Airlie Group L.P. v John Fairfax Group Pty Ltd
[1991] FCA 642
•16 Oct 1991
JUDGMENT .No. ........ ........ .. ...,,........ ..... 642 et.
IN THE FEDERAL COURT OF AUSTRALIA )
i 1 I No. G028 of 1991
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NEW SOUTH WALES DISTRICT REGISTRY
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1 , GENERAL DIVISION 1
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BETWEEN:
THE AIRLIE GROUP L.P.
First Applicant
ALLSTATE LIFE INSURANCE COMPANY
Second Applicant
ALLSTATE LIFE INSURANCE COMPANY OF
NEW YORK
Third Applicant
EXECUTIVE LIFE INSURANCE COMPANY
Fourth A~~licant
WESTERN PACIFIC LIFE INSURANCE CO.
Fifth Ap~licant
GUARANTEE SECURITY LIFE INSURANCE CO.
Sixth Applicant
First Respondent PRUDENTIAL-BACHE HIGH YIELD FUND INC.
Seventh A~plicant
U.S. HIGH YIELD FUND. S.A.
Eiqhth Applicant
AND :
JOHN FAIRFAX GROUP PTY. LIMITED
(Receiver & Manaqer Appointed)AUSTRALIA AND NEW ZEALAND BANKING
- R G Second Res~ondent
CITIBANK LIMITED
Third Res~ondent
JOHN FAIRFAX LIMITED
JReceiver & Manaaer ADDointedL
Fourth Res~ondent
DAVID SYME & CO. LIMITED
0 1
- AND : AUSTWIA AND NEW ZEAWLND BANKING
GROUP LIMITED
cross-Claimant
DREXEL BURNHAM LAMBERT GROUP INC.
First Cross-Res~ondent
TURNBULL AND PARTNERS
Second Cross-Res~ondent
TURNBULL AND PARTNERS HOLDINGS LIMITED
Third Cross-Res~ondent
MALCOLM TURNBULL
Fourth Cross-Res~ondent
LRAM: SHEPPARD J.
: 16 OCTOBER 1991
REASONS FOR JUDGMENT
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HIS HONOUR: By their notices of motion dated r&specti+eiy 12'.
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August 1991 and 14 August 1991 the second and third
respondents seek orders for further- and better discovery. The notices of motion are opposed by the applicants. The remaining respondents do not themselves claim orders for further and better discovery but intend to seek inspection of any documents which are discovered as the result of these two applications.
The action is one in which the applicants, which are all companies incorporated and carrying on business in the United States of America, sue the respondents for breaches of s.52 of the Trade Practices Act 1974. The second and third respondents are sued primarily as persons involved in the alleged breaches; see ss.75B and 82 of the Act. The misleading and deceptive conduct is said to have been engaged in by the Fairfax respondents in the making by them or on their behalf of statements in a document described as a Private Placement Memorandum ("PPM") which, so the applicants allege, induced them to invest in certain bonds. Bonds of the type in question are variously described in the material which word "senior" does not always appear), high-yield bonds and is before me as subordinated high yield senior debentures (the junk bonds. This type of security has acquired the name of junk bonds because of the large number of similar securities .
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which were at one time traded in the United States and the subsequent junk bond scandal which is well known. The amount at stake in the present case is of the order of $450 million.
Much of the junk bond dealing in the United States,
including dealing in these bonds, was undertaken by a company . .
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Drexel Burnham Lambert Group Inc., which, in action No. 6100. - of 1991, has also sued the first respondent and the second and third respondents for damages for breaches of 8.52 of the Act. There are pending notices of motion by the second and third respondents seeking further discovery in that action also but I have been asked not to deal with those notices of motion at .
this stage. Each of the applicants is said to have invested extensively in junk bonds in the United States for many years. Many of these are said to have been acquired through Drexel Burnham. Counsel for the second and third respondents submit that the applicantsr discovery is defective in two respects. They contend that the applicants should be ordered to discover all documents relevant to the relationship between each of the applicants and Drexel Burnham not only in relation to the Fairfax transactions but in relation to all transactions involving the investment of funds in junk bonds where that
broadly) of Drexel Burnham. Additionally,, they seek discovery investment was made through the agency (using that expression of all documents relevant to the acquisition by each of the applicants of junk bonds in any company whatsoever. Originally the applicants sought discovery of such documents for the years 1980 to 1990 inclusive. More recently they have said that they will accept discovery of such documents for the years 1985 to 1990.
The applicants' case is pleaded in a statement of claim. The statement of claim has been amended on various occasions. It was last amended on 4 September 1991 but only to claim the relief specified in a further amended application which was. ...
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filed on the same day. Subject to that matter the form of the statement of claim has been the same since an earlier amendment which was made on 21 February 1991. The hearing of the two notices of motion commenced on 16 August 1991. The hearing was unfinished on that day. Due to other commitments I could not resume the hearing on the following Monday, 19 August 1991. In any event, the applicants in the case sought an adjournment of the matter to enable them to take stock of a large number of exhibits to an affidavit sworn on 12 August 1991 by Mr. K.F. Lloyd, the solicitor for the third respondent. In the result the hearing of the motions was stood over to 23 September 1991.
In the meantime a directions hearing took place on 4
September 1991. It was on that day that the further amended
statement of claim and a further amended application werefiled in Court. When the hearing of the motions resumed on 23 September last counsel for the applicants sought to amend the statement
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of claim once again. I have not yet given leave to the applicants to make that amendment but I have indicated that in principle I will allow the amendment on terms which will include appropriate terms as to costs. The argument then
proceeded upon the assumption that the statement of claim which would be relied upon by the applicants at the hearing of the action would be .the statement of claim handed up on the morning of 23 September, it being described as the second further amended statement of claim. I shall hereafter refer to it as "the new statement of claim".
The amendments made in that document were substantial. It is apparent that they were made as a result of the discussion which had ensued during the hearing of the motions which had taken place on 16 August 1991. Two new respondents were added, they being companies in the John Fairfax Group but that was by no means the most significant amendment.
The cases made by the two respondents seeking further discovery were that the applicants' discovery was inadequate in relation to the issue of reliance. Those respondents wish to test the applicantsr case that reliance was placed by the applicants on statements made in the PPM. In the earlier
were pleaded with a high degree of generality. Paragraph 16 which each of the applicants came to acquire the Fairfax bonds versions of the statement of claim the circumstances under of the earlier statement of claim alleged that the first respondent, by its agent, Drexel Burnham, issued to each of the applicants in the United States, or caused a subsidiary of the first respondent incorporated in the United States by its agent Drexel Burnham to issue to each of the applicants in the United States, documents which comprised the PPM and certain
supplements and amendments thereto. It was alleged that those documents were misleading or deceptive or likely to mislead or deceive and that in reliance on the information contained therein the applicants subscribed for bonds issued by the first respondent's American subsidiary, John Fairfax Group (USA) Inc. The bonds were unconditionally guaranteed by the first respondent amongst others. Paragraph 21 of the earlier statement of claim alleged that none of the applicants would have subscribed for the bonds if they had been aware of the misleading or deceptive statements said to have been- made in the PPM.
