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

JurisdictionNew Zealand
CourtCourt of Appeal
JudgeHarrison J
Judgment Date23 Nov 2012
Neutral Citation[2012] NZCA 545
Docket NumberCA191/2011 CA203/2011 CA204/2011 CA1/2012

[2012] NZCA 545

IN THE COURT OF APPEAL OF NEW ZEALAND

Court:

O'Regan P, Randerson and Harrison JJ

CA191/2011

CA202/2011

CA203/2011

CA204/2011

CA1/2012

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
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

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.

Held: The appeal in relation to the approval of the representative order and litigation funding proposal could not succeed. The CA's directions in Saunders v Houghton (No 1) were expressed in wide discretionary terms. Approval of the funder and funding arrangement was one of four essential conditions requiring satisfaction before it was appropriate to lift an interim stay. It was within the Judge's discretionary powers to extend the time for satisfaction (subject to a progress report condition).

In Saunders (No 1) the clear direction of the CA was that H should be given every possible opportunity to find a suitable litigation funder. The Judge was entitled to give weight to JAFL's advice that it was in promising negotiations with a London based funder; and to conclude that H and the representees should not be prejudiced by any delay until an actual funder was found. Any countervailing prejudice to the appellants was balanced by requiring H to provide $200,000 security for costs, since until that condition was satisfied the stay remained in place.

While H's funding agreement had been with JAFL throughout, the Judge was properly concerned with the financial standing and repute of the ultimate funder (“HLIF”) and that entity was appropriately the focus of the Judge's enquiry. Judicial events had largely overtaken the appellants' challenge to JAFL's participation because of its financial insufficiency. The litigation funding agreement between HLIF and JAFL complied with the United Kingdom Code of Conduct for Litigation Funders (a comprehensive instrument which carefully regulated the legal relationship) and contained sufficient termination and reporting provisions.

Much of JAFL's alleged misconduct was of peripheral or marginal importance for the conduct of this proceeding. HLIF's insurance arrangements were sufficient to indemnify H against an adverse costs order. There were adequate funding arrangements in place for H and the represented class; the directors were adequately protected should a costs order be made in their favour. The litigation funding agreements did not constitute an abuse of process.

In terms of the refusal to strike out a cause of action alleging manipulation of earnings by Feltex (based on practice of forward invoicing retailers), H was on notice that he had a significant hurdle to cross if he was to prove such claim. The Judge was entitled to conclude that cause of action passed the arguability threshold by a narrow margin and was not appropriate for strike out.

The conjunctive effect of s4 LA and r4.24 High Court Rules (“HCR”) (persons having same interest) was that H brought an action for all qualifying Feltex shareholders when he filed the proceeding against the appellants within the limitation period. There was an absolute prohibition against filing a proceeding after the relevant limitation period had expired (s4 LA).

The representative order was effective from the date on which it was made. It did not impose any limitation on the scope of representation and it was not restricted to the threshold element of breach of duty. It extended expressly to representation of shareholders who suffered loss on their investments. Consistent with the terms of r4.24 HCR, H was nominated as the plaintiff in his capacity as representative; no other parties were joined as plaintiffs.

The appellants' submitted that a representative order created a res judicata on the common issue, but the order did not mean that the representees were “parties” to the representative proceeding or that the representees had had an action “brought” for the purposes of s4 LA. Acceptance of this submission would largely negate the purpose of r 4.24. If it were adopted in a case like this, where the threshold issue of breach had not been determined before expiry of the limitation period, multiple proceedings would be necessary and statutory objective of securing a just, speedy and inexpensive determination of a proceeding would be nullified. Potentially there would be 6,000 separate proceedings with all the filing, discovery and other interlocutory activity that required.

Also, a res judicata would arise on the threshold issue of breach. It was plain that determination of the issue of breach would be the principal battleground at trial. Reliance was likely to be argued within relatively confined evidential parameters; and the measure of loss would be common to all shareholders. Requiring each shareholder to file a separate proceeding to resolve those two consequential issues would be pointless.

Further the submission did not conform to the plain meaning of the statutory instruments. The central issue under s4 LA was to determine when the action was “brought”. In terms of r 4.24, H was acting for and on behalf of the represented class. In terms of s4 LA, H “brought” the proceeding when he filed it, not only for himself but for all within the represented class. That he was the only nominated plaintiff was irrelevant.

There was a policy objection to the submission. When analysed it was reduced to a dispute about case management. Limitation provisions protected parties against the risk of stale claims or endless litigation. In this case, the appellants knew well within the limitation period that they faced potential claims by all Feltex shareholders and were able at that point to identify their risk and potential exposure. Moreover the statement of claim included five causes of action with fully particularised allegations giving rise to liability.

It was true that an opt-in or opt-out mechanism for a representative claim without a final date could create uncertainty. A date would normally be imposed after which no more qualifying persons could opt-in or out. However this was a condition of participation, not an essential term of the representative order.

The text, policy and practicalities of the relevant legislative instruments confirmed that the statutory limitation period stopped running for all represented persons when a representative order was made. This meant that the purposes of the Limitation Act would continue to be met in the representative context. A represented person who opted-out or failed to opt-in by the stipulated date would then be subject to the limitation provisions in the normal way.

There was a draft New Zealand Class Actions Bill (as at 14 November 2008) which had not yet been introduced to Parliament. Clause 14 addressed limitation periods and provided that the running of the limitation period applying to a class member was suspended when the class action was commenced. In an opt-out class action, the limitation period began to run again for the individual member's claim only if that member opted-out or the class action terminated without finally disposing of the class member's claim. In the case of an opt-in action, the limitation period began to run again for the individual member's claim only if the member ceased to be a class member of the action or the class action terminates without finally disposing of the class member's claim.

The Bill anticipated that a class action could be brought as long as there was at least one...

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12 cases
  • Waterhouse v Contractors Bonding Ltd
    • New Zealand
    • Supreme Court
    • September 20, 2013
    ...as commenting on the approach taken in the Saunders litigation. A summary of the Saunders litigation is provided in Saunders v Houghton [2012] NZCA 545, [2013] 2 NZLR 652 at 30 There may be exceptional cases where a court has to act on its own motion to prevent an abuse of its processes. 31......
  • Credit Suisse Private Equity LLC v Eric Meserve Houghton
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    • April 9, 2014
    ...13Houghton v Saunders [Lifting Stay] (2011) 20 PRNZ 509 (HC). 14 At [232]. 15 At [231] and [234]. 16 At [93]. 17Saunders v Houghton [2012] NZCA 545, [2013] 2 NZLR 652 (O'Regan P, Randerson and Harrison JJ) [ Saunders v Houghton (No 2)]. 18 At [85]. 19Section 4(1) of the Limitation Act 1950 ......
  • Steigrad v Bfsl 2007 Ltd and Others Coa
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  • Cooper v Anz Bank New Zealand Limited
    • New Zealand
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    • October 25, 2013
    ...CIV-2008-409-348, 8 June 2011 at [74] – [75]. Saunders v Houghton [2009] NZCA 610 at [32] – [34] and [63]. See also Saunders v Houghton [2012] NZCA 545 at [31] – The Plaintiffs no longer seek the order referred to in [1](d) of their application. [11] In [1](e) of their application, the Plai......
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