McIntosh's behaviour showed he wasn't aware of RAM problems, Appeal Court told

Former Ross Asset Management investor Hamish McIntosh wouldn't have continued to spend money on a property development in Wellington had he known the fund manager was in trouble, the Court of Appeal has heard.

In June, the High Court ruled that Mr McIntosh must repay $454,000 in fictitious gains from his investment in RAM, extracted before it collapsed, but could keep his $500,000 principal payment.

RAM liquidators John Fisk and David Bridgman of PwC sued Mr McIntosh as a test case and have said they will pursue other investors who managed to pull funds out.

Remaining investors are expected to get back just 3c in the dollar.

Lawyer Justin Smith QC told Justices Christine French, Rhys Harrison and Forrest Miller that Mr McIntosh wouldn't have continued to invest in the Palliser Road development, incurring $200,000 on architects, surveyors, and other costs including interest, for a speculative $3 million property had he known he was "the best part of $1 million in a hole."

In the High Court, Justice Alan MacKenzie found a reasonable person should have been aware of potential litigation once RAM's precarious position was first made public, but Mr Smith argued his client had already embarked on the development and when RAM's difficulties did emerge, it didn't occur to him that his own funds could be clawed back.

Mr Smith made an, at times, technical argument about whether there had been a transfer of value in terms of the Companies Act and whether Mr McIntosh could avail himself of a change of position defence. So complex, in fact, Justice Harrison began the hearing by noting Mr Smith hadn't complied with the court's plea "for focused submissions of less than 30 pages."

Justice Harrison says the court had struggled with the arguments in what was "not an easy case" and the three judges frequently stopped Mr Smith to interrogate him on his arguments.

A handful of other out-of-pocket RAM investors watched from the back of the courtroom, including one who says he "felt a little bit sorry" for Mr McIntosh, when other investors had got millions of dollars back out of RAM before it collapsed.

Mr Smith also objected to High Court judge MacKenzie's assertion Mr McIntosh had such a high tolerance for debt that he would have gone ahead with his property investments in Wellington and Queenstown even if he knew RAM was in trouble.

In the run-up to settlement on Palliser Road, Mr McIntosh had badgered RAM founder David Ross, now serving 10 years in jail for fraud, about winding up his investment portfolio. Instead of taking Ross's slow response as a warning of trouble, he assumed it was because Ross was a busy man, often travelling, who would respond eventually.

Mike Colson, the lawyer representing PwC's Mr Fisk, filed a cross-appeal, seeking to have Mr McIntosh's $500,000 of principal returned as well as the 'profit.'

"Quite clearly the monies used to pay Mr McIntosh either came from other investments or from shares that were not purported to be his," Mr Colson says.

"So, stolen money?" Justice Christine French asked. Colson replied: "That's a simple way to look at it."

Colson also took issue with Mr Smith's arguments about the relevance of a Supreme Court case earlier this year involving Allied Concrete, which strengthened the position of creditors using a defence under s296 of the Companies Act to resist claims from liquidators. That case involved trade creditors providing services to a company intent on making a profit, and implicitly at an agreed price. In contrast, with the RAM situation, "these funds were intended to be held in trust."

"Mr McIntosh believes he was paid $945,000 of investment funds. From Ram's position, there's no doubt he was paid to allow the Ponzi scheme to continue," Mr Colson says.

Wellington-based Ross built up a private investment service by word-of-mouth, producing regular reports for shareholders indicating healthy but fictitious returns. Between June 2000 and September 2012, Ross reported false profits of $351 million from fictitious securities trading as part of a fraud that was the largest single such crime committed by an individual in New Zealand.

In June last year, the Court of Appeal turned down a bid by Ross to reduce his 10-year, 10-month jail term, which carries a minimum non-parole period of five years and five months.

The case is continuing.

(BusinessDesk)