management decisions of directors or shareholders.
14 At [31].
15 Refer paragraph [11] above.
16 Latimer Holdings Ltd v SEA Holdings NZ Ltd [2004] NZCA 226, [2005] 2 NZLR 328 at [120] citing Thomas v H W Thomas Ltd [1984] 1 NZLR 686 at 696.
Issue One: Did Mr Kaminski make any of the pleaded representations to any of the plaintiffs?
[88] There were two stages of investment in Kiwi Rider. The first was at start up. The plaintiffs who invested at start up were Mr Dumas, Mr and Mrs Clyma, Ms Li, and Ms Wang.17 They were presented with the first IM which Mr Kaminski claimed to have prepared himself.
[89] All except Ms Wang and Mr Clyma attended the Founders’ Meeting. Mr Clyma was represented by his wife who reported back to him. In the case of Ms Wang, the IM was translated for her by Ms Li by telephone after the Founders’ Meeting.
[90] The second round of investment was in March/April 2017 when Jia Zhao and Xianmei Meng each purchased a tranche of Mr Kaminski’s shares.
[91] The investment in two tranches informs the analysis of what representations were made, by whom and to whom. I therefore deal with each stage of investment in Kiwi Rider separately as different considerations arise for each.
Representations as to credentials
[92]The plaintiffs plead that Mr Kaminski represented that he:
(a)was an industry expert;
(b)had extensive experience in setting up bungy jump operations; and
(c)had managed New Zealand organisations with annual budgets of up to
$30 million and responsibilities for up to 300 staff.
[93] In his evidence Mr Kaminski did not expressly deny making those representations. I am satisfied that these representations were made orally at the Founders’ Meeting and in the first IM presented to investors prior to or at that meeting.
17 The full list of investors at start up, some of whom are not plaintiffs is Ms Li, Mr Dumas, Mr and Mrs Clyma, Ms Zheng (who sold her shares), Mr Wang and Mr Maxwell.
[94] The first IM dated February 2016 is the key document. Mr Kaminski described it as a manual on how to go about the business and required that any person to whom it was sent provide a written acknowledgement to keep it confidential. It included a number of appendices such as an electronic forecast and projection spreadsheet which the user could interact with to test the relationship to projected gross income and operational costs.
[95]The flavour of the IM can be seen in the following extracts:
Operations overseas frequently report in excess of 1,000 rides per day, providing the Kiwi Flyer with peak revenues of >$40,000 per day from the sale of rides alone.
The complete system, including manufacture, delivery, assembly, commissioning, operator training, certification and a one-year supplier’s warranty, is available from the start, substantially reducing risks generally associated with new products and start-ups. Subject to weather conditions and low average wind speeds, the Kiwi Flyer can operate all day long as well as at night time. …
The founder of Kiwi Rider Limited, Thomas Kaminski, has researched data from New Zealand and overseas, setting a regionally competitive price of
$40.00 per ride. Rotorua or Auckland will be the locations where the first Kiwi Flyer will be introduced, with Kuirau Park in Rotorua the preferred and likely first site. Thomas has analysed product specifications and quotations from the three only global suppliers of Tethered Helium Balloons (THBs). The selected supplier is American manufacturer Aero Balloon Inc. Aero Balloon Inc is the only global manufacturer, distributor and instal er of the AB20 THB system. The company also operates several of their AB20 and AB5 systems throughout the USA. Aero Balloon was founded in 2002 in Boston and their systems have been [modelled] on the older 30-passenger European designs, with significant reductions in cost and substantial improvements in weight, size and ease of use, making it the safest and best performing system in the world.
Thomas Kaminski has developed a strong business relationship with Aero Balloon’s proprietor and President, Douglas Hase, and together they have an agreement to introduce the AB20 into the New Zealand and Australian markets. …
AeroBalloon’s AB20 is easily the most commercially developed and cost- effective system available. The competing French and British systems are almost identical and both come with twice the cost; take twelve instead of six months to develop to commercial standards; require more personnel; and are less stable and effective in average New Zealand wind conditions.
…
Thomas has negotiated a purchase price of US$490,000 (~NZ$750,000) for the first system delivered to New Zealand, with the offer expiring in June
2016. The current list price of the product is US$750,000 (~NZ$1,150,000) amounting to savings of around NZ$400,000 for the first system purchase. …
It will take 3 months to build an AB20 system after the order has been placed… It then takes 40 days to ship to New Zealand, with instal ation, testing, commissioning, staff training and certification taking an addition two- four weeks. Consequently, it will take only around six months from system funding/order to being commercially ready to operate.
