Houghton v Saunders
[2019] NZCA 285
•5 July 2019 at 10 am
| IN THE COURT OF APPEAL OF NEW ZEALAND I TE KŌTI PĪRA O AOTEAROA |
| CA578/2014 [2019] NZCA 285 |
| BETWEEN | ERIC MESERVE HOUGHTON |
| AND | TIMOTHY ERNEST CORBETT SAUNDERS, SAMUEL JOHN MAGILL, JOHN MICHAEL FEENEY, CRAIG EDGEWORTH HORROCKS, PETER DAVID HUNTER, PETER THOMAS AND JOAN WITHERS |
| Court: | French, Miller and Collins JJ |
Counsel: | C R Carruthers QC and P A B Mills for Appellant |
Judgment: | 5 July 2019 at 10 am |
JUDGMENT OF THE COURT
AThe first to third respondents must refund the appellant costs he paid to them in the amount of $156,250.85.
BThe appellant’s claim to recover the costs of an ATE insurance premium is not allowed.
CThe respondents must pay the appellant two thirds of scale costs calculated as for a complex appeal on a band B basis together with usual disbursements, to be fixed by the Registrar in the event of any dispute. We certify for three counsel.
DThere will be no award of costs in relation to this application.
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REASONS OF THE COURT
(Given by French J)
Introduction
The Supreme Court has directed this Court to determine costs in light of the Supreme Court’s decision allowing Mr Houghton’s appeal in part.[1]
[1]Houghton v Saunders [2018] NZSC 74, [2019] 1 NZLR 1 [Supreme Court Substantive Decision]; and Houghton v Saunders [2018] NZSC 112 [Supreme Court Costs Decision].
It is necessary first to briefly summarise the background. The proceeding is a representative proceeding brought by Mr Houghton on behalf of himself and approximately 3,000 shareholders against the former Feltex directors and others associated with a public float of shares in 2014. The claim centres primarily on the prospectus which the shareholders allege contained untrue and misleading statements. The relevant causes of actions are breach of s 56 of the Securities Act 1978 and breach of s 9 of the Fair Trading Act 1986.
The proceeding is funded by a litigation funder by way of an investment agreement with a London based entity. The London based entity has taken out an adverse costs insurance policy in relation to the proceeding.
The parties agreed to split the trial into two stages.[2] In the first stage, Mr Houghton’s own claim would be heard in its entirety, any ruling on specified common issues (that is, common to Mr Houghton and the other represented claimants) to be binding as between all other members of the represented class and the defendants. The second stage would be devoted to consideration of individual aspects.
[2]Houghton v Saunders [2012] NZHC 1828, [2012] NZCCLR 31.
Stage One was heard in the High Court by Dobson J. The Judge found against Mr Houghton.[3] Key findings were that none of the 80 alleged untrue and misleading statements in the prospectus was actionable under the Securities Act provisions as interpreted by the Judge,[4] and that because the relevant conduct was regulated by the Securities Act, the Fair Trading Act had no application.[5] The Judge also held that in the absence of a finding there was indeed one or more untrue statements in the prospectus, it would be inappropriate to make any definitive ruling on loss.[6]
[3]Houghton v Saunders [2014] NZHC 2229, [2015] 2 NZLR 74.
[4]At [533]–[539].
[5]At [629].
[6]At [712].
Mr Houghton appealed to this Court.
This Court dismissed his appeal.[7] It essentially upheld Dobson J’s reasoning in virtually all respects except two. The first was that it considered the prospectus did contain one untrue statement (relating to a forecast for year four) but it was not material and therefore not actionable.[8] Secondly, a majority found that as a matter of law the Securities Act did not preclude a claim under the Fair Trading Act but that on the facts the untrue statement was not material and therefore reliance would not be able to be established.[9]
[7]Houghton v Saunders [2016] NZCA 493, [2017] 2 NZLR 189.
[8]At [204].
[9]At [292]–[295] and [298].
The Court was not required to make any costs order relating to the appeal. That was because the parties negotiated an agreement under the terms of which Mr Houghton (via the litigation funder) paid costs and disbursements of $285,000 to be shared between all the respondents.
Mr Houghton then successfully obtained leave to appeal to the Supreme Court.
