After
falling out with close business associate Michael Carolan, merchant banker
George Kerr asked Carolan to arrange repayment of $1.16 million funding the
purchase of a five million dollar Eastbourne Road home at Remuera in Auckland. The High Court dismissed his claim that it
was a non-recourse loan.
Mr Carolan left Macquarie bank in 2007 to
join Mr Kerr at his Equity Partner group of companies. Mr Kerr had been best man at Mr Carolan’s
wedding and was godfather to one of his children. Prospects at Equity Partner looked rosy.
The High Court was told Mr Carolan’s new
base salary at $300,000 was slightly higher than his previous salary at
Macquarie. A $1.5 million bonus was
anticipated with a proposed capital raising to create a media fund. Recently remarried, Mr Carolan was looking to
buy in Eastbourne Road as his new family home but was short of ready cash. Mr Kerr advanced $480,000 for the
deposit. A four million dollar BNZ loan
finalised the purchase.
Mr Kerr later advanced more money to
clear interest due on Mr Carolan’s BNZ loan.
When a $185,000 BNZ interest payment fell due in February 2008, Mr
Carolan could rustle up only $27,500 in cash.
His shift to Equity Partners just prior to the 2008 global recession
coincided with lean times for merchant bankers. The expected fruitful media capital
raising had not gone ahead.
Evidence was given that Mr Kerr and Mr Carolan
fell out mid-2014 when Mr Carolan blocked appointment to an Equity Partner
subsidiary of a director favoured by Mr Kerr.
By this time, Mr Carolan had been the beneficiary of $1.16 million used
to fund his Eastbourne Road residence.
There was no written agreement governing the money. Everything had been settled on a handshake
between business mates.
Justice Fogarty ruled there was no
dispute there had been a loan of $1.16 million.
At issue was the terms of the loan.
Mr Kerr said it was repayable on demand and demand was made in late
2014. Mr Carolan said it was a
non-recourse loan. It was not expected
to be paid off, but instead worked off with credits from successful business
deals. To the extent there was no bonus
income following the global economic recession, the loans were to be written
off, he said.
Justice Fogarty said there was no
evidence the loans were ever to be written off or forgiven. The loan contracts could not be re-opened for
a failure to make disclosures required by the Credit Contracts and Consumer
Finance Act. The Act applies to consumer
credit. Justice Fogarty said a handshake
deal between two mutual friends does not amount to a consumer transaction. He ordered repayment of $1.165 million
together with interest at 7.5 per cent running from October 2014.
Carolan
v. NZ Real Estate Credit – High Court (29.07.16)
16.116