High Court strikes out and limits CBL Insurance liquidators’ $278m claims against PwC

A High Court judge has struck out claims of statutory duty breaches and negligence against PricewaterhouseCoopers’ appointed actuaries for failed firm CBL Insurance (CBLI).

But Justice Ian Gault has also allowed the collapsed company’s liquidators to replead its $278 million case against the big four accounting firm.

Liquidators Kare Johnstone and Andrew Grenfell, of specialist advisory and restructuring firm McGrathNicol, had filed claims against several groups linked to CBLI in December 2019.

As part of the wider claim, they sought $278m against PwC and appointed actuaries Grant MacKay and Paul Rhodes.

MacKay, formerly a director in PwC’s actuarial services group, and Rhodes, who was a partner at PwC, were accused of being careless in their statutory duties under the Insurance (Prudential Supervision) Act (IPSA) and the accounting firm of breaching its contract with CBLI.

Justice Gault’s judgment, released on Friday to the Herald, also revealed the liquidators wanted to recover losses of $316m from six of the failed insurer’s directors, including former CBL managing director Peter Harris.

It came after parent company CBL Corporation, which was NZX-listed with a market value of $747m, collapsed in February 2018, leading to litigation from creditors, regulators and shareholders.

Both CBL Corporation and CBLI were placed into liquidation by the High Court in 2018.

In December last year, Mark O’Brien QC, representing PwC, MacKay and Rhodes, sought to have the claims against his clients struck out.

O’Brien had argued the claims against PwC should be capped at five times what the company charged CBLI, which amounted to some $1.23m in fees from 2014 to 2018.

He also said the allegations against MacKay and Rhodes should be struck-out because the contract between PwC and CBLI had a clause not to sue individuals.

In his June judgment, Justice Gault said the claims seeking damages of $278m against PwC for a breach of contract and negligence go far beyond the liability cap.

He said it was not reasonably arguable and can properly be regarded as “frivolous, vexatious or an abuse of process”.

The judge said the claims are limited to about $6.2m.

“However, CBLI should have an opportunity to replead, taking into account the liability cap,” he ruled.

Justice Gault also ordered the actions claiming a breach of statutory duty and duty of care against MacKay and Rhodes be struck out.

“I consider there is no such ambiguity. As indicated, the terms of engagement dated 4 September 2014 and 1 December 2015 each comprised a letter of engagement and terms of business attached. I consider the ordinary and natural meaning of those terms of engagement is that CBLI and PwC agreed that CBLI would not bring a claim of any nature against any partner or employee of PwC,” the decision reads.

Justice Gault also said: “I accept the claim is novel. I have not been referred to a case considering whether any duties in IPSA give rise to a private right of action.”

“… in the absence of a clear indication of an intention to create a private right of action against appointed actuaries for breach of statutory duty, I consider that IPSA does not do so,” he said.

The group of civil cases include two class actions by CBL’s shareholders, FMA pecuniary penalty actions, and the liquidators’ action on behalf of unsecured creditors.

Meanwhile, Harris, CBL’s former chief executive, and ex-chief financial officer Carden Mulholland are also facing criminal charges laid by the Serious Fraud Office (SFO).

They deny the allegations and are due to stand trial in the High Court at Auckland in September.

Harris was charged with five counts of theft by a person in a special relationship, two of obtaining by deception and a single charge of false accounting.

Mulholland faces single counts of theft by a person in a special relationship, obtaining by deception and false accounting.

A third businessman, who has interim name suppression pending an appeal, is also charged by the SFO with a single count of obtaining by deception, and has a trial set for next year.

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