In its subsequent decision, the Supreme Court rejected Mr Houghton’s argument relating to causation which had also been rejected in this Court.[10] The Supreme Court further agreed with this Court that there was only one untrue statement.[11] However, it set aside this Court’s findings that the untrue statement did not give rise to liability under s 56 of the Securities Act and was not in breach of the Fair Trading Act.[12] It further held that materiality was to be assessed when considering whether any loss arose by reason of the untrue statement which was a Stage Two issue.[13]
[10]Supreme Court Substantive Decision, above n 1.
[11]At [369].
[12]At [372] and [375].
[13]At [371].
In allowing Mr Houghton’s appeal in part, the Supreme Court awarded him costs of $30,000.[14] He had sought costs of $75,000 for a three day hearing.[15] The Supreme Court did not detail how its figure had been calculated other than to note that Mr Houghton had not been entirely successful and that it had awarded costs of $45,000 in other three day hearing cases.[16]
[14]Supreme Court Costs Decision, above n 1, at [21].
[15]At [5].
[16]At [5] n 3 and [11].
The Court also directed that this Court should determine costs in light of its judgment if the agreement between the parties as to costs expressly or impliedly allowed for that possibility.[17]
[17]At [21].
It is common ground that the agreement does not preclude us from making an award of costs.
Finally, before turning to the parties’ respective positions on costs, we note that the fourth and fifth respondents Forsyth Barr and First Capital New Zealand are not part of the dispute. References to “the respondents” in this judgment should therefore be taken as referring only to the first, second and third respondents.
Mr Houghton’s application for costs
Mr Houghton now seeks:
(a)the refund of the costs paid under the agreement to the respondents less the share paid to Forsyth Barr and First Capital New Zealand. The refund sought amounts to $156,250.85; and
(b)costs and disbursements totalling $250,964.69. This figure has been calculated on the basis of scale costs for a complex appeal on a band B basis plus a 50 per cent uplift for complexity. The disbursements include a figure of $47,000 representing the cost of an After the Event (ATE) insurance premium.
The respondents’ position on costs
The respondents’ primary position is that reconsideration of the costs is premature and should be deferred until the outcome of Stage Two (now underway in the High Court) is known. Only then it submits can the significance of the respective wins and losses be properly assessed. It further submits that even allowing for the correction by the Supreme Court, the respondents still enjoyed the preponderance of success in the Court of Appeal and that Mr Houghton prosecuted his appeal in a way that caused unnecessary expense.
The respondents therefore oppose any refund and any award of costs. Alternatively, as a fall-back position, they submit that if there is to be a refund or an award these should be reduced.
The respondents also challenge the recoverability of some of the disbursements claimed. They accept these can be resolved by the Registrar with one exception, namely the claim for recovery of the ATE insurance premium.
Analysis
At first blush, the respondents’ plea for costs to be deferred might appear somewhat hypocritical given that they themselves were happy to seek and be paid costs. We accept they might well justify that on the basis they understood the decision in this Court to effectively mean there would be no Stage Two. However, more importantly, the Supreme Court was not prepared to defer costs, knowing Stage Two was still to come. And nor are we. We do not see any justification from departing from the approach taken in that Court. We note too that the High Court in its reconsideration of costs in that Court following the Supreme Court decision has similarly declined to defer costs.[18]
[18]Houghton v Saunders [2019] NZHC 1362 [High Court Costs Decision].
We also consider that although Mr Houghton exaggerates his success in this Court as corrected by the Supreme Court, the respondents significantly understate it. In particular, the respondents’ submissions fail to take account of the following paragraph in the Supreme Court Costs Decision:
[11] We accept that many arguments made by the appellant on appeal were not properly founded on the facts or pleadings. We also agree with the respondents that the appellant’s “but for” argument was a significant aspect of his case and of the representative claim and was rejected by this Court. On the other hand, the representative claim succeeded on a significant aspect of the case, the confirmation of the Court of Appeal’s finding that the FY04 revenue forecast was an untrue statement and the setting aside of that Court’s finding that no liability arose from that untrue statement under the Securities Act or the Fair Trading Act. Whether this Court’s decision on that issue ultimately leads to a successful outcome for the representative class and if so, to what extent, cannot yet be determined. But a costs award is required to recognise that success in relation to the issues before this Court. We consider an award of $30,000 is appropriate.