…
Thomas successfully petitioned the New Zealand Civil Aviation Authority (CAA) and lobbied the Ministry of Transport to re-classify THBs as “Amusement Devices”. The CAA formally re-classified THBs from “aircraft” to “amusement device” effective 3 October 2015.
…
At the time of furnishing this IM, meetings with council and tourism officials and WorkSafe make Kuirau Park in Rotorua or the Eastern Suburbs of Auckland the most likely first sites.
…
The Kiwi Flyer is capable of processing 120 passengers per hour, a maximum of over 1,000 passenger per day x $40.00 per ride on a 10-hour work day. The first twelve month’s income projections (‘Appendix 3’) are based on the following assumptions:
·260 operating days p.a (out of 364= ~28% closure days budgeted due to weather)
·Operating 10-hour shifts with 8-9 hours of flight operations daily
·Capturing 5% share of Rotorua overnight visitors
·No revenue budgeted for selling drinks, food, merchandise and balloon sponsorships
·No revenue budgeted for half-price rides for local residents
…
The AB20 system has been proven to highly efficient and safe for almost two decades in the USA, and a growing number of other countries, including Hungary, India, China, Cambodia, Malaysia, Thailand, etc. Aero Balloon’s safety record is impeccable and inflation, system set-up, staff training and certification up to commissioning the system for commercial operation are all done by the manufacturer and included in the purchase price.
The products of the only two other global manufacturers of THBs, Lindstrand’s Hi Flyer and Aerophile’s Aero30NG are easily out-competed by the AB20 in New Zealand. They are much larger and very heavy 30-passenger systems, less stable in the air, and only able to carry half loads (15 passengers) at average New Zealand wind conditions, when the AB20 can still safely carry
full loads (20 passengers). The European systems also cost twice as much to purchase and set up as the AB20; take twice as long to build to commercial operating standards; require more staff and higher operating costs and carry less customers in New Zealand conditions.
Considering the ‘operationally ready’ price of the AB20; insurance; its massively proven commercial viability; the sole purchase rights for New Zealand and Australia; the classification as ‘Amusement Device’; the relatively high barrier to market entry and the relatively low threat from competition, the risks of this project are negligible compared to most new product launches and start-up enterprises.
[96] The IM also hyperlinked to Mr Kaminski’s then LinkedIn profile. Excerpts of the LinkedIn profile were produced in evidence. Mrs Clyma’s evidence was that Mr Kaminski also distributed his resumé at the Founders’ Meeting. This was also produced in evidence.
[97] I find thatMr Kaminski habitually told people that he “worked alongside AJ Hackett.” This was literally true in the sense that he worked as a video operator of a business physically located next to the AJ Hackett bungy operation. But literal truth does not prevent a statement from being misleading or deceptive. It all depends on context. I accept the evidence of Mrs Clyma, Mr Dumas and Ms Li that Mr Kaminski also represented this to the investors.
Representations as to suitability of the AB20 balloon
[98]The plaintiffs plead that Mr Kaminski represented that:
(a)Due to mutual bungy jumping and paragliding experience, he had built a strong relationship with the owner of AeroBalloon Inc, the manufacturer and distributor of the AB20 balloon;
(b)He had undertaken in-depth research into various manufacturer’s balloons and the AB20 was the best option for the business;
(c)The AB20 was the highest quality and most cost-effective system currently available, offered a quick and reliable investment return.
[99] These representations, along with similar statements, are found in the IM and Mr Kaminski did not deny making them save for the final statement where he pleaded that he only said the AB20 was the “most suitable” for their purposes. For instance, the IM states that:
(a)He analysed product specifications and quotations from balloon suppliers and has selected the AeroBalloon AB20 as “easily the most commercially developed and cost-effective system available.”
(b)The AB20’s competitors are “less stable and effective in New Zealand wind conditions.”
[100] There is an element of opinion in the pleaded representations in [97](b) and (c) (best option, highest quality and most cost-effective). An opinion may be wrong without necessarily being misleading unless it did not represent the honest opinion of the statement maker at the time. However, the essence of these statements collectively must be seen in light of Mr Kaminski’s representation that he had conducted in-depth research to form those views. The resulting inference is that the “opinion” is reliable, objectively based and supportable.
