'Bad reputation' claims allowed in defamation case
The High Court at Auckland has dismissed an application to strike out allegations of "bad reputation" relating to a pending court case involving Hanover Finance founders Mark Hotchin and Eric Watson.
The duo is suing Bruce Sheppard, the former outspoken chairman of the New Zealand Shareholders' Association, and the association, for defamation.
Hotchin and Watson claim Sheppard made defamatory statements about them following Hanover's collapse in 2008 which resulted in widespread losses to the public.
The defamation case stems from statements Sheppard made on television, radio, emails and as part of a blog.
"It is obvious from the content of the statements ... (Sheppard) made that he had strong views on the subject of whether the proposed debt restructuring and moratorium that the plaintiffs had initiated in regard to the Hanover companies were in the best interests of the creditors of Hanover," Associate Judge Jeremy Doogue said in his judgment released this week.
Hotchin and Watson are suing over comments made by Sheppard in which he said they dishonestly misled investors, they were crooks, they had taken part in GST fraud and were involved in malfeasances and had misappropriated Hanover cash, the judgment said.
But before the court could deal with the defamation action - a trial is set down for next year - Hotchin and Watson's lawyer Julian Miles QC submitted in a discovery application last month that particulars regarding his clients' past be struck out.
Sheppard's lawyer Philip Grace argued that Hotchin and Watson's reputations were relevant to the defamation case.
He outlined instances of "misconduct" including the censure of Watson by the Securities Commission in December 1998 for buying shares in McCollam Print while negotiating its takeover and an entity related to him, the judgment said.
In relation to the same issue, the United States Securities Exchange Commission found Watson had breached a section of the Securities Act in the US by failing to disclose facts around the McCollam Print deal.
In 1999, Hotchin breached Securities Commission guidelines on insider trading in relation to buying and selling shares in Pacific Retail Group. Pacific Retail admitted a breach but said it was "not ill-intentioned", the judgment said.
Miles' grounds for striking out the application were that the "particulars of misconduct" set out "allegations of bad reputation which do not relate to the aspect of the plaintiffs' (Hotchin, Watson) reputation" relevant to the pending court action.
The defence pleadings were likely to cause unnecessary delay and were "frivolous, vexatious or otherwise an abuse of process", Miles said.
Judge Doogue dismissed the strike out application, saying "the insider trading allegations and the negative effect that they must have had upon the reputations of the plaintiffs" would not necessarily be disregarded as irrelevant by the court.
"It would be a matter for the ultimate court that decides the issue to determine whether the share dealing transactions had in fact caused antecedent damage to the reputations of the two plaintiffs as businessmen," the associate judge said.
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