KPMG partner’s insistence “disappointing”: QNI Judge

KPMG’s Peter Gothard.

Whilst the real pain of Wednesday’s judgment in Parbery & Ors v QNI Metals Pty Ltd & Ors [2020] QSC 143 will be felt by QNI’s general purpose liquidators (GPL) FTI Holdings, Queensland Supreme Court judge Debra Mullins didn’t pull any punches when it came to a couple of elements of the testimony of KPMG partner Peter Gothard.

Gothard had been brought into the proceedings by KPMG colleague and QNI’s special purpose liquidator (SPL) Steve Parbery, who needed an expert report determining, among other things, the date when QNI could be said to have become insolvent, a date asserted in the SPL’s statement of claim as October 9, 2015.

“What was disappointing about Mr Gothard’s evidence was that he was so insistent on his selection of the date of 9 October 2015 as the date that he had decided was the relevant date for the start of QNI’s insolvency, when it was obviously a date to which his attention had been originally directed.” Justice Debra Mullins.

Whilst the SPL extracted a $100 million settlement from QNI’s ultimate owner Clive Palmer in August last year, the GPLs have continued to chase claims for a further $100 million from the iron ore and nickel magnate based on the GPLs’ view that Palmer’s parent company Mineralogy was liable.

In rejecting that argument this week Justice Mullins referred to what readers might consider to be a certain level of testiness exhibited by Gothard during cross examination.

Palmer’s counsel sought to bring into question Gothard’s credit as an expert witness and initially Gothard wasn’t having a bar of any suggestion that the date of insolvency he’d arrived at wasn’t his own, independent conclusion.

He appears to have been of the view that it was a coincidence that the date he determined for QNI’s insolvency was the same date contained in the SPL’s statement of claim.

“During cross-examination, Mr Gothard denied receiving a letter of instructions and resisted accepting that he had been advised of that date and asserted he had arrived at the date independently,” Justice Mullins said.

“That resulted in a call by the corporate defendants for production of the earlier drafts of Mr Gothard’s report.

“When earlier drafts were produced, it appeared from the first draft that the instruction given to Mr Gothard in a letter of instructions was to prepare an expert report setting out, amongst other matters, whether QNI was insolvent as at 9 October 2015 and at all times thereafter.

“As it turned out, the affidavits of Ms (Natalie) Tatasciore established that a first draft of an insolvency report for the SPL had, in fact, been prepared by another partner of PPB Advisory, Mr (Scott) Pascoe, and that no letter of instructions had been sent by the SPL’s solicitors to either Mr Pascoe or Mr Gothard.

“Mr Pascoe could not continue as an expert, because of potential conflict of interest issues, when PPB Advisory merged with PWC in July 2018 and Mr Pascoe became a partner of PWC.

“The corporate defendants analysed the Pascoe draft and the first draft report prepared by Mr Gothard and established there was an identity of phrasing and words between about half of the first draft of the Gothard report and the Pascoe draft.

“When Mr Gothard was recalled and further cross-examined on the Pascoe draft, he conceded that he would have seen the Pascoe draft before he prepared the first draft, but did not think he and his staff copied from the Pascoe report necessarily.

“He also had to concede that his answer that he had arrived at the date of insolvency for QNI of 9 October 2015 independently was incorrect and that he had been asked to look at the date of 9 October 2015 for the purpose of his report.

“What was disappointing about Mr Gothard’s evidence was that he was so insistent on his selection of the date of 9 October 2015 as the date that he had decided was the relevant date for the start of QNI’s insolvency, when it was obviously a date to which his attention had been originally directed, whether by the SPL (because of its significance in the statement of claim) or as a result of taking over the Pascoe draft for the purpose of the preparation of his report,” the judge concluded.

Leaving that recalcitrance aside, the Palmer camp were given few other opportunities to discredit Gothard and were unable to land a telling blow.

The judgment refers to a few errors which, given the enormity of the task, would seem understandable and the judge didn’t regard them as having any significant bearing on the conclusions arrived at.

