RESERVE BANK OF NEW ZEALAND v CBL INSURANCE LTD (NO 1) [2018] NZHC 2967

RESERVE BANK OF NEW ZEALAND v CBL INSURANCE LTD (NO 1) [2018] NZHC 2967 [16 November2018]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYI TE KŌTI MATUA O AOTEAROATĀMAKI MAKAURAU ROHECIV-2018-404-000306[2018] NZHC 2967UNDER Part 4 of the Insurance (PrudentialSupervision) Act 2010 and Part 16 of theCompanies Act 1993IN THE MATTER OF an application to appoint liquidators to thedefendant companyBETWEEN RESERVE BANK OF NEW ZEALANDPlaintiffAND CBL INSURANCE LIMITEDDefendantHearing: 12 November 2018Appearances: N S G Gedye QC and S A Barker for Reserve BankJ S Cooper QC and A E Murray for Interim LiquidatorsA S R Ross QC and J E M Lethbridge for Elite InsuranceM Kersey for LBC HoldingsJ F Anderson QC and J A MacGillivray for AlphaD A Salmon and J P Cundy for CBLIH L Quinlan for Supporting CreditorJudgment: 16 November 2018REASONS FOR JUDGMENT OF COURTNEY J[Admissibility of evidence]This judgment was delivered by Justice Courtneyon 16 November 2018 at 2.30 pmpursuant to R 11.5 of the High Court RulesRegistrar / Deputy RegistrarDate..Introduction[1] On 12 November 2018, I made an order placing CBL Insurance Ltd (in interimliquidation) (CBLI) in liquidation. The liquidation application, brought by the ReserveBank of New Zealand, had been opposed by CBLI until the day of the hearing. Inanticipation of a defended hearing the parties had been expecting to argue theadmissibility of affidavits filed by the Bank on 18 October 2018. Although theapplication would proceed opposed, Mr Salmon, for CBLI continued to resist theadmissibility of that evidence. He argued that I should not take it into account because(1) it was not truly reply evidence (2) it contained hearsay (3) it referred to documentsthat the Bank was obliged to disclose much earlier and (4) there were concerns overthe extent to which documents privileged to CBLI had been used in the preparation ofthe evidence.[2] The continued significance of this issue mainly related to CBLI's separateapplication for ongoing confidentiality orders; if the disputed evidence were excluded,it would remove it from consideration in the application for a confidentiality order.[3] I ruled that the evidence in issue was admissible and indicated that I wouldprovide the reasons for that decision, which I now do.Affidavit of Mr Twisleton-Wykeham- Fiennes, 18 October 2018[4] At [6] – [34] Mr Fiennes gave evidence about payments made by CBLI toUnited Specialty in February 2018. In Mr Fiennes' first affidavit, sworn 23 February2018, he identified these payments as ones that the Bank considered had been madein breach of specific directions from the Bank. The most recent affidavit containsdetail about the events that preceded the making of those payments. CBLI said thatthe evidence is not in reply and ought not be admitted. The Bank responded that thefurther detail has been provided to respond to Mr Harris' denial that the payments werea breach of the the Bank's direction and that there were good commercial reasons forthem. I accept that to be the position and that the evidence was admissible.[5] At [35] Mr Fiennes referred to a recently disclosed reinsurance policy for GreatEastern General Insurance. The Bank accepted that this was not strictly reply evidencebut says that it has been disclosed only recently by CBLI pursuant to a s 121 notice,should have been disclosed in February 2018 and is an apparent breach of the Bank'searlier directions relating to new or increased financial support of any non-CBLinsurer. I accept that this evidence, although not strictly reply evidence, may beadmitted because it is relevant and, given that it forms part of the basis for the allegedbreach of the Bank's directions, is properly viewed as updating evidence.[6] [37] – [38] referred to new material in the form of emails and documentsrecently received from the interim liquidators relating to the El Toro goldmine. Thecomplaint was that in my decision of 10 August 2018 I required the Bank to makedisclosure of further documents, which included material relating to El Toro, but theBank did not comply with that order. The Bank said that it complied with the order assoon as the material was made available to it by the Interim Liquidators. I allow thisevidence in. It was an unfortunate fact of this litigation that the size and complexityof the Interim Liquidators' task meant that some information which, ideally, wouldhave been made available at an earlier stage, was not made available until later. But,aside from the lateness of the disclosure there was no specific prejudice identified fromthe admission of this material.[7] [39] and [41] related to a retrospective solvency analysis of CBLI by Finityindicating that CBLI was balance sheet insolvent from 2013. CBLI complained thatthis is not reply evidence. The Bank said that it asked Finity to undertake the analysisto respond to LBC's evidence that no conflict would arise from Korda Mentha'sappointment as administrators of CBLI, given the possibility of claims against LBCas CBLI's shareholder during that time. The Bank also said that this evidenceaddresses the proposition that the benefits of liquidation would not outweigh thebenefits of a voluntary administration. I accepted that it was admissible on thisground.