We consider those comments are apposite to the appeal in this Court and that Mr Houghton is accordingly entitled to a refund of the costs received by the respondents as well as an award of costs in his favour. However, we also consider that because there were mixed fortunes, Mr Houghton should not receive full scale costs. In our view, that is properly reflected by reducing scale costs by one third. Those costs should be calculated on the basis of a complex appeal on a band B basis. There is no justification for any uplift.
As regards the claim for recovery of the ATE insurance premium as a disbursement, that is governed by r 53 of the Court of Appeal (Civil) Rules 2005. It provides “that the Court may in its discretion make any orders that seem just concerning the whole or any part of the … disbursements of an appeal”. The word “disbursement” for the purposes of this rule has the same meaning as in the High Court Rules 2016,[19] namely “an expense paid or incurred for the purposes of the proceeding that would ordinarily be charged for separately from legal professional services in a solicitor’s bill of costs”.[20]
[19]Reference is made to the definition in the High Court Rules 2016 in the Court of Appeal (Civil) Rules 2005, r 53H(2)(a)(ii).
[20]High Court Rules, r 14.12(1)(a).
Contrary to the respondents’ submissions, we consider the ATE insurance premium is capable of being categorised as an expense reasonably paid or incurred by Mr Houghton for the purpose of the appeal. However, regardless of whether we are right or wrong on that point, we would not allow recovery because in our view recovery would not be in the interests of justice.
In coming to that conclusion, we have been influenced by the approach taken in other jurisdictions, in particular the United Kingdom. In the United Kingdom, there used to be a statutory provision which specifically allowed recovery of insurance premiums by way of costs.[21] However, the relevant section was repealed following a comprehensive review of civil procedure rules.[22] The review found recoverability of ATE insurance premiums imposed disproportionate cost burdens on defendants, while plaintiffs were able to litigate essentially risk free. The current position in the United Kingdom is that ATE premiums cannot be recovered from the defeated party and must be borne by the insured.[23]
[21]Access to Justice Act 1999 (UK), s 29 (now repealed).
[22]Jackson Review of Civil Litigation Costs: Final Report (Ministry of Justice (UK), December 2009).
[23]See for example McGraddie v McGraddie (No 2) [2015] UKSC 1, [2015] 1 WLR 560.
Mr Houghton suggested Canadian judges had been more receptive to allowing recovery. However all but one of the Canadian cases he relies upon concern security for costs and are not directly on point.[24] In fact, there appears to be only one Canadian decision — a decision of the Ontario Supreme Court of Justice — where recovery of an ATE premium has been allowed.[25] However, the decision appears to be very much an outlier and subsequent decisions including decisions of the Ontario Supreme Court of Justice have declined to follow it.[26]
[24]Alary v Brown 2015 ONSC 3021; Gotz v 1392275 Ontario Inc 2016 ONSC 2688; and Bodreau v TMS Lighting 2017 ONSC 6188.
[25]Armstrong v Lakebridge Resort Ltd 2017 ONSC 6565.
[26]See for example Little v Floyd Sinton Ltd 2018 ONSC 3165. The respondents also referred to a number of decisions in which ATE premiums were previously found to not be recoverable, namely Markovic v. Richards 2015 ONSC 6983; Foster v Durkin 2016 ONSC 684; Valentine v Rodriguez-Elizalde 2016 ONSC 6395; and Wynia v Soviskov 2017 BCSC 195.
In his recent High Court costs decision in this proceeding, Dobson J described it as being patently unfair that unsuccessful defendants should have to meet significant additional costs to cover a claimant group’s insurance against the prospect of their losing.[27] We agree. In the words of r 53 of the Court of Appeal Rules, an order to that effect would not seem just and therefore we decline to make it.
[27]High Court Costs Decision, above n 18, at [62].
The other disbursements in dispute are one airfare, the amount claimed for accommodation and also photocopying. These are to be resolved by the Registrar, if the parties continue to be unable to resolve them between themselves.
Outcome
The first to third respondents must refund the appellant the costs he paid to them in the amount of $156,250.85.
The appellant’s claim to recover the cost of an ATE insurance premium is not allowed.
The respondents must pay the appellant two thirds of scale costs calculated as for a complex appeal on a band B basis together with usual disbursements, to be fixed by the Registrar in the event of any dispute. We certify for three counsel.
There will be no award of costs in relation to this application.
Solicitors:
Wilson McKay, Auckland for Appellant
Russell McVeagh, Wellington for the First to Third Respondents
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