Trusts linked to former Hanover director Mark Hotchin have lost an appeal involving frozen assets that include a multimillion-dollar mansion.

The trusts, known as KA3 and KA4, have preservation orders over them as a result of the Financial Markets Authority's investigation into Hanover Finance, which collapsed in 2008.

The FMA, which is bringing civil action against Hotchin, alleges these trusts hold property on behalf of his children. The market watchdog alleges the KA4 trust is a "sham" and was set up by the former Hanover director to "conceal his continued enjoyment" of normal ownership of its property.

KA4 Trustee is the listed owner of an unfinished seven-bedroom, 12-car-garage mansion on Auckland's Paritai Drive that was intended to house Hotchin and his family.


While the trustees' lawyers have disputed both of the FMA's allegations, they failed to get the claims struck out in the High Court.

The case ended up in the Court of Appeal, but was dismissed yesterday by Justices Mark O'Regan, Terence Arnold and Douglas White.

In considering the allegation the trusts held property on behalf of Hotchin's children, the three judges said it would be "premature" for them to strike it out. They said the issue should be argued in a "substantive hearing" back in the High Court.

Although the trustees' lawyers labelled the pleading of sham as "an abuse of process" and a "fishing exercise", the judges' ruling said: "We accept that the pleading is simplistic and needs amplification and refinement, but we do not see this as a reason to strike out the sham pleading in its entirety."

"The court should be cautious in disposing of cases on a summary basis."