The statement of claim handed up on 23 September last is a much more detailed pleading. Some of that detail is only of indirect relevance to the question of reliance and I need not refer to it. Paragraph 34 alleges that on or about 7 September 1988 the two banks (i.e. the second and third respondents) and two of the Fairfax companies reached agreement with Drexel Burnham on a refinancing plan for the
Fairfax companies, acting through Drexel Burnham as placement John Fairfax Group. The agreement provided in part that the agent, would raise SA450 million by the issue of subordinated debentures. Paragraph 35 pleads that pursuant to its retainer, Drexel Burnham commenced preparation of the PPM. In paragraph 36 it is alleged that between June and November 1988 the Fairfax companies supplied information to Drexel Burnham for inclusion in the PPM. The information is specified and is alleged to have included statements that the value of The Age
newspaper was $A675 million and the value of the John Fairfax Group of companies SA2.0445 billion. These statements are alleged to have been false.
Paragraph 39 of the new statement of claim is similar in terms to para.16 of its predecessor. There are some amendments, but they are not material.
Paragraph 42 of the new statement of claim pleads that, as part of its strategy. for marketing "the subordinated debentures", the Fairfax companies made a number of presentations (known as "Roadshow" presentations) to potential investors. The Roadshow presentations were said to have been made by Fairfax executives to the fourth applicant at its offices in Los Angeles about November 1988 and to the seventh and eighth applicants in their offices in Newark, New Jersey, on or about 17 November 1988. Paragraph 43 alleges that in or about November/December 1988, the Fairfax companies acting through their agent, Drexel Burnham, sent a videotape of a
applicants in Northbrook, Illinois, where it was watched by a Roadshow presentation to the offices of the second and third representative of those organisations at about that time. Paragraph 44 alleges that about 9 January 1989 the Fairfax companies, by their agent, Drexel Burnham, made a presentation ("the Airlie presentation") to an executive of the first applicant in substantially similar terms to the Roadshow presentation.
Paragraph 45 alleges that in .the course of each of the Roadshow presentations referred to in paras. 42 and 43, representations were made by a director or directors of the Fairfax companies, and in the case of the Airlie presentation, by Drexel Burnham on behalf of the Fairfax companies. The paragraph alleges that the market value of The Age and of the assets of the John Fairfax Group of companies were said to be respectively $A675 million and a sum in excess of $A2 billion. Paragraph 46 alleges misrepresentations by omission in the course of the Roadshow presentations. Paragraph 47 asserts the falsity of the various representations and para. 48 that the Fairfax companies did not have reasonable grounds for making the representations.
Paragraphs 51, 52, 53 and 54 allege further misrepresentations in another document described as a "selling memorandum". It is unnecessary to refer to the detail of these paragraphs.
million of bonds were issued by the American subsidiary of the Paragraph 55 alleges that on 27 January 1989 $A450 first respondent and were unconditioxially guaranteed by the Fairfax companies. Paragraph 56 appends a table showing the amount subscribed for by each of the applicants. Paragraphs 57, 58 and 59 allege that the various representations were calculated to induce the applicants (in the case of paras. 58 and 59 only some of them) to acquire bonds and constituted factors which did so induce them to acquire those bonds.
It is unnecessary to refer to the detail of the balance of the new statement of claim. Paragraphs 63 and following go on to plead matters which, if established, would implicate the second and third respondents in the Fairfax companiesr alleged misleading and deceptive conduct. This series of paragraphs culminates with para. 75 which alleges that each of the second and third respondents was a party to the conduct of the Fairfax companies and additionally or alternatively' aided, abetted, counselled or procured that conduct, induced that conduct, or was directly or indirectly knowingly concerned in that conduct. Finally it is alleged that the second and third respondents themselves engaged in misleading or deceptive conduct because they failed to disclose, or failed to require the Fairfax companies to disclose, to the applicants a number,
of the facts and matters earlier alleged in the statement of
claim.In addition to handing up the new statement of claim on
23 September last, counsel for the applicants handed up a
separate document containing particulars of a number of the allegations in the statement of claim. It is necessary to refer to some of these particulars. In relation to para. 42 it is said that the form and content of the Roadshow presentations were as shown on a videotape referred to in para. 43. The videotape is said to have been discovered. It is further said that at each of the Roadshow presentations, potential investors were shown a number of transparencies depicting certain information relating to the John Fairfax
Group of companies. A hard copy of those transparencies in the form of a brochure which is said to have been discovered is said to have been handed to potential investors at each Roadshow presentation. In relation to para. 44 it is said that the Airlie presentation was made by two named executives of Drexel Burnham at its offices in Los Angeles and that the presentation took the form of a page by page discussion of the Roadshow brochure.
In relation to para. 45 it is said that the Roadshow representations were made, save in the case of the Airlie presentation, orally by one or more of four executives of the Fairfax companies and visually by display of the Roadshow transparencies and inclusion of those transparencies in the Roadshow brochure. The Airlie presentation was made by
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presentation and' discussion of the Roadshow brochure.
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! Lengthy particulars are given of the allegations made in
I paras. 57, 58 and 59. It is not practicable to set these out
'I in the course of these reasons or to endeavour to summarise l / .
them. Accordingly, I have taken the course of appending them ! ! i as Attachment A to these reasons.
One matter that needs to be observed in relation to these particulars is that they refer to very few documents. Some of
. the documents which are referred. to are said to have been discovered. There is an analysis referred to in para. 2 (b) . This was said to have been presented to Mr. Senkpiel. The
documents which comprise the analysis are said to have been destroyed by a Ms. Henderson. Counsel for the third respondent emphasi'sed that there was no reference to these documents in the existing discovery. In his submission, with which I agree, there should have been a reference to them because they were documents which were at one time in the possession or power of the second applicant. The same may be
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said in relation to the third applicant's case on reliance in paragraph 3(c) of the particulars. I refer also to para. 5(a). These particulars may be contrasted with those supplied on request by the third respondent's solicitors in relation to the statement of claim as it was before the new statement of claim was foreshadowed. On 6 March 1991 the applicants were asked in para. 12.2(a) of the request for particulars what were the alleged acts of reliance on the part of the first applicant, who on behalf of the first applicant relied and where it was alleged the acts of reliance occurred. The answer to these questions was that the reliance could not be further particularised but the names of persons who relied on
place in the United States. It is to,be noted that the acts the PPM in each of the applicants (not just the first) were supplied and the acts of reliance were said to have taken of reliance have now been quite precisely particularised in the new statement of claim and the particulars furnished in relation to it.
