Trustees fight Mark Hotchin's blame claim

Hanover Finance's trustees are fighting a claim by its director Mark Hotchin that extends liability for statements in the collapsed financier's prospectus.

Mr Hotchin and five other directors and promotors of the Hanover group of companies are being sued by the Financial Markets Authority for what it alleges are misleading or untrue statements in Hanover's December 2007 prospectus and its March 2008 extension certificate and advertising.

Specifically, Hanover’s December 2007 prospectus contained untrue statements around liquidity, the FMA says.

Mr Hotchin claims Hanover's trustee New Zealand Guardian Trust owes a duty of care to investors in Hanover Finance – owed about $554 million when the Hanover group of companies collapsed in July 2008.

He argues Guardian did not monitor the affairs of Hanover properly and has made an application for a compensation claim against Guardian and Perpetual Trust, which was the trustee of United Finance and Hanover Capital.

If it succeeds, the two trustees will become third parties in the FMA's civil action against Hanover.

Guardian Trust is trying to strike out Mr Hotchin's third-party claim at Auckland High Court today.

Its lawyer, Ralph Simpson, told Chief High Court Judge Helen Winkelmann the trustees' duty to investors, and therefore liability for any damage to investors, was fundamentally different to those owed by Hotchin, who is being sued by the Financial Markets Authority.

If Guardian's duty as to contents of the prospectus was as Mr Hotchin claimed it would have required Guardian Trust to ensconse itself in the offices of Hanover Finance, he said.

Critical evidence

A letter from Hanover directors to the trustee, verifying matters about the prospectus, including its compliance with the Securities Act, will be a critical piece of evidence in Guardian's arguments.

Mr Hotchin's claim had no legs and would consume assets due to investors, Mr Simpson said.

"The litgation will go on for years and be horrendously expensive to the parties."

Mr Simpson said it was Hanover and its directors that made the untrue statements and bore primary liability for any Securities Act breaches.

Guardian Trust, in a supervisory role, did not make the untrue statements.

"Guardian's role is secondary and residual," Mr Simpson said. "You can't hold the supervisor liable in the first instance."

The FMA's civil action against directors and promotors of Hanover Finance extends to former directors Mark Hotchin, Sir Tipene O'Regan, Bruce Gordon, chairman Greg Muir and to Hanover co-owner and promotor Eric Watson and Dennis Broit.

If the FMA is successful on all 10 civil actions, the six men could be ordered to pay up to $5 million each in penalties, or $30 million in total, the statement of claim reveals.

Messrs O'Regan, Gordon, Muire, Watson and Broit support Mr Hotchin's third-party claim against the trustees.

gbond@nbr.co.nz