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America's Cup: Surprise headline triggers confidential document release

by Richard Gladwell Sail-World NZ 10 Nov 2020 17:28 PST 11 November 2020
The linking of the America's Cup with the SFO does not appear to be supported by any evidence, despite at least two independent investigations. © Richard Gladwell /

Following the linking of the Serious Fraud Office with America's Cup champion Emirates Team New Zealand, its event management arm, America's Cup Event Ltd, and ACE director Greg Horton released three previously confidential documents on Tuesday afternoon.

The unexpected media salvo came after a daily newspaper linked the two America's Cup entities with a possible Serious Fraud Office investigation into the expenditure of public money in respect of the contribution $NZ40million ($US25.5m) Event Investment fee. The piece, along with several others focussing on Emirates Team NZ and ACE's relationship with the NZ Government, is written by the Auckland paper's, Wellington based Business Editor.

Many of the claims made by the Herald, and contained in the ETNZ/ACE papers, were refuted a day later in a radio interview by the new Minister of Economic Development, Stuart Nash who is also the Minister responsible for the America's Cup. Nash described joint CEO Grant Dalton as a "man of integrity".

The 28-page missive of confidential correspondence goes to the heart of the team's ongoing spat with the Ministry of Business Innovation and Employment and the Auckland Council. There appears to be no substance to the SFO investigation claim.

"The linking of our names with the Serious Fraud Office in the Herald is an exceptionally serious matter," Sir Stephen Tindall, Chairman of the Board of Team New Zealand, told Sail-World on Tuesday afternoon.

"Everyone knows that if you start to be accused of being investigated by the SFO, there is something heavy going on. We don't believe there is. We are still waiting for the Official Information Act documents we have requested to be released", he added. The OIA documents are required for ACE and ETNZ to support their case in a Mediation scheduled for next month.

There was little new material in Tuesday's Herald report except that Team New Zealand and ACE CEO, Grant Dalton had told the Herald in a written statement that ACE "would welcome an independent review of MBIE's actions and process by the Public Service Commissioner or Ombudsman".

Standard practice is that a contemplated or actual investigation by the Serious Fraud Office is confidential, due to the reputational damage suffered by those individuals who are named if the investigation does not result in formal charges being laid. Court applications are frequently made by media seeking the right to publish names, claiming that publication is in the public interest. Almost invariably such applications are refused and publication is usually permitted after a Court appearance of the accused. In this instance given the high profile and relatively few numbers of individuals, identification of those involved is relatively easy. Indeed in previous reporting NZ Herald has published the Board structures of ETNZ and ACE, along with images and names of the Directors involved.

The current situation is particularly serious for the individuals involved as Directors of both organisations, and even more so for ACE Director Greg Horton a highly respected and credentialed commercial lawyer and financial adviser to leading New Zealand companies and high net worth individuals.

ETNZ and ACE had previously obtained an injunction in the High Court to prevent the publication by media of leaked confidential reports, emails and secret recordings of Board meetings. Reports using the material led the front/homepage news for three successive days until an interim injunction was obtained and subsequently confirmed by the High Court.

NZ Herald again triggered a media fire-fight in its Tuesday (November 10) morning edition saying "the Ministry of Business, Innovation and Employment (MBIE) confirmed that its chief executive, Carolyn Tremain, had spoken to the SFO, possibly more than once.

"We can confirm that the secretary for MBIE [Tremain] and the director of the SFO have had discussions about this matter," a spokesman for MBIE said.

MBIE has refused to answer questions about whether as a result of its investigation it provided material to the police or the SFO, or if the SFO had requested it to provide information.

A spokesman for the SFO confirmed the contact but refused to elaborate or say whether the organisation had begun an investigation. A Team New Zealand spokesman said no one from the SFO had contacted anyone at the organisation or ACE.

"Our only information that we have ever had regarding the SFO has been that MBIE told us that they had considered it in January when discussing options," Team New Zealand chief executive Grant Dalton said in a statement."

Rapid response from Team New Zealand

A few hours later, in response to the NZ Herald story, ETNZ and ACE issued a media statement and several documents covering its interactions with MBIE.

"In the face of further defamatory and baseless allegations again being levelled at ETNZ/ACE and its Directors we feel that we must now set the record straight having tried to respect a due process in this saga all year", the statement said.

"We have wanted to avoid such a public condemnation of MBIE, but given their moves to conceal their totally inappropriate behaviour through this protracted contractual process, we now feel obliged to release a suite of letters addressed to MBIE and Ministers which call MBIE to account for their actions.

"These letters paint quite a different story than that currently being presented.

"As we state in these letters, we would welcome the intervention of the Ombudsman or Public Services Commission to look at MBIE's actions through this protracted process.

To view the four documents released by Greg Horton, Emirates Team New Zealand and America's Cup Event Ltd click here

Less than a fortnight ago, the NZ Herald ran one and a half page spread about the issues between MBIE and ETNZ/ACE over the $3million expenditure on the AC75 Class Rule development. Accompanying the report was a sidebar statement, which said in part: "we will continue to ask questions, seek answers, probe MBI(sic) and other Government officials and report our findings in a fair and balanced manner - even in the face of heavy legal threats."

