The Supreme Court has ended a more than decade-long legal battle for shareholders seeking compensation from the directors of a collapsed carpet company.
The top court dismissed a final application for leave to appeal last week by Eric Houghton, who represented 3639 claimants who had invested in shares in Feltex Carpets Ltd (Feltex).
The company, which had been valued at $250 million, listed on the New Zealand stock exchange in 2004 after an initial public offer at $1.70 a share. But the shares were effectively worthless just 18 months later when the company collapsed into receivership.
A shareholders class action seeking compensation from Feltex’s directors, sale promoter Credit Suisse Private Equity and vendor Credit Suisse First Boston Asian Merchant Partners was launched in 2008.
They claimed a loss suffered as a result of reliance on statements in the prospectus relating to Feltex shares.
However, on Thursday evening the Supreme Court, comprising of Justices Susan Glazebrook, Joe Williams and Mark O’Regan, declined to hear further arguments on the case and ordered Houghton to pay costs of $2500.
“Considerations of the justice of the case must take into account the interests of all of the parties, not just the applicant for leave,” the Supreme Court’s decision read.
“In that respect, we note the Court of Appeal’s assessment that it is contrary to the public interest to permit the proceeding to continue. This is because it would absorb the resources of the courts to the detriment of other litigants for a further (potentially lengthy) period. It would also cause prejudice to the respondents if the proceeding were revived with a result that it would continue into a thirteenth year.”
The lengthy history of the case included the proposal for the proceeding to be heard in two stages, the first being limited to a determination of whether any breach of the Securities Act 1978 or the Fair Trading Act 1986 had occurred.
“It was anticipated that if any breach was established, then the second stage trial would deal with issues of reliance and quantum of loss in respect of each claimant,” the Supreme Court’s judgment said.
Both the High Court and the Court of Appeal determined the claim failed at stage one. But the shareholders’ earlier appeal to the Supreme Court was partially successful and the top court found the prospectus contained an untrue statement which amounted to misleading conduct in breach of the Fair Trading Act.
The Supreme Court then referred the claim back to the High Court for a stage two trial to determine whether investors suffered loss due to the untrue statement and whether they were entitled to any remedy under the Fair Trading Act.
Houghton and the shareholders were then required to provide security for costs for the stage two trial, which was set down for a five-week hearing in November 2019.
The High Court ordered the security of $1.65m to be provided by July 12, 2019, but the money was not presented and the November hearing was scratched.
Feltex’s directors, Timothy Saunders, Samuel Magill, John Feeney, Craig Horrocks, Peter Hunter, Peter Thomas and Joan Withers, and Credit Suisse then applied to the High Court to strike out the class action.
In May last year the High Court ordered the proceedings be struck out with effect from 14 July 14, 2020, unless, the security was provided the day before. It also asked for senior counsel to confirm the shareholders were adequately resourced to prepare for and present all aspects of their stage two claims.
Houghton, however, appealed to the Court of Appeal against the “unless order” made
by the High Court. But the appeal failed after Houghton put forward alternative proposals of providing security for costs and funding the stage two trial.
The Court of Appeal said in its December ruling the applicant’s request for non-compliance with the unless order be excused failed “by a wide margin”.
This then lead to the Supreme Court’s final nail last week.
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