Published 22 September 2006
Justice Rhys Harrison has struck out all claims brought by the Bank of New Zealand and the liquidators of Access Brokerage Ltd against NZX (NZ Exchange Ltd) arising from the collapse of the brokerage in 2004.
Justice Harrison heard the claim against Access’ former auditor, Deloitte Touche Tohmatsu, & NZX in June and delivered his judgment yesterday.
Access Brokerage was placed in liquidation when it was unable to meet $4.5 million of obligations to clients. The BNZ settled that indebtedness and took assignments of the clients’ rights of action.
The bank & liquidators alleged NZX, in its capacity as inspector of the Stock Exchange, owed & breached a duty of care in tort to protect them against their losses. Deloitte was inspector of the exchange from May 1996-December 2002. The bank & liquidators said Access had traded unprofitably from 1 February 2000 to 3 September 2004 and alleged that Access chief executive & director Peter Marshall “caused the accounts of Access to be prepared so that they did not show the trading losses Access was suffering and instead showed profitability.”
Justice Harrison said an inspector’s duties didn’t extend to protecting Access from its claimed losses. Among the judge’s reasons:
Access was effectively seeking to sue NZX for the adverse financial consequences of its failure to perform its own contractual duties in accordance with the rules & regulations. Responsibility for Access’ many & substantial breaches rested squarely with the company, its directors & management. The law does not allow a party in breach of its contractual obligations to take advantage of its wrongs
By comparison, NZX did not participate in any way whatsoever in Access’ management or control and wasn’t responsible for Access’ failure to establish & maintain systems of internal control to minimise the risks of loss to it from irregularity, fraud & error
The inspector’s function cannot be compared to that of an auditor, whose purposes include protection of a company from loss caused by a director acting dishonestly or unlawfully. The statutory inspection regime involved a more superficial analysis of an NZX firm’s accounting records than an audit. It did not purport, for example, to give a true & fair view of the company’s accounts. It was carried out for the significantly more limited purpose prescribed by the rules & regulations.
13 September 2005: BNZ & Access liquidators sue NZX
16 September 2004: BNZ underwrites Access clients’ shortfall
14 September 2004: Direct Broking buys Access client database
6 September 2004: Stiassny called in to Access Brokerage
Website: Court judgment
Attribution: Judgment, story written by Bob Dey for this website.