However, it is well known in sailing media circles that the relationship between the America's Cup champions and NZ's leading daily has been very strained for some time. The Herald was refused an invitation to the launch of the team's first AC75, Te Aihe in September 2019. Ironically the paper was founded in 1863 by a member of the Wilson family who later became very prominent in the Auckland yachting scene.

"The Herald was in touch with us on Friday afternoon asking had we been contacted by the SFO. For once we actually replied to him and said "no we hadn't - we'd heard nothing," Sir Stephen told Sail-World.

"Usually if you are being investigated [by the SFO] they tell you. So we don't believe there is anything going on with them", Sir Stephen added.

Sir Stephen claimed that SFO was prevented by legislation from public comment about the status of any ongoing investigation it is conducting.

"We are in a stalemate. MBIE wouldn't comment, and SFO wouldn't comment, but with today's allegations we know have the matter hanging over our heads. So we released what we have today on the basis that it was all coming to come out anyway in Official Information Act requests in the next few weeks."

Actions questioned

The 28 pages of documents contain a letter sent by America's Cup Event Ltd to the CEO of MBIE, Carolyn Tremain and the Lead for the America's Cup within MBIE, Iain Cossar(General Manager, Tourism), and Auckland Council on August 12, 2020.

A week later a second letter was sent escalating the matter to the Prime Minister, Minister of Sport and the then Minister of Economic Development.

The third letter is a personal statement by ACE and former ETNZ Director Greg Horton, a leading commercial lawyer/business consultant/adviser to top NZ corporates and high net worth individuals. Horton is also a specialist in governance, corporate and securities law matters.

Horton's 8-page, previously confidential and very blunt statement outlines various commercial issues and interactions with MBIE, and the audit investigation requested by it by forensic auditors Beattie Varley. The audit investigation was authorised by MBIE a week before New Zealand was put into a five-week Level 4 lockdown on March 25, 2020.

The audit report subsequently vindicated the actions of Team NZ and ACE, save for one matter regarding the charging of a $3million fee for the development of the AC75 class rule by Team New Zealand to the event budget of ACE. It is an inter-company charge for covered by a dispute process and settlement by mediation as prescribed in the HVA. The Mediation is expected to take place in December.

The Host Venue Agreement was signed between Team New Zealand as the holder of all rights to the 36th America's Cup, and Auckland Council and Ministry of Business Innovation and Employment on behalf of the Government.

Contrary to the belief in some circles Team NZ/ACE hold all rights to the 36th America's Cup, and the relationship with MBIE is that of a supporting partner, of which there are several in the 36th America's Cup.

As consideration, for the HVA, the Government via MBIE, made a $40million contribution to the staging of the Regattas, with Team NZ and ACE being required to raise a similar amount by way of sponsorship and other commercial arrangements to cover the Event staging costs of the event.

Separately from the HVA agreement, the Auckland Council and Government agreed between themselves to invest approximately $200million into the construction and development of facilities in downtown Auckland - on Council land and the newly developed facilities continue to owned by the Auckland Council.

The government assisted with a side payment to the Council to assist with its share of the infrastructure development costs of approximately $100million.

That contrasts with the investment of $190million by the Government into the Eden Park stadium for the 2011 Rugby World Cup That facility is effectively privately owned by a trust board controlled by rugby and cricket sports bodies.

Mediation next month on two issues

Sir Stephen says that there has been little that has changed since the last of the letters dated August 17 - two months before the General Election.

"We've got a mediation coming up on the HVA [Host Venue Agreement] interpretation for the development of the AC75 Class Rule. We did get MBIE to agree to a second issue in the Mediation, which we say was a breach of natural justice."

"We've asked MBIE for the Official Information Act paperwork that would help our case and they're sitting on their hands", Sir Stephen claimed.

Tindall points out that there is plenty underway in the America's Cup Village, with the first of three regattas due to start next month. The facilities include the construction of two television broadcast centres, the sound stage, and New Zealand House. Three AC75's are training from bases in the America's Cup Village. Emirates Team New Zealand is expected to launch their second AC75 next week.

"We thought it was all coming together, and we thought we were all in good shape. But the report that the SFO is being involved in the America's Cup Event has forced us to bring the matter out into the open, so the public can see what has been happening,' Sir Stephen explained.

He went on to say that ETNZ/ACE requested the Public Services Commissioner "quite some time ago" for an investigation into MBIE's actions.

"Our feedback has been that they don't feel there is enough there to investigate, so I don't think that is going to happen. And the Ombudsman process takes forever," he added.

As yet has been no response from the government. However, that may change with the appointment of Hon. Stuart Nash as the new Minister of Economic and Regional Development.

Questions over motives

A tenor running through the ETNZ/ACE documents is a questioning of whether the parties to the HVA have cooperated "with each other in good faith in relation to all Events and all matters related to the subject matter of this agreement."

"The resulting incorrect and sensationalist media reports have caused significant reputational damage to ACE and ETNZ (and their personnel) both domestically and internationally, including with existing and potential sponsors and partners," says the 13-page letter from the ACE Board to MBIE and Auckland Council, dated August 12, 2020.

