Lending to a Maori incorporation

The Court of Appeal has found that a mortgage granted by a Maori incorporation over land at Matauri Bay in Northland was not authorised by the incorporation's objects. However, the question of whether the lender was entitled to assume that the incorporation had taken proper steps to authorise the mortgage remains to be decided.

The Court of Appeal was required in this appeal (1) to consider the powers of a Maori incorporation to borrow money and to mortgage its land.

The case involved the well-publicised circumstances of the Matauri X Incorporation, which borrowed over $3 million to invest in a water bottling business but subsequently found itself unable to make the repayments. Security for the loan was a mortgage over the incorporation's land at Matauri Bay, a picturesque location in Northland. Matauri X argued before the Court of Appeal that the loan was beyond its powers and void.

The Court found that the loan and security arrangements were unauthorised. Section 358A of the Te Ture Whenua Maori Act 1993 (the 1993 Act) preserves the objects of an existing incorporation over and above those provisions of the 1993 Act that would otherwise have permitted the incorporation to carry on any business or enter into any transaction with full capacity. Matauri X was incorporated in 1967 with objects that did not extend to entering into loan and security arrangements for this type of business scheme, and it had not subsequently resolved to dispense with those objects.

However, the Court also concluded that Bridgecorp may possibly have an answer to the finding that the loan was unauthorised on the basis of the "indoor management" rule set out at section 271 of the 1993 Act. Section 271 provides that "a Maori incorporation shall be bound by every act of its committee of management, and no person dealing with the incorporation shall be concerned to inquire in relation to any such act whether the committee is authorised or restricted by any resolution of the shareholders, or as to the terms and conditions of any such resolution". The section goes on to say that "no person lending money to a Maori incorporation shall be concerned to inquire as to the necessity for the loan or as to the application of the proceeds of it". However, this question was referred back to the High Court for further consideration.

The Supreme Court (2) has subsequently granted Bridgecorp leave to appeal this decision as to Matauri X's powers to enter into the loan and security arrangements.

As the Court of Appeal has pointed out, Matauri X may have enjoyed a victory in one battle, but it may yet lose the war.

 

(1) The Proprietors Of Matauri X Incorporation v Bridgecorp Finance Limited (CA8/04, 26 October 2004 )

(2) Bridgecorp Finance Limited v The Proprietors of Matauri X Incorporated (SC28/2005, 2 June 2005 )

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