Scott v ANZ Bank New Zealand Ltd

• Jurisdiction: New Zealand
• Judge: Mallon J
• Judgment Date: 05 May 2020
• Neutral Citation: [2020] NZHC 906
• Court: High Court
• Docket Number: CIV 2019-485-376
• Date: 05 May 2020

Between

Mary Elizabeth Scott

First Representative Plaintiff/Respondent

John Robert Douglas

Second Representative Plaintiff/Respondent

Gray Stratton Thompson

Third Representative Plaintiff/Respondent

and

ANZ Bank New Zealand Limited

Defendant/Applicant

[2020] NZHC 906

Mallon J

CIV 2019-485-376

IN THE HIGH COURT OF NEW ZEALAND

WELLINGTON REGISTRY

I TE KŌTI MATUA O AOTEAROA

TE WHANGANUI-A-TARA ROHE

Banking and Finance, Equity — application by the defendant to strike out the plaintiff's representative claims of dishonest assistance, knowing receipt and negligence — claims brought by investors of an investment fund scheme — fund revealed to be a ponzi scheme — discussion of UK authorities — Royal Brunei Airlines Sdn v Tan [1995] 2 AC 378 — Twinsectra Ltd v Yardley [2002] 2 AC 164 — Barlow Clowes International Ltd (in liq) v Eurotrust International Ltd [2006] 1 WLR 1476 — Limitation Act 1950

Appearances:

J B M Smith QC, F J Cuncannon, K R Muirhead and K S Dixit for Plaintiffs/Respondents

N R Campbell QC, S M Hunter QC, I Rosic and H E McQueen for Defendant/Applicant

JUDGMENT OF Mallon J

Introduction	[1]
Preliminary issue	[8]
Strike out principles	[12]
The pleading	[15]
In outline	[15]
RAM's agreement with its clients	[17]
RAM's bank accounts with ANZ	[19]
RAM's Ponzi scheme	[22]
Dishonest assistance	[24]
Introduction	[24]
ANZ's submissions	[26]
The plaintiffs' submissions	[33]
The law on the “dishonesty” requirement	[42]
Assessment of submissions: the law	[74]
The pleading	[82]
Knowing receipt	[101]
Introduction	[101]
ANZ's submissions	[103]
The plaintiffs' submissions	[106]
The law	[109]
Assessment of submissions: the law	[135]
The pleading	[140]
Negligence	[145]
Introduction	[145]
The pleading	[146]
Assessment of the submissions	[151]
Limitation	[161]
Introduction	[161]
Dishonest assistance and knowing receipt: Limitation Act s 21	[164]
Negligence	[181]
Result	[191]

Introduction

1 David Ross, through Ross Asset Management Limited (RAM) and related entities, operated an investment fund for clients. In fact it was a Ponzi scheme, the largest such scheme in New Zealand's history. It collapsed in 2012 when investors became concerned that they were not able to withdraw funds and the Financial Markets Agency (FMA) intervened on their behalf. RAM's bank accounts were frozen, receivers were appointed and Mr Ross went to prison. 1 Losses from the Ponzi

scheme's collapse were around $115 million with at least 700 victims, including many who were elderly and lost their life savings. 2

2 A civil claim has been brought by three investors who suffered significant losses. They bring the claim, as representative plaintiffs, for and on behalf of other investors in the same position as them.

3 The representative plaintiffs are:

• (a) a Wellington investor, who made various investments with RAM from 12 November 1999 to 8 December 2011;

• (b) a Southland investor, who made various investments with RAM from 20 February 2007 to 28 September 2012; and

• (c) a Turangi investor, who made various investments with RAM from 21 December 2010 to 2 April 2012.

4 The claim is brought against ANZ Bank New Zealand Limited (ANZ), the bank with which RAM and related entities operated the RAM investment business. The plaintiffs allege that ANZ is responsible for their losses because it knew their investment money was being applied for purposes other than the terms on which RAM held the money. They allege ANZ's conduct assisted RAM's misapplication of this money (the dishonest assistance claim), or ANZ received the benefit of the misapplied funds (the knowing receipt claim) or ANZ was negligent (the negligence claim).

