Testimony by Watsa, chairman 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 C$13.5 million ($10.2 million), plus interest. Fairfax “was in a blatant conflict of interest situation,” the Quebec judge said in his Sept. 26 ruling.
“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 spokesman 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. We expect that the ruling will be appealed.”
The case centered 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 C$1 apiece -- locking in a price that dissenting shareholders considered too low. The judge considered the fair value of Fibrek shares to be C$1.99, and found Watsa’s explanation for accepting less “mindboggling”.“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 take-over bid scheme to the detriment and prejudice of the dissenting shareholders,” the judge said, adding that the court also found “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.”Watsa had decided that Fairfax would sell its Fibrek stake in February 2011, but didn’t want to do it on the open market, according to the ruling. So he seized the opportunity in May of that year to sell the stake to Resolute. The judge said the cash price was “of no significance” to Fairfax because it would convert the Fibrek shares into Resolute shares. The other shareholders were bound to a “conveniently” low cash price offered to and accepted by Fairfax, the judge said.Read more on Fairfax losses from Stelco, BlackBerryFairfax, whose holdings include insurance companies, media and BlackBerry Inc., is the largest shareholder of Montreal-based Resolute, whose shares have plunged 40% this year.