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Michael Murray is an Australian author and commentator on corporate and personal insolvency law and related policy and law reform, in Australia and internationally. No legal advice is offered or given.

Ponzi investors suing ANZ Bank for their losses

The ANZ Bank has failed to have struck out a claim against it by investors in what was the largest Ponzi scheme New Zealand’s history – Ross Asset Management Limited (RAM). It collapsed in 2012 and its operator went to jail. Losses were around NZ$115 million with at least 700 victims, including many who were elderly and who lost their life savings.

A civil claim was brought in the NZ High Court by three investors who suffered significant losses, as representative plaintiffs, for and on behalf of other investors in the same position as them.

The claim is brought against ANZ Bank New Zealand Limited (ANZ), the bank with which RAM and its 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; that ANZ’s conduct assisted RAM’s misapplication of this money (a dishonest assistance claim), or ANZ received the benefit of the misapplied funds (a knowing receipt claim) or ANZ was negligent (a negligence claim).

The strike out arguments

ANZ applied to strike out the claims, arguing:

(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.

Judge’s reasons

The Judge refused to strike out the claim because:

(a) 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 ANZ knew that RAM held client funds on their behalf and was required to account to them for those funds; RAM was misapplying client funds by using client funds to reduce its overdraft liabilities; ANZ assisted RAM’s misapplication of client funds by continuing to effect transactions through RAM’s bank accounts with ANZ; and in assisting RAM in this way, ANZ did not act as an honest and reasonable banker would have acted.

The Judge said that if these allegations were established at trial, it is reasonably arguable that they are sufficient to make out a claim for dishonest assistance.

(b) As to knowing receipt, the plaintiffs allege RAM transferred client funds into its overdraft account in breach of trust; ANZ knew the client funds were held on trust; ANZ benefitted from RAM using client funds to clear its overdraft; 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: see Royal Brunei Airlines Sdn v Tan [1995] UKPC 4; [1995] 2 AC 378 (PC); and Sandman v McKay [2019] NZSC 41. 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, the judge was not satisfied that the duty of care cannot exist.

(d) Whether claims are out of time is often better determined on the evidence at trial because, as here, 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.

Scott v ANZ Bank New Zealand Limited [2020] NZHC 906.

RAM’s liquidation

RAM went into liquidation in 2012.  The liquidators made many claims on the investors, one of which reached the NZ Supreme Court, resulting in an investor being required to repay what were ‘fictitious profits’ on the moneys he invested in the amount of NZ$454,047: McIntosh v Fisk and Bridgman [2017] NZSC 78.

 

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