[101] Other related or similar statements were also found in the IM or made by Mr Kaminski at the Founders’ Meeting including that the AB20 does not require any upgrades and will already meet New Zealand safety standards. These were not specifically pleaded but generally feed into the pleaded representations.
Representations as to research underpinning the business model
[102]The plaintiffs plead that Mr Kaminski represented that:
(a)He had personally managed a petition to change over the compliance authority from the CAA to WorkSafe NZ for the AB20 balloon system which had certification as an amusement device only which would not be required for other systems;
(b)He had undertaken years of groundwork, research and preparation (including the preparation of budgets, an IM distributed to investors, the sourcing of financial backing and preparation of other necessary documents) to bring the proposed business to fruition, generating valuable intellectual property in the process; and
(c)The business model was well-researched and sound, and the intellectual property owned by Kiwi Rider was significant, valuable and had been created solely by the defendant.
[103]Mr Kaminski admitted making these representations.
[104] There were many statements which Mr Kaminski made in support of the overarching representation about the extent of his research. He admitted on cross-examination making statements that the Kuirau Park site was basically sorted or in the final stages of being sorted. This representation was consistent with what he communicated to third parties. He also told investors that no resource consent was needed because the tethered balloon was classified as an “amusement device”.
Issue Two: Were the representations made in trade?
[105] This is a key jurisdictional aspect under the Act. The plaintiffs (fairly) apprehended that Mr Kaminski had not pursued this defence at trial. However, it was resurrected in Mr Kaminski’s closing submissions. Relying on the explanation of “in trade’ from the website of the Commerce Commission, Mr Kaminski argued that he was not regularly or habitually offering to sell goods or services, was not GST registered or had any type of trading vehicle until after the Founders’ Meeting. On the contrary, he says that he was unemployed and looking for work and therefore not engaging in conduct “in trade”.
[106] The concept of “in trade” in the Act is broader than Mr Kaminski’s characterisation. It encompasses all kinds of commercial dealing by the party whose conduct is under examination. It is not determinative that the conduct was one-off. “Trade” is defined in s 2 of the Act:
“Trade” means any trade, business, industry, profession, occupation, activity of commerce, or undertaking relating to the supply or acquisition of goods or services or to the disposition or acquisition of any interest in land.
[107] “Goods” includes all forms of personal property, whether tangible or intangible. Company shares are personal property.18
[108]“Business” is further defined as:
any undertaking—
(a) that is carried on whether for gain or reward or not; or
(b) in the course of which—
(i) goods or services are acquired or supplied; or
(ii) any interest in land is acquired or disposed of— whether free of charge or not
[109] The sale of commercial property and business is commonly accepted to be “in trade” as part of the totality of the appellant’s activities in trade or commerce.19 In Premier Property Developments Ltd v OHL Ltd, Jagose J found that the sale of a commercial property was in trade despite the vendor being in the business of letting property, not selling.20 He found that the vendor sold that property in order to acquire further commercial property for lending. In that sense, the sale was a “springboard” for the vendor’s continued commercial activity and it was therefore in trade.21
[110] What is most relevant for the determination of the question of “in trade” is the context in which Mr Kaminski made the representations rather than his status at the time of making them. The purpose of Mr Kaminski’s representations was to persuade potential investors to join with him to form a company to set up a business supplying an adventure experience. While Mr Kaminski had a personal relationship with Mr Dumas and Ms Li, he had no such relationship with the other investors, although that would not in itself be determinative. Mr Kaminski’s dealings with the plaintiffs
18 Companies Act 1993, s 35.
19 Debra Wilson Fair Trading Act Handbook (LexisNexis, Wellington, 2018) at [2.85]; Bevanere Pty Ltd v Lubidineuse (1985) 7 FCR 325 (FCA) at 331; Dangerous Goods Compliance Ltd v Farquhar Lelean Holdings Ltd (In Liq) [2022] NZHC 3041.
20 Premier Property Developments Ltd v OHL Ltd [2023] NZHC 1962 at [46].
21 Citing Cashmore v Sands (2007) 8 NZBLC 101,897 at [217].
were of a business nature because they related to the solicitation of investment for a commercial enterprise. Whether viewed as a precursor to a trading activity or part of a course of intended trading activity, I find that Mr Kaminski was “in trade” for the purposes of the Act when he made the representations.22
Issue Three: Were the representations misleading or deceptive?
