Scott v ANZ Bank New Zealand Ltd

JurisdictionNew Zealand
CourtHigh Court
JudgeMallon J
Judgment Date05 May 2020
Neutral Citation[2020] NZHC 906
Date05 May 2020
Docket NumberCIV 2019-485-376

[2020] NZHC 906

IN THE HIGH COURT OF NEW ZEALAND

WELLINGTON REGISTRY

I TE KŌTI MATUA O AOTEAROA

TE WHANGANUI-A-TARA ROHE

Mallon J

CIV 2019-485-376

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
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

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 378Twinsectra Ltd v Yardley [2002] 2 AC 164Barlow Clowes International Ltd (in liq) v Eurotrust International Ltd [2006] 1 WLR 1476 — Limitation Act 1950

The issues were: whether the dishonest claim should be struck out because it required actual dishonesty or wilful blindness to RAM's dishonesty and the plaintiffs had not allege that;

whether the knowing receipt claim could not succeed because it did not allege that ANZ “received” the plaintiffs' funds and nor alleged knowledge that would make ANZ's receipt of the plaintiffs' funds unconscionable; whether the negligence claim cannot succeed because the law was settled that where a bank's customer breached a trust and thereby caused loss to third parties, any accessory liability of the bank was confined to dishonest assistance whether some of the claims were time barred by the Limitation Act 1950.

The Court was not satisfied that the claim for dishonest assistance could not succeed. Dishonest assistance did not require ANZ to have acted consciously dishonestly, in the sense of knowing it was acting dishonestly by assisting. The leading case in the United Kingdom on dishonest assistance left open the possibility that a duty of care could be owed by a third party to beneficiaries of trust funds in some cases. The New Zealand position was to apply the same test of dishonesty as in Royal Brunei Airlines Sdn v Tan [1995] 2 AC 378, Twinsectra Ltd v Yardley [2002] 2 AC 164 and Barlow Clowes International Ltd (in liq) v Eurotrust International Ltd [2006] 1 WLR 1476

The Court was not satisfied the claim for knowing receipt could not succeed. It was reasonably arguable that clearance of RAM's overdraft in the circumstances pleaded constituted the receipt of a benefit. The “knew” allegation was an allegation of actual knowledge of receiving a benefit in breach of trust. If that was established at trial, it was sufficient to establish the “knowing” component of the claim. The law was not settled as to whether the “should have known” allegation was sufficient to establish liability. The conclusion that the knowledge requirement for knowing receipt was the same as that for dishonest assistance was arguably against the flow of the authorities holding that, in a knowing receipt case, the test was one of constructive notice, arising when a person was put on inquiry and unreasonably failed to inquire.

Given that there may be cases where a third party would owe a duty of care to beneficiaries, whether a duty of care arose was better assessed in the context of the facts as they were determined at trial.

A significant number of the transactions at issue were made after 1 June 2010 and were therefore not out of time. It was arguable that the transactions at issue before 1 June 2010 were also not out of time because the law on whether a limitation period applied to claims of dishonest assistance and knowing receipt was not settled in New Zealand and the question of when a loss first occurred in a negligence case was fact dependent.

The application to strike out the statement of claim was dismissed.

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....

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