Berkshire to challenge NZ court jurisdiction in insider case

The Boston-based Berkshire Fund will challenge the jurisdiction of the New Zealand courts to hear the Tranz Rail insider trading action.

Berkshire Fund III and its former managing director Carl Ferenbach - who are among six defendants to the Securities Commission's action - will file their objections to the commission's claims by February 1.

Auckland Queens Counsel David Williams notified the Auckland High Court registrar earlier this week of his clients' intentions.

The defendants, who reside in the US, will join Australian-based co-defendant Mark Bloomer - who this week issued his own "appearance under protest" - in contesting the ability of the New Zealand courts to hear an action against them over the disposal of Tranz Rail shares.

The new jurisdictional challenge was signalled as Auckland High Court judge Hugh Williams prepared to hold a telephone conference this morning to rule on a push by Midavia Rail Investments (owned by Sir Michael Fay and David Richwhite) and Richwhite to hold the insider trading case on the commercial list in Auckland instead of in Wellington.

In a memorandum, David Williams suggested that even though his own clients intended to challenge the jurisdiction of the New Zealand courts, he would like to participate in the telephone conference to "consider the future conduct of the proceeding". David Williams will then file the appearance and protest in whichever High Court the judge decides.

The commission alleges Berkshire's sales occurred while the defendants held internal reports that showed the company's finances were failing. An additional action for tipping has been taken against Ferenbach.

Berkshire sold its 3.5 per cent stake in Tranz Rail on February 12, 2002, at $3.60 a share, just months before serious writedowns were revealed.

The private equity partnership has "emphatically denied" allegations of "securities violations" in Tranz Rail shares by either itself or Ferenbach.

Berkshire's solicitor, Rick Shera of Lowndes Jordan, indicated one key objection in the forthcoming challenge was the commission's decision to launch proceedings without "even having spoken" to the defendants over the sale the Tranz Rail stake. Berkshire maintains the share sale was made in compliance with the fund's "strict internal procedures and securities regulations in both New Zealand and the US".

"In 20 years of fund management ... Berkshire has always held itself to the highest standards and this investment was treated no differently."

Ferenbach, 62, who is a Berkshire general partner, is also chairman of English Welsh & Scottish Railway, Britain's largest rail freight operator.