Transit caught up in copter trust case

The Birdcage Hotel in Ponsonby. Picture/ Paul Estcourt

Transit New Zealand may have paid an inflated price to buy a hotel at the centre of a multimillion-dollar civil court case.

Transit reportedly paid $3.8 million to buy The Birdcage as part of its Harbour Bridge-to-city motorway upgrade project.

Transit has confirmed that the price took into account advertising revenue that is now being challenged in a $7 million civil claim filed in the High Court at Auckland.

The claim alleges former Birdcage owners Wayne Porter and Peter Pharo breached their fiduciary duty to the GoldTimes Foundation, of which they were trustees, through an advertising arrangement by which half of the money raised for charity from pokie machines in their pubs went back to the pubs, including The Birdcage.

If the lawsuit succeeds Transit might be able to seek some refund, arguing its price was in part based on inappropriate advertising income.

GoldTimes collected the gaming revenue for distribution to charity. The Auckland Rescue Helicopter Trust, which runs the Westpac rescue helicopter, received most of the grants and paid back half to the pubs owned by Mr Porter and Mr Pharo. Mr Porter was also a trustee of the trust.

Tasman Trust, formerly GoldTimes Foundation, is the plaintiff in the case, which is in its early stages.

Transit bought the hotel in March 2002 at which time the Department of Internal Affairs and the Serious Fraud Office were investigating the advertising arrangement.

"The price paid was for the acquisition of the land and buildings and the value of revenue earnings," Transit spokesman Steve Grbic said.

"This was assessed by independent professional valuation advisers who ensured that it took into account the various elements making up the business, including revenue from advertising.

"The outcome of the negotiation process included an agreed compensation value with the then Birdcage owners, and Transit currently has no intention of initiating a reassessment of the compensation paid."

Mr Porter and Mr Pharo have said they would vigorously defend the civil suit.

They were acquitted, with former trust executive chairman Malcolm Beattie and secretary Tom Romley, of conspiracy to defraud in a case brought by the Serious Fraud Office which was also based on the payback of pokie money to their pubs in the form of advertising.

The SFO alleged the advertising payments were a racket and bore no resemblance to the actual cost of advertising received.

The defendants said it was a legitimate arrangement that kept the hotels in business and the rescue operations in the air.

In his summing up in the criminal case, Justice Christopher Allan said GoldTimes trustees had a fiduciary duty to maximise gaming returns available for charities but breaching that did not necessarily amount to criminal guilt.

Tasman Trust claims in its civil case that the pair breached their fiduciary duty and thereby denied the trust of almost $7 million revenue that should have gone to charities.