Pyne Gould wins court tussle over A$33.6 mln Torchlight loan penalties

Tuesday 20th October 2015

Pyne Gould Corp, the financial services firm controlled by George Kerr, has won a court battle with Australian businessman John Grill, whose Wilaci investment unit was seeking A$33.6 million from the financial services firm in late payment fees over a short-term loan.

In the High Court in Auckland, Justice Matthew Muir yesterday ruled Pyne Gould subsidiary Torchlight Fund No.1 LP didn't have to pay a late penalty fee on a A$37 million loan from Wilaci, which "so significantly exceeds the loss likely to be caused by the breach that it qualifies as extravagant and therefore unenforceable."

"It could never have been anticipated that such costs would represent even a meaningful fraction of the late payment fee," Justice Muir said. The A$2.17 million per month fee "was undoubtedly extravagant in relation to any such loss."

Shortly before the August hearing, Torchlight admitted liability for a A$5 million fee plus interest, and the judge also ordered the Pyne Gould entity to pay $1.18 million in receivers' costs and disbursements, plus additional costs that had been incurred since July 31.

Wilaci loaned the funds to Torchlight on Aug. 22, 2012, to help the Pyne Gould entity manage what Kerr described as "a very tight liquidity situation" when Bank of Scotland International was exiting Australasia and calling for repayment on its debtors, including Torchlight's Australian real estate investment, RCL Group. A high profile dispute with the Financial Markets Authority made it more difficult for Kerr to recapitalise Torchlight.

Grill's Wilaci financed its loan by borrowing the funds from Credit Suisse, pledging 3.5 million shares in ASX-listed engineering firm WorleyParsons as collateral.

The loan was due to be repaid by Oct. 26, a deadline Torchlight missed, although Wilaci didn't immediately call on the loan, rather it "sought to manage repayment, which it eventually achieved by seven tranches" between October 2013 and May 2014, a period investment consultant Andrew Skidmore, who brokered the deal, "characterised by 'endless excuses and broken promises' from Mr Kerr and by various settlement agreements which were not performed," the judgment said.

Wilaci served its demand on Torchlight in May 2013, and appointed receivers in June that year.

Justice Muir determined the late payment fee was imposed as a way to create an incentive for the loan to be repaid on time, and that "at the time the contract was made what the parties could have reasonably expected to occur in the event of a failure to repay on 26 October 2012, mirrors closely what actually occurred."

In a separate statement, Pyne Gould's Kerr said he welcomed the ruling "which confirms that Torchlight's position was reasonable."

BusinessDesk.co.nz

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