Westpac New Zealand Ltd v MAP & Associates Ltd
[2010] NZCA 404
•6 September 2010
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IN THE COURT OF APPEAL OF NEW ZEALAND
CA193/2009
[2010] NZCA 404BETWEENWESTPAC NEW ZEALAND LIMITED
Appellant
ANDMAP & ASSOCIATES LIMITED
Respondent
Hearing:31 March 2010
Court:Chambers, Arnold and Randerson JJ
Counsel:R B Stewart QC and M Peters for Appellant
B D Gustafson and S L Stead for Respondent
Judgment:6 September 2010 at 10.30 am
JUDGMENT OF THE COURT
AThe appeal is allowed, to the extent that:
(a)the order of the High Court in relation to interest is modified so that interest is payable from 2 March 2008 rather than 26 February 2008; and
(b) the order for indemnity costs is quashed.
BIf the parties are unable to agree costs in relation to the High Court hearings, they are to be determined by that Court in light of this judgment.
C The appellant must pay the respondent costs for a complex appeal on a band B basis and usual disbursements. We certify for two counsel.
Table of Contents
Para No.
Introduction [1]
Factual background [2]
High Court decisions [25]
The arguments [28]
Discussion [34]
Liability – principles [35]
Liability – this case [48]
Interest [66]
Indemnity costs [71]
Decision [75]REASONS OF THE COURT
(Given by Arnold J)
Introduction
[1] This is an appeal from two decisions of Keane J in which he found that the appellant, Westpac New Zealand Ltd (Westpac), breached its mandate as banker by declining to act on instructions from its customer, the respondent MAP & Associates Ltd (MAP), to disburse certain funds, and ordered Westpac to pay interest and costs.[1]
Factual background
[1]MAP & Associates Ltd v Westpac Banking Corporation Ltd HC Auckland CIV 2008-404-1373, 10 March 2009 and 1 May 2009.
[2] The factual background is unusual. In February 2006 the shareholders of a small Bolivian privately owned bank, Private Financial Fund Prodem (Prodem), gave the Chair of its Board, Fernando Gerrardo Anker Arteaga (Mr Anker),[2] a special power of attorney (POA) to investigate and effect a sale of 94 per cent of Prodem’s shares. Under the POA, Mr Anker appointed A & L Asset Management Inc (A & L) to assist with finding a buyer and structuring any resulting transaction. In July 2006 A & L identified a potential purchaser, namely Banco Industrial de Venezuela, CA (BIV), a Venezuelan state-owned bank. On 8 December 2006, BIV entered into an agreement for sale and purchase of the shareholding in Prodem.
[2]Mr Anker is wrongly referred to as Mr Arteaga in some of the affidavits and in the judgments below, presumably as a result of confusion about the custom in Spanish-speaking countries of using surnames derived from the families of both parents, which Mr Anker explained in his second affidavit.
[3] While the search for a purchaser was underway, Mr Fine of MAP, a firm of chartered accountants in Hamilton, was approached by a South American acquaintance, Mr Lara, to see whether MAP would hold the purchase price on the transaction in escrow until due diligence had been carried out and the sale was finalised. Mr Fine said in his affidavit that Mr Lara was the principal of a law firm based in Panama, Arias & Arias Consultores, although he is also identified in correspondence as a director of A & L.
[4] MAP agreed that it would act as the deposit agent in respect of the funds. Accordingly, in May 2006 Mr van Oosten approached the Hamilton Branch of Westpac on behalf of MAP and asked whether Westpac would receive around US$45m arising as part of a transaction involving the sale of a South American bank. In a letter dated 25 May 2006 to Westpac, Mr van Oosten said:
It is apparent that the clients are keen to utilise the services of MAP and Associates Limited and understand the strict protocols that must be adhered to in respect of the [Financial Transaction Reporting] guidelines now in place in this country. As such, Mr Lara’s latest email now requests that we formalise a number of issues including negotiations with the Bank to receipt the offshore funds in a USD Account and participate in the distribution and subsequent investment process.
[5] The letter went on to acknowledge that Westpac would require various details, including a “detailed profile of all offshore parties involved in the transaction”. The letter attached an email string between Mr Lara and Mr Fine which explained the transaction. An email from Mr Lara said that a New Zealand bank was being used because the President of Venezuela was “not very fond of the USA and he would like to use an independent bank.” It went on to say:
The shareholders have shares with different prices, all of these prices will be in the paper work. Some shareholders will receive US$17m and another group will receive US$12m and so on. The directors also have some special shares remuneration. These values are described in the paperwork we are preparing. Some of the largest shareholders would like to keep the funds outside Bolivia, others would like their funds back in Bolivia.
Mr Lara identified fees of around US$600,000 as being paid in relation to the transaction.
[6] In one of his emails to Mr Lara, Mr Fine said:
We would have to involve a NZ Bank and set up US dollar accounts etc. That’s fine. The Bank will want to investigate the bona fides of the transaction and have treasury approval before it will consent to the transfer.
So what will be required is a copy of the agreement and contact details for the parties so that the bank can independently satisfy itself in relation to the transaction.
In the absence of approval they would likely impound the funds until they were satisfied about the transaction.
[7] On 5 December 2006, MAP completed an application to open a foreign currency account with Westpac, in the name of “MAP and Associates Limited Trust Account”, on Westpac’s standard terms and conditions for such an account. On the same day, Mr Fine wrote to Arias & Arias about MAP’s role in the transaction. The letter set out Mr Fine’s understanding of the transaction and said:
As you are aware the transaction must comply with the Financial Transactions Reporting Act, which inter alia, requires us to be satisfied as to the bona fides of the transaction and the identity of the parties.
At this stage we have copies of information for the Vendor Bank. We are satisfied that the purchaser is properly identified.
We will require your confirmation of the identities of the sellers and an undertaking that you are satisfied that they have been properly identified, have agreed to the transaction, and that you are holding details that allows you to ensure that the sale proceeds will be transferred to the right parties. We assume that Mr [Anker] will be in a position to supply this.
[8] Arias & Arias provided MAP with an affidavit dated 6 December 2006 which confirmed the transaction. In particular, the affidavit identified the Prodem shareholders who were selling their shares and said that they were represented by Mr Anker “proceeding as the attorney in merit to the abilities in the Powers of Attorney presented to us and we attest is valid and according to law”.
[9] Then, on 8 December 2006, the agreement for the sale and purchase of the shares in Prodem was executed, as we have already said. On that same date, an escrow agreement was entered into by A & L (on behalf of the sellers of the Prodem shares and the buyer) and MAP which set out the terms on which MAP would hold the funds and the share transfer documents and the conditions for their release. The escrow agreement named the Prodem shareholders who were selling their shares. Also on 8 December 2006 A & L (on behalf of the sellers of the Prodem shares) entered into an agreement with MAP entitled “Contract of Transit Protected Account (Escrow Agreement II)” (the second escrow agreement).
