Disappointed purchasers in Nelson’s Monaco Village tourist development
do not get their money back the Court of Appeal ruled. No prospectus was required. Being issued with Land Transfer Act titles
meant they were buying an interest in land and securities legislation was not
relevant.
Forecast
financial returns were never achieved.
Evidence was given that Nelson’s loss of the World of Wearable Art festival, increases in new tourist
accommodation and a downturn in tourism immediately after the 2008 global financial
crisis all affected revenue. A group of
Monaco investors sued, alleging they had signed up for ‘participatory
securities’ which first required a prospectus.
They had signed up on various dates through 2006 and 2008. The lack of a prospectus meant they were
entitled to their money back, they claimed.
Securities legislation holds directors personally liable to repay funds
raised without a prospectus when one is required.
Monaco
investors who purchased individual accommodation units in the development signed
over management rights to Monaco Management Ltd. Monaco Management promised to allocate
short-term guests across all units ‘on a fair and equitable basis’. The Court of Appeal said individual investors
are entitled only to the net revenue derived from their accommodation unit. They have no right to share in income from
other units. Resort income is not
pooled. There was no investment in the business. The investment was not a ‘participatory
security’. Revenue from a particular
unit varied according to size, location and guest preference. There was a 58 per cent variance in net
income between the majority of unit holders demanding a refund.
The Court
of Appeal further ruled that by receiving title for individual units each
investor was purchasing an interest in land, not an investment security. Being required to then lease the unit to
Monaco Management for thirty years did not convert this purchase into a security
requiring a prospectus.
Sanders v. Project Management Agreement & Associates – Court of
Appeal (20.02.18)
18.040