Bank sues Matai Industries promoter

Press, 16 April 1986, Page 6

Bank sues Matai Industries promoter

A former All Black, businessman, and promoter of the ill-fated Matai Industries, Ltd, Kevin Francis Meates, is being sued by Westpac Banking Corporation for more than $383,096 in the High Court.

The action began yesterday before Mr Justice Heron and is set down for 14 days but could take longer. Mr Meates, who set up Matai Industries on the West Coast under the auspices of the Labour Government and its then leader, Mr Norman Kirk, has filed various counter claims which could total to $2.9 million.

The nominal plaintiff is the Commercial Bank of Australia, Ltd, which, with the Bank of New South Wales, became Westpac. The action arises from money advanced as' far back as 1972 to Rowe and Company (N.Z.), Ltd., which is cited as the third party. Mr Meates is a director and shareholder in Rowe.

Messrs J. G. Fogarty and P. R. Kellar appear for Westpac; Messrs C. B. Atkinson, Q.C. and P. R. van Rij for Mr Meates; Mr C. A. McVeigh for Rowe and Company; and Mr D. L. Mathieson, of Wellington, for the Attorney-Gen-eral.

The Attorney-General is sued on behalf of the Minister of Trade and Industry and the Department of Trade and Industry. He is cited as the third party. Opening his case Mr Fogarty said that the bank lent money to Rowe between 1972 and 1979. During that time the advances were secured by a bank debenture and guarantees by Mr Meates, his wife, and collateral security by way of an unregistered mortgage over their family home.

The action was to recover the debt due by Rowe to the bank. The most important claim was

that against Mr Meates as guarantor of the bank’s overdraft because the bank believed that Rowe had no significant assets and was unable to satisfy the account. So the bank looked to Mr Meates to recover the debt. Rowe owed the bank $383,096. The debt continued to increase by interest which accrued six monthly. That sum was capitalised in accordance with the debenture over the company. In August, 1973, Rowe owed the bank $1.3 million but that was reduced by a series of four substantial payments totalling $1,275,000.

Mr Meates acted on behalf of Rowe in obtaining credit from the bank and was associated with the reductions of the account He made a series of promises to have the account extinguished from August 1973 to April, 1976.

Dealing with the Matai affair, Mr Fogarty said that the onus was on the bank to establish the indebtedness of Rowe to the bank at the start of the trial.

The onus on Mr Meates was to show either that Rowe was not indebted to the bank or that he had been released from his

guarantee by the conduct of the bank. To do that Mr Meates sought reference to Rowe’s involvement in the Matai project. He alleged that the bank’s conduct was such as to discharge him from any liability as guarantor.

That defence caned for a careful examination of the Matai project from the vantage point of the bank because the project involved the Government via the Department of Trade and Industry, the Treasury, the Cabinet of the day, Mr Meates, the incorporated Matai firm and its board, Rowe, the

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receiver of Matai, and the bank. Matai was a project of industrial development on the West Coast conceived by Mr Meates. Manufacturing plants were set up at various locations to produce plastic and wood products. It was conceived by Mr Meates about the time the Labour Government won the election in October 1972. Mr Kirk was a personal friend and confidante of Mr Meates, who had been of considerable assistance to Mr Kirk during the election campaign.

Mr Meates made no secret to the bank of his close personal relationship and influence with Mr Kirk. The Labour Government had a policy which was sympathetic to the development of industry on the West Coast.

A West Coaster and a successful businessman with companies manufacturing plastic products in Auckland, Christchurch, and overseas, Mr Meates drew up a plan to set up manufacturing plants on the West Coast.

His most significant company was Torro International, Ltd, and another of his companies was Rowe and Company (N.Z.), Ltd, said Mr Fogarty.

He had used his influence to obtain an agreement from the Government to guarantee twothirds of the working capital for Matai. The remaining third was put up by Mr Meates and his family interests.

Matai Industries, Ltd, was incorporated on June 9, 1973, and went into receivership on February 15, 1974. At first the receivership continued trading but then sold off the assets.

The venture was a financial disaster. The Government met its debts but it did not compensate shareholders for the loss of their equity.

Mr Meates sued the Crown for negligence and recovered compensation fixed by the Court of Appeal for the loss of his shareholder’s equity. Rowe was used by Mr Meates as the vehicle for establishing the factories and transferring plant to the West Coast pending the incorporation and commencement of business by Matai Industries, Ltd.

