The High Court has ordered the former owners of a cliff-top property in Glendowie, Auckland, to pay $847,000 in penalties and costs for failing to get consent under the Overseas Investment Act before buying the property.
Wenbing Tang, who was defined as an overseas person under the Overseas Investment Act, purchased the property in 2013 and then transferred it to other overseas people, who later made a gross profit of $1 million from its resale.
Neither of the original transactions went through the required Overseas Investment Act consent process, Land Information said.
"The High Court Judgment is a timely reminder that overseas people must get consent under the Overseas Investment Act if they want to buy sensitive land in New Zealand. Justice Lang stated that the defendants should have been aware of the restrictions on purchasing property in New Zealand," said Lisa Barrett, deputy chief executive, policy and overseas investment.
"This is a great example of how the Overseas Investment Office's enforcement programme is making sure people who should get consent, do so. Getting consent ensures New Zealand benefits from the overseas investment and that promises made by overseas buyers are kept."
The judgment said Tang in June 2013 entered into an agreement to purchase a residential property at 679 Riddell Road, Glendowie for $5.13 million.
In August of that year Tang entered into a deed with the second, third and fourth defendants - Xianghua Huang, Binyan Zhou and Binzhi Ouyang - under which he nominated them to purchase the property.
On August 28, the transfer of title to the property was registered and Huang, Zhou and Ouyang each thereby became the legal owners of the property.
The four defendants were Chinese citizens who did not ordinarily reside in New Zealand. Each of them had contravened the Overseas Investment Act by acquiring an interest in sensitive land without first obtaining consent.
The penalties had been agreed between the parties.
"Mr Tang's culpability lies in the fact that he instigated the actions that led to all of the breaches occurring," the judgment said. "He has previous experience in purchasing land in New Zealand, as well as significant experience in business both in China and New Zealand."
Land Information had accepted Tang did not intentionally breach the Act "rather, he was negligent as to the consent requirements".
"Importantly, Mr Tang did not make any identifiable gain from his breach of the Act," the judgment said.
Huang, Zhou and Ouyang had made a quantifiable gain in relation to the property. They purchased it for $5.13m and sold it for $6.15m. The gross qualifiable gain was therefore $1.02m before taking into account the costs involved in selling the property.
"The total net quantifiable gain is therefore $806,360.42. Given that each of the defendants owned an undivided one-third share of the property, each has made a gain of just under $269,000."
None of the defendants had any previous history of this type of misconduct and all had signed an admission of liability.
Tang was ordered to pay a civil penalty in the sum of $110,500, although Justice Graham Lang said he inferred that the parties had agreed to "round down" the penalty to $110,000.
Huang and Ouyang were each ordered to pay a civil penalty of $229,500, while Zhou was ordered to pay $243,000.
Tang contributed $5,000 towards Land Information's costs, with $10,000 each from Huang, Zhou and Ouyang.
Barrett said: "The judgment establishes that where an overseas person stands to make gain from buying sensitive land without consent, any penalty imposed will focus on the gain they make by failing to follow the overseas investment rules."