High Court hears allegations over redacted report in Trends R&D funding case

Allegations that government funding agency Callaghan Innovation removed criticism of ambiguity in a research and development funding contract at the centre of legal action have been aired in the High Court at Auckland.

Trends Publishing, which faces legal action by Callaghan to claw back $383,912 following the cancellation of its research grant, is counterclaiming with defamation action against the agency.

Callaghan suspended the three-year growth grant last December and laid a complaint with the Serious Fraud Office following an audit of Trends' funding claims, initiated after staff concerns. It later sought repayment of the money paid out so far.

Trends chairman David Johnson has rejected any suggestion of wrong-doing and has said Callaghan acted unfairly, particularly in issuing a press release that including reference to its complaint to the Serious Fraud Office. Trends' lawyer, Kalev Crossland, told the High Court today that the media release was "like an atomic bomb for Trends' future business aspirations."

In court today the Auckland magazine publisher sought to have the counterclaim heard directly after a hearing on a compromise debt proposal for five creditors – Accident Compensation Corp, Callaghan, MediaWorks, Advice Wise, and Blue Star Group.

Trends has already agreed for the two cases to be heard separately but today argued it was in the best interests of creditors for one to be heard directly after the other because the outcome of the case against Callaghan could have a material impact on what they get paid. There was reference to a possibility that the costs of the court action, if it goes ahead to trial, could be met by litigation funders.

Mr Crossland told the court that a redacted report on Deloitte's audit of Trends' grant claims, requested under the Official Information Act, excluded paragraphs relating to Deloitte criticism of the scheme made after it completed the audit. Those paragraphs included reference to flaws in the funding agreement, and that the terms prohibited a recipient claiming any development expenditure and only allowed for research expenditure to be claimed.

The paragraphs only came to light when an unredacted version of the report was released by Deloitte in subsequent court action, he said.

Sebastian Bisley, the lawyer acting for the five creditors, said parts of the report had been redacted under legal privilege and there were "two sides to the story" which would be played out in court in time. In any event, capitalisation of expenditure was not an issue in the Trends case, he said.

"The focus should be on what was happening at Trends and how the money was used," he said.

Callaghan has refused comment while the case is before the courts, though it said under the growth grant expenditure, research and development are treated as combined costs and so aren't measured separately. It is currently seeking to claw back funds from two other companies of the 170 awarded growth grants. Both cases relate to changes in the companies' ownership but it won't name who they are.

The court had been told that a two-week court date could be set aside in September next year if the counterclaim case was fast-tracked, but Mr Bisley said he doubted that the legal teams involved could be ready by that date given the interlocutory process had not yet even begun. Creditors could decide on the merits of waiting on the outcome of the case in the course of the debt proposal hearing, he said.

Mr Crossland also raised a ministerial briefing made by Callaghan which referred to giving the company time to make feedback on its concerns before going public and then subsequently put out a press release that made reference to its complaint to the Serious Fraud Office before Trends had had a chance to respond.

"The question is, was the minister fully informed?" he said. "We can talk about the accountability of taxpayer-funded grants and we can also talk about the accountability of taxpayer-funded bureaucrats," he said.

Bisley responded that Callaghan had followed the obligations it had under the grants scheme.

The Serious Fraud Office is yet to announce any decision on its investigation into Trends one year later, and Mr Crossland said that was putting a "massive handbrake on not only getting this business up and running again but also clearing their names."

Associate Justice Jeremy Doogue reserved his decision today.

(BusinessDesk)

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