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Mainzeal lawyers in court over interest payments

Lawyers in the Mainzeal case were back in court yesterday arguing whether the $36 million compensation penalty handed down to directors of the failed construction company, including former Prime Minister Jenny Shipley, should attract up to six years' interest. They were also trying to clarify the details for setting the fine. 

Justice Francis Cooke left the door open for further arguments in his 178-page February decision to allow for any "arithmetical mistakes, omissions or other errors" in setting the size of the payment owed to creditors. And he didn't rule on whether interest payments were due to compensate creditors for a six-year wait for what they are owed.

At today's one-day hearing at the Wellington High Court, Justice Cooke explained that he wanted to ensure there were no mistakes in his substantive decision, and avoid the need for a second trial on the quantum. 

The parties have lodged appeals and cross-appeals against initial findings on the directors' culpability, but haven't secured a date in the Court of Appeal. They told the judge a hearing is likely next year, meaning today's hearing will be ruled on before then. 

In setting liability in the February decision, Justice Cooke took a starting point of $110.6 million owed to creditors and discounted that to get to $36 million. Of that, directors Shipley, Peter Gomm and Clive Tilby were each liable for $6 million, while principal Richard Yan could be liable for the full amount. 

The lawyers today argued whether the starting point was correct and if interest can be charged for the six years that creditors have been out of pocket. The company collapsed in February 2013, and interest on the money owed since then could amount to millions of dollars. 

The judge asked a number of questions about how to consider the time value of the money. He also questioned whether the two matters should be considered as a single proposition, and if he should simply use his discretion to set a quantum, accounting for the starting point and incorporating the present value of the funds. 

Mark O'Brien QC, the lawyer for the Mainzeal liquidator, accepted that he should have addressed the issue of interest in his closing statement, but said it would be normal for interest to be calculated from the date of liquidation. 

When challenged whether he could pursue interest on the amount due, O'Brien said he mentioned it in passing during his opening submission of the substantive hearing. 

David Chisholm QC, counsel for Yan, told the court that the law didn't envisage reckless trading penalties to attract interest and that previous cases applied a contribution. 

Jack Hodder, the QC for Shipley, Gomm and Tilby, focused on setting the starting point, saying it should have been $89 million. 

The lawyers also argued over the appropriate level of costs to be awarded and told the judge they would try to settle that during the lunch break. 

Hodder said he would deal with a separate matter relating to the directors' insurance by filing a memorandum to the court, given the issue would have wider implications than just this case. 

"The insurer hasn't had a chance to think about it, or take advice itself," Hodder said. 

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