WESTPAC NEW ZEALAND LIMITED v ANDERSON [2018] NZHC 1814

WESTPAC NEW ZEALAND LIMITED v ANDERSON [2018] NZHC 1814 [20 July 2018]IN THE HIGH COURT OF NEW ZEALANDCHRISTCHURCH REGISTRYI TE KŌTI MATUA O AOTEAROAŌTAUTAHI ROHECIV-2016-409-000373[2018] NZHC 1814BETWEEN WESTPAC NEW ZEALAND LIMITEDPlaintiffAND PATRICIA KARENIA ANDERSONDefendantCounsel: T Grimwood for PlaintiffG M Brodie for DefendantJudgment: 20 July 2018(Determined on the papers)JUDGMENT OF ASSOCIATE JUDGE OSBORNEon interlocutory applicationsIntroduction[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 forsummary judgment, which is no longer pursued). Secondly, for further particulars andfurther discovery. The Court gave directions as to the dates by which the defendanthad to file and serve any opposition.1[2] On 16 July 2018, the plaintiff's solicitors sent notice to the defendant's counselthat, no opposition having been filed to either application, the plaintiff's solicitors had1 Minute dated 7 June 2018, requiring the defendant's opposition to the strike out application by 7July 2018 and the defendant's opposition to the particulars/discovery application by 18 June 2018.The defendant has not filed opposition to either application.instructions to seek orders in terms of both applications. By memorandum, counselfor the plaintiff now seek the orders applied for.2Background to plaintiff's claim[3] The factual background is set out in a previous interlocutory judgment in thisproceeding:3Factual 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 IndustriesLimited ("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 ofoffer of banking facilities in June 2001 whereby the LWR Group obtainedvarious facilities and lending including a $2.5 million letter of credit (LOC)facility. It is alleged that at the time the defendant and Ken Andersonrepresented they were accountants.[11] The defendant and Ken Anderson separated in 2005 and thereaftereffected a division of their relationship property. In June 2006, the defendant'sguarantee came to an end (the plaintiff alleging by release, whereas thedefendant alleges it was by the expiry of the guarantee's five-year term). Theplaintiff asserts that its lending to the LWR Group grew from $36 million inNovember 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 Groupcompanies. 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 encounteringfinancial difficulties and that its financial position thereafter deteriorated. Theplaintiff alleges that there was a shortfall in working capital and that thedefendant (and other managers of the LWR Group) decided to use the facilityto obtain short-term funding ("the LOC fraud"). It alleges (and the defendantaccepts) that she remained a director of one of the LWR Group companies,Florian Ltd. The plaintiff alleges that Florian was then used to documentsupposed sales of product for payment under the LOC facility following whichthe 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 interlocutoryorder 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 wasdishonest because there was no stock being sold by Florian and the invoicesfor fictitious stock were created to enable funds to be drawn down.Drawdowns which occurred between December 2005 and August 2007 areparticularised in Schedule A to the statement of claim.[15] The plaintiff alleges that the defendant was a party to the LOC fraud byexecuting documents which she knew to be false, including documents listedin 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 wouldneither have released the defendant from her guarantee nor increased itslending 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 thedefendant conspired and combined with the management of companies in theLWR Group and Ken Anderson to perpetrate the LOC fraud, causing theplaintiff to sustain losses of approximately $50.8 million.The strike out applicationThe third affirmative defence[4] The plaintiff's application, as formulated, is primarily for an order striking outthe defendant's third affirmative defence. An alternative application for summaryjudgment is not pursued.[5] The third defendant's third affirmative defence is expressly stated to rely uponan accord and satisfaction. By her pleading, the defendant alleges:84 On the 23 December 2010 the receivers of LWRI commencedproceedings in the High Court at Christchurch under number CIV2011 409 54 seeking to recover damages in excess of $1m, beingmonies alleged by the receivers to be owing by the defendant to theLWRI group.85 At a confidential mediation conducted in Christchurch by NRWDavidson QC on the 14th day of February 2014 the proceedings weresettled on terms whereby the defendant agreed to pay the sum of$125,000.00 in full and final satisfaction of all claims against he andher son Mark Anderson arising out of their involvement with LWRI.86 At the outset of the mediation the receiver's agent, Mr RichardSmedley, when asked by Mrs Anderson whether they had the authorityto bind Westpac to any agreement reached today, represented to MrsAnderson that any agreement reached would have to be referred backto Westpac. Mrs Anderson took that as confirmation that Westpacwould be bound by the agreement that any settlement entered intowould be in full and final satisfaction of all claims against her and herson whether by LWRI, the receivers or the plaintiff.87 An agreement was reached and signed and taken by the receivers andRichard Smedley for referral to Westpac. This was furtherconfirmation for Mrs Anderson that the bank was to be bound by theagreement.88 In making the representations as aforesaid the receiver's counsel wasacting with the actual or apparent authority of the plaintiff and theplaintiff is bound by the receiver's undertakings and representations.