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Houghton v Saunders

Houghton v Saunders

Case [2016] NZCA 493 12 October 2016

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IN THE COURT OF APPEAL OF NEW ZEALAND

CA578/2014
[2016] NZCA 493

BETWEEN

ERIC MESERVE HOUGHTON
Appellant

AND

TIMOTHY ERNEST CORBETT SAUNDERS, SAMUEL JOHN MAGILL, JOHN MICHAEL FEENEY, CRAIG EDGEWORTH HORROCKS, PETER DAVID HUNTER, PETER THOMAS AND JOAN WITHERS
First Respondents

CREDIT SUISSE PRIVATE EQUITY INC
Second Respondent

CREDIT SUISSE FIRST BOSTON ASIAN MERCHANT PARTNERS LP
Third Respondent

FIRST NEW ZEALAND CAPITAL
Fourth Respondent

FORSYTH BARR LIMITED
Fifth Respondent

Hearing:	11–14, 18 April 2016
Court:	Ellen France P, Randerson and Winkelmann JJ
Counsel:	C R Carruthers QC, P A B Mills and G R Abdale-Weir for Appellant A R Galbraith QC, D J Cooper and S V A East for First and Third to Seventh named First Respondents T C Weston QC for Second named First Respondent J B M Smith QC, A S Olney and C J Curran for Second and Third Respondents D H McLellan QC and J S Cooper for Fourth Respondent A C Challis and D P Turnbull for Fifth Respondent
Judgment:	12 October 2016 at 11 am

JUDGMENT OF THE COURT

AThe appeal is dismissed.
BCosts memoranda to be filed in accordance with [314]–[317] of the judgment.

____________________________________________________________________

REASONS OF THE COURT

(Given by Winkelmann J)

Table of Contents

Para No
Relevant background  [6]
           Credit Suisse buys interest in Feltex  [6]
           Feltex’s trading history  [8]
           The decision to make an initial public offering of shares              [11]
           The prospectus is registered: 5 May 2004  [13]
           Due diligence  [22]
           Feltex’s performance post allotment  [24]
High Court proceedings  [32]
Case on appeal  [34]
Grounds of appeal relating to test under ss 55 and 56 of the SA        [37]
           Policy of the SA[42]
           Analysis  [43]
           Meaning of “untrue statement” and the materiality
           requirement  [46]
           Judgment  [47]
           The argument on appeal  [49]
Discussion of s 55  [51]
           Discussion of s 56  [57]
           Did the Judge err in his application of the prudent
           non-expert investor test?  [74]
           Judgment  [76]
           Analysis  [77]
Grounds of appeal relating to factual findings  [83]
           Undisclosed adverse trends and revenue forecast for FY04[84]
           Appellant’s argument  [84]
           Factual background  [87]
           Judgment  [93]
           Discussion  [99]
           FYO5 projection  [117]
           Factual background  [118]
           Judgment  [120]
           Analysis  [122]
           Tufting machines[125]
           SIP grants and page 85 of the prospectus  [145]
           Factual background  [145]
           Analysis  [149]
           Second bottom line  [151]
           Judgment  [160]        Analysis          [164]
           JLMs’ proposal to pay $9 million dividend for FYO4               [174]
           Discussion  [180]
           Equity incentive plan  [191]
           Judgment  [195]
           Discussion  [197]
           Conclusion on factual grounds of appeal  [204]
Ground of appeal: Due diligence defence  [205]
Ground of appeal: Judge erred in definition of promoter                 [214]
           JLMs’ role  [217]
           Judgment  [226]
           Argument on appeal  [229]
           Discussion  [238]
           The concept of promoter at common law  [238]
           The concept of promoter in the SA and its legislative history      [248]
           Our interpretation  [255]
           Do the JLMs fall within the definition of promoter?                [263]
           Professional capacity exception  [267]
           Credit Suisse  [274]
           Judgment  [275]
           Argument on appeal  [276]
           Discussion  [277]
Ground of appeal:…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

Continue reading Houghton v Saunders

Details

AGLC: Houghton v Saunders [2016] NZCA 493
Case: [2016] NZCA 493
Decision Date: 12 October 2016 at 11 am

CaseChat Overview and Summary

Mr Houghton, an investor in Feltex Carpets Ltd, commenced proceedings against the directors of Feltex, the vendor and issuer of the majority of shares offered in the IPO, and the joint lead managers of the IPO, alleging they were promoters of the prospectus. He sought to recover his investment on the basis that he and other shareholders had invested on the faith of a misleading prospectus. The High Court dismissed the proceedings. The Court of Appeal dismissed the appeal. Mr Houghton’s claims under the Securities Act 1978 (SA) and the Fair Trading Act 1986 (FTA) failed for the following reasons. The Court found that the Judge was correct to interpret the SA as requiring adequate and accurate disclosure to enable investors to make informed decisions. It found that the statutory definition of “untrue statement” in s 55 of the SA is an exhaustive definition. It found that the Judge was correct to require that the untrue statement be material. It found that the Judge correctly applied the prudent non-expert investor test. The Court found that the Judge’s factual findings were correct, including that the forecast revenue figures for FY04 and projected revenue figures for FY05 were not materially misleading. The Court found that s 63A of the SA and s 5A of the FTA do not have retrospective effect. The Court found that the Judge was correct to require the plaintiff to establish the loss he claimed.

Orders