[111] I have concluded that there is overwhelming evidence that Mr Kaminski’s representations, save in respect of the CAA reclassification, were misleading or deceptive. By a slim margin, I find that his portrayal of his role in the CAA reclassification, while exaggerated, falls short of being an actionable misrepresentation.
[112] First, Mr Kaminski’s claims that he had undertaken extensive research into the various manufacturers’ balloons was so exaggerated as to be misleading or deceptive when:
(a)His inquiries of three international balloon suppliers were superficial and depended on marketing brochures issued by the suppliers.
(b)When Aerophile proffered more sophisticated information, Mr Kaminski brushed them off because he was fixated on the lowest cost offering.
(c)He had been warned by Aerophile that with a smaller balloon he would not have the capacity to fly enough passengers to be profitable and that no smaller balloon had ever lasted more than two years constantly inflated.
(d)There was no evidence of AeroBalloon’s safety record, yet Mr Kaminski was undeterred from describing it as impeccable. What evidence there is (and was) points the other way.
22 See for example, Otta International Pty Limited v Asia Pacific Carbon Pte Ltd [2017] NSWSC 1267 at [92] where representations as to the defendant’s credentials and business experience were held to be “in trade” where the purpose of the representations was to persuade the plaintiff to pay money to a company controlled by the defendant.
(e)Mr Kaminski was unable to show any cogent evidence of his research into how he went about investigating the most suitable product for New Zealand conditions and failed to engage any expertise in the field.
(f)His research into AeroBalloon’s credentials was cursory at best. He appeared to assume that AeroBalloon was a sizeable enterprise without any basis for doing so. It transpired that it was essentially a “one man band” and its products unproven in the market at that time.
(g)He had only a superficial relationship with Mr Hase of AeroBalloon. Mr Kaminski accepted on cross-examination that he had not “negotiated” a discount any sense of the word. The chain of correspondence between Mr Kaminski and Mr Hase shows that a “discount” from the brochure price was hastily offered by Mr Hase after a few emails without anything fairly resembling a negotiation. There was no strong business relationship as Mr Kaminski represented; they had never met and Mr Kaminski had never visited an AeroBalloon product in operation or Mr Hase.
(h)Despite being aware of Rotorua’s corrosive atmosphere, he had not investigated the effect of this environment on the AB20 equipment or whether it would be suitable.
(i)He had no real basis for wrongly representing that the AB20 would comply with New Zealand safety standards.
[113] Mr Kaminski admitted in cross examination that he did not do the research as to flight path concerns himself. The exchange with Mr Maloney on the subject of flight path effects was as follows:
Q: A discussion with the Civil Aviation Authority is necessary? A: Yes.
Q:Yes. So these were issues that could be identified pretty quickly, weren’t they, with asking the right questions?
A: Well, I, ha, I made a mistake asking the, the vendor about, about those issues who –
Q: The vendor AeroBalloon?
A”-yeah, yeah, AeroBalloon, who came back and said, well, you know, we come with – we come towards this problem a lot of the times but that really Is not an issue because helicopters and balloons sort-of work quite well together, you know, we just stay out of their way.
Q: AeroBalloon is Doug [Hase], that’s correct? A: Yes, yeah as we found out later, yes.
Q: And Doug [Hase] had never been to New Zealand- A: No.
Q: - had he?
A: At that point no.
Q: The first time he came was after the balloon was delivered ? A: To set, to set the balloon up, to- to- yes, he came in to set it up. Q: Yes, so you took his advice –
A: Yes.
Q:–on New Zealand regulations about a country he’d never been to and you didn’t do any research yourself?
A: Ah-
Q: That’s correct, isn’t it? A: Yes, yeah.
[114] Mr Kaminski’s choice of the AB20 was driven by price. It was clearly not the result of extensive or any sufficient research. Faced with contrary expert advice from the highly experienced Aerophile representative, he chose to ignore it in favour of the much less experienced AeroBalloon.
[115] Second, his claims that the business plan was well-researched and that he had undertaken years of groundwork were such a gross overstatement that they were misleading and deceptive in circumstances where he was pitching to at least some individuals who, while not naïve, had no prior experience in investment in a start-up of this nature:
(a)He did not investigate the regulatory hurdles other than the CAA classification and ignored clear advice about the need for regulatory input.
