Motelier, bank solve swaps fight

Any terms agreed to between Westpac and Motelier Silveroaks Group remain confidential. Photo / NZME.

$3 million test case over financial product called off before judge could decide dispute.

A $3 million test case between a motelier and Westpac over interest rate swaps was called off before a judge had the chance to decide the dispute.

Despite having already been argued at a two-week hearing in July, the case was discontinued before both sides were due to give their closing submissions in the High Court at Auckland.

Any terms agreed to between the parties remain confidential.

Motelier Silveroaks Group had sued Westpac, claiming the bank made misrepresentations to get it to buy swaps that lost it $3 million.

Those swaps transactions, entered into in 2008, involved loans worth almost $15 million and allegedly locked two Silveroaks companies into comparatively high interest rates shortly before a substantial and protracted downturn in floating rates for commercial borrowers.

The motelier claimed Westpac employees represented in October 2008 that interest rates for bank lending were likely to increase in the near future by significant amounts but made no adequate mention of the likelihood of rates decreasing.

It says Westpac's representations amounted to misleading and deceptive conduct.

If not for this conduct, Silveroaks would have instead moved to floating rates and claims it has lost $3 million as a consequence.

While saying the matter was discontinued, Westpac's lawyer Michael Robinson said the precise terms were confidential. Silveroaks' lawyer John Turner couldn't talk about the matter and the motelier did not return a request for comment.

The Herald has been told of others who bought interest rate swaps who are mulling legal action.

Hundreds of rural New Zealanders bought the swaps last decade and they are likely to remain a sore point in farming communities. The sale of the swaps was investigated by the Commerce Commission, which probed whether the products were being misleadingly marketed.

After the commission signalled that it intended to take court action, ANZ, ASB and Westpac all reached deals with the regulator and made narrow admissions that some of the behaviour over the swaps was misleading to some customers.

The settlements meant that $24.5 million will go back to some affected rural customers and their communities via charities. These payments have now been made, the commission said last week.

More than 97 per cent of 253 eligible farmers settled with the banks but a handful of those entitled to a cash payout refused it.

Others were not offered a cash payment, with their settlement amount to be offset against debt and either declined the offer or did not respond to it, the commission said.

One possible reason a few farmers have refused to take the settlement offer is that those who do so waive the rights to take legal action against the banks.

What are interest rate swaps?

• Interest rate swaps are a financial product that can allow borrowers to manage their interest rate exposure.

• Between 2005-2009, a number of New Zealand banks marketed and negotiated hundreds of millions of dollars of swaps contracts to their clients.

• Three banks' dealings with rural customers over the swaps came under the spotlight of the Commerce Commission and the FMA, which together settled with ANZ, ASB and Westpac.

• The trio of financial institutions paid more than $24 million in the settlements.