Gapes ordered to pay $755,000

Tony Gapes. File photo / Brett Phibbs

Auckland property developer Tony Gapes has been ordered to pay Allied Farmers $755,000 after a deal between his Fenton Project and Hanover Finance went sour.

Gapes is the sole director and shareholder of the Fenton Project.

On August 21, 2007, Hanover Finance, with Mark Hotchin as director, entered into a loan agreement with the Fenton Project. Gapes acted as guarantor for the $1,160,000 loan - $1 million in principal, and capitalised interest for 12 months of $160,000 at 16 per cent.

In 2007, Gapes and Hanover Property Group Holdings (now OPGH), of which Hotchin and Eric Watson are directors, entered into a joint venture to acquire and develop the former Lion Breweries site at Khyber Pass, Newmarket, into apartments and retail outlets. They decided the development would be aided by providing further access to the site from Carlton Gore Rd.

Hanover Finance's loan was part of the financing package to acquire the Carlton Gore Rd property, which was $2.8 million.

Gapes said in an affidavit that while the loans from Hanover Finance and Westpac were "documented as loans to Fenton", the liability for them was governed by the terms of the joint venture, meaning Hanover Finance was responsible for 50 per cent of the debt and 50 per cent of the cost. He said Hanover Property Holdings wanted the documents set out this way to avoid them being recorded as related party loans.

The defendants suggested during the court hearing last month that the loan arrangements were a sham.

Gapes added that the agreement was that the loan would not be repaid until the property was sold, and then only on the basis that the profits and losses were to be shared. Carlton Gore has yet to be sold.

High Court Associate Judge Jeremy Doogue stated in his judgment that the principal issue was how Hanover Finance could be tied into the joint venture when it was not identified as a party in any documents.

"I consider that the suggestion that this arrangement was a sham has an air of unreality ... and cannot be viewed as providing the basis for an arguable defence."

Judge Doogue believed it was "impossible to argue from such grounds that Hanover Finance was a party to the arrangements between the defendants and Hanover Property Holdings".

He said the statement was not made on behalf of Hanover Finance and did not commit that company to the loan.

"The statement simply set out where the funds were available from ... What it may amount to (although I accept there is no evidence on this point) is one Hanover company understandably viewing another company in the same group as a preferred financier. But this does not make the latter a party to any joint venture if it takes up the opportunity to provide funds.

"The co-operative venture between the defendants and the Hanover group in a property development was a marriage of the different resources of the two groups. The former specialised in property development and the latter in providing finance."

Judge Doogue concluded that Allied Farmers, which acquired Hanover's loans in December 2009, was entitled to a summary judgment. He also awarded Allied Farmers costs.