Bannock v Monaco Management Limited

[2017] NZHC 1575

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

CIV-2013-409-001701 [2017] NZHC 1575

BETWEEN

MICHAEL WILLIAM BANNOCK AND

ANNE MARGARET BANNOCK AND OXFORD STREET TRUSTEES (2010) LIMITED & ORS

Plaintiffs

AND

MONACO MANAGEMENT LIMITED First Defendant

AND

MONACO VILLAGE LIMITED (IN LIQUIDATION AND RECEIVERSHIP) Second Defendant

AND

SCOTT PATRICK SANDERS Third Defendant

AND

FINANCIAL MARKETS AUTHORITY Non Party

Hearing:	8 May 2017
Appearances:	P G Skelton QC for Plaintiffs D J Goddard QC and L Theron for First and Third Defendants No appearance for Second Defendant K S Graham for Non Party
Judgment:	7 July 2017

JUDGMENT OF DUNNINGHAM J

Introduction

[1]      In a judgment which issued on 28 November 2016, I held that the offer of units for sale in the Monaco Resort in Nelson, which were subject to a lease known as the “Cottage Lease”, was an offer of a participatory security.  Because the offer was  not  accompanied  by  a  registered  prospectus,  it  was  invalid  under  the

Securities Act 1978 (the Act).   Mr Sanders, as a director of the issuer, the second

BANNOCK v MONACO MANAGEMENT LIMITED [2017] NZHC 1575 [7 July 2017]

defendant, was therefore liable under s 37(6) of the Act to repay subscriptions to certain plaintiffs who had bought units from the second defendant.

[2]      At the conclusion of the judgment I reserved leave for any party to seek any consequential orders on my findings, including relief orders.  Mr Sanders now seeks an order under s 37AH of the Act granting relief from the application of s 37 to the subscriptions made by the successful plaintiffs, on the following grounds:

(a)      He was not involved in the original design of the arrangement which was put in place on the advice of two sets of lawyers, and which the Securities Commission treated as an alternative approach that was compliant with the Act;

(b)The Securities Commission’s view through the relevant period was that an unpooled arrangement did not engage securities legislation or policy concerns;

(c)      In these circumstances, it was not reasonable to expect Mr Sanders to revisit whether the unpooled arrangements complied with the Act.  He acted in good faith, on the basis of a belief that was shared by the former owners, their lawyers and bankers, and by the Securities Commission;

(d)There is no material prejudice to the plaintiffs in circumstances where the purchasers have received title to their units and to a registered lease, and where any further disclosure that might have been required was not likely to affect purchase decisions, especially given the access that purchasers had to legal advice about the nature of the assets they were purchasing and the agreements they were entering into;

(e)      Where plaintiffs were offered the security outside New Zealand, relief should be granted in any event, because the Act is only intended to protect offers made to the public in New Zealand, except in specified circumstances.

[3]      The plaintiffs, however, say that s 37AH is only intended to afford relief where there has been a minor…