James Farmer


Equiticorp 20 Years On

Tuesday, June 07, 2016
On 12 July 1996, Justice Robert Smellie delivered Judgment in the High Court at Auckland in the case of Equiticorp Industries Group Limited (In Statutory Management) v. The Crown (since reported in summary form only because of the length of the Judgment in [1996] 3 NZLR 586).   This followed a trial which started on 21 November 1994 and which finished on 21 December 1995 after 204 sitting days but which then continued with 8 “call back” days over the next 6 months in which the Judge sought further submissions on specific points.  This was – and still is – the longest trial in New Zealand’s legal history.

Justice Smellie entered Judgment by way of damages in favour of the Statutory Managers of Equiticorp against the Crown in the sum of $189 million, later increased by interest on that sum of $134 million and costs and disbursements of $4.7 million to a total of $328,393.641.00 (see [1996] 3 NZLR 685 (costs) and [1996] 3 NZLR 690 (interest).   This sum continued to increase during the period of a Crown appeal to $400 million, until settlement occurred shortly before the scheduled hearing date in the total sum of $270 million.  At the time, the Judgment was the largest entered in a civil claim in New Zealand.

Recently, the Equiticorp legal teams – being the main Equiticorp company and Equiticorp Australia which was separately represented – met for a reunion dinner.   Naturally, it was an evening of reminiscences but it was of interest to have an account of where the 12 who were present had ended up after 20 years.  Four had become Judges - Sian Elias (Chief Justice of the Supreme Court of New Zealand), Helen Winkelmann (Court of Appeal and former Chief High Court Judge), Peter Woodhouse (High Court) and Nick Manousaridis (Australian Federal Court).  Two are senior partners in Auckland law firms – Ian Denton (Wilson Harle) and Andrea Challis (McElroys).  Two are employed by commercial firms – Peter Goodall (who initiated and organised the dinner, now Head Claims broker at Marsh) and Aaron Delacey (head of Legal, BNZ Partners).  One, Lisa Gallate, is a member of an international law firm (Squire Patton Boggs) based in Sydney.  The remaining 3 are at the New Zealand Bar in Auckland – Stuart Grieve QC (notable also for his extracurricular rock band playing), Bill Manning (civil, employment and medico-legal) and me.

Sadly, one important member of the legal team who was not present was Anna Cook (Paton) who died prematurely some years ago.

The facts of the Equiticorp case are complex but arose from the sale on 19 October 1987 by the Crown of its shareholding in New Zealand Steel to Equiticorp Holdings Limited [EHL] in return for EHL shares and cash but with a contractual buy back of the shares to be settled in 6 months.   The share market crashed on the day following the sale and the value of EHL shares dropped dramatically.  In March 1988, although it knew that the buy back was being funded by companies in the Equiticorp Group (contrary to the prohibition of such funding at the time in the Companies Act and in breach of the fiduciary obligations of the directors of the purchasing Equiticorp company for committing that company to a grossly improvident transaction), the Crown proceeded with the buy back at pre-share market crash values.   The effect was that Equiticorp and not the Crown took the loss that resulted from the share market crash.  The Judge applied the legal principles relating to constructive trust (knowing receipt and knowing assistance), illegality and restitution (money had and received) to find in favour of the Statutory Managers.

A 13 month trial has its own challenges over and above the normal ones that apply to trials.   Essentially, it is like running a marathon instead of 5 kilometres but at the same pace.   This requires planning, organisation and good management, resources and, above all, stamina and stress control.  To assist with the latter, we required every lawyer at some point to take a 2 week break from the hearing (I spent mine in bed with bronchitis), which required personal acceptance that temporary absence of an individual would not lead to the immediate collapse of our case.  

We also took the unprecedented step of employing a psychologist/counsellor whose task was to monitor the emotional health of the team, individually and collectively, with a view to early identification and dealing with potential problem areas.   This was a process that required a degree of diplomacy but, in my view at least, it worked well and contributed greatly to our staying the course.

There were light moments during the case.  There was issued to me what came to be called “Jim’s challenge”, which was to include the word “asparagus” in a legal submission.   Not the easiest task when the subject matter in the case was the sale of shares in a steel manufacturing company and the legal principles were largely equitable.   However, a submission drawing a contrast between a market for the sale of company shares and a market for asparagus met the challenge, though Justice Smellie’s puzzlement -  “Asparagus?”, he queried - provided its own challenge to remain poker-faced to all those who were in the know.   These included Don Mathieson QC, senior counsel for the Crown, who responded magnificently by replying with his own submission pointing to the inappropriateness of any analogy based on a market for asparagus.  

Don was assisted on the Crown’s side by Karen Clark (now a High Court Judge), Arthur Tompkins (now a District Court Judge) and Rachel Sussock and Craig Deuchrass from Crown Law.

One unprecedented event occurred half-way through the trial.   One of the plaintiff’s senior counsel (Sian Elias QC) was appointed a Judge of the High Court by (ironically) the defendant (the Attorney General), with immediate operation.    Rather different from the more recent example of Jonathan Sumption (now Lord Sumption) who was permitted to start and finish a lengthy civil trial for his billionaire Russian client before embarking on his new judicial duties after his appointment had been announced.

Sian’s premature departure did provide an opportunity for Helen Winkelmann, then even younger than she is now, to step up and take an active role in the presentation of legal submissions in the latter part of the case.  This she did superbly and, if I may say so, that represented the first big step towards where she is now.  

The case was complex and required the application of new logistical techniques, including what must have been the first use in New Zealand of real time evidence transcribing (with Australian operators).  However, it was anticipated to be, and could have been, much more difficult.  Initially there were 16 defendants who in turn joined a number of third parties and issued cross-notices against one another.  This led to the creation of one large courtroom from 2 adjacent courtrooms – what is now Courtroom 12 – but before the hearing started settlements (totalling $64 million) were reached with all defendants other than the Crown.   And so, reduced to Equiticorp New Zealand, Equiticorp Australia and the Crown, we did rather rattle around in that large courtroom.

Courtroom 12 has however not always been under-utilised since.  It has been the venue for a number of methamphetamine multi-accused trials and in recent times I have returned there twice on multi-party competition law cases, in one of which the jury box was almost filled with 10 economists in a “hot tub” together. 

7 June 2016

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