[8] In [44] Mr Fiennes produced a file note recording discussions among themembers of the Bank's Insurance Oversight group and insurance regulators inGibraltar, Ireland and Denmark, who had regulatory oversight of Elite, CBLIE andAlpha. CBLI objects on the basis that this is hearsay evidence. I accept the Bank'sposition that, although it is hearsay evidence, it ought to be admissible because it isnot practicable to require the makers of the statements to give evidence.[9] In [46] – [50] Mr Fiennes gave evidence of information recently received bythe Bank from the Interim Liquidators about the existence of a financial suretyagreement between CBLI and Blackrock Multi-Sector Income Trust under whichCBLI guaranteed the obligations of Aviron LLC to a total of US$63 million plusinterest, with liability expiring on the later of 31 December 2022 and one year and aday following full payment of the amounts due by Aviron. This was acknowledged tobe new evidence, not in reply. But the Bank argued that it was in the nature of updatingevidence and highly relevant to the assessment of whether there was a genuinealternative to liquidation as asserted by CBLI and LBC. I accept that this is theposition and that this evidence should be allowed in. Although the latter issue hadfallen away by the date of the hearing, it was relevant and admissible when filed.[10] At [51] – [60] Mr Fiennes referred to two further bonds issued by CBLI in2013 and 2014. The Bank acknowledged that this was not reply evidence. It said,however, that it was highly relevant and should be read. Among the observationsMr Fiennes made about these bonds included the fact that the first was written beforeCBLI had been issued with its full insurance licence and that the Appointed ActuariesFinancial Condition Reports prior to 31 December 2017 made no mention of thesefinancial commitments, which are recorded as being for NZ$66 million and NZ$34million respectively. I accepted that this evidence is relevant to a number of the issuesthat arise in this case, including the question of balance sheet insolvency raised inrelation to the just and equitable ground.[11] Finally, [61] and [64] contained a summary of the potential impacts on CBLIof the Bank's assessment of liabilities and risks which included reference to some ofthe matters just identified. For obvious reasons, I allow that evidence to be given.Affidavit of Geoffrey Michael Atkins affirmed 17 October 2018[12] At [3] and [4] Mr Atkins referred to the restatement of CBLI's balance sheetfor the period 2013 – 2016. It is correct that this was new evidence but, for the reasonsalready explained in relation to [39] and [41] of Mr Fiennes' affidavit I allowed it tobe adduced.[13] At [7] and [8] Mr Atkins referred to the two surety bonds that Mr Fiennesdiscussed in his affidavit. For the same reasons, I allowed that evidence to be adduced.Affidavit of Morgan Randall Evans affirmed 16 October 2018[14] This affidavit was made solely for the purpose of producing a number ofdocuments recently obtained by the Bank from the Interim Liquidators relating to theEl Toro goldmine. Objection was taken to these exhibits on the basis that the Bankwas required to discover them and did not and that CBLI has not had the opportunityto consider and respond to the new material. I accept that late disclosure is not ideal.But in the circumstances of this case, it was unavoidable. The El Toro goldmine hasbeen the subject of pleadings and evidence by both the Bank and CBLI for somemonths. It would not have been appropriate to attempt a consideration of this issuewithout taking into account all of the available information. I note, too, that thesedocuments were obtained from Mr Harris' own CBLI email account, placing him in amuch better position to respond than he would have been had the information beenunknown to him.[15] Objection was also taken to the inclusion in Mr Evans' affidavit of documentsto which CBLI claimed privilege. That objection was acknowledged and a redactedaffidavit filed. The redacted affidavit was admissible.Unknown use of privileged information[16] Mr Salmon made strong submissions regarding the (unknown) extent to whichthe Bank may have used privileged material inadvertently provided by the InterimLiquidators in the preparation of the affidavits filed on 18 October 2018. Hecomplained that a letter dated 5 November 2018 to the Bank's solicitors raising theseconcerns had gone unanswered.[17] Having considered the context of the affidavits, I concluded that there wassimply insufficient information to justify excluding evidence on this ground. For themost part, the evidence was simply statements of fact or the production of documentswhich were not privileged.____________________P Courtney J