[10] On 11 December 2006, there was a meeting between Messrs Fine and van Oosten for MAP, Mr Blacutt for Prodem and Mr Morrison for Westpac, at which Mr Fine provided Westpac with an envelope containing written instructions to action the transfers “required by the final beneficiaries”. This envelope contained 10 sets of instructions, although Westpac was not aware of that at this point. Westpac was “instructed to open the envelope and execute the transfers detailed therein upon receiving authority to do so from [MAP].” In addition, either Mr Fine or Mr Blacutt gave Westpac a copy of a letter from Mr Anker to A & L (addressed to Mr Lara as a director of A & L) dated 8 December 2006.[3] This letter referred to the second escrow agreement, confirmed the delivery of the “original irrevocable instructions letters pertaining to the transfer instructions that shall be communicated to [MAP] for further execution by [Westpac]” and also confirmed the authority of Mr Blacutt to deliver the instructions with the consequence that “the irrevocable instructions will be accomplished as instructed by the Sellers, without any further formality requirement at all”. In addition, MAP provided Westpac with a letter dated 8 December 2006 which instructed Westpac to advise Mr Anker on behalf of the Prodem shareholders and BIV as purchaser when the funds were received. Finally Westpac was given extracts from the passports of two people, including Mr Anker.
[3]Like much of the documentary material in this case, the original was in Spanish but an English translation was provided as well.
[11] Between 13 and 23 December 2006, J P Morgan Chase Bank New York advised Westpac that it had received and credited to Westpac’s US dollar account with J P Morgan three deposits totalling US$49,339,953.36. Westpac credited these deposits to MAP’s account and advised Mr Fine accordingly. Mr Blacutt and a representative of BIV also contacted Westpac to confirm that the funds had been received. At MAP’s request, the funds were held at nil interest. Mr Fine told Westpac that MAP expected to receive instructions to disburse the funds within a week. However, as it transpired, Westpac did not receive instructions to disburse the funds until 26 February 2008.
[12] In the meantime, in February 2007, Westpac’s Compliance Department had received a notice alerting the banking community to large payments being made from Bolivia and the need to treat these with caution. Westpac informed Mr van Oosten of this, who said that he would advise Mr Fine but was satisfied that everything was above board. There were then a number of communications between Westpac and MAP about progress with the transaction until around August 2007, after which Westpac heard nothing until early 2008. Moreover, on 26 July 2007, and again later in November 2007, Mr Fine enquired whether Westpac would handle another transaction for US$1.3 billion in which Mr Lara was involved. Westpac refused.
[13] In the latter part of 2007, BIV assigned all its rights and interests in the Prodem share purchase transaction to another state-owned Venezuelan bank, Bandes. MAP was advised of this by letter dated 20 November 2007, signed by A & L, BIV, Mr Anker on behalf of the Prodem shareholders and Bandes. The letter also asked MAP to inform Westpac of the assignment and to instruct Westpac to invest the US$49m in interest bearing accounts for the time being. Surprisingly, MAP did not advise Westpac of the assignment or the changed instructions immediately. Rather, on 24 January 2008 Mr van Oosten instructed Westpac to place the funds on interest bearing deposit and later, on 29 January 2008, forwarded as authorisation for that instruction a copy of the 20 November letter. Mr van Oosten did not draw attention in his covering email to the change in the parties to the transaction, although if Westpac was unaware of assignment then, it must have learnt of it shortly afterwards.
[14] This is because there was a further meeting between Mr van Oosten, Mr Blacutt of Prodem and Westpac representatives on 31 January 2008. At that meeting Westpac was told that final approval for the transaction was expected soon and was given a letter from MAP and a sealed envelope said to contain the original instructions and further details in respect of one, namely instruction 6. The letter from MAP referred to the second escrow agreement and said:
In relation to that agreement we have [delivered] to [Westpac] a closed and sealed envelope containing the original irrevocable instructions issued by [A & L] to [MAP] to action the transfers required by the final beneficiaries as instructed by them to [A & L].
The letter went on to say that the instructions provided all the information required to make the transfers and that Westpac was instructed to open the envelope and execute the transfers upon receiving authority to do so from MAP. Westpac was also given a copy of a letter dated 25 January 2008 to MAP from Mr Anker on behalf of the Prodem shareholders. It said in part that instruction 6 stated that approximately US$8.6m should be held until further instructions were delivered by Mr Anker. It then said:
Following with the aforementioned INSTRUCTION No. 6/10, we are delivering with Mr William Blacutt ... the complementary irrevocable instructions that the Sellers have expressly instructed and required him to deliver together with [MAP] to [Westpac] and to obtain the acknowledgement of receipt from [Westpac] of the same and that consequently the irrevocable instructions will be accomplished as instructed by the Sellers, without any further formality requirement at all.
For its part, Westpac advised that any payment instructions would have to be given on the usual Westpac telegraphic transfer form.
[15] On 4 February 2008 Westpac staff reviewed the sealed instructions provided on 11 December 2006 and 31 January 2008 and sent an email to Mr Fine asking for further information (two payment instructions, one for over US$11.8m, did not provide the names of the beneficiaries) and reiterating that it required the instructions to be completed on its usual telegraphic transfer forms. Over the following three weeks there was a series of communications between Westpac and BIV’s New York and Caracas offices about the transaction. For present purposes, the detail of these communications does not matter. The essential point is that Westpac became concerned about the transaction as a result of the conflicting communications it received from BIV, one of which was that the transaction had been cancelled and the money should not be paid out. Besides this, in mid-February 2008 Westpac:
(a) sought, and ultimately obtained, a copy of the escrow agreement;
(b)made some enquiries which led it to believe or suspect that Mr Lara was not a principal of a Panamanian law firm as Mr Fine had said, nor was he a director of A & L as portrayed in some of the documents, at least as at February 2008; and
(c)obtained a company search of Prodem.
[16] On 26 February 2008 Mr Fine advised Westpac that the transaction was being settled that day and provided signed telegraphic transfer forms (as had been requested) to, as he put it in his affidavit, “enable the disbursement of funds to Prodem’s shareholders”. On 27 February 2008 Westpac sent MAP a letter by facsimile advising that it had been told by the New York branch of BIV that the transaction had been cancelled and the funds were to be remitted to BIV. Westpac said that it was seeking urgent clarification from BIV, and suggested that MAP do the same. Westpac’s letter ended as follows:
There is a further issue – you have not named all the beneficiaries you have requested payment to. In two cases we have only received account numbers. As Westpac previously advised you (by e-mail on 4 February 2008) payments must have named beneficiary details. This policy accords with International Financial Actions Task Force recommendations.
Around midday on 28 February 2008, MAP provided Westpac with the outstanding beneficiary details in respect of the two transfers. The name provided in respect of the US$11.8m instruction was not a Prodem shareholder.