Each of the applicants has filed a list of documents
which follows a usual form. Each list is verified and makes
possession, custody 'or power the documents enumerated in a v ...: : ,
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schedule numbered 1' A claim for privilege is made in respect t;. c; ,. ". b > of documents in Part 2 of that schedule. Schedule 2 contains ;: 2 L + ; :i 1.1.
a list of documents said to have been formerly in the relevant v:; : ' > applicant's possession, custody or power but which it no i :.: :,. longer has. There follow some supplementary statements i;,;
l> c dealing with these matters to which reference need not be b.;~ : >. L , L, made. . p,. L . p<
l i .~.; 3.. l k- There are a number of letters dealing with alleged deficiencies in the applicants' discovery and a number of
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, . 1, letters refuting these allegations. I do not find it .. ..
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necessary to set out the full effect of this correspondence. I; l..C v,..
, ." i" As I have said at the outset of these reasons, the categories 1:" h>: of documents which the second and third respondents claim
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;l \ t 2 1 ..~' should be produced on discovery are documents relevant to the . . ;:F relationship which each of the applicants had with Drexel E'' r' ' !.. . Burnham in relation to these transactions and in relation to a . , . . , .
variety of other transactions said to have been of a similar 8. ,
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kind, and documents relevant to the entry by each of the I I };l C,' applicants into those similar transactions whether through the !
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; .. agency of Drexel Burnham or otherwise. p. ,: ,. i . 3
.S - . I Z . . !. . L:: 5;. , . There is material in the evidence which discloses what is well known, namely, that during the 1980s there was in the
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15 . ,. S;? ;-: ,... t.<. United States of America a considerable market for high yield y;i.
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unsecured bonds. It would appear that billions of dollars $ ..' i : . were raised by companies issuing this form of security and that countless investors were attracted to them because of the very substantial interest rate which was payable. Eventually the bonds became known as junk bonds because they often proved to be valueless. This has led to a number of actions in the United States of America by dissatisfied bond holders. So far as the evidence discloses these bonds were all issued in United States currency by United States corporations. The Fairfax bonds were issued in United States currency by the Group's United States subsidiary, but the assets of the Fairfax companies were for the most part in Australia and their value, particularly to somebody outside Australia, would fluctuate in accordance with the movement in the value of the Australian dollar. To this extent the transaction involving the Fairfax bonds was unusual. This is a matter strongly relied upon by counsel for the applicants in opposing these applications. Their submission is that, whatever may have been the practice about junk bonds generally, the Fairfax bonds were in a special category because of their Australian
origin. The two respondents say that they have no direct knowledge of or access to information dealing with the circumstances in which the various applicants came to acquire bonds. Those circumstances are said to be peculiarly within the knowledge of the applicants. The applicants do not dispute this but say that their cases on reliance are now explicitly pleaded and particularised in the new statement of
claim and the particulars which ..support it.. In order to emphasise this, they have prepared a memorandum which refers in some detail to documents, already discovered, which show, or at least are said to show, that it would not be relevant to look either at the relationship, if any, which existed between the .applicants and Drexel Burnham or at transactions other than those which are directly in question in this case. Each of the documents referred to has been produced on discovery and, for the purposes of this application, has been treated by me as being in evidence. I do not find it necessary to go to the detail of this memorandum. I have found it of help in considering the overall questions which need to be decided and I have taken its contents into account. In particular I have taken into account repeated references found in it which reflect concern on the part of executives of Drexel Burnham and of executives of some of the applicants about the consequence for the investor in Fairfax bonds of a fall in the value of the Australian dollar.
pleaded and particularised, counsel for the applicants has Aided by this memorandum and the way the case is now strongly submitted that there is no warrant for ordering any further discovery because documents of the kind which the second and third respondents say would be relevant could have no relevance to the present case. The Court will not be concerned with transactions other than those in question here. The only relevant inquiry will be one which investigates the circumstances under which each of the applicants took up the Fairfax bonds.
I have given this submission considerable thought but I do not think it is conclusive of what I should do.
It seems
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to me to proceed on the assumption that for the purposes of discovery the way in which the applicants put their case is to be assumed to be correct. What the two respondents wish to.
test is whether the bonds were acquired in the way contended for at all. Upon the basis of certain material, to some of which I shall go in a moment, they suggest that high yield or junk bonds were purchased indiscriminately by the applicants without giving any, or any proper, attention to the worth of what they were acquiring. Furthermore, most, if not all, of their acquisitions, were through Drexel Burnham which, on the applicants' own case, played a significant part in the acquisitions in question here. The documents upon which the second and third respondents rely to establish their case in this regard consist, to a substantial extent, of reports filed by the applicants pursuant to insurance, companies or
securities legislation in the United States. The evidence establishes that in the United States the business of insurance is regulated on a State by State basis rather than a national one. The Insurance Department of each of the United States requires that insurers authorised to do business in.each such State file with the Department an annual statement showing its financial condition. The purpose of the annual statement is to enable the insurance regulators of each
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State to monitor the financial condition of insurers doing
business in that State and to take such other steps as may be I, ,. : 1 ... necessary to protect the solvency of that insurer. Usually
.: ,. the annual statements are required to be filed in a form .. ..i
.. , .: . , prescribed by the National Association of Insurance k; S*.. L.;. Commissioners ("NAIC"). The NAIC is an organisation p comprising the officials responsible for supervising insurance 1 ;-:
F,.>> 1 ; in each of the States. Copies of these annual statements are c . : ;. available for public inspection. 1;;: l";. k .' lij , .: F:' v: The United States Securities and Exchange Commission is established under the Securities Exchanae Act of 1934.
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1;; b . .: i_ . ; . b Companies in which shares are publicly held are required to h . . c . . - V. j ? . C-
file reports with the Commission pursuant to this Act. These S . :, .. 5:; , :X >L..
reports are compiled on a form which is known as 10-K. The ;;S
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reporting company is required to provide information k;, . . 1 :, E .: ,.. , concerning its business, properties, legal proceedings and
F-:,, -~ . f .~ ,%.l some other matters to which it is unnecessary to refer. F: L<$
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Another form which must be filed in applicable circumstances, is known as form 5-3. The purpose of this form
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is to enable the registration of securities specified in the ~IIk form for sale to the public. The information required to be L.: 1:~:' ,.*,~. furnished in form 5-3 includes financial information and I -
..g : securities which are registered. There is also a form known f< , . ,~::: !. '
:. .S as S-1. This provides for a registration statement. which i;. , . h; includes a prospectus in which there is discussed information P,, c :' ::.. 7 P : / I I - concerning, inter alia, risk factors, the use of proceeds of
i2 I .." h X.?.' ' p. ,..,,:: L; .. i . f?:! . v . h ~ $<! F"' the sale of securities and certain other information. The Executive Life Insurance Company is the fourth applicant. It is a wholely owned subsidiary of First Executive Corporation. .On page 6 of the form 10-K lodged by First Executive in respect of the 1988 year it was said that, as a result of its asset diversification and active portfolio management, the company believed that it had the flexibility to achieve a more favourable investment yield by investing a substantial portion of its assets in corporate bonds that were not rated or were rated less than investment grade by rating agencies and were generically known as "high-yield" or "junk bonds". The form went on to say that the company believed that the additional yields compensated for the risk of default in high yield bonds which was generally perceived to be greater "than in those of investment grade quality."