To that end the bank extended large sums by overdraft to Rowe. It had been intended by the bank and Mr Meates that Matai would reimburse Rowe. Then Mr Meates found that Matai could only do so partially, because Matai could only use the bulk of the money backed by the Government guarantee to acquire assets, excluding land; yet a good deal of the Rowe debt reflected the cost of land and expenditure which could not be readily ascribed to the purchase of assets. The Rowe debt was secured by Mr Meates’s personal guarantee and then from August 31, 1973, by a debenture, fresh guarantees by Mr and Mrs Meates and an unregistered mortgage over their home. In his statement of defence and counter claims, Mr Meates said that Rowe owed no debt to the bank; that the bank obtained his guarantee by misrepresentation or non-dis-closure and accordingly

he was not liable under the guarantee; that the bank by its actions prejudiced his opportunity as guarantor to Rowe to recover the indebtedness of Rowe against Matai and therefore he was not liable. Novation of contract and relief under the Credit Contracts Act was advanced.

The bank advanced funds to Rowe as a vehicle for beginning the West Coast projects. The understanding was that Matai would reimburse Rowe using funds provided by the bank against a Government guarantee. Mr Meates stood as a guarantor of the Rowe debt, Mr Fogarty said.

The first defence required proof of contract. It presupposed a contract with Matai Industries, Ltd, before that company was even incorporated. There was no evidence that it was adopted by the company.

The misrepresentation defence was barred by the Limitation Act and even if it was not the allegation was denied. The bank’s position was that at all times it behaved with utmost rectitude to Mr Meates.

Mr Meates was the prime mover in the Matai project, he negotiated the terms of the guarantee, and was not in the position where he was reliant upon the bank to inform him of key material facts.

In the third defence of Mr Meates, involving variation of terms — that by , advancing more money to Matai Industries thatt was contemplated at the *iime the guarantee

was entered on August 31, 1973 — he claimed that the bank prejudiced his right to obtain recourse against Matai by way of indemnity and. accordingly he was discharged. “This defence is unknown in law,” Mr Fogarty said. He did not understand the novation of contract defence. The defence claimed under the Credit Contracts Act was barred by the Limitation Act and could not succeed on the facts, he said. The bank denies that there were any circumstances or conduct on Its part which discharged Mr Meates from his liability.

It was the bank’s case that Mr Meates went into the contract as an experienced businessman, with his eyes open, relying upon his confidence in his abilities and probably more importantly in his belief that the Government would support him.

At all material times he J knew at least as much 1 and usually far more than } the bank about the ven- < ture and the activities of ’ Rowe and Matai. J “It is unreal to say that i he was ever misled by the ' bank or was helpless in the bank’s hands. It was . also unreal to suggest that , at any time the bank 1 behaved dishonourably to } him or misrepresented } any facts. J "The bank’s case is that ’ the very complex events t surrounding the Matai ' project should never ob- J scure the true role of Mr < Meates as the prime J mover and the bank as 1 the source of finance,’’ ’ said Mr Fogarty. (

It was Mr Meates who i decided to start the pro- { ject using Rowe before t Matai was incorporated | and the Government guar- J antee was in place. At the ' start he underestimated J the time that would take, i He pushed on spending j the money. ) The terms of the guar- » antee precluded full reim- ' bursement to Rowe. He i knew that when he exe- J cuted guarantees on | August 7 and 31. ] From the first to the J last guarantee Mr Meates i knew he was assuming ■ responsibility for repay- J ment of the Rowe debt, ' Mr Fogarty said. , j

“At the end of the day i Mr Meates’s position is no * different from that of any •< other company director < and major shareholder in ( a private company who < obtains finance for a busi- ; ness venture by agreeing < to guarantee the advance ■ to his incorporated com- < pany,” said Mr Fogarty. < That Matai was bigger,* j more complex, and more i disastrous than other J failed ventures was irrele- t vant. Mr Meates clearly ’ had the wish to benefit ; the West Coast and that < was laudable but irrele- | vant, said Mr Fogarty. (

The evidence would ' show that it was Mr J Meates who assumed the > risk, relying heavily upon j his confidence in the , strength of his relation- ' ship with Mr Kirk. “Things went sour. The > Government did indeed ] come to the rescue. There , is considerable doubt as • to whether the resultant balance of indebtedness < by Rowe had anything to ' do with Matai but what I I suggest will be clear is 1 that it is a debt which Mr ' Meates as a guarantor can > be called upon to pay,” ; Mr Fogarty concluded. ,