Delaware Judge Blots NewsCorp's Happy New Year

22 December 2005

Chancellor William B Chandler III of the Delaware Chancery Court on Tuesday ensured that the start of 2006 will be less happy than clan Murdoch would have wished.

Chancellor Chandler partially upheld a petition from thirteen investor plaintiffs - who between them manage $300 billion in pension funds in Australia, Britain, the United States and the Netherlands - to sue News Corporation on five charges ranging from breach of contract to fraud.

Their complaint - which revolves around the Murdoch family's 'poison pill' defense against a potential hostile takeover by 19% shareholder John C Malone - accuses NewsCorp of reneging on an agreement to allow a shareholders vote on the issue. But last month, the company extended the pill for two more years "without a shareholder vote, in contravention of the board policy," according to court papers.

NewsCorp, for its part, argued that the case be dismissed, saying the board's policy was not irrevocable and could therefore be changed - a contention upheld in part by the judge who dismissed charges of fraud, misrepresentation and breach of fiduciary duty, while upholding the plaintiff's plea of breach of contract.

In his 26-page ruling Chancellor Chandler opined: "If a board enters into a contract to adopt and keep in place a resolution (or a policy) that others justifiably rely upon to their detriment, that contract may be enforceable, without regard to whether resolutions (or policies) are typically revocable by the board at will."

His Honour, however, expressed surprise that sophisticated professional investors had failed to negotiate "enforceable agreements to protect their interests."

For the plaintiffs, attorney Stuart Grant was in bullish mode: "From the very first day, all we said was they made a promise and they have to keep it. And the court now says that all we have to do is prove that News Corporation made a promise. The result will be that we win and the pill will be struck down as invalid."

Data sourced from New York Times; additional content by WARC staff