In the form 10-K lodged in respect of the 1989 year it
was said (pp. 6-7) that the company had sought to achieve amore favourable investment yield by investing a substantial portion of its assets in corporate bonds .that were not rated or were rated less than investment grade by rating agencies and were generically known as high-yield or junk bonds. Many bonds owned by the company were said not to be rated by rating
agencies but were rated by the NAIC. As at 31 December 1989, the company had approximately 37 per cent of its total invested assets in publicly traded bonds rated non-investment grade by NAIC standards. An additional 9 per cent was in
bonds issued in private placements of which 8 per cent was in bonds rated non-investment grade by NAIC standards. On the other hand, approximately 23 per cent of invested assets rated in the highest of the NAIC's rate categories were rated as non-investment graded or were unrated by the well-known rating agency, Standard & Poor's Corporation.
The 1988 form 10-K had said that trading of high-yield bonds took place primarily in "over the counter markets" and was conducted by dealer firms that were "typically major securities firms". The form said that a substantial portion of the company's transactions in high-yield bonds was conducted through Drexel Burnham, "one of the largest market makers in such securities". The 1989 form 10-K said that the company had used Drexel Burnham as a primary broker dealer in connection with the purchase and sale of securities. In 1989 purchases and sales of securities through Drexel Burnham involved aggregate purchase and sale prices of approximately $2.348 billion and $1.059 billion respectively. Pres.mably
these figures included the Fairfax bonds because they were
acquired in the early part of 1989. There are other statements in the 1988 and 1989 forms 10- K which I have taken into account but to which I do not refer in detail. There are also statements made in forms S-3 filed in the years between 1984 and 1989. Again, I do not find it necessary to refer to the detail of these.
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The documents to which I have referred all relate to the fourth applicant or to its parent. There are documents of a similar kind in relation to the remaining applicants. My attention was not drawn to specific statements in these various documents, but I have looked at them in a general way. They show substantial holdings by the various applicants in high-yield bonds. They also suggest that much of the trading in the bonds was effected through Drexel Burnham.
In addition to exhibiting documents in the category of forms 10-K, S-3 or S-1, Mr. Lloyd has exhibited to his affidavit other categories of documents. These include transcripts of hearings before the Subcommittee on Oversight and Investigations of the Commitee on Energy and Commerce of the House of Representatives in April 1988 and June and September 1990. I have not read these transcripts, which are quite voluminous, in detail but it may be noted that there is included in the transcript for 28 April 1988 evidence of Mr. F.H. Joseph, then Chief Executive Officer of Drexel Burnham.
Burnham made a supplementary submission to the Subcommittee This purports to give, in a summarised way, an account of the junk bond market in the United States. On 23 June 1988 Drexel which commenced with the statement that the document submitted Drexel Burnham's responses to the several matters raised at the hearing on 28 April 1988. This gives further information, which if accurate, adds to one's understanding of how the market operated and what the philosophy behind it was.
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There are then documents which have been filed in a number of proceedings in the United States of America involving claims by investors concerning high-yield bonds. I have looked generally at these, but have not regarded them as helpful because they are pleadings and other documents filed in proceedings which have not yet been heard. There are a substantial number of allegations in the various documents, which, if true, may shed light on the questions here to be decided; but the statements are no more than allegations and, for this reason, I have not felt able to rely upon them.
Finally, there is reference to a book written by a journalist, Connie Bruck, entitled, "The Predators' Ball", and
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a review of that book which is said to be an authentic account . L;. I; - W" by a financial journalist of the way in which Drexel Burnham 1 ,:.:
::!:l :_. operated in the eighties. The book was pressed upon me by I.: . , / I t :_
counsel for the two respondents but I do not feel able to rely ;:z'
; ;_< ::.. 1.:- on it for the purposes of these proceedings even in a general > ~ - way.
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If the respondents are to succeed, it is incumbent upon them to demonstrate that the applicants' discovery is
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v,; i . : p. I : I .. k< ,C. . deficient. They may do this by showing that there must be other documents relevant to the issues in the case which have
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not been discovered. One might infer that such documents l:..: .. - 8 : i , :-,
exist by reference to statements made in documents that have ,,. .. L . - I:.
. : : ' t been produced, statements made in pleadings or particulars or V.;
.. ,. ,. . : I:.. L ~ from evidence derived from sources other than the two I have i:$
;F:: " > mentioned. Documents will be discoverable, whether or not they would be admissible in evidence, if they relate to the issues in the case or may suggest or disclose a train or course of inquiry which may lead to the disclosure of such documents, be they in the possession of the opposing party or in the possession of a stranger to the litigation, or to the discovery of relevant facts. Furthermore, there are cases where further and better discovery has been ordered in circumstances where the opposing party does not suggest that documents do not exist but where he has rather taken the stand that the documents he has are not relevant to the issues to be determined in the proceedings; see generally Mullev v. Manifold (1959) 103 CLR 341 at p.343. There Menzies J. said (p.343) that it was not necessary to infer the existence of a particular document; it was sufficient if it appeared that a party had excluded documents under a misconception of the case.
In the present case each of the applicants dealt in high- yield bonds apart from those issued by Fairfax. Their
dealings in this type of security were extensive. The point
which counsel for the respondents make is that the acquisition of such a vast number of bonds could not always or usually have involved the consideration of the question whether or not it was appropriate that such bonds be acquired. In other words it is submitted that it is unlikely that there was the sort of consideration given to these transactions which is pleaded in the new statement of claim in relation to the
acquisition of the Fairf ax bonds. This is a matter of speculation. Counsel for the applicants have sought to put an end to the speculation by reference to documents which have been produced on discovery and which reflect consideration of the acquisition of the Fairfax bonds. They show, as I have mentioned, a particular concern about the stability of the Australian dollar.