Sir Stephen Tindall told Sail-World that "the conclusion we have come to is that they (MBIE) kept us in the dark from January to June while they were having information secretly fed to them. We think it was an effort for others to take over the running of the Event and to edge us out of it."

"You can't have someone who knows nothing about the America's Cup trying to run this event, with all its twists and turns."

The other thread running through the statements by governmental parties is a litany of delay in response to requests from Team NZ/ACE.

"Any requests from media for OIA material seem to come through quite quickly, but any requests from us are not handled with the same alacrity," says Sir Stephen.

"There are cultural differences between ourselves and the governmental parties, which we knew right from the start", says Tina Symmans. "You couldn't get more polar opposites in terms of the way we (TNZ/ACE) operate - which is at great speed and efficiency as opposed to a bureaucratic organisation."

Symmans is Chair of ACE and has a background in strategic communications, corporate and government relations. She has worked for some of New Zealand's biggest companies.

As an aside, Symmans adds that ACE has been able to acquire the services of some excellent people in event management following the conference and event downturn post-COVID19. "An extraordinarily good team has ironically come in as a result of this debacle. Many of them have extraordinarily good event experience - ACE probably wouldn't have had access to those people had it not been for COVID", she adds.

"Too many cooks in the kitchen" - PWC report

To date, the media attention has been on the audit investigation commissioned by MBIE using Beattie Varley, whose three directors principals were employed in the SFO for 10, 15 and 20 years. It is surprising that with that level of SFO experience within Beattie Varley, that there was no recommendation for SFO attention/action in their Audit investigation. To the contrary, Beattie Varley cleared ETNZ/ACE of the allegations.

"We are of the opinion that the expenditure incurred was to meet costs arising with the management and delivery of the Events. We have not seen evidence that ACE/ETNZ misapplied the Event Investment."

Beattie Varley noted the AC75 Class Rule development cost was a matter of "contractual interpretation".

[To view the Beattie Varley audit report and Joint media statement MBIE/Auckland Council/ETNZ/ACE

Further the joint MBIE/ETNZ/ACE media statement accompanying the Beattie Varley audit report release stated: "The Beattie Varley report found that there was no evidence of financial impropriety or misappropriation of funds."

MBIE CEO Carolyn Tremain said in the joint statement: “It was important to work through the audit process, and confirm that there was no financial impropriety or misappropriation of funds.”

Against these comments by MBIE and their independent audit team, it is difficult to resolve an inference of genuine SFO involvement in the matter.

The documents released Tuesday note that an earlier investigation commissioned by the Joint Chief Executives Group from PricewaterhouseCooper recommended a more streamlined organisational approach. [The JCEG is a coordinating body comprising the CEO's of the major players in the public sector involved in AC36)

"It is our view that the Hosts (MBIE and Auckland Council) need to address their own operating model for their role in hosting the AC36 Events, and we are happy to assist with how this might be achieved. The PWC Report from earlier this year provides a starting point," says the letter of August 12 from ACE to MBIE and Auckland Council.

"At present, in our view, there are "too many cooks in the kitchen", and ineffective decision making. A more streamlined approach is required. PWC concluded similarly," the letter continues.

To date much has been made of the $40million Event Investment contribution towards the costs of staging AC36 regattas.

Often the $NZ40million is portrayed as being the total event cost - and that as it is public money Auckland Council and MBIE can direct the components of that spend and also demand a very granular decomposition of Event expenditure.

The ACE letter of August 12 points out that the overall budget to stage the TV and Digital race coverage has a net budget of €23.3 million (NZ$40million, or the whole of the Event Investment). Yet, the Event Investment is charged just €8.5million (NZ$14.7million) or 36% of the broadcast cost.

The last few paragraphs of the letter of August 17 sent to the Prime Minister, Minister of Sport and then Economic Development Minister, Phil Twyford, were signed by the six directors of TNZ/ACE requesting seven outcomes. Most of those have now been met or are accepted.

Missing is an apology to "ACE and ETNZ, and its directors and management for the incorrect statements and support of allegations made in relation to impropriety, and the for the material impact on their reputations."

The payment of instalments of the $40million Event Investment is now proceeding against the achievement of the agreed milestones.

Other would-be players

On Page 7 of his confidential statement Greg Horton makes an interesting observation about the role of the Challenger of Record and other teams in the issue:

"To put this in context, the Hosts had been investigating the $3 million recharge since January, and only on 18 August did they share the view with us that the recharge was not appropriate, and supplied no reasoning for that by that time. Additionally, the charge was disclosed in the first financial report following signing of the HVA, and the Hosts never questioned the amount or nature of the payment."

"MBIE has subsequently on 2 September supplied a draft opinion dated 31 August – written after the fact of their objection – by a third party lawyer who in my view is conflicted due to his engagement by another America’s Cup competitor. The Challenger of Record has unilaterally weighed in on the matter, but their conflict is obvious."

The yacht racing part of the America's Cup gets underway in four weeks on December 17, 2020.

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