IDG New Zealand Geothermal Scheme Devolves into a Decade of Litigation
by Andrew Walden
Testifying recently before the Hawaii Legislature in support of a geothermal development bill, SB1269, Innovations Development Group (IDG) founder, convicted Unity House fraudster Roberta Cabral, aka Inmate #87755-022, gives the usual pitch:
“…We went to Aotearoa at the invitation of the Maori Queen to develop the geothermal resources of the Maori Trusts. The model we developed with the guidance of Mililani Trask… was one that respects Maori culture and ensures that they benefit long term from the prosperity that their geothermal resources create. Our native-to native model put indigenous people at the table, making decisions about the resource that they own in Aotearoa. We will adapt and replicate that model here. We have seen it work….”
That’s not what the Maoris say.
Maori Queen Te Arikinui Dame Te Atairangikaahu died in 2006—less than two years after Cabral was released from Federal Bureau of Prisons custody. Beginning in 2010, Maori Trustees who say they were “scammed” by IDG spent nearly a decade telling their story in Maori Land Court proceedings. The New Zealand ‘Te Ahi O Maui’ geothermal project IDG claims to have ‘developed’ as a model descended into lawsuits between trustees of the ‘Kawerau a8d’ geothermal site. But it was very profitable for Cabral.
Native to Native?
Court testimony shows that NZ law firm Russell McVeagh signed on to represent ‘Kawerau a8d', a Maori land trust with about 100 members owning 287 hectares on the North Island of New Zealand. McVeagh then brought in IDG. IDG took a $2M payoff to bring in Eastland Group, an actual geothermal developer. McVeagh soaked ‘Kawerau a8d’ for $600K in 'legal fees'. Meanwhile, one of its' Trustees billed ‘Kawerau a8d’ for $336,000 for 'consulting'.
Akamai readers may remember that IDG’s partner, Eastland, walked away from its Big Island Hawaii geothermal partnership with IDG and OHA in 2015, three years after writing off its Hawaii ‘investment’ in IDG as a total loss.
The collapse of the Hawaii project also meant that the ‘Kawerau a8d’ Trust lost out. According to New Zealand Court records, IDG’s so-called ‘native to native protocol’ meant the equity that IDG received in the Trust’s real New Zealand geothermal development was traded for an interest in IDG’s fake Hawaiian development. (LINK: See Paragraph 178.)
Hawai’i Free Press asked Cabral for comment. She did not respond.
According to an Eastland news release dated November, 2018, the Te Ahi O Maui plant “New Zealand’s largest geothermal plant was synchronized to the country’s national grid in October. The project took just more than three years to complete.”
Court transcripts show that, before McVeagh, IDG, and Eastland got involved, ‘Kawerau a8d’ already owned a geothermal bore with sufficient pressure and temperature to operate a geothermal plant. One trustee described it as “the Crown jewel of the Kawerau geothermal field.” But instead of signing a straightforward deal for rent or royalties with a geothermal developer, ‘Kawerau a8d’ got “scammed”—in the words of one trustee--by IDG.
The litigation begins in 2010, with ‘Kawerau a8d’ Trustee Kani Hunia, suing the other two trustees, Colleen Skerrit-White and Tomairangi Fox, in Māori Land Court.
The Court heard evidence that Trustee White had racked up ‘consulting fees’ in excess of $336,000 NZ dollars, via her ‘Taumanu’ consulting firm, and IDG had collected $2M US dollars from Eastland while the Trust itself was being paid only $21,000 NZ dollars per year in rent. As a result, Judge LR Harvey placed ‘Kawerau a8d’ in receivership, appointing independent outside Trustee Andrew Kusabs to investigate and control its finances.
Kusabs then audited the 2008 books of ‘Kawerau a8d’ and, in 2011, reported back to the Court:
[9] Mr Kusabs presented a detailed report on the administration and management of the trust. Amongst other things, he noted that the audit of the 2008 accounts for the trust had been completed but was heavily qualified. He also noted that it would take further time to audit the 2009-2011 books and that the setting down of the hearing would inevitably be affected by the timing and the availability of those reports. Mr Kusabs pointed out that several important documents including deeds of assignment had not been signed by Mr Fox despite requests that he do so.
[10] In response Mr Fox indicated that he had no intention of signing the documents principally because they gave, he asserted, exclusive control over cultural matters to the geothermal project’s Hawaiian partners. Mr Fox also intimated that if the trustees would take the issue for discussion with the owners and the latter agreed then he would sign the documents. Alternatively, Mr Fox stated that should the trustees act by majority to execute the documents, then he would likely seek an injunction to prevent them from doing so which would mean further delay in the overall implementation of the project….
