Media QCs duel over access to Stuff’s finances

NZME goes to court to try to breathe life into its disrupted bid for rival Stuff  - but Stuff's owner vows their agreed conditions couldn't be met and a deal won't happen. Tim Murphy was in court.

Australian media giant Nine Entertainment says its New Zealand subsidiary Stuff could suffer ongoing commercial harm if a judge intervenes to allow publisher NZME renewed access to Stuff's financial secrets.

Nine's lawyer John Dixon QC, told the High Court on Friday that NZME had no prospect of purchasing Stuff as Nine had terminated negotiations, but NZME wanted to gain insights into its major competitor so was seeking an injunction to force Nine back into offering due diligence on Stuff.

NZME went to court after it told the Government, Commerce Commission and stock markets on Monday that it wanted political and regulatory clearance to finalise by May 31 a $1 purchase of Stuff. That would create a local media company with almost all major newspapers, the two biggest news websites and radio and digital assets. Nine responded within 90 minutes that day saying it had ended all negotiations late last week with NZME and no deal was happening.

NZME told the market it had written to the Communications Minister Kris Faafoi and the commission about its intentions. Neither has commented publicly but agreeing to such a rapid turnaround on a sensitive political matter was seen by commentators this week as unlikely.

Lawyers for both companies sought broad suppressions on affidavits from their clients and others because of commercial sensitivity. Justice Sarah Katz ruled the media could report the high-level thrust of the arguments made and comments that did not refer to, or come from, the affidavits.

Dixon, whose team had less than a day to defend the injunction application, said Nine's view was that conditions agreed for a 14-day period of due diligence had or could not be met by NZME so had come to an end, with technically eight days remaining. The contract had been 'frustrated' in legal terms by changed circumstances.

"What they are asking really," he said of NZME's application to have the court enforce the rest of its due diligence opportunity, "is they keep getting insight into a business that they cannot acquire and [there's] no reasonable prospect of them being able to do so.

"That takes the futility to another level ... Not only is it futile to provide access to the due diligence, it is also harmful."

He said NZME had already made "use of its platforms to run down the business of Stuff" and its statement to the stock markets had been "entirely unnecessary. There was no purpose to that announcement and no need for it under NZX rules. It was simply designed to hurt its competitor."

Justice Katz asked what Dixon meant by saying the contract the two parties had for the due diligence period had been frustrated, as it was possible some deal could result, unlike the example in law of contract frustration where, say, a ship had sunk and could no longer deliver cargo. She asked if, rather, Dixon was arguing the "purpose" of the contract had been frustrated.

Dixon said the contract had been frustrated due to "impossibility, futility and a radical change in circumstances".

The futility was that the only point of the contract was "in provision of confidential material in furtherance of a deal which cannot be achieved .... There is no obligation to sell."

For NZME, Jack Hodder QC said Nine had no grounds to end the due diligence and thus negotiations without having fulfilled its commitments.

NZME would not be in court if it did not want to try to conclude the deal. 

He dismissed Dixon's claim NZME would somehow use access to Stuff financial information against its competitor. The due diligence dataroom that NZME wanted reopened by Nine was accessed only by lawyers for NZME and was for the purposes of deciding if NZME made an offer, improved an offer, or decided not to.

"The exercise is time-limited. If Nine adheres to the agreement and makes the data available, that time will expire. NZME has to decide what it is going to offer, if it is going to make an offer. Then Nine has freedom. But it has contracted away its preceding freedom."

The claim about using the information to cause harm was "unfortunate and simply misplaced".

What had been negotiated was still in place. "We say clearly there have been breaches and because contracts should be upheld then the court should act in the way sought in the interim injunction application," Hodder said. "Because Nine has declared itself free from any obligations to NZME, we have approached the court on an urgent basis because we do not know what Nine might do or when it might do it."

Justice Katz raised with Hodder the suggestion a restoration of the due diligence could be pointless "because it would be a going-through-the-motions exercise."

Hodder replied: "We cannot predict the future, so what happens in terms of due diligence and whether or not [it's] enough to justify making an offer, changing the offer .... these things remain in the future. They are not foregone conclusions."

He said his client was committed to going through with what it said it would. "If NZME had given up on the exercise we would not be here. NZME has not given up on the exercise."

The frustration of contract claim by Dixon was a "last resort argument" and a diversion from the fact Nine had not abided by its legal obligations.

Justice Katz reserved her decision on this interim injunction application until Monday, with a delay until Tuesday before it becomes public so the parties could prepare for announcements to the stock markets.

She offered to set a timetable for a substantive hearing of the full injunction application, perhaps indicating the matter is destined for further court hearings, legal costs and delays. 

NZME's May 31 deadline, already unlikely, appears unfeasible. If it loses this interim injunction application on Monday, its bid for Stuff seems dead. If it wins the interim injunction judgment, that leads to a further court hearing to put its full case for forcing Stuff to open up again.

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