When Hong Kong investors learnt Andrew Guest was secretly sharing in commissions paid on development of land at Homestead Bay near Queenstown, they sued. Their dispute came to a head after interests associated with Guest were given the right to buy sections in a future development at discounted prices.
Investors in Homestead Bay Trustees Ltd consider they have been done over royally. With Mr Guest having triumphantly announced his supposed success in marketing twelve lots comprising first stage of the Homestead subdivision, Mr Guest then had Homestead Trustees agree to a lucrative deal on further subdivision gaining the right to buy twelve lots at up to 2/3rds of valuation and to buy a further six lots for ten dollars apiece.
The High Court was told Mr Guest was a director of Homestead Trustees when Fiordland Experience Group was given exclusive marketing rights in 2014 for sale of Homestead’s first stage subdivision. Mr Guest did not disclose he had an interest in Fiordland Group though long-time colleague Roy Toms. The two were looking to parlay funds generated from the earlier sale of Fiordland Air into lucrative joint venture opportunities.
Evidence was given that Fiordland Group was in line for commissions totalling some $900,000 on sale of the first twelve lots. Homestead was billed after Mr Guest advised in December 2014 all lakefront lots were sold for a total of $14.4 million. Homestead was later to learn that only nine sales at that time were ‘definitely confirmed.’ Fiordland Group was slipped in as ‘purchaser’ of the remaining three.
Unbeknown to Homestead, interests associated with Mr Guest were billing Fiordland for a half share of commissions.
In 2016, Homestead Trustees marketing arrangements with Fiordland were recast. Commissions payable to date were fixed at $600,000. Further remuneration was to come from a cut-price deal giving Fiordland an option to buy lots in the next stage.
The High Court was told there was again no disclosure by Mr Guest as director of Homestead Trustees that he had an interest in Fiordland.
It wasn’t until 2021 that further development of the Homestead subdivision gathered momentum. Learning of Mr Guest’s undisclosed share of the earlier commission, Homestead Trustees challenged the cut-price deal. Fiordland lodged a caveat over the further subdivision to protect its claimed right to buy.
Justice Campbell ordered the caveat removed.
By suing for alleged loss of profits, Fiordland Group had surrendered its right to enforce the option. The contract was cancelled.
In addition, Justice Campbell ruled Homestead has a strong argument to set aside the option because of Mr Guest’s failure to disclose his Fiordland interest to Homestead Trustees. Companies have three months from the date they are aware of any director’s undisclosed conflict of interest to set aside an impugned contract. Disclosure must be made to all shareholders.
Mr Guest’s liability to pay damages, if any, requires a full court hearing.
Homestead Bay Trustees Ltd v. Fiordland Experience Group Ltd – High Court (16.11.23)
24.012