5 ANZ applies to strike out the claims. It says:

• (a) the dishonest assistance claim cannot succeed because it requires actual dishonesty or wilful blindness to RAM's dishonesty and the plaintiffs do not allege this;

• (b) the knowing receipt claim cannot succeed because it does not allege that ANZ “received” the plaintiffs' funds (in the sense of receiving a net benefit from them, other than interest and fees), and nor does it allege knowledge that would make ANZ's receipt of the plaintiffs' funds unconscionable;

• (c) the negligence claim cannot succeed because the law is settled that where a bank's customer breaches a trust and thereby causes loss to third parties, any accessory liability of the bank to the third parties is confined to dishonest assistance; and

• (d) some of the claims have been brought too late and are therefore barred by the Limitation Act 1950. Specifically, to the extent the dishonest assistance and knowing receipt claims rely on RAM's misapplication of client funds before 1 June 2010, they are out of time. To the extent the negligence claims are for investments made or losses suffered before 1 June 2010, they are out of time.

6 I decline to strike out the claim. This is because:

• (a) I am not satisfied the claim for dishonest assistance cannot succeed. Dishonest assistance does not require ANZ to have acted consciously dishonestly, in the sense of knowing it was acting dishonestly by assisting.

  The plaintiffs allege that:

  • (i) ANZ knew that RAM held client funds on their behalf and was required to account to those clients for those funds;

  • (ii) RAM was misapplying client funds by using client funds to reduce its overdraft liabilities;

  • (iii) ANZ assisted RAM's misapplication of client funds by continuing to effect transactions through RAM's bank accounts with ANZ;

  • (iv) in assisting RAM in this way, ANZ did not act as an honest and reasonable banker would have acted.

  If these allegations are established on the evidence at trial, it is reasonably arguable that they are sufficient to make out a claim for dishonest assistance.

• (b) I am not satisfied the claim for knowing receipt cannot succeed. The plaintiffs allege:

  • (i) RAM transferred client funds into its overdraft account in breach of trust;

  • (ii) ANZ knew the client funds were held on trust;

  • (iii) ANZ benefitted from RAM using client funds to clear its overdraft;

  • (iv) ANZ knew or should have known that the benefit it received was a misapplication of trust funds.

  It is reasonably arguable that clearance of RAM's overdraft in the circumstances pleaded constitutes the receipt of a benefit.

  The “knew” allegation in (iv) is an allegation of actual knowledge of receiving a benefit in breach of trust. If this is established at trial, it is sufficient to establish the “knowing” component of the claim. The law is not settled as to whether the “should have known” allegation in (iv) is sufficient to establish liability. This is more appropriately considered when the facts at trial are determined. The pleaded claim is reasonably arguable.

• (c) Whether the alleged duty of care could exist has not been considered in New Zealand. The leading case in the United Kingdom on dishonest assistance leaves open the possibility that a duty of care could be owed by a third party to beneficiaries of trust funds in some cases. Whether a novel duty of care exists is usually better determined on the evidence at trial. Relevant evidence will include facts that go to whether the bank and any of RAM's clients were in a proximate relationship and evidence going to policy factors that may count against a duty. At this stage, I am not satisfied that the duty of care cannot exist.

• (d) It is not disputed that a significant number of the transactions at issue were made after 1 June 2010 and are therefore not out of time. It is arguable that the transactions at issue before 1 June 2010 are also not out of time. Whether claims are out of time are often better determined on the evidence at trial. I consider this is the case here because the law on whether a limitation period applies to claims of dishonest assistance and knowing receipt is not settled in New Zealand and the question of when a loss first occurs in a negligence case is fact dependent.

7 I set out below the reasons for the views I have reached.

Preliminary issue

8 ANZ objects to the admissibility of an affidavit filed in support of the plaintiffs' opposition to the strike out application. The affidavit is filed by Ms Sletcher, a legal administrator employed by the plaintiffs' solicitors, and annexes a selection of documents from initial discovery. These documents are largely a selection of what appear to be internal ANZ communications discussing the RAM accounts.

9 ANZ submits the affidavit is inadmissible because the documents sought to be adduced by the affidavit are not relevant. ANZ submits they are not relevant because a strike out application depends on what is pleaded, not on evidence. It submits what the plaintiffs have pleaded cannot succeed and no amount of evidence can alter what is pleaded. It also says the inferences that can be drawn from these communications are contested. Courts should not admit contested evidence on a strike out application.

10 The plaintiffs submit the affidavit is relevant if the Court considers the allegations as pleaded are insufficient. The plaintiffs say the documents show that the pleading could be amended if the Court considers that necessary. I have considered the affidavit in that light. As discussed later, the affidavit is relevant in that it shows that, once discovery is complete, the plaintiffs may be able to provide details of which ANZ officers are alleged to have knowledge of the matters on which the claims are based. The affidavit is therefore admissible.

11 This does not mean the content of the affidavit should be made publicly available at this stage of the proceeding. An...