Bank of New Zealand v Lothian Partners Capital Limited
[2021] NZHC 3500
•16 December 2021
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2021-404-000795
[2021] NZHC 3500
BETWEEN BANK OF NEW ZEALAND
Plaintiff
AND
LOTHIAN PARTNERS CAPITAL LIMITED
First Defendant
GLENCOE LAND (JOINT VENTURE) LIMITED (IN RECEIVERSHIP)
Second DefendantGALT NOMINEES LIMITED
Third DefendantGEORGE CHARLES DESMOND KERR
Fourth DefendantPYNE HOLDINGS LIMITED (IN RECEIVERSHIP)
Fifth Defendant
Hearing: 13 and 14 December 2021 Appearances:
Z G Kennedy and N Frith for the Plaintiff
G P Blanchard QC for the First, Second, Third and Fifth Defendants
J K Goodall, S J Nicolson and J Hansen for the Fourth DefendantJudgment:
16 December 2021
JUDGMENT OF ASSOCIATE JUDGE GARDINER
[on application for adjournment]
BNZ v LOTHIAN PARTNERS CAPITAL LTD [2021] NZHC 3500 [16 December 2021]
This judgment was delivered by me on 16 December 2021 at 4.00 p.m. pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar Date.......................................
[1] The Bank of New Zealand (the BNZ) seeks judgment against the defendants, George Kerr and related companies, in the total sum of approximately $62 million. The BNZ contends that the defendants are liable to it under loan facilities and associated guarantees dating back to 2008 and 2010. The first facility was between the BNZ and Lothian Partners Capital Ltd (LPC). The second facility was between the BNZ and Pyne Holdings Ltd (PHL).
[2] The BNZ also seeks judgment for a costs award made against two of the defendants in earlier injunction proceedings.
[3] On the second day of the hearing of the BNZ’s application for summary judgment, the defendants requested that the hearing be adjourned part-heard to permit Mr Kerr’s forensic accounting experts time to consider transaction records provided on 29 November, and further evidence from the BNZ filed that day. This is my decision on that application.
Events prior to the hearing
[4] This is not the defendants’ first application for an adjournment of the hearing of BNZ’s application for summary judgment. On 7 December 2021, Lang J dismissed an earlier application.1 Then, the defendants’ principal ground for seeking an adjournment was that they needed time to respond to the material they had received from the BNZ on 29 November.
1 Bank of New Zealand v Lothian Partners Capital Ltd [2021] NZHC 3339.
[5]A bit about that material. It comprises:
(a)loan transaction data extracted from BNZ’s systems for each of the loans from the inception of the facilities through to their expiry, reproduced in Excel spreadsheet form (‘the loan spreadsheets’); and
(b)bank statement transaction data for the current accounts operated by LPC and PHL during the facility agreement terms, also reproduced in Excel spreadsheet form (the ‘statement spreadsheets’).
[6] At the hearing before me the BNZ explained why it did not disclose this material when it filed the present proceeding in May 2021. First, the bank considers that it is not required to provide this level of information as evidence of the amounts payable under the facilities. It relies on clauses in the facility agreements that state that a determination by the BNZ of any interest rate or amount payable under a facility will (in the absence of manifest error) be prima facie evidence of such amount for legal proceedings. Second, it says that there has never been any dispute raised by Mr Kerr about the principal sums over their ten-year dialogue. The BNZ says that the only point of discussion between Mr Kerr and the BNZ related to whether unarranged overdraft interest would be charged, or the lower rate prescribed in the facility agreements.
[7] For these reasons, the BNZ’s original evidence filed in May 2021 simply states the opening balance for each facility and provides spreadsheets showing its interest calculations for each account through to the date of expiry; and then to the commencement of these proceedings.
[8] However, the defendants raise an issue with this approach. The BNZ’s opening balance date for the LPC facility is around 20 months after the date the facility commenced. The PHL opening balance date is around 23 months after the commencement date. The defendants consider that there were transactions on the facilities that predated the bank’s opening balance dates. They want to take a closer look.
[9] So, on 9 and 13 July the defendants’ solicitors sought disclosure of the transaction records for the facilities for the pre-opening balance date period. On 1 August, the BNZ’s solicitors advised that this information was being compiled, but that it was taking longer than expected.
[10] The BNZ’s reply evidence was due on 23 July, but it was not filed and served until 5 August. The reply evidence did not include the transaction records sought by the defendants. This prompted further correspondence between the parties. Eventually, on 29 November, the BNZ filed and served an updating affidavit that disclosed the records the defendants had been seeking.
