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Hotchin fails to join trustees as third parties

The High Court has released its decision striking out the third party contribution claim brought by Mark Hotchin and other directors to include Hanover Finance’s trustees, New Zealand Guardian Trust (NZGT) and Perpetual Trust (Perpetual), as parties to the Financial Markets Authority’s (FMA) civil claim against them. See Financial Markets Authority v Mark Stephen Hotchin [2013] NZHC 1611 [28 June 2013]

Background

Mark Hotchin was a director of Hanover Finance and associated companies which issued prospectuses and other documentation in connection with offers of debt securities to the public. The FMA alleges that in 2007 and 2008 various prospectuses contained untrue statements which were signed off and authorised by Mr Hotchin  and associated directors. In a civil claim, the FMA seeks compensation from Mr Hotchin and others pursuant to the Securities Act for loss sustained by subscribers who invested in debt securities relying on the alleged untrue statements.

Subsequent to the FMA issuing proceedings, Mr Hotchin issued third party notices against NZGT and Perpetual, and alleged that if he is liable to pay compensation under the FMA claim, then the trustees are liable to contribute.

Strike out applications were then brought by NZGT and Perpetual, which, as outlined by Justice Winkelmann  “…raise issues as to the existence and nature of duties owed by trustees of debt security trust deeds to prospective and existing investors, and as to the elasticity of the doctrine of contribution both in equity and under the Law Reform Act 1936”.

Trustees not responsible and third party contribution claim struck out

Mr Hotchin’s third party claims against NZGT and against Perpetual were struck out and an order was made to pay NZGT and Perpetual’s costs.

In her conclusion, Justice Winkelmann said, “It cannot be argued that the trustees owed a duty to monitor the prospectuses. The trust deeds, Securities Act and Regulations and the prospectuses do not suggest that the trustees have any responsibility for the overall contents of the prospectuses, and the imposition of such a duty would run contrary to the legislative division of responsibilities between issuers, trustees and auditors.”

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