Paul Yarrow’s 2017 bankruptcy on a $14.8 million Westpac guarantee was confirmed by the Court of Appeal. In successive claims, Mr Yarrow argued unsuccessfully that the guarantee was a forgery, the debt had been paid and that the guarantee was unenforceable because Westpac was in breach of fiduciary duties owed him as guarantor.
Founded in Taranaki, Yarrow Bakers had been in family hands for three generations until receivership in 2011. Six years earlier, Paul Yarrow took control of Yarrow Group, buying out his brother. Paul signed a guarantee of Yarrow’s Westpac debts in 2009.
When sued by Westpac, he first argued his signature on the guarantee was a forgery. This was disproved with evidence from the lawyer witnessing his signature. He then claimed the guaranteed debt had already been repaid by Yarrow Bakers. Evidence from Westpac proved otherwise. He then claimed the guarantee was unenforceable; Westpac owed him a fiduciary duty of disclosure and had failed to disclose onerous lease terms affecting Yarrow’s profitability.
The lease in question was a 2007 commercial transaction in Australia called the ‘Minto lease.’ The court was told an Australian Yarrow company owned ultimately by Mr Paul Yarrow’s family trust purchased a commercial site with funding from Westpac Australia, leasing the property to a Yarrow Group subsidiary. Lease payments generated an 18 per cent yield. Paul Yarrow argued above market rentals affected Group profitability, prejudicing Yarrow Group. Westpac’s failure to disclose this information was a breach of fiduciary duty, he claimed, reducing payments due on the guarantee.
Westpac NZ was not aware of the Minto lease when Mr Yarrow signed the bank guarantee, the Court said. The Minto lease was a Westpac Australia deal. Mr Yarrow likely knew, or could easily have discovered, terms of the Minto lease before signing the guarantee, it said. He controlled the ultimate owner of Yarrow Group. Legal documents provided by Westpac before the guarantee was signed made it clear it was Mr Yarrow’s responsibility to get any relevant financial information he required from Yarrow Group. Mr Yarrow was an experienced businessman who received his own independent legal advice, the court said.
Yarrow v. Westpac – Court of Appeal (3.12.19)
20.003