Westpac New Zealand Limited v Anderson

[2018] NZHC 1814

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE

CIV-2016-409-000373

[2018] NZHC 1814

BETWEEN

WESTPAC NEW ZEALAND LIMITED

Plaintiff

AND

PATRICIA KARENIA ANDERSON

Defendant

Counsel:	T Grimwood for Plaintiff G M Brodie for Defendant
Judgment:	20 July 2018
(Determined on the papers)

JUDGMENT OF ASSOCIATE JUDGE OSBORNE

on interlocutory applications

Introduction

[1]    The plaintiff has two notices of interlocutory application before the Court. First, for an order striking out the defendant’s third affirmative defence (and for summary judgment, which is no longer pursued). Secondly, for further particulars and further discovery. The Court gave directions as to the dates by which the defendant had to file and serve any opposition.1

[2]    On 16 July 2018, the plaintiff’s solicitors sent notice to the defendant’s counsel that, no opposition having been filed to either application, the plaintiff’s solicitors had

1      Minute dated 7 June 2018, requiring the defendant’s opposition to the strike out application by 7 July 2018 and the defendant’s opposition to the particulars/discovery application by 18 June 2018. The defendant has not filed opposition to either application.

WESTPAC NEW ZEALAND LIMITED v ANDERSON [2018] NZHC 1814 [20 July 2018]

instructions to seek orders in terms of both applications. By memorandum, counsel for the plaintiff now seek the orders applied for.2

Background to plaintiff’s claim

[3]    The factual background is set out in a previous interlocutory judgment in this proceeding:3

Factual background

[8]     The claim has its background in the plaintiff’s relationship (as banker) with companies forming the Lane Walker Rudkin Group (“LWR Group”), which were generally administered through Lane Walker Rudkin Industries Limited (“LWR”).

[9]   The defendant and her husband, Ken Anderson, had ownership, governance and management involvement with the LWR Group.

[10]  They were signatories, including as guarantors, to the plaintiff’s letter of offer of banking facilities in June 2001 whereby the LWR Group obtained various facilities and lending including a $2.5 million letter of credit (LOC) facility. It is alleged that at the time the defendant and Ken Anderson represented they were accountants.

[11]    The defendant and Ken Anderson separated in 2005 and thereafter effected a division of their relationship property. In June 2006, the defendant’s guarantee came to an end (the plaintiff alleging by release, whereas the defendant alleges it was by the expiry of the guarantee’s five-year term). The plaintiff asserts that its lending to the LWR Group grew from $36 million in November 2005 to $42 million in June 2006 and to $130 million in April 2009.

[12]    In April 2009, the plaintiff appointed receivers to the LWR Group companies. The plaintiff asserts that the receivers have, as at 2 August 2017, recovered on behalf of the plaintiff approximately $41 million.

The causes of action

[13]    The plaintiff asserts that from 2004 the LWR Group began encountering financial difficulties and that its financial position thereafter deteriorated. The plaintiff alleges that there was a shortfall in working capital and that the defendant (and other managers of the LWR Group) decided to use the facility to obtain short-term funding (“the LOC fraud”). It alleges (and the defendant accepts) that she remained a director of one of the LWR Group companies, Florian Ltd. The plaintiff alleges that Florian was then used to document supposed sales of product for payment under the LOC facility following which the funds obtained from the plaintiff were used instead as short-term funding.

2      Pursuant to r 7.43(2)(a) High Court Rules, which empowers the Court to make an interlocutory order on the interlocutory application of a party.

3      Westpac New Zealand Ltd v Anderson [2017] NZHC 2204.

[14]     The plaintiff asserts that the process of calling on the LOC facility was dishonest because there was no stock being sold by Florian and the invoices for fictitious stock were created to enable funds to be drawn down. Drawdowns which occurred between December 2005 and August 2007 are particularised in Schedule A to the statement of claim.

[15]    The plaintiff alleges that the defendant was a party to the LOC fraud by executing documents which she knew to be false, including documents listed in Schedule B to the statement of claim.

[16]    The plaintiff alleges that if it had been aware of the financial difficulties, the fact that the Andersons were not accountants and the LOC fraud, it would neither have released the defendant from her guarantee nor increased its lending to LWRI and the LWR Group. Further, as a result of the LOC fraud, its losses amount to approximately $50.8 million.

[17]    The plaintiff’s first cause of action is pleaded in deceit.

[18]     By its second (alternative) cause of action, the plaintiff alleges that the defendant conspired and combined with the management of companies in the LWR Group and Ken Anderson to perpetrate the LOC fraud, causing the plaintiff to sustain losses of approximately $50.8 million.

