Judge dismisses claim of deceit in Tui merger

By KEVIN TAYLOR

After a five-year fight, former Tui dairy farmers have lost a court battle sparked by the 1996 merger with Taranaki-based Kiwi Co-operative Dairies.

But the 288-strong group are now obtaining more legal advice and an appeal may be possible after an eight-week court hearing last year.

The merger of the larger Kiwi with Tui Milk Products created the second-largest dairy company in New Zealand at the time, but a group of Tui shareholders were disgruntled and three years later started court action alleging a plan of deceit.

The group represented about 20 per cent of Tui's shareholders and sought $25.6 million in damages - $89,000 a shareholder.

Hearings were held in the High Court at Wellington in June, July and August.

The group alleged deceit by the former Tui directors, former Kiwi chairman John Young and the former Kiwi chief executive, Craig Norgate, now Fonterra chief.

But in a 120-page decision released just before Christmas, Justice Lowell Goddard concluded there was no deceit by any Tui or Kiwi defendants, nor negligence by accounting firm Ernst & Young.

The firm wrote a report on the merger which found it was fair and in the best interests of the shareholders of Tui.

But several issues concerned the group, including the payment to be made by Tui shareholders of 60c/kg of milksolids to Kiwi over a four-year period.

That meant they were effectively paying to join Kiwi.

The group were also concerned about difficulties at the time accessing Kiwi's financial information, and thei processes used to drive the merger through.

A spokesman for the group, Featherston dairy farmer Jim Hedley, said yesterday that he was disappointed by the judgment.

"We believe they have a case to answer and we are waiting for our legal adviser to get back to us."

Asked if an appeal against the judgement was a possibility, Mr Hedley would say only that they were taking advice from their Auckland barrister, Brian Henry.

Kiwi merged with NZ Dairy Group last year to form Fonterra.

Fonterra chairman John Roadley said the company was pleased the dispute was over, and the actions of those involved in the merger of Kiwi and Tui had been vindicated.

"We look forward to the industry moving forward together in the interest of all suppliers," he said.

Mr Roadley said Justice Goddard's decision comprehensively reviewed and rejected each of the claims made against the defendants.

He noted that her judgment recorded that the allegations made by the group had been particularly serious, but that in the judge's view they were even more so because the claims had no foundation.

At the time some Tui shareholders called in the Serious Fraud Office to investigate claims of serious fraud. But in November 1996 the SFO announced there were no grounds justifying an investigation.

Justice Goddard said in her judgement that Mr Hedley's view of the case was based on nothing more than suspicion.

The Tui shareholders group also did not impress her as understanding the true nature of their case.

She said the proceedings were not brought until September 1999, almost three years after the merger vote.

"In essence, the plaintiffs' case was never founded on anything more than mere suspicion," Justice Goddard said.

"Illustrative of this was their inability to point to any motive for the alleged 'plan' of deception they pleaded against the Tui directors."

Justice Goddard reserved the issue of costs, which she said the defendants were entitled to seek.