Auckland magazine company Trends Publishing has failed in its High Court battle to win $61 million in damages from government grants agency Callaghan Innovation.
Callaghan and Trends have been involved in a dispute since 2014, when Callaghan announced it had suspended research and development grants to the company, saying it believed the company had not met their criteria – a claim Trends denied.
Callaghan also said in its 2014 media release that it had contacted the Serious Fraud Office (SFO) in light of concerns about the legitimacy of claims Trends had made in its grant application.
The SFO dropped its investigation into Trends in 2017 without bringing charges against the company or any individuals associated with the firm.
Trends sued Callaghan for $61m, alleging breach of contract.
It argued the cancellation of the grants meant it lost a chance to commercialise the work it was undertaking and that the 2014 statement from Callaghan meant it could not attract investors.
That had "a catastrophic effect" on Trends' business, it said.
Justice Grant Powell's ruling released on Wednesday said Trends developed a particular niche in the home-interest market with publications that combined home design ideas with extensive supplier advertising.
There was "no dispute that Trends developed a reputation for innovation" in particular with regard to the way it was able to produce magazines at a lower cost than competitors using publishing templates, he said in his ruling.
The grant application Trends submitted to Callaghan largely described a project to further commercialise a recommendation engine to help monetise content on its websites.
Justice Powell stated there appeared to be division within Callaghan before the application was approved about whether the work that was described constituted eligible R&D.
"[Callaghan] made no real attempt to understand and/or provide feedback to Trends on what parts of Trends' stated research and development programme would constitute eligible R&D expenditure for the purposes of the growth grant," he said in the ruling.
"The lack of focus on what Trends was actually intending to do clearly concerned a number of the Callaghan staff tasked with assessing the application, but ultimately Callaghan concluded it could not decline the application."
Trends relied on its application for the growth grant to support its submission that "Callaghan was always aware of what Trends was doing", he also said.
But he said the approval of the grant application did not mean Trends was entitled to claim a grant for all its expenditure on the project – only on the "eligible R&D expenditure" it incurred.
"[It is] apparent from Trends' submissions and the evidence on which Trends' relies, that Trends has a fundamental misconception of the terms of the funding agreement and, in particular, what it was entitled to seek to be reimbursed by Callaghan."
Justice Powell also said there was a discrepancy between the amounts claimed by Trends in a 2014 invoice to Callaghan and the information provided by Trends to justify those claims.
An audit by Deloitte provided "more than sufficient basis for Callaghan to conclude Trends may have breached the funding agreement and therefore ... Callaghan was entitled to suspend the funding agreement," he said in the ruling.
Justice Powell said the mention Callaghan made in its 2014 media release of having referred Trends to the SFO "appeared somewhat gratuitous", but he said it was nonetheless information that Callaghan could be expected to provide "as part of the obligation to all its stakeholders".
Trends chairman David Johnson has been contacted for comment on whether Trends intends to appeal.