(b)He did not do the most basic checks as to the suitability of Kuirau Park or Government Gardens in terms of flight path issues. He appeared content to rely on cursory verbal discussions with Mr Hase of AeroBalloon and purported initial discussions with council employees.
(c)He did not investigate whether resource consent was required but represented to investors that resource consent and public notification were not requirements.
(d)He represented that he was in the final stages of securing a site at Kuirau Park and that permission was “basically sorted” when this was far from the case. There was no evidence of lease negotiations or any formal process in place.
(e)He did not record in the IM that all established tethered balloon operations are part of established, larger tourist activities such as Disneyland Paris or Ocean Park in Hong Kong and there is no evidence of a stand-alone operation anywhere in the world.
(f)The IM states that “operations overseas frequently report in excess of 1,000 rides per day. The brochures from which Mr Kaminski cribbed this information do not report that. They say “up to 1,000 rides per day”. Mr Kaminski was also aware from the Aerophile material that it claimed to fly 400,000 passengers per year between six operations at world-class theme parks yet he still predicted 180,000 passengers per year by Kiwi Rider based only on uptake of a percentage of adventure tourism numbers in Rotorua.
(g)Although he included an income stream from sponsorship or advertising on the balloon, he had not approached any potential
companies or businesses, or tested interest, or explored the regulatory landscape. The eventual resource consent did not permit advertising or sponsorship.
(h)He had not considered traffic implications for the projected numbers of customers.
(i)He had not researched the comparability of American safety regulations with New Zealand regulations.
(j)He had misunderstood the difference between mean wind speed on which he relied, average maximum wind speed and average wind gusts which dictate the balloon’s carrying capacity. This is despite the warning from Aerophile as to the difference.23
[116] Mr Kaminski’s evidence in chief was that he still believed the American tethered balloon system was the best and most suitable system for Kiwi Rider’s specific commercial purposes. Even on cross-examination, he did not initially accept that the statement that the AB20 is the most commercially developed balloon company in the world is wrong. On the contrary, he maintained that he still believed it. He maintained that its competitors are less stable and effective in average New Zealand wind conditions notwithstanding Aerophile’s advice. However, his own contemporaneous correspondence with a German manufacturer of balloons recorded that AeroBalloon’s components are of inferior quality and the winch is dangerous. Once that correspondence was put to him, Mr Kaminski was forced to concede that the statements in the IM were incorrect. Mr Kaminski’s own correspondence with Mr Hase of AeroBalloon also contended:
In summary we do not consider AeroBalloon are a responsible and safe supplier. Rather we consider AeroBalloon to be a danger to its customers, their customers and the industry.
23 The AB20 could only carry a half load of 10 people if winds went above 7 km/h, a quarter load if wind went above 20 km/h. The average max wind speed in Rotorua in 2016 was around 12 to 20 km/h, with average gusts between 20 km/h and 30 km/h.
[117] But pressed whether he had any reason to believe it was incorrect at the time he included the statement in the IM, he said only that he had “seen operations working online through televised and newspaper footage”. He acknowledged that there was no independent advice or advice from experts and no document or report obtained or relied on which compared available models and concluded that the AB20 was safer and better performing than its competitors. Instead, he appeared to rely on statements from AeroBalloon itself. In contrast, the other suppliers, Lindstrand and Aerophile, had been operating for decades and had dozens of established balloon operations.
[118] Neither would he accept that weather conditions other than wind and heavy rain, for example low cloud, would affect demand. He conceded that he did not consider the effect of low cloud on the operation and did not look into the average number of rainy days in Rotorua. As a result, his assumption that the balloon would operate 260 days per year, illustrating Mr Kaminski’s relentless optimism about the project, was no more than a guess.
[119] In the first IM, Mr Kaminski stated that the annual ticket sales target was 180,000 tickets. He relied on the raw number of overnight visitors in Rotorua, the statistic that 10 per cent purchase an adventure tourism activity, and halved that. But Mr Kaminski produced no market research to suggest that a purchaser of one adventure type activity in Rotorua would go on to purchase another. Mr Kaminski suggested on cross-examination that the knowledge that operators in Queenstown bundle adventure tourism activities amounted to “research”. However, the fact the reliability or viability of the assumption was there for all to see means these statements do not meet the threshold under s 9 of the Act.
