By Chris Hutching
Friday 3rd October 2003
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The judges dismissed the appeals of Richmond and the Bell Group shareholders who wanted PPCS to pay the ultimate price of having all its shares in Richmond confiscated.
"The [High Court] judge [Willie Young] was influenced in framing his decision on sanctions by the desirability, as he saw it, of ending the fight for control of Richmond," the Appeal Court said.
"The effect of his orders was to strip PPCS of any voting power other than that obtained through its takeover offer while leaving PPCS with an economic interest in Richmond.
"We have considerable reservations concerning an approach to s32 [of the Securities Act] involving framing orders to set up incentives either for a complete takeover by a protagonist in a battle for corporate control or a complete exit from the target company. Such solutions require judgments on likely market behaviour concerning which judges lack expertise.
"The adversarial process is ill-equipped to inform them of the plethora of different interests affected. Their imperfect knowledge of the economic consequences of their decisions will regularly lead to outcomes different from those they anticipate.
"The outcome of the [High Court] judge's orders in this case, to date at least, leaves a continuing stalemate rather than a clear solution. Perhaps the stalemate would be ended if the High Court judgment were left undisturbed and PPCS were, sooner or later, to get 50% of the voting shares. Perhaps other shareholders would then flock to accept whatever offer it then makes.
"Alternatively, PPCS might give up, sell its holding and leave the company. Perhaps, however, the market forces operating in respect of this particular company will provide a different solution. The obvious danger of creative judicial interventions in relation to market procedures is reflected in the present situation in this case."
But the Appeal Court agreed with Justice Young that the level of forfeiture should approximately correlate to a fine of $10 million.
"A sanction at that level reflected the very serious nature of both the original and the repeated breaches as well as the exacerbating effect of PPCS' continuous deception of the market and Richmond directors and shareholders over two and a half years. It is highly relevant that the core breach involved a shareholding of great strategic importance in a major New Zealand company.
"The conduct was planned with the assistance of a high level of legal expertise, from which we infer that there was a full awareness of the risks that PPCS was taking and a degree of confidence that they would not be caught."
The deception, albeit legal initially, began in 1996 when PPCS bought its first shares via two nominees but a year later Richmond became an issuer of securities under securities legislation, and when PPCS commissioned another nominee, HKM, to buy a 35% stake it was required to declare its interest but failed to do so. It had also engaged another nominee to take a 0.7% stake.
When Richmond directors became aware of the situation they were able to force PPCS to dispose of the shares, so it sold them to Active Equities in July 2000. PPCS continued to buy shares on market and declare its interest and subsequently bought back the 35% stake in June 2001 from Active Equities raising suspicions unsubstantiated in the courts that PPCS had "warehoused" them. Richmond parties then initiated High Court action over the way PPCS had acquired the shares.
The key legislation that the Appeal Court judges considered was the scope of s32 and they found the penalties should not affect shares bought and declared legitimately.
"Parliament intended that market forces should be able to operate, free from judicial interference," the Appeal Court said.
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