[17] On 29 February 2008, Westpac wrote to MAP saying that it had received conflicting communications regarding funds in the account (a reference to the advice it had received from the New York and Caracas offices of BIV and also, presumably, MAP’s instructions). Westpac also said that the parties to be paid in accordance with the payment instructions did not reflect the parties listed as “Sellers” in the escrow agreement. Westpac suggested that MAP apply to the Court for orders in relation to the disbursement of the funds. Mr van Oosten then confirmed MAP’s instructions to Westpac to transfer the funds and said that MAP was prepared to provide Westpac with an indemnity. He said:
The fact that the disbursement instructions do not reflect the parties to the Escrow Agreement does not mean that those parties or their shareholding are not being compensated. This has already been determined by the Escrow Agents in Panama and the authority of the Attorney acting for the shareholders, whose signature is appended to the original wiring instructions.
We suggest that the Bank acts on the instructions as provided with immediate effect.
Mr van Oosten then emailed Mr Lara asking him to obtain a letter from the sellers’ representative confirming that the disbursement instructions were in accordance with the sellers’ wishes. Mr Lara did so, and Mr van Oosten forwarded this letter to Westpac during the morning of 2 March 2008. In his covering email, Mr van Oosten said:
Attached is the correspondence from the lawyer acting for the Vendors. He holds Powers of Attorney in respect to each of those shareholders and authority to act in this transaction on their behalf. This letter confirms that the transfer instructions are in accordance with the wishes of the shareholders.
The attached letter, dated 29 February 2008, was addressed to A & L and was signed by Mr Anker. It stated in part:
In accordance with the Escrow Agreements, the transfer instructions that shall be complied with by [MAP] and Westpac are those delivered by the Sellers following the provisions of the Escrow Agreements which in fact were absolutely complied and delivered with important advance by the Sellers. Therefore, no provision within the Agreements states that the transfer instructions should be only on behalf of the sellers listed in the agreement. However and in order to avoid an issue that at the end is not, I hereby confirm, as legal representative of the Sellers, the transfer instructions numbered: 1/10, 2/10, 3/10, 4/10, 6/10 (6/10-1, 6/10-2, 6/10-3, 6/10-4, 6/10-5, 6/10-6, 6/10-7, 6/10-8, 6/10-9, 6/10-10, 6/10-11, 6/10-12), 7/10, 8/10, 9/10, 10/10 are correct, certifying that each and all the beneficiaries designated within the transfer instructions are legitimate beneficiaries designated and approved by the Sellers.
[18] On 3 March 2008, Ms Peters, who had been instructed by Westpac, wrote to MAP saying that Westpac did not consider that the material provided gave greater clarity to the situation and that Westpac was not willing to disburse the funds. She invited MAP to apply to the High Court for an order in relation to the funds. Mr Scott of Kensington Swan, Solicitors, replied the following day, indicating that information that had been, or was in the process of being, provided to Westpac would answer all its concerns.
[19] On 5 March 2008, Ms Peters responded, saying that the information provided was insufficient. She said that Westpac remained concerned about the conflicting messages from BIV and the identity of the persons to whom it had been instructed to make payment and again invited MAP to make an application to the Court. On 11 March 2008 MAP filed an originating application in the High Court seeking an order that Westpac carry out its instructions to release the funds and any accumulated interest without delay. In addition, MAP sought an order for costs. Following a direction from Randerson J, a statement of claim was filed on 14 March 2008 that sought similar orders, and a further order that Westpac pay interest under the Judicature Act 1908 from 31 January 2008 until the date of release of the funds.
[20] We should mention two letters which were written on 4 March 2008. The first was from Mr Anker to A & L and MAP. In it, Mr Anker certified to a number of matters including the following:
4.Each and all of the Vendors and the other Beneficiaries detailed in the money transfer instructions that have been supplied to Westpac Banking Corporation are the rightful beneficiaries and consequently upon and when executed each and all of the money transfer instructions to the Vendors and the other Beneficiaries, Westpac Banking Corporation shall be and will be considered acting appropriately and in compliance with the specific instructions so provided. Therefore the Vendors hereby expressly agree to release and hold harmless the Bank with respect to any possible responsibility arising as a consequence of the execution and compliance of each and all of the money transfer instructions, such release and duty effective immediately upon the effective execution and compliance of the instructions delivered by the Vendors.
5.The Vendors acknowledge, that when Westpac Banking Corporation prepare the execution of the money transfer instructions as communicated by the Vendors and the Escrow Agent, a conflicting SWIFT message came up to the attention of the bank, that created certain concerns and consequently Westpac Banking Corporation refrained from executing or insisting in the execution of the transfer instructions acting under appropriate banking principles seeking and requesting clarification and confirmation of the instructions by the Parties before taking any further action for the compliance of the money transfer instructions.
6.At this stage, the Parties have provided Westpac Banking Corporation with all the clarifications required, and the Vendors hereby expressly assure Westpac Banking Corporation that the execution and compliance of the money transfers as instructed is in the best interest of the Vendors and that the Vendors consequently do encourage Westpac Banking Corporation to comply and execute the money transfers as instructed on behalf of the Vendors and other Beneficiaries.
Mr Anker asked that the letter be passed on to Westpac.
[21] The second was from Ms Sanz of Bandes to A & L and MAP saying that the conflicting communications from BIV had been resolved and that there was nothing standing in the way of completing the transfer of funds and shares. It said:
Therefore BANDES hereby expressly agrees to release and hold harmless Westpac Banking Corporation the Bank with respect to any possible responsibility arising as a consequence of the execution and compliance of each and all of the instructions delivered by the Vendors, in accordance to the terms specified in the Escrow Agreement that was signed for the specific purpose of the opening and maintenance of the escrow accounts to receive the funds and shares certificates delivered by the Parties for the further release and transfer as provided under respective agreements.
Ms Sanz also requested that the contents of her letter be communicated to Westpac.
[22] We were advised that Westpac did not become aware of these letters until the proceedings were issued on 11 March 2008, when they were annexed to Mr Fine’s affidavit.
[23] Further, on 13 March 2008 the solicitors for MAP advised that the parties wished to cancel the escrow agreement and have the funds released to the original payee, namely BIV New York. Ms Peters for Westpac rejected that suggestion by letter on 14 March 2008, saying:
8.As for the prospect of now releasing the funds to BIV New York, I note that Westpac is on notice of the potential interests in this matter of BIV, possibly Bandes, the vendor shareholders of Prodem and MAP.
9.Disbursing the funds to BIV New York now would conflict with the course which the parties have communicated to Westpac since they first approached Westpac in 2006. It would also conflict with the orders MAP seeks in its proceedings and the wishes which are expressed in the various affidavits filed in support of MAP’s application.
[24] In their response of 14 March 2008, the solicitors for MAP explained the capacity in which the beneficiaries noted in the instructions would receive the relevant amounts. This made it clear that consultants on the sale were to receive over 50 per cent of the funds. There was further correspondence but it proved fruitless, although we should note that the further affidavits filed by Mr Anker and others on behalf of MAP in the proceedings presented a further payment option, namely that of paying the funds to Bandes for distribution. This is ultimately what occurred.