[120] In the establishment budget annexed to the IM, Mr Kaminski refers to “issue expenses” being the provision of $25,000 to TBK Capital. There is no reference to TBK Capital. He denied burying the sum in that way and contended that Mr Dumas was well aware of the sum to be paid to TBK Capital as a condition to accept shareholders outside of TBK Capital. While Mr Dumas may have had that awareness, the method of presentation was hardly transparent for other investors.
[121] Mr Kaminski had not obtained a quote for helium prior to the IM being distributed or even before the Founders’ Meeting. He had included an estimated price of $50,000 in the establishment budget as part of the balloon cost based it seems on asking around and discussions with AeroBalloon. The actual helium cost was twice the budgeted sum; he attributed the difference to Mr Dumas.
[122] While Mr Kaminski’s evidence was that he considered the sulphuric atmosphere in Rotorua, there is nothing to show that he considered this prior to the IM and offer to investors. When it was put to Mr Kaminski that he did not know if the balloon was suitable for this environment, Mr Kaminski’s response was “…there wasn’t really any information to say to the contrary, that why we requested of AeroBalloon to make sure that all metallic screws and bolts and nuts would be stainless steel, which they weren’t in the end”.
[123] Mr Kaminski’s representation that he had conducted extensive research was palpably misleading and deceptive. Two factors which were not in themselves misleading likely increased the capacity for the representations to mislead. One was the reclassification by CAA for which Mr Kaminski took the credit. I have found that, although inflated, this did not amount to a misrepresentation in its own right. Secondly, the professional ‘look and feel’ of the IM itself. Both lent weight to the appearance of extensive research, investigation and know-how.
[124] Third, Mr Kaminski’s claimed credentials were seriously exaggerated. In opening his case, Mr Kaminski stated that he had “some” experience setting up small, very risky operations with limited staff in touristy environments overseas. This is a long way away from the extensive experience he represented to the investors he had.
[125] Mr Kaminski had to accept that he tells people frequently that he used to work alongside AJ Hackett. He admitted that when he said this, he was referring to his video production company which recorded bungy jumping by participants at the AJ Hackett site. This description in the context of soliciting for investors for an adventure tourist activity gave the impression that he was involved in the AJ Hackett bungy business itself or its set-up. The ‘working alongside’ may have been literally correct in that his video business was physically next door but was intended to, and did, give a false and
misleading impression. One example of Mr Kaminski’s intention to ride on the coat tails of the AJ Hackett bungy business is his correspondence with the safety engineer engaged to produce a commissioning certificate in which he stated:
As I may have mentioned to you, I used to work alongside Hackett in 1988 and ended up setting up bungy operations in Spain and Germany for a few years after.
[126] In cross-examination, Mr Kaminski accepted that he “possibly could have” said something similar to the investors at the Founders’ Meeting. I find that that he did so. The following exchange with Mr Maloney was also instructive:
Q: So that doesn’t distinguish that you weren’t part of the Hackett bungee operation, does it?
A:No, it doesn’t, however, I believe there is little difference. You’ve got to understand that every day of the week, I was working next to the bungee jumpers, I was jumping myself, I was really in a way considered to be part of the crew, I wasn’t setting it up and I wasn’t the bungee jumper but I was Frame By Frame video operations working alongside Hackett – and I never claim anywhere here that I was setting up the bungee jump operation. And I believe that that is still a true representation of, of, of what happened.
[127]Mr Kaminski’s reference in his resumé to managing 300 staff and a budget of
$30 million was in fact a six-month contract in an enterprise which, shortly after he joined, went into receivership and was liquidated. He performed three of the six months of his contract as the business was “not rescuable”. He conceded in cross-examination that he was brought into the enterprise to down-size the business by reducing the operating budget, and restructuring the workforce. Yet Mr Kaminski refused to accept that his resume did not reflect an accurate picture.
[128] The financial projections in the IM are of a different character, being predictions rather than express representations of fact. Yet, in their context, I accept they were misleading when taken together with the statements that he had undertaken years of research. The implicit representation is that Mr Kaminski had a sound basis for those numbers. Though not expressly pleaded, this representation goes to the representation of the years of sound research undertaken by Mr Kaminski.
[129] Standing back and viewing all the statements Mr Kaminski made in the IM and at the Founders’ Meeting I am left in no doubt that his representations were misleading and deceptive overall.
Issue Four: Did the plaintiffs rely on the representations and if so, was such reliance reasonable?
