Waiver may trigger class action

By ELLEN READ markets writer

Maverick Auckland accountant Bruce Sheppard is enlisting support for a class action against the New Zealand Stock Exchange over its handling of the Montana takeover.

Mr Sheppard, who is setting up a watchdog group for small shareholders, claimed yesterday that he had received support from senior sharebroking figures for a legal fight.

He also said that a prominent QC was prepared to investigate the case.

He refused to name the figures, and conceded that others would need to join the action to share likely costs.

But legal experts who spoke to the Business Herald this week believe the group is likely to face an uphill battle.

The Act MP Stephen Franks, a former lawyer and a former member of the market surveillance panel, has also cast doubt on the strength of a legal case.

The exchange's managing director, Bill Foster, was unavailable for comment last night.

Mr Sheppard claimed the exchange's members - New Zealand's broking firms - should be worried about the possibility of paying up to $80 million in damages.

He also claimed the move could effectively stymie any merger between the New Zealand and Australian exchanges because it could take years to resolve.

The decision by the exchange's market surveillance panel to grant Lion Nathan a waiver from the normal takeover rules enabled it to make a lightning raid on New Zealand's biggest winemaker, shutting out a rival offer from British liquor giant Allied Domecq.

Mr Sheppard maintained yesterday that the legal issues were "fairly clear."

The group would argue that the stock exchange existed to ensure fair trading between buyers and sellers of listed public company shares.

An admission by the exchange this week that it was unhappy with the panel's decision, which had had "unintended consequences," was tantamount to admitting negligence.

"Clearly their actions have achieved the exact opposite result of that in the case of Montana.

"They even admit that the outcome of their decision was not what they contemplated.

"They've admitted negligence."

Another key issue was whether the exchange owed the owners or intending owners of shares in public companies a "duty of care."

The group believes the exchange could be liable for damages equalling the difference between the $4.40 a share price offered by Allied to all shareholders, and the weighted average sale price achieved on the market after Lion's successful raid, which is about $3.60.

This works out at around $80 million, which would have to be shared among all the exchange's member firms.

Montana chairman Peter Masfen has ruled out taking legal action himself, although Mr Sheppard said he hoped to persuade him to change his mind.