In the minority

By Jenny Ruth

Tuesday 1st July 2003

John Powell is a lawyer's delight. The Christchurch commercial property investor gets embroiled in a major legal stoush about once a decade. In the latest, the 55-year-old has bought a fight with Trans Tasman Properties' 55% majority shareholder, SEA Holdings, controlled by Hong Kong-based Jesse Lu. Powell's gripe: that TTP has been behaving oppressively towards its minority shareholders. He wants SEA to buy him and his investment company, Latimer Holdings, out of their combined 2.9% shareholding in TTP at net asset value of 55c a share - nearly double the current share price and more than twice the price he paid for the stake.

Powell has made a bold call in taking on SEA, but he's won the backing of a swathe of other minority shareholders unhappy with the company's behaviour and with TTP's performance. And his long apprenticeship of disputes and court battles shows he's not shy of conflict. Back in the early 1980s he owned a steel framing business that wound up in the thick of the infamous boilermakers' dispute. The Muldoon government tried to break the power of the Boilermakers Union by changing the construction of all government buildings from steel to concrete - a decision that had huge implications for Powell's company. At the same time his company was working on a container crane site that had been blacklisted by the union. Caught from both sides of the dispute, he tried to force the government to change tack by bringing in a gang of 60 Christchurch workers to finish the crane project over a weekend, thumbing his nose at the union. It won him publicity but little else.

His track record in court battles is better. His first legal wrangle was when he was in his 20s and was contracted to build a Christchurch office building for two developers who refused to pay him. He took them to court and won. Later, as the owner of four 80-foot fishing trawlers, he took the government to court and won in a dispute over the allocation of fishing quota. And he ended up settling out of court in a dispute with the former Apple & Pear Board over cool store facilities provided by another of his companies.

His current lawsuit against SEA is under section 174 of the Companies Act. It's the first of its type to be taken against a publicly traded company, although it is not an uncommon cause of action against private companies. No one knows this better than Powell. About nine years ago, an employee of his, a financial controller who was also a minority shareholder in Latimer Holdings, successfully used section 174 against Powell's company. The financial controller hadn't liked the price Powell offered to pay him for his stake, and the purpose of the court action was to determine a fair price. "It's not really a matter of whether you've done right or wrong. It's whether oppression has occurred. In retrospect, we should not have defended it," Powell says.

He sees no reason why this section of the law can't be used against a public company, but he faces a high legal threshold. He has to prove "unfair conduct which is prejudicial to the interests of the minority". Local legal opinion says oppression actions are difficult to prove and rarely succeed. "The courts generally aren't going to allow this remedy merely because you're annoyed. You have to show a much higher threshold before the court will intervene," says one securities lawyer. Powell has encouraged other shareholders to join him in the case and he now represents nearly 20% of the company, including his own stake. He's aiming to get a payout for these shareholders, for whom he is footing the legal bill.

Why doesn't he just sell out if he's not happy with the company? At the current share price he'd more than recover the average price of 25.2c he paid between May 2001 and August 2002 when he accumulated his stake in TTP. The price hit 30c in June after its 50.1%-owned subsidiary Australian Growth Properties announced the sale of its George Street, Sydney properties to a German pension fund for $A397 million.

But Powell and his lawyer Steven Rennie, of Rhodes and Co in Christchurch, believe there is a larger principle at stake. Rennie says even if an investor buys shares at half their capital value, he's still entitled to expect that his interests will be advanced. Powell says shareholders are getting nothing out of TTP currently - dividend payments have been suspended since October 1998. Meanwhile SEA has a $6.5 million a year management contract to AGP.

Certainly, Powell is not the first to complain about TTP's performance. Last year Sir Ron Brierley's Guinness Peat Group attempted to have TTP wound up because of its dismal performance. GPG director Tony Gibbs said TTP executive chairman Don Fletcher and the board had been "serial under-performers for years". The wind up attempt failed, even though 90.4% of the shareholders not associated with SEA voted in favour of it. For his part, Fletcher sees nothing wrong in the fact that SEA, as the majority shareholder, was able to scuttle the vote.

Shareholder discontent dates back to its 1995 formation with the merger of Seabil (NZ) and Tasman Properties (formerly Robt Jones Investments). It has reported losses in four of the seven years since its formation, with combined losses of $57.3 million over the period. Net asset backing has fallen from just over $1 a share in late 1995 to 55c.

Arguably, Powell should have known what he was getting into. But he claims he was unaware of TTP's history when he bought the shares and was simply attracted to the large discount to net asset backing at which they were trading.

Meanwhile, the views of SEA and TTP's minority shareholders look set to diverge further in the wake of the George Street sales. AGP has already hinted it will reinvest the sales proceeds, despite other shareholders indicating they would prefer to have cash returned to them. Powell estimates that cash would be worth 22c or 23c a share to TTP shareholders. AGP chairman Rod McGeoch says the board is getting "strategic investment advice as to the commercial options available". The George Street properties amount to 80% of AGP's assets and will therefore require approval by its shareholders.

Fletcher, who is also managing director of AGP, says Powell's proposal to return the cash would have to get past two hurdles. First, AGP's shareholders would have to vote in favour of it, and even if they did the cash would go to TTP rather than its shareholders. Second, because the sales account for more than 50% of TTP's market capitalisation, TTP shareholders also get to vote on the sales (although the company has asked the NZSE to waive this rule). Fletcher says SEA would be entitled to vote on this, but Powell claims it would have a conflict of interest because the value of its AGP management contract would be adversely affected if the George Street proceeds were not reinvested. Further, Powell says, if the stock exchange grants the waiver, he has sufficient support to call a special shareholder meeting.

Powell had initially planned to pursue both SEA and TTP itself through the courts, but last month he decided to drop TTP out of the action. It has responded with a threat to seek recovery of costs, which Fletcher says are still being "totted up". Powell was also forced to publicly apologise to TTP for defamatory statements he made relating to the court case.

Despite his litigious history, Powell paradoxically says he doesn't favour taking legal action: it's costly and a victory through the courts is seldom achieved without compromise. So why do it? "It gets to a stage where you've got to say, 'someone has to stop them from getting away with it'."

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