With the first of its planned ninety residential apartments on the market, Auckland’s International on Princes Street is in court trying to get a financier’s caveat taken off the title. Buyers do not get clear title unless the caveat is removed.
Gary Groves’ Sanctuary Developments struggled to get finance for his redevelopment of Fonterra’s former headquarters on Princes Street in Auckland’s central business district. Initial plans to augment bank funding through a syndicate of private investors failed. The proposed $18 million syndication, promoted through accounting firm Gilligan Sheppard, promised a forty per cent share of development profits. It fell through; there was a lack of investor interest. Sanctuary Developments was in the gun. It had agreed unconditionally to buy Princess Street for $43 million. Sanctuary used $5 million dollars put up by Chao Ming Chen as part of the proposed Gilligan Sheppard syndication to pay the Princes Street deposit. Sanctuary then defaulted on the balance of the purchase price.
The High Court was told of fevered negotiations through 2015 as Sanctuary looked to get its project back on track. The deal was revived, with funding lined up from Bank of New Zealand and construction funders Waimauri Ltd and Miraka LLC. They took mortgage securities over the project. This left the status of Mr Chen’s five million dollars uncertain. He lodged a caveat against the title, stating terms of the Gilligan Sheppard offer entitled him to mortgage security. Sanctuary argues the Gilligan Sheppard deal was superseded by alternative funding arrangements with Mr Chen agreeing to take Sanctuary preference shares instead. Mr Chen says this arrangement was a false paper trail devised by Mr Groves and intended to placate other lenders; he is still entitled to his mortgage, he says. Evidence was given that Sanctuary has never issued preference shares to Mr Chen and that under terms of its constitution it cannot do so.
Associate judge Sargisson ruled Mr Chen has an arguable case that he is entitled to mortgage security over Princess Street. The caveat remains. A full court hearing is needed to establish whether Mr Chen is a secured creditor for his five million dollar advance.
Chen v. Sanctuary Developments No 8 Ltd – High Court (22.07.19)
15.133