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On Tuesday 15 February, in the Supreme Court of New South wales Court Of Appeal, Mr Justice Priestly dismissed an application by NAB for leave to appeal against discovery orders by Mr Justice Einstein that the NAB diclose its e-commerce secrets to JMG.
National Australia Bank

$32 billion law suit against NAB – what next?

Key points

– NAB’s appeal bid fails in The Supreme Court of New South Wales Court of Appeal

– NAB’s lawyers escorts member of public from court

– NAB lets slip secret new e-commerce tack

– Share price?.? NAB slumps $1.9 billion since our story appeared.

– Analysts ?? Where are you??

– Auditors & sponsors? very well paid.

– Other media coverage ?.? Where is the big story?

Crikey updates you on the issues and how the NAB fared this last week in court against JMG and in the market.

Court Defeat

On Tuesday 15 February, in The Supreme Court of New South Wales Court of Appeal, Mr Justice Priestley dismissed an application by NAB for leave to appeal against discovery orders by Mr Justice Einstein that the NAB disclose its e-commerce secrets to JMG. The Court of Appeal found – no error of principle by trial judge -no ground for leave to appeal. It ordered – application dismissed with costs. For us non-lawyers, that means NAB lost and must pay JMG’s costs.

NAB must now finish discovering the e-commerce documents and hand them over to JMG. This will conclude a long battle by JMG’s legal team to get their hands on these documents. Presumably we will all find out at the trial starting in June this year why NAB so desperately wanted to keep them a secret.

Public Ejection?

On another legal front, it seems that the NAB has been trying to restrict JMG’s damages experts concerning certain confidential documents discovered by NAB. A judgement is pending on that one, probably this week. We’ll let you know the result.

Now readers will know that a basic tenet of our justice system is that courts are open to the public. That means you and I. No such thing as a closed court unless the judge says so. Central to the administration of justice you would say, and rightly so. Well yes, up to a point if you’re the NAB. Two weeks ago, certain NAB executives, including NAB’s Mr Michael Liley, were being cross-examined by JMG’s senior counsel. Seems like NAB’s defence team thought matters were far too confidential for the mere public to hear. In a bold and imaginative initiative, one of NAB’s solicitors from Freehill Hollingdale & Page took it upon himself to escort a member of the public from the court on 4 February. A gutsy move, but alas, one that backfired.

In one of life’s little ironies, the member of the public wasn’t just any member of the public; the person was there to exercise the public’s right to view the transparent administration of justice on the invitation of another Supreme Court judge. On Monday, in bringing this basic tenet of justice to the attention of the defendants, Mr Justice Einstein ordered his court would be closed only on his say so. Seems like he didn’t appreciate Freehills’ initiative.

Reassuring that even big firms and big defendants can’t take the administration of justice, or the public in this case, into their own hands.

NAB’s Secret New E-Commerce Tack

Crikey wondered what could have been so sensitive and confidential for NAB’s lawyers to usurp the role of the judge?

We’ve settled on the NAB’s hitherto supposedly secret new standalone e-commerce business.

Readers of Crikey’s piece last week, which follows on from this update, will know that NAB’s CEO Frank Cicutto has recently been in Europe talking to analysts (and institutional investors). A series of presentations by Mr Cicutto in North America followed. Judging from the $1.9 billion slump in NAB’s market value last week, this does not appear to have been an unqualified success. Although, it should be pointed out that many foreign institutions are dumping Australian blue-chips and rushing into hi-tech stocks. Ivor Ries wrote an excellent feature on this phenomenon in the Weekend Financial Review but NAB seems to be getting hit harder than the other banks and we reckon this litigation is a big factor in that.

Readers of Crikey’s piece last week will also know that NAB’s Liley disclosed under cross examination to the (open) court (now that His Honour has cleared up any misconceptions the NAB might have had about who gets to close courts and when) that NAB is putting its e-commerce and internet business into a separate business that Liley will be heading. Nothing wrong with that. Could be a good way to go. Why not try and re-position the NAB as the promoter of a stand-alone dynamic global e-commerce internet business? Analysts and investors may welcome it. Who knows, it may get a stratospheric valuation by the market and resuscitate the share price.