High Court decisions
[25] Keane J gave three decisions. In the first he ordered that, on receipt of an authenticated SWIFT transmission from Bandes and BIV Caracas respectively, Westpac should pay the bulk of the funds to Bandes.[4] Westpac neither consented to nor opposed this order. The Judge specified what should be included in the SWIFT transmissions from Bandes and BIV Caracas.[5] Keane J also ordered that Westpac remit the net interest earned on the funds since 24 January 2008 to MAP.[6]
[4]MAP & Associates Ltd v Westpac Banking Corporation Ltd HC Auckland CIV-2008-404-1373, 1 April 2008 at [7].
[5] Ibid.
[6] Ibid.
[26] In the second decision, which is the subject of the present appeal, the Judge:
(a)Found that on the information Westpac had on 27 February 2008 it had no sufficient reason to be concerned that, if it carried out the instructions received on 31 January 2008, it would act dishonestly and in breach of trust to those entitled to the funds.[7]
(b)Ordered that Westpac pay interest at the rate prescribed in the Judicature Act on the amount withheld from 31 January 2008 until the date of payment out to Bandes.[8]
(c)Awarded costs to MAP on an indemnity basis.[9]
[7]MAP & Associates Ltd v Westpac Banking Corporation Ltd HC Auckland CIV-2008-404-1373, 10 March 2009 at [38].
[8] At [40].
[9] Ibid.
[27] Westpac applied to recall this judgment on various grounds, including breach of natural justice (arising from the fact that the Judge considered a memorandum filed late by MAP’s counsel to which Westpac had not had an opportunity to respond). MAP opposed the application, except to the extent that it accepted that there needed to be two amendments to the Judge’s orders. First, the date on which interest was to run should have been 26 February 2008, rather than 31 January 2008, this being the date on which MAP provided the transfer authorities required by Westpac. Second, MAP accepted that it could not receive a greater sum by way of interest than that available under the Judicature Act. Accordingly a deduction needed to be made to take account of the Judge’s initial order that Westpac pay the net interest to MAP. The Judge recalled his judgment to make these two amendments to his orders, but declined to recall it on any broader basis.[10]
The arguments
[10]MAP & Associates Ltd v Westpac New Zealand Ltd HC Auckland CIV-2008-404-1373, 1 May 2009 at [90].
[28] We should mention a preliminary point. As we have said, the claim as formulated alleged that Westpac was in breach of its mandate from 31 January 2008. However, before Keane J Mr Gustafson accepted that the relevant date was 26 February 2008, being the date on which MAP provided the completed telegraphic transfer forms to Westpac. At the beginning of his oral submissions in this Court, Mr Gustafson said that the focus should be on the position at the end of February 2008. However, in the course of his oral submissions, Mr Gustafson went through the events in March 2008 and submitted (as an alternative position) that Westpac had all it could properly require when the proceedings were issued on 11 March 2008 and the affidavits were served. He argued that Westpac should have acted on the proposal made on 13 March 2008 that the funds be returned to BIV. After the hearing, Mr Stewart QC filed a memorandum objecting to any attempt by MAP to rely on what occurred in March 2008 as constituting a breach of mandate. We will return to this dispute below. For the moment we simply note it.
[29] Mr Stewart argued that, as at the end of February 2008, Westpac had two concerns. First, it had not received authenticated SWIFT messages from BIV New York or BIV Caracas instructing it to pay out the funds despite being advised that they would provide such messages. Second, Westpac was told at the outset that the funds were to be paid to Prodem’s shareholders. However, there was a mismatch between the shareholders listed in the escrow agreement and the persons or entities nominated in MAP’s payment instructions to Westpac. As it turned out, US$25.155m was being paid to “consultants” who were not shareholders. Because Westpac never received an acceptable explanation for this mismatch, it was not prepared to act on the payment instructions without a court order.
[30] Mr Stewart argued that, although a bank has a clear prima facie duty to allow its customer access to its funds for whatever purpose the customer may wish to apply them, the law may oblige it in some circumstances to decline to meet its customer’s demand so as to avoid liability for dishonest assistance. He submitted that the Judge’s finding that, as at 27 February 2008, Westpac had no sufficient reason to refuse to disburse the funds in accordance with its instructions was in error. He also submitted that, whatever the outcome on that point, Westpac ought not to have been ordered to pay Judicature Act interest or costs on an indemnity basis.
[31] For MAP, Mr Gustafson argued that Westpac was estopped from arguing that it had not breached its mandate given that it neither consented to, nor opposed, the order that the funds be paid to Bandes. He said the only legitimate issues were whether the Judge was entitled to make the orders which he did in relation to interest and costs.
[32] We say at once that we do not accept this submission. Westpac at no stage accepted that it breached its mandate and its stance of neither opposing nor consenting to MAP’s application for an order for distribution of the funds is not inconsistent with that position. The funds were, after all, distributed not to the parties identified in the instructions provided by MAP but to another party, Bandes, which apparently accepted responsibility for their distribution.
[33] Mr Gustafson submitted that Westpac had no right to contact BIV in February 2008 as it knew from the 20 November 2007 letter (forwarded by MAP on 29 January 2008) that Bandes had replaced BIV as the purchaser of the Prodem shares. He argued that, on the information available to it, Westpac did not know that it would be dishonest to honour the mandate and pay the funds out. At best, Westpac had “groundless suspicions”. The shareholders were entitled to make whatever arrangements they wished in relation to the payment of sale price. He supported the Judge’s decisions on interest and costs.
Discussion
[34] We will begin with a discussion of the relevant principles as to liability and then consider the facts against those principles.
Liability – principles
[35] The relationship between banker and customer is contractual. The bank holds a mandate from its customer under which it is obliged to make payments from the customer’s account if given instructions in accordance with the terms of the mandate. However, a bank may also be liable to non-customers in certain circumstances, including where it acts as a dishonest assister. As this case demonstrates, the obligations which a bank owes to its customer and to third parties may pull in different directions, leaving the bank in a difficult position.
[36] In the present case, whether Westpac is liable for failing to release the funds in accordance with MAP’s instructions depends on whether it could have been liable for dishonest assistance had it released the funds without making further inquiry when it received clear and complete instructions to do so.
[37] The leading New Zealand case in this area is US International Marketing Ltd v National Bank of New Zealand Ltd,[11] a decision of this Court. US International had two bank accounts with the National Bank. One was under the name “US International” and the other under the name “Balmoral Supermarket”. US International purchased a bank cheque for $15,073.98 with funds from the US International account. The cheque was payable to the High Court. The intention was that the cheque would be offered to the creditors of a company called Pakistan Emporium Ltd which was facing liquidation proceedings. Although the offer of payment was made, the Court made an order for the liquidation of Pakistan Emporium. A subsequent application for a stay was refused even though US International advised that the cheque was still available to pay creditors.
