Property developer Morgenstern loses bid to appeal court decision, has to pay up $3.5M

The Supreme Court has dismissed an application by property developer Arthur Morgenstern for leave to appeal a Court of Appeal order for him to pay $3.5 million for breaching directors’ duties.

In a written judgment citing the reasons for rejecting the application, the Supreme Court said the proposed appeal doesn’t raise a question of law of public or general importance and there is no appearance of a miscarriage of justice.

Morgenstern was the developer of the $67 million St Lukes Garden apartments project in Auckland which ran into trouble over lack of the required resource consents and weathertightness defects.

He was taken to court by two liquidators of his former company, Morning Star Enterprises Ltd, for the sale of 99 shares in St Lukes Garden apartments to MSE for $3.465 million, knowing they were worthless when they were sold. MSE sold these shares the following year for $1.

Stage one of the 241-apartment development was completed in 2005 but stage two, involving another 53 apartments, six commercial units and a two-story commercial building, ran into trouble in 2006 when it turned out the required resource consents were not held. Construction didn’t resume until four years later and weathertightness defects were uncovered by owners last year.

Morgenstern lost an appeal in September to the Court of Appeal over an earlier High Court decision that he breached his director obligations under the Companies Act and should repay $3.5 million.

The Supreme Court said Morgenstern, in his evidence, claimed to have relied on the advance of certain accountants. “He did not, however, call them to give evidence. Unsurprisingly, his failure to do so was the subject of adverse comment from both the High Court and Court of Appeal,” the judgment said.

The total amount owed to creditors is $1.3 million, plus liquidators’ costs. Any surplus amount from the liquidation, which began in 2008, will be returned to Morgenstern. The latest liquidators’ report from Grant Thornton said there were no funds to distribute other than the amount owed through the court action and $29,692 had been paid in liquidators’ fees, legal fees, and GST.

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