By Gareth Vaughan
The Supreme Court has dismissed an application from ANZ for leave to appeal a Court of Appeal judgment, potentially paving the way for the Financial Markets Authority (FMA) to take action against the bank on behalf of investors in the Ross Asset Management Ponzi scheme.
The Supreme Court's judgment has named Ross Asset Management (RAM), and its Ponzi scheme, as the company at the centre of the dispute. RAM was previously described in court documents as "Company X." ANZ was RAM's banker. In 2013 Wellington financial adviser David Ross was sentenced to 10 years and 10 months imprisonment after admitting to running a Ponzi scheme and overstating RAM client funds by $380 million.
"The FMA, in the course of its investigation, formed the view that ANZ may be liable to RAM investors in knowing receipt and dishonest assistance," the Supreme Court judgment says.
"The proposed disclosure would be to the liquidation committee of RAM, as a proxy for RAM investors, and to the liquidators of RAM for the purposes of:
(a) obtaining responses to the information received from ANZ and any additional information from the RAM investors;
(b) determining the next steps that should occur to enable the RAM investors to evaluate the merits of a claim against ANZ and to consider their position with respect to any such claim; and
(c) enabling the FMA to consider and determine whether to exercise its powers under s 34 of the Financial Markets Authority Act," the Supreme Court says.
"Section 34 allows the FMA to exercise a person’s right of action if it is in the public interest to do so. Before disclosure was made, the FMA would seek confidentiality agreements from members of the liquidation committee, the liquidators and their counsel."
The FMA is welcoming the Supreme Court judgment.
"The FMA is pleased with the Supreme Court decision in the matter between ANZ and the FMA, released this morning [Friday]. Now that the restrictions on confidentiality over all these matters has been lifted, the FMA will be able to engage with the liquidation committee of Ross Asset Management, as a proxy for RAM investors, and the liquidators of RAM on the substantive matters at the heart of this case," the FMA says in a statement.
"ANZ’s decision to judicially review the FMA and to seek confidentiality over the High Court and Court of Appeal judgments meant our ability to talk to investors was curtailed. The FMA at this point has made no decision on the use of its section 34 powers under the FMA Act. A significant part of our consideration of our Section 34 powers involves engaging with the appropriate representatives of impacted investors first," the FMA says.
RAM was tipped into liquidation in December 2012 after an investigation of its finances found only $10.24 million in funds and not the $449.6 million investors believed was being held. The collapse was investigated by the FMA and the Serious Fraud Office. Funds withdrawn from the scheme over five years exceeded those contributed by more than $60 million.
Liquidator John Fisk of PwC says he'll be talking to the FMA about the Supreme Court decision. Fisk says about 950 RAM investors incurred a net loss of $110 million. The latest liquidator's report is here.
The earlier Court of Appeal judgment noted PwC got legal advice on the prospects of a claim against ANZ. This concluded that, while there may be a potential claim, it was the role of investors or the FMA on their behalf to make it, not the liquidator.
"After reviewing the material provided, the FMA obtained an external legal opinion about the prospects of a claim against ANZ. In January 2016 the FMA’s inquiry into ANZ became an investigation," the Court of Appeal judgment says.
ANZ says it's disappointed the Supreme Court has decided not to hear the bank's full arguments, saying the FMA wants to pass only selected documents to a third party.
"ANZ provided a significant amount of documents to the FMA to assist in its investigations into Ross Asset Management. ANZ released confidential information, including customer information, to the FMA, as required by law. The FMA wishes to pass on selected documents to a third party," ANZ says.
"We believe customers and companies alike need to have confidence that confidential information is treated as such, and when provided to a regulator, is only used by that regulator in accordance with their statutory mandate."
"ANZ brought this proceeding to test the issue of the proper application of certain provisions of the Financial Markets Authority Act which applied to the FMA obtaining confidential documents and how those documents could be used. We believed this issue raised significant questions about the use of confidential information by a regulator," ANZ adds.
"The High Court provided a ruling in early 2018 which upheld confidentiality in the information and documents in issue. The Court of Appeal took a different view. We are disappointed that the Supreme Court has determined it will not hear ANZ’s full arguments on these issues."
In a long running legal saga, a recent Court of Appeal judgment, that went in favour of the FMA, overturned a High Court judgment in favour of ANZ. The High Court had ruled for ANZ, that the proposed disclosure was outside the powers of the FMA. The FMA advised ANZ of its decision to disclose on July 13, 2016. (See more background here).
The legal issue in ANZ's proposed appeal was whether the FMA can disclose to third parties documents obtained from ANZ through the exercise of its statutory powers under section 25 of the Financial Markets Authority Act. The documents relate to the Ponzi scheme run by RAM.
"The Court of Appeal rejected ANZ’s submission that extensive redactions to the judgment should be made. This was on the basis of the principle of open justice. It did, however, make some redactions pending the outcome of the application for leave to appeal."
"The FMA submits that the proposed appeal raises no issues of general or public importance. We accept that submission. Nor do we see any appearance of a miscarriage in the way the Court of Appeal determined whether the redactions requested by ANZ were necessary," the Supreme Court judgment says.
"The applications for leave to appeal are dismissed. Costs of $3,500 are awarded to the respondent [the FMA]."
The Court of Appeal judgment ruled that it was appropriate for the FMA to disclose information to investors to further its investigation, and to help assess whether a claim under Section 34 of the Financial Markets Authority Act may be appropriate, so long as the proper steps were taken to ensure confidentiality.
To date the FMA has only used its s34 powers once. This was against Prince and Partners Trustee Company, which admitted a series of failings in its role as trustee of Viaduct Capital Ltd, which went into receivership in 2010. The civil proceedings brought by the FMA against Prince were settled for $4.5 million.
ANZ has argued there's no basis for civil claims against the bank.
Chapman Tripp represented ANZ and Simpson Grierson represented the FMA.