Elvidge v ASB Bank Limited - [2012] NZHC 2674

IN THE HIGH COURT OF NEW ZEALAND NAPIER REGISTRY

CIV-2011-441-000811 [2012] NZHC 2674

BETWEEN ROBERT ELVIDGE AND JOHN RICHARD TOWNSEND GIFFORD Plaintiffs

ANDASB BANK LIMITED Defendant

Hearing: 20 September 2012 (Heard at Napier)

Appearances: M J Tingey and N F D Moffatt for Applicant/Defendant
M E J Macfarlane for Respondent/Plaintiff

Judgment: 12 October 2012

JUDGMENT OF ASSOCIATE JUDGE OSBORNE [as to security for costs and other matters]

Introduction

[1] Banking transactions at the centre of this litigation have been the subject of two earlier judgments of this Court.1

[2] The history to the litigation was aptly introduced by Kós J in the second case

– Jojaro Investments Ltd v ASB Bank Ltd:

A senior insurance company employee steals capital the company [Pioneer] has set aside to maintain its credit rating. He does this by transferring the capital into the principal trading account maintained by the company at the ASB Bank in Napier. Then he draws cheques on that account. Over a period of 20 months, he embezzles nearly $4 million. No one notices. Not the directors, not the auditors, and not the bank.

1 Gifford v ASB Bank Ltd HC Napier CIV-2008-441-000713, 16 December 2008 (Simon France
J); Jojaro Investments Ltd v ASB Bank Ltd [2012] NZHC 980 (Kós J).

ELVIDGE V ASB BANK LIMITED HC NAP CIV-2011-441-000811 [12 October 2012]

The fraud ruins the shareholders of the insurance company. They cannot afford to replenish the stolen capital. So they sell their shares to a third party for a nominal consideration. The new owner will recapitalise the business. Most importantly, it will keep the employees in work. In due course the company, newly owned, sues the auditors and former directors. That case is settled. The company does not sue the bank. There is an issue over whether the fraudster was entitled to operate the trading account. But the new owners are not interested in pursuing that claim.

Now the former shareholders say the bank is liable to them, as the shareholders, funders and indirect guarantors of the company. They say there is an implied term in the agreements they have with the bank (contracts of loan and guarantee) and a duty of care (the content of which is substantially the same) that the bank not permit the fraudster to operate the trading account in breach of the mandate given by the company.

The bank applies to strike out those claims against it. Alternatively it seeks summary judgment at this early stage of the case. Failing all that it seeks security for its costs. That is because, as a result of the fraud, the plaintiffs now have very little money.2

[3] Kós J granted the bank’s application to strike out the plaintiffs’ claims. The

Court held that the claims belonged to Pioneer and not to its former shareholders.

[4] Kós J concluded:

Happily, as I have already noted, Messrs Elvidge and Gifford have secured an assignment of Pioneer’s rights of action against the bank. Thus fortified, they have issued separate…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2012] NZHC 2674
Decision Date: 12 October 2012

CaseChat Overview and Summary

In Elvidge v ASB Bank Limited, the High Court of New Zealand, Napier Registry, addressed an application by ASB Bank Limited for security for costs, further particulars, and an order for production of an unredacted version of a deed. The plaintiffs, Robert Elvidge and John Gifford, shareholders of Pioneer Insurance Company, sought to hold the bank liable for breach of contract and an implied duty of care, following a fraud involving the misappropriation of nearly $4 million by a former employee of Pioneer. The bank sought security for costs due to the plaintiffs' impecuniosity, which they attributed to the bank's actions. The court granted the bank's application for further particulars, noting that the plaintiffs had overstated their damages and failed to account for mitigation achieved through subsequent recoveries. Regarding the production of the unredacted deed, the court found that the bank was entitled to the full version of the deed for restricted access to counsel and legal advisors, to ensure that the bank's legal team could fully consider all potential arguments related to the deed. The court ordered security for costs, concluding that the plaintiffs had not established a reasonable probability that their impecuniosity was caused by the bank's actions. The court awarded $62,500 in staggered payments, considering the plaintiffs' impecuniosity, the slight merits of the case, and the bank's potential exposure to irrecoverable costs.

Orders