By Chris Hutching
Friday 6th October 2000
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A couple of months ago the block was transferred from a holding company to Mr Hughes' development company, Northwood Holdings, for over $20 million, providing the capital gain.
The values will be highlighted in an Appeal Court challenge in two weeks by Apple Fields seeking a return of the land or damages.
In a mortgagee sale last year, companies associated with Mr Hughes and Mr Smith paid $13.7 million for the Styx block just before it was rezoned for residential development, which increased its value.
Apple Fields has already unsuccessfully challenged the sale in the High Court on the grounds Mr Smith's company was mortgagee and he was also involved as a development partner with Mr Hughes. In these circumstances mortgagees are legally required to take particular care to ensure fairness in achieving the best price possible.
Justice John Hansen upheld the position of Mr Smith and Mr Hughes and noted if Apple Fields had been successful it would get a "quite unjustified windfall of some $8 million." He appeared to be taking into consideration an arrangement at the time of the mortgagee sale where the ANZ wrote off an $8 million debt to Apple Fields.
But Apple Fields will argue Justice Hansen was incorrect in taking this aspect of the deal into account in his judgment.
The legal argument by Apple Fields centres on the duties of Mr Smith's mortgagee company, Damesh Holdings, as purchaser and the duty of care required under such circumstances. The Apple Fields case will argue the ANZ writeoff and other peripheral issues are irrelevant.
The $10 million capital gain to the developers is expected to form the basis of the Apple Fields claim over losses.
The recent transfer of the Styx block to Northwood Holdings appears to be have been a mechanism to provide comfort to the five construction firms involved in the project which are concerned about the pending court appeal as they begin the first homes there.
Whether it will provide comfort to homebuyers until the judgment is released remains to be seen.
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