[6] Accordingly, the third affirmative defence involves the proposition that anagreement reached and signed on 14 February 2014 (in fact, 11 February 2014) boundthe plaintiff because there was (once the settlement was implemented) an accord andsatisfaction 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 IndustriesLtd (in rec) (LWRI), has provided an affidavit to which he exhibits the agreementdated 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 agreementrecords:4. LWR hereby accepts the settlement sum in full and final satisfactionof all claims which it has against Patricia and against Mark KennethAnderson in relation to any matter arising out of Lane Walker Rudkingroup 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 Groupof 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 apleading. In this case the defendants/applicants invoke r 15.1(1)(a) (no reasonablyarguable 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 thisapplication:(a) The Court is to assume that the facts pleaded are true (unless they areentirely speculative and without foundation).(b) The cause of action must be clearly untenable in the sense that the Courtcan 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 questionsof law, even if requiring extensive argument.(e) The Court should be slow to rule on novel categories of duty of care atthe strike out stage.4[12] In relation to when the Court will consider affidavit evidence on a strike outapplication, I adopt the observations of the Court of Appeal in Attorney-General vMcVeagh:5The 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 genuinelydisputed issues of fact and will therefore generally limit evidence to that whichis undisputed. Normally it will not consider evidence inconsistent with thepleading, for a striking-out application is dealt with on the footing that thepleaded facts can be proved But there may be a case where an essentialfactual allegation is so demonstrably contrary to indisputable fact that thematter 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 SystemsLtd v Attorney-General (2001) 15 PRNZ 465 (CA) at 472.Discussion[13] In accordance with the Court of Appeal's approach in Attorney-General vMcVeagh, I have regard to the contents of the 11 February 2014 agreement – it isplainly 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 agreementto 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 againstthe defendant and her son. The agreement does not purport to compromise any claimswhich the plaintiff might have against the defendant or her son in relation to theirinvolvement in the Lane Walker Rudkin group of companies and its activities. In otherwords, even had the agreement been referred to the plaintiff for "approval" and theplaintiff had indeed approved the document, what would have been approved in termsof the agreement was the settlement of claims which LWRI (not the plaintiff) mightpursue in relation to any matter arising out of the Lane Walker Rudkin group ofcompanies.[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. Theagreement 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 theagreement to accept that there had been a full and final satisfaction, not only of claimson behalf of LWRI (and its receivers), but also of claims of the plaintiff. The latterclass of claim is not alleged to have been a subject of discussion. Nor is it referred toin the agreement.[16] I am satisfied that no reasonably arguable defence is disclosed by paragraphs84 to 88 of the amended statement of defence dated 7 May 2018 and they willaccordingly be struck out.Further and better particularsThe plaintiff's application[17] The plaintiff's application for further and better particulars, dated 11 June2018, refers to the defendant's amended statement of defence dated 12 December2017. 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 May2018 (to which the plaintiff has already filed its Reply). It is unsatisfactory that theplaintiff's application relates to a superseded defence. As it happens, it is possible byexamining the two versions of defence alongside one another to identify that thematters of which further particulars are sought remain materially identical. I havetherefore considered the application for particulars as if it related to the currentdefence.Discussion of allegations in the Amended Statement of Defence of which particularssoughtParagraph 18"Defendant and Mr Anderson's cash contribution to acquisition of property-owningcompanies – $3.9m"[19] The plaintiff seeks particulars of the sources of the defendant's and MrAnderson's cash contributions to LWRI acquiring companies, or the conditions underwhich this investment was provided.[20] I am not satisfied that this is an appropriate request for further particulars. Inits paragraph 18, the defendant asserts that five companies were acquired at a total costof $55.56m, which was funded from four sources including the alleged cashcontribution 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, theplaintiff takes issue with the making of cash contributions, it has its right to seek toobtain admissions through interrogatories or to explore the matter in evidence at trial.From where the defendant sourced the money to make contributions and anyconditions attaching to the contributions are matters going beyond the materialallegations 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 beforeinvestment and which companies in the LWR group earned the funds. These again arematters of evidence, the defendant having particularised that the $14.06m of cashwhich allegedly part-funded the total cost of $56.56m came from cash generated fromworking capital and retained profits of LWR."Two of the five companies for which the defendant had responsibility earned tradingprofits "[22] The plaintiff seeks further particulars stating the names of the three othercompanies that the defendant alleges she was responsible for.