[11] In an affidavit filed in support of the defendants’ previous application for adjournment, Mr Kerr deposed that in September he had engaged Kroll, an international firm of forensic accountants, to conduct a review of material relating to the two facilities that he had been able to download from his computer. Mr Kerr stated that Kroll began their work around mid-November and was confident that they would have a report completed in advance of the hearing. However, the receipt of the data from the BNZ on 29 November meant Kroll was unable to provide its report until the end of January 2022. Mr Kerr stated that Kroll needed the opportunity to review and interrogate the BNZ data and assess it against the records he had already provided to them.
[12] Mr Kerr also stated that based on his own work, he believed there were serious irregularities and errors in BNZ’s loan calculations.
[13] Lang J dismissed the defendants’ application for an adjournment. He considered that the defendants’ argument may have had merit if the summary judgment hearing was a substantive trial as to quantum. It was not. On a summary judgment application, the onus is on the BNZ to establish that the defendants have no defence to its claim. The defendants are not required to establish the correct quantum of any amount they may owe the BNZ. They need only point to evidence suggesting that a trial is necessary to determine the issue.
[14] Lang J found that there was nothing to prevent Kroll placing its preliminary conclusions before the Court in the summary judgment hearing. He observed that those preliminary conclusions might be enough to persuade the Court not to enter summary judgment, and to direct a full trial on the issue of quantum. Alternatively, they might persuade the Court the application for summary judgment should be adjourned part-heard to await updating evidence from Kroll once it had the opportunity to fully analyse the loan transaction data.
The Hearing
[15] The hearing of the BNZ’s application for summary judgment of its claim commenced on 13 December 2021 at 10 am.
[16] At 9.48 am, Mr Kerr filed and served a substantial affidavit. In this affidavit he identifies what he considers to be gross errors made by BNZ in its loan accounting on both the PHL and LPC facilities. Annexed to this affidavit is an initial report from Kroll dated 10 December 2021. The report states that phase 1 of Kroll’s work, to which the report related, was an initial review of the information provided by Mr Kerr and the BNZ to identify what, if any, further information Kroll may need in order to calculate the respective positions. The information reviewed by Kroll did not include the bank’s spreadsheets provided on 29 November.
[17] Kroll found the account statement provided by the BNZ in the original affidavit relating to the PHL facility to be incomplete. This conclusion was based on confirmations of drawdowns and repayments demonstrating that transactions occurred on the account prior to the BNZ’s stated opening balance, and evidence of the BNZ being instructed to apply sale proceeds of shares to pay down the facility prior to the opening balance date. Kroll stated that without information from the BNZ going back to the date of the original drawdown, it was impossible to tell whether the bank’s position was accurate.
[18]Kroll did not offer any opinion on the LPC facility.
[19] In his affidavit, Mr Kerr details how he and his team have analysed his own account records, bank confirmations and other information extracted from his computer, and concluded that the BNZ’s position contains the following errors:
(a)For the PHL facility, the BNZ has not taken into account a minimum of
$7,912,762, being the proceeds of share sales made in 2010 and 2011.
(b)For the LPC facility, from the outset of the facility the BNZ charged unarranged overdraft interest rates, when Mr Kerr contends that it was not entitled to do so under the terms of the facility agreement. Mr Kerr contends that this ‘overcharging’ prematurely exhausted the LPC Deposit Lock Up Account, creating an early default.
[20] Kroll did not offer any opinion on whether the errors identified by Mr Kerr through his own work had any foundation.
[21] On the first day of the hearing, and in view of the extremely late filing of Mr Kerr’s affidavit, I sought the BNZ’s views as to how they wanted to proceed. Through the first day, counsel made submissions on liability. Mr Kennedy for the BNZ took instructions on Mr Kerr’s late affidavit overnight, and the following morning advised that the BNZ was content to proceed on quantum and would be filing an affidavit from the BNZ replying to Mr Kerr’s affidavit later that day.
[22] At 12.09 pm the BNZ filed and served an unaffirmed but approved affidavit of Mr Keelty, a Senior Portfolio Performance Manager at the BNZ. In that affidavit Mr Keelty addresses each of the payments identified by Mr Kerr and concludes that Mr Kerr is mistaken in his analysis in respect of both the LPC and PHL facilities and confirms that nothing Mr Kerr has said has identified any errors or discrepancies in BNZ’s calculations.
