Naivety may not be sufficient grounds for panel prosecution

By RICHARD BRADDELL

"None was more surprised than we, your Honour, that having pulled the trigger, the gun discharged."

While there is widespread agreement that the stock exchange's market surveillance panel was incredibly naive in granting its waiver to Lion Nathan for Montana last week, it is less clear whether that naivety amounts to negligence sufficient to support legal proceedings.

Commercial lawyer Stephen Franks is a former market surveillance panel member and now an Act MP.

He says that under principles of administrative law, the courts may set a higher negligence threshold than usual given the voluntary nature of the work done by the surveillance panel.

Mr Franks compared the panel's job with the position of voluntary race officials who were recently charged over a fatality.

"They get paid an hourly rate, but it's way below the cost of the time for my firm," the former Chapman Tripp lawyer said of his time on the panel.

Furthermore, Mr Franks said a possible action could be hampered by the statement in the listing rules that the need for certainty and speedy administration might preclude exhaustive investigation and long deliberation.

Although the uproar created by last Thursday's waiver might have been avoided by simply suspending Montana until all the information was before the market, Mr Franks said sophisticated markets were reluctant to do so on the principle that people should appraise their own risks.

However, he said the fiasco might have been avoided had the surveillance panel paused to give reasons for the waiver, and in doing so focused its collective mind on the problems inherent in its move.

But while the threshold for a breach of a duty of care could be high, Mr Franks said other limits of liability in the listing rules had their limitations.

While the rules held that no member of the panel or employee of the exchange could be liable, either in tort or contract, that was binding only on the listing companies which were parties to the contract underpinning the listing rules.

That said, there was uncertainty in New Zealand law about the application of provisions in the listing rules that confer rights on beneficiaries such as shareholders, said Mr Franks.

Taking the bad with the good, there is a school of thought that they might also be blocked from bringing an action.

If a court so held, then Montana chairman Peter Masfen, who owns 19.9 per cent of the company, and the other minority shareholders might be barred from an action, although there would be no impact on Allied Domecq.

Finally, there remains the question of whether there is anyone who has deep enough pockets to come up with the tens of millions of dollars that might be awarded in damages.

In this case, the listing rules help, since the listed company is contractually bound to indemnify the exchange and panel members from liability.

Potentially, Lion Nathan could end up paying 51 per cent of an award through its ownership of Montana.