The strike out application

The third affirmative defence

[4]    The plaintiff’s application, as formulated, is primarily for an order striking out the defendant’s third affirmative defence. An alternative application for summary judgment is not pursued.

[5]    The third defendant’s third affirmative defence is expressly stated to rely upon an accord and satisfaction. By her pleading, the defendant alleges:

84On the 23 December 2010 the receivers of LWRI commenced proceedings in the High Court at Christchurch under number CIV 2011 409 54 seeking to recover damages in excess of $1m, being monies alleged by the receivers to be owing by the defendant to the LWRI group.

85At a confidential mediation conducted in Christchurch by NRW Davidson QC on the 14th day of February 2014 the proceedings were settled on terms whereby the defendant agreed to pay the sum of

$125,000.00 in full and final satisfaction of all claims against he and her son Mark Anderson arising out of their involvement with LWRI.

86At the outset of the mediation the receiver’s agent, Mr Richard Smedley, when asked by Mrs Anderson whether they had the authority to bind Westpac to any agreement reached today, represented to Mrs Anderson that any agreement reached would have to be referred back

to Westpac. Mrs Anderson took that as confirmation that Westpac would be bound by the agreement that any settlement entered into would be in full and final satisfaction of all claims against her and her son whether by LWRI, the receivers or the plaintiff.

87An agreement was reached and signed and taken by the receivers and Richard Smedley for referral to Westpac. This was further confirmation for Mrs Anderson that the bank was to be bound by the agreement.

88In making the representations as aforesaid the receiver's counsel was acting with the actual or apparent authority of the plaintiff and the plaintiff is bound by the receiver’s undertakings and representations.

[6]    Accordingly, the third affirmative defence involves the proposition that an agreement reached and signed on 14 February 2014 (in fact, 11 February 2014) bound the plaintiff because there was (once the settlement was implemented) an accord and satisfaction of all claims the plaintiff might have against the defendant and her son (Mark Kenneth Anderson).

The 11 February 2014 agreement

[7]    Stephen John Tubbs, one of the receivers of Lane Walker Rudkin Industries Ltd (in rec) (LWRI), has provided an affidavit to which he exhibits the agreement dated 11 February 2014. The parties to the agreement are stated to be LWRI (in rec) and the defendant. The defendant agrees to pay a settlement sum. The agreement records:

4.LWR hereby accepts the settlement sum in full and final satisfaction  of all claims which it has against Patricia and against Mark Kenneth Anderson in relation to any matter arising out of Lane Walker Rudkin group of companies.

[8]    The agreement was signed by the defendant (witnessed by Geoffrey Brodie, her counsel) and by Stephen Tubbs for and on behalf of the Lane Walker Rudkin Group of Companies (witnessed by his solicitor, Richard Smedley).

[9]The agreement does not refer to the plaintiff.

Striking out a pleading – the principles

[10]   High Court Rule 15.1 makes provision for orders striking out all or part of a pleading. In this case the defendants/applicants invoke r 15.1(1)(a) (no reasonably arguable cause of action) and r 15.1(1)(d) (abuse of the process of the court).

[11]   I adopt the following as principles applicable to the consideration of this application:

(a)The Court is to assume that the facts pleaded are true (unless they are entirely speculative and without foundation).

(b)The cause of action must be clearly untenable in the sense that the Court can be certain that it cannot succeed.

(c)The jurisdiction is to be exercised sparingly and only in clear cases.

(d)The jurisdiction is not excluded by the need to decide difficult questions of law, even if requiring extensive argument.

(e)The Court should be slow to rule on novel categories of duty of care at the strike out stage.4

[12]   In relation to when the Court will consider affidavit evidence on a strike out application, I adopt the observations of the Court of Appeal in Attorney-General v McVeagh:5

The Court is entitled to receive affidavit evidence on a striking out application, and will do so in a proper case. It will not attempt to resolve genuinely disputed issues of fact and will therefore generally limit evidence to that which is undisputed. Normally it will not consider evidence inconsistent with the pleading, for a striking-out application is dealt with on the footing that the pleaded facts can be proved … But there may be a case where an essential factual allegation is so demonstrably contrary to indisputable fact that the matter ought not to be allowed to proceed further.

4      Attorney-General v Prince and Gardner [1998] 1 NZLR 262 (CA).

5      Attorney-General v McVeagh [1995] 1 NZLR 558 (CA) at 566. See also, Pharmacy Care Systems Ltd v Attorney-General (2001) 15 PRNZ 465 (CA) at 472.

Discussion

[13]   In accordance with the Court of Appeal’s approach in Attorney-General v McVeagh, I have regard to the contents of the 11 February 2014 agreement – it is plainly the agreement which the defendant pleads at paragraph 85 of her defence (above at [5]).

