Two
Hanover directors who allege they have been defamed by shareholder activist
Bruce Sheppard obtained a High Court order that the trial be heard before a
judge alone, rather then a jury. Mark
Hotchin and Eric Watson allege comments made by Sheppard in 2009 and 2010 were
defamatory by painting them as businessmen who had dishonestly misled investors
in Hanover, as “crooks” who should be imprisoned, as having participated in a
GST fraud and as having misappropriated cash belonging to Hanover.
In his defence,
Sheppard says his comments are honest opinion and were made under qualified
privilege.
Justice Cooper ruled
that a judge-alone hearing was more appropriate because the trial would require
consideration of complex financial transactions entered into over a three or
four year period involving a number of businesses. Complex legal, accounting, insolvency,
property, tax and finance issues will arise.
The defamation action
has its origins in a debt restructuring proposal put to Hanover investors in
December 2008 and the sale by Hanover of its interests in a Queenstown property
development. Hanover froze investor
repayments the previous July, affecting more than 16,000 investors owed more
than $550 million. Investors subsequently
agreed to a debt restructuring which promised for secured investors 100 per
cent repayment spread over five years and for unsecured investors fifty cents
in the dollar after four years.
Outcomes have been
less satisfactory than investors hoped.
Hotchin and Watson
responded to Sheppard’s public criticism by suing for defamation.
Damages can be reduced,
even if comments are found to be defamatory, if it is established that the
person defamed has a reputation of little value.
Justice Cooper refused
an application by Hotchin and Watson to remove from the court record past
instances where they had been separately censured for market irregularities in
securities trading:
·
in
December 1998, Watson was censured by the Securities Commission for buying more
than two million shares in McCollam Print while negotiating its takeover by
Watson’s Blue Star Group;
·
in
1998, the US Securities Exchange Commission found Watson had breached US
securities law when buying and selling McCollam shares at the same time as
negotiating the purchase of McCollam for Blue Star;
·
in
1999, Hotchin breached Securities Commission guidelines on insider trading in
relation to the purchase and sale of shares in Pacific Retail Group; and
·
on
17 August 2000, Pacific Retail Group (majority owned by Watson) publically
admitted Hotchin had breached Securities Commission guidelines.
Sheppard says these are specific instances of
misconduct relevant to Hotchin’s and Watson’s business reputations and are relevant
to any question of damages if defamation is proved.
Hotchin
v. Sheppard – High Court (3.05.13)
13.011