Pero testimony exposes broker's double standard

BY GREG NINNESS

HIGH-PROFILE MORTGAGE broker Sue Tierney may be heading for further legal wrangles over a dispute with a former broker and her use of a phoenix company structure.

Tierney, president of the Auckland Property Investors Association and a board member of the NZ Mortgage Brokers Association, has come under scrutiny after the Sunday Star-Times revealed she renamed and liquidated her company Mortgages by Design last month, leaving behind a court-ordered debt to a former contractor.

The new company Tierney formed was also named Mortgages by Design.

The former contractor was mortgage broker Natalie Penn, who worked at the original Mortgages by Design until October 2004 and has been pursuing legal action to recover unpaid commissions ever since.

The court's judgement in her case, handed down last May, discloses a remarkable irony in Tierney's actions.

Penn operated as an independent mortgage broker under the (former) Mortgages by Design umbrella, paying the company about $1600 a month in rent for the space she occupied in its Ponsonby offices.

There was also a commission sharing arrangement between Penn and the company.

Banks or other lenders would pay a commission on a new mortgage, part of which was paid up front as a lump sum, with the rest paid as "trail commissions" which were paid out periodically as long as the mortgage remained in force.

Under their commission sharing arrangement, Penn received 80% of both the upfront and trail commissions and the company retained the remaining 20% of each.

However Penn stopped receiving the trail commissions when she left the company and the matter has been in the hands of both parties' solicitors ever since.

The case was finally heard in the Auckland District Court in April last year, where Penn claimed she was entitled to keep receiving 80% of the trail commissions for all the mortgages she had brokered when she worked at the company. But the company contended it was entitled to keep 100% after Penn terminated their relationship.

It emerged at the hearing that it was not the first time Tierney had been involved in a dispute over trail commissions.

One of the people who gave evidence at the hearing was well-known mortgage broker Mike Pero, who revealed that Tierney had worked for his company, initially as a broker and later as a franchisee, before setting up her own business in 2001.

Tierney subsequently sued Pero's company, claiming she was entitled to keep receiving trail commissions after she had left the business.

In his decision released in May, Judge Phil Gittos noted the irony of that situation.

"The history of Ms Tierney's dealings with Mike Pero suggest that her view of these matters at that time coincides with the position now contended for by the plaintiff [Penn] and which Ms Tierney now rejects," he said.

The judge also said he found Tierney's response to this issue under cross-examination to be "expedient and most unconvincing".

He was also critical of evidence given by Tierney and the company's manager, Stuart McLoughlin, regarding the terms of the contract between the company and Penn.

"I accept and prefer the evidence of the plaintiff [Penn] and Mr Penn [her husband], which I found to be straightforward and reliable," he said in his decision.

"That of Ms Tierney and Mr McLoughlin, by contrast, I found to be at times confused, contradictory and inconsistent with contemporary documentation."

He found in favour of Penn, saying she was entitled to receive 80% of trail commissions on all the loans she had arranged.

Penn's solicitor, Steve Barter, said this was likely to be between $80,000 and $150,000, plus interest of around $30,000 and costs of between $35,000 and $50,000.

However, she has not yet received a cent, and Tierney's decision to liquidate the company before any money was paid has further complicated matters.

Barter said he was considering the possibility of taking action under the Companies Act to recover the money from Tierney personally and also intends to ask the National Enforcement Unit of the Ministry of Economic Development to examine Tierney's use of a phoenix company structure.

Penn said the dispute had been a David and Goliath battle but she was determined to continue.

"It took a lot of strength from me and my husband," she said.

"We had never been to court before and right from the beginning had never asked for anything more than what we were entitled to. We just wanted justice and what was fair and wanted a judge to decide what was right or wrong."

greg.ninness@star-times.co.nz

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