[14]   The plaintiff is not a party to the agreement. There is nothing in the agreement to indicate any expectation that the plaintiff would be bound by the agreement’s terms. What the parties to the agreement compromised were claims which LWRI had against the defendant and her son. The agreement does not purport to compromise any claims which the plaintiff might have against the defendant or her son in relation to their involvement in the Lane Walker Rudkin group of companies and its activities. In other words, even had the agreement been referred to the plaintiff for “approval” and the plaintiff had indeed approved the document, what would have been approved in terms of the agreement was the settlement of claims which LWRI (not the plaintiff) might pursue in relation to any matter arising out of the Lane Walker Rudkin group of companies.

[15]   In itself, that is sufficient to establish that the pleaded defence cannot succeed. But that conclusion is reinforced by further consideration of the pleaded defence and, more particularly, a consideration of what is not pleaded in the defence. The agreement itself was not made expressly conditional upon its approval by the plaintiff. It is not alleged that the plaintiff in fact confirmed that it would be bound by the agreement to accept that there had been a full and final satisfaction, not only of claims on behalf of LWRI (and its receivers), but also of claims of the plaintiff. The latter class of claim is not alleged to have been a subject of discussion. Nor is it referred to in the agreement.

[16]   I am satisfied that no reasonably arguable defence is disclosed by paragraphs 84 to 88 of the amended statement of defence dated 7 May 2018 and they will accordingly be struck out.

Further and better particulars

The plaintiff ’s application

[17]   The plaintiff’s application for further and better particulars, dated 11 June 2018, refers to the defendant’s amended statement of defence dated 12 December 2017. The plaintiff seeks particulars of allegations in three paragraphs (numbered 18, 20 and 24).

[18]   The current version of the defendant’s case is a later pleading dated 7 May 2018 (to which the plaintiff has already filed its Reply). It is unsatisfactory that the plaintiff’s application relates to a superseded defence. As it happens, it is possible by examining the two versions of defence alongside one another to identify that the matters of which further particulars are sought remain materially identical. I have therefore considered the application for particulars as if it related to the current defence.

Discussion of allegations in the Amended Statement of Defence of which particulars sought

Paragraph 18

“Defendant and Mr Anderson’s cash contribution to acquisition of property-owning companies – $3.9m”

[19]   The plaintiff seeks particulars of the sources of the defendant’s and Mr Anderson’s cash contributions to LWRI acquiring companies, or the conditions under which this investment was provided.

[20]   I am not satisfied that this is an appropriate request for further particulars. In its paragraph 18, the defendant asserts that five companies were acquired at a total cost of $55.56m, which was funded from four sources including the alleged cash contribution of $3.9m identified above. The cash contribution portion is thus stated. Matters going beyond that are matters of evidence. If, upon the discovery made, the plaintiff takes issue with the making of cash contributions, it has its right to seek to obtain admissions through interrogatories or to explore the matter in evidence at trial. From where the defendant sourced the money to make contributions and any

conditions attaching to the contributions are matters going beyond the material allegations which must be pleaded.

“Cash generated from working capital and retained profits of LWR – $14.06m”

[21]   The plaintiff seeks particulars of where the alleged funds were held before investment and which companies in the LWR group earned the funds. These again are matters of evidence, the defendant having particularised that the $14.06m of cash which allegedly part-funded the total cost of $56.56m came from cash generated from working capital and retained profits of LWR.

“Two of the five companies for which the defendant had responsibility earned trading profits …”

[22]   The plaintiff seeks further particulars stating the names of the three other companies that the defendant alleges she was responsible for.

[23]   The identity of the three other companies is not a material particular in relation to the allegation made by the defendant which focuses on the performance of the two companies which she expressly names.

Paragraph 20

“LWRI had access to extensive alternative sources of capital and other funding which it could draw on if required”

[24]   The plaintiff seeks particulars as to what the alleged alternative sources of capital were; what was the alleged other funding; when those alleged sources of capital and funding were required; and how much of the alleged capital was required.

[25]   I am satisfied that further particulars of the “extensive alternative sources of capital” and “other [available] funding” are reasonably required. For the defendant to be able to make statements as to such availability, she must have knowledge of the sources of availability which she will identify at trial. It is appropriate that the plaintiff have that information by way of further particulars. The first three particulars will be directed.

[26]   The fourth particular (the amount of alleged capital required) is not a material allegation made by the defendant – to what extent capital was required (in the defendant’s view) is at most a matter of evidence.

Paragraph 24

“The management of accounts for companies for which the defendant had responsibility were positive and entirely satisfactory” (the defendant then setting out the summarised cash profit or EBITDA in a table)

[27]   The plaintiff seeks further particulars of the management accounts of all five companies for which the defendant pleads she was responsible.