[11] US International Marketing Ltd v National Bank of New Zealand Ltd [2004] 1 NZLR 589 (CA).
[38] On 3 December 1997 US International resold the cheque at face value to the National Bank. By this stage, the US International account was almost $18,000 in credit and the Balmoral Supermarket account was overdrawn by almost $1,800. Also on 3 December 1997 the liquidator of Pakistan Emporium contacted the National Bank and later that day his solicitors wrote to the bank claiming that the $15,073.98 belonged to Pakistan Emporium and had been placed in another account. The solicitors advised that an urgent application would be made to the Court to secure the funds and asked that the funds be frozen in the meantime. The bank manager decided to freeze the funds, having tried unsuccessfully to speak to the sole director of US International.
[39] Other officers of the bank considered that US International’s accounts had been entirely frozen, with the result that the bank refused to allow cash and cheques to be deposited into US International’s account. When the sole director was unable to withdraw funds from the US International account, he sent a facsimile message to the bank saying that it had no right to freeze the US International account and that if he was not able to access the funds to make a $10,000 payment for some land in India, he would lose a substantial deposit that he had paid on that transaction. The bank manager decided that he should not release the funds until he had checked with the High Court as to whether a preservation order had been made. As it happened, the liquidator’s solicitors filed the application that morning, and it was granted soon after. The bank then paid the amount into Court. Some months later, the order was discharged by consent.
[40] US International sued the bank for breach of its duty to release funds from an account in credit on demand. It alleged it lost some $731,000 in respect of the land contract in India. The High Court, which dealt only with the issue of liability, held that the bank was justified in refusing to comply with US International’s instruction given the competing demands it faced in respect of the funds. On appeal, this Court overturned that finding.
[41] While unanimous in the result, each member of the Court wrote a judgment. Tipping J, having noted that the bank faced competing demands for the funds, summarised the essential principles as follows:
[3] It is important for the efficient and orderly conduct of business affairs that claims by third parties to ownership in equity of funds standing to the credit of a customer with its bank are not allowed too readily to interfere with the normal relationship between the bank and its customer. The bank has a clear prima facie duty to its customer to allow the customer immediate access to those funds for whatever purpose the customer may wish to apply them. A third person asserting a beneficial interest in those funds, entitling the third person to have them frozen by the bank, risks committing the tort of interference with contractual relations if the request is made on a basis which is not justified. What the customer’s loss may be in such circumstances is of course quite another matter.
[4] The law has nevertheless come to recognise that banks may be entitled indeed obliged, in some circumstances to decline to meet the customer’s demand, if to do so would, in earlier terminology, amount to giving the customer knowing assistance to commit a breach of trust.
The Judge then addressed the nature of the knowledge required (to which we will return) before saying:
[5] When a bank is faced with a request by a third party that it freeze funds in a customer’s account the bank is required to anticipate what response the Court will make to the circumstances as they appear to the bank. The bank, on any view of the matter, is in an awkward position. By freezing the funds as requested it will be liable to compensate its customer for any ensuing loss if the Court finds that there were insufficient grounds to freeze them. If, on the other hand, the bank declines to freeze the funds and the customer is acting in breach of trust, the bank will be vulnerable to a claim for dishonest assistance by the trust beneficiary if the Court subsequently rules that the funds should have been withheld from the customer. Banks could be forgiven for thinking that the law places them in something of a no win situation.
[6] The Courts must respond by making the position of a bank in circumstances such as these, as clear and as straightforward to apply as possible. The starting point must, in my view, be that the bank’s clear initial duty is to allow its customer immediate access to cleared funds. As noted earlier, too ready or easy an undermining of that obligation will produce much inconvenience and uncertainty in what is a fundamental commercial relationship. Too low a threshold would also undesirably encourage third parties to intervene in the banker/customer relationship for undeserving reasons. The fact that the third party might be liable for interference in the contractual relationship would be only relatively small solace to those damaged by such intervention. The threshold should not, however, be set so high that banks are permitted to facilitate breaches of trust in circumstances when it would clearly be dishonest to do so. It is a matter of striking the right balance at a point in time which must necessarily anticipate the full and careful examination which the matter may later be given in Court.
(Emphasis added.)
[42] Tipping J then identified the elements of dishonest assistance, with reference to the decisions of the Privy Council in Royal Brunei Airlines Sdn Bhd v Tan[12] and of the House of Lords in Twinsectra Ltd v Yardley.[13] He noted that subjective and objective elements were incorporated: a person’s conduct is assessed objectively, but against the background of what he or she actually knew at the relevant time.[14] The effect of Lord Millett’s dissent in Twinsectra was left for consideration on another occasion.[15] The Judge then said:[16]
In light of the necessary legal approach I consider it helpful to introduce into the present arena the concept of the reasonable banker and to look at the circumstances known to the bank in question through objective eyes. The principle thus becomes that a bank is entitled to freeze its customer’s account entirely or pro tanto if, but only if: (1) in all the circumstances actually known to the bank; (2) a reasonable banker would know it was dishonest to pay the funds in question to or to the order of its customer and (if Twinsectra is adopted) (3) the bank itself appreciates that to be so.
[12] Royal Brunei Airlines Sdn Bhd v Tan [1995] 2 AC 378.
[13] Twinsectra Ltd v Yardley [2002] AC 164.
[14] At [7].
[15] At [8].
[16] At [9].
Where further inquiry is required, liability for failure to make such inquiry will arise only where the bank is wilfully blind or deliberately closes its eyes or refrains from making inquiry to avoid learning something unwelcome.[17]
[17] At [10].
[43] In his judgment, Anderson J expressed doubt about whether the enquiry in a case of this sort “should be complicated by a consideration of not only whether conduct is or would be dishonest but also whether a reasonable banker would know that”.[18] The Judge did, however, acknowledge that conduct which was unreasonable having regard to banking standards might, in some circumstances at least, indicate dishonesty. The nature of the customer’s dealings and business practices could be relevant. The issue was whether in all the circumstances it would have been dishonest for the bank to meet the customer’s demand.[19]
[18] At [68].
[19] At [70].
[44] Glazebrook J considered that it was not necessary to determine all the nuances of the test for dishonest assistance. She agreed that there were subjective and objective elements, and considered that the reasonable banker formulation “may be seen as merely reinforcing this objective element, while recognising that the subjective elements include a third party’s experience as well as the state of his or her knowledge”.[20] The Judge had some reservations about whether the final subjective element accepted by the majority in Twinsectra was appropriate for New Zealand, but left that for decision in another case.
[20] At [78].
[45] After this Court’s decision in US International Marketing the Privy Council determined Barlow Clowes International Ltd (in liq) v Eurotrust International Ltd.[21] The essential issue for their Lordships was whether it had to be shown that the person alleged to be the dishonest assister was not only dishonest but was also aware that by ordinary standards his or her actions would be regarded as dishonest (that is, whether the third of the requirements identified by Tipping J in the extract quoted at [42] above was necessary). The Privy Council determined that this additional subjective element was not required. Rather:[22]
[The dishonest assister’s] knowledge of the transaction had to be such as to render his participation contrary to normally acceptable standards of honest conduct. It did not require that he should have had reflections about what those normally acceptable standards were.
