Westpac wrong to hold funds in Hamilton accounting case, Supreme Court says
By Paul McBeth
Aug. 16 (BusinessDesk) – The Supreme Court has told lender Westpac New Zealand Ltd. it was wrong to withhold client funds amid suspicions over where the money was going and it will have to pay interest and costs.
The full Supreme Court bench of Chief Justice Sian Elias and Justices Peter Blanchard, Andrew Tipping, John McGrath and William Young unanimously dismissed Westpac’s appeal and ordered it to pay $15,000 plus disbursements to Hamilton accounting firm Map & Associates Ltd.
The bank was trying to avoid costs and interest after asking the accounting firm to get a court order in 2008 to release funds held on behalf of investors in a Bolivian bank when it got nervous about the proposed transfer of funds.
Westpac argued that the potential for helping acts of dishonesty was enough to justify its actions, though the court ruled that was too low a benchmark.
“Acceptance of the bank’s submission would leave the customer bearing the loss when there was in fact no problem with the customer’s instructions, but the bank, albeit reasonably, suspected or believed there was,” Justice Tipping said when delivering the judgement.
If the court found in favour of Westpac, it would have the best of both worlds, with “the benefit of a lesser standard for a defence, but a higher standard for liability,” he said.
Westpac could have entered a contract to limit its potential liability for a breach of mandate, “but it did not,” he said.
In 2008, Westpac refused to act on instructions from Map to transfer some US$50 million that was held by about 20 shareholders in Prodem, a privately-owned Bolivian bank. Map was acting as the deposit agent for the investors, having put the money with Westpac in December 2006.
The Prodem investment had its rights assigned to another bank called Bandes during a transaction in early 2008, and when Westpac was called to transfer the funds, it refused to do so, saying “the money it was holding was in substantial part to be paid out to people or organisations who appeared not to be shareholders and it was unaware of the basis upon which they were to receive payment,” the judgement said.
Westpac was unwilling to act on the instructions of the shareholders’ attorney and invited Map to apply to the High Court, which ordered the bank to carry out the transfer and pay interest on the sum withheld and costs. That decision was upheld by the Court of Appeal last year.