PricewaterhouseCoopers says it's under the gun for up to $1 billion after two failed attempts to stop a lawsuit brought against it by the liquidator of a collapsed property development company.
Property Ventures, directed by discharged bankrupt Christchurch businessman David Henderson, was the parent of a group of companies that failed after the global financial crisis and left a large Queenstown project unfinished. Liquidator Robert Walker launched High Court action against the company's directors alongside PwC, which was the group's auditors. PwC has failed in the High Court and Court of Appeal to get the action quashed or to get the transfer of the debt to litigation funder SPF No 10 declared invalid.
The accounting firm today asked the Supreme Court to stay the proceedings, scheduled for the first quarter of 2018, until the plaintiff has satisfied the court they are not an abuse of process.
PwC's QC, Bruce Gray, said there had been trafficking in the claim, and it comes under the legal tort of champerty, which concerns third parties providing financial backing for legal action in exchange for a share of the profit.
"Someone who is a complete stranger to the litigation, well-funded and is bringing the litigation for its own sake as a business enterprise, and that's what SPF is doing, is champertous and the transaction is void," Gray said. "This is not a case where a liquidator has sought funding to pursue a claim for the benefit of unsecured creditors. That's simply not happening."
"In any real sense this liquidator was not here bringing the claim for the benefit of unsecured creditors," Gray said. "The first $300 million plus of the value of the claim is already assigned to SPF. His second motivation was to show how the commercial world had been corrupted. Whatever it means, it's the kind of ancillary purpose for bringing litigation that the courts have regarded as inappropriate and an inadequate explanation to justify an assignment that would otherwise be champertous."
Gray said the claim made, for between $240m and $320m as of 2014, was increasing "almost exponentially" due to 20 per cent interest compounding monthly, and it could exceed $1b by the time trial starts.
"The fact that the claim is brought by the liquidator tends to conceal who actually owns the claim. In substance, SPF as funder has purchased the claim, owns its proceeds, controls it," Gray said. "This case shows all of the evils of champerty. It's pursued as a business asset in its own right by someone who is well-funded and who's not about vindicating rights or being repaid for something that has been done with the company, but has pursued for maximum profit. The defendants live with the reality of being defendants in a claim for about $1b, and that's troubling."
Justin Smith QC, representing Property Ventures' liquidator Robert Walker and others, said neither the funding agreement nor the assignment to SPF should be prevented by the court.
"It is a standard market funding agreement, there are clear provisions as to control of the litigation. I don't perceive that on its own it is contended by the appellant to amount to maintenance or champerty," Smith said. "The assignment is what I perceive the appellant to have its principal, if not sole, beef with, namely the effect of it. It is an assignment of debt with all ancillary rights, in terms of charges over secured property and rights to take it over. In itself, it couldn't amount to champerty."
The Court of Appeal has previously ruled that arrangements can't be struck down due to a profit motive being found, Smith said.
"We may not like it but we know there are vulture funds who make it their business to acquire enormous debts for small amounts of money and make what some would regard as very high profits, but we have to note they take commensurately high risks to acquire the debts," Smith said.