[21]Barlow Clowes International Ltd (in liq) v Eurotrust International Ltd [2005] UKPC 37,[22] At [15]. See also Abou-Rahmah v Abacha [2006] 1 All ER (Comm) 247 at [43].
[46] Accordingly, we consider that a bank will be liable for dishonest assistance where it has actual knowledge of the circumstances of the transaction (the subjective element) such as to render its participation contrary to normally acceptable standards of honest conduct (the objective element). In assessing whether its participation is contrary to such standards, the concept of the reasonable banker may well prove helpful. In this context, factors such as the significance or unusual nature of the transaction, the customer’s banking practices, banking practices within the relevant industry and statutory reporting requirements will be relevant.[23]
[23]See Tim Clarke “Knowing Receipt and Accessory Liability” in Andrew Butler (ed) Equity And Trusts in New Zealand (2nd ed, Thomson Reuters, Wellington 2009) at [18.5.5].
[47] Further, a bank may be liable even though it does not have actual knowledge of the circumstances of the transaction but has a well grounded suspicion about them. In that situation the bank may be required to make further enquiry. A negligent failure to make enquiry will not establish liability. Rather, wilful blindness or a deliberate failure to make enquiry in order to avoid acquiring unwelcome knowledge is necessary.[24]
Liability – this case
[24]Barlow Clowes International at [10].
[48] As we have noted, the parties disagree as to whether the position is to be assessed solely as at the end of February 2008 or whether the events of March 2008, in particular the request to pay the funds to BIV, may be taken into consideration. We return to that point at [65] below.
[49] MAP provided signed instructions for the disbursement of the funds on Westpac’s standard telegraphic transfer form on 26 February 2008. Presumably it was for this reason that Mr Gustafson accepted that this was the relevant date, rather than 31 January 2008 as alleged in the statement of claim. The question is whether Westpac would have been dishonest if it had disbursed the funds in accordance with MAP’s instructions.
[50] In arguing that Westpac was justified in refusing to disburse the funds at this time, Mr Stewart relied particularly on two features of the facts:
(a)The unclear and conflicting communications about the transaction that Westpac received from the Caracas and New York offices of BIV during February 2008; and
(b)The uncertainty about the identity of the recipients of the funds after MAP gave the formal instruction to disburse the funds.
[51] One difficulty which we face in addressing these points is that neither side adduced expert evidence as to banking practice, perhaps because of the tight time-frame. Given the role that Tipping and Glazebrook JJ envisaged for the concept of the reasonable banker in this type of case, however, such evidence would have been helpful and, desirably, Westpac should have provided it.
[52] As to the first point, we accept that Westpac did receive conflicting and confusing advice about the transaction from BIV. But we do not accept that it was entitled to delay payment on the basis of what BIV told it or because it wanted to obtain further information from BIV. First, its customer was MAP, not BIV. If Westpac had queries, they should have been directed to MAP. Second, on 29 January 2008, MAP sent Westpac a copy of the letter from A & L, BIV, Mr Anker (on behalf of the Prodem shareholders) and Bandes concerning BIV’s assignment of its interest in the Prodem transaction to Bandes. While MAP did not draw Westpac’s attention to the content of the letter, it was plain on its face. Further, there was a meeting on 31 January 2008 between representatives of Prodem, MAP and Westpac. The evidence as to what occurred at that meeting is limited, but it seems unlikely that the assignment was not mentioned. In any event, by the beginning of February 2008 Westpac was on notice that BIV had assigned its interest in the Prodem transaction to Bandes. In those circumstances we do not accept that Westpac was entitled to continue to make enquiries of BIV in relation to the transaction instead of dealing with MAP or (possibly) Bandes.
[53] As to the second point, it is important to recall what Westpac was told and when. From the outset Westpac was told that the funds were to be disbursed to the shareholders of Prodem. This was restated on numerous occasions, even in Mr Fine’s affidavit of 7 March 2008, where he said that he provided Westpac with transfer authorities on 26 February 2008 “to enable disbursement of funds to Prodem’s shareholders”. When Westpac reviewed the sealed payment instructions in early February 2008, it found that the names of the beneficiaries in relation to two of the instructions were missing and immediately raised this with MAP. While MAP provided Westpac with formal instructions for disbursement of the funds on Westpac’s standard telegraphic transfer forms on 26 February 2008, it did not provide the names of the missing beneficiaries until 28 February 2008 and one of those was not a Prodem shareholder. Westpac then advised MAP that it would not be disbursing the funds in part because there was a mismatch between the recipients listed in the payment instructions and the sellers listed in the escrow agreement and invited MAP to seek a court order.
[54] There can be little doubt that Westpac was entitled to refuse to disburse the funds until it was provided with the additional information about the beneficiaries on 28 February 2008. Westpac said that in requiring named beneficiary details, it was simply acting in accordance with International Financial Actions Task Force recommendations, and that was not contested before us. In addition, we accept that there were features of the transaction that caused Westpac justifiable concern:
(a)This was an unusual transaction.[25] A Hamilton-based accountancy firm was asked to act as escrow agent in respect of almost US$50m and to deposit the funds in a New Zealand bank because the President of Venezuela did not like banks based in the United States of America. Westpac was aware of this explanation from the email string it received with MAP’s letter of 25 May 2006.
(b)Westpac understood that MAP was to hold the funds in escrow for distribution for the benefit of the relevant Prodem shareholders. That is, it understood that MAP held the funds as a fiduciary and that the beneficiaries were Prodem shareholders. Once Westpac was given a copy of the escrow agreement in mid-February 2008, it knew the names of those ultimately entitled to the funds. But after Westpac inspected the contents of the two sealed envelopes in early February 2008, it knew that some of the persons or entities to whom it had been directed to pay the funds were not among those named as sellers of the Prodem shares. The number was significant and the amounts involved in respect of the mismatched parties were large.
(c)This knowledge must be viewed against the background that:
·Westpac was told in December 2006 when the funds were deposited that it would have custody of them for a week or so. In fact it was required to hold them for over a year.
·During 2007, Westpac was advised several times that the transaction was about to settle and was given various explanations for the delay.
·Also during 2007 Westpac received a warning about large amounts of funds coming from Bolivia. It was approached by MAP to participate in a further transaction involving some US$1.3 billion in the latter part of 2007, which it declined to do. (We note in this context, however, that counsel did not suggest that any of the provisions of the Financial Transactions Reporting Act 1996 might have been engaged in relation to the funds at issue.)
[25]See [46] above.
