Credit Suisse Private Equity LLC v Eric Meserve Houghton

• Jurisdiction: New Zealand
• Judge: Elias CJ,Anderson J,McGrath,Glazebrook,Arnold JJ,Glazebrook J
• Judgment Date: 09 April 2014
• Neutral Citation: [2014] NZSC 37
• Docket Number: SC 100/2012
• Court: Supreme Court
• Date: 09 April 2014

[2014] NZSC 37

IN THE SUPREME COURT OF NEW ZEALAND

Court:

Elias CJ, McGrath, Glazebrook, Arnold and Anderson JJ

SC 100/2012

Between

Credit Suisse Private Equity LLC

First Appellant

Credit Suisse First Boston Asian Merchant Partners LP

Second Appellant

and

Eric Meserve Houghton

First Respondent

T E C Saunders & Ors

Second Respondents

First New Zealand Capital

Third Respondent

Forsyth Barr Limited

Fourth Respondent

Counsel:

A S Olney and C J Curran for Appellants

A J Forbes QC, P A B Mills and T J P Gavigan for First Respondent

D J Cooper for Second Respondent

D H McLellan QC for Third Respondent

No appearance for the Fourth Respondent

Appeal from a Court of Appeal decision that held that the making of a representative order under r4.24 High Court Rules (“HCR”) (persons having the same interest) meant that those represented under the order had brought an action for the purposes of the limitation periods under the Limitation Act 1950 and the Fair Trading Act 1986 — first respondent was bringing a representative action on behalf of Feltex Carpets Ltd shareholders relating to a public offering of shares in 2004 — appellant argued that the represented shareholders had to file separate proceedings before the expiry of the relevant limitation periods for issues particular to each shareholder (such as reliance and loss) — whether the only effect of a representative order was that there was res judicata on the common issues decided in the representative proceedings and claims relating to any individual issues had to be brought through individual proceedings before the expiry of limitation periods — whether claims for damages in representative proceedings were limited to situations where total liability could be readily established as a global sum and the amount due to individual represented persons was uncontested — whether those who opted in to a representative proceeding in accordance with a direction of the court were represented from the time of their consent or from the time the proceeding itself was filed for statutory limitation purposes.

A The appeal is dismissed.

B Costs of $25,000 are awarded to the first respondent plus usual disbursements (to be set by the Registrar if necessary). The appellants and the second and fourth respondents are liable jointly and severally for the costs and disbursements. We certify for second counsel.

JUDGMENT OF THE COURT

REASONS

Table of Contents

	Para No
Reasons of Elias CJ and Anderson J (given by Elias CJ)	[1]
Reasons of McGrath, Glazebrook and Arnold JJ (given by Glazebrook J)	[84]

Elias CJ AND Anderson J

(Given by Elias CJ)

1 By r 4.24 of the High Court Rules, a person may bring a claim on behalf of others with “the same interest in the subject matter of a proceeding” only with the consent of those with the same interest or “as directed by the court on an application made by a party or intending party to the proceeding”. If consent has been given, the plaintiff may file a representative claim as of right. Without consent, a representative claim requires the direction of the court. The two issues raised by the appeal are:

• (a) is a representative proceeding confined to issues common to the plaintiff and the parties represented (on which declaratory findings will set up res judicata on the common issues as a platform for further claims), so that matters of difference between those represented (going, for example, to questions of reliance and loss) must be pursued in separately constituted proceedings, themselves brought within the statutory limitation periods applicable?

• (b) are those who opt in to a representative proceeding in accordance with a direction of the court under r 4.24 represented from the time of their consent or from the time the proceeding itself was filed for statutory limitation purposes?

