Richmond demands punitive penalty for PPCS

By Chris Hutching

Friday 6th September 2002

Control of a major stake in listed meat company Richmond hinges on penalty arguments being presented in the High Court at Christchurch today after an interim judgment from Justice Willie Young.

Neither side in the dispute was giving any hints this week about the penalty being sought although the Richmond parties have previously indicated they would like to see PPCS ordered to sell its entire 51% stake.

After two weeks of hearing evidence recently about how South Island meat processor PPCS acquired shares in North Island-based Richmond, Justice Young last Friday upheld the Richmond challenge over the way PPCS bought Richmond shares in 1998 from the Meat Board by using nominee company, HKM Associates, to hide the true ownership.

But he accepted Richmond's withdrawal of accusations PPCS had later warehoused the shares with another company, Active Equities, after being ordered to sell the shares. In both cases PPCS provided funding for HKM and Active Equities.

On the five counts alleged by Richmond parties the judge:

* agreed with Richmond that HKM Associates was an undisclosed nominee company for PPCS when it bought a 34% stake of Richmond shares from the Meat Board in 1998;

* accepted PPCS failed to disclose its interest in a small parcel of 290,000 shares in several notices lodged by PPCS between February 1999 and July 2000;

* rejected the Richmond argument that the PPCS guarantee of a Citibank loan for the Active Equities purchase of the 34% created a relevant interest in law;

* rejected accusations another company with a 10% stake, Toocooya, had acted as a PPCS nominee in 1999; and

* rejected the plaintiffs' fifth contention that because PPCS failed to dispose of a 1.4% stake bought by another nominee, a Mr Nelson, in 1996 and 1997, that all shares subsequently bought by PPCS should be sold.

Justice Young said the hostility of Richmond toward PPCS was important and went a long way to explaining actions that might otherwise be thought to have been inexplicable and "provides a setting in which there have been remarkable errors of judgment by people who ought to have known better." The judge highlighted the actions of PPCS lawyer David Stock who facilitated and helped structure the deals. There were "gross breaches" in relation to the nominee status of the HKM shareholding and the failure to disclose the nominee shareholding in the name of Mr Nelson on at least three occasions in faxed communications by Mr Stock, Justice Young said.

The proposal by PPCS solicitors and its Westpac funder to use HKM as a nominee was code-named "Project Josh" a reference to the Otago and All Black loose forward Josh Kronfield. Documents referring to "Project Josh" used code names for the key participants in what was proposed. PPCS was referred to as "Flanker," HKM as "Halfback" and Richmond as "Fullback."

Justice Young concluded Mr Stock and HKM principal Alan Haronga exhibited "credibility problems" and the same was true of PPCS chief executive Stewart Barnett.

"As far as Messrs Barnett and Stock are concerned, the failure to disclose the nominee status of Mr Nelson involved repeated untruths. When the time came to take the shares from Mr Nelson, this too needed the cover of a false transaction, which Mr Stock provided."

Among other discoveries were letters sent on January 7, 1999 by Mr Haronga to Mr Barnett in anticipation of an announcement to Richmond that PPCS had an interest in HKM.

The judge said: "The letter of January 7, 1999 began: 'Enclosed are three letters to reflect a logical flow of discussion over a short time period to achieve our objectives. Your comments to enhance are welcome. You may want to check dates to ensure we are not embarrassed by one of us being somewhere else at the time our discussions were supposedly going on. If you are comfortable with the dates, could you respond with your note to coincide around January 4, 1999.'

"It is perfectly clear," Justice Young continued, "that Mr Haronga backdated the letters of December 23, 1999, December 26, 1999 and January 4, 2000 and was proposing to Mr Barnett that he respond with a letter backdated to or around January 4. Mr Haronga implausibly denied this in the witness box but had no acceptable explanation for the terms of this letter. I note in passing that Mr Barnett accepted that the enclosed letters had been backdated. Mr Haronga's attempts to put a somewhat more positive spin on his use of this word were also distinctly unimpressive."

Justice Young criticised Richmond, noting a letter sent by Richmond chief executive John Loughlin to Mr Barnett appeared to be an attempt to make Mr Barnett an insider under the Securities Act.

Justice Young outlined how the inhouse solicitor employed by Richmond arranged for a Mr G S Trengrove to travel to London and approach Noel Bates (previously the Citibank manager responsible for its relationship with PPCS) and encouraged him to talk about his role in financing the July 2000 sale between PPCS and Active Equities.

He approached Mr Bates claiming he had been commissioned by an Asian client to produce a short list of possible investment managers to manage a substantial proposed New Zealand investment and that Mr Bates might be suitable for the job.

He was able to gain the confidence of Mr Bates and discuss with him his previous work experience and, in particular, the role which Mr Bates had in the financing of the sale by PPCS to Active Equities.

Mr Bates revealed to Mr Trengrove the existence of the guarantee provided by PPCS to Citibank. He also said Active Equities had indeed warehoused the shares for PPCS.

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