[130] The first IM under the heading “Important Information” contains the following reasonably prominent disclaimer:
By acceptance of this IM, the recipient acknowledges that neither Thomas Kaminski, nor Kiwi Rider Ltd or any of its affiliates, provide any warrantees [sic] or liabilities [sic] in regards to this IM and any of the contained information, sources and appendices. Thomas advises that every investment contains risks and investors may risk losing part or all of their investment. All recipients of this information should receive legal, tax and accounting advice from advisors with appropriate expertise to fully assess the relevant risks. Thomas strongly recommends to all interested parties to exercise due diligence and to carefully assess and scrutinise all supplied information and sources before making any investment decision.
Thomas rejects any liability that may occur as the result of this proposal and any of the information, appendices and subsequent consequences, direct and/or indirect, contained within it. It is entirely the responsibility of the recipient to ensure that the provided information is accurate and that the financial projections and forecasts as well as any other conclusions and/or assumptions, are sound before investing any funds.
[131]This follows a statement that:
Thomas Kaminski has exercised great care to ensure that all provided information is accurate, relevant and based on credible data supplied either with the source as a ‘clickable link’ or as an ‘Appendix’ and attachment.
[132] Mr Kaminski did not expressly plead reliance on the disclaimer but touched on it in evidence.
[133] A disclaimer may break the chain of causation and make it objectively unreasonable to rely on a defendant’s representations. Whether it does so depends on the totality of the evidence.24 The question is whether, as a matter of fact, the plaintiffs reasonably relied on the misrepresentations and whether that reliance caused loss as a
24 David v TFAC Ltd [2009] NZCA 44, [2009] 3 NZLR 239 at [63]. In the present case, it is not a question of a contractual disclaimer of reliance where a person declares in a contractual document that he or she did not rely upon pre-contractual representations.
result of investing or agreeing to such a significant shareholding be allocated to Mr Kaminski without any capital contribution from him at start-up.
[134] There was no evidence about any due diligence undertaken by the plaintiffs on their behalf when presented with the IM and Mr Kaminski’s representations. There was no suggestion that they had insufficient time to do so. Mrs Clyma agreed that there was sufficient time.
[135] I accept that some of the assumptions in the IM such as the number of ‘flights’ per hour were susceptible to challenge from a common sense point of view. But there was no acknowledgment by the investors in any document presented to the Court that they had not relied on the IM. The factual context is therefore different from contractual acknowledgements. On the contrary, the plaintiffs who did give evidence said they relied on the representations and were induced to invest based on them.
[136] There was clear information asymmetry in so far as Mr Kaminski’s representations about his background and experience and the depth of research he engaged in were concerned. The correct position was not something easily ascertainable by investors in the shoes of the plaintiffs. This is at the core of the capacity to mislead or deceive. The investors were not independently advised commercial parties negotiating from equal positions. Indeed, on the evidence before the Court, there was little or no negotiation at all. In my view, the disclaimer was easily overwhelmed by Mr Kaminski’s oral assurances to the investors and the clear evidence of reliance which was not shaken when the witnesses gave evidence. Further, the disclaimer is focused on the assessment of relevant risk and soundness of the financial projections and forecasts and not the type of statements at issue in the claim. There was no evidence led as to what the plaintiffs could and should have investigated before making their investment in KRL.
[137] I conclude that the disclaimer does not break the chain of causation. In my assessment, the weight of evidence is such that it cannot be said that the plaintiffs failed to adequately protect their own interests.
[138] Nor do I consider that the plaintiffs have recklessly failed to look after their own interests. As stated in Vining Realty Group Ltd v Moorhouse:25
It does not normally sit well in the mouth of someone who has been guilty of misrepresentation to blame the other person for believing the misrepresentation.
[139] I find that the plaintiffs who invested in the first round of capital raising were misled and that it was objectively reasonable for them to have been misled.
[140] I find that the plaintiffs who invested in the second round of capital raising were in a different position. Those plaintiffs did not give evidence. The absence of direct evidence does not of itself preclude a finding of reliance.26 Mr Maloney asks the Court to infer reliance based on the nature of the information and its inherently misleading character. That argument is cogent for the first-round investors but not in my view for the investors in the second capital raise because there was a very different context. Those investors had been provided with an updated IM, purportedly from Kiwi Rider rather than Mr Kaminski although I accept that it was Mr Kaminski who prepared the document. By this stage, the issues with the balloon, difficulties with finding a suitable site and obtaining the resource consent were evident. Even a few inquiries of Kiwi Rider ought to have disclosed the issues with AeroBalloon and cast doubt on the whole enterprise.