There was also some attention given to the absence of independence between Gothard and Parbery, given Gothard had been instrumental in luring Parbery from PPB to Ferrier Hodgson prior to KPMG’s takeover of the latter.

The judge stated that Gothard would’ve benefitted personally from the fees Parbery brought to Ferrier Hodgson and then KPMG, and said Parbery had acknowledged that neither he not Gothard were independent of each other.

As it turned out, that lack of independence was neither here no there.

Despite the urgings of Palmer’s defence team, the judge refused to “find that Mr Gothard was deliberately deceptive in the responses he provided in his sworn evidence, before the Pascoe draft was produced.

“Mr Gothard’s experience as an insolvency practitioner for over 30 years is such that his opinions deserve serious consideration, notwithstanding the disappointing aspect that I have referred to in relation to this evidence.”

In the wake of the judgment being handed down GPLs John Park, Kelly Trenfield and Quentin Olde issued the following statement.

“Justice Mullins found both the China First charge and the Waratah Coal charge, as set out in the Administrators 439A report, were uncommercial transactions and therefore voidable,” the GPLs said.

“It had been claimed that these transactions had resulted in QNI incurring a liability of approximately $135 million shortly prior to its administration and that obligation was secured by charges given to China First and Waratah Coal. The liquidators were successful in setting aside these transactions.

“Justice Mullins did not find in favour of the liquidator’s claim against Mineralogy.

“The liquidators and their legal advisors are reviewing the matter and considering their response to the judgement.”

The reality for the GPLs though is that it is difficult to see how the court’s declaration that the China First and Waratah Coal charges were uncommercial transactions leads them towards the kind of money that would cover the legal fees incurred by their funder, Vannin Capital.

And of course one must not overlook the possibility that Clive Palmer will make good on his threat to pursue a $50 million compensation claim against the GPLs and against Vannin.

The QNI insolvency has been incredibly instructive on many levels. And it may be that there are still many lessons, yet to be learned. Support INO’s continued chronicling of the insolvency sector.

10 Comments on "KPMG partner’s insistence “disappointing”: QNI Judge"

  1. John McGovren | 5 June 2020 at 10:07 am | Reply

    FTI Consulting really needs a weekend away to do some navel gazing over its handling of this trainwreck.

  2. John Park and Kelly Trenfield hopefully appeal, but having Australia’s ‘Mr Litigation’ coming after you personally can’t be pleasant or welcome news to the puppet masters of FTI based in Hong Kong.

  3. So the PPB as SPL extract $60 million from Clive and FTI get lumped with a costs order and the ire of Clive. Kind of redeems the decision of the AG Department to appoint an SPL, and maybe it will happen more often. Frankly the involvement of an overseas lit funder seemed unusual from the get-go. Good thing these funders now need to be licensed. This won’t be good news for FTI’s staff.

  4. Matt Goodman | 6 June 2020 at 4:44 pm | Reply

    I am disappointed that ARITA has not published a summary of this case so other practitioners can learn from the mistakes of FTI Consulting. Any timeframe, Narelle Winter?

  5. Vasta the Chicken Man | 6 June 2020 at 5:29 pm | Reply

    Implying the solvency expert lacked independence due to wording of the client’s engagement letter is over-egging the pudding by Her Honour. What do you think, Gosnell?

    • He testified and insisted in respect of one position and then when confronted by evidence he could not refute recanted. I have no reason to “think”.

    • Agree. Maybe Gothard could have been better in the box but sounds like KWM cocked up the engagement letter.

  6. Interesting and useful article Peter.
    Ch 26 of ARITA’s Code [3rd ed] gave useful guidance to IPs being either independent experts on insolvency, or giving evidence on insolvency in the matter to which they were appointed. This QSC decision reveals some of the areas needing care raised in that guidance.
    This guidance has been removed from the 4th ed, ARITA saying that “advisory services” covers it, which, in my view, it does not.
    But in any event, as to the law, the decision whether to get a truly independent expert, or rely on the IP, will depend on issues such as complexity, money involved, and funds available.

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