The applicants have placed strong reliance on the decision of the Court of Appeal in England in Kennedy v. Dodson [l8951 1 Ch. 334. That case is authority for the proposition that discovery (in that case interrogatories) will not be ordered where the documents sought would not go to a fact or facts in issue on the pleadings. Lindley L.J. said (pp. 340-1):-
"The facts properly stated in this statement of claim are that Carswell and the Defendant bought a certain property in Manchester, and the Plaintiff alleges that that property is partnership property, and relief is sought on that footing. The Plaintiff is entitled to discovery with reference to those
of other transactions which took place between allegations; but he wants information as to a number Carswell and the Defendant in order to raise a probability that this was a partnership transaction. To ask the Defendant to take the trouble to go through his books and papers for so many years is vexatious and oppressive. The vexation and oppression can only be estimated by persons who have to answer interrogatories of this kind. I doubt whether this information -would be admissible in evidence; but suppose it would, it does not follow that the Plaintiff would be entitled to discovery of it. Examining witnesses at a trial and obtaining discovery before the trial are two totally different matters. If the decision of the Vice-Chancellor were anywhere near the line, I should be slow to differ from him in a matter which is largely a matter of discretion; but, in my opinion, to compel
the Defendant to answer these interrogatories would be most impressive. I think the appeal should be
allowed. "
In Georae Ballantine & Son Limited v. F.E .R. Dixon & Son Limited [l9741 1 WLR 1125 the plaintiff alleged that the defendants were passing off liquor as Scotch whisky by supplying it to importers in a number of countries knowing that those importers would dilute it with locally produced spirits. The plaintiff unsuccessfully sought discovery of documents believed to be in the defendantsr possession relating to their trade in overseas countries other than those referred to in the statement of claim. The claim was made on the ground that the defendants' intentions in relation to their trade with the other countries would be probative of their intentions in relation to their trade in those where the alleged illegal importations were taking place. It was decided that no order for further discovery would be made because the documents could only go to credit and not to an issue. Walton J. applied the decision in Kennedy v. Dodson.
After quoting extensively from the judgments in that case, he .
said (p.1132):- . . "From that case [Kennedy v. Dodson] I think one extracts the two principles: (i) that discovery which relates solely to credit is not allowed; and (ii) that discovery is confined to matters which are in question in the action. Of course, I entirely accept in relation to (ii) what was said by Brett L.J. in Com~aanie Financiere et ~ommerciale du Pacifiaue v. Peruvian Guano Co. (1882) 11 Q.B.D. 55,
63 as to this extending to anv document containina
information which might- - not-which must - enable the party requiring the discovery either to advance his own case or to damage the case of his adversary.
: i L,
1:. , ; L.< F.? l:.; - . E:,.
I <, 1 ; C-- . , ~.> -% , :.
It appears to me, however, that if the present E?
C. .- ? .,, application for discovery is not a pure fishing &. :.L:! expedition - as was asserted by Mr. Jeffs but denied 7.:. by Mr. Nicholls - then it is really one which is +> directed solely to credit, since it is simply and p;? :::1 solely directed towards putting the plaintiffs in a L :-. position to say: 'You did a wicked act in Ecuador K '
:. :1 (or wherever), ergo you are a person who would do a 5 : ,. . dirty deed in the five countries with which the 1:. ... ..
action is specifically concerned.' In other words, ; : 1 , ,c:< give a dog a bad name and hang him." <:<( 1 F':, PS : : - E :.
: L', , ,:
I refer also to the decision of Menhennit J. in Beecham 1 ,...: ..
;1i ,...
Grou~ Limited v. Bristol-Mvers Co. [l9791 VR 273 which was also relied upon by counsel for the applicants.
I c
..I.,I - 1'
I, ) I i C i:: I 1 . -
7 i ~ , 1 .!;
In my opinion these cases are central to the question here to be decided.
:
:
.
4
1;: 6:;.
I think it is correct to say that this is v.. 1 .:,:
a case where there can be no question but that there are : : : i:i. 1 c .
.... ,- . documents in the categories sought by the two respondents. 4 !. r :
ki , .-. The question is whether the applicants' refusal - really -1. i f . .
, , , - P- r . ?
unwillingness - to discover them stems from "a misconception F -~. l.
: : , 1 1 -. of the case", to use the words of Menzies J. in Mullev's case, L,; . . p:~ L !. : or whether the statements made in the various reports to which ,. .,
C .: -. S... I.
I have referred, particularly those of Executive Life or its G;.'.. ,; ;.
p ; 1. ..
parent, are capable of showing or tending to show thatthe way
'.
,,
..I
in which the applicants operated in the years prior to the i:; ,. acquisition of the Fairfax bonds and at or about the time of l ~. r
! . : l 1 : : .
their acquisition, was to acquire junk bonds indiscriminately C t . ' in order to maintain the high yield which they thought was so
;'?, 1.: i:-i advantageous. If that be so, the respondents would seek to ,.:
: g use that circumstance to counter or to cut down the case on I
1.::.
reliance made by the applicants in the new statement of claim. 1:. ,'j - . L, <,
ii-. :. g; t.::; i r l.':.:: ,'.I ,..., ! . The proportion of junk bonds in Executive Life's portfolio was
extremely high. Furthermore, there are references, not only + to the Roadshow presentations such as are referred to in the
particulars furnished with the new statement of claim, but
also "over-the-counter" acquisitions which leave one with the
impression that the way the acquisitions were made may have
involved some sort of bulk buying exercise. Furthermore, the
bonds were referred to quite openly in annual reports and . - other documents as "junk bonds". At least by 1988 there was no pretence about the nature of the type of security which . made up so much of the applicants' investment portfolios. The
Fairfax bonds were in this category.The task which the Court has is not to determine whether the documents, discovery of which is sought, are admissible in evidence (whether on the basis of similar facts or otherwise). It is whether the documents are or may be relevant to the issue of reliance which arises for determination in the case. Counsel for the applicants submit that they are not and could not be relevant to any issue in the case. At the most they
would go to credit. It is this submission which has to be resolved.
I have decided that it should. be rejected because I think
that the correct approach must be one which looks not at each of the applicants' dealings in isolation or as separate and independent transactions but as one which reflects or may reflect a course of dealing over a period in a particular type
2 7
of security or bond. Really the applicants' submissions involve the pre-emption of the ground upon which the issue of reliance is to be fought. They wish to restrict it to the confines of the new statement of claim and the particulars furnished in support of it. The respondents wish to contest the case made in that regard. They do so in circumstances where the allegations about reliance when first pleaded, were pleaded in the most general way and where a request for particulars of the acts of reliance brought forward the response that those acts could not be further particularised. In these circumstances I have reached the conclusion that the respondents are entitled to have discovery of documents relating to their overall dealings in junk bonds and their relationship, in connection with those dealings, with' Drexel Burnham.
