Baycorp fends off 'duping' case in two hemispheres

By Deborah Hill Cone

Friday 28th May 2004

Listed credit company Baycorp Advantage is embroiled in a court battle in both Auckland and the US after a Texas-based company claimed it was "duped" into investing in a little-known associate company called Finance House.

The Houston company FCA Investment Corp has filed proceedings in the Texas District Court seeking damages for having been misled the American court uses the word "duped" into investing in Finance House, which is 30% owned by Baycorp.

In an early hearing in the case, FCA also claims Baycorp "plundered" the assets of Finance House.

Baycorp denies the claims.

The Texan case this week spilled over into the New Zealand jurisdiction in response to orders from the Texas judge that Baycorp must provide documents to help the US litigants prepare their case.

The Baycorp parties, represented by boutique firm Lee Salmon Long and Robert Fardell QC, argued before Justice Paul Heath in the High Court at Auckland last year that the American orders were too wide.

In what looked like a fishing expedition, the plaintiffs were seeking reams of documents dating back almost 10 years, as well as evidence from key Baycorp staff including former managing director Keith McLaughlin, former chairman James Boult and two others.

Justice Heath agreed with Baycorp, saying since the documents being sought, dating from 1995 to 2000, were no longer in the former Baycorp managers' possession the plaintiffs would need to get a subpoena and be more specific about what they were after.

After months of legal to-ing and fro-ing, this week Baycorp appeared in court and had boxes of documents tabled into court by accountants Ernst & Young and PricewaterhouseCoopers so the papers can be sent to the US plaintiffs as part of the discovery process.

The details of the FCA proceedings remain unclear although a statement released to NBR from Baycorp managing director Andrew Want said the principal of FCA was a sophisticated investor and lawyer "with strong connections to and knowledge of the New Zealand marketplace."

Want said Finance House, which operated in the sub-prime lending market, was entirely independent and Baycorp did not have management control of it.

The company stopped trading in 1998 and all investors incurred losses, Want said.

"Certain investors" had refused to pay calls on their shareholding resulting in money still being owed to the entity, Want said.

Companies Office records link Finance House to Wellington establishment figures Bryan Johnson, David Wale and John Benton through their company Jarden Investments.

Johnson is a former head of First New Zealand Capital and a major investor in the wine industry, while Wale is a former chairman of the Stock Exchange.

Companies Office records show Finance House, which was formed in 1996, has two million shares on issue with Baycorp Advantage Holdings (NZ) holding 600,000, Jarden Investments holding 400,000 and Supurimex Corporation, a Hong Kong company, holding 200,000.

Neither official records or Baycorp's own database show who holds the balance of 800,000 shares although Want's statement suggests FCA itself was a shareholder.

In the late 1990s Finance House came under fire from the Green Party which called the company "loan sharks" for offering patients loans to pay for private surgery.

Baycorp said Finance House stopped providing loans in 1998 and since then the company's operations have been restricted to collecting outstanding debts.

Want said "suggestions that Baycorp's growth and expansion into the Australian market over one year after the failure of Finance House and in a completely different business, is in some way connected to Finance House or its intellectual property is a complete nonsense."

Meanwhile, the High Court register shows this case is not the only litigation involving Finance House. High-profile motoring magnate Colin Giltrap and his wife Jennifer this month each filed separate proceedings against Finance House.

No details were available about the substance of their case or whether it was linked to the FCA action.

Giltrap's assistant said he would not be available for some time and would not comment on the matter.

Meanwhile, Baycorp Advantage's shares were trading at $2.95 this week, up from a 12-month low of $1.48 but off a high of $3.35.

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