Hotchin loses appeal over Hanover decision

Former Hanover director Mark Hotchin. Photo / Paul Estcourt

Mark Hotchin has lost an appeal over a decision which said Hanover's trustees did not have a duty to verify the accuracy of statements in allegedly misleading prospectuses.

Hotchin and five others associated with Hanover companies are being sued by the Financial Markets Authority for allegedly misleading or untrue statements in finance company prospectuses.

The case is due to go to trial in July next year and is expected to take up 12 weeks in the High Court at Auckland.

The FMA is seeking compensation for investors who put $35 million into Hanover Finance, Hanover Capital and United Finance between December 2007 and July 22, 2008. Hotchin last year attempted to join two trustee companies - New Zealand Guardian Trust Company and Perpetual Trust - into the FMA's civil case against him.

Hotchin argued the trustees held a duty of care to investors and that they should contribute to any damages payable if the FMA's case succeeds. But the trustees fought the attempt and last year the Chief High Court Judge Helen Winkelmann struck out Hotchin's application to join them in the civil action.

Hotchin in June appealed the decision to strike out, but it was dismissed today by the Justices Douglas White, Rhys Harrison and Christine French.

Justice Rhys Harrison in the decision said Hotchin's claim for equitable contribution was "unarguable".

Justice Harrison said Hotchin and trustees owed investors different duties.

"Mr Hotchin owed the investors a duty to make accurate statements in prospectuses and certificates. The damage suffered by the Hanover investors as a result of Mr Hotchin's alleged breach of duty was the loss of their deposits made in reliance on those statements or the excessive prices paid," Justice Harrison said.

"The trustees' duties were of a very different nature, to protect investors against the harm arising from breaches of the companies' obligations under the trust deeds. The trustees cannot be liable in respect of the damage suffered by the investors where they did not owe a duty to protect them against the harm of inaccuracies in the directors' statements," the judge said.