[23] The identity of the three other companies is not a material particular in relationto the allegation made by the defendant which focuses on the performance of the twocompanies which she expressly names.Paragraph 20"LWRI had access to extensive alternative sources of capital and other funding whichit could draw on if required"[24] The plaintiff seeks particulars as to what the alleged alternative sources ofcapital were; what was the alleged other funding; when those alleged sources of capitaland funding were required; and how much of the alleged capital was required.[25] I am satisfied that further particulars of the "extensive alternative sources ofcapital" and "other [available] funding" are reasonably required. For the defendant tobe able to make statements as to such availability, she must have knowledge of thesources of availability which she will identify at trial. It is appropriate that the plaintiffhave that information by way of further particulars. The first three particulars will bedirected.[26] The fourth particular (the amount of alleged capital required) is not a materialallegation made by the defendant – to what extent capital was required (in thedefendant's view) is at most a matter of evidence.Paragraph 24"The management of accounts for companies for which the defendant hadresponsibility were positive and entirely satisfactory" (the defendant then setting outthe summarised cash profit or EBITDA in a table)[27] The plaintiff seeks further particulars of the management accounts of all fivecompanies for which the defendant pleads she was responsible.[28] The table provides an appropriately particularised statement of the cash profitor EBITDA for two companies. Given that the defendant asserts that five companieshad positive and entirely satisfactory management accounts, it is appropriate that theperformance of those companies be similarly tabled. Those particulars will bedirected."LWRI had the benefit of two "take or pay" contracts in Christchurch worth $2million per month with similar contracts in Australia"[29] The defendant seeks further particulars identifying the contracting parties andthe subject-matter of the pleaded "take or pay" contracts.[30] These are reasonably required particulars. The plaintiff cannot be expected toidentify, without particulars, which particular contracts in Christchurch and AustraliaLWRI 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 toDecember 2007 inclusive; and(b) the weekly and monthly reports produced by Keri Steventon forFlorian.[32] The plaintiff informally requested further and better discovery of thosedocuments in March 2018. That request was not substantively replied to.[33] Part of the plaintiff's case against the defendant (pleaded in its second amendedstatement of claim) is that the defendant and her husband engaged in a letter of creditfraud through which the plaintiff suffered loss (as summarised at [3] above). Theplaintiff pleads (in Schedule "A" of its claim) the details of a series of drawdowns onthe letter of credit facility. The purported seller in each case is Florian and the buyeris LWR Manufacturing Ltd. The plaintiff pleads that the drawdowns were dishonestbecause no stock was sold by Florian and the invoices were fictitious, created solelyto enable funds to be drawn down.[34] The bank statements relating to Florian's account which the plaintiff seeks areclearly 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 someof Florian's bank statements but not all for the relevant period.[35] Weekly and monthly reports produced by Keri Steventon of Florian are alsosought. The ground of that application is stated to be that those reports are relevant tothe allegation by the plaintiff and the evidence of Keri Steventon that she was requiredto report to the defendants separately in respect of invoices rendered by Florian to theLWR Group and by Florian to customers.[36] Counsel has not referred me to an allegation in the plaintiff's second amendedstatement of claim which refers to Ms Steventon and I have not myself located suchan allegation. Furthermore, the "evidence of Keri Steventon" referred to in the noticeof application is not contained in the supporting evidence filed by Kate Vilsbaek. Icannot be satisfied on the evidence that discovery of that class of documents isreasonably required.Outcome[37] The plaintiff succeeds on its strike out application in relation to the thirdaffirmative defence.[38] The plaintiff also succeeds in aspects of its application for further particularsand further discovery.[39] It is appropriate that the plaintiff have the costs and disbursements of both setsof 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 struckout;(b) The defendant is to file and serve within 15 working days aMemorandum of Further and Better Particulars (to be treated as apleading) providing particulars of:at Paragraph 20– "extensive alternative sources of capital"– "other funding",and, in particular, stating what were the alleged alternativesources of capital; when were those alleged sources of capitaland funding required; and how much of the alleged capital wasrequired.– "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 cashprofit and EBITDA for the three further companies (by name).– "'take or party' contracts"and, in particular, identifying the contracting parties; thesubject-matter of each contract; and its date or approximatedate.(c) The defendant shall within 15 working days file and serve asupplementary verified list of documents giving discovery of all theBNZ bank statements of Florian Leather Goods (1996) Ltd, account no02-0828-0269472, from January 2005 to December 2007 inclusive("the documents") and shall within five working days thereafter makethe documents available for inspection;(d) The defendant is to pay to the plaintiff the costs of the two applicationsdated 28 May 2018 and 11 June 2018 on a 2B6 basis together withdisbursements to be fixed by the Registrar;(e) The hearing allocated for 3 August 2018 is vacated.Associate Judge OsborneSolicitors:Anthony Harper, ChristchurchCunningham Taylor, ChristchurchCounsel: G M Brodie, Christchurch6 High Court Rules, Category 2 under r 14.3(1) and band B under r 14.5(2).