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Capital + Merchant trustee stoush back in court

13 Apr 2015

Lawyers acting for Perpetual Trust and law firm Stace Hammond are seeking access to documents and communication covered by legal privilege in dispute involving the receiver of failed lender Capital + Merchant. The dispute involves whether a claim against them has been settled.

The receiver, Korda Mentha, filed action in 2013 against the failed finance firm's trustee and legal firm alleging breach of contract and negligence, but that case has been adjourned pending the outcome of a September hearing on whether the two sides reached a settlement in September 2014.

Court orders prevent publication of any details of the claimed settlement, said to have been reached between the former trustee's and Stace Hammond's lawyer, Campbell Walker, and the receivers' lawyer, Bruce Stewart.

In the High Court at Auckland today Justice Sarah Katz also ruled against media publishing any details of witness's briefs of evidence before they are heard in a full court hearing.

Lawyers acting for Perpetual Trust and Stace Hammond want the court to rule the receiver should disclose all documents likely to be used in court that cover the brief, intense period when discussions over the claimed settlement were said to have taken place last year, just days before a scheduled court hearing on the original action. Those documents currently have legal privilege because they involve behind the scenes discussions between Stewart, Korda Mentha, and the receiver's Australian-based litigation funder, Litigation Services, the firm also involved in the 'Fair Play on Fees" bank fee claim.

Legal fees for Korda Mentha's case are being met by the litigation financier, which will get back any money it spends on the case plus any portion the plaintiffs are made to pay if the claim succeeds or an out of court settlement is reached.

The receivers have said this is the only remaining potential avenue of recovery for the 7,000 Capital + Merchant investors owed around $167 million when it went into receivership in 2007.

The claim follows a High Court decision last year to replace Perpetual as trustee, due to its conflict of interest, by state-owned Public Trust as a trustee of last resort. Public Trust avoided Perpetual's responsibility to pay Korda Mentha's fees, which are normally recovered from the assets of the failed firm but there was nothing left at Capital +Merchant.

Perpetual Trust appointed Korda Mentha as second receivers of Capital + Merchant and the receiver then later lodged the action against the trustee and Stace Hammond.

The case is the first time receivers of a failed finance company have gone to court to pursue recovery from a trustee company, which is tasked with protecting investors' interests.

Perpetual Trust was owned by Pyne Gould Corporation at the time of Capital +Merchant's demise but the trustee business has since been sold to interests associated with London-based investor Andrew Barnes.

In June last year Capital + Merchant's former auditor BDO Spicers agreed to an $18.5 million settlement with the firm's liquidator, the Official Assignee.

Following action taken by the Financial Markets Authority and Serious Fraud Office, three of the company's directors were jailed for theft for intentionally breaching the company's trust deed and two others have been sentenced to home detention for misleading investors.

Former Serious Fraud Office boss Adam Feeley described the collapse of Capital + Merchant as being as bad as anything that occurred in the industry, because nothing has been recovered for investors, in contrast to most other collapsed finance companies, where at least some recoveries were made.

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