[17] Based on the evidence before the Court at the present time, questions remain as to the conduct of the trustees both individually and as a group. Without the benefit of further evidence and submissions, it seems unusual that the trustees would take steps, inadvertently or otherwise, to incur significant liabilities and thereby make the trust technically insolvent. In this context I note Ms Skerrett-White’s evidence that legal costs in excess of $600,000.00 had been incurred by the trustees even though, she claims, the trustees had notified those firms of lawyers that they should not continue with work for the trust given its tentative financial position.
[18] Ms Skerrett-White’s evidence was that the trust income at the relevant time was approximately $21,000.00 yet she says the trustees knowingly incurred debts to two legal firms exceeding $600,000.00. While she says these costs were disputed, in one case at least it appears that no steps were taken to have those bills subject to cost revision.
[19] In addition, there is Ms Skerrett-White’s own claim for $336,000.00 for work undertaken on behalf of the trust. Once again in the absence of further evidence and submissions, it seems surprising that the other two responsible trustees would have permitted such expenditure without a guarantee as to where the money was to come from to meet those debts to say nothing of whether or not proper processes of tendering and the observance of conflict of interest rules had been followed.
[20] Added to this is Ms Skerrett-White’s evidence that the Hawaiian partners involved in the trust’s geothermal venture had been paid in excess of $2 million by the third party participant, Eastland Energy Limited, while the trust is only to receive rental income of approximately $200,000.00 per annum. Ms Skerrett-White stated that, even though the trustees had advisers, they were also under pressure and to paraphrase her statements in Court “we folded.” At first blush this does not seem the conduct of prudent and responsible trustees.
In 2016, Kusabs presented the Court an audit of the 2009-2011 books of ‘Kawerau a8d’. This is what he reported:
[1] In 2003 the Crown and Tūwharetoa ki Kawerau initialled a deed of settlement in respect of that group’s historical claims which eventually became enshrined in legislation. As part of that agreement, ownership of the geothermal well (“KA22”) located on Kawerau A8D was returned to its beneficial owners….
[10] According to the affidavit of Ms Skerrett-White, since 2005 the day to day administration of the trust had been undertaken by Taumanu Associates (“Taumanu”), a consultancy business where the partners were Stan Knuth and herself. Later in 2005 the trust entered into an agreement with Norske Skog Tasman which provided that the company would pay an annual fee of $21,935.00 for access to the block. That same year, following the settlement of the Ngāti Tūwharetoa (Bay of Plenty) and the return of KA22, the trustees began investigating options for a geothermal development.
(EDITOR’s NOTE: The Ngāti Tūwharetoa/Bay of Plenty settlement gave Maori rights to geothermal resources under their trust lands.)
[11] In 2007 the trustees entered into a Memorandum of Understanding (MOU) with Ormat, a geothermal development company, and as a result established Otuwhetu Power Ltd. That MOU ended in 2007, following which the trust sought expressions of interest for geothermal development from a range of other companies.
[12] Following the receipt of expressions of interest, the trustees engaged Russell McVeagh, solicitors of Auckland, to assist in advising them on the proposals that had been received. According to Ms Skerrett-White, the trustees and Russell McVeagh entered into an agreement whereby the legal fees incurred would be paid from the proceeds of the geothermal development project. She would later claim that the solicitors’ fees had been capped. A similar arrangement is said to have been agreed between the trustees and Taumanu.
(EDITOR’s NOTE: White had previously revealed that McVeagh ‘brought us IDG’. See how this works?)
[13] In January 2008 the trustees entered into a MOU with Innovations Development Group (“IDG”), a Hawaiian based company, for the development of KA22. The agreement provided that the trust and IDG would commit to work together for a period of 12 months, during which IDG would identify possible strategic partners for a joint venture project to develop the geothermal resource.
[14] As part of the MOU it was agreed that IDG would pay to the trust an exclusivity fee of $360,000.00 and upon signing the Development Agreement, the joint venture partnership would pay the trust a $300,000.00 commitment fee, a $100,000.00 administration fee and a $20,000.00 scholarship fee. There was also provision for negotiating the reimbursement of costs incurred by the trust for scientific studies and the like. Additionally, it was envisaged that the joint venture partnership would reimburse the trust for consenting costs incurred. …
[18] … on 17 December 2008 the MOU with IDG was varied, whereby it was agreed that IDG would pay the exclusivity fee of $360,000.00 and the commitment fee of $300,000.00. All other references to fees were deleted. According to Ms Skerrett White, since 2008 the trustees and IDG have entered into negotiations with Iceland America Energy Ltd, Ormat, Mighty River Power, Contact Energy, Horizon Energy and others.
