Property developers stung by old Dominion loan

Dominion Finance went into receivership in 2008 owing almost 6000 investors approximately $177 million. Photo / NZPA

Two retired property developers - who formerly worked on high-end projects in the Pacific Islands - are liable to the receivers of a failed finance company for $308,572 because of guarantees they gave on an eight-year-old loan.

Dominion Finance went into receivership in 2008 owing almost 6000 investors approximately $177 million.

These investors have since got back 17 cents in the dollar as receivers and liquidators continue to work through the company's collapse.

In June - some seven years after the company hit the rocks - the receivers took High Court action against two property developers for personal guarantees they gave on a loan made by the firm.

The pair, Auckland's Terrence O'Halloran and John Davis, are now retired but say their companies have constructed around 300 houses, mostly in West Auckland and on the North Shore, according to a High Court decision released publicly last week.

The bulk of that funding came from Dominion Finance, the decision says.

Other court documents from 2009 say O'Halloran and Davis were involved the development of an expensive property in Fiji.

The pair, according to a separate liquidator's report, were also directors of a firm set up in 1997 to complete the development of a luxury resort in New Caledonia.

This recent litigation concerns guarantees on a $2.6 million loan that one of the pair's companies took out with Dominion Finance in 2007.

The outstanding principal, according to a Dominion Finance consultant, is $308,572 and accumulated interest now amounts to $539,503.

The company sought summary judgment against the pair, who did not dispute signed guarantees for the loan, which was in the name of a firm called Lonely Track Land Company.

However, O'Halloran and Davis said the amount being sought was "manifestly incorrect" and that allowing the claim would be unreasonable because of the undue delay.

"They said Dominion Finance's delay in commencing proceedings was inordinate, inexcusable and has seriously prejudiced them. They say they genuinely believed that since 2008, Lonely Track did not owe any money to Dominion Finance; that they have not themselves retained any records and therefore are solely reliant upon their memory of the events," said Associate Judge Tony Christiansen.

The judge said both sides accepted that action was not taken against Lonely Track because of Dominion Finance's focus on recovery of a $9 million debt owed by another of the defendants' companies.

It was discovered in February that the liability of the pair for guarantees on that debt was limited.

Associate Judge Christiansen said it was reasonable to assume that the latest action had been brought because of the unavailability of recourse in respect of that loan.

"The defendants were experienced property developers who had borrowed money from Dominion Finance and other financiers on many occasions and were familiar with the terms of those loans. It is the court's view that the balancing of equities does not favour the defendants...they were advised on 9 February 2009 of the amounts outstanding and thereafter there were ongoing communications in which it was clear the defendants' guarantee obligations were being considered by Dominion Finance," the Judge said.

Because O'Halloran and Davis did not raise an arguable defence, the court entered judgment against them for $308,572.

Associate Judge Christiansen said further inquiry was needed on the question of the interest and deferred costs until that matter had been decided.