'Public interest’ crux of appeal

Justice Hugh Williams must grant the Securities Commission leave to appeal his decision that it cannot claim punitive damages against the expatriate tycoons and US funds managers who sold Tranz Rail shares when the company's fortunes were deteriorating.

Briefs for Sir Michael Fay and David Richwhite and Berkshire Funds III and its managing director, Carl Ferenbach, were cock-a-hoop when Justice Williams ruled the watchdog's claim to maximum damages of three times the losses allegedly avoided through the share sales was statute barred.

The High Court judge effectively quartered the amount the commission could hope to achieve if it manages to win the insider trading action from tens of millions of dollars to mere "pocket change" for the offshore investment bankers. Inevitably the prospect of opening settlement negotiations has been raised.

But the commission believes there is a "public interest" issue at stake in this insider trading proceeding, which on the surface appears to be driving its actions.

It has disclosed a welter of information, much of which would have been available to the then Market Surveillance Panel when it investigated whether the market had been fully informed about Tranz Rail's deteriorating fortunes in early 2002. The panel's report was limp-wristed.

But it does not appear - on the basis of court documents - that the commission has its own "smoking gun" in the form of witnesses lined up to disclose salient facts that make an insider trading finding inevitable in the Tranz Rail case.

It is of course extremely difficult to prove insider trading.

Proceedings have been filed or threatened before in New Zealand, but no case has lasted the distance. Players such as Eric Watson (McCollam Printers) and Kerry Hoggard (Fletcher Challenge) settled by paying compensation without admitting guilt. But the evidence mustered in their cases was much more clear cut.

Two former Tranz Rail executives (ex-CEO Michael Beard and former CFO Mark Bloomer) have followed this route in the Tranz Rail case. But they were small fry.

The amount of damages the commission would have picked up from them (if they proved the allegations) would not be sufficient to cover its QC's bills.

But if the watchdog's case is to pick up steam it needs to outline why this particular action is so much in the "public interest" and why the Limitations Act should be waived in this case. If Williams accedes, it will inevitably go all the way to the Supreme Court.