Burnt surf investors granted relief
Two investors who ploughed millions of dollars into the local arm of SMP International are set to recoup some of their losses, after a Supreme Court judge ruled they were the victims of “duplicitous” conduct.
In a judgement handed down at the New South Wales Supreme Court late last month, Justice Michael Pembroke ruled that Eric Thomas and John Sullivan were misled into making several financial installments of approximately $2 million from July to October 2000.
In a lengthy trial involving four weeks of evidence and one week of addresses, Justice Pembroke found that accountant and sports agent Greg Willett breached his fiduciary duty when advising the two former commercial divers on the sports, surf and ski label.
While the case centred on events which took place 10 years ago, it was revealed the three parties were childhood friends and that Sullivan in particular had a series of financial dealings with Willett prior to his investment in SMP.
Earlier dealings included a $100,000 loan to a company owned by a client of Willett’s accounting firm, and placing the proceeds of a house sale into the firm’s trust account.
In July 2000, Willett became aware of the SMP group of companies, which were then effectively owned and managed by an associate and one-time snowboarder Eugene King.
By mid-2000, the company had run into financial difficulties with its banking partner HSBC. Willett suggested that a $600,000 cash injection and a $500,000 reduction in its bank loan could turn the business into a $5.5 million gross annual profit venture.
“As to what he did say, I am satisfied that in July 2000, Mr Willett said to Mr Thomas and Mr Sullivan words to the effect that SMP was still in its global infancy and rocketing in the right direction,” Justice Pembroke said. “I am also satisfied that he said that the SMP brand would be as big as Billabong.”
In September 2000, a company set up by Willett with the finances of Sullivan and Thomas moved to acquire a 50 per cent interest in SMP. On behalf of the company, which was called Softsand Design Investments (SSDI), Sullivan signed a letter of agreement with King which supposedly guaranteed this interest.
However, no official share transfer documents were lodged with the Australian Securities and Investments Commission.
By January 2002, mounting debts and trading woes saw the venture start to unravel. In May, companies related to Willett plunged into administration and the licence to use the SMP brand and trademark had been retracted.
In the same month, an agreement was brokered by King which saw two financial backers, Garment Corporation and the King Family Trust, each secure 50 per cent of the issued capital in SMP International. SSDI’s supposed 50 per cent interest in the SMP group, of which no transfer documents were lodged, was ignored.
This was not the only share agreement to be called into question during the trial. While Thomas and Sullivan pushed for damages across several complex matters and agreements, Justice Pembroke ordered Willett to pay equitable compensation, including interest, for some claims only.
These included payments of $1.5 million by Thomas and $500,000 by Sullivan in 2000, as well as six smaller deposits varying between $14,000 and $100,000. He also ordered Willett to pay the court costs of Thomas and Sullivan.
Assia Benmedjdoub