I have been concerned in the management of this
litigation that there not be cast upon any party a burden inrelation to discovery which is so onerous that the litigation
Lloyd's affidavit was served upon the applicants' solicitors, will become bogged down in a mass of detail much of which will be, if not irrelevant, then largely unhelpful. After Mr. their solicitors made extensive inquiries of the applicants in the United States about what was involved. I was informed that these inquiries occupied many days. At one time it was foreshadowed that an affidavit would be filed on behalf of the applicants with a view to demonstrating that the ordering of discovery of the kind sought by the respondents would cast a
2 8
most oppressive burden upon the applicants and their legal advisers. In the end no such aff idavit was filed but . I was ' asked to infer from the whole of the circumstances that this oppressive burden would in fact exist. I recognise that the foreshadowed affidavit may not have been filed for tactical reasons. There may have been a view that the cross- examination to which the deponent may have been subjected.
would have proved disadvantageous to the applicants' opposition to further and better discovery. I understand that point of view although it was not put to me by counsel for any party. I think I should be cautious in taking the view that the failure to file an affidavit should lead me to conclude that further and better discovery will not prove at all burdensome to the applicants, a view which was pressed upon me strongly by counsel for the two respondents. Nevertheless I do not think that I should conclude that such burden as there will be if further discovery is ordered will be so great as to delay or impede the hearing of the action which has been .
'provisionally fixed for 6 April next.
I am not prepared to .take the .further and better discovery back to the year 1985. As I have mentioned, the Fairfax bonds were acquired in the early part of 1989. It does not seem to me that any documents coming into existence after, say, February 1989, could be of much help even if the view were taken that they were relevant. I think the further and better discovery should be limited to the years 1987 and 1988 and the first two months of 1989. That will apply both
! ~:;
to the discovery of documents relevant to actual dealings by f.!' 1 "i
<. ; [?:.L each of the applicants in junk bonds other than those issued 1: - by the Fairfax companies and to the relationship which each of the applicants had with Drexel Burnham in relation to the
1 .
. . 1
acquisition of such bonds. In this regard I have taken into i
I .. . r :., . ; .1;
account submissions which were made by counsel for the :. . K. applicants in which it was said that, in relation to the F.:, l v C',? Fairfax transactions, Drexel Burnham was the agent of the
. : f
1. i . l:>,:
Fairfax companies, not the applicants. In the material which 1 , 1 >.~ p:
has been provided in support of the applications for further . : ,
L . t : . ic.
and better discovery it would appear that Drexel Burnham was ;,.::, : : 1 . , ... . the applicants' agent in the other transactions which have g) 5: , i-: taken place. In my opinion this circumstance strengthens the case for the discovery of documents relevant to Drexel
-.
,r; 1:: 1.:
. ... . F:;
Burnham's relationship with the applicants rather than weakens .. ; . ,.. c : it. i .:, ):1 Before I conclude I wish to make it clear that I hold no view, provisional or otherwise, about any of the matters
i'..
,.,
p<, \.:; y . ; F; L:.
ultimately to be decided in this litigation. I have made that I': b' I; .:;1
statement because, in dealing with the.various matters which , . , 1.;;. I,::
have arisen for consideration, I have had to express views - C.;' G', ,?S TC here and there about aspects of the issues which will arise F:~; for decision when the matter is heard. None of the statements L..:
I have made is intended by me to indicate any view, F .,
L; ! I '. K. provisional or ultimate, about any matter which will need to v : .
. r : -.. i.; i
be decided. . l?.: r.;
3 0
I do not propose today to make formal orders. Rather, I would prefer counsel for the second and third respondents to bring in short minutes of the orders which they say should result as a consequence of these reasons. In this regard I have paid attention to a "regime" handed up by counsel for the second respondent but I think that this goes too far and I would not be prepared to pick it up even if it were restricted in time in the way that I have indicated.
f certify that this and the 27 preceding pages are a true copy of the reasons for
judgment herein of The HonourableMr Justice Sheppar
msil /L 0c22-&, l971
... . .
C
. . P 1.2
: : ; . 1 r -
i 1.:.i ' i p;:
.i ATTACHMENT A 1 : . ! 1 '. l:;, E6 t':.
Paragraphs 57, 58 and 59 1:; t ' ! . ::
. . .*.
: c : . [''.
',j:. F'.: l.'., L..; ('.
( a ) The PPM w a s . r e c e i v e d by A i r l i e i n mid-November l.? L' ' W; l < l i.;q
: ' . b
. :: l
(b) The PPM was reviewed and analysed by Steven i - l:,;
Ezzes who d i s cus sed t h e PPM and its c o n t e n t s !'.L
1 .. !. !l
w i t h Matthew Dougherty a salesman from Drexel ::.
1:~ : .
r ,, L.
who normal ly d e a l t wi th A i r l i e , a s we l l . a s M r v,: , -. c;
P e t e r Ackerman and M r Mark Rappaport each of E k. Drexel . F::
1 ; , 1
. ; I : i .
(C) I n t h e cou r se of t h e i r d i scuss ions wi th ' r .
M r Ezzes, which took place between t h e d a t e of
. ; : 1 k '
r e c e i p t o f t h e PPM and the d e c i s i o n t o i;.
1; : purchase be ing taken i n mid-January, Messrs 1: 1: j
P.ckerman, Dougherty and Rappaport had a number , .
- k
of c o n v e r s a t i o n s with M r Ezzes i n which they : : ; p E-: : .
made s t a t e m e n t s t o the . fol lowing e f f e c t : i l l
1. .-. 2
1;: , . , li;:, bc *. is, r:;. [<q I?' I j:
!::I I, , ' i l.? / r 1::; I",
. . !_. r.7, 1-I that the assets were worth at least
the amount stated in the PPM and
that there was significant asset
coverage of the total debt ofFairfax (including subordinated
debt ) ; (ii) that the assets were, as represented in the PPM, readily saleable at or higher than the values set out in the PPM and moreover that the assets were readily capable of separate sale and that any of the major assets could be sold to reduce debt if necessary;
Mr Ezzes asked the Drexel personnel named above the basis for stating the asset values. Each of them, at various times, emphasised the liquidity of the assets and made statements to him to the effect that there were a number of
major media players both in Australia and company and the assets at prices consistent
with and higher than those set out in the PPM
and nominated among such purchasers Mr Robertoverseas who had made offers for both the also stated that interest had been expressed in acquiring the assets, at the figures represented, by major US media companies.
: ; 1 I.:
p; :...
.:~ ;1: ,;
,.,
In the course of his discussions with the , ?2 . ., ,'. k . t 1; -. Drexel personnel named above, Mr Ezzes 1;;: expressed his unwillingness to carry any 5 :; ?,! l .- :L.: foreign exchange risk and the Drexel personnel L . r~ r .. b. c:. advised him that his concerns were shared by . 1 ; : . : a L
L i'
other potential investors and that they would I :; k:. seek to persuade the company and its bankers
G-. :;c r S' ;;: .,. to agree to a mechanism to.protect Airlie from p-. ..>l I<>. p:. such risk. By mid-December 1988, Mr Ezzes was
,. * , ::L; 6 . - . i j advised by Drexel that foreign exchange risk i. ::.