Well maybe, but wait a minute. If this new scheme is so important to NAB, why didn’t Frank trumpet it to the analysts and institutions in Europe and North America who make up about a quarter of NAB’s owners (and that doesn’t mean the mums and dads investors in Australia who make up about a quarter of NAB’s owners and who don’t get invited to these types of road shows).

Well if he did, they apparently weren’t overly attracted to it. If he didn’t, they’ll probably be wondering why? Presumably Frank knew about it because he made much of the various e-commerce initiatives he is pursuing when addressing shareholders at the AGM last December. Ironically, the separate e-commerce structure is what was required in the original contract between NAB and JMG. Belatedly they are going down that track, but no doubt will argue any damages payable to JMG are related to only a tiny part of the e-commerce business.

NAB’S Media Relations All At Sea

Let’s hope they get around to telling the market in the near future. Ever since long-serving and respected NAB media spokesman Haydn Park has been moved sideways by Frank and Ron Burke, the bank has even struggling in its dealings with the media. Just look at the complete bath they took on A Current Affair a few weeks back when a new fees strategy was leaked before the bank was ready. The new flak took a complete bath, thousands of customers thought they would be charged for ringing up and inquiring about an account and eventually it was withdrawn with the GST used as an excuse. Crikey’s spy inside the NAB has told us this is bollocks and it was withdrawn because NAB took a bath in the media.

Share Price ?..?

NAB’s share price closed on Friday 18 February $1.27 lower than the week before. That’s only $1.9 billion down on the week and about $14.8 billion, or about 33%, down over the last 10 months. Crikey. Where will it end?

Analysts?? Where Are You?.?

And whilst we’re on the subject of shareholder disclosure and value creation, NAB-style, we’re puzzled at the deafening silence from the professional broking analysts. Maybe they just missed this 33% slump in the share price over the last 10 months? “Buy for long term growth”?; “hold and accumulate”? “accumulate on weakness”? “higher interest rate fears”? – such tradition from these inside the tent gurus.

Let’s hear it from some of the major broking houses with serious and well respected research divisions. Naturally, any commercial benefits, like fees and brokerage amounts earned from NAB affiliations, will be disclosed. Important that shareholders and prospective investors get “the whole story”, just like John Laws wanted to deliver “the whole story”.

Maybe even the ASX could dust off its continuous disclosure rules and see if any of them should have been applied to the NAB over the last 10 months or so? Exactly what has NAB told the market about this court case in recent months? Not much and certainly not enough.

Auditors & Sponsors ?.?

Crikey almost forgot. Sign off from Channel Nine’s Business Sunday program this week reminded us that it was sponsored by KPMG. Which in turn reminded Crikey about something. Ah yes, that was it – the National Income Securities prospectus on NAB’s $2 billion raising last year. On page 60 it disclosed that KPMG was “paid audit fees of approximately $9.7 million over the past two years before the date of lodgement of this Prospectus. During this period, KPMG has also acted as taxation advisers and provided accounting assistance and other services to the National for which normal professional fees have been paid. The National has paid or agreed to pay approximately $8.9 million for these services to the date of lodgement of this Prospectus”. Not bad work if you can get it – $18.6 million. But well done, it was disclosed – unlike the $32 billion JMG case. Maybe there just wasn’t room for that many numbers in the Prospectus and disclosure of that item had to be held over to the Annual Report – a few months later.

Other Media Coverage?.?

Crikey didn’t see too much reporting in the print or electronic media of NAB’s $1.9 billion share price slump since we went live with our story at 2.30pm on Valentines Day.

The one exception was in the Financial Review on Thursday which carried the following paragraph in explaining why NAB’s share price was on the slide:

“Several analysts also highlighted legal action brought against the bank by Idoport Pty Ltd and Market Holdings Pty Ltd as a factor contributing to the share performance. The plaintiffs are suing the bank for up to $US21 billion.”

Could it be that Crikey has actually moved the NAB share price? That analysts and shareholders read the story and realised the bank could be in a spot of trouble. If Crikey has moved the share price, it is only because the NAB has successfully managed to hush up the mess they potentially are in. Analysts are not lawyers and don’t understand the legal process very well. After reading our story it seems that a few of them are getting concerned but are reluctant to say so publicly. As usual, it is the foreign institutions that are leading the charge and they have been well briefed on the situation, but not by NAB. The campaign being waged against the NAB goes way beyond your standard court case. Stay tuned for more drama on this front.

Peter Fray

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