Timothy Ernest Corbett Saunders, Samuel John Magill, John Michael Feeney, Craig Edgeworth Horrocks, Peter David Hunter, Peter Thomas, Joan Withers v Eric Meserve Houghton

• Jurisdiction: New Zealand
• Judge: Harrison J
• Judgment Date: 23 November 2012
• Neutral Citation: [2012] NZCA 545
• Docket Number: CA191/2011 CA203/2011 CA204/2011 CA1/2012
• Court: Court of Appeal
• Date: 23 November 2012

Between

Timothy Ernest Corbett Saunders, Samuel John Magill, John Michael Feeney, Craig Edgeworth Horrocks, Peter David Hunter, Peter Thomas, Joan Withers

Appellants

and

Eric Meserve Houghton

First Respondent

and

Credit Suisse Private Equity Inc

Second Respondent

and

Credit Suisse First Boston Asian Merchant Partners LP

Third Respondent

and

First New Zealand Capital

Fourth Respondent

and

Forsyth Barr Limited

Fifth Respondent

And Between

First New Zealand Capital

Appellant

and

Eric Meserve Houghton

Respondent

And Between

Forsyth Barr Limited

Appellant

and

Eric Meserve Houghton

First Respondent

and

Timothy Ernest Corbett Saunders, Samuel John Magill, John Michael Feeney, Craig Edgeworth Horrocks, Peter David Hunter, Peter Thomas, Joan Withers

Second Respondents

and

Credit Suisse Private Equity Inc

Third Respondent

and

Credit Suisse First Boston Asian Merchant Partners LP

Fourth Respondent

and

First New Zealand Capital

Fifth Respondent

And Between

Credit Suisse Private Equity Inc

First Appellant

and

Credit Suisse First Boston Asian Merchant Partners LP

Second Appellant

and

Eric Meserve Houghton

First Respondent

and

Timothy Ernest Corbett Saunders, Samuel John Magill, John Michael Feeney, Craig Edgeworth Horrocks, Peter David Hunter, Peter Thomas, Joan Withers

Second Respondents

and

First New Zealand Capital Limited

Third Respondent

and

Forsyth Barr Limited

Fourth Respondent

And Between

Timothy Ernest Corbett Saunders, Samuel John Magill, John Michael Feeney, Craig Edgeworth Horrocks, Peter David Hunter, Peter Thomas, Joan Withers

Appellants

and

Eric Meserve Houghton

Respondent

[2012] NZCA 545

Court:

O'Regan P, Randerson and Harrison JJ

CA191/2011

CA202/2011

CA203/2011

CA204/2011

CA1/2012

IN THE COURT OF APPEAL OF NEW ZEALAND

Appeal from High Court decision challenging the approval of a representative order and litigation funding proposal and that represented parties were not time-barred — represented parties were shareholders — all shareholders' funds were lost and company placed in liquidation — first respondent brought individual proceeding within time under s4 Limitation Act 1995 (limitation of actions of contract and tort, and certain other actions) — approval of funder and funding arrangement one of four essential conditions requiring satisfaction before appropriate to lift an interim stay — whether approval properly given for first respondent to sue in representative capacity for all shareholders — whether litigation funding proposal properly approved — whether represented parties time-barred.

Counsel:

D J Cooper and C K Hatten for Appellants (CA191/2011)

D H McLellan for Appellant (CA202/2011)

A C Challis for Appellant (CA203/2011)

A S Olney and C J Curran for Appellants (CA204/2011)

A J Forbes QC and P A B Mills for Respondent Eric Houghton in all appeals

A The appeal in CA191/2011 is dismissed. The appellants are to pay costs for a standard appeal on a band B basis and usual disbursements to the respondent E M Houghton only. We certify for two counsel.

B The appeal in CA202/2011 is dismissed. There will be no order as to costs.

C The appeal in CA203/2011 is dismissed. There will be no order as to costs.

D The appeal in CA204/2011 is dismissed. The appellant is to pay costs for a standard appeal on a band B basis and usual disbursements to the respondent E M Houghton only. We certify for two counsel.

E The appeal in CA1/2012 is dismissed. There will be no order as to costs.

JUDGMENT OF THE COURT

REASONS OF THE COURT

(Given by Harrison J)

Table of Contents

	Para No
Introduction	[1]
Background	[7]
Directors' appeal	[16]
(a) Approval of representative action: litigation funding arrangement	[16]
(i) Introduction	[16]
(ii) High Court: 8 June 2011 judgment	[17]
(iii) Appeal grounds	[22]
(iv) Conclusion	[24]
(b) Striking out: manipulation of reported earnings	[38]
CSPE's appeal	[48]
(a) Limitation defence	[48]
(i) Introduction	[48]
(ii) Statutory instruments	[53]
(iii) Commonwealth authorities	[76]
Prudential Assurance Co v Newman Industries	[76]
Cameron v National Mutual Life Association	[87]
Fostif Pty v Campbells Cash & Carry Pty	[91]
(b) Standard of arguable case	[96]
(i) Introduction	[96]
(ii) High Court: 8 June 2011 judgment	[98]
(iii) Appeal grounds	[100]
(iv) Conclusion	[102]
Result	[107]

Introduction

1 Feltex Carpets Ltd was floated on the New Zealand Stock Exchange in May and June 2004. A large of number of entities purchased the shares on public offer. The float raised more than $250 million. By December 2006 Feltex was in liquidation and all shareholders' funds were lost.

