Crown faces claim of $2.2M

Press, 12 October 1982, Page 6

Crown faces claim of $2.2M

•jPA Auckland For the first time in the a claim for damages raised in sharp tocus the issue of the liability 5f the Crown to a party buffering losses which had from an invalid Ministerial decision, the High •Court at Wellington was told yesterday. ••Mr Maurice O’Brien, Q.C., ,jyas opening a claim for damages brought by Takaro properties. Ltd, and Mr •Richard Stockton Rush, jun., ’against Wallace Edward fowling, then Minister of 'finance, and the Attorney-

41eneral, Mr McLay, sued as *5 representative of the Government. The claim is for '-4U51,610,448 (about rjNZ2.250.000) and SNZ4OO,OOO -•for damages arising out of iSn invalid decision made in *4974 by Mr Rowling. The claim, before Mr Justice Quilliam as a judge rjilone; continues today. The statement of claim :*ays that Takaro Properties, *ptd (in receivership) •formerly carried on business 2?s a tourist lodge at. Te •Anau. Mr Rush at all rele-® *jyant times was the com---pany’s governing director. Takaro Properties, Ltd, -•and Mr Rush, managed the known as Takaro ••Lodge in the Upukeroa 'Valley near Te Anau, as a --tourist lodge from October, 3970, until it closed in May, -4973. ... ■ . , £ On January 28, 1974, Ta£karo Properties, Ltd, applied •to Mr Rowling, and to the “-Reserve Bank of New Zealand, for consent to . the issue ■J)f 80.000 ordinary shares and i-420,000 non-cumulative $1 -preference shares to Mitsubishi Rayon Company, Ltd, *of Japan. . »- The application was made funder the Capital Issues '-(Overseas) Regulations, 1965, the Exchange Control 1965. On March 1974, Takaro Properties', • Ltd, was notified by letter that Mgrßpwling had refused.

his consent in terms of those regulations to the issue of shares to Mitsubishi Rayon Company. In an application to the Supreme Court for review of Mr Rowling’s decision, the then Chief Justice, Sir Rich-

ard Wild, on August 22, 1974, made a declaration and an order that the decision by Mr Rowling refusing his consent to the issue of shares was invalid and further ordered him to reconsider and determine, according to law, Takaro Properties’ application for consent to the issue of thp sharps The Chief Justice held that‘ the. consideration which played the dominant part in Mr Rowling’s decision refusing consent was Mr Rowling's desire-that the. ownership of Takaro Lodge should revert to New Zealand. . His Honour held that the decision was influenced by an irrelevant consideration, and that it was made for a purpose alien to the purpose for which the power of decision was granted. Mr Rowling appealed • to the Court of Appeal against I the Chief Justice’s decision % and that Court dismissed the appeal on February 25,1975. The statement of claims alleges that Mr Rowling knew Takaro Properties was in a serious financial position and knew, or ought to have known,'that if he refused his consent to that company it would be unable to reopen Takaro Lodge, or would be forced to sell the lodge to the New Zealand Government or to New Zealand interests, or would be prevented from subdividing any of the land at-the lodge for resale and would thereby suffer serious financial loss. The pleadings allege, among other things, that: * Mr Rowling allowed his decision to be dominated by an irrelevant consideration — a desire, that the ownership of Takaro Lodge should revert to New Zealand, which purpose was‘<elien to

that for which his powers were granted.

• He failed in the circumstances to exercise his discretion at all, in that he allowed his decision to refuse the application to be dominated by. the taking into account of an irrelevant consideration and the pursuit of an improper purpose. • By not following the guidelines set for such applications by the Reserve Bank, in accordance with the policy of the Government as administered by him, he refused his consent in circumstances in which no Minister of Finance could reasonably' have refused his consent to the application. Takaro Properties, Ltd, claims $U51,610,448 which is the principal sum and accrued interest as at. June 30, 1981, of/the registered mortgage and debenture to R. K. Davies estate, or general damages of the same amount, which includes loss of future profits and the operating loss from March, 1974, till the date of judgment.

The company’s claim also includes $200,000, the share capital which was to have been paid by Mitsubishi Rayon Co., Ltd, the costs of the auction of Takaro Lodge, $19,625, together with $45,000 owing by Takaro Properties, Ltd, for rental in respect of chalets, $44,500 for the com- , pany’s liability to the New Zealand Electricity Department, and exemplary dam- . ages of $50,000.

The statement of defence denies allegations made by the plaintiffs and says that if Mr Rowling was negligent in the respects alleged he was not under any duty of care.

It says that if the defendants are liable in damages (which is denied), or if any of the losses claimed by them resulted from Mr Rowling's refusal of consent under the Capital Issues (Overseas) Regulations (which is denied), neither defendant took steps-to mitigate their

or its loss. The statement of defence says that in particular Takaro Properties, Ltd, at no time requested Mr Rowling to reconsider and determine according to law the company’s application for consent under the regulations or any fresh application for such consent, and, accordingly. any liability to the plaintiffs must be limited to the amounts which they would have recovered if they had acted with reasonable diligence to mitigate their losses. In opening, Mr O’Brien said that Mr Rush was an American citizen, now residing in the State of Virginia. Takaro Properties, Ltd, was a New Zealand company with a capital of 250,000 fully paid $1 shares. Mr Rush and his family trusts owned--224,000 of those shares and the balance was owned by New Zealand citizens. Mr Rush came to- New Zealand in 1968 with the idea of buying land for development as a tourist resort. He was approached, in late 1968 or early 1969 regarding the possible sale to his company of Crown land in the Upukeroa Valley ; near Lake Te •Anau. This comprised 2591 acres of wilderness land which the company bought •early in 1969 for $45,000. The terms of the sale required the company to maintain for the public access to the Upukeroa River and adjoining forest and hunting areas. The company set about developing the land in 1969 and 1970. An 11-mile access road was built. Lakes were constructed and stocked with trout. ,

About $850,000 was spent in the initial development. A substantial proportion of that money was advanced to the company by Mr Rush’s father-in-law who lived in California. After his death in 1971 his trustees pressed for payment. Mr Rush'himself invested a* substantial amount of

money in the project. The company also employed him as its managing director and he had been enthusiastically devoted to the project. In 1973, Mr Rush considered that in order to make the lodge viable all year round there would have to be further improvements. The whole concept of Takaro Lodge and its proposed development became a matter of political controversy. A particularly strong statement opposed to the development proposition was made by Mr Rowling in his then capacity as president of the Labour Party in 1971. Further fuel was added to the controversy by a belief that the rates charged at the lodge were such that only wealthy foreign tourists

could enjoy its comforts. “Above all, it was obvious that the debt to the Davies estate had become an albatross round Takaro’s neck,” Mr O’Brien said. “Provision had to be made for its repayment ai)d the consequent interest outgoings. This necessitated a development strategy.” The requirements for working capital required for the continuance of the lodge and some substantial development needed to repay the Davies estate were met in a tripartite interlocking fashion, said Mr O’Brien. Mitsubishi would subscribe for 80.000 ordinary $1 shares and 120,000 preference shares also of $l. The ordinary capital of the company would then become $330,000 and the Mitsubishi share of that capital would be under the 25 per cent limit for foreign investment. ... This injection of a further $200,000 capital would enable Takaro Lodge to stay open while the development work was undertaken. The consent of the Minister of Finance had been required before Mitsubishi could take up the shares and was thus a crucial part of the whole programme.