[19] On 14 August 2010 the trustees and IDG entered into a joint venture partnership (“JV”) with Eastland Group Limited (“EGL”), under which EGL agreed to provide funds to the JV including rental in advance for the lease of the land to develop KA22. The JV partnership is known as Te Ahi Maui Power Limited.
…
[142] The following lengthy exchange with the Bench on this point is apposite:
[65] Court: When you say the trust had gotten to so much debt, what do you mean by that?
C Skerrett-White: It was mostly in terms of our legal counsel, because we had problems with all of them, with Russell McVeagh in the beginning, because they had overcommitted. They had asked us when we were in Wellington, how much did we want to spend. We said $100,000 max. Because we did not have any funding, we had $21,000 year income. But they had already spent $300,000.
Court: Can we back up there then, the trust’s income is $21,000 and the trustees have said spend five years worth of our income on legal costs. Why would you say that?
C Skerrett-White: Because we had a bore sitting there that wasn’t used.
Court: But you are pledging credit, based on hypothetical income, you are a trustee, you are not a company director.
C Skerrett-White: That was the legal advice we had that we could do that, and that we would find a partner, a developer.
Court: And when Russell McVeagh’s bill started coming in, and they started adding up to $300,000 when did the trustees decide, this is a bit much?
C Skerrett-White: Russell McVeagh actually brought us IDG Hawaii.
…
Court: Alright, so let me understand this, the trust has income of $21,000. It incurs debts of $300,000 with one law firm, goes to another law firm, gets more debts of $200,000 and those are the debts that are sitting on the trust now, making it insolvent technically?
C Skerrett-White: Technically, yes. Which is why we instructed IDG to go and find us a million dollars to support the other costs.
Court: Yes.
C Skerrett-White: Because they were well aware that we had those costs.
Court: So there is that pile of money, then there are the invoices that Taumanu provided for about $330,000 so we are up to $800,000 plus. In the meantime the Hawaiians your indigenous partners, walk away with over $2 million, and the owners are getting about $200,000 a year, the bulk of which is going to be swallowed up in all these debts the trustees have incurred.
C Skerrett-White: (acknowledges Court) Because that is what we asked them to get, get us costs….
…
[175] However, in response to my questions concerning the actions of all trustees in negotiating the geothermal development agreements, Mr Kahukiwa conceded that there was some merit in the argument that, given the substantial amount of funds spent on legal fees, the deal ultimately secured in relation to the project development agreement appeared to favour IDG more than the owners. …
[177] Ms Skerrett-White gave evidence that the trustees also received advice from a number of geothermal experts, following which they took expressions of interest for development, eventually signing a MOU with IDG. A joint venture partner for the development of the geothermal bore was then sought by IDG who subsequently engaged with EGL. It was agreed that IDG could complete negotiations of the project development agreement in Hawaii, given they had no funding to return to New Zealand. However, she says that IDG was to bring the matter back to New Zealand for the last round of negotiations. Ms Skerrett-White noted that the trustees had some reservations regarding the agreement but relied on the advice of their lawyer and signed the agreement “in principle” based on an assurance that IDG would come to New Zealand and they would sit down with EGL to make sure the agreement was workable. This however did not occur.
[178] Ms Skerrett-White argued that what was agreed with IDG was not reflected in the project development agreement, in terms of IDG obtaining an exclusive right to develop the geothermal bore as opposed to a joint right. Ms Skerrett-White also noted that in terms of the “native to native” protocol, the equity that IDG received in the trust’s development was to be reciprocated by the trust receiving a corresponding interest in IDG’s Hawaiian development. However, they subsequently learned that IDG had taken on another partner for their proposed development.
[179] Ms Skerrett-White further asserted that the relationship between the trustees and IDG broke down during final negotiations, when Mr Hunia sent to IDG confidential minutes of the trust’s discussions with their lawyer regarding their concerns over the project development agreement. IDG subsequently cut communication with the respondents and they were unable to further negotiate the agreement. …
DISCUSSION
[181] …the trustees, by their conduct, have inexplicably enabled, unwittingly or otherwise, their JV partner IDG to receive potentially more of a benefit from the development than the owners – again hardly the conduct of prudent trustees.
[182] Equally inexplicable is how the benefit to IDG bears, on the available evidence, little relationship to their actual “contribution” to the project. Indeed, a cynical eye might even suggest that the trustees had been taken advantage of by their “partners”. Questions must then surely arise as to the extent of the due diligence and the ethics of how IDG appear to have conducted themselves throughout this negotiation, based on the evidence of the trustees.
[183] Disturbingly, given the cost and quality of advice that the trustees say they were receiving, Ms Skerrett-White eventually acknowledged that the trustees had been taken advantage of by their Hawaiian partners, even though they had ample legal advice:
77 C Skerrett: … One of the problems that has come out of this process is that we have been cut off by IDG and have been unable to discuss these things with them.