[141] In sum, the plaintiffs have not established that Stephen Reilly, Jia Zhao and Xianmei Meng were reasonably misled by representations made by Mr Kaminski into making their investment in Kiwi Rider.
Have any of the plaintiffs suffered loss caused by any misrepresentations?
[142] I further consider that the representations by Mr Kaminski were an operative or an effective cause of the losses by the initial investors. I accept that they would not have invested had they known the true position about the level of research undertaken by Mr Kaminski and his own lack of experience. Even if they would have invested, I accept that they would not have agreed to a 40 per cent shareholding on the part of
25 Vining Realty Group Ltd v Moorhouse [2010] NZCA 104, (2010) 11 NZCPR 879 at [53(c)]
26 Otta International Pty Limited v Asia Pacific Carbon Pte Ltd, above n 22, at [135].
Mr Kaminski. The state of the evidence is such that the Court cannot know what would have occurred had they wished to invest but refused that shareholding allocation to Mr Kaminski.
[143] The problems besetting Kiwi Rider began before the non-compliant balloon was delivered and well before the accidental damage to the balloon. It might fairly be said that the inadequacy of the research and groundwork by Mr Kaminski was itself a potent cause of those issues or at least significantly contributed to them.
Issue five: Are the plaintiffs entitled to damages and/or an order that Mr Kaminski transfer his shares to them to hold beneficially for all shareholders other than Mr Kaminski.
[144] Under s 43 of the Act, the Court has a discretion following a finding of liability. It is a matter of doing justice to the parties in the circumstances of the particular case and in terms of the policy of the Act.27 Relevant factors include the degree of blameworthiness of the defendant and the extent to which the plaintiffs have failed to protect their own interests.28
[145]There is no good reason not to award damages in this case.
[146] The orthodox approach to damages in cases of this type is compensation assessed by reference to the investment less the return to each plaintiff initial investor on liquidation of the company. The amounts invested by the successful plaintiffs in the first round were:
(a)Mr Clyma - $150,000
(b)Mrs Clyma - $150,000;
(c)
Mr Dumas - $75,000; (d) Ms Li - $75,000;
27 Goldsbro v Walker [1993] 1 NZLR 394 (CA) at 404; Shabor v Graham [2021] NZCA 448, [2021] NZCCLR 26 at [57].
28 At [57].
(e) Ms Wang - $300,000.
[147] The total recovery from the insurance proceeds was $968,750 inclusive of GST. Mr Dumas explained in his evidence in chief that the proceeds have steadily decreased due to payment of on-going company related expenses as the company has been wound down. The full accounting is yet to be completed.
[148] I find that the plaintiffs named at paragraph [146] are entitled to damages calculated by reference to their initial investment less any sum they recover on liquidation of the company. As this amount is not yet determined, this judgment is interim only insofar as the quantum of damages is concerned. Those plaintiffs are to file an affidavit with supporting material finalising the quantum on the stated basis within 21 days of this interim judgment (with leave to extend that period if required). Mr Kaminski is to file and serve any response within a further 14 days. I will then finalise the damages award on the papers unless I require assistance from the parties.
[149] The plaintiffs separately seek an order under s 43(3)(e) or (h) that the defendant transfer his shares to the plaintiffs, to be held on trust for all remaining shareholders. They argue that he only received those shares as a result of his misleading and deceptive conduct and should not be permitted to retain them.
[150] This must logically be an alternative remedy rather than an ancillary remedy. Either the investors would not have invested or they would have invested but not allocated a 40 per cent shareholding to Mr Kaminski had the misrepresentations not been made.
[151] However, there is no evidence as to what allocation would have been made to Mr Kaminski if he had not made the representations or whether Mr Kaminski would have accepted no shareholding interest (which must be most unlikely).The plaintiffs have not referred to any authority supporting this remedial option. On a plain reading of s 43(3)(e), it is not apposite as there is no question of returning property, though shares are personal property. The shares were not the plaintiffs in the first place. Similarly, s 43(3)(h) refers to the supply of specified goods and is not on its face relevant.
[152] Accordingly, I decline to make an order that Mr Kaminski transfer his shares to the plaintiffs.
[153] As the plaintiffs are the successful party, they are presumptively entitled to costs on a 2B basis. If costs cannot be agreed, written memoranda may be filed once the quantum of damages is finalised.
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Walker J
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