Hamish Fletcher

Business reporter for the NZ Herald

Hotchin, Watson past should be heard in court - Sheppard

Mark Hotchin. Photo / NZ Herald
Mark Hotchin. Photo / NZ Herald

Shareholders' Association founder Bruce Sheppard cannot accept that alleged past "misconducts" of Mark Hotchin and Eric Watson would be irrelevant when considering the pair's reputation in their defamation case, a court has heard.

The businessmen, one a former director and the other a promoter of Hanover Finance, are suing Sheppard over allegedly defamatory comments he made about them on television, radio, emails and on blogs.

The statements were concerned with the pair's involvement in the collapse of Hanover Finance in 2008 and the widespread losses that ensued from this event.

The defamation action is not due to go to trial until August, but the two parties' lawyers were in court this week arguing whether the proceedings should be heard by just a judge or a judge with a jury.

Hotchin and Watson's lawyer, Julian Miles QC, also applied to review a decision from the High Court last year on whether pleaded instances of Hotchin and Watson's alleged past "misconduct" could form part of Sheppard's defence.

These instances include Watson being censured in 1998 by the Securities Commission for buying shares in McCollam Print while negotiating its takeover by an entity related to him.

They also include claims Hotchin breached Securities Commission guidelines in 1999 on insider trading in relation to the sale and purchase of shares in the Pacific Retail Group.

In citing these alleged "misconducts" Sheppard is seeking to show Hotchin and Watson were not persons of "particularly good reputation" in an area relevant to the current proceedings.

Associate Judge Jeremy Doogue refused to strike out these particulars from the proceedings in October last year.

Referring to Doogue's decision, Miles argued yesterday that the defendant didn't have documents associated with these alleged misconducts and called it a "fishing expedition".

Miles doubted if anyone viewing the television show where Sheppard made some of the allegedly defamatory comments would have been aware of what the QC had earlier called "technical breaches".

Miles said they were "a classical example of an irrelevance" and something which were "a side issue" at best.

He said the matter could potentially divert the attention away from the main issues in the proceedings, which were "complicated enough as it is".

But Sheppard's QC, Bruce Gray, said this morning those promoting an offer of debt securities to the public necessarily put their personality behind it.

"The defendant, your honour, cannot accept that a finding of any kind of insider trading is merely technical or irrelevant. Misuse of price sensitive information is central to the workings of the market. Asymmetry in information perverts the market and so the defendant would say the court should not and could not find that a finding of insider trading was not relevant to a person who was issuing debt securities to the public," Gray said.

Gray said the alleged misconduct was mentioned in a newspaper article in August 2008 and so was still something referred to when considering the reputations of the plantiffs.

In his reply to Gray this morning, Miles said the matters were no longer "part of the fabric of the plaintiff's reputation".

Gray also expanded on his arguments this morning as to why the trial should be heard by a jury and not a judge-alone.

He said the public had an interest in the administration of law in this field.

"We point to the public interest in a defamation proceedings such as this having factual issues resolved by members of the public," Gray said

Yesterday, Miles applied for the case to heard by a judge alone and said it was "effectively major commercial litigation".

There would be a "relatively complex and sophisticated investigation" into facts, judgments, documents and expert evidence on these matters.

"I think I can say with absolute confidence that the documents themselves are, at the very least, complex," he said.

But Gray told Justice Mark Cooper that the documents referred to by Miles had been issued to the public and were intended to be understood by the public.

Although Sheppard was personally indifferent as to how the trial was to be heard, Gray said his client believed the proceedings "in principle should be left to a jury".

Justice Cooper reserved his decision on the review of Associate Judge Doogue's decision and the judge-alone application.

- NZ Herald

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