Judge wrong in Rubicon case, hedge fund tells Appeal Court

By PAULA OLIVER

Multibillion-dollar US hedge fund Perry Corporation yesterday argued that a New Zealand High Court judge was wrong when she ruled that it had breached local securities laws and hidden an interest in Rubicon.

Justice Judith Potter stunned the big overseas fund in March when she ordered Perry to forfeit shares worth $8 million and sell 24 million shares as a penalty for failing to disclose a nearly 16 per cent stake in Rubicon.

Perry had entered into cash-settled equity swaps with investment banks UBS Warburg and Deutsche Bank.

A stoush erupted between Rubicon shareholder Guinness Peat Group and Perry over whether the US hedge fund had failed to disclose a significant interest in Rubicon.

Crucially, the court found that an "arrangement or understanding" existed between Perry and the investment banks for Perry to buy back the shares - a breach of the Securities Markets Act.

Yesterday, before a bench of five judges in the Court of Appeal at Wellington, Perry lawyer Alan Galbraith QC argued that Justice Potter's ruling was flawed.

Galbraith said that no such arrangement, or "wink and a nod" understanding existed.

Instead, he argued, it was inherent in the nature of equity swaps that a party in the position of Perry would be confident that it could get a physical shareholding when the swap was unwound.

Therefore Perry had no need to get into any special or secret understanding.

Galbraith told the judges that Justice Potter had put too much emphasis on some evidence, and not enough on other more crucial parts.

She had used flawed reasoning and effectively shifted the onus of proof on to Perry to prove that no arrangement existed.

Justice Potter had also decided that Perry took part in the transaction to avoid disclosure - which Galbraith said was wrong.

"It wasn't for an evil purpose."

The appeal is being closely monitored internationally, after overseas articles stated that the case could have global implications.

As well as considering the question of a breach, the judges have been asked to reconsider the orders given by Justice Potter.

Galbraith asked that they be reduced should the original finding of a breach be upheld.

"On the evidence no consequences have been shown to have arisen from the failure to disclose the Perry interest during the time it was an equity swap," Galbraith said.

The appeal continues tomorrow, with lawyers representing GPG and Rubicon set to make submissions.