John Banks is a former police minister and former Auckland mayor. Photo / File
Former Auckland mayor John Banks and a business associate have settled a legal dispute after being jointly sued for nearly $2 million when a cafe chain business deal collapsed into liquidation.
Court documents obtained by the Herald show Auckland real estate agent Eric Chase accused Banks and his business associate Paul Ewing of misrepresentations and breaching the Fair Trading Act.
Ewing was also accused of deceit.
The case was due to go to a full hearing last month in the High Court at Auckland but was abandoned earlier this year upon settlement, the Herald can reveal.
The court documents show Chase accused the pair of misrepresenting commercial information during his $1.8 million purchase of the master franchise rights for 15 Gloria Jeans Coffee outlets in 2016 from Ewing's company, GJ New Zealand Holdings Ltd.
Ewing was accused of misrepresenting the businesses' profitability and failing to advise Chase of various legal proceedings involving franchisees, outstanding debts and liabilities, and commercial relationship problems – allegedly severely undermining Chase's investment.
The documents also claim Banks, who said he only acted as a "mentor" to Ewing, failed to reveal an alleged interest in the deal through an undisclosed company shareholding.
Banks, a devout Christian and former police minister, and Ewing have denied wrongdoing.
Banks declined to be interviewed, but in a text message said the matter was "history" and "not a story".
"You are a fool!" Banks wrote.
"All matters have been amicably settled, the parties have moved on! Please tell your bosses if you defame me with any falsity or recklessness I will issued Defamation proceedings against you in the High Court!"
Ewing did not respond.
After the purchase, Chase claimed he realised the businesses were "barely solvent".
His company Boost Group refused to repay a $660,000 vendor loan to Ewing and was tipped into receivership, then stripped of the master franchise rights by Gloria Jeans' Australian parent company Retail Food Group.
Ewing sued Chase in 2017 to recoup the money before Chase filed his counter suit, claiming misleading or deceptive conduct.
Chase had sought $1.958m in losses, $30,000 in exemplary damages, plus interest and costs.
The Herald can reveal Banks offered to help settle the dispute in May last year before an agreement was eventually struck in March.
It's understood the saga has cost Chase his real estate businesses. He declined to comment on the terms of the settlement, because of confidentiality.
In a preliminary High Court judgment in February this year, Associate Judge R M Bell said based on the information he had reviewed, Chase had established that Banks and Ewing were "arguably the cause of his financial misfortune".
In reaching his decision on several procedural matters, the judge summarised Chase's case against the two men as alleged misrepresentations to "induce" the purchase of a business.
"It appears from evidence that Mr Chase looked to Mr Banks as someone he could trust. As is well known, Mr Banks is a former politician, holds himself out as a man of integrity and has significant business experience."
Chase claimed Ewing and Banks advised him not to meet with franchisees before the purchase was finalised, as it could "spook" store owners, assuring him there were "no issues for concern", the judgement says.
But Chase alleged "to the contrary", the pair were aware of litigation, disputes and grievances involving several store owners, none of which was disclosed to him.
There were further allegations against Ewing of omissions, including an alleged failure to provide the 2016 financial accounts.
Shortly before settlement in September 2016, Chase claimed to have learned about unpaid franchise fees of US$160,000, which Ewing allegedly described as an "administrative slip".
Concerned, Chase arranged a meeting in Banks' Stamford Plaza penthouse where both Ewing and Banks assured him there were no other liabilities, the judgment says.
"Mr Chase says that he relied on Mr Banks."
The judge said Chase's claim seemed to warrant a hearing in court.
Banks had given only "general denials of liability".
"I cannot say at this stage that Mr Chase's claim against Mr Banks is hopeless, trivial or not worth considering."
Ewing, meanwhile, had not addressed "detailed allegations" of non-disclosure, the judge said.
"... Mr Ewing's position seems evasive and gives suspicion as to the merits of his defence.
"His silence is reason to suspect that there is something in what Mr Chase says."
The judge declined an application by Ewing and Banks for security of costs against Chase, who had "put his own neck on the block" by risking bankruptcy if he lost the proceedings.
The judge also refused to order the release of financial information for Chase's lawyer to "test Mr Banks' denials" that he had benefited financially from the sale.
After the court action started, Chase learned that Banks, along with Ewing, was the joint-shareholder in Ewing Trustee Services Ltd - a holding company connected to GJ New Zealand Holdings Ltd, the judge said.
"Mr Chase was not aware of that when they were in negotiations."
Chase became concerned at Banks' connection, but Banks denied receiving any financial benefit from the deal.
The judge ruled that if Banks did make the statements alleged, "arguably he owed a duty of care to Mr Chase to ensure that what he said was true and correct" – whether or not he benefited personally.
A month after that judgment was issued, Ewing and Banks agreed to settle the dispute.
In a witness statement dated November 2019, Banks labelled the claims against him "false" and said he had resigned from his shareholder position on advice from his lawyer.
"At all times, I was only a business mentor to Paul ..."
His shareholding shouldn't have been a surprise to Chase given Companies Office searches were a "basic component" of due diligence procedures.
Banks said he'd never given any statements or representations about the franchise business, and had no detailed knowledge of the company's income, expenses or financial statements.
He claimed Chase had never asked for his advice.
"... I did not give any assurances to Mr Chase or Boost ... I believed that Mr Chase was doing his homework and was comfortable to proceed based on his own assessment and advice ...
"Mr Chase always represented that he was an extraordinarily successful businessman and had the best accounting and legal advice money could buy."
Ewing's witness statement confirmed Banks only became a non-beneficial trustee on the advice of Ewing's lawyer.
All financial information about Ewing's franchise company was provided by his accountant or real estate agent, and both parties in the sale had legal representation, he said.
"Eric and [his analyst] Alan Goldman told me on various occasions that they were not very interested in what I had achieved with the business or how it had performed to date. Instead, they said they were relying on their skills and abilities to enhance and grow the franchise business."
He added that Chase had not raised access to store owners as an issue before settlement and could have made this a condition of the agreement.
Ewing said it had been in his interests for Boost to flourish so Chase could repay the $660,000 vendor loan.
The loan remains unpaid as Ewing's company has now been liquidated and his claim against Chase abandoned.
Emergency services were called to the scene about 8.30pm.