A Few Legal Skirmishes
1. The March 15, 2011, Series of Deferred Payment Offers and the NZ High Court
On March 15, 2011, simultaneous offers were made to buy the shares of half a dozen of the NZX's largest listed companies. What was different about these offers was that the offer price was well ahead of the market traded price and payment was to be made in 10 annual installments over 10 years. The offer price was calculated to pay accepting shareholders an annualized return of about 8% pa on their money while they waited for the payments to come in.
The success of this offer series was incredible. I think I received over 1200 acceptances for shares with a current market traded value in excess of $7 million.
This was just all too much for the Financial Markets Authority (FMA). I'd taken legal advice on the wording of the offer documents, and it was hard to see that there was anything wrong with them but in no time at all, the FMA was flying around issuing orders and filing court documents.
All this culminated in a High Court hearing, where the judge effectively decided that people entering into binding contracts (which is what the agreements to sell shares were) didn't have to read what they were signing or agreeing to and that he should take it upon himself to release the shareholders [from their contracts] who accepted, on the basis that ‘the above market offer price’ was not matched by equal prominence, being given to the fact that payment is deferred.
I have it on pretty good authority that this decision dismayed a large number of the NZ legal fraternity. Think about it, how does anyone or any business enter a customer into a binding contract if they can't rely on the terms and conditions (the famous small print) attached to the contract? You go to rent a car, you probably know what the daily rate is. When did you last read the small print? You just accept that you'll be bound by it. You take out insurance on your house, you know what the annual premium is. When did you last read the small print in an insurance contract? Do you think the courts will help you if you later say you didn't understand what you were signing? Fat chance! They'll say you should have read it first.
It gets even worse. The offers my partnerships made to shareholders didn't really contain any ‘small print’. The offer document was a single A4 page with the offer printed on one side and the terms on the other in a normal, easily readable font. The first paragraph of the terms was titled ‘Payment’ and went on to explain that you would be paid in annual installments over 10 years. Paragraph three clearly recommended you take advice before accepting the offer.
I was immediately asked when I was going to appeal this terrible decision and the answer to that was, “I wasn't”. Because of this court decision, I'd become concerned that the FMA would try to overturn the earlier successful offers. Neither I nor my lawyers could see any grounds for them to attempt this, but given the decision on the deferred payment offers, who knows! In discussions with my lawyers who were talking to the FMA, it was agreed that if I didn't make any further deferred payment offers and didn't appeal the court decision, then they would take no steps on the earlier offers (not that they had any steps to take).
2. The Share Registration Cases
These were a couple of High Court actions my limited partnerships took against NZX-listed power companies, Vector and Contact Energy (my partnerships were the plaintiffs and the power companies, the defendants). These identical cases were exploring the respective companies' refusal to register some of the shares purchased in 2010/11 below market traded price series of offers, to my partnerships.
In 2010/11, if you were offering to buy shares by mailing a shareholder an offer and acceptance document, those documents would contain information specific to that particular shareholder. The offer document would contain the shareholders residential address, the number of shares owned by that shareholder and the sum of money to be paid for those shares. (This is a simple calculation of the number of shares owned times the offer price). The acceptance document would have a place for the shareholder to sign their acceptance and a place for an independent witness to witness the shareholders signature and enter their name, address and occupation.
In addition to all this information, the acceptance document had a place for the accepting shareholder to enter their Common Shareholder Number (CSN). The CSN is a unique multi-digit number allocated to each shareholder to help identify them. It's fairly common for a shareholder to not remember or know their CSN and to sign up to sell their shares and return the acceptance document without filling in that part of the form. If you then sent a share transfer to a company's share registry most companies will register the transfer into your name because you have provided them with enough information to identify the vendor shareholder from the acceptance document. You've got their name and residential address, the number of shares they own, their signature where they sign up agreeing to sell their shares, and the signature and identity of a witness.
I'd taken the precaution of including a power of attorney in the acceptance document whereby if an accepting shareholder couldn't or didn't provide their CSN, they granted me power of attorney to obtain it directly from the share registry if for any reason I needed it.
Unusually, Vector and Contact Energy didn't follow the normal procedure, saying that they couldn't identify the vendor shareholder without the CSN and refusing to provide the CSN even though the limited partnerships held the power of attorney from the vendor shareholder to obtain the missing number.
All of this nonsense led to me filing a couple of High Court cases against Vector and Contact Energy to clarify the situation around share transfers without a CSN.
Over time these cases made their way through the court system but ultimately came to grief on an error in the part of our case known as the “pleading”, where the partnership's barrister had the misfortune to state an incorrect cause of action. We couldn't change or adjust it because the action that the proceedings related to was, by this time, subject to the 6-year statute of limitations and changing the pleading would have effectively been starting a new case and the cases were now out of time.