;.. .I .: 7-v would be borne by the company through the
P .... . " mechanism know as "FEARS". g>: ! I = 1 % . l=,; r:..~
(a) In addition to these discussions, Mr Ezzes % i. l: ,,,.
! ' j ' .- . spent two or three days analysing the PPM and L': h; the data therein and made his own calculations
p t ; F .
. ; 1 verifying the representations in the PPM. Mr ,::I
F, ; Ezzes reduced these calculations to writing. l i
: : . 1 They have long since now been destroyed by him i . -
-7: ?.,.
, 1 v . * :-
or at his direction. It was not his practice ! . l:.>,. L.: to keep any working papers in the nature of : . E:, f.:; such calculations for any appreciable length P: g:"; of time after a decision about investment in a f. >..
. : ,.
f '
particular issue of bonds had been made.
- ... p , . , L 2: P:?
(e) Mr Ezzes received from Drexel a "selling I'~ 12: memorandum" dated 16 December 1988 which is , i
1. ':: document no. 61 in the Airlie discovery. That L,?. 5 . : c ': , ..
,
1;
document reinforced the importance of the '. . :.L n. asset values and their liquidity. L :+ .., ,... 1.i; k.:
. . 1." 1 :
l..: G~ 1.:
(f)
On 9 January M r Ezzes travelled to Los angeles and attended a meeting with corporate finance personnel of Drexel handling the Fairfax deal including Bruce Raben and Chris Evensen. In the course of that meeting particular emphasis was placed by the Drexel personnel on the asset values and their liquidity as stated in the PPM.
L
..
(9 Following the January meeting and relying on , :
. ,:.. ,
. - the representations made in the PPM and >. repeated and re-emphasised in discussions with
Drexel, Mr Ezzes recommended to his fellow
partners that' Airlie should acquire $35 million of the Junior Subordinated Bonds. His recommendation and Airlie did so. These discussions were oral and not recorded in writing.
partners including, the general partner Mr
1% f ;:
(h) On 6 April, 1989 Mr Ezzes attended a k ,r* ,;l' ... , .. presentation by certain officers of Fairfax at ..,:
. ::
. .
the Drexel High Yield Conference in Los
Angeles. Mr Ezzes was told the company was performing well and its operating results were
K
1;: ( .
;1; ., , .: ,
exceeding previous expectations. Following .I' 1:
this conference and continuing to rely on the .:... [2 representations in the PPM as well as the ~ . .~ :-:, .:L . additional information provided to him at the . . ,~>
-. . I.. 5 l:,,
; 1
conference Mr Ezzes recommend that his i s , l:?.: partnership acquire further bonds which it did 1;.
: p; .
1': : : F on the date and in the amounts set out in the F. p: Statement of Claim.
; b . ' ,
. ,
As to ALIC and ALICNY c:. p; B ,,?; l i/ 1:: !L:: (a) The PPM was received by Mr Mark Senkpiel, the
i:;
investment director of the High Yield Division ..
i r: , ..
of ALIC. In that capacity Mr Senkpiel was /::: 6 .'. 1;
responsible for acquiring High Yield bonds on , .'
. 1: ' ,.
behalf of ALIC i'tself and other business units b!. I . . in the ALIC group including ALICNY. The PPM 1 :
(Documents 2 & 3) was received in November 6 p:,
1988 together with a video cassette being a ,' F; ; :,:.:
l,.?recording of the Roadshow Presentation given p. v-, :L;
. by Drexel and Fairfax in Los Angeles (Document L I I." 125A). .c:r; ; > . . 2"
L:: , .
(b) The PPM and the video cassette were reviewed L. and analysed by Ann Henderson and Mark
p: .. I:: I
Senkpiel. MS Henderson was then an investment ,<;. I 1:- analyst employed by ALIC in the High Yield p: . . : r Division and reported to Mr Senkpiel. MS :'.. C p . Henderson and Mr Senkpiel discussed the . t. : proposed transaction. MS Henderson made a X " number of calculations concerning the proposed , ' I .: 1 i. investment in Fairfax bonds and prepared an i ' L; l ; < analysis memorandum together with spreadsheet C.' F l ,., , analyses which were presented to Mr Senkpiel. G- i:;.
l;,: L .- v'.: L . : b.
These analysis documents were subsequently destroyed by MS Henderson. Mr Senkpiel had a number of discussions with Mr John Krasznekewicz from Drexel.
(C) In his discussions with Krasznekewicz Mr
Senkpiel sought comfort on two particular
issues being the amount of equity cover over
debt in the transaction and the foreign
exchange risk. Mr Senkpiel also discussed the
allocation of EARS. In respect of the first matter Mr Krasznekewicz made statements to Mr
Senkpiel to the following effect:-
(L) the assets were of considerable
value which was, as stated in the
PPM, well in excess of the total
debt. The assets were readily
saleable at prices equal to or
higher than those set out in the PPM
and a number of substantial.
investors including Robert Maxwell and Kerry Packer had already offered to acquire the assets or the company at those levels.
(ii the,foreign exchange risk was being reviewed by Drexel in discussions
with Fairfax and the company's
bankers and Drexel would endeavour
[ " . - . v '. :.* .'. -. ' .. p;:
to achieve some form of protection ...
in this area. , : : $ , .
p, .~ ,: .. ).='
t :_
(a) In December 1988, Mr Senkpiel was advised by ;1: Drexel that investors would be given L:,
; .:S i.:i .. , protection against foreign exchange movements t: L. .-
. : l
;.. , , , ' . b by the introduction of an instrument known as k."
"FEARS" .
l:;, ,. . .C ! $1;~ p,;
(e) In December 1988, Allstate were provided with
>:. :1
the document no. 4 in the Allstate Discovery. i ,
:k: S:.: C' *.'
(£1 Following discussion between MS Henderson and f;? l.. . 5: Mr Senkpiel, Mr Senkpiel decided to acquire r : K.; ," i: i
bonds in the amounts and on the dates set out .,v. i" L:.: ;.;.. in the Statement of Claim. c:: C.. 2:
, l 1- .
As to Executive c:> ?c; .. . . . V.'?. 1:;; , .:
(a) The PPM was received by Executive Life in mid- l;, : ; F : November 1988. ; 1: : 1 , : 2 , T i !i (b The PPM was reviewed and analysed by Mr 1' . I .
b . :~- Douglas Marcian who was then Senior Vice- K: 1' . President - Investments in charge of I <
r ~. ,.+: L:: investments and held that position from June :. requested a Roadshow presentation be made to
him and within a few weeks of receiving theof 1988 until April of 1991. Mr Marcian Drexel and Fairfax. To the best of his recollection, Mr Marcian believes the party included Mr Peter King, Mr Chris Anderson -
. . A . . . I. . . 7.
