Defendants challenge investors
A critical Court of Appeal hearing is being held in Wellington this week in the $150 million representative action of 3000 shareholders of Feltex against the failed carpet maker's former directors and others.
The defendants in the case are appealing to the Court of Appeal against some decisions by Justice Christine French in the High Court last year. They relate to her decisions to allow the representative action to proceed, and timing and funding matters.
Most of the hearings in the representative action led by the plaintiff, Eric Houghton, have been in private, but the appeal this week is one of the few open to the public.
Houghton is alleging that the Feltex prospectus contained untrue statements and was misleading.
About 3000 shareholders who bought shares in the initial offering of Feltex shares to the public in May and June 2004 have joined his action.
He filed his action in February 2008 against the former directors at the time of the share offering, as well as against the sellers and promoters of the shares.
The defendants are the seven former directors of Feltex: Tim Saunders, former Feltex chairman Sam Magill, John Feeney, Craig Horrocks, Peter Hunter, Peter Thomas, and Joan Withers.
Other defendants include Credit Suisse First Boston Asian Merchant Partners, the sellers of the shares, First New Zealand Capital Securities and Forsyth Barr.
Houghton's senior counsel, Austin Forbes, said the defendants' appeals were against the lifting of the interim stay of the proceeding last year, against the court's rejection of the defendants' claim that Tony Gavigan and his company, Joint Action Funding, were not appropriate as funders of the legal action, and appeals against court decisions not to strike out certain part of the plaintiff's statement of claim.
One of the defendants, Credit Suisse, was arguing that each of the 3000 shareholders should have to file their own proceedings as well as having a representative claim, but the time had run out to do that now. "If that succeeded, the claim would be knocked out," Forbes said.
Under the Limitation Act, there was six years to file a claim from the time the cause of the legal action arose. Houghton had filed in time and Credit Suisse was saying the others had not.
"They are saying there should have been 3000 separate claims filed as well as a representative proceedings. They have gone on for 20-odd pages in submissions on it because it's a king hit if they succeed.
"My client's argument is that if that argument is right, it really defeats the whole purpose of filing a representative proceeding," Forbes said.
Under contention are issues about the timing of a claim under the Fair Trading Act.
It was related to the first claim of the plaintiff, and the act provided three years to file an action from the date when the loss suffered ought to reasonably have been discovered.
Forbes said there was a separate appeal against a High Court decision on November 30 last year which granted the plaintiff's request that the funding arrangements with Harbour Litigation in London and insurance related to that remained confidential and not made available to the defendants.
Last week, Justice French decided the main trial should be split into stage-one and stage-two hearings.
The first stage will hear the claims by Houghton that are common to all shareholders in the action, as well as those related only to him, and stage two will hear the separate and different claims of other shareholders.
But the timing for the stage-one hearing will not be determined until the Court of Appeal has decided on the appeal issues.
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