Hanover pair fight to have earlier misconduct dropped – court

Update / 3pm:  A lawyer for Hanover Finance front men Mark Hotchin and Eric Watson says regulatory breaches they made more than a decade ago are not relevant to the defamation claim they have brought against Bruce Sheppard.

Queen's counsel Julian Miles wants the High Court to review the decision of an associate judge last year dismissing the pair’s application to strike out “particulars of misconduct” from the trial.

These include claims Mr Hotchin breached insider trading in relation to the sale and purchase of Pacific Retail Group shares in 1999 and Mr Watson's 1998 censure by the Securities Commission for a transaction relating to McCollam Print.

Mr Sheppard wants to cite these alleged misconducts in his defence to the pair’s allegation he defamed them with his allegations in 2009 they had behaved criminally and fraudulently as Hanover Finance’s shareholding frontmen and deserved to be imprisoned.

But at Auckland High Court today, Mr Miles said Bruce Sheppard was on a “blatant fishing exercise”.

“To use this as a means to trawl through a businessman’s life looking for a flaw somewhere cannot be right.”

Mr Miles asked why the court would risk diverting the defamation trial because of a regulatory breach 10-12 years ago but no finding of criminality.

His clients were deemed to have good reputations and did not have to go in the witness box to prove it, he said.

But Mr Sheppard’s QC Bruce Gray said the breaches were relevant because it was the pair’s business reputation Mr Sheppard was alleged to have tarnished with his comments.

“We say that is the field that defines what issues and interest are relevant,” he said. “The court can not find a finding of insider trading was irrelevant to a person issuing debt securities to the public.”

Although Mr Miles had argued the breaches were too far in the past for them to be relevant, Mr Gray pointed to newspaper reports in 2008 which made mention of the breaches in reference to the pair.

Associate Judge Jeremy Doogue was right to find the matters pleaded were capable of establishing whether the men had reputations that were generally bad, he said.

The submissions on review of the strike-out application followed arguments about whether the trial should be heard by a judge-alone or a jury.

Mr Miles told Justice Mark Cooper the defamation action was major commercial litigation involving complex financial documents and should be heard by a judge alone.

But Mr Gray argued the documents had been intended for, and issued to, the public. This raised issues topical to other prosecutions of finance company directors under the Securities Act.

“For investors in debt securities in these finance companies, what is it they understand from the documents and representations made to them to induce them to purchase the debt securities or in this case, to accept the re-arrangements of their rights and entitlements?

“We point to public interest in a defamation proceeding such as this having factual issues resolved by members of the public,” Mr Gray said.

Justice Cooper reserved his decision.

gbond@nbr.co.nz

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