Court decides in favour of Rural Funds in Bonitas dispute

Vesna PoljakMarkets Editor

Feb 12, 2020 — 10.16am

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Listed agri-property group Rural Funds has succeeded in a legal dispute triggered by the publication of claims by a US activist short-seller which were found by the Supreme Court of NSW to be false and misleading.

Justice David Hammerschlag ruled in favour of the plaintiff in a judgment handed down on Wednesday. The matter was stood over to March 6 and damages will be awarded.

Bonitas Research LLC is founded by Matthew Wiechert and based in Texas; neither party defended the proceedings. Rural Funds Management is the manager and responsible entity of the ASX-listed Rural Funds Group real estate investment trust.

"The disseminations which Bonitas and Wiechert made were of the most serious kind," Justice Hammerschlag wrote in his judgement.

"Wiechert is no doubt a sophisticated operator. Yet, as has earlier been said, neither Bonitas nor Wiechert took the trouble to check with or enquire of RFM as to any of the matters which they broadcast. They had an obvious commercial interest in depressing the price. I have no difficulty in concluding that they did not care whether what they were saying was false."

Rural Funds sought compensation for alleged "loss and damage" it suffered from allegations published by Bonitas, and disputed by Rural Funds, which sent the Rural Funds share price 42 per cent lower last August 6. Rural Funds forcefully denied Bonitas' central claim that it grossly overstated the value of its assets.

Damages will not include profits earned by Bonitas through its short-selling activity.

Justice Hammerschlag found Bonitas and Mr Wiechert contravened sections 1041E, 1041F and 1041H of the Corporations Act, covering false or misleading statements, inducing persons to deal and misleading or deceptive conduct incurring civil liability.

He did not find that the plaintiffs established a breach of section 1041D, which covers the dissemination of information about illegal transactions, because the transactions referenced by Bonitas were not illegal.

The defendants also breached section 12DA(1) of the ASIC Act.

Justice Hammerschlag's judgement considered allegations made around asset values, conflicts of interest, compensation, revenue and rental income, the acquisition of J&F feed lots, and the departure of Rural Funds' company secretary.

In the course of its fight with Bonitas, the company also commissioned an EY report, which backed its assertion that there was no substance to Bonitas' allegations. EY was paid $385,000 and Rural Funds' legal team $134,815.42.

Texas-based Bonitas subsequently threatened to take legal action in the US against Rural Funds on defamation grounds. The Supreme Court had no opinion on the prospect or merits of US proceedings.