Westpac
has bankrupted Paul Yarrow on a $14.8 million guarantee of debts owed by
Taranaki-based company Yarrows (the Bakers) Ltd. His claim of a set-off against Westpac for
alleged breach of fiduciary duties failed in the High Court.
Mr Yarrow alleged other
Yarrow directors used receivership as an attempt to silence him and that
Westpac did the dirty by exploiting his long-term customer relationship.
Circumstances of
Yarrow’s 2011 receivership were laid before the High Court. The company was in financial difficulty and
had been on Westpac’s watch-list for nearly three years. Westpac was owed over fifty million
dollars. The Bank’s credit restructuring
group was closely monitoring the company account. There were prospects of Japanese company Sumitomo
buying fifty per cent of Yarrow’s Australian operations for $22 million. At the same time, there were tensions between
Paul Yarrow and directors of an Australian Yarrow associate. He alleged above market rentals were charged
on Australian leases, reducing Yarrow profitability and potentially reducing
the price Sumitomo might pay. Westpac
was also in on this, he claimed. It had
provided finance for purchase of the leased properties. Recordings of a critical Yarrow directors’ meeting
of April 2011 were put up as evidence. Westpac
attended the meeting. It was concerned
receivership would affect any deal with Sumitomo. There was also concern over threats by Paul
Yarrow to initiate an inquiry into Yarrow’s finances. This could also destabilise any sale. Accountants Deloitte and BDO Spicers had both
already been involved in potential restructuring. Associate judge Doogue said at least one or
more of the directors raised at the meeting a possibility of Westpac appointing
receivers to cut through problems.
Paul Yarrow stopped participating part way through, but continued to
monitor meeting discussions by speakerphone.
One month later, Westpac appointed receivers. Westpac is still owed $15 million.
Judge Doogue ruled
there were no grounds to reduce the amount Paul Yarrow owed on the Westpac
guarantee. There was nothing about the
way in which the guarantee was requested or signed that raised issues of any
fiduciary duty owed by Westpac to Mr Yarrow.
He received independent legal advice before signing. The fact he had been a Westpac customer for
some 25 years did not convert their commercial relationship into a fiduciary
relationship. Westpac was not a party to
any alleged overcharging on Australian rentals; it had no knowledge of the
transaction. Mortgage finance was
provided by Westpac Australia, a separate business from Westpac New Zealand. The knowledge of one business is not
automatically imputed to the other.
Westpac
v. Yarrow – High Court (19.09.17)
17.118