Summary of appeal and conclusions

2 What constitutes “the same interest in the subject matter of a proceeding” under r 4.24 is assessed purposively to allow the representative proceeding to be “a flexible tool of convenience in the administration of justice”. 1 It is sufficient if the party and those represented “have a community of interest in the determination of some substantial issue of law or fact”. 2

3 It was determined by the Court of Appeal in a judgment of 18 December 2009, not appealed, that the plaintiff, Mr Houghton, had sufficient commonality of interest with others who acquired shares in Feltex Carpets Ltd in a public offering of shares in 2004 to justify a representative proceeding. 3 The proceeding at issue in this case, in which the plaintiff Mr Houghton sued for himself and on behalf of others who acquired shares in Feltex in the initial public offering of shares in 2004, was filed in February 2008. 4 It claimed damages in respect of losses said to have been suffered as a result of particular statements in and omissions from the prospectus issued for the public offering of shares, which were made or omitted negligently or in breach of statutory duties under the Securities Act 1978 and the Fair Trading Act 1986. 5

4 The December 2009 conclusion of the Court of Appeal was however provisional on approval of an amended statement of claim by the High Court 6 and the imposition by the High Court of conditions relating to the conduct of the

representative proceeding. 7 The Court of Appeal noted that it had become “common ground” that the representative procedure was likely to be appropriate for the determination of whether the prospectus in issue complied with the law. 8 The Court considered that how to manage matters of difference, in particular any questions of reliance, could not sensibly be considered until the facts had been pleaded and proved. 9 The continuation of the representative proceeding was remitted to the High Court for further consideration. 10 In the meantime, an interim stay imposed on the proceeding in the High Court was to be maintained. 11

5 The present appeal is concerned with the next stage, in which the High Court in a decision of 9 March 2011 12 (for which reasons were provided on 8 June 2011 13) held that the representative order was to be maintained 14 and lifted the interim stay subject to conditions which included the provision of security for costs and the continuing supervision by the court of the conduct of the litigation funder. 15 The High Court considered that any differences between those represented on matters concerning reliance, causation, loss and limitation could not be resolved at the stage the proceeding had reached and that the Court of Appeal had not intended that they be revisited “at this stage”. 16 The decision of the High Court was upheld by a judgment of the Court of Appeal of 23 November 2012. 17 The Court of Appeal held that addressing differences between those represented was something to be undertaken as part of the case management of the proceeding and did not affect the suitability of the representative form of the action. 18

6 The judgment of the Court of Appeal is now appealed to this Court by Credit Suisse Private Equity LLC and Credit Suisse First Boston Asian Merchant Partners

LP. They are supported in their submissions on the appeal by the former directors of Feltex and, in written submissions, by Forsyth Barr Ltd. Counsel for First New Zealand Capital appeared but did not seek to be heard on the appeal. Mr Houghton supported the judgment of the Court of Appeal

7 First, it is contended by the appellants that the representative order meant that the proceeding was “brought” 19 on behalf of the represented shareholders only to the extent of the common interest in establishing breach of common law and statutory duties in the preparation of the prospectus for the public share offering. Judgment on the threshold issue of breach would establish res judicata binding on all claimants. It is argued by the appellants that the representative action cannot extend beyond the matters common to all shareholders and that, since the represented shareholders are not parties to the current proceeding but simply bound by its determination of the common issue, the present proceeding cannot be a vehicle for the individual claims for damages, which must be the subject of a separate proceeding. These are now said to be barred by statutory limitation periods.

8 As appears in the reasons given below, we consider that this argument is inconsistent with settled authority that representative claims are appropriately made under r 4.24 where some substantial question is common to a number of litigants or the claims of a number of potential litigants arise out of the same transaction or series of transactions. In such cases, requiring an additional separate proceeding for consequential issues which are individual or in respect of which any common interest is with a subgroup of those represented would be inconsistent with the “just, speedy, and inexpensive determination” of proceedings, which is the objective of the High Court Rules. 20 A view that damages claims are not suitable for representative actions is no longer held in New Zealand. Nor is identity of the cause of action necessary. Divergence, such as in assessing loss, can be managed by subsequent directions for joinder as parties of those represented, or by staging the hearing, or by

severance of the initial proceeding. Additional distinct proceedings are not necessary. Once a person is represented in a claim to the court, an action on behalf of that person has been brought for the purposes of the statutory limitations under the Limitation Act 1950 or the Fair Trading Act. In this conclusion we agree with the result reached by other members of this Court

9 The second question raised by the appeal concerns when an action has been “brought” on behalf of a person permitted by court direction to opt in to an existing proceeding. As already indicated, the...