[23] Mr Goodall, for Mr Kerr, requested that the hearing be adjourned part-heard. He was unable to take instructions from Mr Kerr or Kroll on the contents of Mr Keelty’s affidavit at such short notice, particularly as they are based in London.
He submitted that Mr Kerr would suffer real prejudice if Kroll was not given the opportunity to complete their analysis and report, and consider the Keelty affidavit.
[24] Mr Blanchard QC for the corporate entities supported the application for an adjournment, echoing Mr Goodall’s submissions.
[25] Mr Kennedy, for the BNZ, strongly opposed an adjournment. His main submissions were that:
(a)Mr Kerr was overstating the importance of the spreadsheets provided by the BNZ on 29 November and that Mr Kerr has always had access to bank statements for the current accounts for the two facilities for the whole period. He referred me to an email from Mr Kerr to Dermot Rodden of the BNZ of 28 March 2018, in which Mr Kerr states: “Now have access to the online statements”. Further, it is clear from Mr Kerr’s 6 and 13 December 2021 affidavits that he holds considerable contemporaneous bank documents, including confirmation statements for every drawdown and deposit made to the current accounts.
(b)It was entirely reasonable for the BNZ to not provide the raw data prior to the dates utilised by the BNZ for calculation of the principal sums owing, because there has never been any dispute raised by Mr Kerr about the principal sums. Further, under the terms of the facility agreements, the BNZ is not required to prove amounts said to be payable through its underlying records.
Decision
[26] I will adjourn the hearing part-heard to hear further submissions on quantum. I will give my reasons why.
[27] First, and primarily, the Court will be assisted in its task of deciding whether the defendants have a reasonably arguable defence that there are material errors in the
bank’s calculations if independent, expert forensic accountants assess and report on the errors Mr Kerr considers he has identified, taking into account the loan and statement spreadsheets and Mr Keelty’s latest analysis. Without an independent, expert report it is difficult to determine whether there is any substance to the issues Mr Kerr has raised. The BNZ, through Mr Keelty, says there is not. I consider that there would be benefit in Mr Kerr and Kroll being given time to consider the spreadsheets and Mr Keelty’s explanations. If the BNZ is right, the dispute around quantum should resolve.
[28] Second, while I accept the BNZ’s submission that the defendants have overstated the importance of the data provided on 29 November to their ability to prepare for the hearing (noting that Mr Kerr managed to identify allegedly serious errors from the transaction records he holds, and has always held), Mr Keelty has relied on the loan and statement spreadsheets created from this data to respond to Mr Kerr’s assertions. I infer that while Mr Kerr holds reasonably comprehensive records himself, the spreadsheets are relevant and might have been helpful to the defendants when trying to understand how the bank arrived at its figures. To be clear, I do not find that the bank is required to provide information of this nature to substantiate amounts claimed under facility agreements. But, taking a pragmatic approach, and as the material has already been provided to Mr Kerr, and explicitly relied on by the bank in its latest evidence, the defendants should be given time to consider it and take expert advice.
[29] Third, while I consider that Mr Kerr was largely responsible for the situation by waiting until the last possible minute to file his affidavit, understandably Mr Goodall and Mr Blanchard QC were unable to make any meaningful submissions on the analysis contained in Mr Keelty’s affidavit received during the hearing, without expert accounting support.
[30] Fourth, the Court can accommodate a further hearing day in March 2022. This is a short adjournment, when seen in the context of the significant sum involved, the complexity of the issues, and the 13-year history. Further, unlike the position before Lang J, an adjournment will not result in wasted hearing days, as most of the allocated two days were used to hear submissions concerning liability.
[31] Overall, I consider that any prejudice to the BNZ from a short adjournment is outweighed by these considerations.
Result
[32]I direct that:
(a)the defendants are to file and serve any further evidence concerning quantum, including any expert report, by 4 February 2022;
(b)the plaintiff is to file any further evidence in reply by 4 March 2022;
(c)the plaintiff is to file and serve any further written submissions on quantum 10 working days before the hearing;
(d)the defendants are to file and serve any further written submissions on quantum five working days before the hearing;
(e)the hearing will resume on 28 March 2022 at 10 am to hear further submissions from all parties on quantum.2
Associate Judge Gardiner
Solicitors / counsel:
Burton Partners, Auckland Lowndes Jordan, Auckland Minter Ellison, Auckland
Z Kennedy, Auckland
G Blanchard QC, Auckland J Goodall, Auckland
Case officer: Danica Young
2 This date was signalled at the hearing, without obvious objection. If it is unsuitable, counsel should liaise promptly with the Case Officer.
0
1
0