Fairfax chair’s testimony seen as problematic
Insider’s ‘mind-boggling’ rationale prompts $13.5M award to shareholders
Canadian investor Prem Watsa was “purposely forgetful” and offered a “mind-boggling” explanation in court testimony explaining why he backed a low-ball bid for a pulp mill in a sale to Resolute Forest Products Inc., a judge concluded in the seven-year-old case.
Testimony by Watsa, chair and chief executive officer of Fairfax Financial Holdings Inc., was so problematic it helped convince Montreal Superior Court Justice Michel Pinsonnault to award some Fibrek Inc. shareholders $13.5 million, plus interest.
Fairfax “was in a blatant conflict of interest situation,” the Quebec judge said in his ruling on Thursday. “Watsa’s testimony was so vague and filled with so many uncertainties, unlikelihood, unsubstantiated denials and contradictions that it is very difficult for the court to give credence to the affirmations and explanations of the witness whose memory appeared to be failing on the most crucial aspects of his testimony,” Pinsonnault said.
A spokesperson for Fairfax disputed the judge’s conclusions, and said the company may appeal.
“The decision distorts the facts, does not make business sense and unfairly characterizes Mr. Watsa’s testimony,” said Paul Rivett, Fairfax’s president. “All of Mr. Watsa’s statements were true and Fairfax acted throughout with honesty and integrity.”
The case centred around Resolute’s December 2011 offer for Fibrek. Fairfax was the most important shareholder and insider of both Fibrek and Resolute, according to the judgment, having helped both companies survive financial difficulties in 2010. Toronto-based Fairfax agreed to sell its 33 million shares to Resolute for $1 apiece — locking in a price dissenting shareholders considered low. The judge considered the fair value of shares to be $1.99, and found Watsa’s explanation for accepting less “mind-boggling.”
“It was obvious to the court that the witness was a reluctant witness not pleased to have to testify at the request of the dissenting shareholders’ lawyers who had accused Fairfax of being complicit with Resolute in the abusive hostile takeover bid scheme to the detriment and prejudice of the dissenting shareholders,” the judge said, adding that
“Watsa often appeared to be on the defensive and when pressed on crucial factual elements, the witness hastily took refuge behind ‘I do not remember’ or the like.”