Hotchin and KA 4 disagreed on how money from the sale of the mansion should be divided once creditors were paid and the trust got its funds back for the land.
KA 4 said Hotchin's claim was unsecured and would come behind all others in the proceeds of the sale. If there was a shortfall it should be borne by Hotchin, KA 4 said.
Hotchin disagreed and said the burden of any shortfall should be shared between him and the trust.
The Financial Markets Authority, which has freezing orders over the property and a civil claim pending against Hotchin, was also present at the hearing and advanced another argument to Justice Winkelmann.
The market watchdog wanted the full $12.2 million to be returned to the former Hanover director.
It argued in court that the funds had to be treated as an advance from Hotchin to KA4 and should be repaid.
In her decision, released publicly today, Justice Winkelmann rejected the FMA's assertions.
"I do not accept the FMA argument that the documents and evidence support a finding that the money spent by Mr Hotchin on the house was a loan to the Trust. He spent the money on his own asset, even though that asset was a house located on the Trust's land," the judge said.
When it came to the differences between Hotchin and KA 4, the judge said Hotchin should bear any shortfall.
"There seems to be no basis upon which KA 4 Trust should be required to share with Mr Hotchin in any deficit. At the commencement of the parties' dealings all issues in relation to the house were for Mr Hotchin, including its dimensions and cost. KA 4 Trust was not a co-venturer with him in this. It was Mr Hotchin's inability to complete construction that forced KA 4 Trust into paying for the house's completion," the judge said.
"Here Mr Hotchin, not KA 4 trust, took the risk as to the re-sale value of the house he set out to build, and it was his conduct that compelled KA 4 Trust to spend money on the house to ready it for sale. I therefore consider that any shortfall in the sale of the house, following payment out to [other creditors] and KA 4 Trust for the value of the land, must be borne by Mr Hotchin alone," she said.
In her decision, the judge says the total amount spent on improvements (such as the house) to the Paritai Drive property was $26.9 million as of April this year. Of this amount, Hotchin has spent $12.2 million and KA 4 trust $14.7 million. KA 4 borrowed all but $1.5 million of its contribution. Around $6 million of the $14.6 million was borrowed from a third party, ASAP Finance, and $7.3 million from another trust associated with Hotchin, known as KA 3.
In her orders Justice Winkelmann declared Hotchin had an $12.2 million unsecured interest in the property but that his interest falls behind other claims on the proceeds of the property's sale.
The claims on the sale proceeds ahead of Hotchin's include:
* a debt KA 4 owes to ASAP Finance;
* a debt owed by KA 4 Trust to KA 3 Trust of approximately $7.3 million;
* The $17.4 million spent by KA 4 Trust purchasing the land the house is on;
* $1.5 million spent by KA 4 Trust on house improvements
The judge reserved her decision on costs.