: " ~. 'L. -.
(both from Fairfax), Mr Bruce Raben (from ..." Drexel) and someone from Mr Bill Simon's firm ...: .. ., ... . . . which he understood were financial advisers to " 3 ...
Fairf ax. ; ..~
. . *.
, : :
. .. . . .
(C) Mr Marcian recalls that the Roadshow
~... :
presentation from Fairfax and Drexel referred
. ..
to above emphasised the high value and ready
.
....
liquidity of the assets as represented in the
PPM. Mr Marcian recalls being shown a number -. ..',
. .,~ of slides illustrating the asset values, :. earnings projections and other financial .. :. , matters and recalls being left with a hard .'.,, .- L... copy of the slides. Mr Marcian is no longer ..> . . employed by Executive and does not have a copy
t: .S,' , L > % .. ,
of this material. A thorough search of l::, &+
Executive's files does not reveal a copy of 1; : . . this material. Mr Marcian made a number of ;:1 ..c .... ., calculations in his analysis of the proposed . .. . .. . .
investment. These calculations were . .
. . . .. ;:.! .1.
subsequently destroyed by him or at his direction. ... ~p ... . -
.-
(a) Relying on the PPM and the Roadshow ,:.:
. .
.... . .. . .
presentation referred to above Mr Marcian ...
: : : 1 : recommended toLMr Carr the President of i'J' Executive that the bonds be purchased. In >- making this recommendation Mr Marcian relied h - i'. particularly upon the asset values stated in
F -,: the PPM and the fact, as represented to him in
: : F ... the roadshow, that there were buyers,
p:;
including Mr Robert Maxwell, ready willing and p: ~. able-to acquire the assets of Fairfax at .?. prices equal to or greater than those ,. :C, ., represented in the PPM. 1;
L ; ; r ~ . 1 :
Mr Marcian recalls discussing with Peter c"' Pc ! i , . Ackerman (of Drexel) the terms of the 1.: F; transaction. Mr Carr recalls negotiating a is. b.; greater proportion of EARS for Executive than
?t. l , . I' their investment in senior bonds would have ,,b. 1: <' l -
otherwise allowed. [I : l , Mr Carr agreed with Mr Marcian's
recommendation and Executive acquired $43.5 1 /. p million of senior bonds on 27 January 1989 and .
,, i: i : subsequently in March 1989 acquired a further
$28.5 million worth of senior bonds.As.to Western and Guarantee
(a)
Western and Guarantee were at all relevant times controlled by Transmark Inc. The
Chairman and chief executive of Western, i Guarantee and Transmark was at all relevant
l l times Mr Mark Sanford. The PPM was received by Mr Sanford in November 1988 and read by j 5 i him. ! i After reading the PPM, Mr Sanford discussed ! the proposed investment with Mr Roy Johnson
who was then the Drexel salesman assigned to
.%,
Transmark. Mr Sanford recalls Mr Johnson :'a :.. . . .~.
~<.. .* . .. making statements to the following effect:- .> .~ . .
t .. . . . .
(i
the asset values in the PPM were consistent with recent offers to
.
1
;
acquire the assets and the asset
values exceeded the total amount of
indebtedness by a considerable .
2
margin: ,:. (ii) the Fairfax assets were readily
saleable and the company could if
necessary be broken up and sold for
an amount equal to or greater than p: the stated asset values in the PPM. 12 l:..
,", ,-.: .... ..< . ,
(C) Relying on the representations made in the PPM
- .,
and re-emphasised by Mr Johnson, Mr Sanford
. . - .
caused Western and Guarantee to acquire the . . ...~. :-. bonds in the amounts and at the times set out ? in the Statement of Claim. ., ..
5. As to Prudential and USHY
...
.:.
. .,
-.
P
1 . .
(a) In November 1988 four or five copies of the . ,+' PPM were delivered to Prudential Insurance [li Company by Drexel and distributed amongst 1.3 \.,- several portfolio managers whose task it was l".: .1; to invest funds in high yield securities on
; ; 1 behalf of several funds and general accounts. 1 <: L The PPM was read by Mr Alan Klein, then the .:p senior.portf01io manager in the High Yield
L - <
t ...
area, Mr Peter Wilby, also a portfolio manager i : rp
,?l' i ': who reported to Mr Klein, and Mr Rich burns, a
!.p. F : '
II; media analyst who advised portfolio managers .. ,. t : .-* in both the High Yield and High Grade bond ,... : 2.: ... areas. Each of Messrs Klein, Wilby and Burns F.:.- . :
r>5 : 1. : carefully studied the PPM. Mr Burns analysed
i.. 5 W :- . the financial information in the PPM and i- L : : l:-.. created his own spreadsheet analysis of the t:.
proposed transaction together-with some
l:..
working papers. This analysis is no longer in
i < , : : i
the possession of Mr Burns, who has moved to a
l.
E.,.,
different position in Prudential and after a L:.. 2;
, : , L . diligent search the analysis and working , - P , I_;
: ". L , papers have not been found. The Fairfax file L 1.5 passed into the possession of another person , ~ ;k . !:I . by.; .. . after Mr Burns was moved into a different S - :.
: : p ;
, . .. . post.
t ?> .. . .I.: ., .
. .. , . .
(b) Following a request from Mr Alan Klein, on 17 S, ,
. .
November a Roadshow presentation was made by
/ I " officers of Drexel and Fairfax to Prudential I personnel including Messrs Klein, Wilby and
Burns. The Drexel personnel present included>,
. : . 5
Mr Bruce Raben. The Fairfax personnel present ,
. '. are believed to have included Mr Peter King b. l? and Mr Chris Anderson. (Further particulars [.it c. . L.:., on this point will be given following , . administration of interrogatories).
(C) Those making the presentation emphasised the
value of the assets of Fairfax and their
liquidity as stated in the PPM. The
Prudential personnel were told that Mr Alan
Bond had bid $800 million for The Age and that
Mr Maxwell had bid $810 million for The Age.
They were told by those making the
presentation that these and other parties were
ready willing and able to buy the assets which
could be readily sold for prices equal to or
greater than those set out in the PPM.(a)
The presentation included a series of slides and those present were given hard copies of
the slides. A copy of that document is document no. 46 in the Prudential discovery. (e)
Following the presentation, the Prudential personnel including Messrs Klein, Wilby and Burns discussed the presentation, the PPM and Mr Burns' analysis between themselves.
Subsequently, Mr Klein, relying on the representations in the'PPM as emphasised in. the presentation, acquired bonds on behalf of Prudential-Bache High Yield Fund andUS High Yield fund in the amounts and at the times set out in the Statement of Claim.
0