[55] Despite these features, however, we consider that Westpac should have acted on its instructions when it was provided with a copy of Mr Anker’s 29 February letter on 2 March 2008. At that stage, we do not consider that Westpac would have been dishonest had it paid out. It certainly did not know of circumstances that in fact constituted a breach of trust. So the question is whether the circumstances were among “those relatively rare circumstances”[26] where it would have been dishonest for Westpac to have followed MAP’s instructions without making further inquiry.
[26]US International Marketing at [10] per Tipping J.
[56] In Twinsectra Lord Millett said:[27]
The gravamen of the charge against the accessory is not that he is handling stolen property, but that he is assisting a person who has been entrusted with the control of a fund to dispose of the fund in an unauthorised manner. He should be liable if he knows of the arrangements by which that person obtained control of the money and that his authority to deal with the money was limited, and participates in a dealing with the money in a manner which he knows is unauthorised. I do not believe that the man in the street would have any doubt that such conduct was culpable.
[27]At [137]. Lord Millett dissented on the question whether subjective dishonesty was required, foreshadowing the approach ultimately accepted in Barlow Clowes International.
(Knowledge in this context includes wilful blindness, of course.)
[57] In the present case, Westpac’s client was MAP. Westpac knew that MAP held the funds on trust and that the sellers of the Prodem shares were the ultimate beneficiaries. It had no reason to doubt the bona fides of MAP. Although MAP was not (before this transaction) a Westpac customer, Messrs Fine and van Oosten were, in their personal capacities. Indeed, when Westpac received the alert about large amounts of money coming from Bolivia, Mr Morrison of Westpac sent Mr van Oosten a copy of it and asked him to “review your verifying documents/due diligence accordingly”. Mr van Oosten replied that he had read the alert and would pass it on to Mr Fine. He then said:
At this time we are more than satisfied with the connection having met one principal representative prior to December 2006 and having a 15 year plus relationship with our connections in Panama.
As this exchange indicates, MAP was the entity to which Westpac should have looked if it had questions about the transaction.
[58] Westpac received a copy of Mr Anker’s 29 February letter on 2 March 2008. In his affidavit, Mr Collins explained why Westpac did not act on this letter:
Mr Anker’s letter did not resolve matters as far as Westpac was concerned. The letter was not on letterhead, was addressed to A & L, and Westpac had no knowledge of Mr Anker’s position. Moreover, ... whilst the English translation of the Escrow Agreement refers to Mr Fernando Gerardo Anker Arteaga acting as the Sellers’ representative, I could find no corresponding mention of him acting in that capacity in the executed Spanish version. Also, in paragraph 2 of the letter, Mr Anker purported to confirm the various payment instructions which are included in that paragraph. Those instructions do not, however, include the payments to A & L and to MAP.
[59] However, there are a number of difficulties with this:
(a)First, Mr Anker did hold a power of attorney from the Prodem shareholders, dated 7 February 2006. It appears that at no stage did Westpac ask to see a copy of it. In his email of 2 March 2008 to Westpac attaching Mr Anker’s 29 February letter, Mr van Oosten confirmed that Mr Anker held a power of attorney from the Prodem shareholders.
(b)Second, throughout the transaction Westpac received material from Mr Anker in his capacity as attorney for the Prodem shareholders and raised no question about it. So, at Westpac’s meeting with representatives of MAP and the Prodem shareholders on 11 December 2006 shortly after the account was opened, Westpac was provided with a copy of the 8 December 2006 letter from Mr Anker to A & L. That letter, also not on letterhead, was signed as follows:
By the Sellers:
[Signature]
Fernando Gerardo Anker Artega
Attorney
Westpac was also provided with a photocopy of the photograph and signature page from Mr Anker’s passport and was advised that once the funds were received it should notify Mr Anker of that on behalf of the Prodem shareholders. Next, the letter of 20 November 2007 which advised of the assignment of BIV’s interest to Bandes and was received by Westpac on 29 January 2008 was signed by Mr Anker on behalf of the Prodem shareholders. Finally, on 31 January 2008 Westpac received a copy of Mr Anker’s letter to MAP dated 25 January 2008. That was on Prodem letterhead and was signed by Mr Anker in the same way as the 8 December 2006 letter.
(c)Third, on 11 December 2006 and on 31 January 2008, Westpac representatives met with Mr Blacutt as a representative of the Prodem shareholders. Mr Anker’s letters of 6 December 2006 and 25 January 2008 provided the authority for Westpac to deal with Mr Blacutt in that capacity.
(d)Fourth, we accept that there does appear to be a discrepancy between the Spanish original and the English translation of the escrow agreement, as Mr Collins suggests. But the Spanish version of the document does identify Mr Anker as a Prodem shareholder and say that all notifications to the Prodem shareholders are to be sent to him. But, in any event, if Westpac was concerned about this, it should have taken the matter up with MAP earlier in February (Westpac obtained a copy of the executed Spanish version of the escrow agreement on 20 February 2008).
In the light of this, we do not accept that Westpac could properly disavow any knowledge of Mr Anker’s position. It is difficult to understand why Westpac was not prepared to accept Mr van Oosten’s confirmation on 2 March 2008 that Mr Anker held a power of attorney from the Prodem shareholders. If Westpac had concerns about Mr Anker’s authority to act prior to that, it should have taken them up with MAP. As it was, Westpac seems to have accepted Mr Anker’s authority to act and MAP’s assurances about the transaction until very late in the piece.
[60] Finally, despite what Mr Collins says in his affidavit, Westpac knew from the outset that there would be modest fee payments to A & L and to MAP, so we cannot see how that could properly be regarded as a significant problem.
[61] As we have said, we would have been assisted by expert evidence in reaching a conclusion on this aspect of the case. Despite that, we have concluded that Westpac should have disbursed the funds on 2 March 2008 when it received a copy of Mr Anker’s letter of 29 February 2008. At that time Westpac did not have proper grounds to refuse to accept that he was authorised to act. Rather, it maintained the stance which Mr Collins had expressed in his letter of 29 February 2008 that MAP should apply for an order of the Court.
[62] Clearly, a bank is in a difficult position where it has an unequivocal instruction from its customer to disburse funds but it has concerns that if it follows those instructions it may be found to have acted dishonestly. However, in US International Marketing this Court emphasised the critical importance to commerce of banks honouring their mandates.[28] Furthermore, bank officers and employees should not be required (or encouraged) to become amateur detectives.[29] In the present case, Westpac’s concern seems not to have been with its customer, MAP, whose integrity it had no reason to doubt, but with the overall nature of the transaction. But there is no suggestion that the transaction was caught by the money laundering legislation. Westpac’s concerns were undoubtedly heightened as a result of the conflicting messages it received from the New York and Caracas offices of BIV in February 2008. But Westpac should not have been communicating with those offices at that time. MAP was its customer and Westpac knew that BIV had been replaced as purchaser by Bandes.
[28]At [3].
[29]See E P Ellinger and others Ellinger’s Modern Banking Law (4th ed, OUP, United Kingdom, 2006) at 263.
