In 2011, Terry Haydon’s Commercial Factors converted its $5.7 million unpaid mortgage advance over Tonga’s Fua’amotu Hotel into ownership of the hotel buying in at a receivership sale. At a subsequent ‘fire sale’ it sold the hotel for a pittance, described to the Court of Appeal as being either $100,000 or $65,000. Tantalising out of reach, is a disputed claim to share in a $3.3 million insurance payout for hotel damage suffered in 2018 by cyclone Gita.
Commercial Factors must rue the day it agreed to finance construction of Fua’amotu by entrepreneur Sam Wong. When Wong defaulted on his loan, Commercial Factors sought to recover its money by acquiring the hotel, setting up a joint venture with Hagaman family Scenic Hotels and then selling off the business. Tonga’s tourism industry took a hit in 2013. Air Chathams stopped its regular services after Tonga decided to start its own airline with a plane supplied by China. New Zealand government warned passengers not to book tickets; there were concerns about the aircraft’s airworthiness.
Fua’amotu hotel operations never ran at a profit. Commercial Factors allowed Scenic occupation rent-free; Scenic provided management services. Occupancy rates were dismal. Commercial Factors looked to wind down its joint venture with Scenic Hotels. The two were immediately in court arguing what were terms of their joint venture. Commercial Factors said it was owed $6.25 million as the purchase price of the hotel sold to the joint venture. The High Court ruled their joint venture never purchased the hotel; Commercial Factors remained owner. It further ruled there had never been agreement as to how hotel operating losses would be split. These rulings were confirmed by the Court of Appeal.
Evidence was given that Commercial Factors discovered just prior to this High Court trial of $3.3 million due to Scenic; an insurance payout for material damage and business interruption after cyclone Gita. Scenic had paid the initial annual premium of some $202,000. Most of this claim arose from damage to the hotel. An interim payment of one million dollars was made. In separate court proceedings, the two dispute who is entitled to the $3.3 million payout. The one million dollars interim payment is currently frozen, held in a trust account.
Commercial Factors Ltd v. Scenic Hotel Group Ltd – Court of Appeal (8.07.22)
22.121