2 Many investors who bought shares in the float, represented by the respondent in all five appeals, Eric Houghton, seek to recover their losses in a proceeding issued in the High Court against four separate categories of parties: they are Feltex's former directors, Messrs Timothy Saunders and others; the vendor of the shares, Credit Suisse First Boston Private Equity Inc (CSPE); the promoter, Credit Suisse First Boston Asian Merchant Partners LP; and the organising participant and joint lead managers of the share issue, First New Zealand Capital Ltd and Forsyth Barr Ltd. While some of these parties are cited as either appellants or nominally as respondents in these appeals, we shall refer to them collectively as the appellants throughout this judgment.

3 Mr Houghton commenced the proceeding in early 2008 but is still some distance from trial. In the interim French J has delivered a series of interlocutory judgments. 1 In Saunders v Houghton 2 ( Saunders v Houghton (No 1)) this Court dismissed appeals from one of those judgments except to strike out a claim for breach of fiduciary duty against all appellants. Among other things, this Court upheld Mr Houghton's entitlement to sue in a representative capacity for other Feltex shareholders and dismissed the appellants' challenge to the participation of a litigation funder, Joint Action Funding Ltd (JAFL). However, its decision was subject to satisfaction of certain conditions and the proceeding was remitted to the High Court to review an interim stay then in force.

4 Subsequently French J approved the existing representative order and a litigation funding proposal made by Mr Houghton. She lifted the interim stay, subject to satisfaction of certain conditions. 3 Based on information supplied confidentially by the funder, French J later approved Mr Houghton's actual litigation funding which had been arranged in accordance with his earlier proposal and in satisfaction of one of the existing conditions. 4 Both judgments are appealed. 5

5 The appeals fall into two distinct categories. In the first is the directors' challenge on behalf of all appellants to French J's approval of the representative order and the litigation funding proposal. In the second is CSPE's argument that the claims of most if not all represented parties are time-barred. Subsidiary arguments are raised by both groups.

6 Before considering the two categories of appeals in the same sequence we shall summarise the relevant background circumstances. The judgments delivered by French J and this Court provide the necessary chronological reference. We will return in more detail to particular judgments when we address the discrete issues arising on the separate appeals.

Background

7 At the time this proceeding was filed on 26 February 2008 Associate Judge Christiansen made a without notice order on Mr Houghton's application for directions (the representative order). The primary order was in the nature of a declaration that Mr Houghton sued as “… representative … of all shareholders and former shareholders in … [Feltex] … who acquired and/or beneficially owned shares in Feltex between 4 June 2004 and 31 March 2005 or thereabouts … and … suffered loss on that investment”; and it materially provided that Mr Houghton represented all those shareholders “… unless they elect to opt-out of the proceedings by 4 pm on 11 April 2008”. Details of the opt-out procedure were given. At that stage about 800 shareholders had signed a written consent to the proceeding being issued on their behalf.

8 The appellants sought to review and rescind the representative order. French J determined that challenge in her 7 October 2008 judgment where she summarised the nature of Mr Houghton's claims and the relief sought in these terms:

[16] The statement of claim identifies certain statements contained in the prospectus which it is alleged were misleading, and goes on to plead four causes of action:

• (i) Breach of s 9 of the Fair Trading Act 1986 as against all defendants.

• (ii) Breach of the Securities Act 1978 against the first defendant directors and the second defendant promoter.

• (iii) Tortious negligence against all defendants.

• (iv) Breach of fiduciary duty against all defendants.

During the course of the hearing, the plaintiffs indicated they propose amending the statement of claim so as to include an action for breach of statutory duty against all defendants and (possibly) an action in deceit, as well as extending the existing claim under the Securities Act so as to apply to all defendants.

[17] In respect of each cause of action as currently pleaded, the named plaintiffs allege the breach of the relevant duty caused them loss and damage, being the purchase price paid for the shares. The prayer for relief is the same for each cause of action and seeks the following remedies — a declaration as to liability, an order there be an inquiry into the loss and/or damage suffered by the plaintiffs and those whom they represent, together with a claim for interest and costs.

9 In her 7 October 2008 judgment French J materially held that:

• (a) the representative...