[63] Further, Westpac’s suspicions seem to have been fuelled to some extent by a lack of familiarity with the practices and customs of those it was dealing with, which is hardly a legitimate basis for suspicion where a bank has undertaken to act in a significant international transaction. Finally, from the end of February 2008 Westpac appears to have become fixated with the desire to have a court order before releasing the funds. In general, banks must address these admittedly difficult issues themselves and cannot properly insist on obtaining court orders before deciding what they should do.
[64] There were, as we have said, features of the transaction that raised legitimate questions: the transaction was an unusual one; it did not proceed smoothly; much of what Westpac was told during 2007 about its likely progress proved unreliable. But these circumstances were insufficient to justify Westpac’s refusal to follow its instructions. MAP gave it explicit instructions, confirmed by Mr Anker, as to how the Prodem shareholders wanted the funds to be distributed. The shareholders’ wishes as to distribution were clear and Westpac was obliged follow them. It failed to do so, and thereby breached its mandate.
[65] Given this conclusion, we do not have to deal with Mr Gustafson’s suggestion in argument that if Westpac was justified in refusing to disburse the funds as at the end of February 2008, it was not justified later in March 2008, for example, when MAP’s affidavits were filed on 11 March 2008 or when the payment to BIV was proposed on 13 March 2008. Had we been required to determine this point, we would have accepted Mr Stewart’s argument that this approach was not consistent with the pleadings or the way that the case had been put to, and dealt with by, Keane J. It would not have been right at this stage of the proceedings to consider the case on a basis different from that contained in the pleadings and argued before Keane J, particularly as that would have been unfairly prejudicial to Westpac in the way Mr Stewart indicated.
Interest
[66] Mr Stewart challenged the Judge’s award of interest under s 87(1) of the Judicature Act at the prescribed rate from 26 February 2008 to the date of payment, less interest already paid on the funds over that period. He submitted that an award of interest under s 87 was not justified as Westpac had not had the use of the funds as a result of delayed payment. Rather, the funds had remained in the trust account and any interest earned had been credited to MAP. Further, neither MAP nor the Prodem shareholders had adduced any evidence of loss from the delayed payment. He argued that, if interest was to be awarded, it should be at a rate below the prescribed rate and relied on Miliangos v George Frank (Textiles) Ltd (No. 2)[30] for the proposition that a judgment expressed in a foreign currency may be awarded at a rate prevailing in the relevant jurisdiction.
[30]Miliangos v George Frank (Textiles) Ltd (No. 2) [1977] 1 QB 489 at 497.
[67] Mr Gustafson submitted that these were new arguments which Westpac should not be allowed to adduce. He submitted that that a key plank of Westpac’s position in this Court was that there was no evidence of the prevailing interest rates in Venezuela or Bolivia, nor any evidence as to what the Prodem shareholders would have done with their funds had they received them earlier. Mr Gustafson said that, had these issues been flagged at an earlier stage, appropriate evidence could have been led.
[68] In his judgment of 1 May 2009, Keane J recalled his earlier judgment of 10 March 2009 in relation to interest and modified the order which he had made. In the course of that judgment, he considered and rejected several of the arguments now made by Westpac. In reaching a decision about whether to award interest, and if so at what rate, the Judge made an evaluation in light of the overall circumstances. He treated the case as one involving the breach of a contractual obligation to pay over money where the agreement itself did not provide for the payment of interest in the case of breach. In the ordinary course in such a case, interest would be ordered under s 87.
[69] The philosophy underlying s 87 is that a party who has the wrongful use of another’s money should pay interest on it. This is not dependent on proof of the wrongdoer’s gain or victim’s loss. Rather, it assumes those. We see no reason why some other approach should be taken here. Westpac’s argument based on Miliangos was not raised before Keane J. Given that MAP could have addressed it by way of further evidence had it been raised, we accept Mr Gustafson’s argument that it would be unfair to allow it to be raised at this stage.
[70] Accordingly, we consider that the Judge was entitled to award interest in the way that he did, subject only to the fact that, consistently with our judgment on liability, interest should have been awarded from 2 March 2008 rather than 26 February 2008. Accordingly, we modify the Judge’s order as to interest to that extent only.
Indemnity costs
[71] The Judge awarded indemnity costs against Westpac under r 48C(4)(a) of the High Court Rules. He said that the cost of the proceedings was “not a transaction cost that MAP’s principals should have to bear”.[31] It was one of those “highly exceptional cases where an indemnity award [was] warranted”.[32]
[31]At [40].
[32]Ibid.
[72] However, as Mr Stewart said, the Supreme Court considered the question of indemnity costs in Paper Reclaim Ltd v Aotearoa International Ltd[33] as did this Court in Bradbury v Westpac.[34] In Paper Reclaim, the Supreme Court accepted that conduct prior to the issuing of proceedings should not be taken into account in the decision whether to award indemnity costs.[35] Rather, the focus must be on conduct in the course of the litigation. In that context, as this Court said in Bradbury, indemnity costs are “exceptional and require exceptionally bad behaviour” or misconduct that is “flagrant”.[36]
[33]Paper Reclaim Ltd v Aotearoa International Ltd [2007] NZSC 26, [2007] 3 NZLR 169.
[34]Bradbury v Westpac Banking Corporation [2009] NZCA 234, [2009] 3 NZLR 400.
[35]At [41].
[36]At [28].
[73] We do not consider that Westpac’s conduct in the course of the litigation can properly be characterised as flagrant misconduct. It co-operated in ensuring that the matter was dealt with properly. Much of Mr Gustafson’s argument on this topic related to Westpac’s conduct prior to the issue of proceedings and its wrongful refusal to honour its mandate. He did submit that Westpac had acted unreasonably in refusing to accede to the suggestion that the funds should be paid back to Bandes. However, that was not made until shortly before the hearing, it was not what the pleadings or the original affidavits sought and it was inconsistent with the other settlement proposal made in the course of the litigation that the funds be repaid to BIV. That cannot be a basis for awarding indemnity costs.
[74] Accordingly, we quash the order for indemnity costs in the High Court. If the parties are unable to agree costs, they are to be determined by the High Court in the light of this judgment.
Decision
[75] In the result:
(a) Westpac has been unsuccessful on the major issue of liability;
(b)Westpac has succeeded to some extent on the secondary issues of interest and indemnity costs.
Accordingly, the appeal is allowed in part.
[76] The order of the High Court as to interest is modified so that interest runs from 2 March 2008, rather than 26 February 2008. The order of the High Court as to indemnity costs is quashed. If the parties are unable to agree costs in relation to the High Court hearings, they are to be determined by that Court in the light of this judgment.
[77] Although the appellant has had some success, it failed on its major ground of appeal. In those circumstances we consider that it should pay costs to the respondent for a complex appeal on a band B basis and usual disbursements. We certify for two counsel.
Solicitors:
Westpac New Zealand Ltd (MMB van Ryn), Auckland for Appellant
Kensington Swan, Auckland for Respondent
[2006] 1 WLR 1476.
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