[28]   The table provides an appropriately particularised statement of the cash profit or EBITDA for two companies. Given that the defendant asserts that five companies had positive and entirely satisfactory management accounts, it is appropriate that the performance of those companies be similarly tabled. Those particulars will be directed.

“LWRI had the benefit of two “take or pay” contracts in Christchurch worth $2 million per month with similar contracts in Australia”

[29]   The defendant seeks further particulars identifying the contracting parties and the subject-matter of the pleaded “take or pay” contracts.

[30]   These are reasonably required particulars. The plaintiff cannot be expected to identify, without particulars, which particular contracts in Christchurch and Australia LWRI is alleged to have had. The requested particulars will be ordered.

Discovery

[31]The plaintiff seeks discovery of two sets of documents:

(a)all the BNZ bank statements of Florian Leather Goods (1996) Ltd (Florian), account no. 02-0828-0269472-003, from January 2005 to December 2007 inclusive; and

(b)the weekly and monthly reports produced by Keri Steventon for Florian.

[32]   The plaintiff informally requested further and better discovery of those documents in March 2018. That request was not substantively replied to.

[33] Part of the plaintiff’s case against the defendant (pleaded in its second amended statement of claim) is that the defendant and her husband engaged in a letter of credit fraud through which the plaintiff suffered loss (as summarised at [3] above). The plaintiff pleads (in Schedule “A” of its claim) the details of a series of drawdowns on the letter of credit facility. The purported seller in each case is Florian and the buyer is LWR Manufacturing Ltd. The plaintiff pleads that the drawdowns were dishonest because no stock was sold by Florian and the invoices were fictitious, created solely to enable funds to be drawn down.

[34]   The bank statements relating to Florian’s account which the plaintiff seeks are clearly relevant. The plaintiff’s claim relates to alleged losses of approximately

$50.8m. It cannot be said that requiring the defendant to discover the bank statements (whether through copies she already has or copies it is within her power to obtain) would be oppressive. The evidence is that the defendant has already discovered some of Florian’s bank statements but not all for the relevant period.

[35]   Weekly and monthly reports produced by Keri Steventon of Florian are also sought. The ground of that application is stated to be that those reports are relevant to the allegation by the plaintiff and the evidence of Keri Steventon that she was required to report to the defendants separately in respect of invoices rendered by Florian to the LWR Group and by Florian to customers.

[36]   Counsel has not referred me to an allegation in the plaintiff’s second amended statement of claim which refers to Ms Steventon and I have not myself located such an allegation. Furthermore, the “evidence of Keri Steventon” referred to in the notice of application is not contained in the supporting evidence filed by Kate Vilsbaek. I cannot be satisfied on the evidence that discovery of that class of documents is reasonably required.

Outcome

[37]   The plaintiff succeeds on its strike out application in relation to the third affirmative defence.

[38]   The plaintiff also succeeds in aspects of its application for further particulars and further discovery.

[39]   It is appropriate that the plaintiff have the costs and disbursements of both sets of applications.

Orders

[40]I order:

(a)The defendant’s third affirmative defence, comprising paragraphs 84 – 88 of the Amended Statement of Defence dated 7 May 2018, is struck out;

(b)The defendant is to file and serve within 15 working days a Memorandum of Further and Better Particulars (to be treated as a pleading) providing particulars of:

at Paragraph 20

–  “extensive alternative sources of capital”

–  “other funding”,

and, in particular, stating what were the alleged alternative sources of capital; when were those alleged sources of capital and funding required; and how much of the alleged capital was required.

–  “companies for which the defendant had responsibility”

and, in particular, setting out (in table form as used for LWR (NI) Ltd and LWR Manufacturing (Christchurch) Ltd) the cash profit and EBITDA for the three further companies (by name).

–  “‘take or party’ contracts”

and, in particular, identifying the contracting parties; the subject-matter of each contract; and its date or approximate date.

(c)The defendant shall within 15 working days file and serve a supplementary verified list of documents giving discovery of all the BNZ bank statements of Florian Leather Goods (1996) Ltd, account no 02-0828-0269472, from January 2005 to December 2007 inclusive (“the documents”) and shall within five working days thereafter make the documents available for inspection;

(d)The defendant is to pay to the plaintiff the costs of the two applications dated 28 May 2018 and 11 June 2018 on a 2B6 basis together with disbursements to be fixed by the Registrar;

(e)The hearing allocated for 3 August 2018 is vacated.

Associate Judge Osborne

Solicitors:

Anthony Harper, Christchurch Cunningham Taylor, Christchurch Counsel: G M Brodie, Christchurch

6      High Court Rules, Category 2 under r 14.3(1) and band B under r 14.5(2).