Feltex case granted stay of proceedings

The High Court has agreed to a stay of proceedings in a case against the former directors and promoters of the Feltex 2004 share issue until the outcome of a Court of Appeal hearing.

But it has rejected other applications by the defendants for the production of certain documents by the plaintiffs in this case.

The judgment was issued yesterday by Justice French in the High Court in Christchurch.

Feltex investor Eric Houghton of Upper Moutere is bringing a case - on behalf of other investors - under the Fair Trading Act against seven directors of the failed carpet maker and other parties associated with the share issue in 2004.

The plaintiff claims the share prospectus contained untrue and misleading statements.

There are two other court cases against five former Feltex directors. This case is against seven former directors. One case is being taken by Feltex's liquidators, who have issued proceedings in the High Court seeking $41 million from the five former directors.

In another case, the five also face criminal charges, laid by the Registrar of Companies, in the Auckland District Court over their role in the demise of Feltex.

Justice French said the order for a stay of proceedings against all defendants applied only until the outcome of the Court of Appeal decision. The appeal may be heard in November.

She said her main reason for granting the stay was the need to avoid confusion and ensure the orderly conduct of proceedings.

To go to the next step would involve a court-approved communication to the Feltex shareholders inviting them to take part in a representative class action at a time when their representative status was subject to appeal.

All counsel accepted that there was a very real prospect the Court of Appeal might change the membership of the class, which would mean shareholders receiving another form. The potential for confusion had been exacerbated by the sending of an unauthorised form to shareholders earlier.

"It is doubtful that I would have ordered a stay had it not been for that and the first plaintiff's delay," Justice French said.

A stay would not prejudice the plaintiffs as far as time limitation issues. The plaintiffs filed a statement of claim in February last year and a representative order was made on an opt-out basis, meaning that Feltex shareholders who were within a specified class would automatically become claimants unless they expressly opted out of the proceedings.

The defendants applied to have the representative order rescinded. That and other applications were heard by Justice French in July last year. She dismissed their application for a halt to proceedings on the grounds of champerty, which is an illegal sharing in the proceeds of litigation by one who promotes it.

She also required the opt-out procedure to be replaced by an opt- in procedure. The first, second and third defendants are appealing against her decision to the Court of Appeal.

The main issue on appeal would be whether the first plaintiff, Mr Houghton, was entitled to sue in a representative capacity.

The first defendants were seven directors of Feltex.

They are listed in this case as Tim Saunders, Sam Magill, John Feeney, Craig Horrocks, Peter Hunter, Peter Thomas and Joan Withers.

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