Hotchin wins suit on appeal

Mark Hotchin.

Former Hanover Finance principal Mark Hotchin can try to force the failed lender's former trustee Guardian Trust to contribute to an $18 million settlement after winning his appeal in a split Supreme Court decision.

Chief Justice Sian Elias and Justices Susan Glazebrook and William Young overturned Guardian Trust's previously successful claim to avoid being drawn into the Financial Markets Authority's suit against former Hanover directors. However, if Hotchin wanted to pursue such a claim against Guardian Trust, he would have to prove he was liable in law, a liability he vigorously denied as part of a settlement with the Financial Markets Authority.

"Mr Hotchin has now accepted that he will have to prove his negligence in this regard," Justice Glazebrook said in her reasoning. "Essentially, therefore, he is seeking contribution on the basis that Guardian Trust did not stop his wrongdoing soon enough."

The judges upholding the appeal agreed Guardian Trust's liability could extend to being equal to that of the Hanover directors because it should have acted sooner to limit the lenders' deterioration. Still, Justice Glazebrook said the trustee has grounds to strike out the claim over the respective roles of the trustee and directors and whether there was an abuse of process by Hotchin given his public statements in relation to his settlement. Justice Young said there were "a number of reasons for being sceptical about the merits of the claim".

Justice Glazebrook said on any reading "the directors were the primary wrongdoers" and that it was "highly arguable" the claim would be contrary to the statutory scheme to order a contribution from the trustee in favour of a director who was responsible for signing off on a prospectus.

"It is difficult to see how it could be just and equitable to make an order for contribution against Guardian Trust, even if it were held to have been negligent in the performance of its duties," she said.

The judge also noted Hotchin's "very strong public statements" rejecting any liability when reaching a deal with the FMA, which he said wouldn't affect the contribution claim.

"At best this is hypocritical. But the suspicion must be that this may be a cynical attempt to force a settlement with Guardian Trust," Justice Glazebrook said. Justice Glazebrook said she would have let costs where they lie "given the formidable obstacles to Mr Hotchin ultimately succeeding", but Chief Justice Elias and Justice Young awarded them to Hotchin because of his success.

- BusinessDesk