Court: When you say cut off, what do you mean?
C Skerrett: They cut us off. Yes, our Hawaiian partners.
Court: I see.
C Skerrett: …they were advised by legal counsel that she was not to discuss anything with us, which made it very difficult for us to finish off what needed to be done with the PDA. One of the things that has happened is that we totally believed in the kaupapa that was developed with IDG Hawaii, in terms of the native to native protocols. Unfortunately in the PDA they have gone a little bit further than just being protocols. Their mapping in the PDA actually states that they have cultural control. That is something that we never ever agreed to. The cultural control is ours. We are the tangata whenua, it is our land and it is our resource. So those things have to be addressed. There is some issue with costs. Our costs were not addressed in that PDA but the costs of our partners were. They got $1.25 million for that.
[184] And further:
[78] Court: Yes, now the Hawaiian people what do they get?
C Skerrett-White: They walked away with US$1.25 [million] costs.
Court: For what purpose, what did they get that for?
C Skerrett-White: For costs, and plus they got 10 per cent equity and co developers as well.
Court: So they got in a lump sum more money than the owners are getting?
C Skerrett-White: Yes
Court: 10 per cent of the equity and they are the co-developer?
C Skerrett-White: Yes
[185] Curiously, Mr Hunia also confirmed that the trustees were happy with the arrangements prior to signing the agreement. Subsequently however, it appeared that the agreement did not align with what they understood the arrangements were to be:
[79] The Court: …The arrangement with the IDG, were the trustees happy with it in the end?
K Hunia: Yes. I mean was [sic] the trustees were all happy.
The Court: Yes. So the input with the Hawaiian partners, all the trustees were happy with that outcome?
K Hunia: Yes, that is why we signed, all happy.
The Court: After the agreement had been signed and the trustees discovered that it wasn’t exactly what you thought it was going to be, were the trustees still happy?
K Hunia: No.
The Court: They weren’t?
K Hunia: No.
The Court: And did the trustees subsequently discover that in fact, the deal that they did sign up to was not really what they understand [sic] it to be in the first place? In that the Hawaiian partners were walking away with a big share for very little input?
K Hunia: That is right.
The Court: And this has soured the relationship with the Hawaiian partners since?
K Hunia: Oh I think that relationship is really sour at the moment.
The Court: And the part I struggle with is that how can it be that the trustees signed up to a deal that they subsequently discover is not really what it should have been when they spent $500,000 on lawyers.
K Hunia: Well I can’t understand.
[186] As foreshadowed, it is unfathomable on any reasonable basis why the “deal” that was eventually secured by the trustees was one that appeared to favour the interests of IDG over those of the trust’s beneficiaries, particularly when such large amounts were spent on legal advice. To then discover that, having the benefit of such advice, IDG were still able to secure substantial benefits which do not appear at first blush to fairly reflect what they contributed to the development, is startling. Additionally, it appears that the trustees were either not fully apprised or simply failed to properly comprehend the true effect of the agreement, with the result that arrangements in terms of the cultural matters and the reciprocal interest in the IDG development were not properly secured for the owners.
[187] Ms Skerrett-White conceded that the actions of the trustees contributed to the situation with the Hawaiian partners:
[80] Court: So the IDG people, if the project is to proceed, they are still involved?
C Skerrett-White: Yes.
Court: They are the co-developers, is that right?
C Skerrett-White: They are the Co-developers. What it did was disempowering us in terms of how all cultural matters were dealt with, within the project, because we are not the co-developers. It is disempowering and it is heartbreaking.
Court: But isn’t it the case and I say this with no disrespect, the disempowerment is as a consequence of the trustees’ actions?
C Skerrett-White: Yes. We dropped the ball!
[188] Mr Fox, at an earlier hearing was even more candid in his assessment of the deal. From his perspective the entire project was in disarray due to the conduct of IDG:
[81] T Fox: I cannot see how IDG can be a partner. As far as I am concerned I do not want to be part of them.
Court: Okay. Now Mr Fox does that mean, if I understand you correctly the entire project is now at risk?
To Fox: Yes, as far as I am concerned. It is just the way they have written it down on PDA. It is more for them, to me, this is myself and I will say it quite clearly, it is a scam.
[190] … it appears that because of the trustees they are to receive less of the benefit of the project in favour of IDG who it seems contributed less than might be expected for the eventual equity stake that they received.
[191] In my assessment the trustees have failed to act prudently and their misconduct may have resulted in a serious loss to the trust of equity in the project - a loss that was likely to have been preventable and therefore quite unnecessary. For this serious breach of trust the trustees must be held to account.
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IDG BACKGROUND: