KEY POINTS:
An Auckland law firm's "hopeless" pursuit of a wide-ranging lawsuit against Westpac Bank has cost it more than $1 million.
Legal newswire Lawfuel.co.nz said this week's judgment from Justice Rhys Harrison resulted in a rare award of indemnity costs.
The case involved Westpac's former law firm Bradbury & Muir threatening to expose the bank over its $600 million case against Inland Revenue currently before the courts.
Judge Harrison awarded $1,057,691 to Westpac in respect of an action that arose from the law firm partner Clive Bradbury's "deep-seated sense of grievance" over the bank's ending of a solicitor-client relationship with Bradbury & Muir. Bradbury was first plaintiff in the action, Bradbury & Muir the second.
Bradbury & Muir had claimed Westpac ruined its business when it dumped the firm as legal counsel in 2005 in the wake of the Trinity tax avoidance scheme. It had also claimed it was defamed by a paper to the Westpac board which mistakenly referred to Trinity as tax "evasion".
The High Court action was heard in February this year with the claims against the bank being "progressively abandoned" during the closing submissions on the seventh day. The issue of costs was reserved until now.
The judge said that the five causes of action taken by the plaintiffs, which ranged from contractual breach to defamation, "were hopeless from inception in March 2006" and were "unarguable".
He said that the award of indemnity costs was justified because the law firm's proceeding was not only hopeless, but used for ulterior purposes - namely to force a financial settlement from Westpac.
Judge Harrison said he based this decision on what he described as "threats of exposure" levelled at the bank by Bradbury, including the joinder of individual bank employees and a damages claim for nearly $14 million.
The wide ranging litigation against the bank was described by the bank's lawyer, Stephen Kos, as being taken "vexatiously, frivolously, improperly or unnecessarily commenced and continued".
The High Court also considered the Trinity investment scheme in which Bradbury and his partner Garry Muir were involved, along with Gregory Peebles, head of Westpac's Asset Management Group.
The court ruled with Inland Revenue that the Trinity scheme was tax avoidance.
The case was one of Inland Revenue's largest ever litigation successes, involving potential tax losses of about $3.7 billion.
Judge Harrison said Bradbury was a competent solicitor but it was his decision on whether or not to form a legal practice based largely around provision of Westpac's work and in particular based on the informal arrangement he enjoyed with Peebles.
Publication of the law firm's involvement in Trinity was a major cause of concern to the law firm and an application to suppress its involvement was rejected by the court in 2004.
This resulted in Westpac terminating its relationship with the firm.
During the case, Bradbury made frequent references to the fact that Westpac was the subject of a reassessment by IRD to tax liability of nearly $600 million on income earned from structured financing transactions entered into from 1999 and afterwards.
Judge Harrison said an institutional client such as Westpac could not afford the reputational risks of a continued association with a firm including Muir, who during the Trinity case was described by Justice Geoffrey Venning as an "evasive and unhelpful witness".
Bradbury sealed his firm's fate with his subsequent conduct.
This included an email to Westpac group secretary and general counsel Richard Willcock asserting Justice Venning's judgment "contains no adverse findings or comments relating to Bradbury & Muir. The firm itself had no involvement with the case".
"This assertion was at best for Bradbury inaccurate and at worst deliberately misleading," Judge Harrison said.
Willcock summed up his attitude towards the law firm by saying that by the end of the process he and Westpac head of legal services Justin Moses "had lost any sense of trust and confidence in Clive and Bradbury & Muir as a firm".
He said that while the findings in Trinity court judgment were obviously relevant to his decision, of greater concern was Bradbury's attitude after Westpac advised its intention to investigate and suspend the relationship.
The relationship became untenable, Willcock said. Bradbury wrote a letter to the bank denigrating Willcock personally at length, accusing him and Westpac of bank hypocrisy "in relying on the Trinity tax case given Westpac's own differences with the commissioner".
He then offered to discuss settlement rather than expose "Westpac to a publicly embarrassing court case", something Westpac refused.
TRINITY SAGA
* 1997: Bradbury & Muir designs the Trinity scheme. Investors in a Douglas fir plantation got a tax holiday by claiming immediate deductions on annual payments of $40,000 that weren't due until 2048.
* November 15, 2004: Bradbury and Muir's name made public in connection with Trinity.
* November 23, 2004: Westpac suspends Bradbury & Muir.
* December 2004: High Court rules Trinity was tax avoidance.
* February 2005: Westpac dumps Bradbury & Muir
* June 2007: Appeal Court agrees Trinity was tax avoidance
* February 2008: Bradbury argues in the High Court Westpac owes him and his firm over $5 million in compensation for dumping them. On the last day of the hearing, Bradbury and his firm Bradbury & Muir abandon their claims against Westpac.
* Yesterday: High Court awards Westpac $1,057,691 in indemnity costs. Westpac is still embroiled in a tax avoidance dispute with IRD over "structured financing" deals from the late 1990s.
- NZPA
