Judge criticised over Richmond ruling

By PAULA OLIVER

A High Court judge "blew a cannon through the Takeovers Code" when he made strict orders against meat company PPCS, it was claimed in the Court of Appeal yesterday.

Alan Galbraith, QC, representing South Island-based PPCS, argued that orders issued by Justice William Young last year went beyond the judge's jurisdiction and created conflict with the code.

Galbraith was speaking in the latest instalment of the long-running battle between PPCS and its Hawkes Bay competitor, Richmond.

For years PPCS has been trying to take over Richmond, but last year it was found to have used "gross commercial misconduct", breached the Securities Amendment Act, and told a series of untruths in its attempts.

PPCS was ordered to forfeit some of its shares in Richmond and lose voting rights on a large number of other shares.

Galbraith, pursuing an appeal in Wellington on behalf of PPCS against the penalty, yesterday argued that his client had been disproportionately penalised for the breach.

He said that Justice Young had misused the orders available to him to penalise PPCS when the law allowed only for immediate remedial solutions.

The bench of five Court of Appeal judges questioned Galbraith on the jurisdiction allowed by the law, whether it could be applied to shares acquired outside the actual breach, and whether deterrent orders could be made.

Galbraith said Justice Young had become involved in the wider war and did not focus on the consequences of the PPCS breach.

He conceded that PPCS had not filed substantial security holder notices in a timely fashion, but said that did not have any practical consequences.

One of the impacts of the orders has been that PPCS has lost voting rights on a significant number of shares it now holds.

Galbraith claimed that had distorted the market because a holder of little more than a 28 per cent economic interest in Richmond could now have voting control of the company.

"This has caused all sorts of problems," Galbraith said. "It's in conflict with the Takeovers Code."

Galbraith said PPCS wanted Richmond because it saw a seasonal fit between a South Island meat company and a North Island one.

There were marketing and administration synergies, and the opportunity for rationalisation.

Richmond, Galbraith said, faced the problem of only being attractive to a player already in the meat world. It was hard to find a buyer for Richmond shares, he said.

PPCS now held a large number of Richmond shares simply because it had paid more and that was evidence of a free market - the kind of transactions the law sought to promote, Galbraith claimed.

He said Justice Young had expected the cost of his penalties to be about $10 million, an amount that was unreasonable.

But even worse, the actual cost of the orders had been "something closer to $20 million". If the suspension on voting rights is removed, PPCS will hold voting and economic control of Richmond - the position it first sought.

Galbraith said that PPCS would make a full takeover offer if that occurred, "to resolve any continuing unhappiness out there".

Galbraith asked that the Court of Appeal rule that PPCS forfeit almost 300,000 shares, known as the "Nelson shares", and pay costs for Richmond and a group of shareholders known as the Bell group.

To go further would be unfair.

In reply, Robert Dobson, QC, representing the Bell group, argued that there was jurisdiction for Justice Young to make the orders he did.

Dobson said that the Bell group was looking to strip PPCS of any advantage it gained from its misdemeanours.

Dobson will continue his submissions today.